1933 Act Registration No. 33-16905
1940 Act Registration No. 811-5309
As filed with the Securities and Exchange Commission on November 17, 1999
FORM N-1A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. | |
Post-Effective Amendment No. 43 |X|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 |X|
Amendment No. 43
FIRST AMERICAN INVESTMENT FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
OAKS, PENNSYLVANIA 19456
(Address of Principal Executive Offices) (Zip Code)
(610) 676-1924
(Registrant's Telephone Number, including Area Code)
JAMES R. FOGGO
C/O SEI INVESTMENTS COMPANY, OAKS, PENNSYLVANIA 19456
(Name and Address of Agent for Service)
COPIES TO:
Christopher O. Petersen
U.S. Bank - MPFP2016
601 Second Avenue South
Minneapolis, Minnesota 55402
Kathleen L. Prudhomme, Esq.
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, Minnesota 55402
It is proposed that this filing shall become effective (check appropriate box):
| | immediately upon filing pursuant to paragraph (b) of Rule 485
| | on (date) pursuant to paragraph (b) of Rule 485
| | 60 days after filing pursuant to paragraph (a)(1) of Rule 485
| | on February 1, 1999 pursuant to paragraph (a)(1) of Rule 485
|X| 75 days after filing pursuant to paragraph (a)(2) of Rule 485
| | on (date) pursuant to paragraph (a)(2) of Rule 485
<PAGE>
February 1, 2000
LARGE CAP FUNDS
CLASS A, CLASS B AND CLASS C SHARES
Balanced Fund
Equity Income Fund
Equity Index Fund
Large Cap Growth Fund
Large Cap Value Fund
First American
Investment Funds, Inc.
PROSPECTUS
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the shares of these funds, or determined if the
information in this prospectus is accurate or complete. Any statement to the
contrary is a criminal offense.
FIRST AMERICAN(R)
THE POWER OF DISCIPLINED INVESTING(R)
1 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
TABLE OF
CONTENTS
FUND SUMMARIES
- ------------------------------------------------------------------------
Balanced Fund
- ------------------------------------------------------------------------
Equity Income Fund
- ------------------------------------------------------------------------
Equity Index Fund
- ------------------------------------------------------------------------
Large Cap Growth Fund
- ------------------------------------------------------------------------
Large Cap Value Fund
- ------------------------------------------------------------------------
POLICIES & SERVICES
- ------------------------------------------------------------------------
Buying Shares
- ------------------------------------------------------------------------
Selling Shares
- ------------------------------------------------------------------------
Managing Your Investment
- ------------------------------------------------------------------------
ADDITIONAL INFORMATION
- ------------------------------------------------------------------------
Management
- ------------------------------------------------------------------------
More About The Funds
- ------------------------------------------------------------------------
Financial Highlights
- ------------------------------------------------------------------------
FOR MORE INFORMATION
- ------------------------------------------------------------------------
2 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
FUND SUMMARIES
INTRODUCTION
This section of the prospectus describes the objectives of the First American
Large Cap Funds, summarizes the main investment strategies used by each fund in
trying to achieve its objectives, and highlights the risks involved with these
strategies. It also provides you with information about the performance, fees
and expenses of the funds.
AN INVESTMENT IN THE FUNDS IS NOT A DEPOSIT OF U.S. BANK NATIONAL ASSOCIATION
AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR
ANY OTHER GOVERNMENT AGENCY.
3 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
FUND SUMMARIES
BALANCED FUND
OBJECTIVE
Balanced Fund's objective is to maximize total return (capital appreciation plus
income).
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Balanced Fund invests in a balanced portfolio of
stocks and bonds. The mix of securities will change based on existing and
anticipated market conditions. Over the long term, the fund's asset mix is
likely to average approximately 60% equity securities and 40% debt securities.
Under normal market conditions, the equity securities portion of the fund's
portfolio will be invested primarily (at least 75% of the total assets) in
common stocks of companies that cover a broad range of industries and that have
market capitalizations of at least $5 billion at the time of purchase.
The fund's advisor invests in equity securities it believes:
o are undervalued relative to other securities in the same industry or
market;
o exhibit good or improving fundamentals; and
o exhibit an identifiable catalyst that could close the gap between market
value and fair value over the next one to two years.
Up to 25% of the equity portion of the fund's portfolio may be invested in
securities of foreign issuers which are either listed on a U.S. stock exchange
or represented by American Depositary Receipts.
Under normal market conditions, the debt securities portion of the fund's
portfolio will be comprised of securities such as:
o U.S. government securities (securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities) including zero coupon
bonds;
o mortgage-and asset-backed securities; and
o corporate debt obligations.
In selecting debt securities for the fund, the advisor uses a "top-down"
approach, which begins with the formulation of a general economic outlook.
Following this, various sectors and industries are analyzed and selected for
investment. This is followed by the selection of individual securities.
4 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
The fund's debt securities will be rated investment grade at the time or
purchase or, if unrated, determined to be of comparable quality by the fund's
advisor. At least 65% of these securities will be either U.S. government
securities or securities that have received at least an A or equivalent rating.
The fund may invest up to 15% of the debt portion of its portfolio in foreign
securities payable in United States dollars. Under normal market conditions the
fund attempts to maintain a weighted average maturity for the debt securities in
its portfolio of 15 years or less and an average effective duration of three to
eight years.
To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions. It also may invest up to 25% of total assets in dollar roll
transactions. In a dollar roll transaction, the fund sells mortgage-backed
securities for delivery in the current month while contracting with the same
party to repurchase similar securities at a future date.
MAIN RISKS
The value of your investment in this fund will change daily, which means you
could lose money. The main risks of investing in this fund include:
RISKS OF COMMON STOCKS
Stocks may decline significantly in price over short or extended periods of
time. Price changes may occur in the market as a whole, or they may occur in
only a particular company, industry or sector of the market. In addition, value
stocks and/or large capitalization stocks may underperform the market as a
whole.
FOREIGN SECURITY RISK
Securities of foreign issuers, even when dollar-denominated and publicly traded
in the United States, may involve risks not associated with the securities of
domestic issuers, including the risks of adverse currency fluctuations and of
political or social instability or diplomatic developments that could adversely
affect the securities.
INTEREST RATE RISK
Debt securities typically decrease in value when interest rates rise. This risk
is usually greater for longer-term debt securities. One measure of interest rate
risk is effective duration, explained in the "More About the Funds -- Investment
Strategies" section. Income Risk.
The fund's income could decline due to falling market interest rates.
CREDIT RISK
An issuer of debt securities may not make timely principal or interest payments
on its securities,
5 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
or the other party to a contract (such as a securities lending agreement) may
default on its obligations.
CALL RISK
During periods of falling interest rates, a bond issuer may "call" -- or repay
- -- its high-yielding bonds before their maturity date. The fund would then be
forced to invest the unanticipated proceeds at lower interest rates, resulting
in a decline in the fund's income.
RISKS OF MORTGAGE- AND ASSET-BACKED SECURITIES
Falling interest rates could cause faster than expected prepayments of the
obligations underlying mortgage- and asset-backed securities, which the fund
would have to invest at lower interest rates. On the other hand, rising interest
rates could cause prepayments of the obligations to decrease, extending the life
of mortgage- and asset-backed securities with lower interest rates.
RISKS OF DOLLAR ROLL TRANSACTIONS
The use of mortgage dollar rolls could increase the volatility of the fund's
share price. It could also diminish the fund's investment performance if the
advisor does not predict mortgage prepayments and interest rates correctly.
FUND PERFORMANCE
The illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart shows you how performance of the fund's Class A shares has varied
from year to year. The performance of Class B and Class C shares will be lower
due to their higher expenses. Sales charges are not reflected in the chart; if
they had been, returns would be lower.
The table compares the fund's performance for Class A and Class B shares over
different time periods to that of the fund's benchmark index, which is a broad
measures of market performance. However, because Class C shares have not been
offered for a full calendar year, no information is presented for these shares.
The fund's performance reflects sales charges and fund expenses; the benchmark
is unmanaged and has no expenses.
Both the chart and the table assume that all distributions have been reinvested.
6 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
FUND SUMMARIES
BALANCED FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR
12.31% 0.79% 26.51% 17.76% 16.98% 10.47%
- --------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998 1999
BEST QUARTER:
Quarter ending: 6/30/97
Total return 10.08%
WORST QUARTER:
Quarter ending: 9/30/98
Total Return -5.78%
<TABLE>
<CAPTION>
Inception Since Inception Since Inception
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/99 Date One Year Five Years (Class A) (Class B)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balanced Fund (Class A) 12/14/92 _______% _______% _______% N/A
- -------------------------------------------------------------------------------------------------------------------------
Balanced Fund (Class B) 8/15/94 _______% N/A N/A _______%
- -------------------------------------------------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index(1) _______% _______% _______% _______%
- -------------------------------------------------------------------------------------------------------------------------
Lehman Gov't/Corp Bond Index(2) _______% _______% _______% _______%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) An unmanaged index of large capitalization stocks. The since inception
performance of the indexes for Class A and Class B shares is calculated from
12/31/92 and 8/31/94, respectively.
(2) An unmanaged index of Treasury securities, other securities issued or
guaranteed by the U.S. government or its agencies or instrumentalities, and
investment grade corporate debt securities. The since inception performance of
the indexes for Class A and Class B shares is calculated from 12/31/92 and
8/31/94, respectively.
7 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES Class A Class B Class C
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MAXIMUM SALES CHARGE (LOAD)
AS A % OF OFFERING PRICE 5.25%(2) 0.00% 1.00%
MAXIMUM DEFERRED SALES CHARGE (LOAD)
AS A % OF ORIGINAL PURCHASE PRICE OR REDEMPTION
PROCEEDS, WHICHEVER IS LESS 0.00%(3) 5.00% 1.00%
ANNUAL FUND OPERATING EXPENSES
AS A % OF AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------------------------------------------
Management Fees 0.70% 0.70% 0.70%
Distribution and Service (12b-1) Fees 0.25% 1.00% 1.00%
Other Expenses ____% ____% ____%
TOTAL ____% ____% ____%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. See "Additional Information --
Financial Highlights." The net expenses the fund actually paid after waivers for
the fiscal year ended September 30, 1999 were:
<TABLE>
<S> <C> <C> <C>
Waiver of Fund Expenses (____%) (____%) (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____% ____% ____%
</TABLE>
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 1.05%, 1.80% AND 1.80%, RESPECTIVELY, FOR
CLASS A, CLASS B AND CLASS C SHARES. FEE WAIVERS MAY BE DISCONTINUED AT ANY
TIME.
(2) Certain investors may qualify for reduced sales charges. See "Buying Shares
- -- Calculating Your Share Price."
(3) Class A share investments of $1 million or more on which no front-end sales
charge is paid may be subject to a contingent deferred sales charge. See "Buying
Shares -- Calculating Your Share Price."
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
8 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
<TABLE>
<CAPTION>
CLASS B CLASS B CLASS C CLASS C
assuming assuming no assuming assuming no
redemption redemption redemption redemption
at end of at end of at end of at end of
CLASS A each period each period each period each period
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 year $ 636 $ 693 $ 193 $ 391 $ 291
3 years $ 871 $ 997 $ 597 $ 691 $ 691
5 years $1,125 $1,226 $1,026 $1,116 $1,116
10 years $1,849 $2,027 $2,027 $2,300 $2,300
</TABLE>
9 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
FUND SUMMARIES
EQUITY INCOME FUND
OBJECTIVE
Equity Income Fund's objective is long-term growth of capital and income.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Equity Income Fund invests primarily (at least
65% of its total assets) in equity securities of companies which the fund's
investment advisor believes are characterized by:
o the ability to pay above average dividends;
o the ability to finance expected growth; and
o strong management.
The fund will attempt to maintain a dividend that will grow quickly enough to
keep pace with inflation. As a result, higher-yielding equity securities will
generally represent the core holdings of the fund. However, the fund also may
invest in lower-yielding, higher growth equity securities if the advisor
believes they will help balance the portfolio. The fund's equity securities
include common stocks and preferred stocks and corporate debt securities which
are convertible into common stocks. All securities held by the fund will provide
current income at the time of purchase.
The fund invests in convertible debt securities in pursuit of both long-term
growth of capital and income. The securities' conversion features provide
long-term growth potential, while interest payments on the securities provide
income. The fund may invest in convertible debt securities without regard to
their ratings, and therefore may hold convertible debt securities which are
rated lower than investment grade.
Up to 25% of the fund's total assets may be invested in securities of foreign
issuers which are either listed on a United States stock exchange or represented
by American Depositary Receipts.
To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.
10 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
MAIN RISKS
The value of your investment in this fund will change daily, which means you
could lose money. The main risks of investing in this fund include:
RISKS OF COMMON STOCKS
Stocks may decline significantly in price over short or extended periods of
time. Price changes may occur in the market as a whole, or they may occur in
only a particular company, industry or sector of the market.
INTEREST RATE RISK
Debt securities typically decrease in value when interest rates rise. This risk
is usually greater for longer-term debt securities.
CREDIT RISK
An issuer of debt securities may not make timely principal or interest payments
on its securities, or the other party to a contract (such as a securities
lending agreement) may default on its obligations.
RISKS OF NON-INVESTMENT GRADE SECURITIES
The fund may invest in securities which are rated lower than investment grade.
These securities, which are commonly called "high-yield" securities or "junk
bonds," generally have more volatile prices and carry more risk to principal
than investment grade securities. High yield securities may be more susceptible
to real or perceived adverse economic conditions than investment grade
securities. In addition, the secondary trading market may be less liquid.
FOREIGN SECURITY RISK
Securities of foreign issuers, even when dollar-denominated and publicly traded
in the United States, may involve risks not associated with the securities of
domestic issuers, including the risks of adverse currency fluctuations and of
political or social instability or diplomatic developments that could adversely
affect the securities.
FUND PERFORMANCE
The illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart shows you how performance of the fund's Class A shares has varied
from year to year. The performance of Class B and Class C shares will be lower
due to their higher expenses.
11 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
Sales charges are not reflected in the chart; if they had been, returns would be
lower.
The table compares the fund's performance for Class A and Class B shares over
different time periods to that of the fund's benchmark index, which is a broad
measures of market performance. However, because Class C shares have not been
offered for a full calendar year, no information is presented for these shares.
The fund's performance reflects sales charges and fund expenses; the benchmark
is unmanaged and has no expenses.
Both the chart and the table assume that all distributions have been reinvested.
12 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
FUND SUMMARIES
EQUITY INCOME FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR(1)
_____% _____% 22.73% 19.80% 27.53% 15.68%
- --------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998 1999
BEST QUARTER:
Quarter ending: 6/30/97
Total return 11.95%
WORST QUARTER:
Quarter ending: 9/30/98
Total return -7.74%
<TABLE>
<CAPTION>
Inception Since Inception Since Inception
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/99(1) Date One Year Five Years (Class A) (Class B)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Equity Income Fund (Class A) 12/18/92 ____% ____% ____% N/A
- --------------------------------------------------------------------------------------------------------------------------
Equity Income Fund (Class B) 8/15/94 ____% ____% N/A ____%
- -------------------------------------------------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index(2) ____% ____% ____% ____%
- --------------------------------------------------------------------------------------------------------------------------
Lehman Gov't/Corp Bond Index(3) ____% ____% ____% ____%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) First American Asset Management became the investment advisor of the Equity
Income Fund on March 25, 1994. Prior to the change, Boulevard Bank was the
investment advisor of the Fund.
(2) An unmanaged index of large capitalization stocks. The since inception
performance of the indexes for Class A and Class B shares is calculated from
12/31/92 and 8/31/94, respectively.
(3) An unmanaged index of Treasury securities, other securities issued or
guaranteed by the U.S. government or its agencies or instrumentalities, and
investment grade corporate debt securities. The since inception performance of
the indexes for Class A and Class B shares is calculated from 12/31/92 and
8/31/94, respectively.
13 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES Class A Class B Class C
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MAXIMUM SALES CHARGE (LOAD)
AS A % OF OFFERING PRICE 5.25%(2) 0.00% 1.00%
MAXIMUM DEFERRED SALES CHARGE (LOAD)
AS A % OF ORIGINAL PURCHASE PRICE OR REDEMPTION
PROCEEDS, WHICHEVER IS LESS 0.00%(3) 5.00% 1.00%
ANNUAL FUND OPERATING EXPENSES
AS A % OF AVERAGE NET ASSETS
- -------------------------------------------------------------------------------------------------------------------------
Management Fees 0.70% 0.70% 0.70%
Distribution and Service (12b-1) Fees 0.25% 1.00% 1.00%
Other Expenses ____% ____% ____%
TOTAL ____% ____% ____%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. See "Additional Information --
Financial Highlights." The net expenses the fund actually paid after waivers for
the fiscal year ended September 30, 1999 were:
<TABLE>
<S> <C> <C> <C>
Waiver of Fund Expenses (____%) (____%) (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____% ____% ____%
</TABLE>
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 1.00%, 1.75% AND 1.75%, RESPECTIVELY, FOR
CLASS A, CLASS B AND CLASS C SHARES. FEE WAIVERS MAY BE DISCONTINUED AT ANY
TIME.
(2) Certain investors may qualify for reduced sales charges. See "Buying Shares
- -- Calculating Your Share Price."
(3) Class A share investments of $1 million or more on which no front-end sales
charge is paid may be subject to a contingent deferred sales charge. See "Buying
Shares -- Calculating Your Share Price."
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
14 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
<TABLE>
<CAPTION>
CLASS B CLASS B CLASS C CLASS C
assuming assuming no assuming assuming no
redemption redemption redemption redemption
at end of at end of at end of at end of
CLASS A each period each period each period each period
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 year $ 633 $ 690 $ 190 $ 388 $ 288
3 years $ 862 $ 988 $ 588 $ 682 $ 682
5 years $1,110 $1,211 $1,011 $1,101 $1,101
10 years $1,817 $1,995 $1,995 $2,268 $2,268
</TABLE>
15 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
FUND SUMMARIES
EQUITY INDEX FUND
OBJECTIVE
Equity Index Fund's objective is to provide investment results that correspond
to the performance of the Standard & Poor's 500 Composite Index (S&P 500).
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Equity Index Fund invests at least 90% of its
total assets in common stocks included in the S&P 500. The S&P 500 is a
market-value weighted index consisting of 500 stocks chosen for market size,
liquidity and industry group representation.
The fund's advisor believes that the fund's objective can best be achieved by
investing in common stocks of approximately 90% to 100% of the issues included
in the S&P 500, depending on the size of the fund. A computer program is used to
identify which stocks should be purchased or sold in order to replicate, as
closely as possible, the composition of the S&P 500.
Because the fund may not always hold all of the stocks included in the S&P 500,
and because the fund has expenses and the index does not, the fund will not
duplicate the index's performance precisely. However, the fund's advisor
believes there should 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. If the fund is unable to achieve a
correlation of 95% over time, the fund's board of directors will consider
alternative strategies for the fund.
The fund also may invest up to 10% of its total assets 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 makes these investments
to maintain the liquidity needed 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.
To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.
16 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
MAIN RISKS
The value of your investment in this fund will change daily, which means you
could lose money. The main risks of investing in this fund include:
RISKS OF COMMON STOCKS
Stocks may decline significantly in price over short or extended periods of
time. Price changes may affect the market as a whole, or they may affect only a
particular company, industry or sector of the market.
FAILURE TO MATCH PERFORMANCE OF 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 performance of the S&P 500, the amount and
timing of cash flows into and out of the fund, commissions, sales charges (if
any) and other expenses.
RISKS OF OPTIONS AND FUTURES
The fund will suffer a loss in connection with its use of options, futures
contracts and options on futures contracts if securities prices do not move in
the direction anticipated by the fund's advisor when entering into the options
or the futures contracts.
RISKS OF SECURITIES LENDING
The fund is subject to the risk that the other party to a securities lending
agreement will default on its obligations.
FUND PERFORMANCE
The illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart shows you how performance of the fund's Class A shares has varied
from year to year. The performance of Class B and Class C shares will be lower
due to their higher expenses. Sales charges are not reflected in the chart; if
they had been, returns would be lower.
The table compares the fund's performance for Class A and Class B shares over
different time periods to that of the fund's benchmark index, which is a broad
measures of market performance. However, because Class C shares have not been
offered for a full calendar year, no information is presented for these shares.
The fund's performance reflects sales charges and fund expenses; the benchmark
is unmanaged and has no expenses.
Both the chart and the table assume that all distributions have been reinvested.
17 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
FUND SUMMARIES
EQUITY INDEX FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR
9.80% 1.02% 36.63% 22.13% 32.51% 28.24%
- --------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998 1999
BEST QUARTER:
Quarter ending: 12/31/98
Total return 21.30%
WORST QUARTER:
Quarter ending: 9/30/98
Total return -9.96%
<TABLE>
<CAPTION>
Inception Since Inception Since Inception
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/99 Date One Year Five Years (Class A) (Class B)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Equity Index Fund (Class A) 12/14/92 ____% ____% _____% N/A
- -------------------------------------------------------------------------------------------------------------------------
Equity Index Fund (Class B) 8/15/94 ____% N/A N/A _______%
- -------------------------------------------------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index(1) ____% ____% _____% _______%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) An unmanaged index of large capitalization stocks. The since inception
performance of the index is calculated from the month end following the
inception of the respective class of shares. The since inception performance of
the index for Class A and Class B shares is calculated from 12/31/92 and
8/31/94, respectively.
18 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES Class A Class B Class C
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MAXIMUM SALES CHARGE (LOAD)
AS A % OF OFFERING PRICE 5.25%(2) 0.00% 1.00%
MAXIMUM DEFERRED SALES CHARGE (LOAD)
AS A % OF ORIGINAL PURCHASE PRICE OR REDEMPTION
PROCEEDS, WHICHEVER IS LESS 0.00%(3) 5.00% 1.00%
ANNUAL FUND OPERATING EXPENSES
AS A % OF AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------------
Management Fees 0.70% 0.70% 0.70%
Distribution and Service (12b-1) Fees 0.25% 1.00% 1.00%
Other Expenses ____% ____% ____%
TOTAL ____% ____% ____%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. See "Additional Information --
Financial Highlights." The net expenses the fund actually paid after waivers for
the fiscal year ended September 30, 1999 were:
<TABLE>
<S> <C> <C> <C>
Waiver of Fund Expenses (____%) (____%) (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____% ____% ____%
</TABLE>
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 0.60%, 1.35% AND 1.35%, RESPECTIVELY, FOR
CLASS A, CLASS B AND CLASS C SHARES. FEE WAIVERS MAY BE DISCONTINUED AT ANY
TIME.
(2) Certain investors may qualify for reduced sales charges. See "Buying Shares
- -- Calculating Your Share Price."
(3) Class A share investments of $1 million or more on which no front-end sales
charge is paid may be subject to a contingent deferred sales charge. See "Buying
Shares -- Calculating Your Share Price."
19 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B CLASS B CLASS C CLASS C
assuming assuming no assuming assuming no
redemption redemption redemption redemption
at end of at end of at end of at end of
CLASS A each period each period each period each period
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 year $ 634 $ 691 $ 191 $ 389 $ 289
3 years $ 865 $ 991 $ 591 $ 685 $ 685
5 years $1,115 $1,216 $1,016 $1,106 $1,106
10 years $1,827 $2,005 $2,005 $2,279 $2,279
</TABLE>
20 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
FUND SUMMARIES
LARGE CAP GROWTH FUND
OBJECTIVE
Large Cap Growth Fund's objective is long-term growth of capital.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Large Cap Growth Fund invests primarily (at
least 75% of its total assets) in common stocks of companies that have market
capitalizations of at least $5 billion at the time of purchase. The advisor
will select companies that it believes exhibit the potential for superior growth
based on factors such as:
o above average growth in revenue and earnings;
o strong competitive position;
o strong management; and
o sound financial condition.
Up to 25% of the fund's total assets may be invested in securities of foreign
issuers which are either listed on a United States stock exchange or represented
by American Depositary Receipts.
To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.
MAIN RISKS
The value of your investment in this fund will change daily, which means you
could lose money. The main risks of investing in this fund include:
RISKS OF COMMON STOCKS
Stocks may decline significantly in price over short or extended periods of
time. Price changes may occur in the market as a whole, or they may occur in
only a particular company, industry or sector of the market. In addition, growth
stocks and/or large capitalization stocks may underperform the market as a
whole.
21 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
FOREIGN SECURITY RISK
Securities of foreign issuers, even when dollar-denominated and publicly traded
in the United States, may involve risks not associated with the securities of
domestic issuers, including the risks of adverse currency fluctuations and of
political or social instability or diplomatic developments that could adversely
affect the securities.
RISKS OF SECURITIES LENDING
The fund is subject to the risk that the other party to a securities lending
agreement will default on its obligations.
FUND PERFORMANCE
The illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart shows you how performance of the fund's Class A shares has varied
from year to year. The performance of Class B and Class C shares will be lower
due to their higher expenses. Sales charges are not reflected in the chart; if
they had been, returns would be lower.
The table compares the fund's performance for Class A and Class B shares over
different time periods to that of the fund's benchmark index, which is a broad
measures of market performance. However, because Class C shares have not been
offered for a full calendar year, no information is presented for these shares.
The fund's performance reflects sales charges and fund expenses; the benchmark
is unmanaged and has no expenses.
Both the chart and the table assume that all distributions have been reinvested.
22 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
FUND SUMMARIES
LARGE CAP GROWTH FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR(1)
____% ____% 32.43% 22.93% 21.42% 23.56%
- --------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998 1999
BEST QUARTER:
Quarter ending: 12/31/98
Total return 21.08%
WORST QUARTER:
Quarter ending: 9/30/98
Total return -14.22%
<TABLE>
<CAPTION>
Inception Since Inception Since Inception
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/99(1) Date One Year Five Years (Class A) (Class B)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Large Cap Growth Fund (Class A) 12/15/92 _____% ______% ______% N/A
- ------------------------------------------------------------------------------------------------------------------------------
Large Cap Growth Fund (Class B) 8/15/94 _____% ______% N/A ______%
- ------------------------------------------------------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index(2) _____% ______% ______% ______%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) First American Asset Management became the investment advisor of the Large
Cap Growth Fund on March 25, 1994. Prior to the change, Boulevard Bank was the
investment advisor of the Fund.
(2) An unmanaged index of large capitalization stocks. The since inception
performance of the index is calculated from the month end following the
inception of the respective class of shares. The since inception performance of
the index for Class A and Class B shares is calculated from 12/31/92 and
8/31/94, respectively.
23 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES Class A Class B Class C
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MAXIMUM SALES CHARGE (LOAD)
AS A % OF OFFERING PRICE 5.25%(2) 0.00% 1.00%
MAXIMUM DEFERRED SALES CHARGE (LOAD)
AS A % OF ORIGINAL PURCHASE PRICE OR REDEMPTION
PROCEEDS, WHICHEVER IS LESS 0.00%(3) 5.00% 1.00%
ANNUAL FUND OPERATING EXPENSES
AS A % OF AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------------------------------------------
Management Fees 0.70% 0.70% 0.70%
Distribution and Service (12b-1) Fees 0.25% 1.00% 1.00%
Other Expenses ____% ____% ____%
TOTAL ____% ____% ____%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. See "Additional Information --
Financial Highlights." The net expenses the fund actually paid after waivers for
the fiscal year ended September 30, 1999 were:
<TABLE>
<S> <C> <C> <C>
Waiver of Fund Expenses (____%) (____%) (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____% ____% ____%
</TABLE>
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 1.05%, 1.80% AND 1.80%, RESPECTIVELY, FOR
CLASS A, CLASS B AND CLASS C SHARES. FEE WAIVERS MAY BE DISCONTINUED AT ANY
TIME.
(2) Certain investors may qualify for reduced sales charges. See "Buying Shares
- -- Calculating Your Share Price."
(3) Class A share investments of $1 million or more on which no front-end sales
charge is paid may be subject to a contingent deferred sales charge. See "Buying
Shares -- Calculating Your Share Price."
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
24 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
<TABLE>
<CAPTION>
CLASS B CLASS B CLASS C CLASS C
assuming assuming no assuming assuming no
redemption redemption redemption redemption
at end of at end of at end of at end of
CLASS A each period each period each period each period
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 year $ 632 $ 689 $ 189 $ 387 $ 287
3 years $ 859 $ 985 $ 585 $ 679 $ 679
5 years $1,104 $1,206 $1,006 $1,096 $1,096
10 years $1,806 $1,984 $1,984 $2,258 $2,258
</TABLE>
25 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
FUND SUMMARIES
LARGE CAP VALUE FUND
OBJECTIVE
Large Cap Value Fund's primary objective is capital appreciation. Current income
is a secondary objective of the fund.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Large Cap Value Fund invests primarily (at least
75% of its total assets) in common stocks of companies that cover a broad range
of industries and that have market capitalizations of at least $5 billion at
the time of purchase. In selecting stocks, the fund's advisor invests in
securities that it believes:
o are undervalued relative to other securities in the same industry or
market;
o exhibit good or improving fundamentals; and
o exhibit an identifiable catalyst that could close the gap between market
value and fair value over the next one to two years.
Up to 25% of the fund's total assets may be invested in securities of foreign
issuers which are either listed on a United States stock exchange or represented
by American Depositary Receipts.
To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.
MAIN RISKS
The value of your investment in this fund will change daily, which means you
could lose money. The main risks of investing in this fund include:
RISKS OF COMMON STOCKS
Stocks may decline significantly in price over short or extended periods of
time. Price changes may occur in the market as a whole, or they may occur in
only a particular company, industry or sector of the market. In addition, value
stocks and/or large capitalization stocks may underperform the market as a
whole.
26 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
FOREIGN SECURITY RISK
Securities of foreign issuers, even when dollar-denominated and publicly traded
in the United States, may involve risks not associated with the securities of
domestic issuers, including the risks of adverse currency fluctuations and of
political or social instability or diplomatic developments that could adversely
affect the securities.
RISKS OF SECURITIES LENDING
The fund is subject to the risk that the other party to a securities lending
agreement will default on its obligations.
FUND PERFORMANCE
The illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart shows you how performance of the fund's Class A shares has varied
from year to year. The performance of Class B and Class C shares will be lower
due to their higher expenses. Sales charges are not reflected in the chart; if
they had been, returns would be lower.
The table compares the fund's performance for Class A and Class B shares over
different time periods to that of the fund's benchmark index, which is a broad
measures of market performance. However, because Class C shares have not been
offered for a full calendar year, no information is presented for these shares.
The fund's performance reflects sales charges and fund expenses; the benchmark
is unmanaged and has no expenses.
Both the chart and the table assume that all distributions have been reinvested.
27 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
FUND SUMMARIES
LARGE CAP VALUE FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-2.01% 21.46% 7.98% 15.10% 4.12% 31.94% 29.10% 22.41% 9.71%
- ---------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
</TABLE>
BEST QUARTER:
Quarter ending: 12/31/98
Total return 16.55%
WORST QUARTER:
Quarter ending: 9/30/98
Total return -13.91%
<TABLE>
<CAPTION>
Inception One Five Ten Years Since Inception
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/99 Date Year Years (Class A) (Class B)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Large Cap Value Fund (Class A) 12/22/87 _____% _____% _____% N/A
- ----------------------------------------------------------------------------------------------------------------
Large Cap Value Fund (Class B) 8/15/94 _____% N/A N/A _____%
- ----------------------------------------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index(1) _____% _____% _____% _____%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) An unmanaged index of large capitalization stocks. The since inception
performance of the index is calculated from the month end following the
inception of the Class B shares. The since inception performance of the index
for Class B shares is calculated from 8/31/94.
28 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES Class A Class B Class C
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MAXIMUM SALES CHARGE (LOAD)
AS A % OF OFFERING PRICE 5.25%(2) 0.00% 1.00%
MAXIMUM DEFERRED SALES CHARGE (LOAD)
AS A % OF ORIGINAL PURCHASE PRICE OR REDEMPTION
PROCEEDS, WHICHEVER IS LESS 0.00%(3) 5.00% 1.00%
ANNUAL FUND OPERATING EXPENSES
AS A % OF AVERAGE NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------
Management Fees 0.70% 0.70% 0.70%
Distribution and Service (12b-1) Fees 0.25% 1.00% 1.00%
Other Expenses ____% ____% ____%
TOTAL ____% ____% ____%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. See "Additional Information --
Financial Highlights." The net expenses the fund actually paid after waivers for
the fiscal year ended September 30, 1999 were:
<TABLE>
<S> <C> <C> <C>
Waiver of Fund Expenses (____%) (____%) (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____% ____% ____%
</TABLE>
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 1.05%, 1.80% AND 1.80%, RESPECTIVELY, FOR
CLASS A, CLASS B AND CLASS C SHARES. FEE WAIVERS MAY BE DISCONTINUED AT ANY
TIME.
(2) Certain investors may qualify for reduced sales charges. See "Buying Shares
- -- Calculating Your Share Price."
(3) Class A share investments of $1 million or more on which no front-end sales
charge is paid may be subject to a contingent deferred sales charge. See "Buying
Shares -- Calculating Your Share Price."
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
29 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
<TABLE>
<CAPTION>
CLASS B CLASS B CLASS C CLASS C
assuming assuming no assuming assuming no
redemption redemption redemption redemption
at end of at end of at end of at end of
CLASS A each period each period each period each period
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 year $ 634 $ 691 $ 191 $ 389 $ 289
3 years $ 865 $ 991 $ 591 $ 685 $ 685
5 years $1,115 $1,216 $1,016 $1,106 $1,106
10 years $1,827 $2,005 $2,005 $2,279 $2,279
</TABLE>
30 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
POLICIES & SERVICES
BUYING SHARES
You may become a shareholder in any of the funds with an initial investment of
$1,000 or more ($250 for a retirement plan or a Uniform Gifts to Minors
Act/Uniform Transfers to Minors Act (UGMA/UTMA) account). Additional investments
can be made for as little as $100 ($25 for a retirement plan or an UGMA/UTMA
account). The funds have the right to waive these minimum investment
requirements for employees of the funds' advisor and its affiliates. The funds
also have the right to reject any purchase order.
CHOOSING A SHARE CLASS
All funds in this prospectus offer Class A, Class B and Class C shares.
Each class has its own cost structure. The amount of your purchase and the
length of time you expect to hold your shares will be factors in determining
which class of shares is best for you.
CLASS A SHARES
If you are making an investment that qualifies for a reduced sales charge, Class
A shares may be best for you. Class A shares feature:
o a front-end sales charge, described below.
o lower annual expenses than Class B and Class C shares. See "Fund Summaries"
for more information on fees and expenses.
Because Class A shares will normally be the better choice if your investment
qualifies for a reduced sales charge:
o orders for Class B shares for $250,000 or more normally will be treated as
orders for Class A shares.
o orders for Class C shares for $1 million or more normally will be treated
as orders for Class A shares.
o orders for Class B or Class C shares by an investor eligible to purchase
Class A shares without a front-end sales charge normally will be treated as
orders for Class A shares.
CLASS B SHARES
If you want all your money to go to work for you immediately, you may prefer
Class B shares. Class B shares have no front-end sales charge; however they do
have:
o higher annual expenses than Class A shares. (See "Fees and Expenses" in the
"Fund Summaries" section.)
31 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
o a back-end sales charge, called a "contingent deferred sales charge," if
you redeem your shares within six years of purchase.
o automatic conversion to Class A shares approximately eight years after
purchase, thereby reducing future annual expenses.
CLASS C SHARES
These shares combine some of the characteristics of Class A and Class B shares.
Class C shares have a low front-end sales charge of 1%, so more of your
investment goes to work immediately than if you had purchased Class A shares.
However, Class C shares also feature:
o a 1% contingent deferred sales charge if you redeem your shares within 18
months of purchase.
o higher annual expenses than Class A shares. (See "Fees and Expenses" in the
"Fund Summaries" section.)
o no conversion to Class A shares.
Because Class C shares do not convert to Class A shares, they will continue to
have higher annual expenses than Class A shares for as long as you hold them.
12b-1 FEES
Each fund has adopted a plan under Rule 12b-1 of the Investment Company Act that
allows it to pay the fund's distributor an annual fee for the distribution and
sale of its shares and for services provided to shareholders.
For 12b-1 fees are equal to:
- --------------------------------------------------------------------------------
Class A shares 0.25% of average daily net assets
Class B shares 1% of average daily net assets
Class C shares 1% of average daily net assets
Because these fees are paid out of a fund's assets on an ongoing basis, over
time these fees will increase the cost of your investment and may cost you more
than paying other types of sales charges.
The Class A share 12b-1 fee is a shareholder servicing fee. For Class B and
Class C shares, a portion of the 12b-1 fee equal to 0.25% of average daily net
assets is a shareholder servicing fee and the rest is a distribution fee.
32 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
The funds' distributor uses the shareholder servicing fee to compensate brokers,
participating institutions and "one-stop" mutual fund networks for providing
ongoing services to shareholder accounts. These institutions receive annual fees
equal to 0.25% of a fund's Class A, Class B and Class C share average daily net
assets attributable to shares sold through them. For Class B shares, and for net
asset value sales of Class A shares on which the institution receives a
commission, the institution does not begin to receive its annual fee until one
year after the shares are sold. The fund's distributor also pays institutions
that sell Class C shares a 0.75% annual distribution fee beginning one year
after the shares are sold. The distributor may pay additional fees to
institutions, using the sales charges it receives, in exchange for sales and/or
administrative services performed on behalf of the institution's customers.
CALCULATING YOUR SHARE PRICE
Your purchase price will be based on the fund's net asset value (NAV) per share,
which is generally calculated as of the close of regular trading on the New York
Stock Exchange (usually 3 p.m. Central time) every day the exchange is open.
A fund's NAV is equal to the market value of its investments and other assets,
less any liabilities, divided by the number of fund shares. If market prices are
not readily available for an investment or if the advisor believes they are
unreliable, fair value prices may be determined in good faith using methods
approved by the funds' board of directors.
CLASS A SHARES
Your purchase price is typically the net asset value of your shares plus a
front-end sales charge. Sales charges vary depending on the amount of your
purchase. The funds' distributor receives the sales charge you pay and reallows
a portion of the sales charge to your broker or participating institution.
Sales Charge Maximum
Reallowance
as a % of as a % of as a % of
Purchase Net Amount Purchase
Price Invested Price
- --------------------------------------------------------------------------------
Less than $ 50,000 5.25% 5.54% 5.00%
$ 50,000 - $ 99,999 4.25% 4.44% 4.00%
$100,000 - $249,999 3.25% 3.36% 3.00%
$250,000 - $499,999 2.25% 2.30% 2.00%
$500,000 - $999,999 1.75% 1.78% 1.50%
$1 million and over 0% 0% 0%
33 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
REDUCING YOUR SALES CHARGE
As shown in the preceding tables, larger purchases of Class A shares reduce the
percentage sales charge you pay. You also may reduce your sales charge in the
following ways:
PRIOR PURCHASES. Prior purchases of Class A shares of any First American fund
(except a money market fund) will be factored into your sales charge
calculation. For example, let's say you're making a $10,000 investment. If the
current value of all other First American fund Class A shares that you hold is
$40,000 or more, your current sales charge is reduced. To receive a reduced
sales charge, you must notify the funds' transfer agent of your prior purchases.
This must be done at the time of purchase, either directly to the transfer agent
in writing or by notifying your broker or financial institution.
PURCHASES BY RELATED ACCOUNTS. Concurrent and prior purchases of Class A shares
by certain other accounts also will be combined with your purchase to determine
your sales charge. For example, purchases made by your spouse or children under
age 21 will reduce your sales charge. To receive a reduced sales charge, you
must notify the funds' transfer agent of purchases by any related accounts. This
must be done at the time of purchase, either directly to the transfer agent in
writing or by notifying your broker or financial institution.
LETTER OF INTENT. If you plan to invest $50,000 or more over a 13-month period
in Class A shares of any First American fund except the money market funds, you
may reduce your sales charge by signing a non-binding letter of intent. (If you
do not fulfill the letter of intent, you must pay the applicable sales charge.
In addition, if you reduce your sales charge to zero under a letter of intent
and then sell your Class A shares within 18 months of their purchase, you may be
charged a contingent deferred sales charge of 1%. See "For Investments of Over
$1 Million.")
More information on these ways to reduce your sales charge appears in the
Statement of Additional Information (SAI). The SAI also contains information on
investors who are eligible to purchase Class A shares without a sales charge.
FOR INVESTMENTS OF OVER $1 MILLION
There is no initial sales charge on Class A share purchases of $1 millon or
more. However, your broker or financial institution may receive a commission of
up to 1% on your purchase except in the case of Equity Index Fund. If such a
commission is paid, you will be assessed a contingent deferred sales charge
(CDSC) of 1% if you sell your shares within 18 months. To find out whether you
will be assessed a CDSC, ask your broker or financial institution. The funds'
distributor receives any CDSC imposed when you sell your Class A shares. The
CDSC is based on the value of your shares at the time of purchase or at the time
of sale, whichever is less. The charge does not apply to shares you acquired by
reinvesting your dividend or capital gain distributions.
To help lower your costs, shares that are not subject to a CDSC will be sold
first. Other shares will then be sold in an order that minimizes your CDSC.
The CDSC for Class A shares will be waived for:
34 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
o redemptions following the death or disability (as defined in the Internal
Revenue Code) of a shareholder, and
o redemptions that equal the minimum required distribution from an individual
retirement account or other retirement plan to a shareholder who has
reached the age of 70-1/2.
CLASS B SHARES
Your purchase price for Class B shares is their net asset value -- there is no
front-end sales charge. However, if you redeem your shares within six years of
purchase, you will pay a back-end sales charge, called a contingent deferred
sales charge (CDSC). Although you pay no front-end sales charge when you buy
Class B shares, the funds' distributor pays a sales commission of 4.25% of the
amount invested to brokers and financial institutions which sell Class B shares.
The funds' distributor receives any CDSC imposed when you sell your Class B
shares.
Your CDSC will be based on the value of your shares at the time of purchase or
at the time of sale, whichever is less. The charge does not apply to shares you
acquired by reinvesting your dividend or capital gain distributions. Shares will
be sold in the order that minimizes your CDSC.
CDSC as a % of the
Year since purchase value of your shares
- --------------------------------------------------------------------------------
First 5%
Second 5%
Third 4%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh 0%
Eighth 0%
Your Class B shares will automatically convert to Class A shares eight years
after the first day of the month you purchased the shares. For example, if you
purchase Class B shares on June 15, 2000, they will convert to Class A shares on
June 1, 2008.
The CDSC will be waived for:
35 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
o redemptions following the death or disability (as defined in the Internal
Revenue Code) of a shareholder.
o redemptions that equal the minimum required distribution from an individual
retirement account or other retirement plan to a shareholder who has
reached the age of 70-1/2.
o redemptions through a systematic withdrawal plan, at a rate of up to 12% a
year of your account's value. During the first year, the 12% annual limit
will be based on the value of your account on the date the plan is
established. Thereafter, it will be based on the value of your account on
the preceding December 31.
CLASS C SHARES
Your purchase price for Class C shares is their net asset value plus a front-end
sales charge equal to 1% of the purchase price (1.01% of the net amount
invested). If you redeem your shares within 18 months of purchase, you will be
assessed a contingent deferred sales charge (CDSC) of 1% of the value of your
shares at the time of purchase or at the time of sale, whichever is less. The
CDSC does not apply to shares you acquired by reinvesting your dividend or
capital gain distributions. Shares will be sold in the order that minimizes your
CDSC.
Even though your sales charge is only 1%, the funds' distributor pays a
commission equal to 2% of your purchase price to your broker or participating
institution. The distributor receives any CDSC imposed when you sell your Class
C shares.
The CDSC for Class C shares will be waived in the same circumstances as the
Class B share CDSC. See "Class B Shares" above.
Unlike Class B shares, Class C shares do not convert to Class A shares after a
specified period of time. Therefore, your shares will continue to have higher
annual expenses than Class A shares.
HOW TO BUY SHARES
You may buy shares on any day the New York Stock Exchange is open. However
purchases of shares may be restricted in the event of an early or unscheduled
close of the New York Stock Exchange. Your shares will be priced at the next NAV
calculated after your order is accepted by the fund, plus any applicable sales
charge. To make sure that your order is accepted, follow the directions for
purchasing shares given below.
BY PHONE
You may purchase shares by calling your broker or financial institution, if they
have a sales agreement with the funds' distributor. In many cases, your order
will be effective that day if received by your broker or financial institution
by the close of regular trading on the New York Stock Exchange. In some cases,
however, you will have to transmit your request by an earlier time in order for
your purchase request to be effective that day. This allows your broker or
36 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
financial institution time to process your request and transmit it to the fund.
Some financial institutions may charge a fee for helping you purchase shares.
Contact your broker or financial institution for more information.
If you are paying by wire, you may purchase shares by calling 1-800-637-2548
before 3 p.m. Central time. All information will be taken over the telephone,
and your order will be placed when the funds' custodian receives payment by
wire. Wire federal funds as follows:
U.S. Bank National Association, Minneapolis, MN
ABA Number 091000022
For Credit to: DST Systems, Inc.:
Account Number 160234580266
For Further Credit to (investor name and fund name)
You cannot purchase shares by wire on days when federally chartered banks are
closed.
BY MAIL
To purchase shares by mail, simply complete and sign a new account form, enclose
a check made payable to the fund you wish to invest in, and mail both to:
First American Funds
c/o DST Systems, Inc.
P.O. Box 219382
Kansas City, Missouri 64121-9382
After you have established an account, you may continue to purchase shares by
mailing your check to First American Funds at the same address.
Please note the following:
o All purchases must be made in U.S. dollars.
o THIRD-PARTY CHECKS, CREDIT CARDS, CREDIT CARD CHECKS AND CASH ARE NOT
ACCEPTED.
o If a check does not clear your bank, the funds reserve the right to cancel
the purchase, and you could be liable for any losses or fees incurred.
INVESTING AUTOMATICALLY
To purchase shares as part of a savings discipline, you may add to your
investment on a regular basis:
o by having $100 or more ($25 for a retirement plan or an UGMA/UTMA account)
automatically withdrawn from your bank account on a periodic basis and
invested in fund shares.
37 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
o through automatic monthly exchanges of your shares of Prime Obligations
Fund, a money market fund in the First American family of funds. Exchanges
must be made into the same Class of shares that you hold in Prime
Obligations Fund.
You may apply for participation in either of these programs through your broker
or financial institution or by calling 1-800-637-2548.
38 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
POLICIES & SERVICES
SELLING SHARES
HOW TO SELL SHARES
You may sell your shares on any day when the New York Stock Exchange is open.
However redemption of shares may be restricted in the event of an early or
unscheduled close of the New York Stock Exchange. Your shares will be sold at
the next NAV calculated after your order is accepted by the fund, less any
applicable contingent deferred sales charge. To make sure that your order is
accepted, follow the directions for selling shares given below.
The proceeds from your sale normally will be mailed or wired within one day, but
in no event more than seven days, after your request is received in proper form.
BY PHONE
If you purchased shares through a broker or financial institution, simply call
them to sell your shares. In many cases, your redemption will be effective that
day if received by your broker or financial institution by the close of regular
trading on the New York Stock Exchange. In some cases, however, you will have to
call by an earlier time in order for your redemption to be effective that day.
This allows your broker or financial institution time to process your request
and transmit it to the fund. Contact your broker or financial institution
directly for more information.
If you did not purchase shares through a broker or financial institution, you
may sell your shares by calling 1-800-637-2548. Proceeds can be wired to your
bank account (if the proceeds are at least $1,000 and you have previously
supplied your bank account information to the transfer agent) or sent to you by
check.
If you recently purchased your shares by check or through the Automated Clearing
House (ACH), proceeds from the sale of those shares may not be available until
your check or ACH payment has cleared, which may take up to 10 calendar days
from the date of purchase.
BY MAIL
To sell shares by mail, send a written request to your broker or financial
institution, or to the funds' transfer agent at the following address:
First American Funds
c/o DST Systems, Inc.
P.O. Box 219382
Kansas City, Missouri 64121-9382
39 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
Your request should include the following information:
o name of the fund;
o account number;
o dollar amount or number of shares redeemed;
o name on the account; and
o signatures of all registered account owners.
Signatures on a written request must be guaranteed if:
o you would like the proceeds from the sale to be paid to anyone other than
to the shareholder of record.
o you would like the check mailed to an address other than the address on the
funds' records.
o your redemption request is for $50,000 or more.
A signature guarantee assures that a signature is genuine and protects
shareholders from unauthorized account transfers. Banks, savings and loan
associations, trust companies, credit unions, broker-dealers and member firms of
a national securities exchange may guarantee signatures. Call your financial
institution to determine if it has this capability.
Proceeds from a written redemption request will be sent to you by check.
SYSTEMATIC WITHDRAWALS
If your account has a value of $5,000 or more, you may redeem a specific dollar
amount from your account on a regular basis. To set up systematic withdrawals,
contact your broker or financial institution.
You should not make systematic withdrawals if you plan to continue investing in
the fund, due to sales charges and tax liabilities.
REINVESTING AFTER A SALE
If you sell Class A shares, you may reinvest in Class A shares of that fund or
another First American fund within 180 days without a sales charge. To reinvest
in Class A shares at net asset value (without paying a sales charge), you must
notify the transfer agent directly in writing or notify your broker or financial
institution.
40 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
ACCOUNTS WITH LOW BALANCES
Except for retirement plans and UGMA/UTMA accounts, if your account balance
falls below $500 as a result of selling or exchanging shares, you may receive
written notice and be given 30 days to re-establish the minimum balance. If you
do not, the fund may close your account and send you the proceeds, less any
applicable contingent deferred sales charge, or deduct a $25 annual fee in
December of each year if your account balance at that time is below $500.
41 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
POLICIES & SERVICES
MANAGING YOUR INVESTMENT
EXCHANGING SHARES
If your investment goals or your financial needs change, you may move from one
First American fund to another. There is no fee to exchange shares.
Generally, you may exchange your shares only for shares of the same class.
However, you may exchange your Class A shares for Class Y shares of the same or
another First American fund if you subsequently become eligible to participate
in that class (for example, by opening a fiduciary, custody or agency account
with a financial institution which invests in Class Y shares.
Exchanges are made based on the net asset value per share of each fund at the
time of the exchange. When you exchange your Class A shares of one of the funds
for Class A shares of another First American fund, you do not have to pay a
sales charge. When you exchange your Class B or Class C shares for Class B or
Class C shares of another First American fund, the time you held the shares of
the "old" fund will be added to the time you hold the shares of the "new" fund
for purposes of determining your CDSC or, in the case of Class B shares,
calculating when your shares convert to Class A shares.
Before exchanging into any fund, be sure to read its prospectus carefully. A
fund may change or cancel its exchange policies at any time. You will be
notified of any changes. The funds have the right to limit exchanges to four
times per year.
BY PHONE
You may exchange shares by calling your broker, your financial institution, or
the funds' transfer agent, provided that both funds have identical shareholder
registrations. To request an exchange through the funds' transfer agent, call
1-800-637-2548. Your instructions must be received by the funds' transfer agent
before 3 p.m. Central time, or by the time specified by your broker or financial
institution, in order for shares to be exchanged the same day.
BY MAIL
To exchange shares by written request, please follow the procedures under
"Selling Shares." Be sure to include the names of both funds involved in the
exchange.
TELEPHONE TRANSACTIONS
You may buy, sell or exchange shares by telephone, unless you elected on your
new account form to restrict this privilege. If you wish to reinstate this
option on an existing account, please call Investor Services at 1-800-637-2548
to request the appropriate form.
42 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
The funds and their agents will not be responsible for any losses that may
result from acting on wire or telephone instructions that they reasonably
believe to be genuine. The funds and their agents will each follow reasonable
procedures to confirm that instructions received by telephone are genuine, which
may include taping telephone conversations.
It may be difficult to reach the funds by telephone during periods of unusual
market activity. If you are unable to reach the funds or their agents by
telephone, please consider sending written instructions.
STAYING INFORMED
SHAREHOLDER REPORTS
Shareholder reports are mailed twice a year, in November and May. They include
financial statements, performance information, a message from your portfolio
managers, and, on an annual basis, the auditors' report.
In an attempt to reduce shareholder costs and help eliminate duplication, the
funds will try to limit their mailings to one report for each address that lists
one or more shareholders with the same last name. If you would like additional
copies, please call 1-800-637-2548.
STATEMENTS AND CONFIRMATIONS
Statements summarizing activity in your account are mailed at least quarterly.
Confirmations are mailed following each purchase or sale of fund shares.
DIVIDENDS AND DISTRIBUTIONS
Dividends from a fund's net investment income are declared and paid monthly. Any
capital gains are distributed at least once each year.
On the ex-dividend date for a distribution, a fund's share price is reduced by
the amount of the distribution. If you buy shares just before the ex-dividend
date, in effect, you "buy the dividend." You will pay the full price for the
shares and then receive a portion of that price back as a taxable distribution.
Dividend and capital gain distributions will be reinvested in additional shares
of the fund paying the distribution, unless you request that distributions be
reinvested in another First American fund or paid in cash. This request may be
made on your new account form or by writing to the fund. If you request that
your distributions be paid in cash but those distributions cannot be delivered
because of an incorrect mailing address, the undelivered distributions and all
future distributions will be reinvested in fund shares.
43 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
TAXES
Some of the tax consequences of investing in the funds are discussed below. More
information about taxes is in the Statement of Additional Information. However,
because everyone's tax situation is unique, always consult your tax professional
about federal, state and local tax consequences.
TAXES ON DISTRIBUTIONS
Each fund pays its shareholders dividends from its net investment income and any
net capital gains that it has realized. For most investors, fund dividends and
distributions are considered taxable whether they are reinvested or taken in
cash (unless your investment is in an IRA or other tax-advantaged account).
Dividends from a fund's net investment income and short-term capital gains are
taxable as ordinary income. Distributions of a fund's long-term capital gains
are taxable as long-term capital gains, regardless of how long you have held
your shares. Because of their investment objectives and strategies,
distributions for Large Cap Growth Fund and Large Cap Value Fund are expected to
consist primarily of capital gains.
TAXES ON TRANSACTIONS
The sale of fund shares, or the exchange of one fund's shares for shares of
another fund, will be a taxable event and may result in a capital gain or loss.
The gain or loss will be considered long-term if you have held your shares for
more than one year. A gain or loss on shares held for one year or less is
considered short-term and is taxed at the same rates as ordinary income.
The exchange of one class of shares for another class of shares in the same fund
will not be taxable.
44 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
ADDITIONAL INFORMATION
MANAGEMENT
INVESTMENT ADVISOR
First American Asset Management
601 Second Avenue South
Minneapolis, Minnesota 55402
U.S. Bank National Association (U.S. Bank), acting through its First American
Asset Management division, is the funds' investment advisor. First American
Asset Management provides investment management services to individuals and
institutions, including corporations, foundations, pensions and retirement
plans. As of December 31, 1999, it had more than $ ____ billion in assets under
management, including investment company assets of approximately $ ____ billion.
As investment advisor, First American Asset Management manages the funds'
business and investment activities, subject to the authority of the board of
directors.
Each fund pays the investment advisor a monthly fee for providing investment
advisory services. During their most recent fiscal years, after taking into
account any fee waivers, the funds paid the following investment advisory fees
to First American Asset Management:
Advisory fee
as a % of
average daily
net assets
- --------------------------------------------------------------------------------
Balanced Fund % _________
Equity Income Fund % _________
Equity Index Fund % _________
Large Cap Growth Fund % _________
Large Cap Value Fund % _________
- --------------------------------------------------------------------------------
CUSTODIAN
U.S. Bank National Association
U.S. Bank Center
180 East Fifth Street
St. Paul, Minnesota 55101
ADMINISTRATOR
U.S Bank National Association
U.S. Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402
45 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
DISTRIBUTOR
SEI Investments Distribution Co.
Oaks, Pennsylvania 19456
ADDITIONAL COMPENSATION
U.S. Bank and other affiliates of U.S. Bancorp may act as fiduciary with respect
to plans subject to the Employee Retirement Income Security Act of 1974 (ERISA)
and other trust and agency accounts that invest in the funds. As described
above, U.S. Bank receives compensation for acting as the funds' investment
advisor. U.S. Bank and its affiliates also receive compensation in connection
with the following:
CUSTODY SERVICES. U.S. Bank provides or compensates others to provide custody
services to the funds. U.S. Bank is paid monthly fees equal, on an annual basis,
to 0.03% of a fund's average daily net assets. In addition, U.S. Bank is
reimbursed for its out-of-pocket expenses incurred while providing custody
services to the funds.
ADMINISTRATION SERVICES. U.S. Bank provides or compensates others to provide
administrative services to the funds including general administrative and
accounting services, transfer agency and dividend disbursing services, and
shareholder services. The funds pay U.S. Bank monthly fees equal, on an annual
basis, to 0.12% of the aggregate average daily net assets of all open-end mutual
funds in the First American fund family up to $8 billion and 0.105% of the
aggregate average daily net assets of all open-end mutual funds in the First
American fund family in excess of $8 billion. Additionally, the funds pay U.S.
Bank fees based upon the number of funds and accounts maintained.
SECURITIES LENDING SERVICES. In connection with lending their portfolio
securities, the funds pay administrative and custodial fees to U.S. Bank which
are equal to 40% of the funds' income from these securities lending
transactions.
BROKERAGE TRANSACTIONS. When purchasing and selling portfolio securities for the
funds, the funds' investment advisor may place trades through its affiliates,
U.S. Bancorp Investments, Inc. and U.S. Bancorp Piper Jaffray Inc., which will
earn commissions on such transactions.
SALES OF FUND SHARES. U.S. Bancorp Investments, Inc. and U.S. Bancorp Piper
Jaffray Inc., broker-dealers affiliated with U.S. Bank, have entered into
agreements with the funds' distributor to sell fund shares and will earn annual
shareholder servicing fees in connection with these sales.
PORTFOLIO MANAGEMENT
Each fund's investments are managed by a team of persons associated with First
American Asset Management.
46 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
ADDITIONAL INFORMATION
MORE ABOUT THE FUNDS
OBJECTIVES
The funds' objectives, which are described in the "Fund Summaries" section, may
be changed without shareholder approval. If a fund's objectives change, you will
be notified at least 30 days in advance. Please remember: There is no guarantee
that any fund will achieve its objectives.
INVESTMENT STRATEGIES
The funds' main investment strategies are discussed in the "Fund Summaries"
section. These are the strategies that the funds' investment advisor believes
are most likely to be important in trying to achieve the funds' objectives. You
should be aware that each fund may also use strategies and invest in securities
that are not described in this prospectus, but that are described in the
Statement of Additional Information (SAI). For a copy of the SAI, call Investor
Services at 1-800-637-2548.
TEMPORARY INVESTMENTS
In an attempt to respond to adverse market, economic, political or other
conditions, each fund may temporarily invest without limit in cash and in U.S.
dollar-denominated high-quality money market instruments and other short-term
securities, including money market funds advised by the funds' advisor. Being
invested in these securities may keep a fund from participating in a market
upswing and prevent the fund from achieving its investment objectives.
EFFECTIVE DURATION
Balanced Fund normally attempts to maintain an average effective duration of
three to eight years for the debt securities portion of its portfolio. Effective
duration, one measure of interest rate risk, measures how much the value of a
security is expected to change with a given change in interest rates. The longer
a security's effective duration, the more sensitive its price to changes in
interest rates. For example, if interest rates were to increase by one
percentage point, the market value of a bond with an effective duration of five
years would decrease by 5%, with all other factors being constant. However, all
other factors are rarely constant. Effective duration is based on assumptions
and subject to a number of limitations. It is most useful when interest rate
changes are small, rapid and occur equally in short-term and long-term
securities. In addition, it is difficult to calculate precisely for bonds with
prepayment options, such as mortgage- and asset-backed securities, because the
calculation requires assumptions about prepayment rates.
47 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
PORTFOLIO TURNOVER
Portfolio managers for the funds other than Equity Index Fund may trade
securities frequently, resulting, from time to time, in an annual portfolio
turnover rate of over 100%. Trading of securities may produce capital gains,
which are taxable to shareholders when distributed. Active trading may also
increase the amount of commissions or mark-ups to broker-dealers that the fund
pays when it buys and sells securities. Portfolio turnover for Equity Index Fund
is expected to be well below that of actively managed mutual funds. The
"Financial Highlights" section of this prospectus shows each fund's historical
portfolio turnover rate.
RISKS
The main risks of investing in the funds are summarized in the "Fund Summaries"
section. More information about fund risks is presented below.
MARKET RISK
All stocks are subject to price movements due to changes in general economic
conditions, the level of prevailing interest rates or investor perceptions of
the market. Prices also are affected by the outlook for overall corporate
profitability.
SECTOR RISK
The stocks of companies within specific industries or sectors of the economy can
periodically perform differently than the overall stock market. This can be due
to changes in such things as the regulatory or competitive environment or to
changes in investor perceptions of a particular industry or sector.
COMPANY RISK
Individual stocks can perform differently than the overall market. This may be a
result of specific factors such as changes in corporate profitability due to the
success or failure of specific products or management strategies, or it may be
due to changes in investor perceptions regarding a company.
FOREIGN SECURITY RISK
Each fund other than Equity Index Fund may invest up to 25% of its total assets
(25% of the equity securities portion of its portfolio for Balanced Fund) in
securities of foreign issuers which are either listed on a United States stock
exchange or represented by American Depositary Receipts. In addition, Balanced
Fund may invest up to 15% of the debt portion of its portfolio in foreign
securities payable in United States dollars. Securities of foreign issuers, even
when dollar-denominated and publicly traded in the United States, may involve
risks not associated with the securities of domestic issuers. For certain
foreign countries, political or social instability or diplomatic developments
could adversely affect the securities. There is also the risk of loss due to
governmental actions such as a change in tax statutes or the modification of
individual property rights. In addition, individual foreign economies may differ
favorably or unfavorably from the U.S. economy.
48 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
RISKS OF ACTIVE MANAGEMENT
Each fund other than Equity Index Fund is actively managed and its performance
therefore will reflect in part the advisor's ability to make investment
decisions which are suited to achieving the fund's investment objectives. Due to
their active management, the funds could underperform other mutual funds with
similar investment objectives.
RISKS OF SECURITIES LENDING
When a fund loans its portfolio securities, it will receive collateral equal to
at least 100% of the value of the loaned securities. Nevertheless, the fund
risks a delay in the recovery of the loaned securities, or even the loss of
rights in the collateral deposited by the borrower if the borrower should fail
financially. To reduce these risks, the funds enter into loan arrangements only
with institutions which the funds' advisor has determined are creditworthy under
guidelines established by the funds' board of directors.
ADDITIONAL RISKS OF BALANCED FUND AND EQUITY INCOME FUND
INTEREST RATE RISK
Debt securities in Balanced Fund and Equity Income Fund will fluctuate in value
with changes in interest rates. In general, debt securities will increase in
value when interest rates fall and decrease in value when interest rates rise.
Longer-term debt securities are generally more sensitive to interest rate
changes.
CREDIT RISK
Balanced Fund and Equity Income Fund are subject to the risk that the issuers of
debt securities held by a fund will not make payments on the securities. There
is also the risk that an issuer could suffer adverse changes in financial
condition that could lower the credit quality of a security. This could lead to
greater volatility in the price of the security and in shares of the fund. Also,
a change in the credit quality rating of a bond could affect the bond's
liquidity and make it more difficult for the fund to sell.
Balanced Fund attempts to minimize credit risk by investing in securities
considered at least investment grade at the time of purchase. However, all of
these securities, especially those in the lower investment grade rating
categories, have credit risk. In adverse economic or other circumstances,
issuers of these lower rated securities are more likely to have difficulty
making principal and interest payments than issuers of higher rated securities.
When Balanced Fund purchases unrated securities, it will depend on the advisor's
analysis of credit risk more heavily than usual.
As discussed in the "Fund Summaries" section, Equity Income Fund invests in
convertible debt securities that are rated below investment grade and are
therefore subject to additional credit risk.
49 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
ADDITIONAL RISKS OF BALANCED FUND
CALL RISK
Many corporate bonds may be redeemed at the option of the issuer, or "called,"
before their stated maturity date. In general, an issuer will call its bonds if
they can be refinanced by issuing new bonds which bear a lower interest rate.
Balanced Fund is subject to the possibility that during periods of falling
interest rates, a bond issuer will call its high-yielding bonds. The fund would
then be forced to invest the unanticipated proceeds at lower interest rates,
resulting in a decline in the fund's income.
EXTENSION RISK
Mortgage-backed securities are secured by and payable from pools of mortgage
loans. Similarly, asset-backed securities are supported by obligations such as
automobile loans or home equity loans. These mortgages and other obligations
generally can be prepaid at any time without penalty. As a result, mortgage- and
asset-backed securities are subject to extension risk, which is the risk that
rising interest rates could cause the mortgages or other obligations underlying
the securities to be prepaid more slowly than expected, resulting in slower
prepayments of the securities. This would, in effect, convert a short-or
medium-duration mortgage- or asset-backed security into a longer-duration
security, increasing its sensitivity to interest rate changes and causing its
price to decline.
PREPAYMENT RISK
Mortgage- and asset-backed securities also are subject to prepayment risk, which
is the risk that falling interest rates could cause prepayments of the
securities to occur more quickly than expected. This occurs because, as interest
rates fall, more homeowners refinance the mortgages underlying mortgage-related
securities or prepay the debt obligations underlying asset-backed securities.
Balanced Fund must reinvest the prepayments at a time when interest rates are
falling, reducing the income of the fund. In addition, when interest rates fall,
prices on mortgage- and asset-backed securities may not rise as much as for
other types of comparable debt securities because investors may anticipate an
increase in prepayments.
RISKS OF DOLLAR ROLL TRANSACTIONS
In a dollar roll transaction, Balanced Fund sells mortgage-backed securities for
delivery in the current month while contracting with the same party to
repurchase similar securities at a future date. Because the fund gives up the
right to receive principal and interest paid on the securities sold, a mortgage
dollar roll transaction will diminish the investment performance of the fund
unless the difference between the price received for the securities sold and the
price to be paid for the securities to be purchased in the future, plus any fee
income received, exceeds any income, principal payments and appreciation on the
securities sold as part of the mortgage dollar
50 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
roll. Whether mortgage dollar rolls will benefit Balanced Fund may depend upon
the advisor's ability to predict mortgage prepayments and interest rates. In
addition, the use of mortgage dollar rolls by the fund increases the amount of
the fund's assets that are subject to market risk, which could increase the
volatility of the price of the fund's shares.
51 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
ADDITIONAL INFORMATION
FINANCIAL HIGHLIGHTS
The tables that follow present performance information about the Class A, Class
B and Class C shares of each fund. This information is intended to help you
understand each fund's financial performance for the past five years or, if
shorter, the period of the fund's operations. Some of this information reflects
financial results for a single fund share. Total returns in the tables represent
the rate that you would have earned or lost on an investment in a fund,
excluding sales charges and assuming you reinvested all of your dividends and
distributions.
The information for the fiscal year ended September 30, 1999 has been audited by
Ernst & Young LLP, independent auditors, whose report, along with the funds'
financial statements, is included in the funds' annual report, which is
available upon request. The information for the fiscal years ended on or before
September 30, 1998, has been audited by KPMG LLP.
BALANCED FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS A SHARES 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period ______ $15.41 $13.14 $12.12 $10.54
------------------------------------------------------------
Investment Operations:
Net Investment Income ______ 0.40 0.39 0.39 0.38
Net Gains (Losses) on Investments
(both realized and unrealized) ______ (0.30) 2.85 1.43 1.72
------------------------------------------------------------
Total From Investment Operations ______ 0.10 3.24 1.82 2.10
------------------------------------------------------------
Less Distributions:
Dividends (from Net Investment Income) ______ (0.41) (0.39) (0.39) (0.37)
Distributions (from capital gains) ______ (1.12) (0.58) (0.41) (0.15)
------------------------------------------------------------
Total Distributions ______ (1.53) (0.97) (0.80) (0.52)
------------------------------------------------------------
Net Asset Value, End of Period ______ $13.98 $15.41 $13.14 $12.12
============================================================
Total Return ______ 0.72% 25.80% 15.61% 20.57%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) ______ $78,269 $ 32,309 $ 20,927 $ 15,288
Ratio of Expenses to Average Net Assets ______ 1.05% 1.05% 1.05% 0.99%
Ratio of Net Income to Average Net Assets ______ 2.82% 2.74% 3.05% 3.41%
Ratio of Expenses to Average Net Assets (excluding waivers) ______ 1.15% 1.13% 1.14% 1.19%
Ratio of Net Income to Average Net Assets (excluding waivers) ______ 2.72% 2.66% 2.96% 3.21%
Portfolio Turnover Rate ______ 103% 84% 73% 77%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
52 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS B SHARES 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period ______ $15.36 $13.10 $12.09 $10.53
----------------------------------------------------------
Investment Operations:
Net Investment Income ______ 0.30 0.29 0.31 0.29
Net Gains (Losses) on Investments
(both realized and unrealized) ______ (0.31) 2.84 1.42 1.71
----------------------------------------------------------
Total From Investment Operations ______ (0.01) 3.13 1.73 2.00
----------------------------------------------------------
Less Distributions:
Dividends (from Net Investment Income) ______ (0.30) (0.29) (0.31) (0.29)
Distributions (from capital gains) ______ (1.12) (0.58) (0.41) (0.15)
----------------------------------------------------------
Total Distributions ______ (1.42) (0.87) (0.72) (0.44)
----------------------------------------------------------
Net Asset Value, End of Period ______ $13.93 $15.36 $13.10 $12.09
==========================================================
Total Return ______ (0.02)% 24.93% 14.78% 19.58%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) ______ $59,323 $ 43,707 $ 15,542 $ 3,120
Ratio of Expenses to Average Net Assets ______ 1.80% 1.80% 1.80% 1.79%
Ratio of Net Income to Average Net Assets ______ 2.02% 1.99% 2.32% 2.60%
Ratio of Expenses to Average Net Assets (excluding waivers) ______ 1.90% 1.88% 1.89% 1.94%
Ratio of Net Income to Average Net Assets (excluding waivers) ______ 1.92% 1.91% 2.23% 2.45%
Portfolio Turnover Rate ______ 103% 84% 73% 77%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
53 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
<TABLE>
<CAPTION>
Period ended
September 30,
CLASS C SHARES 1999(1)
- ---------------------------------------------------------------------------------------------
<S> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period ________
---------------
Investment Operations:
Net Investment Income ________
Net Gains (Losses) on Investments
(both realized and unrealized) ________
---------------
Total From Investment Operations ________
---------------
Less Distributions:
Dividends (from Net Investment Income) ________
---------------
Total Distributions ________
---------------
Net Asset Value, End of Period ________
===============
Total Return ________
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) ________
Ratio of Expenses to Average Net Assets ________
Ratio of Net Income to Average Net Assets ________
Ratios of Expenses to Average Net Assets (excluding waivers) ________
Ratio of Net Income to Average Net Assets (excluding waivers) ________
Portfolio Turnover Rate ________
- ---------------------------------------------------------------------------------------------
</TABLE>
(1) Class C shares have been offered since February 1, 1999.
54 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
EQUITY INCOME FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS A SHARES 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period ______ $15.69 $12.65 $11.24 $9.89
-----------------------------------------------------------
Investment Operations:
Net Investment Income ______ 0.41 0.40 0.39 0.41
Net Gains (Losses) on Investments
(both realized and unrealized) ______ 0.86 3.40 1.42 1.33
-----------------------------------------------------------
Total From Investment Operations ______ 1.27 3.80 1.81 1.74
-----------------------------------------------------------
Less Distributions:
Dividends (from net investment income) ______ (0.41) (0.41) (0.39) (0.39)
Distributions (from capital gains) ______ (0.85) (0.35) (0.01) --
-----------------------------------------------------------
Total Distributions ______ (1.26) (0.76) (0.40) (0.39)
-----------------------------------------------------------
Net Asset Value, End of Period ______ $15.70 $15.69 $12.65 $11.24
===========================================================
Total Return ______ 8.38% 31.16% 16.41% 18.06%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) ______ $11,018 $ 7,276 $ 2,581 $ 1,995
Ratio of Expenses to Average Net Assets ______ 1.00% 1.00% 1.00% 0.92%
Ratio of Net Income to Average Net Assets ______ 2.58% 2.96% 3.25% 3.91%
Ratio of Expenses to Average Net Assets (excluding waivers) ______ 1.12% 1.17% 1.20% 1.31%
Ratio of Net Income to Average Net Assets (excluding waivers) ______ 2.46% 2.79% 3.05% 3.52%
Portfolio Turnover Rate ______ 14% 39% 23% 23%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
55 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS B SHARES 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period ______ $15.62 $12.61 $11.20 $9.88
----------------------------------------------------------
Investment Operations:
Net Investment Income ______ 0.30 0.29 0.31 0.33
Net Gains (Losses) on Investments
(both realized and unrealized) ______ 0.87 3.37 1.42 1.32
----------------------------------------------------------
Total From Investment Operations ______ 1.17 3.66 1.73 1.65
----------------------------------------------------------
Less Distributions:
Dividends (from Net Investment Income) ______ (0.29) (0.30) (0.31) (0.33)
Distributions (from capital gains) ______ (0.85) (0.35) (0.01) --
----------------------------------------------------------
Total Distributions ______ (1.14) (0.65) (0.32) (0.33)
----------------------------------------------------------
Net Asset Value, End of Period ______ $15.65 $15.62 $12.61 $11.20
==========================================================
Total Return ______ 7.77% 30.06% 15.66% 17.10%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) ______ $8,570 $ 6,619 $ 3,770 $ 1,233
Ratio of Expenses to Average Net Assets ______ 1.75% 1.75% 1.75% 1.75%
Ratio of Net Income to Average Net Assets ______ 1.81% 2.19% 2.49% 3.05%
Ratio of Expenses to Average Net Assets (excluding waivers) ______ 1.87% 1.92% 1.95% 2.06%
Ratio of Net Income to Average Net Assets (excluding waivers) ______ 1.69% 2.02% 2.29% 2.74%
Portfolio Turnover Rate ______ 14% 39% 23% 23%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Class A shares have been offered since December 18, 1992.
56 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
<TABLE>
<CAPTION>
Period ended
September 30,
CLASS C SHARES 1999(1)
- -------------------------------------------------------------------------------------
<S> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period ________
---------------
Investment Operations:
Net Investment Income ________
Net Gains (Losses) on Investments
(both realized and unrealized) ________
---------------
Total From Investment Operations ________
---------------
Less Distributions:
Dividends (from Net Investment Income) ________
---------------
Total Distributions ________
---------------
Net Asset Value, End of Period ________
===============
Total Return ________
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) ________
Ratio of Expenses to Average Net Assets ________
Ratio of Net Income to Average Net Assets ________
Ratios of Expenses to Average Net Assets (excluding waivers) ________
Ratio of Net Income to Average Net Assets (excluding waivers) ________
Portfolio Turnover Rate ________
- -------------------------------------------------------------------------------------
</TABLE>
(1) Class C shares have been offered since February 1, 1999.
57 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
EQUITY INDEX FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS A SHARES 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period ______ $20.76 $15.49 $13.35 $10.68
------------------------------------------------------------
Investment Operations:
Net Investment Income ______ 0.24 0.12 0.27 0.25
Net Gains (Losses) on Investments
(both realized and unrealized) ______ 1.39 5.70 2.32 2.76
------------------------------------------------------------
Total From Investment Operations ______ 1.63 5.82 2.59 3.01
------------------------------------------------------------
Less Distributions:
Dividends (from Net Investment Income) ______ (0.24) (0.12) (0.27) (0.25)
Distributions (from capital gains) ______ (1.54) (0.43) (0.18) (0.09)
------------------------------------------------------------
Total Distributions ______ (1.78) (0.55) (0.45) (0.34)
------------------------------------------------------------
Net Asset Value, End of Period ______ $20.61 $20.76 $15.49 $13.35
============================================================
Total Return ______ 8.50% 39.47% 19.75% 28.90%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) ______ $46,010 $ 15,977 $ 6,221 $ 2,140
Ratio of Expenses to Average Net Assets ______ 0.60% 0.60% 0.60% 0.57%
Ratio of Net Income to Average Net Assets ______ 1.11% 1.36% 1.87% 2.16%
Ratio of Expenses to Average Net Assets (excluding waivers) ______ 1.13% 1.13% 1.15% 1.20%
Ratio of Net Income to Average Net Assets (excluding waivers) ______ 0.58% 0.83% 1.32% 1.53%
Portfolio Turnover Rate ______ 14% 8% 10% 9%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
58 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS B SHARES 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period ______ $20.67 $15.43 $13.30 $10.66
--------------------------------------------------------------
Investment Operations:
Net Investment Income ______ 0.09 0.12 0.17 0.23
Net Gains (Losses) on Investments
(both realized and unrealized) ______ 1.36 5.67 2.31 2.68
--------------------------------------------------------------
Total From Investment Operations ______ 1.45 5.79 2.48 2.91
--------------------------------------------------------------
Less Distributions:
Dividends (from Net Investment Income) ______ (0.09) (0.12) (0.17) (0.18)
Distributions (from capital gains) ______ (1.54) (0.43) (0.18) (0.09)
--------------------------------------------------------------
Total Distributions ______ (1.63) (0.55) (0.35) (0.27)
--------------------------------------------------------------
Net Asset Value, End of Period ______ $20.49 $20.67 $15.43 $13.30
==============================================================
Total Return ______ 7.66% 38.45% 18.95% 27.87%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) ______ $44,122 $ 23,733 $ 8,252 $ 1,197
Ratio of Expenses to Average Net Assets ______ 1.35% 1.35% 1.35% 1.35%
Ratio of Net Income to Average Net Assets ______ 0.37% 0.61% 1.11% 1.34%
Ratio of Expenses to Average Net Assets (excluding waivers) ______ 1.88% 1.88% 1.90% 1.95%
Ratio of Net Income to Average Net Assets (excluding waivers) ______ (0.16)% 0.08% 0.56% 0.74%
Portfolio Turnover Rate ______ 14% 8% 10% 9%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
59 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
<TABLE>
<CAPTION>
Period ended
September 30,
CLASS C SHARES 1999(1)
- ------------------------------------------------------------------------------------------
<S> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period ________
---------------
Investment Operations:
Net Investment Income ________
Net Gains (Losses) on Investments
(both realized and unrealized) ________
---------------
Total From Investment Operations ________
---------------
Less Distributions:
Dividends (from Net Investment Income) ________
---------------
Total Distributions ________
---------------
Net Asset Value, End of Period ________
===============
Total Return ________
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) ________
Ratio of Expenses to Average Net Assets ________
Ratio of Net Income to Average Net Assets ________
Ratios of Expenses to Average Net Assets (excluding waivers) ________
Ratio of Net Income to Average Net Assets (excluding waivers) ________
Portfolio Turnover Rate ________
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Class C shares have been offered since February 1, 1999.
60 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
LARGE CAP GROWTH FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS A SHARES 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period ______ $17.63 $13.63 $11.75 $9.09
------------------------------------------------------------
Investment Operations:
Net Investment Income ______ 0.09 0.09 0.15 0.15
Net Gains (Losses) on Investments
(both realized and unrealized) ______ (0.02) 4.28 1.88 2.66
------------------------------------------------------------
Total From Investment Operations ______ 0.07 4.37 2.03 2.81
------------------------------------------------------------
Less Distributions:
Dividends (from net investment income) ______ (0.09) (0.10) (0.15) (0.15)
Distributions (from capital gains) ______ (1.36) (0.27) -- --
------------------------------------------------------------
Total Distributions ______ (1.45) (0.37) (0.15) (0.15)
------------------------------------------------------------
Net Asset Value, End of Period ______ $16.25 $17.63 $13.63 $11.75
============================================================
Total Return ______ 0.61% 32.69% 17.38% 31.21%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) ______ $140,948 $ 12,017 $ 5,318 $ 2,710
Ratio of Expenses to Average Net Assets ______ 1.05% 1.05% 1.04% 0.92%
Ratio of Net Income to Average Net Assets ______ 0.56% 0.57% 1.13% 1.52%
Ratio of Expenses to Average Net Assets (excluding waivers) ______ 1.11% 1.14% 1.17% 1.26%
Ratio of Net Income to Average Net Assets (excluding waivers) ______ 0.50% 0.48% 1.00% 1.18%
Portfolio Turnover Rate ______ 34% 21% 28% 101%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
61 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS B SHARES 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period ______ $17.47 $13.57 $11.73 $9.09
---------------------------------------------------------
Investment Operations:
Net Investment Income ______ 0.03 0.01 0.08 0.09
Net Gains (Losses) on Investments
(both realized and unrealized) ______ (0.05) 4.18 1.84 2.65
---------------------------------------------------------
Total From Investment Operations ______ (0.02) 4.19 1.92 2.74
---------------------------------------------------------
Less Distributions:
Dividends (from Net Investment Income) ______ (0.03) (0.02) (0.08) (0.10)
Distributions (from capital gains) ______ (1.36) (0.27) -- --
---------------------------------------------------------
Total Distributions ______ (1.39) (0.29) (0.08) (0.10)
---------------------------------------------------------
Net Asset Value, End of Period ______ $16.06 $17.47 $13.57 $11.73
=========================================================
Total Return ______ 0.09% 31.42% 16.41% 30.29%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) ______ $11,177 $ 9,487 $ 5,775 $ 819
Ratio of Expenses to Average Net Assets ______ 1.80% 1.80% 1.79% 1.75%
Ratio of Net Income (Loss) to Average Net Assets ______ (0.20)% (0.18)% 0.36% 0.58%
Ratio of Expenses to Average Net Assets (excluding waivers) ______ 1.86% 1.89% 1.92% 2.01%
Ratio of Net Income (Loss) to Average Net Assets (excluding waivers) ______ (0.26)% (0.27)% 0.23% 0.32%
Portfolio Turnover Rate ______ 38% 34% 21% 28%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Class A shares have been offered since December 18, 1992.
(2) Ten month period ended September 30, 1994. On April 28, 1994, shareholders
approved a change of investment advisor from Boulevard Bank National Association
to U.S. Bank National Association.
62 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
<TABLE>
<CAPTION>
Period ended
September 30,
CLASS C SHARES 1999(1)
- ------------------------------------------------------------------------------------
<S> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period ________
----------------
Investment Operations:
Net Investment Income ________
Net Gains (Losses) on Investments
(both realized and unrealized) ________
----------------
Total From Investment Operations ________
----------------
Less Distributions:
Dividends (from Net Investment Income) ________
----------------
Total Distributions ________
----------------
Net Asset Value, End of Period ________
================
Total Return ________
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) ________
Ratio of Expenses to Average Net Assets ________
Ratio of Net Income to Average Net Assets ________
Ratios of Expenses to Average Net Assets (excluding waivers) ________
Ratio of Net Income to Average Net Assets (excluding waivers) ________
Portfolio Turnover Rate ________
- ------------------------------------------------------------------------------------
</TABLE>
(1) Class C shares have been offered since February 1, 1999.
63 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
LARGE CAP VALUE FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS A SHARES 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period ______ $28.74 $22.59 $19.57 $16.51
--------------------------------------------------------------
Investment Operations:
Net Investment Income ______ 0.29 0.33 0.36 0.33
Net Gains (Losses) on Investments
(both realized and unrealized) ______ (2.59) 7.90 4.07 3.64
--------------------------------------------------------------
Total From Investment Operations ______ (2.30) 8.23 4.43 3.97
--------------------------------------------------------------
Less Distributions:
Dividends (from Net Investment Income) ______ (0.29) (0.32) (0.36) (0.32)
Distributions (from capital gains) ______ (3.76) (1.76) (1.05) (0.59)
--------------------------------------------------------------
Total Distributions ______ (4.05) (2.08) (1.41) (0.91)
--------------------------------------------------------------
Net Asset Value, End of Period ______ $22.39 $28.74 $22.59 $19.57
==============================================================
Total Return ______ (8.77)% 38.82% 23.90% 25.26%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) ______ $170,529 $ 50,381 $ 22,965 $ 13,076
Ratio of Expenses to Average Net Assets ______ 1.05% 1.05% 1.05% 1.00%
Ratio of Net Income to Average Net Assets ______ 1.21% 1.14% 1.64% 1.89%
Ratio of Expenses to Average Net Assets (excluding waivers) ______ 1.13% 1.14% 1.13% 1.19%
Ratio of Net Income to Average Net Assets (excluding waivers) ______ 1.13% 1.05% 1.56% 1.70%
Portfolio Turnover Rate ______ 74% 57% 40% 52%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
64 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS B SHARES 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period ______ $28.55 $22.50 $19.49 $16.49
-----------------------------------------------------------
Investment Operations:
Net Investment Income ______ 0.13 0.18 0.22 0.26
Net Gains (Losses) on Investments
(both realized and unrealized) ______ (2.58) 7.81 4.06 3.55
-----------------------------------------------------------
Total From Investment Operations ______ (2.45) 7.99 4.28 3.81
-----------------------------------------------------------
Less Distributions:
Dividends (from Net Investment Income) ______ (0.13) (0.18) (0.22) (0.22)
Distributions (from capital gains) ______ (3.76) (1.76) (1.05) (0.59)
-----------------------------------------------------------
Total Distributions ______ (3.89) (1.94) (1.27) (0.81)
-----------------------------------------------------------
Net Asset Value, End of Period ______ $22.21 $28.55 $22.50 $19.49
===========================================================
Total Return ______ (9.37)% 37.71% 23.08% 24.20%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) ______ $56,259 $53,420 $23,316 $7,051
Ratio of Expenses to Average Net Assets ______ 1.80% 1.80% 1.80% 1.79%
Ratio of Net Income to Average Net Assets ______ 0.41% 0.39% 0.89% 1.10%
Ratio of Expenses to Average Net Assets (excluding waivers) ______ 1.88% 1.89% 1.88% 1.94%
Ratio of Net Income to Average Net Assets (excluding waivers) ______ 0.33% 0.30% 0.81% 0.95%
Portfolio Turnover Rate ______ 74% 57% 40% 52%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(2) Annualized.
65 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
<TABLE>
<CAPTION>
Period ended
September 30,
CLASS C SHARES 1999(1)
- ----------------------------------------------------------------------------------------
<S> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period ________
----------------
Investment Operations:
Net Investment Income ________
Net Gains (Losses) on Investments
(both realized and unrealized) ________
----------------
Total From Investment Operations ________
----------------
Less Distributions:
Dividends (from Net Investment Income) ________
----------------
Total Distributions ________
----------------
Net Asset Value, End of Period ________
================
Total Return ________
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) ________
Ratio of Expenses to Average Net Assets ________
Ratio of Net Income to Average Net Assets ________
Ratios of Expenses to Average Net Assets (excluding waivers) ________
Ratio of Net Income to Average Net Assets (excluding waivers) ________
Portfolio Turnover Rate ________
- ----------------------------------------------------------------------------------------
</TABLE>
(1) Class C shares have been offered since February 1, 1999.
66 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
FOR MORE INFORMATION
More information about the funds is available in the funds' Statement of
Additional Information and annual and semiannual reports.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI provides more details about the funds and their policies. A current SAI
is on file with the Securities and Exchange Commission (SEC) and is incorporated
into this prospectus by reference (which means that it is legally considered
part of this prospectus).
ANNUAL AND SEMIANNUAL REPORTS
Additional information about the funds' investments is available in the funds'
annual and semiannual reports to shareholders. In the funds' annual report, you
will find a discussion of the market conditions and investment strategies that
significantly affected the funds' performance during their last fiscal year.
You can obtain a free copy of the funds' SAI and/or free copies of the funds'
most recent annual or semiannual reports by calling Investor Services at
1-800-637-2548. The material you request will be sent by first-class mail or
other means designed to ensure equally prompt delivery, within three business
days of receipt of the request.
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, DC, or by sending your request and a duplicating fee to the SEC's
Public Reference Section, Washington, DC 20549-6009. For more information, call
1-800-SEC-0330.
Information about the funds is also available on the Internet. Text-only
versions of fund documents can be viewed online or downloaded from the SEC's
Internet site at http://www.sec.gov.
SEC file number: 811-05309
FAIF 1000 (2/2000)R
66 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class A, Class B, and Class C Shares
<PAGE>
February 1, 2000
LARGE CAP FUNDS
CLASS Y SHARES
Balanced Fund
Equity Income Fund
Equity Index Fund
Large Cap Growth Fund
Large Cap Value Fund
First American
Investment Funds, Inc.
PROSPECTUS
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the shares of these funds, or determined if the
information in this prospectus is accurate or complete. Any statement to the
contrary is a criminal offense.
FIRST AMERICAN(R)
THE POWER OF DISCIPLINED INVESTING(R)
1 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class Y Shares
<PAGE>
TABLE OF
CONTENTS
FUND SUMMARIES
-------------------------------------------------------------------------
Balanced Fund
-------------------------------------------------------------------------
Equity Income Fund
-------------------------------------------------------------------------
Equity Index Fund
-------------------------------------------------------------------------
Large Cap Growth Fund
-------------------------------------------------------------------------
Large Cap Value Fund
-------------------------------------------------------------------------
POLICIES & SERVICES
-------------------------------------------------------------------------
Buying and Selling Shares
-------------------------------------------------------------------------
Managing Your Investment
-------------------------------------------------------------------------
ADDITIONAL INFORMATION
-------------------------------------------------------------------------
Management
-------------------------------------------------------------------------
More About The Funds
-------------------------------------------------------------------------
Financial Highlights
-------------------------------------------------------------------------
FOR MORE INFORMATION
-------------------------------------------------------------------------
2 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
INTRODUCTION
This section of the prospectus describes the objectives of the First American
Large Cap Funds, summarizes the main investment strategies used by each fund in
trying to achieve its objectives, and highlights the risks involved with these
strategies. It also provides you with information about the performance, fees
and expenses of the funds.
AN INVESTMENT IN THE FUNDS IS NOT A DEPOSIT OF U.S. BANK NATIONAL ASSOCIATION
AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR
ANY OTHER GOVERNMENT AGENCY.
3 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
BALANCED FUND
OBJECTIVE
Balanced Fund's objective is to maximize total return (capital appreciation plus
income).
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Balanced Fund invests in a balanced portfolio of
stocks and bonds. The mix of securities will change based on existing and
anticipated market conditions. Over the long term, the fund's asset mix is
likely to average approximately 60% equity securities and 40% debt securities.
Under normal market conditions, the equity securities portion of the fund's
portfolio will be invested primarily (at least 75% of the total assets) in
common stocks of companies that cover a broad range of industries and that have
market capitalizations of at least $5 billion at the time of purchase. The
fund's advisor invests in equity securities it believes:
o are undervalued relative to other securities in the same industry or market;
o exhibit good or improving fundamentals; and
o exhibit an identifiable catalyst that could close the gap between market
value and fair value over the next one to two years.
Up to 25% of the equity portion of the fund's portfolio may be invested in
securities of foreign issuers which are either listed on a U.S. stock exchange
or represented by American Depositary Receipts.
Under normal market conditions, the debt securities portion of the fund's
portfolio will be comprised of securities such as:
o U.S. government securities (securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities) including zero coupon
bonds;
o mortgage-and asset-backed securities; and
o corporate debt obligations.
In selecting debt securities for the fund, the advisor uses a "top-down"
approach, which begins with the formulation of a general economic outlook.
Following this, various sectors and industries are analyzed and selected for
investment. This is followed by the selection of
4 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class Y Shares
<PAGE>
individual securities.
The fund's debt securities will be rated investment grade at the time or
purchase or, if unrated, determined to be of comparable quality by the fund's
advisor. At least 65% of these securities will be either U.S. government
securities or securities that have received at least an A or equivalent rating.
The fund may invest up to 15% of the debt portion of its portfolio in foreign
securities payable in United States dollars. Under normal market conditions the
fund attempts to maintain a weighted average maturity for the debt securities in
its portfolio of 15 years or less and an average effective duration of three to
eight years.
To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions. It also may invest up to 25% of total assets in dollar roll
transactions. In a dollar roll transaction, the fund sells mortgage-backed
securities for delivery in the current month while contracting with the same
party to repurchase similar securities at a future date.
MAIN RISKS
The value of your investment in this fund will change daily, which means you
could lose money. The main risks of investing in this fund include:
RISKS OF COMMON STOCKS
Stocks may decline significantly in price over short or extended periods of
time. Price changes may occur in the market as a whole, or they may occur in
only a particular company, industry or sector of the market. In addition, value
stocks and/or large capitalization stocks may underperform the market as a
whole.
FOREIGN SECURITY RISK
Securities of foreign issuers, even when dollar-denominated and publicly traded
in the United States, may involve risks not associated with the securities of
domestic issuers, including the risks of adverse currency fluctuations and of
political or social instability or diplomatic developments that could adversely
affect the securities.
INTEREST RATE RISK
Debt securities typically decrease in value when interest rates rise. This risk
is usually greater for longer-term debt securities. One measure of interest rate
risk is effective duration, explained in the "More About the Funds -- Investment
Strategies" section.
INCOME RISK
The fund's income could decline due to falling market interest rates.
5 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class Y Shares
<PAGE>
CREDIT RISK
An issuer of debt securities may not make timely principal or interest payments
on its securities, or the other party to a contract (such as a securities
lending agreement) may default on its obligations.
CALL RISK
During periods of falling interest rates, a bond issuer may "call" -- or repay
- -- its high-yielding bonds before their maturity date. The fund would then be
forced to invest the unanticipated proceeds at lower interest rates, resulting
in a decline in the fund's income.
RISKS OF MORTGAGE- AND ASSET-BACKED SECURITIES
Falling interest rates could cause faster than expected prepayments of the
obligations underlying mortgage- and asset-backed securities, which the fund
would have to invest at lower interest rates. On the other hand, rising interest
rates could cause prepayments of the obligations to decrease, extending the life
of mortgage- and asset-backed securities with lower interest rates.
RISKS OF DOLLAR ROLL TRANSACTIONS
The use of mortgage dollar rolls could increase the volatility of the fund's
share price. It could also diminish the fund's investment performance if the
advisor does not predict mortgage prepayments and interest rates correctly.
FUND PERFORMANCE
The illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart shows you how performance of the fund's shares has varied from
year to year.
The table compares the fund's performance over different time periods to that of
the fund's benchmark indices, which are broad measures of market performance.
The fund's performance reflects fund expenses; the benchmark is unmanaged and
has no expenses.
Both the chart and the table assume that all distributions have been reinvested.
6 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
BALANCED FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR
26.77% 18.12% 17.33% 10.72%
- --------------- ------------- ------------- ------------- --------------
1995 1996 1997 1998 1999
BEST QUARTER:
Quarter ending: 6/30/97
Total return 10.22%
WORST QUARTER:
Quarter ending: 9/30/98
Total Return -5.78%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Inception Five Since
AS OF 12/31/99 Date One Year Years Inception
- --------------------------------------------------------------- ----------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C>
Balanced Fund 2/4/94 _____% _____% _____%
- --------------------------------------------------------------- ----------------- ------------- -------------- ---------------
Standard & Poor's 500 Composite Index(1) _____% _____% _____%
- --------------------------------------------------------------- ----------------- ------------- -------------- ---------------
Lehman Gov't/Corp Bond Index(2) _____% _____% _____%
- --------------------------------------------------------------- ----------------- ------------- -------------- ---------------
</TABLE>
(1) An unmanaged index of large capitalization stocks. The since inception
performance for the index is calculated from 2/28/94.
(2) An unmanaged index of Treasury securities, other securities issued or
guaranteed by the U.S. government or its agencies or instrumentalities, and
investment grade corporate debt securities. The since inception performance for
the index is calculated from 2/28/94.
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses
7 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class Y Shares
<PAGE>
indirectly since they are deducted from fund assets. The figures below show fund
expenses during the fiscal year ended September 30, 1999.(1)
- ------------------------------------------------------------------------------
SHAREHOLDER FEES
- ------------------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD) None
MAXIMUM DEFERRED SALES CHARGE (LOAD) None
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- ------------------------------------------------------------------------------
Management Fees 0.70%
Distribution and Service (12b-1) Fees None
Other Expenses ____%
TOTAL ____%
- ------------------------------------------------------------------------------
(1) Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. See "Additional Information --
Financial Highlights." The net expenses the fund actually paid after waivers for
the fiscal year ended September 30, 1999 were:
Waiver of Fund Expenses (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____%
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 0.80%. FEE WAIVERS MAY BE DISCONTINUED AT
ANY TIME.
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
1 year $ 92
3 years $ 287
5 years $ 498
10 years $1,108
8 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
EQUITY INCOME FUND
OBJECTIVE
Equity Income Fund's objective is long-term growth of capital and income.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Equity Income Fund invests primarily (at least
65% of its total assets) in equity securities of companies which the fund's
investment advisor believes are characterized by:
o the ability to pay above average dividends;
o the ability to finance expected growth; and
o strong management.
The fund will attempt to maintain a dividend that will grow quickly enough to
keep pace with inflation. As a result, higher-yielding equity securities will
generally represent the core holdings of the fund. However, the fund also may
invest in lower-yielding, higher growth equity securities if the advisor
believes they will help balance the portfolio. The fund's equity securities
include common stocks and preferred stocks and corporate debt securities which
are convertible into common stocks. All securities held by the fund will provide
current income at the time of purchase.
The fund invests in convertible debt securities in pursuit of both long-term
growth of capital and income. The securities' conversion features provide
long-term growth potential, while interest payments on the securities provide
income. The fund may invest in convertible debt securities without regard to
their ratings, and therefore may hold convertible debt securities which are
rated lower than investment grade.
Up to 25% of the fund's total assets may be invested in securities of foreign
issuers which are either listed on a United States stock exchange or represented
by American Depositary Receipts.
To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.
9 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class Y Shares
<PAGE>
MAIN RISKS
The value of your investment in this fund will change daily, which means you
could lose money. The main risks of investing in this fund include:
RISKS OF COMMON STOCKS
Stocks may decline significantly in price over short or extended periods of
time. Price changes may occur in the market as a whole, or they may occur in
only a particular company, industry or sector of the market.
INTEREST RATE RISK
Debt securities typically decrease in value when interest rates rise. This risk
is usually greater for longer-term debt securities.
CREDIT RISK
An issuer of debt securities may not make timely principal or interest payments
on its securities, or the other party to a contract (such as a securities
lending agreement) may default on its obligations.
RISKS OF NON-INVESTMENT GRADE SECURITIES
The fund may invest in securities which are rated lower than investment grade.
These securities, which are commonly called "high-yield" securities or "junk
bonds," generally have more volatile prices and carry more risk to principal
than investment grade securities. High yield securities may be more susceptible
to real or perceived adverse economic conditions than investment grade
securities. In addition, the secondary trading market may be less liquid.
FOREIGN SECURITY RISK
Securities of foreign issuers, even when dollar-denominated and publicly traded
in the United States, may involve risks not associated with the securities of
domestic issuers, including the risks of adverse currency fluctuations and of
political or social instability or diplomatic developments that could adversely
affect the securities.
FUND PERFORMANCE
The illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart shows you how performance of the fund's shares has varied from
year to year.
The table compares the fund's performance over different time periods to that of
the fund's
10 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class Y Shares
<PAGE>
benchmark indices, which are broad measures of market performance. The fund's
performance reflects fund expenses; the benchmark is unmanaged and has no
expenses.
Both the chart and the table assume that all distributions have been reinvested.
11 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
EQUITY INCOME FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR
23.00% 20.28% 27.72% 16.22%
- --------------- ------------- ------------- ------------- --------------
1995 1996 1997 1998 1999
BEST QUARTER:
Quarter ending: 6/30/97
Total return 11.99%
WORST QUARTER:
Quarter ending: 9/30/98
Total Return -7.61%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Inception One Year Five Years Since
AS OF 12/31/99 Date Inception
- ----------------------------------------------------------- ------------ ------------- ---------------
<S> <C> <C> <C> <C>
Equity Income Fund 8/2/94 _____% _____% _____%
- ----------------------------------------------------------- ------------ ------------- ---------------
Standard & Poor's 500 Composite Index(1) _____% _____% _____%
- ----------------------------------------------------------- ------------ ------------- ---------------
Lehman Gov't/Corp Bond Index(2) _____% _____% _____%
- ----------------------------------------------------------- ------------ ------------- ---------------
</TABLE>
(1) An unmanaged index of large capitalization stocks. The since inception
performance of each index is calculated from 8/31/94.
(2) An unmanaged index of Treasury securities, other securities issued or
guaranteed by the U.S. government or its agencies or instrumentalities, and
investment grade corporate debt securities. The since inception performance of
each index is calculated from 8/31/94.
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses
12 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class Y Shares
<PAGE>
indirectly since they are deducted from fund assets. The figures below show fund
expenses during the fiscal year ended September 30, 1999.(1)
- -------------------------------------------------------------------------------
SHAREHOLDER FEES
- -------------------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD) None
MAXIMUM DEFERRED SALES CHARGE (LOAD) None
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- -------------------------------------------------------------------------------
Management Fees 0.70%
Distribution and Service (12b-1) Fees None
Other Expenses ____%
TOTAL ____%
- -------------------------------------------------------------------------------
(1) Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. See "Additional Information --
Financial Highlights." The net expenses the fund actually paid after waivers for
the fiscal year ended September 30, 1999 were:
Waiver of Fund Expenses (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____%
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 0.75%. FEE WAIVERS MAY BE DISCONTINUED AT
ANY TIME.
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
1 year $ 89
3 years $ 278
5 years $ 482
10 years $1,073
13 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
EQUITY INDEX FUND
OBJECTIVE
Equity Index Fund's objective is to provide investment results that correspond
to the performance of the Standard & Poor's 500 Composite Index (S&P 500).
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Equity Index Fund invests at least 90% of its
total assets in common stocks included in the S&P 500. The S&P 500 is a
market-value weighted index consisting of 500 stocks chosen for market size,
liquidity and industry representation.
The fund's advisor believes that the fund's objective can best be achieved by
investing in common stocks of approximately 90% to 100% of the issues included
in the S&P 500, depending on the size of the fund. A computer program is used to
identify which stocks should be purchased or sold in order to replicate, as
closely as possible, the composition of the S&P 500.
Because the fund may not always hold all of the stocks included in the S&P 500,
and because the fund has expenses and the index does not, the fund will not
duplicate the index's performance precisely. However, the fund's advisor
believes there should 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. If the fund is unable to achieve a
correlation of 95% over time, the fund's board of directors will consider
alternative strategies for the fund.
The fund also may invest up to 10% of its total assets 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 makes these investments
to maintain the liquidity needed 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.
To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.
14 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class Y Shares
<PAGE>
MAIN RISKS
The value of your investment in this fund will change daily, which means you
could lose money. The main risks of investing in this fund include:
RISKS OF COMMON STOCKS
Stocks may decline significantly in price over short or extended periods of
time. Price changes may affect the market as a whole, or they may affect only a
particular company, industry or sector of the market.
FAILURE TO MATCH PERFORMANCE OF 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 performance of the S&P 500, the amount and
timing of cash flows into and out of the fund, commissions, sales charges (if
any) and other expenses.
RISKS OF OPTIONS AND FUTURES
The fund will suffer a loss in connection with its use of options, futures
contracts and options on futures contracts if securities prices do not move in
the direction anticipated by the fund's advisor when entering into the options
or the futures contracts.
RISKS OF SECURITIES LENDING
The fund is subject to the risk that the other party to a securities lending
agreement will default on its obligations.
FUND PERFORMANCE
The illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart shows you how performance of the fund's shares has varied from
year to year.
The table compares the fund's performance over different time periods to that of
the fund's benchmark index, which is a broad measure of market performance. The
fund's performance reflects fund expenses; the benchmark is unmanaged and has no
expenses.
Both the chart and the table assume that all distributions have been reinvested.
15 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
EQUITY INDEX FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR
36.97% 22.44% 32.84% 28.56%
- --------------- ------------- ------------- ------------- --------------
1995 1996 1997 1998 1999
BEST QUARTER:
Quarter ending: 12/31/98
Total return 21.39%
WORST QUARTER:
Quarter ending: 9/30/98
Total Return -9.91%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Inception One Year Five Years Since
AS OF 12/31/99 Date Inception
- --------------------------------------------------------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
Equity Index Fund 2/4/94 _____% _____% _____%
- --------------------------------------------------------- ------------ -------------- -------------
Standard & Poor's 500 Composite Index(1) _____% _____% _____%
- --------------------------------------------------------- ------------ -------------- -------------
</TABLE>
(1) An unmanaged index of large capitalization stocks. The since inception
performance of the index is calculated from 2/28/94.
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
16 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class Y Shares
<PAGE>
- ------------------------------------------------------------------------
SHAREHOLDER FEES
- ------------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD) None
MAXIMUM DEFERRED SALES CHARGE (LOAD) None
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- ------------------------------------------------------------------------
Management Fees 0.70%
Distribution and Service (12b-1) Fees None
Other Expenses ____%
TOTAL ____%
- ------------------------------------------------------------------------
(1) Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. See "Additional Information --
Financial Highlights." The net expenses the fund actually paid after waivers for
the fiscal year ended September 30, 1999 were:
Waiver of Fund Expenses (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____%
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 0.35%. FEE WAIVERS MAY BE DISCONTINUED AT
ANY TIME.
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
1 year $ 90
3 years $ 281
5 years $ 488
10 years $1,084
17 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
LARGE CAP GROWTH FUND
OBJECTIVE
Large Cap Growth Fund's objective is long-term growth of capital.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Large Cap Growth Fund invests primarily (at
least 75% of its total assets) in common stocks of companies that have market
capitalizations of at least $5 billion at the time of purchase. The advisor
will select companies that it believes exhibit the potential for superior growth
based on factors such as:
o above average growth in revenue and earnings;
o strong competitive position;
o strong management; and
o sound financial condition.
Up to 25% of the fund's total assets may be invested in securities of foreign
issuers which are either listed on a United States stock exchange or represented
by American Depositary Receipts.
To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.
MAIN RISKS
The value of your investment in this fund will change daily, which means you
could lose money. The main risks of investing in this fund include:
RISKS OF COMMON STOCKS
Stocks may decline significantly in price over short or extended periods of
time. Price changes may occur in the market as a whole, or they may occur in
only a particular company, industry or sector of the market. In addition, growth
stocks and/or large capitalization stocks may underperform the market as a
whole.
18 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class Y Shares
<PAGE>
FOREIGN SECURITY RISK
Securities of foreign issuers, even when dollar-denominated and publicly traded
in the United States, may involve risks not associated with the securities of
domestic issuers, including the risks of adverse currency fluctuations and of
political or social instability or diplomatic developments that could adversely
affect the securities.
RISKS OF SECURITIES LENDING
The fund is subject to the risk that the other party to a securities lending
agreement will default on its obligations.
FUND PERFORMANCE
The illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart shows you how performance of the fund's shares has varied from
year to year.
The table compares the fund's performance over different time periods to that of
the fund's benchmark index, which is a broad measure of market performance. The
fund's performance reflects fund expenses; the benchmark is unmanaged and has no
expenses.
Both the chart and the table assume that all distributions have been reinvested.
19 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
LARGE CAP GROWTH FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR
32.78% 23.23% 21.61% 24.05%
- --------------- ------------- ------------- ------------- --------------
1995 1996 1997 1998 1999
BEST QUARTER:
Quarter ending: 12/31/98
Total return 21.21%
WORST QUARTER:
Quarter ending: 9/30/98
Total Return -14.09%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Inception One Year Five Years Since
AS OF 12/31/99 Date Inception
- ------------------------------------------------------ ------------ -------------- --------------
<S> <C> <C> <C> <C>
Large Cap Growth Fund 8/2/94 _____% _______% _______%
- ------------------------------------------------------ ------------ -------------- --------------
Standard & Poor's 500 Composite Index(1) _____% _______% _______%
- ------------------------------------------------------ ------------ -------------- --------------
</TABLE>
(1) An unmanaged index of large capitalization stocks. The since inception
performance of each index is calculated from 8/31/94.
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
20 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class Y Shares
<PAGE>
- ------------------------------------------------------------------------------
SHAREHOLDER FEES
- ------------------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD) None
MAXIMUM DEFERRED SALES CHARGE (LOAD) None
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- ------------------------------------------------------------------------------
Management Fees 0.70%
Distribution and Service (12b-1) Fees None
Other Expenses ____%
TOTAL ____%
- ------------------------------------------------------------------------------
(1) Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. See "Additional Information --
Financial Highlights." The net expenses the fund actually paid after waivers for
the fiscal year ended September 30, 1999 were:
Waiver of Fund Expenses (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____%
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 0.80%. FEE WAIVERS MAY BE DISCONTINUED AT
ANY TIME.
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
1 year $ 88
3 years $ 274
5 years $ 477
10 years $1,061
21 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
LARGE CAP VALUE FUND
OBJECTIVE
Large Cap Value Fund's primary objective is capital appreciation. Current income
is a secondary objective of the fund.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Large Cap Value Fund invests primarily (at least
75% of its total assets) in common stocks of companies that cover a broad range
of industries and that have market capitalizations of at least $5 billion at
the time of purchase. In selecting stocks, the fund's advisor invests in
securities that it believes:
o are undervalued relative to other securities in the same industry or market;
o exhibit good or improving fundamentals; and
o exhibit an identifiable catalyst that could close the gap between market
value and fair value over the next one to two years.
Up to 25% of the fund's total assets may be invested in securities of foreign
issuers which are either listed on a United States stock exchange or represented
by American Depositary Receipts.
To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.
MAIN RISKS
The value of your investment in this fund will change daily, which means you
could lose money. The main risks of investing in this fund include:
RISKS OF COMMON STOCKS
Stocks may decline significantly in price over short or extended periods of
time. Price changes may occur in the market as a whole, or they may occur in
only a particular company, industry or sector of the market. In addition, value
stocks and/or large capitalization stocks may underperform the market as a
whole.
22 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class Y Shares
<PAGE>
FOREIGN SECURITY RISK
Securities of foreign issuers, even when dollar-denominated and publicly traded
in the United States, may involve risks not associated with the securities of
domestic issuers, including the risks of adverse currency fluctuations and of
political or social instability or diplomatic developments that could adversely
affect the securities.
RISKS OF SECURITIES LENDING
The fund is subject to the risk that the other party to a securities lending
agreement will default on its obligations.
FUND PERFORMANCE
The illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart shows you how performance of the fund's shares has varied from
year to year.
The table compares the fund's performance over different time periods to that of
the fund's benchmark index, which is a broad measure of market performance. The
fund's performance reflects fund expenses; the benchmark is unmanaged and has no
expenses.
Both the chart and the table assume that all distributions have been reinvested.
23 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
LARGE CAP VALUE FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR
32.23% 29.47% 22.80% 9.99%
- --------------- ------------- ------------- ------------- --------------
1995 1996 1997 1998 1999
BEST QUARTER:
Quarter ending: 12/31/98
Total return 16.64%
WORST QUARTER:
Quarter ending: 9/30/98
Total Return -13.85%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Inception One Year Five Years Since
AS OF 12/31/99 Date Inception
- ------------------------------------------------------ ------------ ------------ ----------------
<S> <C> <C>
Large Cap Value Fund 2/4/94 _____% _____% _____%
- ------------------------------------------------------ ------------ ------------ ----------------
Standard & Poor's 500 Composite Index(1) _____% _____% _____%
- ------------------------------------------------------ ------------ ------------ ----------------
</TABLE>
(1) An unmanaged index of large capitalization stocks. The since inception
performance of each index is calculated from 2/28/94.
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
24 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class Y Shares
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
- --------------------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD) None
MAXIMUM DEFERRED SALES CHARGE (LOAD) None
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- --------------------------------------------------------------------------------
Management Fees 0.70%
Distribution and Service (12b-1) Fees None
Other Expenses ____%
TOTAL ____%
- --------------------------------------------------------------------------------
(1) Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. See "Additional Information --
Financial Highlights." The net expenses the fund actually paid after waivers for
the fiscal year ended September 30, 1999 were:
Waiver of Fund Expenses (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____%
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 0.80%. FEE WAIVERS MAY BE DISCONTINUED AT
ANY TIME.
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
1 year $ 90
3 years $ 281
5 years $ 488
10 years $1,084
25 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class Y Shares
<PAGE>
POLICIES & SERVICES
BUYING AND SELLING SHARES
Class Y shares are offered through banks and other financial institutions that
have entered into sales agreements with the funds' distributor and that hold the
shares in an omnibus account with the transfer agent. Class Y shares are
available to certain accounts for which the financial institution acts in a
fiduciary, agency or custodial capacity, such as certain trust accounts and
investment advisory accounts. To find out whether you may purchase Class Y
shares, contact your financial institution.
There is no initial or deferred sales charge on your purchase of Class Y shares.
However, your broker or financial institution may receive a commission of up to
1.25% on your purchase.
CALCULATING YOUR SHARE PRICE
Your purchase price will be equal to the fund's net asset value (NAV) per share,
which is generally calculated as of the close of regular trading on the New York
Stock Exchange (usually 3 p.m. Central time) every day the exchange is open.
A fund's NAV is equal to the market value of its investments and other assets,
less any liabilities, divided by the number of fund shares. If market prices are
not readily available for an investment or if the advisor believes they are
unreliable, fair value prices may be determined in good faith using methods
approved by the funds' board of directors.
HOW TO BUY AND SELL SHARES
You may purchase or sell shares by calling your financial institution.
When purchasing shares, payment must be made by wire transfer, which can be
arranged by your financial institution. Because purchases must be paid for by
wire transfer, you can purchase shares only on days when both the New York Stock
Exchange and federally chartered banks are open. You may sell your shares on any
day when the New York Stock Exchange is open.
Purchase orders and redemption requests must be received by your financial
institution by the time specified by the institution to be assured same day
processing. In order for shares to be purchased at that day's price, the funds
must receive your purchase order by 3:00 p.m. Central time and the funds'
custodian must receive federal funds before the close of business. In order for
shares to be sold at that day's price, the funds must receive your redemption
request by 3:00 p.m. Central time. It is the responsibility of your financial
institution to promptly transmit orders to the funds. Purchase orders and
redemption requests may be restricted in the event of an early or unscheduled
close of the New York Stock Exchange.
If the funds receive your redemption request by 3:00 p.m. Central time, payment
of your
26 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class Y Shares
<PAGE>
redemption proceeds will ordinarily be made by wire on the next business day. It
is possible, however, that payment could be delayed by up to seven days.
HOW TO EXCHANGE SHARES
If your investment goals or your financial needs change, you may exchange your
shares for Class Y shares of another First American fund. Exchanges will be made
at the net asset value per share of each fund at the time of the exchange. There
is no fee to exchange shares. If you are no longer eligible to hold Class Y
shares, for example, if you decide to discontinue your fiduciary, agency or
custodian account, you may exchange your shares for Class A shares at net asset
value. Class A shares have higher expenses than Class Y shares.
To exchange your shares, call your financial institution. In order for your
shares to be exchanged the same day, you must call your financial institution by
the time specified by the institution and your exchange order must be received
by the funds by 3:00 p.m. Central time. It is the responsibility of your
financial institution to promptly transmit your exchange order to the funds.
Before exchanging into any fund, be sure to read its prospectus carefully. A
fund may change or cancel its exchange policies at any time. You will be
notified of any changes. The funds have the right to limit exchanges to four
times per year.
27 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class Y Shares
<PAGE>
POLICIES & SERVICES
MANAGING YOUR INVESTMENT
STAYING INFORMED
SHAREHOLDER REPORTS
Shareholder reports are mailed twice a year, in November and May. They include
financial statements, performance information, a message from your portfolio
managers, and, on an annual basis, the auditors' report.
In an attempt to reduce shareholder costs and help eliminate duplication, the
funds will try to limit their mailings to one report for each address that lists
one or more shareholders with the same last name. If you would like additional
copies, please call 1-800-637-2548.
STATEMENTS AND CONFIRMATIONS
Statements summarizing activity in your account are mailed at least quarterly.
Confirmations are mailed following each purchase or sale of fund shares.
DIVIDENDS AND DISTRIBUTIONS
Dividends from a fund's net investment income are declared and paid monthly. Any
capital gains are distributed at least once each year.
On the ex-dividend date for a distribution, a fund's share price is reduced by
the amount of the distribution. If you buy shares just before the ex-dividend
date, in effect, you "buy the dividend." You will pay the full price for the
shares and then receive a portion of that price back as a taxable distribution.
Dividend and capital gain distributions will be reinvested in additional shares
of the fund paying the distribution, unless you request that distributions be
reinvested in another First American fund or paid in cash. This request may be
made on your new account form or by writing to the fund. If you request that
your distributions be paid in cash but those distributions cannot be delivered
because of an incorrect mailing address, the undelivered distributions and all
future distributions will be reinvested in fund shares.
TAXES
Some of the tax consequences of investing in the funds are discussed below. More
information about taxes is in the Statement of Additional Information. However,
because everyone's tax
28 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class Y Shares
<PAGE>
situation is unique, always consult your tax professional about federal, state
and local tax consequences.
TAXES ON DISTRIBUTIONS
Each fund pays its shareholders dividends from its net investment income and any
net capital gains that it has realized. For most investors, fund dividends and
distributions are considered taxable whether they are reinvested or taken in
cash (unless your investment is in an IRA or other tax-advantaged account).
Dividends from a fund's net investment income and short-term capital gains are
taxable as ordinary income. Distributions of a fund's long-term capital gains
are taxable as long-term gains, regardless of how long you have held your
shares. Because of their investment objectives and strategies, distributions for
Large Cap Growth Fund and Large Cap Value Fund are expected to consist primarily
of capital gains.
TAXES ON TRANSACTIONS
The sale of fund shares, or the exchange of one fund's shares for shares of
another fund, will be a taxable event and may result in a capital gain or loss.
The gain or loss will be considered long-term if you have held your shares for
more than one year. A gain or loss on shares held for one year or less is
considered short-term and is taxed at the same rates as ordinary income.
The exchange of one class of shares for another class of shares in the same fund
will not be taxable.
29 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class Y Shares
<PAGE>
ADDITIONAL INFORMATION
MANAGEMENT
INVESTMENT ADVISOR
First American Asset Management
601 Second Avenue South
Minneapolis, Minnesota 55402
U.S. Bank National Association (U.S. Bank), acting through its First American
Asset Management division, is the funds' investment advisor. First American
Asset Management provides investment management services to individuals and
institutions, including corporations, foundations, pensions and retirement
plans. As of December 31, 1999, it had more than $ ____ billion in assets under
management, including investment company assets of approximately $ ____ billion.
As investment advisor, First American Asset Management manages the funds'
business and investment activities, subject to the authority of the board of
directors.
Each fund pays the investment advisor a monthly fee for providing investment
advisory services. During their most recent fiscal years, after taking into
account any fee waivers, the funds paid the following investment advisory fees
to First American Asset Management:
Advisory fee
as a % of
average daily
net assets
- -----------------------------------------------------------------------------
Balanced Fund ________ %
Equity Income Fund ________ %
Equity Index Fund ________ %
Large Cap Growth Fund ________ %
Large Cap Value Fund ________ %
- -----------------------------------------------------------------------------
CUSTODIAN
U.S. Bank National Association
U.S. Bank Center
180 East Fifth Street
St. Paul, Minnesota 55101
ADMINISTRATOR
U.S Bank National Association
30 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class Y Shares
<PAGE>
U.S. Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402
DISTRIBUTOR
SEI Investments Distribution Co.
Oaks, Pennsylvania 19456
ADDITIONAL COMPENSATION
U.S. Bank and other affiliates of U.S. Bancorp may act as fiduciary with respect
to plans subject to the Employee Retirement Income Security Act of 1974 (ERISA)
and other trust and agency accounts that invest in the funds. As described
above, U.S. Bank receives compensation for acting as the funds' investment
advisor. U.S. Bank and its affiliates also receive compensation in connection
with the following:
CUSTODY SERVICES. U.S. Bank provides or compensates others to provide custody
services to the funds. U.S. Bank is paid monthly fees equal, on an annual basis,
to 0.03% of a fund's average daily net assets. In addition, U.S. Bank is
reimbursed for its out-of-pocket expenses incurred while providing custody
services to the funds.
ADMINISTRATION SERVICES. U.S. Bank provides or compensates others to provide
administrative services to the funds including general administrative and
accounting services, transfer agency and dividend disbursing services, and
shareholder services. The funds pay U.S. Bank monthly fees equal, on an annual
basis, to 0.12% of the aggregate average daily net assets of all open-end mutual
funds in the First American fund family up to $8 billion and 0.105% of the
aggregate average daily net assets of all open-end mutual funds in the First
American fund family in excess of $8 billion. Additionally, the funds pay U.S.
Bank fees based upon the number of funds and accounts maintained.
SECURITIES LENDING SERVICES. In connection with lending their portfolio
securities, the funds pay administrative and custodial fees to U.S. Bank which
are equal to 40% of the funds' income from these securities lending
transactions.
BROKERAGE TRANSACTIONS. When purchasing and selling portfolio securities for the
funds, the funds' investment advisor may place trades through its affiliates,
U.S. Bancorp Investments, Inc. and U.S. Bancorp Piper Jaffray Inc., which will
earn commissions on such transactions.
SALES OF FUND SHARES. U.S. Bancorp Investments, Inc. and U.S. Bancorp Piper
Jaffray, Inc. broker-dealers affiliated with U.S. Bank, have entered into
agreements with the funds' distributor to sell fund shares and will earn annual
shareholder servicing fees in connection with these sales.
PORTFOLIO MANAGEMENT
Each fund's investments are managed by a team of persons associated with First
American Asset Management.
31 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class Y Shares
<PAGE>
ADDITIONAL INFORMATION
MORE ABOUT THE FUNDS
OBJECTIVES
The funds' objectives, which are described in the "Fund Summaries" section, may
be changed without shareholder approval. If a fund's objectives change, you will
be notified at least 30 days in advance. Please remember: There is no guarantee
that any fund will achieve its objectives.
INVESTMENT STRATEGIES
The funds' main investment strategies are discussed in the "Fund Summaries"
section. These are the strategies that the funds' investment advisor believes
are most likely to be important in trying to achieve the funds' objectives. You
should be aware that each fund may also use strategies and invest in securities
that are not described in this prospectus, but that are described in the
Statement of Additional Information (SAI). For a copy of the SAI, call Investor
Services at 1-800-637-2548.
TEMPORARY INVESTMENTS
In an attempt to respond to adverse market, economic, political or other
conditions, each fund may temporarily invest without limit in cash and in U.S.
dollar-denominated high-quality money market instruments and other short-term
securities, including money market funds advised by the funds' advisor. Being
invested in these securities may keep a fund from participating in a market
upswing and prevent the fund from achieving its investment objectives.
EFFECTIVE DURATION
Balanced Fund normally attempts to maintain an average effective duration of
three to eight years for the debt securities portion of its portfolio. Effective
duration, one measure of interest rate risk, measures how much the value of a
security is expected to change with a given change in interest rates. The longer
a security's effective duration, the more sensitive its price to changes in
interest rates. For example, if interest rates were to increase by one
percentage point, the market value of a bond with an effective duration of five
years would decrease by 5%, with all other factors being constant. However, all
other factors are rarely constant. Effective duration is based on assumptions
and subject to a number of limitations. It is most useful when interest rate
changes are small, rapid and occur equally in short-term and long-term
securities. In addition, it is difficult to calculate precisely for bonds with
prepayment options, such as mortgage- and asset-backed securities, because the
calculation requires assumptions about prepayment rates.
PORTFOLIO TURNOVER
Portfolio managers for the funds other than Equity Index Fund may trade
securities frequently,
32 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class Y Shares
<PAGE>
resulting, from time to time, in an annual portfolio turnover rate of over 100%.
Trading of securities may produce capital gains, which are taxable to
shareholders when distributed. Active trading may also increase the amount of
commissions or mark-ups to broker-dealers that the fund pays when it buys and
sells securities. Portfolio turnover for Equity Index Fund is expected to be
well below that of actively managed mutual funds. The "Financial Highlights"
section of this prospectus shows each fund's historical portfolio turnover rate.
RISKS
The main risks of investing in the funds are summarized in the "Fund Summaries"
section. More information about fund risks is presented below.
MARKET RISK
All stocks are subject to price movements due to changes in general economic
conditions, the level of prevailing interest rates or investor perceptions of
the market. Prices also are affected by the outlook for overall corporate
profitability.
SECTOR RISK
The stocks of companies within specific industries or sectors of the economy can
periodically perform differently than the overall stock market. This can be due
to changes in such things as the regulatory or competitive environment or to
changes in investor perceptions of a particular industry or sector.
COMPANY RISK
Individual stocks can perform differently than the overall market. This may be a
result of specific factors such as changes in corporate profitability due to the
success or failure of specific products or management strategies, or it may be
due to changes in investor perceptions regarding a company.
FOREIGN SECURITY RISK
Each fund other than Equity Index Fund may invest up to 25% of its total assets
(25% of the equity portion of its portfolio for Balanced Fund) in securities of
foreign issuers which are either listed on a United States stock exchange or
represented by American Depositary Receipts. In addition, Balanced Fund may
invest up to 15% of the debt portion of its portfolio in foreign securities
payable in United States dollars. Securities of foreign issuers, even when
dollar-denominated and publicly traded in the United States, may involve risks
not associated with the securities of domestic issuers. For certain foreign
countries, political or social instability or diplomatic developments could
adversely affect the securities. There is also the risk of loss due to
governmental actions such as a change in tax statutes or the modification of
individual property rights. In addition, individual foreign economies may differ
favorably or unfavorably from the U.S. economy.
33 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class Y Shares
<PAGE>
RISKS OF ACTIVE MANAGEMENT
Each fund other than Equity Index Fund is actively managed and its performance
therefore will reflect in part the advisor's ability to make investment
decisions which are suited to achieving the fund's investment objectives. Due to
their active management, the funds could underperform other mutual funds with
similar investment objectives.
RISKS OF SECURITIES LENDING
When a fund loans its portfolio securities, it will receive collateral equal to
at least 100% of the value of the loaned securities. Nevertheless, the fund
risks a delay in the recovery of the loaned securities, or even the loss of
rights in the collateral deposited by the borrower if the borrower should fail
financially. To reduce these risks, the funds enter into loan arrangements only
with institutions which the funds' advisor has determined are creditworthy under
guidelines established by the funds' board of directors.
ADDITIONAL RISKS OF BALANCED FUND AND EQUITY INCOME FUND
INTEREST RATE RISK
Debt securities in Balanced Fund and Equity Income Fund will fluctuate in value
with changes in interest rates. In general, debt securities will increase in
value when interest rates fall and decrease in value when interest rates rise.
Longer-term debt securities are generally more sensitive to interest rate
changes.
CREDIT RISK
Balanced Fund and Equity Income Fund are subject to the risk that the issuers of
debt securities held by a fund will not make payments on the securities. There
is also the risk that an issuer could suffer adverse changes in financial
condition that could lower the credit quality of a security. This could lead to
greater volatility in the price of the security and in shares of the fund. Also,
a change in the credit quality rating of a bond could affect the bond's
liquidity and make it more difficult for the fund to sell.
Balanced Fund attempts to minimize credit risk by investing in securities
considered at least investment grade at the time of purchase. However, all of
these securities, especially those in the lower investment grade rating
categories, have credit risk. In adverse economic or other circumstances,
issuers of these lower rated securities are more likely to have difficulty
making principal and interest payments than issuers of higher rated securities.
When Balanced Fund purchases unrated securities, it will depend on the advisor's
analysis of credit risk more heavily than usual.
As discussed in the "Fund Summaries" section, Equity Income Fund invests in
convertible debt securities that are rated below investment grade and are
therefore subject to additional credit risk.
34 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class Y Shares
<PAGE>
ADDITIONAL RISKS OF BALANCED FUND
CALL RISK
Many corporate bonds may be redeemed at the option of the issuer, or "called,"
before their stated maturity date. In general, an issuer will call its bonds if
they can be refinanced by issuing new bonds which bear a lower interest rate.
Balanced Fund is subject to the possibility that during periods of falling
interest rates, a bond issuer will call its high-yielding bonds. The fund would
then be forced to invest the unanticipated proceeds at lower interest rates,
resulting in a decline in the fund's income.
EXTENSION RISK
Mortgage-backed securities are secured by and payable from pools of mortgage
loans. Similarly, asset-backed securities are supported by obligations such as
automobile loans or home equity loans. These mortgages and other obligations
generally can be prepaid at any time without penalty. As a result, mortgage- and
asset-backed securities are subject to extension risk, which is the risk that
rising interest rates could cause the mortgages or other obligations underlying
the securities to be prepaid more slowly than expected, resulting in slower
prepayments of the securities. This would, in effect, convert a short-or
medium-duration mortgage- or asset-backed security into a longer-duration
security, increasing its sensitivity to interest rate changes and causing its
price to decline.
PREPAYMENT RISK
Mortgage- and asset-backed securities also are subject to prepayment risk, which
is the risk that falling interest rates could cause prepayments of the
securities to occur more quickly than expected. This occurs because, as interest
rates fall, more homeowners refinance the mortgages underlying mortgage-related
securities or prepay the debt obligations underlying asset-backed securities.
Balanced Fund must reinvest the prepayments at a time when interest rates are
falling, reducing the income of the fund. In addition, when interest rates fall,
prices on mortgage- and asset-backed securities may not rise as much as for
other types of comparable debt securities because investors may anticipate an
increase in prepayments.
RISKS OF DOLLAR ROLL TRANSACTIONS
In a dollar roll transaction, Balanced Fund sells mortgage-backed securities for
delivery in the current month while contracting with the same party to
repurchase similar securities at a future date. Because the fund gives up the
right to receive principal and interest paid on the securities sold, a mortgage
dollar roll transaction will diminish the investment performance of the fund
unless the difference between the price received for the securities sold and the
price to be paid for the securities to be purchased in the future, plus any fee
income received, exceeds any income, principal payments and appreciation on the
securities sold as part of the mortgage dollar roll. Whether mortgage dollar
rolls will benefit Balanced Fund may depend upon the advisor's ability to
predict mortgage prepayments and interest rates. In addition, the use of
mortgage dollar
35 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class Y Shares
<PAGE>
rolls by the fund increases the amount of the fund's assets that are subject to
market risk, which could increase the volatility of the price of the fund's
shares.
36 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class Y Shares
<PAGE>
ADDITIONAL INFORMATION
FINANCIAL HIGHLIGHTS
The tables that follow present performance information about the Class Y shares
of each fund. This information is intended to help you understand each fund's
financial performance for the past five years or, if shorter, the period of the
fund's Class Y share operations. Some of this information reflects financial
results for a single fund share. Total returns in the tables represent the rate
that you would have earned or lost on an investment in a fund, assuming you
reinvested all of your dividends and distributions.
The information for the fiscal year ended September 30, 1999 has been audited by
Ernst & Young LLP, independent auditors, whose report, along with the funds'
financial statements, is included in the funds' annual report, which is
available upon request. The information for the fiscal years ended on or before
September 30, 1998, has been audited by KPMG LLP.
<TABLE>
<CAPTION>
BALANCED FUND
Fiscal year ended September 30,
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period ______ $15.43 $13.15 $12.13 $10.54
---------------------------------------------------------------
Investment Operations:
Net Investment Income _______ 0.44 0.42 0.42 0.40
Net Gains (Losses) on Investments
(both realized and unrealized) _______ (0.30) 2.86 1.43 1.73
---------------------------------------------------------------
Total From Investment Operations _______ 0.14 3.28 1.85 2.13
---------------------------------------------------------------
Less Distributions:
Dividends (from Net Investment Income) ______ (0.44) (0.42) (0.42) (0.39)
Distributions (from capital gains) ______ (1.12) (0.58) (0.41) (0.15)
---------------------------------------------------------------
Total Distributions ______ (1.56) (1.00) (0.83) (0.54)
---------------------------------------------------------------
Net Asset Value, End of Period ______ $14.01 $15.43 $13.15 $12.13
===============================================================
Total Return ______ 1.03% 26.17% 15.89% 20.89%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) ______ $455,426 $418,087 $332,786 $192,145
Ratio of Expenses to Average Net Assets ______ 0.80% 0.80% 0.80% 0.79%
Ratio of Net Income to Average Net Assets ______ 3.01% 2.99% 3.31% 3.61%
Ratio of Expenses to Average Net Assets (excluding
waivers) ______ 0.90% 0.88% 0.89% 0.94%
Ratio of Net Income to Average Net Assets
(excluding waivers) ______ 2.91% 2.91% 3.22% 3.46%
Portfolio Turnover Rate ______ 103% 84% 73% 77%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
37 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class Y Shares
<PAGE>
<TABLE>
<CAPTION>
EQUITY INCOME FUND
Fiscal year ended September 30,
1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period ______ $15.70 $12.66 $11.24 $9.89
----------------------------------------------------------------
Investment Operations:
Net Investment Income _______ 0.46 0.43 0.42 0.41
Net Gains (Losses) on Investments _______
(both realized and unrealized) 0.88 3.40 1.43 1.35
----------------------------------------------------------------
Total From Investment Operations _______ 1.34 3.83 1.85 1.76
----------------------------------------------------------------
Less Distributions:
Dividends (from Net Investment Income) ______ (0.45) (0.44) (0.42) (0.41)
Distributions (from capital gains) ______ (0.85) (0.35) (0.01) --
----------------------------------------------------------------
Total Distributions ______ (1.30) (0.79) (0.43) (0.41)
----------------------------------------------------------------
Net Asset Value, End of Period ______ $15.74 $15.70 $12.66 $11.24
================================================================
Total Return ______ 8.85% 31.45% 16.79% 18.24%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) ______ $359,588 $369,919 $64,590 $52,126
Ratio of Expenses to Average Net Assets ______ 0.75% 0.75% 0.75% 0.75%
Ratio of Net Income to Average Net Assets ______ 2.81% 3.12% 3.50% 4.11%
Ratio of Expenses to Average Net Assets (excluding ______
waivers) 0.87% 0.92% 0.95% 1.06%
Ratio of Net Income to Average Net Assets ______
(excluding waivers) 2.69% 2.95% 3.30% 3.80%
Portfolio Turnover Rate ______ 14% 39% 23% 23%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
38 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class Y Shares
<PAGE>
<TABLE>
<CAPTION>
EQUITY INDEX FUND
Fiscal year ended September 30,
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ______ $20.74 $15.47 $13.34 $10.67
---------------------------------------------------------------
Investment Operations:
Net Investment Income _______ 0.29 0.29 0.31 0.28
Net Gains (Losses) on Investments _______
(both realized and unrealized) 1.40 5.70 2.31 2.75
---------------------------------------------------------------
Total From Investment Operations _______ 1.69 5.99 2.62 3.03
---------------------------------------------------------------
Less Distributions:
Dividends (from Net Investment Income) ______ (0.29) (0.29) (0.31) (0.27)
Distributions (from capital gains) ______ (1.54) (0.43) (0.18) (0.09)
---------------------------------------------------------------
Total Distributions ______ (1.83) (0.72) (0.49) (0.36)
---------------------------------------------------------------
Net Asset Value, End of Period ______ $20.60 $20.74 $15.47 $13.34
===============================================================
Total Return ______ 8.82% 39.85% 19.98% 29.17%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) ______ $996,528 $557,258 $348,539 $218,932
Ratio of Expenses to Average Net Assets ______ 0.35% 0.35% 0.35% 0.35%
Ratio of Net Income to Average Net Assets ______ 1.36% 1.62% 2.14% 2.41%
Ratio of Expenses to Average Net Assets (excluding ______ 0.88% 0.88% 0.90% 0.95%
waivers)
Ratio of Net Income to Average Net Assets ______ 0.83% 1.09% 1.59% 1.81%
(excluding waivers)
Portfolio Turnover Rate ______ 14% 8% 10% 9%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
39 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class Y Shares
<PAGE>
<TABLE>
<CAPTION>
LARGE CAP GROWTH FUND
Fiscal year ended September 30,
1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period ______ $17.64 $13.66 $11.78 $ 9.10
----------------------------------------------------------------
Investment Operations:
Net Investment Income _______ 0.13 0.12 0.18 0.17
Net Gains (Losses) on Investments _______
(both realized and unrealized) 0.02 4.26 1.88 2.67
----------------------------------------------------------------
Total From Investment Operations _______ 0.15 4.38 2.06 2.84
----------------------------------------------------------------
Less Distributions:
Dividends (from Net Investment Income) ______ (0.13) (0.13) (0.18) (0.16)
Distributions (from capital gains) ______ (1.36) (0.27) -- --
----------------------------------------------------------------
Total Distributions ______ (1.49) (0.40) (0.18) (0.16)
----------------------------------------------------------------
Net Asset Value, End of Period ______ $16.30 $17.64 $13.66 $11.78
================================================================
Total Return ______ 1.07% 32.75% 17.58% 31.57%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) ______ $680,143 $681,151 $225,900 $132,854
Ratio of Expenses to Average Net Assets ______ 0.80% 0.80% 0.79% 0.75%
Ratio of Net Income to Average Net Assets ______ 0.82% 0.77% 1.39% 1.69%
Ratio of Expenses to Average Net Assets (excluding ______ 0.86% 0.89% 0.92% 1.01%
waivers)
Ratio of Net Income to Average Net Assets ______ 0.76% 0.68% 1.26% 1.43%
(excluding waivers)
Portfolio Turnover Rate ______ 38% 34% 21% 28%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
40 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class Y Shares
<PAGE>
<TABLE>
<CAPTION>
LARGE CAP VALUE FUND
Fiscal year ended September 30,
1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C>
Beginning of Period ______ $28.75 $22.60 $19.56 $16.50
------------------------------------------------------------------------
Investment Operations:
Net Investment Income _______ 0.35 0.39 0.42 0.36
Net Gains (Losses) on Investments
(both realized and unrealized) _______ (2.57) 7.90 4.09 3.64
------------------------------------------------------------------------
Total From Investment Operations _______ (2.22) 8.29 4.51 4.00
------------------------------------------------------------------------
Less Distributions:
Dividends (from net investment
income) ______ (0.35) (0.38) (0.42) (0.35)
Distributions (from capital gains) ______ (3.76) (1.76) (1.05) (0.59)
------------------------------------------------------------------------
Total Distributions ______ (4.11) (2.14) (1.47) (0.94)
------------------------------------------------------------------------
Net Asset Value, End of Period ______ $22.42 $28.75 $22.60 $19.56
========================================================================
Total Return ______ (8.47)% 39.13% 24.32% 25.50%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) ______ $1,253,845 $1,095,262 $471,206 $312,559
Ratio of Expenses to Average
Net Assets ______ 0.80% 0.80% 0.80% 0.79%
Ratio of Net Income to Average
Net Assets ______ 1.40% 1.39% 1.90% 2.10%
Ratio of Expenses to Average Net Assets
(excluding waivers) ______ 0.88% 0.89% 0.88% 0.94%
Ratio of Net Income to Average Net Assets
(excluding waivers) ______ 1.32% 1.30% 1.82% 1.95%
Portfolio Turnover Rate ______ 74% 57% 40% 52%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
41 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class Y Shares
<PAGE>
FOR MORE INFORMATION
More information about the funds is available in the funds' Statement of
Additional Information and annual and semiannual reports.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI provides more details about the funds and their policies. A current SAI
is on file with the Securities and Exchange Commission (SEC) and is incorporated
into this prospectus by reference (which means that it is legally considered
part of this prospectus).
ANNUAL AND SEMIANNUAL REPORTS
Additional information about the funds' investments is available in the funds'
annual and semiannual reports to shareholders. In the funds' annual report, you
will find a discussion of the market conditions and investment strategies that
significantly affected the funds' performance during their last fiscal year.
You can obtain a free copy of the funds' SAI and/or free copies of the funds'
most recent annual or semiannual reports by calling Investor Services at
1-800-637-2548. The material you request will be sent by first-class mail or
other means designed to ensure equally prompt delivery, within three business
days of receipt of the request.
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, DC, or by sending your request and a duplicating fee to the SEC's
Public Reference Section, Washington, DC 20549-6009. For more information, call
1-800-SEC-0330.
Information about the funds is also available on the Internet. Text-only
versions of fund documents can be viewed online or down-loaded from the SEC's
Internet site at http://www.sec.gov.
SEC file number: 811-05309
42 PROSPECTUS - FIRST AMERICAN LARGE CAP FUNDS
Class Y Shares
FAIF - 1200 (2/2000)Y
<PAGE>
FEBRUARY 1, 2000
MID CAP AND SMALL CAP FUNDS
CLASS A, CLASS B, AND CLASS C SHARES
Mid Cap Growth Fund
Mid Cap Value Fund
Small Cap Growth Fund
Small Cap Value Fund
First American
Investment Funds, Inc.
PROSPECTUS
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the shares of these funds, or determined if the
information in this prospectus is accurate or complete. Any statement to the
contrary is a criminal offense.
FIRST AMERICAN(R)
THE POWER OF DISCIPLINED INVESTING(R)
1 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
TABLE OF
CONTENTS
FUND SUMMARIES
----------------------------------------------------------------------
Mid Cap Growth Fund
----------------------------------------------------------------------
Mid Cap Value Fund
----------------------------------------------------------------------
Small Cap Growth Fund
----------------------------------------------------------------------
Small Cap Value Fund
----------------------------------------------------------------------
POLICIES & SERVICES
----------------------------------------------------------------------
Buying Shares
----------------------------------------------------------------------
Selling Shares
----------------------------------------------------------------------
Managing Your Investment
----------------------------------------------------------------------
ADDITIONAL INFORMATION
----------------------------------------------------------------------
Management
----------------------------------------------------------------------
More About The Funds
----------------------------------------------------------------------
Financial Highlights
----------------------------------------------------------------------
FOR MORE INFORMATION
----------------------------------------------------------------------
2 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
FUND SUMMARIES
INTRODUCTIONS
This section of the prospectus describes the objectives of the First American
Mid Cap Funds and First American Small Cap Funds, summarizes the main investment
strategies used by each fund in trying to achieve its objectives, and highlights
the risks involved with these strategies. It also provides you with information
about the performance, fees and expenses of the funds.
AN INVESTMENT IN THE FUNDS IS NOT A DEPOSIT OF U.S. BANK NATIONAL ASSOCIATION
AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR
ANY OTHER GOVERNMENT AGENCY.
3 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
FUND SUMMARIES
MID CAP GROWTH FUND
OBJECTIVE
Mid Cap Growth Fund has an objective of growth of capital.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Mid Cap Growth Fund invests primarily (at least
75% of total assets) in common stocks of mid capitalization companies, defined
as companies that have market capitalizations at the time of purchase within the
range of market capitalizations of companies constituting the Russell Midcap
Index. This index measures the performance of the 800 smallest companies in the
Russell 1000 Index (which is made up of the 1,000 largest U.S. companies based
on total market capitalization). As of the date of this prospectus, market
capitalizations of companies in the Russell Midcap Index ranged from
approximately $____ million to $____ billion.
The advisor will select companies that it believes exhibit the potential for
superior growth based on factors such as:
o above average growth in revenue and earnings;
o strong competitive position;
o strong management; and
o sound financial condition.
Up to 25% of the fund's total assets may be invested in securities of foreign
issuers which are either listed on a United States stock exchange or represented
by American Depositary Receipts.
To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.
MAIN RISKS
The value of your investment in this fund will change daily, which means you
could lose money. The main risks of investing in this fund include:
4 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
RISKS OF COMMON STOCKS
Stocks may decline significantly in price over short or extended periods of
time. Price changes may occur in the market as a whole, or they may occur in
only a particular company, industry or sector of the market. In addition, growth
stocks and/or mid cap stocks may underperform the market as a whole.
RISKS OF MID CAP STOCKS
While stocks of mid cap companies may be slightly less volatile than those of
small cap companies, they still involve substantial risk and their prices may be
subject to more abrupt or erratic movements than those of larger, more
established companies or the market averages in general.
FOREIGN SECURITY RISK
Securities of foreign issuers, even when dollar-denominated and publicly traded
in the United States, may involve risks not associated with the securities of
domestic issuers, including the risks of adverse currency fluctuations and of
political or social instability or diplomatic developments that could adversely
affect the securities.
RISKS OF SECURITIES LENDING
The fund is subject to the risk that the other party to a securities lending
agreement will default on its obligations.
FUND PERFORMANCE
Illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart shows you how performance of the fund's Class A shares has varied
from year to year. The performance of Class B and Class C shares will be lower
due to their higher expenses. Sales charges are not reflected in the chart; if
they had been, returns would be lower.
The table compares the fund's performance for Class A and Class B shares over
different time periods to that of the fund's benchmark index, which is a broad
measure of market performance. However, because Class C shares have not been
offered for a full calendar year, no information is presented for these shares.
The fund's performance reflects sales charges and fund expenses; the benchmark
is unmanaged and has no expenses.
Both the chart and the table assume that all distributions have been reinvested.
5 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
FUND SUMMARIES
MID CAP GROWTH FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
65.53% 7.23% 18.46% -4.90% 39.35% 11.84% 23.40% 10.58%
- -----------------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996 1997 1998 1999
</TABLE>
BEST QUARTER:
Quarter ending: 3/31/91
Total return 28.86%
WORST QUARTER:
Quarter ending: 9/30/98
Total return -19.34%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS AS OF Inception One Five Since Since
12/31/99(1) Date Year Years Inception Inception
(Class A) (Class B)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Mid Cap Growth Fund (Class A) 4/23/90 ____% ____% ____% N/A
- ----------------------------------------------------------------------------------------------------
Mid Cap Growth Fund (Class B) 8/7/98 ____% N/A N/A ____%
- ----------------------------------------------------------------------------------------------------
Russell Midcap Index(2) ____% ____% ____% ____%
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) On 8/7/98, the Mid Cap Growth Fund became the successor by merger to the
Piper Emerging Growth Fund, a series of Piper Funds, Inc. Prior to the merger,
the First American Fund had no assets or liabilities. Performance presented
prior to 8/7/98, represents that of the Piper Emerging Growth Fund.
(2) An ummanaged index comprised of the 800 smallest securities in the Russell
1000 Index, which represent approximately 35% of the total market capitalization
of the investable U.S. equity market. The since inception performance of the
index for Class A and Class B shares is calculated from 4/30/90 and 8/31/98,
respectively.
6 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
SHAREHOLDER FEES Class A Class B Class C
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MAXIMUM SALES CHARGE (LOAD)
AS A % OF OFFERING PRICE 5.25%(2) 0.00% 1.00%
MAXIMUM DEFERRED SALES CHARGE (LOAD)
AS A % OF ORIGINAL PURCHASE PRICE OR REDEMPTION
PROCEEDS, WHICHEVER IS LESS 0.00%(3) 5.00% 1.00%
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------------------
Management Fees 0.70% 0.70% 0.70%
Distribution and Service (12b-1) Fees 0.25% 1.00% 1.00%
Other Expenses ____% ____% ____%
TOTAL ____% ____% ____%
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) Actual expenses for the fiscal year were lower than those show because of
voluntary fee waivers by the fund's distributor. See Information -- Financial
Highlights." The net expenses the fund actually paid after waivers for the
fiscal year ended September 30, 1999 were:
<TABLE>
<S> <C> <C> <C>
Waiver of Fund Expenses (____%) (____%) (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____% ____% ____%
</TABLE>
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 1.15%, 1.90% AND 1.90%, RESPECTIVELY, FOR
CLASS A, CLASS B AND CLASS C SHARES. FEE WAIVERS MAY BE DISCONTINUED AT ANY
TIME.
(2) Certain investors may qualify for reduced sales charges. See "Buying Shares
- -- Calculating Your Share Price."
(3) Class A share investments of $1 million or more on which no front-end sales
charge is paid may be subject to a contingent deferred sales charge. See "Buying
Shares -- Calculating Your Share Price."
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
7 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
<TABLE>
<CAPTION>
CLASS B CLASS B CLASS C CLASS C
assuming assuming no assuming assuming no
redemption redemption redemption redemption
at end of at end of at end of at end of
CLASS A each period each period each period each period
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 year $ 633 $ 690 $ 190 $ 388 $ 288
3 years $ 862 $ 988 $ 588 $ 682 $ 682
5 years $1,110 $1,211 $1,011 $1,101 $1,101
10 years $1,817 $1,995 $1,995 $2,268 $2,268
</TABLE>
8 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
FUND SUMMARIES
MID CAP VALUE FUND
OBJECTIVE
Mid Cap Value Fund has an objective of capital appreciation.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Mid Cap Value Fund invests primarily (at least
75% of total assets) in common stocks of mid capitalization companies, defined
as companies that have market capitalizations at the time of purchase within the
range of market capitalizations of companies constituting the Russell Midcap
Index. This index measures the performance of the 800 smallest companies in the
Russell 1000 Index (which is made up of the 1,000 largest U.S. companies based
on total market capitalization). As of the date of this prospectus, market
capitalizations of companies in the Russell Midcap Index ranged from
approximately $____ million to $____ billion.
In selecting stocks, the fund's advisor invests in securities it believes:
o are undervalued relative to other securities in the same industry or market;
o exhibit good or improving fundamentals; and
o exhibit an identifiable catalyst that could close the gap between market
value and fair value over the next one to two years.
To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.
MAIN RISKS
The value of your investment in this fund will change daily, which means you
could lose money. The main risks of investing in this fund include:
RISKS OF COMMON STOCKS
Stocks may decline significantly in price over short or extended periods of
time. Price changes may occur in the market as a whole, or they may occur in
only a particular company, industry or sector of the market. In addition, value
stocks and/or mid cap stocks may underperform the market as a whole.
9 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
RISKS OF MID CAP STOCKS
While stocks of mid cap companies may be slightly less volatile than those of
small cap companies, they still involve substantial risk and their prices may be
subject to more abrupt or erratic movements than those of larger, more
established companies or the market averages in general.
RISKS OF SECURITIES LENDING
The fund is subject to the risk that the other party to a securities lending
agreement will default on its obligations.
FUND PERFORMANCE
Illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart shows you how performance of the fund's Class A shares has varied
from year to year. The performance of Class B and Class C shares will be lower
due to their higher expenses. Sales charges are not reflected in the chart; if
they had been, returns would be lower.
The table compares the fund's performance for Class A and Class B shares over
different time periods to that of the fund's benchmark index, which is a broad
measure of market performance. However, because Class C shares have not been
offered for a full calendar year, no information is presented for these shares.
The fund's performance reflects sales charges and fund expenses; the benchmark
is unmanaged and has no expenses.
Both the chart and the table assume that all distributions have been reinvested.
10 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
FUND SUMMARIES
MID CAP VALUE FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -6.82% 18.70% 19.33% 19.01% 6.72% 20.02% 31.94% 24.21% -13.24%
- --------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
</TABLE>
BEST QUARTER:
Quarter ending: 6/30/97
Total return 17.91%
WORST QUARTER:
Quarter ending: 9/30/98
Total return -30.84%
<TABLE>
<CAPTION>
Ten Since
AVERAGE ANNUAL TOTAL RETURNS AS OF Inception One Year Five Years Years Inception
12/31/99 Date (Class A) (Class B)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Mid Cap Value Fund (Class A) 12/22/87 ____% ____% ____% N/A
- ------------------------------------------------------------------------------------------------------
Mid Cap Value Fund (Class B) 8/15/94 ____% N/A N/A ____%
- ------------------------------------------------------------------------------------------------------
Russell Midcap Index(1) ____% ____% ____% ____%
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) An unmanaged index comprised of the 800 smallest securities in the Russell
1000 index, which represent approximately 35% of the total market capitalization
of investable U.S. equity markets. The since inception performance of the index
for Class B shares is calculated from 8/31/94.
11 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
SHAREHOLDER FEES Class A Class B Class C
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MAXIMUM SALES CHARGE (LOAD) 5.25%(2) 0.00% 1.00%
AS A % OF OFFERING PRICE
MAXIMUM DEFERRED SALES CHARGE (LOAD)
AS A % OF ORIGINAL PURCHASE PRICE OR REDEMPTION 0.00%(3) 5.00% 1.00%
PROCEEDS, WHICHEVER IS LESS
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- -------------------------------------------------------------------------------------------------
Management Fees 0.70% 0.70% 0.70%
Distribution and Service (12b-1) Fees 0.25% 1.00% 1.00%
Other Expenses ____% ____% ____%
TOTAL ____% ____% ____%
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) The net expenses the fund actually paid after waivers for the fiscal year
ended September 30, 1999 were:
<TABLE>
<S> <C> <C> <C>
Waiver of Fund Expenses (____%) (____%) (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____% ____% ____%
</TABLE>
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 1.15%, 1.90% AND 1.90%, RESPECTIVELY, FOR
CLASS A, CLASS B AND CLASS C SHARES. FEE WAIVERS MAY BE DISCONTINUED AT ANY
TIME.
(2) Certain investors may qualify for reduced sales charges. See "Buying Shares
- -- Calculating Your Share Price."
(3) Class A share investments of $1 million or more on which no front-end sales
charge is paid may be subject to a contingent deferred sales charge. See "Buying
Shares -- Calculating Your Share Price."
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
12 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
<TABLE>
<CAPTION>
CLASS B CLASS B CLASS C CLASS C
assuming assuming no assuming assuming no
redemption redemption redemption redemption
at end of at end of at end of at end of
CLASS A each period each period each period each period
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 year $ 635 $ 692 $ 192 $ 390 $ 290
3 years $ 868 $ 994 $ 594 $ 688 $ 688
5 years $1,120 $1,221 $1,021 $1,111 $1,111
10 years $1,838 $2,016 $2,016 $2,289 $2,289
</TABLE>
13 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
FUND SUMMARIES
SMALL CAP GROWTH FUND
OBJECTIVE
Small Cap Growth Fund has an objective of growth of capital.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Small Cap Growth Fund invests primarily (at
least 75% of total assets) in common stocks of small capitalization companies,
defined as companies that have market capitalizations at the time of purchase
within the range of market capitalizations of companies constituting the Russell
2000 Index. This index measures the performance of the 2,000 smallest companies
in the Russell 3000 Index (which is made up of the 3,000 largest U.S. companies
based on total market capitalization). As of the date of this prospectus, market
capitalizations of companies in the Russell 2000 Index ranged from approximately
$____ million to $____ billion.
The advisor will select companies that it believes exhibit the potential for
superior growth based on factors such as:
o above average growth in revenue and earnings;
o strong competitive position;
o strong management; and
o sound financial condition.
Up to 25% of the fund's total assets may be invested in securities of foreign
issuers which are either listed on a United States stock exchange or represented
by American Depositary Receipts.
To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.
MAIN RISKS
The value of your investment in this fund will change daily, which means you
could lose money. The main risks of investing in this fund include:
14 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
RISKS OF COMMON STOCKS
Stocks may decline significantly in price over short or extended periods of
time. Price changes may occur in the market as a whole, or they may occur in
only a particular company, industry or sector of the market. In addition, growth
stocks and/or stocks of small capitalization companies may underperform the
market as a whole.
RISKS OF SMALL CAP STOCKS
Stocks of small capitalization companies involve substantial risk. These stocks
historically have experienced greater price volatility than stocks of
larger-capitalization companies, and they may be expected to do so in the
future.
FOREIGN SECURITY RISK
Securities of foreign issuers, even when dollar-denominated and publicly traded
in the United States, may involve risks not associated with the securities of
domestic issuers, including the risks of adverse currency fluctuations and of
political or social instability or diplomatic developments that could adversely
affect the securities.
RISKS OF SECURITIES LENDING
The fund is subject to the risk that the other party to a securities lending
agreement will default on its obligations.
FUND PERFORMANCE
Illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart shows you how performance of the fund's Class A shares has varied
from year to year. The performance of Class B and Class C shares will be lower
due to their higher expenses. Sales charges are not reflected in the chart; if
they had been, returns would be lower.
The table compares the fund's performance for Class A and Class B shares over
different time periods to that of the fund's benchmark index, which is a broad
measure of market performance. However, because Class C shares have not been
offered for a full calendar year, no information is presented for these shares.
The fund's performance reflects sales charges and fund expenses; the benchmark
is unmanaged and has no expenses.
Both the chart and the table assume that all distributions have been reinvested.
15 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
FUND SUMMARIES
SMALL CAP GROWTH FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -0.42% 40.55% 11.47% 10.98% -2.44% 20.20% 11.68% 29.23% 7.73%
- -----------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
</TABLE>
BEST QUARTER:
Quarter ending: 12/31/98
Total return 28.06%
WORST QUARTER:
Quarter ending: 9/30/98
Total Return -22.14%
<TABLE>
<CAPTION>
AVERAGE ANNUAL Ten Years Since
TOTAL RETURNS Inception One Five (Class A) Inception
AS OF 12/31/99(1) Date Year Years (Class B)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Small Cap Growth Fund (Class A) 3/16/87 ____% ____% ____% N/A
- ----------------------------------------------------------------------------------------------------
Small Cap Growth Fund (Class B) 7/31/98 ____% N/A N/A ____%
- ----------------------------------------------------------------------------------------------------
Russell 2000 Index(2) ____% ____% ____% ____%
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) On 7/31/98, the Small Cap Growth Fund became the successor by merger to the
Piper Small Company Growth Fund, a series of Piper Funds, Inc. Prior to the
merger, the First American Fund had no assets or liabilities. Performance
presented prior to 7/31/98, represents that of the Piper Small Company Growth
Fund. On 9/21/96, shareholders approved a change in the Fund's investment
objective from high total investment return consistent with prudent investment
risk to long-term capital appreciation. In connection with this change, the
Fund's investment policies were revised.
(2) An unmanaged index comprised of the smallest 2000 companies in the Russell
3000 Index. The latter index is composed of 3000 large U.S. companies
representing approximately 98% of the investable U.S. equity market. The since
inception performance of the index for Class B shares is calculated from
7/31/98.
16 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES Class A Class B Class C
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MAXIMUM SALES CHARGE (LOAD) 5.25%(2) 0.00% 1.00%
AS A % OF OFFERING PRICE
MAXIMUM DEFERRED SALES CHARGE (LOAD)
AS A % OF ORIGINAL PURCHASE PRICE OR REDEMPTION 0.00%(3) 5.00% 1.00%
PROCEEDS, WHICHEVER IS LESS
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------------------------------------
Management Fees 0.70% 0.70% 0.70%
Distribution and Service (12b-1) Fees 0.25% 1.00% 1.00%
Other Expenses ____% ____% ____%
TOTAL ____% ____% ____%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. See "Additional Information --
Financial Highlights." The net expenses the fund actually paid after waivers for
the fiscal year ended September 30, 1999 were:
<TABLE>
<S> <C> <C> <C>
Waiver of Fund Expenses (____%) (____%) (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____% ____% ____%
</TABLE>
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 1.15%, 1.90% AND 1.90%, RESPECTIVELY, FOR
CLASS A, CLASS B AND CLASS C SHARES. FEE WAIVERS MAY BE DISCONTINUED AT ANY
TIME.
(2) Certain investors may qualify for reduced sales charges. See "Buying Shares
- -- Calculating Your Share Price."
(3) Class A share investments of $1 million or more on which no front-end sales
charge is paid may be subject to a contingent deferred sales charge. See "Buying
Shares -- Calculating Your Share Price."
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
17 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
<TABLE>
<CAPTION>
CLASS B CLASS B CLASS C CLASS C
assuming assuming no assuming assuming no
redemption redemption redemption redemption
at end of at end of at end of at end of
CLASS A each period each period each period each period
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 year $ 636 $ 693 $ 193 $ 391 $ 291
3 years $ 871 $ 997 $ 597 $ 691 $ 691
5 years $1,125 $1,226 $1,026 $1,116 $1,116
10 years $1,849 $2,027 $2,027 $2,300 $2,300
</TABLE>
18 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
FUND SUMMARIES
SMALL CAP VALUE FUND
OBJECTIVE
Small Cap Value Fund has an objective of capital appreciation.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Small Cap Value Fund invests primarily (at least
75% of total assets) in common stocks of small capitalization companies, defined
as companies that have market capitalizations at the time of purchase within the
range of market capitalizations of companies constituting the Russell 2000
Index. This index measures the performance of the 2,000 smallest companies in
the Russell 3000 Index (which is made up of the 3,000 largest U.S. companies
based on total market capitalization). As of the date of this prospectus, market
capitalizations of companies in the Russell 2000 Index ranged from approximately
$____ million to $____ billion.
In selecting stocks, the fund's advisor invests in securities it believes:
o are undervalued relative to other securities in the same industry or market;
o exhibit good or improving fundamentals; and
o exhibit an identifiable catalyst that could close the gap between market
value and fair value over the next one to two years.
To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.
MAIN RISKS
The value of your investment in this fund will change daily, which means you
could lose money. The main risks of investing in this fund include:
RISKS OF COMMON STOCKS
Stocks may decline significantly in price over short or extended periods of
time. Price changes may occur in the market as a whole, or they may occur in
only a particular company, industry or sector of the market. In addition, value
stocks and/or stocks of small capitalization companies may underperform the
market as a whole.
19 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
RISKS OF SMALL CAP STOCKS
Stocks of small capitalization companies involve substantial risk. These stocks
historically have experienced greater price volatility than stocks of
larger-capitalization companies, and they may be expected to do so in the
future.
RISKS OF SECURITIES LENDING
The fund is subject to the risk that the other party to a securities lending
agreement will default on its obligations.
FUND PERFORMANCE
Illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart shows you how performance of the fund's Class A shares has varied
from year to year. The performance of Class B and Class C shares will be lower
due to their higher expenses. Sales charges are not reflected in the chart; if
they had been, returns would be lower.
The table compares the fund's performance for Class A and Class B shares over
different time periods to that of the fund's benchmark index, which is a broad
measure of market performance. However, because Class C shares have not been
offered for a full calendar year, no information is presented for these shares.
The fund's performance reflects sales charges and fund expenses; the benchmark
is unmanaged and has no expenses.
Both the chart and the table assume that all distributions have been reinvested.
20 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
FUND SUMMARIES
SMALL CAP VALUE FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR(1)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -13.72% 60.96% 26.50% 22.60% -0.33% 47.30% 20.07% 20.07% -8.47%
- ---------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
</TABLE>
BEST QUARTER:
Quarter ending: 3/31/91
Total return 33.49%
WORST QUARTER:
Quarter ending: 9/30/98
Total Return -23.21%
<TABLE>
AVERAGE ANNUAL Ten Since
TOTAL RETURNS Inception One Five Years Inception
AS OF 12/31/99(1) Date Year Years (Class A) Class B)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Small Cap Value Fund (Class A) 1/1/88 ____% ____% ____% N/A
- ----------------------------------------------------------------------------------------------------
Small Cap Value Fund (Class B) 11/24/97 ____% N/A N/A ____%
- ----------------------------------------------------------------------------------------------------
Russell 2000 Index(2) ____% ____% ____% ____%
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) Performance from 8/1/94 to 11/21/97 is that of Qualivest Small Companies
Value Fund. Performance prior to 8/1/94 is that of the Qualivest fund's
predecessor common trust fund, adjusted to reflect the Qualivest fund's Class A
share fees and expenses. The common trust fund was not registered under the
Investment Company Act and therefore was not subject to certain investment
restrictions that might have adversely affected performance.
(2) An unmanaged index comprised of the smallest 2000 companies in the Russell
3000 Index. The latter index is composed of 3000 large U.S. companies
representing approximately 98% of the investable U.S. equity market. The since
inception performance of the index for Class B shares is calculated from
11/30/97.
21 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES Class A Class B Class C
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MAXIMUM SALES CHARGE (LOAD) 5.25%(2) 0.00% 1.00%
AS A % OF OFFERING PRICE
MAXIMUM DEFERRED SALES CHARGE (LOAD)
AS A % OF ORIGINAL PURCHASE PRICE OR REDEMPTION 0.00%(3) 5.00% 1.00%
PROCEEDS, WHICHEVER IS LESS
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------------------------------------
Management Fees 0.70% 0.70% 0.70%
Distribution and Service (12b-1) Fees 0.25% 1.00% 1.00%
Other Expenses ____% ____% ____%
TOTAL ____% ____% ____%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The net expenses the fund actually paid after waivers for the fiscal year
ended September 30, 1999 were:
<TABLE>
<S> <C> <C> <C>
Waiver of Fund Expenses (____%) (____%) (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____% ____% ____%
</TABLE>
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 1.15%, 1.90% AND 1.90%, RESPECTIVELY, FOR
CLASS A, CLASS B AND CLASS C SHARES. FEE WAIVERS MAY BE DISCONTINUED AT ANY
TIME.
(2) Certain investors may qualify for reduced sales charges. See "Buying Shares
- -- Calculating Your Share Price."
(3) Class A share investments of $1 million or more on which no front-end sales
charge is paid may be subject to a contingent deferred sales charge. See "Buying
Shares -- Calculating Your Share Price."
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
22 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
<TABLE>
<CAPTION>
CLASS B CLASS B CLASS C CLASS C
assuming assuming no assuming assuming no
redemption redemption redemption redemption
at end of at end of at end of at end of
CLASS A each period each period each period each period
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 year $ 634 $ 691 $ 191 $ 389 $ 289
3 years $ 865 $ 991 $ 591 $ 685 $ 685
5 years $1,115 $1,216 $1,016 $1,106 $1,106
10 years $1,827 $2,005 $2,005 $2,279 $2,279
</TABLE>
23 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
POLICIES & SERVICES
BUYING SHARES
You may become a shareholder in any of the funds with an initial investment of
$1,000 or more ($250 for a retirement plan or a Uniform Gifts to Minors
Act/Uniform Transfers to Minors Act (UGMA/UTMA) account). Additional investments
can be made for as little as $100 ($25 for a retirement plan or an UGMA/UTMA
account). The funds have the right to waive these minimum investment
requirements for employees of the funds' advisor and its affiliates.
The funds also have the right to reject any purchase order.
CHOOSING A SHARE CLASS
All funds in this prospectus offer Class A, Class B and Class C shares.
Each class has its own cost structure. The amount of your purchase and the
length of time you expect to hold your shares will be factors in determining
which class of shares is best for you.
CLASS A SHARES
If you are making an investment that qualifies for a reduced sales charge, Class
A shares may be best for you. Class A shares feature:
o a front-end sales charge, described below.
o lower annual expenses than Class B or Class C shares. See "Fund Summaries"
for more information on fees and expenses.
Because Class A shares will normally be the better choice if your investment
qualifies for a reduced sales charge:
o orders for Class B shares for $250,000 or more normally will be treated as
orders for Class A shares.
o orders for Class C shares for $1 million or more normally will be treated as
orders for Class A shares.
o orders for Class B or Class C shares by an investor eligible to purchase
Class A shares without a front-end sales charge normally will be treated as
orders for Class A shares.
CLASS B SHARES
If you want all your money to go to work for you immediately, you may prefer
Class B shares. Class B shares have no front-end sales charge. However they do
have:
o higher annual expenses than Class A shares. (See "Fees and Expenses" in the
"Fund
24 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
Summaries" section.)
o a back-end sales charge, called a "contingent deferred sales charge," if you
redeem your shares within six years of purchase.
o automatic conversion to Class A shares approximately eight years after
purchase, thereby reducing future annual expenses.
CLASS C SHARES
These shares combine some of the characteristics of Class A and Class B shares.
Class C shares have a low front-end sales charge of 1%, so more of your
investment goes to work immediately than if you had purchased Class A shares.
However, Class C shares also feature:
o a 1% contingent deferred sales charge if you redeem your shares within 18
months of purchase.
o higher annual expenses than Class A shares. (See "Fees and Expenses" in the
"Fund Summaries" section.)
o no conversion to Class A shares.
Because Class C shares do not convert to Class A shares, they will continue to
have higher annual expenses than Class A shares for as long as you hold them.
12B-1 FEES
Each fund has adopted a plan under rule 12b-1 of the Investment Company Act to
pay the fund's distributor an annual fee for the distribution and sale of its
shares and for services provided to shareholders.
For 12b-1 fees are equal to:
- --------------------------------------------------------------------------------
Class A shares 0.25% of average daily net assets
Class B shares 1% of average daily net assets
Class C shares 1% of average daily net assets
Because these fees are paid out of a fund's assets on an ongoing basis, over
time these fees will increase the cost of your investment and may cost you more
than paying other types of sales charges.
The Class A share 12b-1 fee is a shareholder servicing fee. For Class B and
Class C shares, a portion of the 12b-1 fee equal to 0.25% of average daily net
assets is a shareholder servicing fee and the rest is a distribution fee.
25 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
The funds' distributor uses the shareholder servicing fee to compensate brokers,
participating institutions and "one-stop" mutual fund networks for providing
ongoing services to shareholder accounts. These institutions receive annual fees
equal to 0.25% of a fund's Class A, Class B and Class C share average daily net
assets attributable to shares sold through them. For Class B shares, and for net
asset value sales of Class A shares on which the institution receives a
commission, the institution does not begin to receive its annual fee until one
year after the shares are sold. The funds' distributor also pays institutions
that sell Class C shares a 0.75% annual distribution fee beginning one year
after the shares are sold. The distributor may pay additional fees to
institutions, using the sales charges it receives, in exchange for sales and/or
administrative services performed on behalf of the institution's customers.
CALCULATING YOUR SHARE PRICE
Your purchase price will be based on the fund's net asset value (NAV) per share,
which is generally calculated as of the close of regular trading on the New York
Stock Exchange (usually 3 p.m. Central time) every day the exchange is open.
A fund's NAV is equal to the market value of its investments and other assets,
less any liabilities, divided by the number of fund shares. If market prices are
not readily available for an investment or if the advisor believes they are
unreliable, fair value prices may be determined in good faith using methods
approved by the funds' board of directors.
CLASS A SHARES
Your purchase price is typically the net asset value of your shares, plus a
front-end sales charge. Sales charges vary depending on the amount of your
purchase. The funds' distributor receives the sales charge you pay and reallows
a portion of the sales charge to your broker or participating institution.
<TABLE>
<CAPTION>
Sales Charge Maximum
Reallowance
as a % of as a % of as a % of
Purchase Net Amount Purchase
Price Invested Price
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $ 50,000 5.25% 5.54% 5.00%
$ 50,000 - $ 99,999 4.25% 4.44% 4.00%
$100,000 - $249,999 3.25% 3.36% 3.00%
$250,000 - $499,999 2.25% 2.30% 2.00%
$500,000 - $999,999 1.75% 1.78% 1.50%
$1 million and over 0% 0% 0%
</TABLE>
26 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
REDUCING YOUR SALES CHARGE
As shown in the preceding tables, larger purchases of Class A shares reduce the
percentage sales charge you pay. You also may reduce your sales charge in the
following ways:
PRIOR PURCHASES. Prior purchases of Class A shares of any First American fund
(except a money market fund) will be factored into your sales charge
calculation. For example, let's say you're making a $10,000 investment. If the
current value of all other First American fund Class A shares that you hold is
$40,000 or more, your current sales charge is reduced. To receive a reduced
sales charge, you must notify the funds' transfer agent of your prior purchases.
This must be done at the time of purchase, either directly to the transfer agent
in writing or by notifying your broker or financial institution.
PURCHASES BY RELATED ACCOUNTS. Concurrent and prior purchases of Class A shares
by certain other accounts also will be combined with your purchase to determine
your sales charge. For example, purchases made by your spouse or children under
age 21 will reduce your sales charge. To receive a reduced sales charge, you
must notify the funds' transfer agent of purchases by any related accounts. This
must be done at the time of purchase, either directly to the transfer agent in
writing or by notifying your broker or financial institution.
LETTER OF INTENT. If you plan to invest $50,000 or more over a 13-month period
in Class A shares of any First American fund except the money market funds, you
may reduce your sales charge by signing a non-binding letter of intent. (If you
do not fulfill the letter of intent, you must pay the applicable sales charge.
In addition, if you reduce your sales charge to zero under a letter of intent
and then sell your Class A shares within 18 months of their purchase, you may be
charged a contingent deferred sales charge of 1%. See "For Investments of Over
$1 Million.")
More information on these ways to reduce your sales charge appears in the
Statement of Additional Information (SAI). The SAI also contains information on
investors who are eligible to purchase Class A shares without a sales charge.
FOR INVESTMENTS OF OVER $1 MILLION
There is no initial sales charge on Class A share purchases of $1 million or
more. However, your broker or financial institution may receive a commission of
up to 1% on your purchase. If such a commission is paid, you will be assessed a
contingent deferred sales charge (CDSC) of 1% if you sell your shares within 18
months. To find out whether you will be assessed a CDSC, ask your broker or
financial institution. The funds' distributor receives any CDSC imposed when you
sell your Class A shares. The CDSC is based on the value of your shares at the
time of purchase or at the time of sale, whichever is less. The charge does not
apply to shares you acquired by reinvesting your dividend or capital gain
distributions.
To help lower your costs, shares that are not subject to a CDSC will be sold
first. Other shares will then be sold in an order that minimizes your CDSC. The
CDSC for Class A shares will be waived for:
27 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
o redemptions following the death or disability (as defined in the Internal
Revenue Code) of a shareholder, and
o redemptions that equal the minimum required distribution from an individual
retirement account or other retirement plan to a shareholder who has reached
the age of 70 1/2.
CLASS B SHARES
Your purchase price for Class B shares is their net asset value -- there is no
front-end sales charge. However, if you redeem your shares within six years of
purchase, you will pay a back-end sales charge, called a contingent deferred
sales charge (CDSC). Although you pay no front-end sales charge when you buy
Class B shares, the funds' distributor pays a sales commission of 4.25% of the
amount invested to brokers and financial institutions which sell Class B shares.
The funds' distributor receives any CDSC imposed when you sell your Class B
shares.
Your CDSC will be based on the value of your shares at the time of purchase or
at the time of sale, whichever is less. The charge does not apply to shares you
acquired by reinvesting your dividend or capital gain distributions. Shares will
be sold in the order that minimizes your CDSC.
CDSC as a % of the
Year since purchase value of your shares
- -------------------------------------------------------------------------------
First 5%
Second 5%
Third 4%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh 0%
Eighth 0%
Your Class B shares will automatically convert to Class A shares eight years
after the first day of the month you purchased the shares. For example, if you
purchase Class B shares on June 15, 2000, they will convert to Class A shares on
June 1, 2008.
The CDSC will be waived for:
o redemptions following the death or disability (as defined in the Internal
Revenue Code) of a shareholder.
28 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
o redemptions that equal the minimum required distribution from an individual
retirement account or other retirement plan to a shareholder who has reached
the age of 70 1/2.
o redemptions through a systematic withdrawal plan, at a rate of up to 12% a
year of your account's value. During the first year, the 12% annual limit
will be based on the value of your account on the date the plan is
established. Thereafter, it will be based on the value of your account on
the preceding December 31.
CLASS C SHARES
Your purchase price for Class C shares is their net asset value plus a front-end
sales charge equal to 1% of the purchase price (1.01% of the net amount
invested). If you redeem your shares within 18 months of purchase, you will be
assessed a contingent deferred sales charge (CDSC) of 1% of the value of your
shares at the time of purchase or at the time of sale, whichever is less. The
CDSC does not apply to shares you acquired by reinvesting your dividend or
capital gain distributions. Shares will be sold in the order that minimizes your
CDSC.
Even though your sales charge is only 1%, the funds' distributor pays a
commission equal to 2% of your purchase price to your broker or participating
institution. The distributor receives any CDSC imposed when you sell your Class
C shares.
The CDSC for Class C shares will be waived in the same circumstances as the
Class B share CDSC. See "Class B Shares" above.
Unlike Class B shares, Class C shares do not convert to Class A shares after a
specified period of time. Therefore, your shares will continue to have higher
annual expenses than Class A shares.
HOW TO BUY SHARES
You may buy shares on any day the New York Stock Exchange is open. However
purchases of shares may be restricted in the event of an early or unscheduled
close of the New York Stock Exchange. Your shares will be priced at the next NAV
calculated after your order is accepted by the fund, plus any applicable sales
charge. To make sure that your order is accepted, follow the directions for
purchasing shares given below.
BY PHONE
You may purchase shares by calling your broker or financial institution, if they
have a sales agreement with the funds' distributor. In many cases, your order
will be effective that day if received by your broker or financial institution
by the close of regular trading on the New York Stock Exchange. In some cases,
however, you will have to transmit your request by an earlier time in order for
your purchase request to be effective that day. This allows your broker or
financial institution time to process your request and transmit it to the fund.
Some financial institutions may charge a fee for helping you purchase shares.
Contact your broker or financial institution for more information.
29 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
If you are paying by wire, you may purchase shares by calling 1-800-637-2548
before 3 p.m. Central time. All information will be taken over the telephone,
and your order will be placed when the funds' custodian receives payment by
wire. Wire federal funds as follows:
U.S. Bank National Association, Minneapolis, MN
ABA Number 091000022
For Credit to: DST Systems, Inc.:
Account Number 160234580266
For Further Credit to (investor name and fund name)
You cannot purchase shares by wire on days when federally chartered banks are
closed.
BY MAIL
To purchase shares by mail, simply complete and sign a new account form, enclose
a check made payable to the fund you wish to invest in, and mail both to:
First American Funds
c/o DST Systems, Inc.
P.O. Box 219382
Kansas City, Missouri 64121-9382
After you have established an account, you may continue to purchase shares by
mailing your check to First American Funds at the same address. Please note the
following:
o All purchases must be made in U.S. dollars.
o THIRD-PARTY CHECKS, CREDIT CARDS, CREDIT CARD CHECKS AND CASH ARE NOT
ACCEPTED.
o If a check does not clear your bank, the funds reserve the right to cancel
the purchase, and you could be liable for any losses or fees incurred.
INVESTING AUTOMATICALLY
To purchase shares as part of a savings discipline, you may add to your
investment on a regular basis:
o by having $100 or more ($25 for a retirement plan or an UGMA/UTMA account)
automatically withdrawn from your bank account on a periodic basis and
invested in fund shares.
o through automatic monthly exchanges of your shares of Prime Obligations
Fund, a money market fund in the First American family of funds. Exchanges
must be made into the same class of shares that you hold in Prime
Obligations Fund.
You may apply for participation in either of these programs through your broker
or financial institution or by calling 1-800-637-2548.
30 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
POLICIES & SERVICES
SELLING SHARES
HOW TO SELL SHARES
You may sell your shares on any day when the New York Stock Exchange is open.
However redemption of shares may be restricted in the event of an early or
unscheduled close of the New York Stock Exchange. Your shares will be sold at
the next NAV calculated after your order is accepted by the fund, less any
applicable contingent deferred sales charge. To make sure that your order is
accepted, follow the directions for selling shares given below.
The proceeds from your sale normally will be mailed or wired within one day, but
in no event more than seven days, after your request is received in proper form.
BY PHONE
If you purchased shares through a broker or financial institution, simply call
them to sell your shares. In many cases, your redemption will be effective that
day if received by your broker or financial institution by the close of regular
trading on the New York Stock Exchange. In some cases, however, you will have to
call by an earlier time in order for your redemption to be effective that day.
This allows your broker or financial institution time to process your request
and transmit it to the fund. Contact your broker or financial institution
directly for more information.
If you did not purchase shares through a broker or financial institution, you
may sell your shares by calling 1-800-637-2548. Proceeds can be wired to your
bank account (if the proceeds are at least $1,000 and you have previously
supplied your bank account information to the transfer agent) or sent to you by
check.
If you recently purchased your shares by check or through the Automated Clearing
House (ACH), proceeds from the sale of those shares may not be available until
your check or ACH payment has cleared, which may take up to 10 calendar days
from the date of purchase.
BY MAIL
To sell shares by mail, send a written request to your broker or financial
institution, or to the funds' transfer agent at the following address:
First American Funds
c/o DST Systems, Inc.
P.O. Box 219382
Kansas City, Missouri 64121-9382
Your request should include the following information:
31 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
o name of the fund;
o account number;
o dollar amount or number of shares redeemed;
o name on the account; and
o signatures of all registered account owners.
Signatures on a written request must be guaranteed if:
o you would like the proceeds from the sale to be paid to anyone other than to
the shareholder of record.
o you would like the check mailed to an address other than the address on the
funds' records.
o your redemption request is for $50,000 or more.
A signature guarantee assures that a signature is genuine and protects
shareholders from unauthorized account transfers. Banks, savings and loan
associations, trust companies, credit unions, broker-dealers and member firms of
a national securities exchange may guarantee signatures. Call your financial
institution to determine if it has this capability.
Proceeds from a written redemption request will be sent to you by check.
SYSTEMATIC WITHDRAWALS
If your account has a value of $5,000 or more, you may redeem a specific dollar
amount from your account on a regular basis. To set up systematic withdrawals,
contact your broker or financial institution.
You should not make systematic withdrawals if you plan to continue investing in
the fund, due to sales charges and tax liabilities.
REINVESTING AFTER A SALE
If you sell Class A shares, you may reinvest in Class A shares of that fund or
another First American fund within 180 days without a sales charge. To reinvest
in Class A shares at net asset value (without paying a sales charge), you must
notify the transfer agent directly in writing or notify your broker or financial
institution.
32 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
ACCOUNTS WITH LOW BALANCES
Except for retirement plans and UGMA/UTMA accounts, if your account balance
falls below $500 as a result of selling or exchanging shares, you may receive
written notice and be given 30 days to re-establish the minimum balance. If you
do not, the fund may close your account and send you the proceeds, less any
applicable contingent deferred sales charge, or deduct a $25 annual fee in
December of each year if your account balance at that time is below $500.
33 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
POLICIES & SERVICES
MANAGING YOUR INVESTMENT
EXCHANGING SHARES
If your investment goals or your financial needs change, you may move from one
First American fund to another. There is no fee to exchange shares.
Generally, you may exchange your shares only for shares of the same class.
However, you may exchange your Class A shares for Class Y shares of the same or
another First American fund if you subsequently become eligible to participate
in that class (for example, by opening a fiduciary, custody or agency account
with a financial institution which invests in Class Y shares.
Exchanges are made based on the net asset value per share of each fund at the
time of the exchange. When you exchange your Class A shares of one of the funds
for Class A shares of another First American fund, you do not have to pay a
sales charge. When you exchange your Class B or Class C shares for Class B or
Class C shares of another First American fund, the time you held the shares of
the "old" fund will be added to the time you hold the shares of the "new" fund
for purposes of determining your CDSC or, in the case of Class B shares,
calculating when your shares convert to Class A shares.
Before exchanging into any fund, be sure to read its prospectus carefully. A
fund may change or cancel its exchange policies at any time. You will be
notified of any changes. The funds have the right to limit exchanges to four
times per year.
BY PHONE
You may exchange shares by calling your broker, your financial institution, or
the funds' transfer agent, provided that both funds have identical shareholder
registrations. To request an exchange through the funds' transfer agent, call
1-800-637-2548. Your instructions must be received by the funds' transfer agent
before 3 p.m. Central time, or by the time specified by your broker or financial
institution, in order for shares to be exchanged the same day.
BY MAIL
To exchange shares by written request, please follow the procedures under
"Selling Shares." Be sure to include the names of both funds involved in the
exchange.
TELEPHONE TRANSACTIONS
You may buy, sell or exchange shares by telephone, unless you elected on your
new account form to restrict this privilege. If you wish to reinstate this
option on an existing account, please call Investor Services at 1-800-637-2548
to request the appropriate form.
34 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
The funds and their agents will not be responsible for any losses that may
result from acting on wire or telephone instructions that they reasonably
believe to be genuine. The funds and their agents will each follow reasonable
procedures to confirm that instructions received by telephone are genuine, which
may include taping telephone conversations.
It may be difficult to reach the funds by telephone during periods of unusual
market activity. If you are unable to reach the funds or their agents by
telephone, please consider sending written instructions.
STAYING INFORMED
SHAREHOLDER REPORTS
Shareholder reports are mailed twice a year, in November and May. They include
financial statements, performance information, a message from your portfolio
managers, and, on an annual basis, the auditors' report.
In an attempt to reduce shareholder costs and help eliminate duplication, the
funds will try to limit their mailings to one report for each address that lists
one or more shareholders with the same last name. If you would like additional
copies, please call 1-800-637-2548.
STATEMENTS AND CONFIRMATIONS
Statements summarizing activity in your account are mailed at least quarterly.
Confirmations are mailed following each purchase or sale of fund shares.
DIVIDENDS AND DISTRIBUTIONS
Dividends from Mid Cap Growth Fund and Mid Cap Value Fund net investment income
are declared and paid monthly. Dividends from Small Cap Growth Fund and Small
Cap Value Fund net investment income are declared and paid quarterly. Any
capital gains are distributed at least once each year.
On the ex-dividend date for a distribution, a fund's share price is reduced by
the amount of the distribution. If you buy shares just before the ex-dividend
date, in effect, you "buy the dividend." You will pay the full price for the
shares and then receive a portion of that price back as a taxable distribution.
Dividend and capital gain distributions will be reinvested in additional shares
of the fund paying the distribution, unless you request that distributions be
reinvested in another First American fund or paid in cash. This request may be
made on your new account form or by writing to the fund. If you request that
your distributions be paid in cash but those distributions cannot be delivered
because of an incorrect mailing address, the undelivered distributions and all
future distributions will be reinvested in fund shares.
35 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
TAXES
Some of the tax consequences of investing in the funds are discussed below. More
information about taxes is in the Statement of Additional Information. However,
because everyone's tax situation is unique, always consult your tax professional
about federal, state and local tax consequences.
TAXES ON DISTRIBUTIONS
Each fund pays its shareholders dividends from its net investment income and any
net capital gains that it has realized. For most investors, fund dividends and
distributions are considered taxable whether they are reinvested or taken in
cash (unless your investment is in an IRA or other tax-advantaged account).
Dividends from a fund's net investment income and short-term capital gains are
taxable as ordinary income. Distributions of a fund's long-term capital gains
are taxable as long-term capital gains, regardless of how long you have held
your shares. The funds expect that, as a result of their investment objectives
and strategies, their distributions will consist primarily of capital gains.
TAXES ON TRANSACTIONS
The sale of fund shares, or the exchange of one fund's shares for shares of
another fund, will be a taxable event and may result in a capital gain or loss.
The gain or loss will be considered long-term if you have held your shares for
more than one year. A gain or loss on shares held for one year or less is
considered short-term and is taxed at the same rates as ordinary income.
The exchange of one class of shares for another class of shares in the same fund
will not be taxable.
36 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
ADDITIONAL INFORMATION
MANAGEMENT
INVESTMENT ADVISOR
First American Asset Management
601 Second Avenue South
Minneapolis, Minnesota 55402
U.S. Bank National Association (U.S. Bank), acting through its First American
Asset Management division, is the funds' investment advisor. First American
Asset Management provides investment management services to individuals and
institutions, including corporations, foundations, pensions and retirement
plans. As of December 31, 1999, it had more than $ ___ billion in assets under
management, including investment company assets of approximately $ ___ billion.
As investment advisor, First American Asset Management manages the funds'
business and investment activities, subject to the authority of the board of
directors.
Each fund pays the investment advisor a monthly fee for providing investment
advisory services. During their most recent fiscal years, the funds paid the
following investment advisory fees to First American Asset Management:
Advisory fee
as a % of
average daily
net assets
- --------------------------------------------------------------------------------
Mid Cap Growth Fund % _________
Mid Cap Value Fund % _________
Small Cap Growth Fund % _________
Small Cap Value Fund % _________
- --------------------------------------------------------------------------------
CUSTODIAN
U.S. Bank National Association
U.S. Bank Center
180 East Fifth Street
St. Paul, Minnesota 55101
ADMINISTRATOR
U.S Bank National Association
U.S. Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402
37 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
DISTRIBUTOR
SEI Investments Distribution Co.
Oaks, Pennsylvania 19456
ADDITIONAL COMPENSATION
U.S. Bank and other affiliates of U.S. Bancorp may act as fiduciary with respect
to plans subject to the Employee Retirement Income Security Act of 1974 (ERISA)
and other trust and agency accounts that invest in the funds. As described
above, U.S. Bank receives compensation for acting as the funds' investment
adviser. U.S. Bank and its affiliates also receive compensation in connection
with the following:
CUSTODY SERVICES. U.S. Bank provides or compensates others to provide custody
services to the funds. U.S. Bank is paid monthly fees equal, on an annual basis,
to 0.03% of a fund's average daily net assets. In addition, U.S. Bank is
reimbursed for its out-of-pocket expenses incurred while providing custody
services to the funds.
ADMINISTRATION SERVICES. U.S. Bank provides or compensates others to provide
administrative services to the funds including general administrative and
accounting services, transfer agency and dividend disbursing services, and
shareholder services. The funds pay U.S. Bank monthly fees equal, on an annual
basis, to 0.12% of the aggregate average daily net assets of all open-end mutual
funds in the First American fund family up to $8 billion and 0.105% of the
aggregate average daily net assets of all open-end mutual funds in the First
American fund family in excess of $8 billion. Additionally, the funds pay U.S.
Bank fees based upon the number of funds and accounts maintained.
SECURITIES LENDING SERVICES. In connection with lending their portfolio
securities, the funds pay administrative and custodial fees to U.S. Bank which
are equal to 40% of the funds' income from these securities lending
transactions.
BROKERAGE TRANSACTIONS. When purchasing and selling portfolio securities for the
funds, the funds' investment advisor may place trades through its affiliates,
U.S. Bancorp Investments, Inc. and U.S. Bancorp Piper Jaffray Inc., which will
earn commissions on such transactions.
SALES OF FUND SHARES. U.S. Bancorp Investments, Inc. and U.S. Bancorp Piper
Jaffray Inc., broker-dealers affiliated with U.S. Bank, have entered into
agreements with the funds' distributor to sell fund shares and will earn annual
shareholder servicing fees in connection with these sales.
PORTFOLIO MANAGEMENT
Each fund's investments are managed by a team of persons associated with First
American Asset Management.
38 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
ADDITIONAL INFORMATION
MORE ABOUT THE FUNDS
OBJECTIVES
The funds' objectives, which are described in the "Fund Summaries" section, may
be changed without shareholder approval. If a fund's objectives change, you will
be notified at least 30 days in advance. Please remember: There is no guarantee
that any fund will achieve its objectives.
INVESTMENT STRATEGIES
The funds' main investment strategies are discussed in the "Fund Summaries"
section. These are the strategies that the funds' investment advisor believes
are most likely to be important in trying to achieve the funds' objectives. You
should be aware that each fund may also use strategies and invest in securities
that are not described in this prospectus, but that are described in the
Statement of Additional Information (SAI). For a copy of the SAI, call Investor
Services at 1-800-637-2548.
TEMPORARY INVESTMENTS
In an attempt to respond to adverse market, economic, political or other
conditions, each fund may temporarily invest without limit in cash and in U.S.
dollar-denominated high-quality money market instruments and other short-term
securities, including money market funds advised by the funds' advisor. Being
invested in these securities may keep a fund from participating in a market
upswing and prevent the fund from achieving its investment objectives.
PORTFOLIO TURNOVER
Fund managers may trade securities frequently, resulting, from time to time, in
an annual portfolio turnover rate of over 100%. Trading of securities may
produce capital gains, which are taxable to shareholders when distributed.
Active trading may also increase the amount of commissions or mark-ups to
broker-dealers that the fund pays when it buys and sells securities. The
"Financial Highlights" section of this prospectus shows each fund's historical
portfolio turnover rate.
RISKS
The main risks of investing in the funds are summarized in the "Fund Summaries"
section. More information about fund risks is presented below.
39 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
MARKET RISK
All stocks are subject to price movements due to changes in general economic
conditions, changes in the level of prevailing interest rates, changes in
investor perceptions of the market, or the outlook for overall corporate
profitability.
SECTOR RISK
The stocks of companies within specific industries or sectors of the economy can
periodically perform differently than the overall stock market. This can be due
to changes in such things as the regulatory or competitive environment or to
changes in investor perceptions of a particular industry or sector.
COMPANY RISK
Individual stocks can perform differently than the overall market. This may be a
result of specific factors such as changes in corporate profitability due to the
success or failure of specific products or management strategies, or it may be
due to changes in investor perceptions regarding a company.
RISKS OF SMALL CAP STOCKS
Stocks of small cap companies involve substantial risk. These companies may lack
the management expertise, financial resources, product diversification and
competitive strengths of larger companies. Prices of small cap stocks may be
subject to more abrupt or erratic movements than stock prices of larger, more
established companies or the market averages in general. In addition, the
frequency and volume of their trading may be less than is typical of larger
companies, making them subject to wider price fluctuations. In some cases, there
could be difficulties in selling the stocks of small cap companies at the
desired time and price.
RISKS OF MID CAP STOCKS
While stocks of mid cap companies may be slightly less volatile than those of
small cap companies, they still involve substantial risk. Mid cap companies may
have limited product lines, markets or financial resources, and they may be
dependent on a limited management group. Stocks of mid cap companies may be
subject to more abrupt or erratic market movements than those of larger, more
established companies or the market averages in general.
FOREIGN SECURITY RISK
Up to 25% of each fund's total assets may be invested in securities of foreign
issuers which are either listed on a United States stock exchange or represented
by American Depositary Receipts. Securities of foreign issuers, even when
dollar-denominated and publicly traded in the United States, may involve risks
not associated with the securities of domestic issuers. For certain foreign
countries, political or social instability or diplomatic developments could
adversely affect the securities. There is also the risk of loss due to
governmental actions such as a change in tax statutes or the modification of
individual property rights. In addition, individual foreign economies may differ
favorably or unfavorably from the U.S. economy.
40 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
RISKS OF ACTIVE MANAGEMENT
Each fund is actively managed and its performance therefore will reflect in part
the advisor's ability to make investment decisions which are suited to achieving
the fund's investment objectives. Due to their active management, the funds
could underperform other mutual funds with similar investment objectives.
RISKS OF SECURITIES LENDING
When a fund loans its portfolio securities, it will receive collateral equal to
at least 100% of the value of the loaned securities. Nevertheless, the fund
risks a delay in the recovery of the loaned securities, or even the loss of
rights in the collateral deposited by the borrower if the borrower should fail
financially. To reduce these risks, the funds enter into loan arrangements only
with institutions which the funds' advisor has determined are creditworthy under
guidelines established by the funds' board of directors.
41 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
ADDITIONAL INFORMATION
FINANCIAL HIGHLIGHTS
The tables that follow present performance information about the Class A, Class
B and Class C shares of each fund. This information is intended to help you
understand each fund's financial performance for the past five years or, if
shorter, the period of the fund's operations. Some of this information reflects
financial results for a single fund share. Total returns in the tables represent
the rate that you would have earned or lost on an investment in a fund,
excluding sales charges and assuming you reinvested all of your dividends and
distributions.
The information for the fiscal year ended September 30, 1999 has been audited by
Ernst & Young LLP, independent auditors, whose report, along with the funds'
financial statements, is included in the funds' annual report, which is
available upon request. The information for the fiscal years ended on or before
September 30, 1998, has been audited by KPMG Peat Marwick LLP.
MID CAP GROWTH FUND(1)
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS A SHARES(2) 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period _______ $15.25 $13.86 $12.97 $9.63
--------------------------------------------------------------
Investment Operations:
Net Investment Loss _______ (0.09) (0.08) (0.05) (0.06)
Net Gains (Losses) on Investments _______
(both realized and unrealized) (1.80) 2.72 2.18 3.40
--------------------------------------------------------------
Total From Investment Operations _______ (1.89) 2.64 2.13 3.34
--------------------------------------------------------------
Less Distributions:
Dividends (from Net Investment Income) -- -- -- --
Distributions (from capital gains) _______ (1.56) (1.25) (1.24) --
--------------------------------------------------------------
Total Distributions _______ (1.56) (1.25) (1.24) --
--------------------------------------------------------------
Net Asset Value, End of Period _______ $11.80 $15.25 $13.86 $12.97
==============================================================
Total Return _______ (13.05)% 21.04% 17.84% 34.68%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) _______ $188,763 $274,799 $303,769 $252,632
Ratio of Expenses to Average Net Assets _______ 1.18% 1.23% 1.18% 1.24%
Ratio of Net Income (Loss) to Average Net Assets _______ (0.60)% (0.55)% (0.41)% (0.51)%
Ratio of Expenses to Average Net Assets _______ 1.34% 1.39% 1.37% 1.42%
(excluding waivers)
Ratio of Net Income (Loss) to Average Net Assets _______ (0.76)% (0.71)% (0.60)% (0.69)%
(excluding waivers)
Portfolio Turnover Rate _______ 39% 51% 44% 33%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The financial highlights for Mid Cap Growth Fund include the historical
financial highlights of Piper Emerging Growth Fund Class A and Class B shares.
The assets of Piper Emerging Growth Fund were acquired by Mid Cap Growth Fund
effective August 7, 1998.
(2) Per share amounts have been adjusted to reflect the effect of the stock
dividend declared on December 23, 1995.
42 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
MID CAP GROWTH FUND(1)
<TABLE>
<CAPTION>
Period from Period from Period from
Period from August 7, 1998 to October 1, 1997 to February 18, 1997
September 30, September 30, April 28, 1998(3) to
1998 to September 1998(2) September 30,
CLASS B SHARES 30, 1999 1997(4)
- -------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
Net Asset Value, Beginning of
<S> <C> <C> <C> <C>
Period _______ $13.86 $15.20 $12.54
------------------------------------------------------------------------------------
Investment Operations:
Net Investment Loss _______ (0.01) (0.09) (0.10)
Net Gains (Losses) on
Investments
(both realized and
unrealized) _______ (2.07) 1.02 2.76
------------------------------------------------------------------------------------
Total From Investment
Operations _______ (2.08) 0.93 2.66
------------------------------------------------------------------------------------
Less Distributions:
Dividends (from net investment
income) -- -- --
Distributions (from capital
gains) _______ -- (1.56) --
------------------------------------------------------------------------------------
Total Distributions _______ -- (1.56) --
------------------------------------------------------------------------------------
Net Asset Value, End of Period _______ $11.78 $14.57 $15.20
====================================================================================
Total Return _______ (15.01)% 7.77% 21.21%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) _______ $17 $-- $1,028
Ratio of Expenses to Average
Net Assets _______ 1.87%(5) 1.85%(5) 1.85%(5)
Ratio of Net Loss to Average
Net Assets _______ (1.12)%(5) (1.33)%(5) (1.16)%(5)
Ratio of Expenses to Average
Net Assets (excluding waivers) _______ 1.87%(5) 1.85%(5) 1.85%(5)
Ratio of Net Loss to Average
Net Assets (excluding waivers) _______ (1.12)%(5) (1.33)%(5) (1.16)%(5)
Portfolio Turnover Rate _______ 39% 29% 51%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The financial highlights for Mid Cap Growth Fund include the historical
financial highlights of Piper Emerging Growth Fund Class A and Class B shares.
The assets of Piper Emerging Growth Fund were acquired by Mid Cap Growth Fund
effective August 7, 1998.
(2) Class B shares of Mid Cap Growth Fund have been offered since August 7,
1998.
(3) Effective April 28, 1998, all outstanding Class B shares of Piper Emerging
Growth Fund were exchanged for Class A shares of such fund and Class B share
activity was discontinued.
(4) Class B shares of Piper Emerging Growth Fund were offered beginning February
18, 1997.
(5) Annualized.
43 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
<TABLE>
<CAPTION>
Period ended
September 30,
CLASS C SHARES 1999(1)
- --------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
<S> <C>
Net Asset Value, Beginning of Period ________
--------------------
Investment Operations:
Net Investment Income ________
Net Gains (Losses) on Investments ________
(both realized and unrealized)
--------------------
Total From Investment Operations ________
--------------------
Less Distributions:
Dividends (from Net Investment Income) ________
--------------------
Total Distributions ________
--------------------
Net Asset Value, End of Period ________
====================
Total Return ________
RATIOS/SUPPLEMENTAL DATAzzzzzzcccc
Net Assets, End of Period (000) ________
Ratio of Expenses to Average Net Assets ________
Ratio of Net Income to Average Net Assets ________
Ratios of Expenses to Average Net Assets (excluding waivers) ________
Ratio of Net Income to Average Net Assets (excluding waivers) ________
Portfolio Turnover Rate ________
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Class C shares have been offered since February 1, 1999.
44 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
<TABLE>
<CAPTION>
Mid Cap Value Fund
Fiscal year ended September 30,
CLASS A SHARES 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period _______ $24.19 $20.41 $17.89 $17.30
----------------------------------------------------------
Investment Operations:
Net Investment Income _______ 0.07 0.11 0.20 0.35
Net Gains (Losses) on Investments _______
(both realized and unrealized) (6.41) 6.98 3.94 1.60
----------------------------------------------------------
Total From Investment Operations _______ (6.34) 7.09 4.14 1.95
----------------------------------------------------------
Less Distributions:
Dividends (from Net Investment Income) (0.07) (0.11) (0.20) (0.34)
Distributions (from capital gains) _______ (2.74) (3.20) (1.42) (1.02)
----------------------------------------------------------
Total Distributions _______ (2.81) (3.31) (1.62) (1.36)
----------------------------------------------------------
Net Asset Value, End of Period _______ $15.04 $24.19 $20.41 $17.89
==========================================================
Total Return _______ (28.83)% 39.93% 25.23% 12.63%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) _______ $29,261 $35,207 $17,987 $11,609
Ratio of Expenses to Average Net Assets _______ 1.14% 1.14% 1.13% 1.09%
Ratio of Net Income to Average Net Assets _______ 0.43% 0.58% 1.06% 2.08%
Ratio of Expenses to Average Net Assets _______ 1.14% 1.15% 1.13% 1.20%
(excluding waivers)
Ratio of Net Income to Average Net Assets _______ 0.43% 0.57% 1.06% 1.97%
(excluding waivers)
Portfolio Turnover Rate _______ 135% 82% 143% 72%
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
Fiscal year ended September 30,
CLASS B SHARES 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period _______ $23.96 $20.31 $17.83 $17.29
----------------------------------------------------------
Investment Operations:
Net Investment Income (Loss) _______ (0.01) 0.02 0.09 0.29
Net Gains (Losses) on Investments _______
(both realized and unrealized) (6.41) 6.85 3.91 1.51
----------------------------------------------------------
Total From Investment Operations _______ (6.42) 6.87 4.00 1.80
----------------------------------------------------------
Less Distributions:
Dividends (from Net Investment Income) -- (0.02) (0.10) (0.24)
Distributions (from capital gains) _______ (2.74) (3.20) (1.42) (1.02)
----------------------------------------------------------
Total Distributions _______ (2.74) (3.22) (1.52) (1.26)
----------------------------------------------------------
Net Asset Value, End of Period _______ $14.80 $23.96 $20.31 $17.83
==========================================================
Total Return _______ (29.40)% 38.81% 24.35% 11.64%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) _______ $31,276 $36,649 $12,847 $4,847
Ratio of Expenses to Average Net Assets _______ 1.89% 1.90% 1.88% 1.88%
Ratio of Net Income (Loss) to Average Net Assets _______ (0.31)% (0.18)% 0.25% 1.22%
Ratio of Expenses to Average Net Assets _______
(excluding waivers) 1.89% 1.90% 1.88% 1.95%
Ratio of Net Income (Loss) to Average Net Assets _______
(excluding waivers) (0.31)% (0.18)% 0.25% 1.15%
Portfolio Turnover Rate _______ 135% 82% 143% 72%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
45 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
<TABLE>
<CAPTION>
Period ended
September 30,
CLASS C SHARES 19991
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period ________
--------------------
Investment Operations:
Net Investment Income ________
Net Gains (Losses) on Investments ________
(both realized and unrealized)
--------------------
Total From Investment Operations ________
--------------------
Less Distributions:
Dividends (from Net Investment Income) ________
--------------------
Total Distributions ________
--------------------
Net Asset Value, End of Period ________
====================
Total Return ________
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) ________
Ratio of Expenses to Average Net Assets ________
Ratio of Net Income to Average Net Assets ________
Ratios of Expenses to Average Net Assets (excluding waivers) ________
Ratio of Net Income to Average Net Assets (excluding waivers) ________
Portfolio Turnover Rate ________
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Class C shares have been offered since February 1, 1999.
46 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
<TABLE>
<CAPTION>
SMALL CAP GROWTH FUND
Fiscal year ended September 30,
CLASS A SHARES(1) 1999 1998 1997 1996(2) 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA(3)
Net Asset Value, Beginning of Period _______ $17.41 $17.11 $17.68 $15.61
------------------------------------------------------------------
Investment Operations:
Net Investment Income (Loss) _______ (0.09) (0.16) 0.06 0.09
Net Gains (Losses) on Investments _______ (2.67) 5.66 0.87 2.07
(both realized and unrealized)
------------------------------------------------------------------
Total From Investment Operations _______ (2.76) 5.50 0.93 2.16
------------------------------------------------------------------
Less Distributions:
Dividends (from Net Investment Income) -- (0.04) (0.07) (0.09)
Distributions (from capital gains) _______ (2.64) (5.16) (1.43) --
Tax Return of Capital _______ (0.11) -- -- --
------------------------------------------------------------------
Total Distributions _______ (2.75) (5.20) (1.50) (0.09)
------------------------------------------------------------------
Net Asset Value, End of Period _______ $11.90 $17.41 $17.11 $17.68
==================================================================
Total Return (18.66)% 45.66% 5.38% 13.88%
RATIOS/SUPPLEMENTAL DATA _______
Net Assets, End of Period (000) _______ $28,252 $35,647 $30,968 $48,421
Ratio of Expenses to Average Net Assets _______ 1.29% 1.34% 1.32% 1.40%
Ratio of Net Income (Loss) to Average Net Assets _______ (0.61)% (0.75)% 0.20% 0.43%
Ratio of Expenses to Average Net Assets _______ 1.43% 1.98% 1.79% 1.63%
(excluding waivers)
Ratio of Net Income (Loss) to Average Net Assets _______ (0.75)% (1.39)% (0.27)% 0.20%
(excluding waivers)
Portfolio Turnover Rate 92% 109% 125% 182%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See footnotes under Small Cap Growth Fund Class B Shares.
47 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
<TABLE>
<CAPTION>
SMALL CAP GROWTH FUND (CONTINUED)
Period from Period from Period from
Fiscal Year ended July 31, 1998 October 1, 1997 February 18,1997
September 30, 1999 to September 30, to April 28, to September 30,
CLASS B SHARES 1998(6) 1998(5) 1997(4)
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of
Period _______ $13.74 $9.54 $7.24
-------------------------------------------------------------------------------------
Investment Operations:
Net Investment Loss _______ (0.02) (0.09) (0.03)
Net Gains (Losses) on
Investments
(both realized and unrealized) _______ (2.22) 0.42 2.33
-------------------------------------------------------------------------------------
Total From Investment
Operations _______ (2.24) 0.33 2.30
-------------------------------------------------------------------------------------
Less Distributions:
Dividends (from Net Investment
Income) _______ -- -- --
Distributions (from capital
gains) _______ -- (0.15) --
Tax Return of Capital _______ -- (0.01) --
-------------------------------------------------------------------------------
Total Distributions _______ -- (0.16) --
-------------------------------------------------------------------------------
Net Asset Value, End of Period _______ $11.50 $9.71 $9.54
=====================================================================================
Total Return _______ (16.30)% 3.61% 31.77%
RATIOS/SUPPLEMENTAL DATA _______
Net Assets, End of Period
(000) _______ $1,104 $-- $ 480
Ratio of Expenses to Average
Net Assets _______ 1.90%(7) 2.03%(7) 1.98%(7)
Ratio of Net Loss to Averag
Net Assets _______ (1.20)%(7) (1.30)%(7) (1.49)%(7)
Ratio of Expenses to Average
Net Assets (Excluding Waivers) _______ ___________ ___________ __________
Ratio of Net Loss to Average
Net Assets (excluding waivers) _______ (1.20)%(7) (1.67)%(7) (1.66)%(7)
Portfolio Turnover Rate _______ 92% 56% 109%
--------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts for Small Cap Growth Fund have been adjusted to reflect
the conversion ratios utilized for the reorganization of Piper Small Company
Growth Fund and Small Cap Growth Fund that occurred on July 31, 1998. Piper
Small Company Growth Fund is the financial reporting survivor. Therefore, the
financial highlights for Small Cap Growth Fund include the financial highlights
of Piper Small Company Growth Fund prior to July 31, 1998.
(2) On September 12, 1996, shareholders of the fund approved a change in the
fund's investment objective from high total investment return consistent with
prudent investment risk to long-term capital appreciation. In connection with
this change in investment objective, the fund's investment policies were
revised.
(3) Per share amounts have been adjusted to reflect the effect of the stock
dividend declared on October 21, 1996.
(4) Class B shares of Piper Small Company Growth Fund were offered beginning
February 18, 1997.
(5) Effective April 28, 1998, all outstanding Class B shares of Piper Small
Company Growth Fund were exchanged for Class A shares of such fund and Class B
share activity was discontinued.
(6) Class B shares of Small Cap Growth Fund have been offered since July 31,
1998.
(7) Annualized.
48 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
<TABLE>
<CAPTION>
Period ended
September 30,
CLASS C SHARES 1999(1)
- --------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
<S> <C>
Net Asset Value, Beginning of Period ________
--------------------
Investment Operations:
Net Investment Income ________
Net Gains (Losses) on Investments ________
(both realized and unrealized)
--------------------
Total From Investment Operations ________
--------------------
Less Distributions:
--------------------
Dividends (from Net Investment Income) ________
--------------------
Total Distributions ________
====================
Net Asset Value, End of Period ________
====================
Total Return ________
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) ________
Ratio of Expenses to Average Net Assets ________
Ratio of Net Income to Average Net Assets ________
Ratios of Expenses to Average Net Assets (excluding waivers) ________
Ratio of Net Income to Average Net Assets (excluding waivers) ________
Portfolio Turnover Rate ________
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Class C shares have been offered since February 1, 1999.
49 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
<TABLE>
<CAPTION>
SMALL CAP VALUE FUND
Fiscal Year Ten months Four months
Ended ended ended Fiscal year
September 30, September 30, November 30, ended July 31,
---------------------------------------------------------------------------
CLASS A SHARES(1) 1999 1998 1997 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period _______ $18.20 $17.86 $13.95 $13.23
---------------------------------------------------------------------------
Investment Operations:
Net Investment Income (Loss) _______ 0.04 (0.03) 0.01 0.04
Net Gains (Losses) on Investments
(both realized and unrealized) _______ (3.38) 0.37 5.43 1.83
---------------------------------------------------------------------------
Total From Investment Operations _______ (3.34) 0.34 5.44 1.87
---------------------------------------------------------------------------
Less Distributions:
Dividends (from Net Investment Income) (0.01) -- (0.01) (0.04)
Distributions (from capital gains) _______ (1.27) -- (1.52) (1.11)
---------------------------------------------------------------------------
-------
Total Distributions _______ (1.28) -- (1.53) (1.15)
---------------------------------------------------------------------------
-------
Net Asset Value, End of Period $13.58 $18.20 $17.86 $13.95
===========================================================================
Total Return _______ (19.48)% 1.90% 41.71% 14.93%
RATIOS/SUPPLEMENTAL DATA _______
Net Assets, End of Period (000) _______ $13,551 $19,194 $22,429 $10,247
Ratio of Expenses to Average
Net Assets _______ 1.13%(3) 1.37%(3) 1.31% 1.33%
Ratio of Net Income (Loss) to Average Net
Assets _______ 0.15%(3) (0.38)%(3) 0.01% 0.14%
Ratio of Expenses to Average
Net Assets (excluding waivers) _______ 1.37%(3) 1.31% 1.33%
Ratio of Net Income (Loss) to Average Net
Assets (excluding waivers) 0.15%(4) 0.01% 0.14%
Portfolio Turnover Rate 21% 29% 34%
Ten months
Fiscal Year Ended ended Period ended
September 30, September 30, November 30,
-------------------------------------------------------------------------
CLASS B SHARES 1999 1998 19972
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period _______ $18.23 $18.22
-------------------------------------------------------------------------
Investment Operations:
Net Investment Income _______ 0.01 --
Net Gains (Losses) on Investments
(both realized and unrealized) _______ (3.43) 0.01
-------------------------------------------------------------------------
Total From Investment Operations _______ (3.43) 0.01
-------------------------------------------------------------------------
Dividends (from Net Investment Income) (0.01) --
Distributions (from capital gains) (1.27) --
-------------------------------------------------------------------------
Total Distributions _______ (1.28) --
-------------------------------------------------------------------------
Net Asset Value, End of Period _______ $13.53 $18.23
=========================================================================
Total Return _______ (19.91)% 0.05%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) ________ $618 $ 1
Ratio of Expenses to Average Net Assets _______ 1.88%(3) 1.90%(3)
Ratio of Net Loss to Average Net Assets _______ (0.53)%(3) (1.53)%(3)
Ratio of Expenses to Average Net Assets
(excluding waivers) _______ 1.88%(3) 1.90%(3)
Ratio of Net Loss to Average Net Assets
(excluding waivers) _______ (0.53)%(3) (1.53)%(3)
Portfolio Turnover Rate _______ 21% 3%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The financial highlights for Small Cap Value Fund include the historical
financial highlights of the Qualivest Small Companies Value Fund (Class A
shares). The assets of the Qualivest Small Companies Value Fund were acquired by
Small Cap Value Fund on November 21, 1997. In connection with such acquisition,
Class A and Class C shares of the Qualivest Small Companies Value Fund were
exchanged for Class A shares of Small Cap Value Fund.
(2)Class B shares have been offered since November 24, 1997.
(3)Annualized.
50 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
<TABLE>
<CAPTION>
Period ended
September 30,
CLASS C SHARES 19991
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period ________
--------------------
Investment Operations:
Net Investment Income ________
Net Gains (Losses) on Investments ________
(both realized and unrealized)
--------------------
Total From Investment Operations ________
--------------------
Less Distributions:
Dividends (from Net Investment Income) ________
--------------------
Total Distributions ________
--------------------
Net Asset Value, End of Period ________
====================
Total Return ________
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) ________
Ratio of Expenses to Average Net Assets ________
Ratio of Net Income to Average Net Assets ________
Ratios of Expenses to Average Net Assets (excluding waivers) ________
Ratio of Net Income to Average Net Assets (excluding waivers) ________
Portfolio Turnover Rate ________
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Class C shares have been offered since February 1, 1999.
51 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
FOR MORE INFORMATION
More information about the funds is available in the funds' Statement of
Additional Information and annual and semiannual reports.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI provides more details about the funds and their policies. A current SAI
is on file with the Securities and Exchange Commission (SEC) and is incorporated
into this prospectus by reference (which means that it is legally considered
part of this prospectus).
ANNUAL AND SEMIANNUAL REPORTS
Additional information about the funds' investments is available in the funds'
annual and semiannual reports to shareholders. In the funds' annual report, you
will find a discussion of the market conditions and investment strategies that
significantly affected the funds' performance during their last fiscal year.
You can obtain a free copy of the funds' SAI and/or free copies of the funds'
most recent annual or semiannual reports by calling Investor Services at
1-800-637-2548. The material you request will be sent by first-class mail or
other means designed to ensure equally prompt delivery, within three business
days of receipt of the request.
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, DC, or by sending your request and a duplicating fee to the SEC's
Public Reference Section, Washington, DC 20549-6009. For more information, call
1-800-SEC-0330.
Information about the funds is also available on the Internet. Text-only
versions of fund documents can be viewed online or down- loaded from the SEC's
Internet site at http://www.sec.gov.
SEC file number: 811-05309
FAIF - 2000 (2/2000)R
52 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class A, Class B and Class C Shares
<PAGE>
February 1, 2000
MID CAP AND SMALL CAP FUNDS
CLASS Y SHARES
Mid Cap Growth Fund
Mid Cap Value Fund
Small Cap Growth Fund
Small Cap Value Fund
First American
Investment Funds, Inc.
PROSPECTUS
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the shares of these funds, or determined if the
information in this prospectus is accurate or complete. Any statement to the
contrary is a criminal offense.
FIRST AMERICAN(R)
THE POWER OF DISCIPLINED INVESTING(R)
1 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class Y Shares
<PAGE>
TABLE OF
CONTENTS
FUND SUMMARIES
- --------------------------------------------------------------------------------
Mid Cap Growth Fund
- --------------------------------------------------------------------------------
Mid Cap Value Fund
- --------------------------------------------------------------------------------
Small Cap Growth Fund
- --------------------------------------------------------------------------------
Small Cap Value Fund
- --------------------------------------------------------------------------------
POLICIES & SERVICES
- --------------------------------------------------------------------------------
Buying and Selling Shares
- --------------------------------------------------------------------------------
Managing Your Investment
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
Management
- --------------------------------------------------------------------------------
More About The Funds
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
2 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
INTRODUCTION
This section of the prospectus describes the objectives of the First American
Mid Cap Funds and First American Small Cap funds, summarizes the main investment
strategies used by each fund in trying to achieve its objectives, and highlights
the risks involved with these strategies. It also provides you with information
about the performance, fees and expenses of the funds.
AN INVESTMENT IN THE FUNDS IS NOT A DEPOSIT OF U.S. BANK NATIONAL ASSOCIATION
AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR
ANY OTHER GOVERNMENT AGENCY.
3 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
MID CAP GROWTH FUND
OBJECTIVE
Mid Cap Growth Fund has an objective of growth of capital.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Mid Cap Growth Fund invests primarily (at least
75% of total assets) in common stocks of mid capitalization companies, defined
as companies that have market capitalizations at the time of purchase within the
range of market capitalizations of companies constituting the Russell Midcap
Index. This index measures the performance of the 800 smallest companies in the
Russell 1000 Index (which is made up of the 1,000 largest U.S. companies based
on total market capitalization). As of the date of this prospectus, market
capitalizations of companies in the Russell Midcap Index ranged from
approximately $____ million to $____ billion.
The advisor will select companies that it believes exhibit the potential for
superior growth based on factors such as:
o above average growth in revenue and earnings;
o strong competitive position;
o strong management; and
o sound financial condition.
Up to 25% of the fund's total assets may be invested in securities of foreign
issuers which are either listed on a United States stock exchange or represented
by American Depositary Receipts.
To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.
MAIN RISKS
The value of your investment in this fund will change daily, which means you
could lose money. The main risks of investing in this fund include:
4 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class Y Shares
<PAGE>
RISKS OF COMMON STOCKS
Stocks may decline significantly in price over short or extended periods of
time. Price changes may occur in the market as a whole, or they may occur in
only a particular company, industry or sector of the market. In addition, growth
stocks and/or mid cap stocks may underperform the market as a whole.
RISKS OF MID CAP STOCKS
While stocks of mid cap companies may be slightly less volatile than those of
small cap companies, they still involve substantial risk and their prices may be
subject to more abrupt or erratic movements than those of larger, more
established companies or the market averages in general.
FOREIGN SECURITY RISK
Securities of foreign issuers, even when dollar-denominated and publicly traded
in the United States, may involve risks not associated with the securities of
domestic issuers, including the risks of adverse currency fluctuations and of
political or social instability or diplomatic developments that could adversely
affect the securities.
RISKS OF SECURITIES LENDING
The fund is subject to the risk that the other party to a securities lending
agreement will default on its obligations.
FUND PERFORMANCE
Illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart shows you how performance of the fund's shares has varied from
year to year.
The table compares the fund's performance over different time periods to that of
the fund's benchmark index, which is a broad measure of market performance. The
fund's performance reflects fund expenses; the benchmark is unmanaged and has no
expenses.
Both the chart and the table assume that all distributions have been reinvested.
5 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
MID CAP GROWTH FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR(1)
10.84%
- ------------------------------------
1998 1999
BEST QUARTER:
Quarter ending: 12/31/98
Total return 25.88%
WORST QUARTER:
Quarter ending: 9/30/98
Total return -19.31%
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99(1) Date One Year Inception
- ------------------------------------------------------------------------------
Mid Cap Growth Fund 2/18/97 ______% ______%
- ------------------------------------------------------------------------------
Russell Midcap Index(2) ______% ______%
- ------------------------------------------------------------------------------
(1) On 8/7/98, the Mid Cap Growth Fund became the successor by merger to the
Piper Emerging Growth Fund, a series of Piper Funds, Inc. Prior to the merger,
the First American Fund had no assets or liabilities. Performance presented
prior to 8/7/98 represents that of the Piper Emerging Growth Fund.
(2) An unmanaged index comprised of the 800 smallest securities in the Russell
1000 Index, which represent approximately 35% of the total market
capitalization. The since inception performance of the index is calculated from
2/28/97.
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
6 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class Y Shares
<PAGE>
<TABLE>
- ----------------------------------------------------------------------------------------
SHAREHOLDER FEES
- ----------------------------------------------------------------------------------------
<S> <C>
MAXIMUM SALES CHARGE (LOAD) None
MAXIMUM DEFERRED SALES CHARGE (LOAD) None
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------------
Management Fees 0.70%
Distribution and Service (12b-1) Fees None
Other Expenses ____%
TOTAL ____%
- ----------------------------------------------------------------------------------------
</TABLE>
(1) The net expenses the fund actually paid after waivers for the fiscal year
ended September 30, 1999 were:
<TABLE>
<S> <C>
Waiver of Fund Expenses (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____%
</TABLE>
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 0.90%. FEE WAIVERS MAY BE DISCONTINUED AT
ANY TIME.
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
1 year $ 89
3 years $ 278
5 years $ 482
10 years $1,073
</TABLE>
7 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
MID CAP VALUE FUND
OBJECTIVE
Mid Cap Value Fund has an objective of capital appreciation.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Mid Cap Value Fund invests primarily (at least
75% of total assets) in common stocks of mid capitalization companies, defined
as companies that have market capitalizations at the time of purchase within the
range of market capitalizations of companies constituting the Russell Midcap
Index. This index measures the performance of the 800 smallest companies in the
Russell 1000 Index (which is made up of the 1,000 largest U.S. companies based
on total market capitalization). As of the date of this prospectus, market
capitalizations of companies in the Russell Midcap Index ranged from
approximately $____ million to $___ billion.
In selecting stocks, the fund's advisor invests in securities it believes:
o are undervalued relative to other securities in the same industry or
market;
o exhibit good or improving fundamentals; and
o exhibit an identifiable catalyst that could close the gap between
market value and fair value over the next one to two years.
To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.
MAIN RISKS
The value of your investment in this fund will change daily, which means you
could lose money. The main risks of investing in this fund include:
RISKS OF COMMON STOCKS
Stocks may decline significantly in price over short or extended periods of
time. Price changes may occur in the market as a whole, or they may occur in
only a particular company, industry or sector of the market. In addition, value
stocks and/or mid cap stocks may underperform the market as a whole.
8 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class Y Shares
<PAGE>
RISKS OF MID CAP STOCKS
While stocks of mid cap companies may be slightly less volatile than those of
small cap companies, they still involve substantial risk and their prices may be
subject to more abrupt or erratic movements than those of larger, more
established companies or the market averages in general.
RISKS OF SECURITIES LENDING
The fund is subject to the risk that the other party to a securities lending
agreement will default on its obligations.
FUND PERFORMANCE
Illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart shows you how performance of the fund's shares has varied from
year to year.
The table compares the fund's performance over different time periods to that of
the fund's benchmark index, which is a broad measure of market performance. The
fund's performance reflects fund expenses; the benchmark is unmanaged and has no
expenses.
Both the chart and the table assume that all distributions have been reinvested.
9 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
MID CAP VALUE FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR
20.30% 32.34% 24.53% -12.96%
- ----------------- ---------------- ---------------- -------------- -------------
1995 1996 1997 1998 1999
BEST QUARTER:
Quarter ending: 6/30/97
Total return 17.97%
WORST QUARTER:
Quarter ending: 9/30/98
Total return -30.80%
AVERAGE ANNUAL TOTAL RETURNS Inception One Year Five Years Since
AS OF 12/31/99 Date Inception
- --------------------------------------------------------------------------------
Mid Cap Value Fund 2/4/94 ______% ______% ______%
- --------------------------------------------------------------------------------
Russell Midcap Index(1) ______% ______% ______%
- --------------------------------------------------------------------------------
(1) An unmanaged index comprised of the 800 smallest securities in the Russell
1000 Index, which represent approximately 35% of the total market capitalization
of investable U.S. equity markets. The since inception performance of the index
is calculated from 2/28/94.
10 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class Y Shares
<PAGE>
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
<TABLE>
- -----------------------------------------------------------------------------------------
<S> <C>
SHAREHOLDER FEES
- -----------------------------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD) None
MAXIMUM DEFERRED SALES CHARGE (LOAD) None
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------------
Management Fees 0.70%
Distribution and Service (12b-1) Fees None
Other Expenses ____%
TOTAL ____%
- -----------------------------------------------------------------------------------------
</TABLE>
(1) The net expenses the fund actually paid after waivers for the fiscal year
ended September 30, 1999 were:
<TABLE>
<S> <C>
Waiver of Fund Expenses (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____%
</TABLE>
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 0.90%. FEE WAIVERS MAY BE DISCONTINUED AT
ANY TIME.
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
1 year $ 91
3 years $ 284
5 years $ 493
10 years $1,096
11 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
SMALL CAP GROWTH FUND
OBJECTIVE
Small Cap Growth Fund has an objective of growth of capital.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Small Cap Growth Fund invests primarily (at
least 75% of total assets) in common stocks of small capitalization companies,
defined as companies that have market capitalizations at the time of purchase
within the range of market capitalizations of companies constituting the Russell
2000 Index. This index measures the performance of the 2,000 smallest companies
in the Russell 3000 Index (which is made up of the 3,000 largest U.S. companies
based on total market capitalization). As of the date of this prospectus, market
capitalizations of companies in the Russell 2000 Index ranged from approximately
$____ million to $____ billion.
The advisor will select companies that it believes exhibit the potential for
superior growth based on factors such as:
o above average growth in revenue and earnings;
o strong competitive position;
o strong management; and
o sound financial condition.
Up to 25% of the fund's total assets may be invested in securities of foreign
issuers which are either listed on a United States stock exchange or represented
by American Depositary Receipts.
To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.
MAIN RISKS
The value of your investment in this fund will change daily, which means you
could lose money. The main risks of investing in this fund include:
12 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class Y Shares
<PAGE>
RISKS OF COMMON STOCKS
Stocks may decline significantly in price over short or extended periods of
time. Price changes may occur in the market as a whole, or they may occur in
only a particular company, industry or sector of the market. In addition, growth
stocks and/or stocks of small capitalization companies may underperform the
market as a whole.
RISKS OF SMALL CAP STOCKS
Stocks of small capitalization companies involve substantial risk. These stocks
historically have experienced greater price volatility than stocks of
larger-capitalization companies, and they may be expected to do so in the
future.
FOREIGN SECURITY RISK
Securities of foreign issuers, even when dollar-denominated and publicly traded
in the United States, may involve risks not associated with the securities of
domestic issuers, including the risks of adverse currency fluctuations and of
political or social instability or diplomatic developments that could adversely
affect the securities.
RISKS OF SECURITIES LENDING
The fund is subject to the risk that the other party to a securities lending
agreement will default on its obligations.
FUND PERFORMANCE
Illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart is intended to show you how performance of the fund's shares has
varied from year to year. However, because Class Y shares were first offered in
1998, only one calendar year of information is available.
The table compares the fund's performance over different time periods to that of
the fund's benchmark index, which is a broad measure of market performance. The
fund's performance reflects fund expenses; the benchmark is unmanaged and has no
expenses.
Both the chart and the table assume that all distributions have been reinvested.
13 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
SMALL CAP GROWTH FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR
- ------------
1999
BEST QUARTER:
Quarter ending: ________
Total return ________
WORST QUARTER:
Quarter ending: ________
Total return ________
AVERAGE ANNUAL TOTAL RETURNS Inception Since Inception
AS OF 12/31/99 Date One Year
- -------------------------------- -------------- -------------- ----------------
Small Cap Growth Fund 7/31/98 _______% _______%
- -------------------------------- -------------- -------------- ----------------
Russell 2000 Index(1) _______% _______%
- -------------------------------- -------------- -------------- ----------------
(1) An unmanaged index comprised of the smallest 2000 companies in the Russell
3000 Index. The latter index is composed of 3000 large U.S. companies
representing approximately 98% of the investable U.S. equity market. The since
inception performance for the index is calculated from 7/31/98.
14 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class Y Shares
<PAGE>
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
<TABLE>
- -----------------------------------------------------------------------------------------
<S> <C>
SHAREHOLDER FEES
- -----------------------------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD) None
MAXIMUM DEFERRED SALES CHARGE (LOAD) None
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------------
Management Fees 0.70%
Distribution and Service (12b-1) Fees None
Other Expenses ____%
TOTAL ____%
- -----------------------------------------------------------------------------------------
</TABLE>
(1) The net expenses the fund actually paid after waivers for the fiscal year
ended September 30, 1999 were:
<TABLE>
<S> <C>
Waiver of Fund Expenses (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____%
</TABLE>
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 0.90%. FEE WAIVERS MAY BE DISCONTINUED AT
ANY TIME.
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
1 year $ 92
3 years $ 287
5 years $ 498
10 years $1,108
15 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
SMALL CAP VALUE FUND
OBJECTIVE
Small Cap Value Fund has an objective of capital appreciation.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Small Cap Value Fund invests primarily (at least
75% of total assets) in common stocks of small capitalization companies, defined
as companies that have market capitalizations at the time of purchase within the
range of market capitalizations of companies constituting the Russell 2000
Index. This index measures the performance of the 2,000 smallest companies in
the Russell 3000 Index (which is made up of the 3,000 largest U.S. companies
based on total market capitalization). As of the date of this prospectus, market
capitalizations of companies in the Russell 2000 Index ranged from approximately
$____ million to $____ billion.
In selecting stocks, the fund's advisor invests in securities it believes:
o are undervalued relative to other securities in the same industry or
market;
o exhibit good or improving fundamentals; and
o exhibit an identifiable catalyst that could close the gap between
market value and fair value over the next one to two years.
To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.
MAIN RISKS
The value of your investment in this fund will change daily, which means you
could lose money. The main risks of investing in this fund include:
RISKS OF COMMON STOCKS
Stocks may decline significantly in price over short or extended periods of
time. Price changes may occur in the market as a whole, or they may occur in
only a particular company, industry or sector of the market. In addition, value
stocks and/or stocks of small capitalization companies may underperform the
market as a whole.
16 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class Y Shares
<PAGE>
RISKS OF SMALL CAP STOCKS
Stocks of small capitalization companies involve substantial risk. These stocks
historically have experienced greater price volatility than stocks of
larger-capitalization companies, and they may be expected to do so in the
future.
RISKS OF SECURITIES LENDING
The fund is subject to the risk that the other party to a securities lending
agreement will default on its obligations.
FUND PERFORMANCE
Illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart shows you how performance of the fund's shares has varied from
year to year.
The table compares the fund's performance over different time periods to that of
the fund's benchmark index, which is a broad measure of market performance. The
fund's performance reflects fund expenses; the benchmark is unmanaged and has no
expenses.
Both the chart and the table assume that all distributions have been reinvested.
17 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
SMALL CAP VALUE FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR(1)
47.33% 20.36% 20.37% -8.26%
- ----------------------------------------------------------
1995 1996 1997 1998 1999
BEST QUARTER:
Quarter ending: _______
Total return _______
WORST QUARTER:
Quarter ending: 9/30/98
Total return -23.17%
AVERAGE ANNUAL TOTAL RETURNS Inception One Year Five Years Since
AS OF 12/31/99(1) Date Inception
- ---------------------------- ------------- ---------- ------------ -------------
Small Cap Value Fund 8/1/94 _____% ______% ______%
- ---------------------------- ------------- ---------- ------------ -------------
Russell 2000 Index(2) _____% ______% ______%
- ---------------------------- ------------- ---------- ------------ -------------
(1) Performance from 8/1/94 to 11/21/97 is that of Qualivest Small Companies
Value Fund.
(2) An unmanaged index comprised of the smallest 2000 companies in the Russell
3000 Index. The latter index is composed of 3000 large U.S. companies
representing approximately 98% of the investable U.S. equity market. The since
inception performance for the index is calculated from 8/31/94.
18 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class Y Shares
<PAGE>
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
<TABLE>
- ----------------------------------------------------------------------------------------
SHAREHOLDER FEES
- ----------------------------------------------------------------------------------------
<S> <C>
MAXIMUM SALES CHARGE (LOAD) None
MAXIMUM DEFERRED SALES CHARGE (LOAD) None
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------------
Management Fees 0.70%
Distribution and Service (12b-1) Fees None
Other Expenses ____%
TOTAL ____%
- ----------------------------------------------------------------------------------------
</TABLE>
(1) The net expenses the fund actually paid after waivers for the fiscal year
ended September 30, 1999 were:
<TABLE>
<S> <C>
Waiver of Fund Expenses (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____%
</TABLE>
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 0.90%. FEE WAIVERS MAY BE DISCONTINUED AT
ANY TIME.
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
1 year $ 90
3 years $ 281
5 years $ 488
10 years $1,084
19 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class Y Shares
<PAGE>
POLICIES & SERVICES
BUYING AND SELLING SHARES
Class Y shares are offered through banks and other financial institutions that
have entered into sales agreements with the funds' distributor and that hold the
shares in an omnibus account with the transfer agent. Class Y shares are
available to certain accounts for which the financial institution acts in a
fiduciary, agency or custodial capacity, such as certain trust accounts and
investment advisory accounts. To find out whether you may purchase Class Y
shares, contact your financial institution.
There is no initial or deferred sales charge on your purchase of Class Y shares.
However, your broker or financial institution may receive a commission of up to
1.25% on your purchase.
CALCULATING YOUR SHARE PRICE
Your purchase price will be equal to the fund's net asset value (NAV) per share,
which is generally calculated as of the close of regular trading on the New York
Stock Exchange (usually 3 p.m. Central time) every day the exchange is open.
A fund's NAV is equal to the market value of its investments and other assets,
less any liabilities, divided by the number of fund shares. If market prices are
not readily available for an investment or if the advisor believes they are
unreliable, fair value prices may be determined in good faith using methods
approved by the funds' board of directors.
HOW TO BUY AND SELL SHARES
You may purchase or sell shares by calling your financial institution.
When purchasing shares, payment must be made by wire transfer, which can be
arranged by your financial institution. Because purchases must be paid for by
wire transfer, you can purchase shares only on days when both the New York Stock
Exchange and federally chartered banks are open. You may sell your shares on any
day when the New York Stock Exchange is open.
Purchase orders and redemption requests must be received by your financial
institution by the time specified by the institution to be assured same day
processing. In order for shares to be purchased at that day's price, the funds
must receive your purchase order by 3:00 p.m. Central time and the funds'
custodian must receive federal funds before the close of business. In order for
shares to be sold at that day's price, the funds must receive your redemption
request by 3:00 p.m. Central time. It is the responsibility of your financial
institution to promptly transmit orders to the funds. Purchase orders and
redemption requests may be restricted in the event of an early or unscheduled
close of the New York Stock Exchange.
20 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class Y Shares
<PAGE>
If the funds receive your redemption request by 3:00 p.m. Central time, payment
of your redemption proceeds will ordinarily be made by wire on the next business
day. It is possible, however, that payment could be delayed by up to seven days.
HOW TO EXCHANGE SHARES
If your investment goals or your financial needs change, you may exchange your
shares for class Y shares of another First American fund. Exchanges will be made
at the net asset value per share of each fund at the time of the exchange. There
is no fee to exchange shares. If you are no longer eligible to hold Class Y
shares, for example, if you decide to discontinue your fiduciary, agency or
custodian account, you may exchange your shares for Class A shares at net asset
value. Class A shares have higher expenses than Class Y shares.
To exchange your shares, call your financial institution. In order for your
shares to be exchanged the same day, you must call your financial institution by
the time specified by the institution and your exchange order must be received
by the funds by 3:00 p.m. Central time. It is the responsibility of your
financial institution to promptly transmit your exchange order to the funds.
Before exchanging into any fund, be sure to read its prospectus carefully. A
fund may change or cancel its exchange policies at any time. You will be
notified of any changes. The funds have the right to limit exchanges to four
times per year.
21 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class Y Shares
<PAGE>
POLICIES & SERVICES
MANAGING YOUR INVESTMENT
STAYING INFORMED
SHAREHOLDER REPORTS
Shareholder reports are mailed twice a year, in November and May. They include
financial statements, performance information, a message from your portfolio
managers, and, on an annual basis, the auditors' report.
In an attempt to reduce shareholder costs and help eliminate duplication, the
funds will try to limit their mailings to one report for each address that lists
one or more shareholders with the same last name. If you would like additional
copies, please call 1-800-637-2548.
STATEMENTS AND CONFIRMATIONS
Statements summarizing activity in your account are mailed at least quarterly.
Confirmations are mailed following each purchase or sale of fund shares.
DIVIDENDS AND DISTRIBUTIONS
Dividends from Mid Cap Growth Fund and Mid Cap Value Fund net investment income
are declared and paid monthly. Dividends from Small Cap Growth Fund and Small
Cap Value Fund net investment income are declared and paid quarterly. Any
capital gains are distributed at least once each year.
On the ex-dividend date for a distribution, a fund's share price is reduced by
the amount of the distribution. If you buy shares just before the ex-dividend
date, in effect, you "buy the dividend." You will pay the full price for the
shares and then receive a portion of that price back as a taxable distribution.
Dividend and capital gain distributions will be reinvested in additional shares
of the fund paying the distribution, unless you request that distributions be
reinvested in another First American fund or paid in cash. This request may be
made on your new account form or by writing to the fund. If you request that
your distributions be paid in cash but those distributions cannot be delivered
because of an incorrect mailing address, the undelivered distributions and all
future distributions will be reinvested in fund shares.
TAXES
Some of the tax consequences of investing in the funds are discussed below. More
information about taxes is in the Statement of Additional Information. However,
because everyone's tax situation is unique, always consult your tax professional
about federal, state and local tax consequences.
22 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class Y Shares
<PAGE>
TAXES ON DISTRIBUTIONS
Each fund pays its shareholders dividends from its net investment income and any
net capital gains that it has realized. For most investors, fund dividends and
distributions are considered taxable whether they are reinvested or taken in
cash (unless your investment is in an IRA or other tax-advantaged account).
Dividends from a fund's net investment income and short-term capital gains are
taxable as ordinary income. Distributions of a fund's long-term capital gains
are taxable as long-term gains, regardless of how long you have held your
shares. The funds expect that, as a result of their investment objectives and
strategies, their distributions will consist primarily of capital gains.
TAXES ON TRANSACTIONS
The sale of fund shares, or the exchange of one fund's shares for shares of
another fund, will be a taxable event and may result in a capital gain or loss.
The gain or loss will be considered long-term if you have held your shares for
more than one year. A gain or loss on shares held for one year or less is
considered short-term and is taxed at the same rates as ordinary income.
The exchange of one class of shares for another class of shares in the same fund
will not be taxable.
23 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class Y Shares
<PAGE>
ADDITIONAL INFORMATION
MANAGEMENT
INVESTMENT ADVISOR
First American Asset Management
601 Second Avenue South
Minneapolis, Minnesota 55402
U.S. Bank National Association (U.S. Bank), acting through its First American
Asset Management division, is the funds' investment advisor. First American
Asset Management provides investment management services to individuals and
institutions, including corporations, foundations, pensions and retirement
plans. As of December 31, 1999, it had more than $ ___ billion in assets under
management, including investment company assets of approximately $ ___ billion.
As investment advisor, First American Asset Management manages the funds'
business and investment activities, subject to the authority of the board of
directors. Each fund pays the investment advisor a monthly fee for providing
investment advisory services. During their most recent fiscal years, the funds
paid the following investment advisory fees to First American Asset Management:
Advisory fee
as a % of
average daily
net assets
- -----------------------------------------------------------------
Mid Cap Growth Fund _______ %
Mid Cap Value Fund _______ %
Small Cap Growth Fund _______ %
Small Cap Value Fund _______ %
- -----------------------------------------------------------------
CUSTODIAN
U.S. Bank National Association
U.S. Bank Center
180 East Fifth Street
St. Paul, Minnesota 55101
ADMINISTRATOR
U.S. Bank National Association
U.S. Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402
24 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class Y Shares
<PAGE>
DISTRIBUTOR
SEI Investments Distribution Co.
Oaks, Pennsylvania 19456
ADDITIONAL COMPENSATION
U.S. Bank and other affiliates of U.S. Bancorp may act as fiduciary with respect
to plans subject to the Employee Retirement Income Security Act of 1974 (ERISA)
and other trust and agency accounts that invest in the funds. As described
above, U.S. Bank receives compensation for acting as the funds' investment
advisor. U.S. Bank and its affiliates also receive compensation in connection
with the following:
CUSTODY SERVICES. U.S. Bank provides or compensates others to provide custody
services to the funds. U.S. Bank is paid monthly fees equal, on an annual basis,
to 0.03% of a fund's average daily net assets. In addition, U.S. Bank is
reimbursed for its out-of-pocket expenses incurred while providing custody
services to the funds.
ADMINISTRATION SERVICES. U.S. Bank provides or compensates others to provide
administrative services to the funds including general administrative and
accounting services, transfer agency and dividend disbursing services, and
shareholder services. The funds pay U.S. Bank monthly fees equal, on an annual
basis, to 0.12% of the aggregate average daily net assets of all open-end mutual
funds in the First American fund family up to $8 billion and 0.105% of the
aggregate average daily net assets of all open-end mutual funds in the First
American fund family in excess of $8 billion. Additionally, the funds pay U.S.
Bank fees based upon the number of funds and accounts maintained.
SECURITIES LENDING SERVICES. In connection with lending their portfolio
securities, the funds pay administrative and custodial fees to U.S. Bank which
are equal to 40% of the funds' income from these securities lending
transactions.
BROKERAGE TRANSACTIONS. When purchasing and selling portfolio securities for the
funds, the funds' investment advisor may place trades through its affiliates,
U.S. Bancorp Investments, Inc. and U.S. Bancorp Piper Jaffray Inc., which will
earn commissions on such transactions.
SALES OF FUND SHARES. U.S. Bancorp Investments, Inc. and U.S. Bancorp Piper
Jaffray, Inc. broker-dealers affiliated with U.S. Bank, have entered into
agreements with the funds' distributor to sell fund shares and will earn annual
shareholder servicing fees in connection with these sales.
PORTFOLIO MANAGEMENT
Each fund's investments are managed by a team of persons associated with First
American Asset Management.
25 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class Y Shares
<PAGE>
ADDITIONAL INFORMATION
MORE ABOUT THE FUNDS
OBJECTIVES
The funds' objectives, which are described in the "Fund Summaries" section, may
be changed without shareholder approval. If a fund's objectives change, you will
be notified at least 30 days in advance. Please remember: There is no guarantee
that any fund will achieve its objectives.
INVESTMENT STRATEGIES
The funds' main investment strategies are discussed in the "Fund Summaries"
section. These are the strategies that the funds' investment advisor believes
are most likely to be important in trying to achieve the funds' objectives. You
should be aware that each fund may also use strategies and invest in securities
that are not described in this prospectus, but that are described in the
Statement of Additional Information (SAI). For a copy of the SAI, call Investor
Services at 1-800-637-2548.
TEMPORARY INVESTMENTS
In an attempt to respond to adverse market, economic, political or other
conditions, each fund may temporarily invest without limit in cash and in U.S.
dollar-denominated high-quality money market instruments and other short-term
securities, including money market funds advised by the funds' advisor. Being
invested in these securities may keep a fund from participating in a market
upswing and prevent the fund from achieving its investment objectives.
PORTFOLIO TURNOVER
Fund managers may trade securities frequently, resulting, from time to time, in
an annual portfolio turnover rate of over 100%. Trading of securities may
produce capital gains, which are taxable to shareholders when distributed.
Active trading may also increase the amount of commissions or mark-ups to
broker-dealers that the fund pays when it buys and sells securities. The
"Financial Highlights" section of this prospectus shows each fund's historical
portfolio turnover rate.
RISKS
The main risks of investing in the funds are summarized in the "Fund Summaries"
section. More information about fund risks is presented below.
26 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class Y Shares
<PAGE>
MARKET RISK
All stocks are subject to price movements due to changes in general economic
conditions, changes in the level of prevailing interest rates, changes in
investor perceptions of the market, or the outlook for overall corporate
profitability.
SECTOR RISK
The stocks of companies within specific industries or sectors of the economy can
periodically perform differently than the overall stock market. This can be due
to changes in such things as the regulatory or competitive environment or to
changes in investor perceptions of a particular industry or sector.
COMPANY RISK
Individual stocks can perform differently than the overall market. This may be a
result of specific factors such as changes in corporate profitability due to the
success or failure of specific products or management strategies, or it may be
due to changes in investor perceptions regarding a company.
RISKS OF SMALL CAP STOCKS
Stocks of small cap companies involve substantial risk. These companies may lack
the management expertise, financial resources, product diversification and
competitive strengths of larger companies. Prices of small cap stocks may be
subject to more abrupt or erratic movements than stock prices of larger, more
established companies or the market averages in general. In addition, the
frequency and volume of their trading may be less than is typical of larger
companies, making them subject to wider price fluctuations. In some cases, there
could be difficulties in selling the stocks of small cap companies at the
desired time and price.
RISKS OF MID CAP STOCKS
While stocks of mid cap companies may be slightly less volatile than those of
small cap companies, they still involve substantial risk. Mid cap companies may
have limited product lines, markets or financial resources, and they may be
dependent on a limited management group. Stocks of mid cap companies may be
subject to more abrupt or erratic market movements than those of larger, more
established companies or the market averages in general.
FOREIGN SECURITY RISK
Up to 25% of each fund's total assets may be invested in securities of foreign
issuers which are either listed on a United States stock exchange or represented
by American Depositary Receipts. Securities of foreign issuers, even when
dollar-denominated and publicly traded in the United States, may involve risks
not associated with the securities of domestic issuers. For certain foreign
countries, political or social instability or diplomatic developments could
adversely affect the securities. There is also the risk of loss due to
governmental actions such as a change in tax statutes or the modification of
individual property rights. In addition, individual foreign economies may differ
favorably or unfavorably from the U.S. economy.
27 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class Y Shares
<PAGE>
RISKS OF ACTIVE MANAGEMENT
Each fund is actively managed and its performance therefore will reflect in part
the advisor's ability to make investment decisions which are suited to achieving
the fund's investment objectives. Due to their active management, the funds
could underperform other mutual funds with similar investment objectives.
RISKS OF SECURITIES LENDING
When a fund loans its portfolio securities, it will receive collateral equal to
at least 100% of the value of the loaned securities. Nevertheless, the fund
risks a delay in the recovery of the loaned securities, or even the loss of
rights in the collateral deposited by the borrower if the borrower should fail
financially. To reduce these risks, the funds enter into loan arrangements only
with institutions which the funds' advisor has determined are creditworthy under
guidelines established by the funds' board of directors.
28 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class Y Shares
<PAGE>
ADDITIONAL INFORMATION
FINANCIAL HIGHLIGHTS
The tables that follow present performance information about the Class Y shares
of each fund. This information is intended to help you understand each fund's
financial performance for the past five years or, if shorter, the period of the
fund's Class Y share operations. Some of this information reflects financial
results for a single fund share. Total returns in the tables represent the rate
that you would have earned or lost on an investment in a fund, assuming you
reinvested all of your dividends and distributions.
The information for the fiscal year ended September 30, 1999 has been audited by
Ernst & Young LLP, independent auditors, whose report, along with the funds'
financial statements, is included in the funds' annual report, which is
available upon request. The information for the fiscal years ended on or before
September 30, 1998, has been audited by KPMG LLP.
<TABLE>
<CAPTION>
MID CAP GROWTH FUND(1)
Fiscal year ended Fiscal year ended Fiscal period ended
September 30, September 30, September 30,
1999 1998 1997(2)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period ________ $15.29 $12.54
----------------------------------------------------------------------
Investment Operations:
Net Investment Loss ________ (0.04) (0.01)
Net Gains (Losses) on Investments
(both realized and unrealized) ________ (1.82) 2.76
----------------------------------------------------------------------
Total From Investment Operations ________ (1.86) 2.75
----------------------------------------------------------------------
Less Distributions:
Dividends (from Net Investment Income) -- --
Distributions (from capital gains) ________ (1.56) --
----------------------------------------------------------------------
Total Distributions ________ (1.56) --
----------------------------------------------------------------------
Net Asset Value, End of Period ________ $11.87 $15.29
======================================================================
Total Return ________ (12.79)% 21.93%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) ________ $73,356 $59,393
Ratio of Expenses to Average Net Assets ________ 0.87% 0.87%(3)
Ratio of Net Loss to Average Net Assets ________ (0.27)% (0.16)%(3)
Ratio of Expenses to Average Net Assets
(excluding waivers) ________ 0.87% 0.87%(3)
Ratio of Net Loss to Average Net Assets
(excluding waivers) ________ 0.27)% (0.16)%(3)
Portfolio Turnover Rate ________ 39% 51%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The financial highlights for Mid Cap Growth Fund include the historical
financial highlights of Piper Emerging Growth Fund Class Y shares. The assets of
Piper Emerging Growth Fund were acquired by Mid Cap Growth Fund effective August
7, 1998.
(2) Class Y shares of Piper Emerging Growth Fund were offered beginning February
18, 1997.
(3) Annualized.
<PAGE>
<TABLE>
<CAPTION>
MID CAP VALUE FUND
Fiscal year ended September 30,
1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ________ $24.21 $20.43 $17.89 $17.30
---------------------------------------------------------------
Investment Operations:
Net Investment Income ________ 0.14 0.16 0.25 0.38
Net Gains (Losses) on Investments ________
(both realized and unrealized) (6.43) 6.98 3.95 1.61
---------------------------------------------------------------
Total From Investment Operations ________ (6.29) 7.14 4.20 1.99
---------------------------------------------------------------
Less Distributions:
Dividends (from Net Investment Income) _______ (0.13) (0.16) (0.24) (0.38)
Distributions (from capital gains) ________ (2.74) (3.20) (1.42) (1.02)
---------------------------------------------------------------
Total Distributions ________ (2.87) (3.36) (1.66) (1.40)
---------------------------------------------------------------
Net Asset Value, End of Period ________ $15.05 $24.21 $20.43 $17.89
===============================================================
Total Return ________ (28.65)% 40.25% 25.61% 12.84%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) ________ $418,041 $509,308 $247,828 $201,786
Ratio of Expenses to Average Net Assets ________ 0.89% 0.89% 0.88% 0.88%
Ratio of Net Income to Average Net Assets ________ 0.69% 0.82% 1.35% 2.30%
Ratio of Expenses to Average Net Assets (excluding ________
waivers) 0.89% 0.90% 0.88% 0.95%
Ratio of Net Income to Average Net Assets (excluding ________
waivers) 0.69% 0.81% 1.35% 2.23%
Portfolio Turnover Rate ________ 135% 82% 143% 72%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
29 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class Y Shares
<PAGE>
<TABLE>
<CAPTION>
SMALL CAP GROWTH FUND
Fiscal Year Ended Fiscal year ended
September 30, 1999 September 30, 1998(1)
- --------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
<S> <C> <C>
Net Asset Value, Beginning of Period ________ $14.29
----------------------------
Investment Operations:
Net Investment Income ________ --
Net Gains (Losses) on Investments ________
(both realized and unrealized) (2.31)
----------------------------
Total From Investment Operations ________ (2.31)
----------------------------
Less Distributions:
Dividends (from Net Investment Income) --
Distributions (from capital gains) ________ --
----------------------------
Total Distributions ________ --
----------------------------
Net Asset Value, End of Period ________ $11.98
============================
Total Return ________ (16.17)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) ________ $113,874
Ratio of Expenses to Average Net Assets ________ 0.90%(2)
Ratio of Net Loss to Average Net Assets ________ (0.20)%(2)
Ratio of Expenses to Average Net Assets (excluding waivers) ________ 0.90%(2)
Ratio of Net Loss to Average Net Assets (excluding waivers) ________ (0.20)%(2)
Portfolio Turnover Rate ________ 92%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Class Y shares have been offered since July 31, 1998.
(2) Annualized.
30 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class Y Shares
<PAGE>
<TABLE>
<CAPTION>
SMALL CAP VALUE FUND(1)
Fiscal Year Ended Ten months Four months Fiscal year
September 30, ended September 30, ended November 30, ended July 31,
------------------------------------------------------------------------------------
1999 1998 1997 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ________ $18.23 $17.87 $13.96 $13.26
------------------------------------------------------------------------------------
Investment Operations:
Net Investment Income (Loss) ________ 0.06 (0.01) 0.04 0.06
Net Gains (Losses) on Investments
(both realized and unrealized) ________ (3.38) 0.37 5.43 1.81
------------------------------------------------------------------------------------
Total From Investment Operations ________ (3.32) 0.36 5.47 1.87
------------------------------------------------------------------------------------
Less Distributions:
Dividends (from Net Investment Income) (0.04) -- (0.04) (0.06)
Distributions (from capital gains) ________ (1.27) -- (1.52) (1.11)
------------------------------------------------------------------------------------
Total Distributions ________ (1.31) -- (1.56) (1.17)
------------------------------------------------------------------------------------
Net Asset Value, End of Period ________ $13.60 $18.23 $17.87 $13.96
====================================================================================
Total Return ________ (19.31)% 2.01% 41.96% 14.94%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) ________ $367,035 $461,046 $449,988 $297,793
Ratio of Expenses to Average Net Assets ________ 0.88%(2) 1.06%(2) 1.06% 1.08%
Ratio of Net Income (Loss) to Average
Net Assets ________ 0.40%(2) (0.06)%(2) 0.25% 0.41%
Ratio of Expenses to Average Net Assets
(excluding waivers) ________ 0.88%(2) 1.06%(2) 1.06% 1.08%
Ratio of Net Income (Loss) to Average Net
Assets (excluding waivers) ________ 0.40%(2) (0.06)%(2) 0.25% 0.41%
Portfolio Turnover Rate ________ 21% 3% 29% 34%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The financial highlights for Small Cap Value Fund include the historical
financial highlights of the Qualivest Small Companies Value Fund (Class Y
shares). The assets of the Qualivest Small Companies Value Fund were acquired by
Small Cap Value Fund on November 21, 1997. In connection with such acquisition,
Class Y shares of the Qualivest Small Companies Value Fund were exchanged for
Class Y shares of Small Cap Value Fund.
(2) Annualized.
31 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class Y Shares
<PAGE>
FOR MORE INFORMATION
More information about the funds is available in the funds' Statement of
Additional Information and annual and semiannual reports.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI provides more details about the funds and their policies. A current SAI
is on file with the Securities and Exchange Commission (SEC) and is incorporated
into this prospectus by reference (which means that it is legally considered
part of this prospectus).
ANNUAL AND SEMIANNUAL REPORTS
Additional information about the funds' investments is available in the funds'
annual and semiannual reports to shareholders. In the funds' annual report, you
will find a discussion of the market conditions and investment strategies that
significantly affected the funds' performance during their last fiscal year.
You can obtain a free copy of the funds' SAI and/or free copies of the funds'
most recent annual or semiannual reports by calling Investor Services at
1-800-637-2548. The material you request will be sent by first-class mail or
other means designed to ensure equally prompt delivery, within three business
days of receipt of the request.
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, DC, or by sending your request and a duplicating fee to the SEC's
Public Reference Section, Washington, DC 20549-6009. For more information, call
1-800-SEC-0330.
Information about the funds is also available on the Internet. Text-only
versions of fund documents can be viewed online or down- loaded from the SEC's
Internet site at http://www.sec.gov.
SEC file number: 811-05309
FAIF - 2200 (2/2000)Y
32 PROSPECTUS - FIRST AMERICAN MID CAP FUNDS AND SMALL CAP FUNDS
Class Y Shares
<PAGE>
February 1, 2000
INTERNATIONAL FUNDS
CLASS A, CLASS B AND CLASS C SHARES
Emerging Markets Fund
International Fund
International Index Fund
First American
Investment Funds, Inc.
PROSPECTUS
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the shares of these funds, or determined if the
information in this prospectus is accurate or complete. Any statement to the
contrary is a criminal offense.
FIRST AMERICAN(R)
THE POWER OF DISCIPLINED INVESTING(R)
1 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class A, Class B and Class C Shares
<PAGE>
TABLE OF
CONTENTS
FUND SUMMARIES
- --------------------------------------------------------------------------------
Emerging Markets Fund
- --------------------------------------------------------------------------------
International Fund
- --------------------------------------------------------------------------------
International Index Fund
- --------------------------------------------------------------------------------
POLICIES & SERVICES
- --------------------------------------------------------------------------------
Buying Shares
- --------------------------------------------------------------------------------
Selling Shares
- --------------------------------------------------------------------------------
Managing Your Investment
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
Management
- --------------------------------------------------------------------------------
More About The Funds
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
2 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class A, Class B and Class C Shares
<PAGE>
FUND SUMMARIES
INTRODUCTION
This section of the prospectus describes the objectives of the First American
International Funds, summarizes the main investment strategies used by each fund
in trying to achieve its objectives, and highlights the risks involved with
these strategies. It also provides you with information about the performance,
fees and expenses of the funds.
AN INVESTMENT IN THE FUNDS IS NOT A DEPOSIT OF U.S. BANK NATIONAL ASSOCIATION
AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR
ANY OTHER GOVERNMENT AGENCY.
3 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class A, Class B and Class C Shares
<PAGE>
FUND SUMMARIES
EMERGING MARKETS FUND
OBJECTIVE
Emerging Markets Fund has an objective of long-term growth of capital.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Emerging Markets Fund invests primarily (at
least 65% of its total assets) in equity securities from the world's emerging
markets. Normally, the fund will invest in securities traded in at least six
foreign countries.
A country is considered to have an "emerging market" if it has a relatively low
gross national product per capita compared to the world's major economies, and
the potential for rapid economic growth. Countries with emerging markets
include:
o those that have an emerging stock market (as defined by the
International Financial Corporation);
o those with low- to middle-income economies (according to the World
Bank); and
o those listed in World Bank publications as "developing."
In choosing investments for the fund, the fund's sub-advisor generally places
primary emphasis on country selection. This is followed by the selection of
industries or sectors within or across countries and the selection of individual
stocks within those industries or sectors. The fund is not subject to any
restrictions on the size of the companies in which it invests and it may invest
in smaller capitalization companies.
Equity securities in which the fund invests include common and preferred stock.
In addition, the fund may invest in securities representing underlying
international securities, such as American Depositary Receipts and European
Depositary Receipts, and in securities of other investment companies.
In order to hedge against adverse movements in currency exchange rates, the fund
may enter into forward foreign currency exchange contracts.
To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.
4 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class A, Class B and Class C Shares
<PAGE>
MAIN RISKS
The value of your investment in this fund will change daily, which means you
could lose money. The main risks of investing in this fund include:
RISKS OF EQUITY SECURITIES
Equity securities may decline significantly in price over short or extended
periods of time. Price changes may occur in the world market as a whole, or they
may occur in only a particular country, company, industry or sector of the world
market.
RISKS OF INTERNATIONAL INVESTING
International investing involves risks not typically associated with domestic
investing. Because of these risks, and because of the sub-advisor'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 mutual funds that invest
principally in domestic securities. Risks of international investing include
adverse currency fluctuations, potential political and economic instability,
limited liquidity and volatile prices of non-U.S. securities, limited
availability of information regarding non-U.S. companies, investment and
repatriation restrictions, and foreign taxation.
RISKS OF EMERGING MARKETS
The risks of international investing are particularly significant in emerging
markets. Investing in emerging markets generally involves exposure to economic
structures that are less diverse and mature, and to political systems that are
less stable, than those of developed countries. In addition, issuers in emerging
markets typically are subject to a greater degree of change in earnings and
business prospects than are companies in developed markets.
RISKS OF SMALLER CAPITALIZATION COMPANIES
Stocks of smaller capitalization companies involve substantial risk and their
prices may be subject to more abrupt or erratic movements than those of larger,
more established companies or of market averages in general.
RISKS OF FOREIGN CURRENCY HEDGING TRANSACTIONS
If the sub-advisor's forecast of exchange rate movements is incorrect, the fund
may realize losses on its foreign currency transactions. In addition, the fund's
hedging transactions may prevent the fund from realizing the benefits of a
favorable change in the value of foreign currencies.
RISKS OF SECURITIES LENDING
The fund is subject to the risk that the other party to a securities lending
agreement will default on its obligations.
5 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class A, Class B and Class C Shares
<PAGE>
FUND PERFORMANCE
Illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart shows you how performance of the fund's Class A shares has varied
from year to year. The performance of Class B and Class C shares will be lower
due to their higher expenses. Sales charges are not reflected in the chart; if
they had been, returns would be lower.
The table compares the fund's performance for Class A and Class B shares over
different time periods to that of the fund's benchmark index, which is a broad
measure of market performance. However, because Class C shares were not offered
prior to the date of this prospectus, no information is presented for these
shares. The fund's performance reflects sales charges and fund expenses; the
benchmark is unmanaged and has no expenses.
Both the chart and the table assume that all distributions have been reinvested.
6 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class A, Class B and Class C Shares
<PAGE>
FUND SUMMARIES
EMERGING MARKETS FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR(1)
-18.10% -21.77% 29.31% -1.27% -30.08%
- -------------- ------------ ------------ ------------ ------------- ------------
1994 1995 1996 1997 1998 1999
BEST QUARTER:
Quarter ending: 9/30/94
Total return 30.42%
WORST QUARTER:
Quarter ending: 3/31/95
Total return -30.83%
<TABLE>
<CAPTION>
Since Since
Inception One Five Inception Inception
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/99 (1) Date Year Years (Class A) (Class B)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Emerging Markets Fund (Class A) 11/9/93 _____% _____% _____% N/A
- ----------------------------------------------------------------------------------------------------------------------
Emerging Markets Fund (Class B) 8/7/98 _____% N/A N/A _____%
- ----------------------------------------------------------------------------------------------------------------------
Morgan Stanley Capital International
Emerging Markets Free Index(2) _____% _____% _____% ______%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) On 8/7/98, the Emerging Markets Fund became the successor by merger to the
Piper Emerging Markets Growth Fund. Prior to the merger, the First American Fund
had no assets or liabilities. Performance presented from 6/21/96 to 8/7/98, is
that of the Emerging Markets Growth Fund, a series of Piper Global Funds, Inc.
for which Edinburgh Fund Managers acted as sub-advisor. Performance presented
prior to 6/21/96, is that of the Hercules Latin American Value Fund, a series of
Hercules Funds, Inc. for which Banker's Trust Company acted as sub-advisor.
(2) An unmanaged index of securities from emerging markets that are open to
foreign investors. The since inception performance of the index is calculated
from the month end following the inception of the respective class of shares.
The since inception performance of the index for Class A and Class B shares is
calculated from 11/30/93 and 8/31/98, respectively.
7 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class A, Class B and Class C Shares
<PAGE>
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES Class A Class B Class C
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MAXIMUM SALES CHARGE (LOAD)
AS A % OF OFFERING PRICE 5.25%(2) 0.00% 1.00%
MAXIMUM DEFERRED SALES CHARGE (LOAD)
AS A % OF ORIGINAL PURCHASE PRICE OR REDEMPTION
PROCEEDS, WHICHEVER IS LESS 0.00%(3) 5.00% 1.00%
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------------------------------------
Management Fees 1.25% 1.25% 1.25%
Distribution and Service (12b-1) Fees 0.25% 1.00% 1.00%
Other Expenses ____% ____% ____%
TOTAL ____% ____% ____%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. See "Additional Information --
Financial Highlights." The net expenses the fund actually paid after waivers for
the fiscal year ended September 30, 1999 were:
<TABLE>
<S> <C> <C> <C>
Waiver of Fund Expenses (____%) (____%) (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____% ____% ____%
</TABLE>
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 1.70%, 2.45% AND 2.45%, RESPECTIVELY, FOR
CLASS A, CLASS B AND CLASS C SHARES. FEE WAIVERS MAY BE DISCONTINUED AT ANY
TIME.
(2)Certain investors may qualify for reduced sales charges. See "Buying Shares
- -- Calculating Your Share Price."
(3)Class A share investments of $1 million or more on which no front-end sales
charge is paid may be subject to a contingent deferred sales charge. See "Buying
Shares -- Calculating Your Share Price."
8 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class A, Class B and Class C Shares
<PAGE>
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
CLASS B CLASS B CLASS C CLASS C
assuming assuming no assuming assuming no
redemption redemption redemption redemption
at end of at end of at end of at end of
CLASS A each period each period each period each period
- ------------------------------------------------------------------------------
1 year $ 864 $ 932 $ 432 $______ $______
3 years $1,556 $1,704 $1,304 ______ ______
5 years $2,269 $2,388 $2,188 ______ ______
10 years $4,143 $4,299 $4,299 ______ ______
9 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class A, Class B and Class C Shares
<PAGE>
FUND SUMMARIES
INTERNATIONAL FUND
OBJECTIVE
International Fund has an objective of long-term growth of capital.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, International Fund invests primarily (at least
65% of its total assets) in equity securities that trade in markets other than
the United States. These securities generally are issued by companies:
o that are domiciled in countries other than the United States, or
o that derive at least 50% of either their revenues or their pre-tax
income from activities outside of the United States.
Normally, the fund will invest in securities traded in at least three foreign
countries.
In choosing investments for the fund, the fund's sub-advisor generally places
primary emphasis on country selection. This is followed by the selection of
industries or sectors within or across countries and the selection of individual
stocks within those industries or sectors. Investments are expected to be made
primarily in developed markets and larger capitalization companies. However, the
fund also has the ability to invest in emerging markets and smaller
capitalization companies.
Equity securities in which the fund invests include common and preferred stock.
In addition, the fund may invest in securities representing underlying
international securities, such as American Depositary Receipts and European
Depositary Receipts, and in securities of other investment companies.
In order to hedge against adverse movements in currency exchange rates, the fund
may enter into forward foreign currency exchange contracts.
To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.
10 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class A, Class B and Class C Shares
<PAGE>
MAIN RISKS
The value of your investment in this fund will change daily, which means you
could lose money. The main risks of investing in this fund include:
RISKS OF EQUITY SECURITIES
Equity securities may decline significantly in price over short or extended
periods of time. Price changes may occur in the world market as a whole, or they
may occur in only a particular country, company, industry or sector of the world
market.
RISKS OF INTERNATIONAL INVESTING
International investing involves risks not typically associated with domestic
investing. Because of these risks, and because of the sub-advisor'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 mutual funds that invest
principally in domestic securities. Risks of international investing include
adverse currency fluctuations, potential political and economic instability,
limited liquidity and volatile prices of non-U.S. securities, limited
availability of information regarding non-U.S. companies, investment and
repatriation restrictions, and foreign taxation.
RISKS OF EMERGING MARKETS
The risks of international investing are particularly significant in emerging
markets. Investing in emerging markets generally involves exposure to economic
structures that are less diverse and mature, and to political systems that are
less stable, than those of developed countries. In addition, issuers in emerging
markets typically are subject to a greater degree of change in earnings and
business prospects than are companies in developed markets.
RISKS OF SMALLER CAPITALIZATION COMPANIES
Stocks of smaller capitalization companies involve substantial risk and their
prices may be subject to more abrupt or erratic movements than those of larger,
more established companies or of market averages in general.
RISKS OF FOREIGN CURRENCY HEDGING TRANSACTIONS
If the sub-advisor's forecast of exchange rate movements is incorrect, the fund
may realize losses on its foreign currency transactions. In addition, the fund's
hedging transactions may prevent the fund from realizing the benefits of a
favorable change in the value of foreign currencies.
RISKS OF SECURITIES LENDING
The fund is subject to the risk that the other party to a securities lending
agreement will default on its obligations.
11 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class A, Class B and Class C Shares
<PAGE>
FUND PERFORMANCE
Illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart shows you how performance of the fund's Class A shares has varied
from year to year. The performance of Class B and Class C shares will be lower
due to their higher expenses. Sales charges are not reflected in the chart; if
they had been, returns would be lower.
The table compares the fund's performance for Class A and Class B shares over
different time periods to that of the fund's benchmark index, which is a broad
measure of market performance. However, because Class C shares have not been
offered for a full calendar year, no information is presented for these shares.
The fund's performance reflects sales charges and fund expenses; the benchmark
is unmanaged and has no expenses.
Both the chart and the table assume that all distributions have been reinvested.
12 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class A, Class B and Class C Shares
<PAGE>
FUND SUMMARIES
INTERNATIONAL FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR(1)
9.08% 7.84% 16.63% 25.86%
- ---------------- ------------- ------------- ------------- -------------
1995 1996 1997 1998 1999
BEST QUARTER:
Quarter ending: 3/31/98
Total return 16.61%
WORST QUARTER:
Quarter ending: 9/30/98
Total return -14.10%
<TABLE>
<CAPTION>
Since Since
AVERAGE ANNUAL TOTAL RETURNS Inception One Year Five Years Inception Inception
AS OF 12/31/99 (1) Date (Class A) (Class B)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
International Fund (Class A) 4/7/94 _____% _____% _____% N/A
- -------------------------------------------------------------------------------------------------------------
International Fund (Class B) 8/15/94 _____% _____% N/A _____%
- -------------------------------------------------------------------------------------------------------------
Morgan Stanley Capital International _____% _____% _____% _____%
Europe, Australasia, Far East Index(2)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Performance prior to 11/21/97 is that of Qualivest International
Opportunities Fund.
(2)An unmanaged index including approximately 1,077 companies representing the
stock markets of approximately 14 European countries, Australia, New Zealand,
Japan, Hong Kong and Singapore. The since inception performance of the index for
Class A and Class B shares is calculated from 4/30/94 and 8/31/94, respectively.
13 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class A, Class B and Class C Shares
<PAGE>
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES Class A Class B Class C
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MAXIMUM SALES CHARGE (LOAD)
AS A % OF OFFERING PRICE 5.25%(2) 0.00% 1.00%
MAXIMUM DEFERRED SALES CHARGE (LOAD)
AS A % OF ORIGINAL PURCHASE PRICE OR REDEMPTION
PROCEEDS, WHICHEVER IS LESS 0.00%(3) 5.00% 1.00%
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------------------------------------
Management Fees 1.25% 1.25% 1.25%
Distribution and Service (12b-1) Fees 0.25% 1.00% 1.00%
Other Expenses ____% ____% ____%
TOTAL ____% ____% ____%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. See "Additional Information --
Financial Highlights." The net expenses the fund actually paid after waivers for
the fiscal year ended September 30, 1999 were:
<TABLE>
<S> <C> <C> <C>
Waiver of Fund Expenses (____%) (____%) (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____% ____% ____%
</TABLE>
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 1.60%, 2.35% AND 2.35%, RESPECTIVELY, FOR
CLASS A, CLASS B AND CLASS C SHARES. FEE WAIVERS MAY BE DISCONTINUED AT ANY
TIME.
(2)Certain investors may qualify for reduced sales charges. See "Buying Shares
- -- Calculating Your Share Price."
(3)Class A share investments of $1 million or more on which no front-end sales
charge is paid may be subject to a contingent deferred sales charge. See "Buying
Shares -- Calculating Your Share Price."
14 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class A, Class B and Class C Shares
<PAGE>
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
<TABLE>
<CAPTION>
CLASS B CLASS B CLASS C CLASS C
assuming assuming no assuming assuming no
redemption redemption redemption redemption
at end of at end of at end of at end of
CLASS A each period each period each period each period
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 year $ 699 $ 759 $ 259 $ 457 $ 357
3 years $1,065 $1,196 $ 796 $ 889 $ 889
5 years $1,454 $1,560 $1,360 $1,447 $1,447
10 years $2,540 $2,712 $2,712 $2,966 $2,966
</TABLE>
15 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class A, Class B and Class C Shares
<PAGE>
FUND SUMMARIES
INTERNATIONAL INDEX FUND
OBJECTIVE
International Index Fund's objective is to provide investment results that
correspond to the performance of the Morgan Stanley Capital International
Europe, Australasia, Far East Index (the "EAFE Index").
MAIN INVESTMENT STRATEGIES
Under normal market conditions, International Index Fund invests at least 90% of
its total assets in common stocks included in the EAFE Index. The EAFE Index
currently includes approximately 1,077 companies representing the stock markets
of approximately 14 European countries, Australia, New Zealand, Japan, Hong Kong
and Singapore. The fund's advisor believes that the fund's objective can best be
achieved by investing in common stocks of approximately 50% to 100% of the
issues included in the EAFE Index, depending on the size of the fund. A computer
program is used to identify which stocks should be purchased or sold in order to
replicate, as closely as possible, the composition of the EAFE Index.
Because the fund may not always hold all of the stocks included in the EAFE
Index, and because the fund has expenses and the index does not, the fund will
not duplicate the index's performance precisely. However, the fund's advisor
believes that there should be a close correlation between the fund's performance
and that of the EAFE Index in both rising and falling markets.
The fund will attempt to achieve a correlation between the performance of its
portfolio and that of the EAFE Index 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 EAFE Index. If the fund is
unable to achieve a correlation of 95% over time, the fund's board of directors
will consider alternative strategies for the fund.
MAIN RISKS
The value of your investment in this fund will change daily, which means you
could lose money. The main risks of investing in this fund include:
16 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class A, Class B and Class C Shares
<PAGE>
RISKS OF COMMON STOCKS
Stocks may decline significantly in price over short or extended periods of
time. Price changes may occur in the market as a whole, or they may occur in
only a particular company, industry or sector of the market.
RISKS OF INTERNATIONAL INVESTING
International investing involves risks not typically associated with domestic
investing. Because of these risks, the fund may be subject to greater volatility
than mutual funds that invest principally in domestic securities. Risks of
international investing include adverse currency fluctuations, potential
political and economic instability, limited liquidity and volatile prices of
non-U.S. securities, limited availability of information regarding non-U.S.
companies, investment and repatriation restrictions, and foreign taxation.
FAILURE TO MATCH THE PERFORMANCE OF THE EAFE INDEX
The fund's ability to replicate the performance of the EAFE Index may be
affected by, among other things, changes in securities markets, the manner in
which Morgan Stanley calculates the performance of the EAFE Index,
administrative and other expenses incurred by the fund, taxes (including foreign
withholding taxes, which will affect the fund), the amount and timing of cash
flows into and out of the fund, commissions, sales charges (if any) and other
expenses.
FUND PERFORMANCE
Illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart shows you how performance of the fund's Class A shares has varied
from year to year. The performance of Class B and Class C shares will be lower
due to their higher expenses. Sales charges are not reflected in the chart; if
they had been, returns would be lower.
The table compares the fund's performance for Class A and Class B shares over
different time periods to that of the fund's benchmark index, which is a broad
measure of market performance. However, because Class C shares were not offered
prior to the date of this prospectus, no information is presented for these
shares. The fund's performance reflects sales charges and fund expenses; the
benchmark is unmanaged and has no expenses.
Both the chart and the table assume that all distributions have been reinvested.
17 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class A, Class B and Class C Shares
<PAGE>
FUND SUMMARIES
INTERNATIONAL INDEX FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR(1)
4.81% 0.02% 19.29%
- ---------------- ------------- ------------- -------------
1996 1997 1998 1999
BEST QUARTER:
Quarter ending: 12/31/98
Total return 20.54%
WORST QUARTER:
Quarter ending: 9/30/98
Total return -14.26%
<TABLE>
<CAPTION>
Since Since
AVERAGE ANNUAL TOTAL RETURNS Inception Inception Inception
AS OF 12/31/99 (1) Date One Year (Class A) (Class B)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
International Index Fund (Class A) 7/3/95 ______% ______% N/A
- --------------------------------------------------------------------------------------------------------------------
International Index Fund (Class B) 11/24/97 ______% N/A ______%
- --------------------------------------------------------------------------------------------------------------------
Morgan Stanley Capital International ______% ______% ______%
Europe, Australasia, Far East Index(2)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) On 11/27/97, the International Index Fund became the successor by merger to
the Qualivest International Opportunities Fund. Prior to the merger, the First
American Fund had no assets or liabilities. Performance presented prior to
11/21/97 is that of Qualivest Fund.
(2)An unmanaged index including approximately 1,077 companies representing the
stock markets of approximately 14 European countries, Australia, New Zealand,
Japan, Hong Kong and Singapore. The since inception performance of the index for
Class A and Class B shares is calculated from 7/31/95 and 11/30/97,
respectively.
18 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class A, Class B and Class C Shares
<PAGE>
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
SHAREHOLDER FEES Class A Class B Class C
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MAXIMUM SALES CHARGE (LOAD)
AS A % OF OFFERING PRICE 5.25%(2) 0.00% 1.00%
MAXIMUM DEFERRED SALES CHARGE (LOAD)
AS A % OF ORIGINAL PURCHASE PRICE OR REDEMPTION
PROCEEDS, WHICHEVER IS LESS 0.00%(3) 5.00% 1.00%
Management Fees 0.70% 0.70% 0.70%
Distribution and Service (12b-1) Fees 0.25% 1.00% 1.00%
Other Expenses ____% ____% ____%
TOTAL ____% ____% ____%
- --------------------------------------------------------------------------------------------------
</TABLE>
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. See "Additional Information --
Financial Highlights." The net expenses the fund actually paid after waivers for
the fiscal year ended September 30, 1999 were:
<TABLE>
<S> <C> <C> <C>
Waiver of Fund Expenses (____%) (____%) (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____% ____% ____%
</TABLE>
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 1.00%, 1.75%, AND 1.75%, RESPECTIVELY, FOR
CLASS A, CLASS B AND CLASS C SHARES. FEE WAIVERS MAY BE DISCONTINUED AT ANY
TIME.
(2)Certain investors may qualify for reduced sales charges. See "Buying Shares
- -- Calculating Your Share Price."
(3)Class A share investments of $1 million or more on which no front-end sales
charge is paid may be subject to a contingent deferred sales charge. See "Buying
Shares -- Calculating Your Share Price."
19 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class A, Class B and Class C Shares
<PAGE>
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
<TABLE>
<CAPTION>
CLASS B CLASS B CLASS C CLASS C
assuming assuming no assuming assuming no
redemption redemption redemption redemption
at end of at end of at end of at end of
CLASS A each period each period each period each period
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 year $ 643 $ 700 $ 200 $______ $______
3 years $ 892 $1,018 $ 618 ______ ______
5 years $1,160 $1,262 $1,062 ______ ______
10 years $1,925 $2,102 $2,102 ______ ______
</TABLE>
20 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class A, Class B and Class C Shares
<PAGE>
POLICIES & SERVICES
BUYING SHARES
You may become a shareholder in any of the funds with an initial investment of
$1,000 or more ($250 for a retirement plan or a Uniform Gifts to Minors
Act/Uniform Transfers to Minors Act (UGMA/UTMA) account). Additional investments
can be made for as little as $100 ($25 for a retirement plan or an UGMA/UTMA
account). The funds have the right to waive these minimum investment
requirements for employees of the funds' advisor and its affiliates. The funds
also have the right to reject any purchase order.
CHOOSING A SHARE CLASS
All funds in this prospectus offer Class A, Class B and Class C shares.
Each class has its own cost structure. The amount of your purchase and the
length of time you expect to hold your shares will be factors in determining
which class of shares is best for you.
CLASS A SHARES
If you are making an investment that qualifies for a reduced sales charge, Class
A shares may be best for you. Class A shares feature:
o a front-end sales charge, described below.
o lower annual expenses than Class B or Class C shares. See "Fund
Summaries" for more information on fees and expenses.
Because Class A shares will normally be the better choice if your investment
qualifies for a reduced sales charge:
o orders for Class B shares for $250,000 or more normally will be
treated as orders for Class A shares.
o orders for Class C shares for $1 million or more normally will be
treated as orders for Class A shares.
o orders for Class B or Class C shares by an investor eligible to
purchase Class A shares without a front-end sales charge normally will
be treated as orders for Class A shares.
CLASS B SHARES
If you want all your money to go to work for you immediately, you may prefer
Class B shares. Class B shares have no front-end sales charge. However they do
have:
o higher annual expenses than Class A shares. (See "Fees and Expenses"
in the "Fund Summaries" section.)
o a back-end sales charge, called a "contingent deferred sales charge,"
if you redeem your shares within six years of purchase.
o automatic conversion to Class A shares approximately eight years after
purchase, thereby reducing future annual expenses.
21 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class A, Class B and Class C Shares
<PAGE>
CLASS C SHARES
These shares combine some of the characteristics of Class A and Class B shares.
Class C shares have a low front-end sales charge of 1%, so more of your
investment goes to work immediately than if you had purchased Class A shares.
However, Class C shares also feature:
o a 1% contingent deferred sales charge if you redeem your shares within
18 months of purchase.
o higher annual expenses than Class A shares. (See "Fees and Expenses"
in the "Fund Summaries" section.)
o no conversion to Class A shares.
Because Class C shares do not convert to Class A shares, they will continue to
have higher annual expenses than Class A shares for as long as you hold them.
12B-1 FEES
Each fund has adopted a plan under Rule 12b-1 of the Investment Company Act to
pay the fund's distributor an annual fee for the distribution and sale of its
shares and for services provided to shareholders.
For 12b-1 fees are equal to:
- --------------------------------------------------------------------------------
Class A shares 0.25% of average daily net assets
Class B shares 1% of average daily net assets
Class C shares 1% of average daily net assets
Because these fees are paid out of a fund's assets on an ongoing basis, over
time these fees will increase the cost of your investment and may cost you more
than paying other types of sales charges.
The Class A share 12b-1 fee is a shareholder servicing fee. For Class B and
Class C shares, a portion of the 12b-1 fee equal to 0.25% of average daily net
assets is a shareholder servicing fee and the rest is a distribution fee.
22 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class A, Class B and Class C Shares
<PAGE>
The funds' distributor uses the shareholder servicing fee to compensate brokers,
participating institutions and "one-stop" mutual fund networks for providing
ongoing services to shareholder accounts. These institutions receive annual fees
equal to 0.25% of a fund's Class A, Class B and Class C share average daily net
assets attributable to shares sold through them. For Class B shares, and for net
asset value sales of Class A shares on which the institution receives a
commission, the institution does not begin to receive its annual fee until one
year after the shares are sold. The funds' distributor also pays institutions
that sell Class C shares a 0.75% annual distribution fee beginning one year
after the shares are sold. The distributor may pay additional fees to
institutions, using the sales charges it receives, in exchange for sales and/or
administrative services performed on behalf of the institution's customers.
CALCULATING YOUR SHARE PRICE
Your purchase price will be based on the fund's net asset value (NAV) per share,
which is generally calculated as of the close of regular trading on the New York
Stock Exchange (usually 3 p.m. Central time) every day the exchange is open.
A fund's NAV is equal to the market value of its investments and other assets,
less any liabilities, divided by the number of fund shares. If market prices are
not readily available for an investment or if the advisor believes they are
unreliable, fair value prices may be determined in good faith using methods
approved by the funds' board of directors.
Each fund will hold portfolio securities that trade on weekends or other days
when the fund does not price its shares. Therefore, the net asset value of a
fund's shares may change on days when shareholders will not be able to purchase
or redeem their shares.
CLASS A SHARES
Your purchase price is typically the net asset value of your shares, plus a
front-end sales charge. Sales charges vary depending on the amount of your
purchase. The funds' distributor receives the sales charge you pay and reallows
a portion of the sales charge to your broker or participating institution.
Maximum
Sales Charge Reallowance
as a % of as a % of as a % of
Purchase Net Amount Purchase
Price Invested Price
- -----------------------------------------------------------------------------
Less than $ 50,000 5.25% 5.54% 5.00%
$ 50,000 - $ 99,999 4.25% 4.44% 4.00%
$100,000 - $249,999 3.25% 3.36% 3.00%
$250,000 - $499,999 2.25% 2.30% 2.00%
$500,000 - $999,999 1.75% 1.78% 1.50%
$1 million and over 0% 0% 0%
23 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class A, Class B and Class C Shares
<PAGE>
REDUCING YOUR SALES CHARGE
As shown in the preceding tables, larger purchases of Class A shares reduce the
percentage sales charge you pay. You also may reduce your sales charge in the
following ways:
PRIOR PURCHASES. Prior purchases of Class A shares of any First American fund
(except a money market fund) will be factored into your sales charge
calculation. For example, let's say you're making a $10,000 investment. If the
current value of all other First American fund Class A shares that you hold is
$40,000 or more, your current sales charge is reduced. To receive a reduced
sales charge, you must notify the funds' transfer agent of your prior purchases.
This must be done at the time of purchase, either directly to the transfer agent
in writing or by notifying your broker or financial institution.
PURCHASES BY RELATED ACCOUNTS. Concurrent and prior purchases by certain other
accounts also will be combined with your purchase to determine your sales
charge. For example, purchases made by your spouse or children under age 21 will
reduce your sales charge. To receive a reduced sales charge, you must notify the
funds' transfer agent of purchases by any related accounts. This must be done at
the time of purchase, either directly to the transfer agent in writing or by
notifying your broker or financial institution.
LETTER OF INTENT. If you plan to invest $50,000 or more over a 13-month period
in Class A shares of any First American fund except the money market funds, you
may reduce your sales charge by signing a non-binding letter of intent. (If you
do not fulfill the letter of intent, you must pay the applicable sales charge.
In addition, if you reduce your sales charge to zero under a letter of intent
and then sell your Class A shares within 18 months of their purchase, you may be
charged a contingent deferred sales charge of 1%. See "For Investments of Over
$1 Million.")
More information on these ways to reduce your sales charge appears in the
Statement of Additional Information (SAI). The SAI also contains information on
investors who are eligible to purchase Class A shares without a sales charge.
FOR INVESTMENTS OF OVER $1 MILLION
There is no initial sales charge on Class A share purchases of $1 million or
more. However, your broker or financial institution may receive a commission of
up to 1% on your purchase. If such a commission is paid, you will be assessed a
contingent deferred sales charge (CDSC) of 1% if you sell your shares within 18
months. To find out whether you will be assessed a CDSC, ask your broker or
financial institution. The funds' distributor receives any CDSC imposed when you
sell your Class A shares. The CDSC is based on the value of your shares at the
time of purchase or at the time of sale, whichever is less. The charge does not
apply to shares you acquired by reinvesting your dividend or capital gain
distributions.
24 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class A, Class B and Class C Shares
<PAGE>
To help lower your costs, shares that are not subject to a CDSC will be sold
first. Other shares will then be sold in an order that minimizes your CDSC. The
CDSC for Class A shares will be waived for:
o redemptions following the death or disability (as defined in the
Internal Revenue Code) of a shareholder and
o redemptions that equal the minimum required distribuion from an
individual retirement account or other retirement plan to a
shareholder who has reached the age of 70 1/2.
CLASS B SHARES
Your purchase price for Class B shares is their net asset value -- there is no
front-end sales charge. However, if you redeem your shares within six years of
purchase, you will pay a back-end sales charge, called a contingent deferred
sales charge (CDSC). Although you pay no front-end sales charge when you buy
Class B shares, the funds' distributor pays a sales commission of 4.25% of the
amount invested to brokers and financial institutions which sell Class B shares.
The funds' distributor receives any CDSC imposed when you sell your Class B
shares.
Your CDSC will be based on the value of your shares at the time of purchase or
at the time of sale, whichever is less. The charge does not apply to shares you
acquired by reinvesting your dividend or capital gain distributions. Shares will
be sold in the order that minimizes your CDSC.
CDSC as a % of the
Year since purchase value of your shares
- --------------------------------------------------------------------------------
First 5%
Second 5%
Third 4%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh 0%
Eighth 0%
Your Class B shares will automatically convert to Class A shares eight years
after the first day of the month you purchased the shares. For example, if you
purchase Class B shares on June 15, 2000, they will convert to Class A shares on
June 1, 2008.
The CDSC will be waived for:
o redemptions following the death or disability (as defined in the
Internal Revenue Code) of a shareholder.
o redemptions that equal the minimum required distribution from an
individual retirement account or other retirement plan to a
shareholder who has reached the age of 70 1/2.
25 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class A, Class B and Class C Shares
<PAGE>
o redemptions through a systematic withdrawal plan, at a rate of up to
12% a year of your account's value. During the first year, the 12%
annual limit will be based on the value of your account on the date
the plan is established. Thereafter, it will be based on the value of
your account on the preceding December 31.
CLASS C SHARES
Your purchase price for Class C shares is their net asset value plus a front-end
sales charge equal to 1% of the purchase price (1.01% of the net amount
invested). If you redeem your shares within 18 months of purchase, you will be
assessed a contingent deferred sales charge (CDSC) of 1% of the value of your
shares at the time of purchase or at the time of sale, whichever is less. The
CDSC does not apply to shares you acquired by reinvesting your dividend or
capital gain distributions. Shares will be sold in the order that minimizes your
CDSC.
Even though your sales charge is only 1%, the funds' distributor pays a
commission equal to 2% of your purchase price to your broker or participating
institution. The distributor receives any CDSC imposed when you sell your Class
C shares.
The CDSC for Class C shares will be waived in the same circumstances as the
Class B share CDSC. See "Class B Shares" above.
Unlike Class B shares, Class C shares do not convert to Class A shares after a
specified period of time. Therefore, your shares will continue to have higher
annual expenses than Class A shares.
HOW TO BUY SHARES
You may buy shares on any day the New York Stock Exchange is open. However
purchases of shares may be restricted in the event of an early or unscheduled
close of the New York Stock Exchange. Your shares will be priced at the next NAV
calculated after your order is accepted by the fund, plus any applicable sales
charge. To make sure that your order is accepted, follow the directions for
purchasing shares given below.
BY PHONE
You may purchase shares by calling your broker or financial institution, if they
have a sales agreement with the funds' distributor. In many cases, your order
will be effective that day if received by your broker or financial institution
by the close of regular trading on the New York Stock Exchange. In some cases,
however, you will have to transmit your request by an earlier time in order for
your purchase request to be effective that day. This allows your broker or
financial institution time to process your request and transmit it to the fund.
Some financial institutions may charge a fee for helping you purchase shares.
Contact your broker or financial institution for more information.
26 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class A, Class B and Class C Shares
<PAGE>
If you are paying by wire, you may purchase shares by calling 1-800-637-2548
before 3 p.m. Central time. All information will be taken over the telephone,
and your order will be placed when the funds' custodian receives payment by
wire. Wire federal funds as follows:
U.S. Bank National Association, Minneapolis, MN
ABA Number 091000022
For Credit to: DST Systems, Inc.:
Account Number 160234580266
For Further Credit to (investor name and fund name)
You cannot purchase shares by wire on days when federally chartered banks are
closed.
BY MAIL
To purchase shares by mail, simply complete and sign a new account form, enclose
a check made payable to the fund you wish to invest in, and mail both to:
First American Funds
c/o DST Systems, Inc.
P.O. Box 219382
Kansas City, Missouri 64121-9382
After you have established an account, you may continue to purchase shares by
mailing your check to First American Funds at the same address.
Please note the following:
o All purchases must be made in U.S. dollars.
o THIRD-PARTY CHECKS, CREDIT CARDS, CREDIT CARD CHECKS AND CASH ARE NOT
ACCEPTED.
o If a check does not clear your bank, the funds reserve the right to
cancel the purchase, and you could be liable for any losses or fees
incurred.
INVESTING AUTOMATICALLY
To purchase shares as part of a savings discipline, you may add to your
investment on a regular basis:
o by having $100 or more ($25 for a retirement plan or an UGMA/UTMA
account) automatically withdrawn from your bank account on a periodic
basis and invested in fund shares.
o through automatic monthly exchanges of your shares of Prime
Obligations Fund, a money market fund in the First American family of
funds. Exchanges must be made into the same class of shares that you
hold in Prime Obligations Fund.
You may apply for participation in either of these programs through your broker
or financial institution or by calling 1-800-637-2548.
27 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class A, Class B and Class C Shares
<PAGE>
POLICIES & SERVICES
SELLING SHARES
HOW TO SELL SHARES
You may sell your shares on any day when the New York Stock Exchange is open.
However redemption of shares may be restricted in the event of an early or
unscheduled close of the New York Stock Exchange. Your shares will be sold at
the next NAV calculated after your order is accepted by the fund, less any
applicable contingent deferred sales charge. To make sure that your order is
accepted, follow the directions for selling shares given below.
The proceeds from your sale normally will be mailed or wired within one day, but
in no event more than seven days, after your request is received in proper form.
BY PHONE
If you purchased shares through a broker or financial institution, simply call
them to sell your shares. In many cases, your redemption will be effective that
day if received by your broker or financial institution by the close of regular
trading on the New York Stock Exchange. In some cases, however, you will have to
call by an earlier time in order for your redemption to be effective that day.
This allows your broker or financial institution time to process your request
and transmit it to the fund. Contact your broker or financial institution
directly for more information.
If you did not purchase shares through a broker or financial institution, you
may sell your shares by calling 1-800-637-2548. Proceeds can be wired to your
bank account (if the proceeds are at least $1,000 and you have previously
supplied your bank account information to the transfer agent) or sent to you by
check.
If you recently purchased your shares by check or through the Automated Clearing
House (ACH), proceeds from the sale of those shares may not be available until
your check or ACH payment has cleared, which may take up to 10 calendar days
from the date of purchase.
BY MAIL
To sell shares by mail, send a written request to your broker or financial
institution, or to the funds' transfer agent at the following address:
First American Funds
c/o DST Systems, Inc.
P.O. Box 219382
Kansas City, Missouri 64121-9382
28 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class A, Class B and Class C Shares
<PAGE>
Your request should include the following information:
o name of the fund;
o account number;
o dollar amount or number of shares redeemed;
o name on the account; and
o signatures of all registered account owners.
Signatures on a written request must be guaranteed if:
o you would like the proceeds from the sale to be paid to anyone other
than to the shareholder of record.
o you would like the check mailed to an address other than the address
on the funds' records.
o your redemption request is for $50,000 or more.
A signature guarantee assures that a signature is genuine and protects
shareholders from unauthorized account transfers. Banks, savings and loan
associations, trust companies, credit unions, broker-dealers and member firms of
a national securities exchange may guarantee signatures. Call your financial
institution to determine if it has this capability.
Proceeds from a written redemption request will be sent to you by check.
SYSTEMATIC WITHDRAWALS
If your account has a value of $5,000 or more, you may redeem a specific dollar
amount from your account on a regular basis. To set up systematic withdrawals,
contact your broker or financial institution.
You should not make systematic withdrawals if you plan to continue investing in
the fund, due to sales charges and tax liabilities.
REINVESTING AFTER A SALE
If you sell Class A shares, you may reinvest in Class A shares of that fund or
another First American fund within 180 days without a sales charge. To reinvest
in Class A shares at net asset value (without paying a sales charge), you must
notify the transfer agent directly in writing or notify your broker or financial
institution.
ACCOUNTS WITH LOW BALANCES
Except for retirement plans and UGMA/UTMA accounts, if your account balance
falls below $500 as a result of selling or exchanging shares, you may receive
written notice and be given 30 days to re-establish the minimum balance. If you
do not, the fund may close your account and send you the proceeds, less any
applicable contingent deferred sales charge, or deduct a $25 annual fee in
December of each year if your account balance at that time is below $500.
29 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class A, Class B and Class C Shares
<PAGE>
POLICIES & SERVICES
MANAGING YOUR INVESTMENT
EXCHANGING SHARES
If your investment goals or your financial needs change, you may move from one
First American fund to another. There is no fee to exchange shares.
Generally, you may exchange your shares only for shares of the same class.
However, you may exchange your Class A shares for Class Y shares of the same or
another First American fund if you subsequently become eligible to participate
in that class (for example, by opening a fiduciary, custody or agency account
with a financial institution which invests in Class Y shares.
Exchanges are made based on the net asset value per share of each fund at the
time of the exchange. When you exchange your Class A shares of one of the funds
for Class A shares of another First American fund, you do not have to pay a
sales charge. When you exchange your Class B or Class C shares for Class B or
Class C shares of another First American fund, the time you held the shares of
the "old" fund will be added to the time you hold the shares of the "new" fund
for purposes of determining your CDSC or, in the case of Class B shares,
calculating when your shares convert to Class A shares.
Before exchanging into any fund, be sure to read its prospectus carefully. A
fund may change or cancel its exchange policies at any time. You will be
notified of any changes. The funds have the right to limit exchanges to four
times per year.
BY PHONE
You may exchange shares by calling your broker, your financial institution, or
the funds' transfer agent, provided that both funds have identical shareholder
registrations. To request an exchange through the funds' transfer agent, call
1-800-637-2548. Your instructions must be received by the funds' transfer agent
before 3 p.m. Central time, or by the time specified by your broker or financial
institution, in order for shares to be exchanged the same day.
BY MAIL
To exchange shares by written request, please follow the procedures under
"Selling Shares." Be sure to include the names of both funds involved in the
exchange.
TELEPHONE TRANSACTIONS
You may buy, sell or exchange shares by telephone, unless you elected on your
new account form to restrict this privilege. If you wish to reinstate this
option on an existing account, please call Investor Services at 1-800-637-2548
to request the appropriate form.
30 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class A, Class B and Class C Shares
<PAGE>
The funds and their agents will not be responsible for any losses that may
result from acting on wire or telephone instructions that they reasonably
believe to be genuine. The funds and their agents will each follow reasonable
procedures to confirm that instructions received by telephone are genuine, which
may include taping telephone conversations.
It may be difficult to reach the funds by telephone during periods of unusual
market activity. If you are unable to reach the funds or their agents by
telephone, please consider sending written instructions.
STAYING INFORMED
SHAREHOLDER REPORTS
Shareholder reports are mailed twice a year, in November and May. They include
financial statements, performance information, a message from your portfolio
managers, and, on an annual basis, the auditors' report.
In an attempt to reduce shareholder costs and help eliminate duplication, the
funds will try to limit their mailings to one report for each address that lists
one or more shareholders with the same last name. If you would like additional
copies, please call 1-800-637-2548.
STATEMENTS AND CONFIRMATIONS
Statements summarizing activity in your account are mailed at least quarterly.
Confirmations are mailed following each purchase or sale of fund shares.
DIVIDENDS AND DISTRIBUTIONS
Dividends from a fund's net investment income, if any, are declared and paid
quarterly for International Index Fund and annually for Emerging Markets Fund
and International Fund. Any capital gains are distributed at least once each
year.
On the ex-dividend date for a distribution, a fund's share price is reduced by
the amount of the distribution. If you buy shares just before the ex-dividend
date, in effect, you "buy the dividend." You will pay the full price for the
shares and then receive a portion of that price back as a taxable distribution.
Dividend and capital gain distributions will be reinvested in additional shares
of the fund paying the distribution, unless you request that distributions be
reinvested in another First American fund or paid in cash. This request may be
made on your new account form or by writing to the fund. If you request that
your distributions be paid in cash but those distributions cannot be delivered
because of an incorrect mailing address, the undelivered distributions and all
future distributions will be reinvested in fund shares.
31 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class A, Class B and Class C Shares
<PAGE>
TAXES
Some of the tax consequences of investing in the funds are discussed below. More
information about taxes is in the Statement of Additional Information. However,
because everyone's tax situation is unique, always consult your tax professional
about federal, state and local tax consequences.
TAXES ON DISTRIBUTIONS
Each fund pays its shareholders dividends from its net investment income and any
net capital gains that it has realized. For most investors, fund dividends and
distributions are considered taxable whether they are reinvested or taken in
cash (unless your investment is in an IRA or other tax-advantaged account).
Dividends from a fund's net investment income and short-term capital gains are
taxable as ordinary income. Distributions of a fund's long-term capital gains
are taxable as long-term capital gains, regardless of how long you have held
your shares.
TAXES ON TRANSACTIONS
The sale of fund shares, or the exchange of one fund's shares for shares of
another fund, will be a taxable event and may result in a capital gain or loss.
The gain or loss will be considered long-term if you have held your shares for
more than one year. A gain or loss on shares held for one year or less is
considered short-term and is taxed at the same rates as ordinary income.
The exchange of one class of shares for another class of shares in the same fund
will not be taxable.
FOREIGN TAX CREDITS
The funds may be required to pay withholding and other taxes imposed by foreign
countries. If a fund has more than 50% of its total assets invested in
securities of foreign corporations at the end of its taxable year, it may make
an election that will permit you either to claim a foreign tax credit with
respect to foreign taxes paid by the fund or to deduct those amounts as an
itemized deduction on your tax return. If a fund makes this election, you will
be notified and provided with sufficient information to calculate the amount you
may deduct as foreign taxes paid or your foreign tax credit.
32 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class A, Class B and Class C Shares
<PAGE>
ADDITIONAL INFORMATION
MANAGEMENT
INVESTMENT ADVISOR
First American Asset Management
601 Second Avenue South
Minneapolis, Minnesota 55402
U.S. Bank National Association (U.S. Bank), acting through its First American
Asset Management division, is the funds' investment advisor. First American
Asset Management has provided investment management services to individuals and
institutions, including corporations, foundations, pensions and retirement plans
since 1967. As of December 31, 1999, it had more than $ ___ billion in assets
under management, including investment company assets of approximately $ ___
billion. As investment advisor, First American Asset Management manages the
funds' business and investment activities, subject to the authority of the board
of directors.
Each fund pays the investment advisor a monthly fee for providing investment
advisory services. During their most recent fiscal years, after taking into
account fee waivers, the funds paid the following investment advisory fees to
First American Asset Management:
Advisory fee
as a % of
average daily
net assets
- ------------------------------------------------------------------------------
Emerging Markets Fund % _______
International Fund % _______
International Index Fund % _______
- ------------------------------------------------------------------------------
SUB-ADVISOR
Marvin & Palmer Associates, Inc.
1201 North Market Street, Suite 2300
Wilmington, Delaware 19801
Marvin & Palmer Associates (Marvin & Palmer) is the sub-advisor to Emerging
Markets Fund and International Fund, and is responsible for the investment and
reinvestment of those funds' assets and the placement of brokerage transactions
for those funds. Marvin & Palmer has been retained by the funds' investment
advisor and is paid a portion of the advisory fee.
A privately held company founded in 1986, Marvin & Palmer is engaged in the
management of global, non-United States, domestic and emerging markets equity
portfolios, principally for institutional accounts. As of December 31, 1999, the
sub-advisor managed a total of approximately $ ____ billion in investments.
33 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class A, Class B and Class C Shares
<PAGE>
CUSTODIAN
U.S. Bank National Association
U.S. Bank Center
180 East Fifth Street
St. Paul, Minnesota 55101
ADMINISTRATOR
U.S. Bank National Association
U.S. Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55102
DISTRIBUTOR
SEI Investments Distribution Co.
Oaks, Pennsylvania 19456
ADDITIONAL COMPENSATION
U.S. Bank and other affiliates of U.S. Bancorp may act as fiduciary with respect
to plans subject to the Employee Retirement Income Security Act of 1974 (ERISA)
and other trust and agency accounts that invest in the funds. As described
above, U.S. Bank receives compensation for acting as the funds' investment
advisor. U.S. Bank and its affiliates also receive compensation in connection
with the following:
CUSTODY SERVICES. U.S. Bank provides or compensates others to provide custody
services to the funds. U.S. Bank is paid monthly fees equal, on an annual basis,
to 0.10% of a fund's average daily net assets. In addition, U.S. Bank is
reimbursed for its out-of-pocket expenses incurred while providing custody
services to the funds.
ADMINISTRATION SERVICES. U.S. Bank provides or compensates others to provide
administrative services to the funds including general administrative and
accounting services, transfer agency and dividend disbursing services, and
shareholder services. The funds pay U.S. Bank monthly fees equal, on an annual
basis, to 0.12% of the aggregate average daily net assets of all open-end mutual
funds in the First American fund family up to $8 billion and 0.105% of the
aggregate average daily net assets of all open-end mutual funds in the First
American fund family in excess of $8 billion. Additionally, the funds pay U.S.
Bank fees based upon the number of funds and accounts maintained.
SECURITIES LENDING SERVICES. In connection with lending their portfolio
securities, the funds pay administrative and custodial fees to U.S. Bank which
are equal to 40% of the funds' income from these securities lending
transactions.
BROKERAGE TRANSACTIONS. When purchasing and selling portfolio securities for the
funds, the funds' investment advisor may place trades through its affiliates,
U.S. Bancorp Investments, Inc. and U.S. Bancorp Piper Jaffray Inc., which will
earn commissions on such transactions.
SALES OF FUND SHARES. U.S. Bancorp Investments, Inc. and U.S. Bancorp Piper
Jaffray Inc., broker-dealers affiliated with U.S. Bank, have entered into
agreements with the funds' distributor to sell fund shares and will earn annual
shareholder servicing fees in connection with these sales.
PORTFOLIO MANAGEMENT
Each fund's investments are managed by a team of persons associated with Marvin
& Palmer, in the case of Emerging Markets Fund and International Fund, or First
American Asset Management, in the case of International Index Fund.
34 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class A, Class B and Class C Shares
<PAGE>
ADDITIONAL INFORMATION
MORE ABOUT THE FUNDS
OBJECTIVES
The funds' objectives, which are described in the "Fund Summaries" section, may
be changed without shareholder approval. If a fund's objectives change, you will
be notified at least 30 days in advance. Please remember: There is no guarantee
that any fund will achieve its objectives.
INVESTMENT STRATEGIES
The funds' main investment strategies are discussed in the "Fund Summaries"
section. These are the strategies that the funds' investment advisor believes
are most likely to be important in trying to achieve the funds' objectives. You
should be aware that each fund may also use strategies and invest in securities
that are not described in this prospectus, but that are described in the
Statement of Additional Information (SAI). For a copy of the SAI, call Investor
Services at 1-800-637-2548.
TEMPORARY INVESTMENTS
In an attempt to respond to adverse market, economic, political or other
conditions, each fund may temporarily invest without limit in cash and in U.S.
dollar-denominated high-quality money market instruments and other short-term
securities, including money market funds advised by the funds' advisor. Being
invested in these securities may keep a fund from participating in a market
upswing and prevent the fund from achieving its investment objectives.
PORTFOLIO TURNOVER
Portfolio managers for Emerging Markets Fund and International Fund may trade
securities frequently, resulting, from time to time, in an annual portfolio
turnover rate of over 100%. Trading of securities may produce capital gains,
which are taxable to shareholders when distributed. Active trading may also
increase the amount of commissions or mark-ups to broker-dealers that the fund
pays when it buys and sells securities. Portfolio turnover for International
Index Fund is expected to be well below that of actively managed mutual funds.
The "Financial Highlights" section of this prospectus shows each fund's
historical portfolio turnover rate.
RISKS
The main risks of investing in the funds are summarized in the "Fund Summaries"
section. More information about fund risks is presented below.
35 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class A, Class B and Class C Shares
<PAGE>
MARKET RISK
All stocks are subject to price movements due to changes in general economic
conditions changes in the level of prevailing interest rates, changes in
investor perceptions of the market, or the outlook for overall corporate
profitability.
SECTOR RISK
The stocks of companies within specific industries or sectors of the economy can
periodically perform differently than the overall stock market. This can be due
to changes in such things as the regulatory or competitive environment or to
changes in investor perceptions of a particular industry or sector.
COMPANY RISK
Individual stocks can perform differently than the overall market. This may be a
result of specific factors such as changes in corporate profitability due to the
success or failure of specific products or management strategies, or it may be
due to changes in investor perceptions regarding a company.
RISKS OF INTERNATIONAL INVESTING
International investing involves risks not typically associated with U.S.
investing. These risks include:
CURRENCY RISK. Because foreign securities often trade in currencies other than
the U.S. dollar, changes in currency exchange rates will affect a fund's net
asset value, the value of dividends and interest earned, and gains and losses
realized on the sale of securities. A strong U.S. dollar relative to these other
currencies will adversely affect the value of the fund.
POLITICAL AND ECONOMIC RISKS. International investing is subject to the risk of
political, social or economic instability in the country of the issuer of a
security, the difficulty of predicting international trade patterns, the
possibility of the imposition of exchange controls, expropriation, limits on
removal of currency or other assets and nationalization of assets.
FOREIGN TAX RISK. Each fund's income from foreign issuers may be subject to
non-U.S. withholding taxes. In some countries, the funds also may be subject to
taxes on trading profits and, on certain securities transactions, transfer or
stamp duties tax. To the extent foreign income taxes are paid by a fund, U.S.
shareholders may be entitled to a credit or deduction for U.S. tax purposes. See
the Statement of Additional Information for details.
RISK OF INVESTMENT RESTRICTIONS. Some countries, particularly emerging markets,
restrict to varying degrees foreign investment in their securities markets. In
some circumstances, these restrictions may limit or preclude investment in
certain countries or may increase the cost of investing in securities of
particular companies.
36 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class A, Class B and Class C Shares
<PAGE>
FOREIGN SECURITIES MARKET RISK. Securities of many non-U.S. companies may be
less liquid and their prices more volatile than securities of comparable U.S.
companies. Securities of companies traded in many countries outside the U.S.,
particularly emerging markets countries, may be subject to further risks due to
the inexperience of local brokers and financial institutions, the possibility of
permanent or temporary termination of trading, and greater spreads between bid
and asked prices for securities. In addition, non-U.S. stock exchanges and
brokers are subject to less governmental regulation, and commissions may be
higher than in the United States. Also, there may be delays in the settlement of
non-U.S. stock exchange transactions.
INFORMATION RISK. Non-U.S. companies generally are not subject to uniform
accounting, auditing and financial reporting standards or to other regulatory
requirements that apply to U.S. companies. As a result, less information may be
available to investors concerning non-U.S. issuers. Accounting and financial
reporting standards in emerging markets may be especially lacking.
RISKS OF EMERGING MARKETS
Investing in securities of issuers in emerging markets involves exposure to
economic infrastructures that are generally less diverse and mature than, and to
political systems that can be expected to have less stability than, those of
developed countries. Other characteristics of emerging market countries that may
affect investment in their markets include certain governmental policies that
may restrict investment by foreigners and the absence of developed legal
structures governing private and foreign investments and private property. The
typical small size of the markets for securities issued by issuers located in
emerging markets and the possibility of low or nonexistent volume of trading in
those securities may also result in a lack of liquidity and in price volatility
of those securities. In addition, issuers in emerging markets typically are
subject to a greater degree of change in earnings and business prospects than
are companies in developed markets.
RISKS OF SMALLER CAPITALIZATION COMPANIES
The securities of smaller capitalization companies involve substantial risk.
Smaller capitalization companies may have limited product lines, markets or
financial resources, and they may be dependent on a limited management group.
Stocks of smaller capitalization companies may be subject to more abrupt or
erratic market movements than those of larger, more established companies or the
market averages in general.
RISKS OF ACTIVE MANAGEMENT
Emerging Markets Fund and International Fund are actively managed and their
performance therefore will reflect in part the sub-advisor's ability to make
investment decisions which are suited to achieving the funds' respective
investment objectives. Due to their active management, the funds could
underperform other mutual funds with similar investment objectives.
RISKS OF SECURITIES LENDING
When a fund loans its portfolio securities, it will receive collateral equal to
at least 100% of the value of the loaned securities. Nevertheless, the fund
risks a delay in the recovery of the loaned securities, or even the loss of
rights in the collateral deposited by the borrower if the borrower should fail
financially. To reduce these risks, the funds enter into loan arrangements only
with institutions which the funds' advisor has determined are creditworthy under
guidelines established by the funds' board of directors.
EURO CONVERSION
On January 1, 1999, the European Union introduced a single currency, the Euro,
which was adopted as the common legal currency for participating member
countries. Existing sovereign currencies of the participating countries will
remain legal tender in those countries, as denominations of the Euro, until
January 1, 2002. Participating countries are Austria, Belgium, Finland, France,
Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain.
Whether the Euro conversion will materially affect the funds' performance is
uncertain. Each fund may be affected by the Euro's impact on the business or
financial condition of European issuers held by that fund. The ongoing process
of establishing the Euro may result in market volatility. In addition, the
transition to the Euro and the elimination of currency risk among participating
countries may change the economic environment and behavior of investors,
particularly in European markets. To the extent a fund holds non-U.S. dollar
(Euro or other) denominated securities, it will still be exposed to currency
risk due to fluctuations in those currencies versus the U.S. dollar.
37 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class A, Class B and Class C Shares
<PAGE>
ADDITIONAL INFORMATION
FINANCIAL HIGHLIGHTS
The tables that follow present performance information about the Class A and
Class B shares of each fund. There were no Class C shares of Emerging Markets
Fund and International Index Fund outstanding during the periods for which
information is presented. This information is intended to help you understand
each fund's financial performance for the past five years or, if shorter, the
period of the fund's operations. Some of this information reflects financial
results for a single fund share. Total returns in the tables represent the rate
that you would have earned or lost on an investment in a fund, excluding sales
charges and assuming you reinvested all of your dividends and distributions.
The information for the fiscal year ended September 30, 1999 has been audited by
Ernst & Young LLP, independent auditors, whose report, along with the funds'
financial statements, is included in the funds' annual report, which is
available upon request. The information for the fiscal years ended on or before
September 30, 1998, has been audited by KPMG LLP.
EMERGING MARKETS FUND(1)
<TABLE>
<CAPTION>
Fiscal year ended Fiscal year ended
September 30, June 30,
- ---------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES 1999 1998 1997 1996(2) 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period __________ $10.96 $8.85 $8.84 $7.20 $9.14
------------------------------------------------------------------------------
Investment Operations:
Net Investment Income (Loss) __________ (0.15) 0.02 0.01 0.01 --
Net Gains (Losses) on Investments
(both realized and unrealized) __________ (5.18) 2.10 -- 1.63 (1.94)
------------------------------------------------------------------------------
Total From Investment Operations __________ (5.33) 2.12 0.01 1.64 (1.94)
------------------------------------------------------------------------------
Less Distributions:
Dividends (from Net Investment Income) __________ (0.02) (0.01) -- -- --
Distributions (from capital gains) -- -- -- -- --
------------------------------------------------------------------------------
Total Distributions __________ (0.02) (0.01) -- -- --
------------------------------------------------------------------------------
Net Asset Value, End of Period __________ $5.61 $10.96 $8.85 $8.84 $7.20
==============================================================================
Total Return __________ (48.91)% 23.91% 0.11% 22.78% (21.23)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) __________ $5,384 $16,998 $13,772 $13,936 $22,624
Ratio of Expenses to Average Net Assets __________ 1.96% 2.00% 2.00%(7) 2.00% 2.00%
Ratio of Net Income (Loss) to Average Net
Assets __________ (1.09)% 0.17% 0.26%(7) 0.26% 0.15%
Ratio of Expenses to Average Net Assets
(excluding waivers) __________ 3.43% 3.34% 4.09%(7) 3.54% 3.47%
Ratio of Net Loss to Average Net Assets
(excluding waivers) __________ (2.56)% (1.17)% (1.83)%(7) (1.28)% (1.32)%
Portfolio Turnover Rate __________ 48% 105% 0% 140% 161%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See footnotes on following page.
38 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class A, Class B and Class C Shares
<PAGE>
EMERGING MARKETS FUND(1)
<TABLE>
<CAPTION>
Period from Period from Period from
August 7, 1998 October 1, 1997 February 18, 1997
Fiscal year ended to September 30, to April 28, to September 30,
- ---------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES September 30, 1999 1998(4) 1998(5) 1997(6)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period __________ $7.27 $10.86 $10.13
----------------------------------------------------------------------------------
Investment Operations:
Net Investment Loss -- (0.08) --
Net Gains (Losses) on Investments
(both realized and unrealized) __________ (1.67) (1.07) 0.73
----------------------------------------------------------------------------------
Total From Investment Operations __________ (1.67) (1.15) 0.73
----------------------------------------------------------------------------------
Less Distributions:
Dividends (from net
investment income) __________ -- (0.02) --
Distributions (from capital gains) -- -- --
----------------------------------------------------------------------------------
Total Distributions -- (0.02) --
----------------------------------------------------------------------------------
Net Asset Value, End of Period $5.60 $9.69 $10.86
==================================================================================
Total Return __________ (22.97)% (10.59)% 7.21%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) __________ $1 $-- $310
Ratio of Expenses to Average
Net Assets __________ 2.46%(7) 2.76%(7) 2.64%(7)
Ratio of Net Income (Loss) to
Average Net Assets __________ (0.43)%(7) (2.24)%(7) 0.03%(7)
Ratio of Expenses to Average Net
Assets (excluding waivers) __________ 4.30%(7) 4.12%(7) 3.39%(7)
Ratio of Net Loss to Average Net
Assets (excluding waivers) __________ (2.27)%(7) (3.60)%(7) (0.72)%(7)
Portfolio Turnover Rate __________ 48% 34% 105%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)The financial highlights for the period from 6/21/96 through 8/7/98 are those
of Emerging Markets Growth Fund, a series of Piper Global Funds Inc. This
predecessor fund was reorganized into the fund effective 8/7/98. In connection
with such reorganization, the funds' sub-advisor changed from Edinburgh Fund
Managers plc to Marvin & Palmer Associates, Inc. The financial highlights of the
period prior to 6/21/96 are those of Hercules Latin American Value Fund, a
series of Hercules Funds Inc. and the predecessor of the Piper fund. The
sub-adivsor to the Hercules fund was Bankers Trust Company.
(2)For the three month period ended September 30, 1996.
(3)Commenced operations on 11/9/93.
(4)Class B shares of Emerging Markets Fund have been offered since August 7,
1998.
(5)Effective April 28, 1998, all outstanding shares of Piper Emerging Markets
Growth Fund were exchanged for Class A shares of such fund and Class B shares
activity was discontinued.
(6)Class B shares of Piper Emerging Markets Growth Fund were offered beginning
February 18, 1997.
(7)Annualized.
39 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class A, Class B and Class C Shares
<PAGE>
INTERNATIONAL FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS A SHARES 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period __________ $13.18 $10.28 $10.28 $10.21
--------------------------------------------------------------------
Investment Operations:
Net Investment Income (Loss) __________ 0.06 0.01 (0.02) --
Net Gains (Losses) on Investments
(both realized and unrealized) __________ 0.02 3.04 0.20 0.07
--------------------------------------------------------------------
Total From Investment Operations __________ 0.08 3.05 0.18 0.07
--------------------------------------------------------------------
Less Distributions:
Dividends (from Net Investment Income) __________ (0.46)(1) (0.15)(1) (0.18)(1) --
Distributions (from capital gains) (0.25) -- -- --
--------------------------------------------------------------------
Total Distributions __________ (0.71) (0.15) (0.18) --
--------------------------------------------------------------------
Net Asset Value, End of Period __________ $12.55 $13.18 $10.28 $10.28
====================================================================
Total Return __________ 1.11% 30.03% 1.84% 0.69%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) __________ $40,204 $ 8,003 $ 1,964 $ 876
Ratio of Expenses to Average Net Assets __________ 1.69% 1.92% 1.97% 1.93%
Ratio of Net Income (Loss) to Average
Net Assets __________ 0.13% (0.09)% (0.28)% (0.13)%
Ratio of Expenses to Average Net Assets
(excluding waivers) __________ 1.81% 1.92% 1.97% 2.06%
Ratio of Net Income (Loss) to Average Net
Assets (excluding waivers) __________ 0.01% (0.09)% (0.28)% (0.26)%
Portfolio Turnover Rate __________ 102% 96% 100% 57%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
40 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class A, Class B and Class C Shares
<PAGE>
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS B SHARES 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period __________ $12.97 $10.14 $10.20 $10.21
------------------------------------------------------------------
Investment Operations:
Net Investment Loss __________ (0.07) (0.08) (0.07) (0.03)
Net Gains (Losses) on Investments
(both realized and unrealized) __________ 0.03 3.01 0.17 0.02
------------------------------------------------------------------
Total From Investment Operations __________ (0.04) 2.93 0.10 (0.01)
------------------------------------------------------------------
Less Distributions:
Dividends (from Net Investment Income) __________ (0.41)(1) (0.10)(1) (0.16)(1) --
Distributions (from capital gains) (0.25) -- -- --
------------------------------------------------------------------
Total Distributions __________ (0.66) (0.10) (0.16) --
------------------------------------------------------------------
Net Asset Value, End of Period __________ $12.27 $12.97 $10.14 $10.20
==================================================================
Total Return __________ 0.13% 29.13% 1.02% (0.10)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) __________ $2,892 $ 2,188 $ 1,175 $ 306
Ratio of Expenses to Average Net Assets __________ 2.44% 2.67% 2.72% 2.76%
Ratio of Net Loss to Average Net Assets __________ (0.64)% (0.94)% (0.96)% (0.95)%
Ratio of Expenses to Average Net Assets
(excluding waivers) __________ 2.56% 2.67% 2.72% 2.81%
Ratio of Net Loss to Average Net Assets
(excluding waivers) __________ (0.76)% (0.94)% (0.96)% (1.00)%
Portfolio Turnover Rate __________ 102% 96% 100% 57%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Includes a distribution or partial distribution in excess of net investment
income due to the tax treatment of foreign currency related transactions.
41 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class A, Class B and Class C Shares
<PAGE>
<TABLE>
<CAPTION>
Fiscal period ended September 30,
CLASS C SHARES 1999(1)
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $_____
----------------------
Investment Operations:
Net Investment Income ______
Net Gains (Losses) on Investments
(both realized and unrealized) ______
----------------------
Total From Investment Operations ______
----------------------
Less Distributions:
Dividends (from net investment income) ______
Distributions (from capital gains) ______
----------------------
Total Distributions ______
----------------------
Net Asset Value, End of Period $_____
======================
Total Return _____%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $_____
Ratio of Expenses to Average Net Assets _____%
Ratio of Net Income to Average Net Assets _____%
Ratio of Expenses to Average Net Assets (excluding waivers) _____%
Ratio of Net Income to Average Net Assets (excluding waivers) _____%
Portfolio Turnover Rate _____%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Class C Shares have been offered since February 1, 1999.
42 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class A, Class B and Class C Shares
<PAGE>
INTERNATIONAL INDEX FUND
<TABLE>
<CAPTION>
Fiscal year Ten Four
ended months months
September 30, ended ended
September November Fiscal year
30, 30, ended July 31,
- ---------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES(1) 1999 1998 1997 1997 1996 1995(2)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period __________ $10.94 $12.32 $10.64 $10.45 $10.00
-------------------------------------------------------------------------------
Investment Operations:
Net Investment Income __________ 0.11 0.05 0.10 0.07 --
Net Gains (Losses) on Investments
(both realized and unrealized) __________ (0.20) (1.41) 1.70 0.17 0.45
-------------------------------------------------------------------------------
Total From Investment Operations __________ (0.09) (1.36) 1.80 0.24 0.45
-------------------------------------------------------------------------------
Less Distributions:
Dividends (from Net Investment Income) __________ (0.16) (0.02) (0.09) (0.05) --
Distributions (from capital gains) -- -- (0.02) -- --
Tax Return of Capital __________ -- -- (0.01) -- --
Total Distributions __________ (0.16) (0.02) (0.12) (0.05) --
-------------------------------------------------------------------------------
Net Asset Value, End of Period __________ $10.69 $10.94 $12.32 $10.64 $10.45
===============================================================================
Total Return (1.05)% (11.03)% 17.03% 2.29% 4.50%
RATIOS/SUPPLEMENTAL DATA __________
Net Assets, End of Period (000) __________ $1,873 $ 1,270 $ 1,605 $ 2,005 $ 20
Ratio of Expenses to Average Net Assets __________ 0.99%(4) 0.92%(4) 0.98% 1.06% 1.40%(4)
Ratio of Net Income to Average Net Assets __________ 1.21%(4) 0.98%(4) 0.90% 0.84% 0.23%(4)
Ratio of Expenses to Average Net Assets
(excluding waivers) __________ 1.22%(4) 1.21%(4) 1.28% 1.35% 1.54%(4)
Ratio of Net Income to Average Net Assets
(excluding waivers) __________ 0.98%(4) 0.69%(4) 0.60% 0.55% 0.09%(4)
Portfolio Turnover Rate 0% 0% 3% 6% 0%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See footnotes on following page.
43 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class A, Class B and Class C Shares
<PAGE>
<TABLE>
<CAPTION>
Fiscal year ended Ten months
September 30, ended Period ended
September 30, November 30,
CLASS B SHARES 1999 1998 1997(3)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period __________ $10.99 $11.08
------------------------------------------------------------
Investment Operations:
Net Investment Income __________ 0.05 --
Net Gains (Losses) on Investments
(both realized and unrealized) __________ (0.21) (0.09)
------------------------------------------------------------
Total From Investment Operations __________ (0.16) (0.09)
------------------------------------------------------------
Less Distributions:
Dividends (from Net Investment Income) __________ (0.15) --
Distributions (from capital gains) -- --
------------------------------------------------------------
Total Distributions __________ (0.15) --
------------------------------------------------------------
Net Asset Value, End of Period __________ $10.68 $10.99
============================================================
Total Return __________ (1.53)% (0.36)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) __________ $118 $ 1
Ratio of Expenses to Average Net Assets __________ 1.74%(4) 1.29%(4)
Ratio of Net Income to Average Net Assets __________ 0.72%(4) 0.00%(4)
Ratio of Expenses to Average Net Assets (excluding waivers) __________ 1.97%(4) 1.29%(4)
Ratio of Net Income to Average Net Assets (excluding waivers) __________ 0.49%(4) 0.00%(4)
Portfolio Turnover Rate __________ 0% 0%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)The financial highlights for International Index Fund include the historical
financial highlights of the Qualivest International Opportunities Fund. The
assets of the Qualivest International Opportunities Fund were acquired by
International Index Fund on November 21, 1997. In connection with such
acquisition, Class A and Class C shares of the Qualivest International
Opportunities Fund were exchanged for Class A shares of International Index
Fund.
(2)Class A shares have been offered since July 3, 1995.
(3)Class B shares have been offered since November 24, 1997.
(4)Annualized.
44 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class A, Class B and Class C Shares
<PAGE>
FOR MORE INFORMATION
More information about the funds is available in the funds' Statement of
Additional Information and annual and semiannual reports.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI provides more details about the funds and their policies. A current SAI
is on file with the Securities and Exchange Commission (SEC) and is incorporated
into this prospectus by reference (which means that it is legally considered
part of this prospectus).
ANNUAL AND SEMIANNUAL REPORTS
Additional information about the funds' investments is available in the funds'
annual and semiannual reports to shareholders. In the funds' annual report, you
will find a discussion of the market conditions and investment strategies that
significantly affected the funds' performance during their last fiscal year.
You can obtain a free copy of the funds' SAI and/or free copies of the funds'
most recent annual or semiannual reports by calling Investor Services at
1-800-637-2548. The material you request will be sent by first-class mail or
other means designed to ensure equally prompt delivery, within three business
days of receipt of the request.
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, DC, or by sending your request and a duplicating fee to the SEC's
Public Reference Section, Washington, DC 20549-6009. For more information, call
1-800-SEC-0330.
Information about the funds is also available on the Internet. Text-only
versions of fund documents can be viewed online or down-loaded from the SEC's
Internet site at http://www.sec.gov.
SEC file number: 811-05309
FAIF - 4000 (2/2000)R
45 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class A, Class B and Class C Shares
<PAGE>
February 1, 2000
INTERNATIONAL FUNDS
CLASS Y SHARES
Emerging Markets Fund
International Fund
International Index Fund
First American
Investment Funds, Inc.
PROSPECTUS
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the shares of these funds, or determined if the
information in this prospectus is accurate or complete. Any statement to the
contrary is a criminal offense.
FIRST AMERICAN(R)
THE POWER OF DISCIPLINED INVESTING(R)
1 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class Y Shares
<PAGE>
TABLE OF
CONTENTS
FUND SUMMARIES
- --------------------------------------------------------------------------------
Emerging Markets Fund
- --------------------------------------------------------------------------------
International Fund
- --------------------------------------------------------------------------------
International Index Fund
- --------------------------------------------------------------------------------
POLICIES & SERVICES
- --------------------------------------------------------------------------------
Buying and Selling Shares
- --------------------------------------------------------------------------------
Managing Your Investment
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
Management
- --------------------------------------------------------------------------------
More About The Funds
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
2 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
INTRODUCTION
This section of the prospectus describes the objectives of the First American
International Funds, summarizes the main investment strategies used by each fund
in trying to achieve its objectives, and highlights the risks involved with
these strategies. It also provides you with information about the performance,
fees and expenses of the funds.
AN INVESTMENT IN THE FUNDS IS NOT A DEPOSIT OF U.S. BANK NATIONAL ASSOCIATION
AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR
ANY OTHER GOVERNMENT AGENCY.
3 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
EMERGING MARKETS FUND
OBJECTIVE
Emerging Markets Fund has an objective of long-term growth of capital.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Emerging Markets Fund invests primarily (at
least 65% of its total assets) in equity securities from the world's emerging
markets. Normally, the fund will invest in securities traded in at least six
foreign countries.
A country is considered to have an "emerging market" if it has a relatively low
gross national product per capita compared to the world's major economies, and
the potential for rapid economic growth. Countries with emerging markets
include:
o those that have an emerging stock market (as defined by the International
Financial Corporation);
o those with low- to middle-income economies (according to the World Bank);
and
o those listed in World Bank publications as "developing."
In choosing investments for the fund, the fund's sub-advisor generally places
primary emphasis on country selection. This is followed by the selection of
industries or sectors within or across countries and the selection of individual
stocks within those industries or sectors. The fund is not subject to any
restrictions on the size of the companies in which it invests and it may invest
in smaller capitalization companies.
Equity securities in which the fund invests include common and preferred stock.
In addition, the fund may invest in securities representing underlying
international securities, such as American Depositary Receipts and European
Depositary Receipts, and in securities of other investment companies.
In order to hedge against adverse movements in currency exchange rates, the fund
may enter into forward foreign currency exchange contracts.
To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.
4 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class Y Shares
<PAGE>
MAIN RISKS
The value of your investment in this fund will change daily, which means you
could lose money. The main risks of investing in this fund include:
RISKS OF EQUITY SECURITIES
Equity securities may decline significantly in price over short or extended
periods of time. Price changes may occur in the world market as a whole, or they
may occur in only a particular country, company, industry or sector of the world
market.
RISKS OF INTERNATIONAL INVESTING
International investing involves risks not typically associated with domestic
investing. Because of these risks, and because of the sub-advisor'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 mutual funds that invest
principally in domestic securities. Risks of international investing include
adverse currency fluctuations, potential political and economic instability,
limited liquidity and volatile prices of non-U.S. securities, limited
availability of information regarding non-U.S. companies, investment and
repatriation restrictions, and foreign taxation.
RISKS OF EMERGING MARKETS
The risks of international investing are particularly significant in emerging
markets. Investing in emerging markets generally involves exposure to economic
structures that are less diverse and mature, and to political systems that are
less stable, than those of developed countries. In addition, issuers in emerging
markets typically are subject to a greater degree of change in earnings and
business prospects than are companies in developed markets.
RISKS OF SMALLER CAPITALIZATION COMPANIES
Stocks of smaller capitalization companies involve substantial risk and their
prices may be subject to more abrupt or erratic movements than those of larger,
more established companies or of market averages in general.
RISKS OF FOREIGN CURRENCY HEDGING TRANSACTIONS
If the sub-advisor's forecast of exchange rate movements is incorrect, the fund
may realize losses on its foreign currency transactions. In addition, the fund's
hedging transactions may prevent the fund from realizing the benefits of a
favorable change in the value of foreign currencies.
RISKS OF SECURITIES LENDING
The fund is subject to the risk that the other party to a securities lending
agreement will default on its obligations.
5 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class Y Shares
<PAGE>
FUND PERFORMANCE
Illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart is intended to show you how performance of the fund's shares has
varied from year to year. However, because Class Y shares were first offered in
1998, only one calendar year of information is available.
The table compares the fund's performance over different time periods to that of
the fund's benchmark index, which is a broad measure of market performance. The
fund's performance reflects fund expenses; the benchmark is unmanaged and has no
expenses.
Both the chart and the table assume that all distributions have been reinvested.
6 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
EMERGING MARKETS FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR
- ---------------------
1999
BEST QUARTER:
Quarter ending: ________
Total return ________
WORST QUARTER:
Quarter ending: ________
Total return ________
<TABLE>
<CAPTION>
Inception Since
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/99 Date One Year Inception
- ------------------------------------------------------------------------------- --------- ------------
<S> <C> <C> <C>
Emerging Markets Fund 8/7/98 _______% _______%
- ------------------------------------------------------------------------------- --------- ------------
Morgan Stanley Capital International Emerging Markets Free Index(1) _______% _______%
- ------------------------------------------------------------------------------- --------- ------------
</TABLE>
(1)An unmanaged index of securities from emerging markets that are open to
foreign investors. The since inception performance of the index is calculated
from 8/31/98.
7 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class Y Shares
<PAGE>
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
- ---------------------------------------------------------------------
SHAREHOLDER FEES
- ---------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD) None
MAXIMUM DEFERRED SALES CHARGE (LOAD) None
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- ---------------------------------------------------------------------
Management Fees 1.25%
Distribution and Service (12b-1) Fees None
Other Expenses ____%
TOTAL ____%
- ---------------------------------------------------------------------
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. See "Additional Information --
Financial Highlights." The net expenses the fund actually paid after waivers for
the fiscal year ended September 30, 1999 were:
Waiver of Fund Expenses (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____%
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 1.45%. FEE WAIVERS MAY BE DISCONTINUED AT
ANY TIME.
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
1 year $ 333
3 years $1,015
5 years $1,722
10 years $3,595
8 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
INTERNATIONAL FUND
OBJECTIVE
International Fund has an objective of long-term growth of capital.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, International Fund invests primarily (at least
65% of its total assets) in equity securities that trade in markets other than
the United States. These securities generally are issued by companies:
o that are domiciled in countries other than the United States, or
o that derive at least 50% of either their revenues or their pre-tax income
from activities outside of the United States.
Normally, the fund will invest in securities traded in at least three foreign
countries.
In choosing investments for the fund, the fund's sub-advisor generally places
primary emphasis on country selection. This is followed by the selection of
industries or sectors within or across countries and the selection of individual
stocks within those industries or sectors. Investments are expected to be made
primarily in developed markets and larger capitalization companies. However, the
fund also has the ability to invest in emerging markets and smaller
capitalization companies.
Equity securities in which the fund invests include common and preferred stock.
In addition, the fund may invest in securities representing underlying
international securities, such as American Depositary Receipts and European
Depositary Receipts, and in securities of other investment companies.
In order to hedge against adverse movements in currency exchange rates, the fund
may enter into forward foreign currency exchange contracts.
To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.
9 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class Y Shares
<PAGE>
MAIN RISKS
The value of your investment in this fund will change daily, which means you
could lose money. The main risks of investing in this fund include:
RISKS OF EQUITY SECURITIES
Equity securities may decline significantly in price over short or extended
periods of time. Price changes may occur in the world market as a whole, or they
may occur in only a particular country, company, industry or sector of the world
market.
RISKS OF INTERNATIONAL INVESTING
International investing involves risks not typically associated with domestic
investing. Because of these risks, and because of the sub-advisor'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 mutual funds that invest
principally in domestic securities. Risks of international investing include
adverse currency fluctuations, potential political and economic instability,
limited liquidity and volatile prices of non-U.S. securities, limited
availability of information regarding non-U.S. companies, investment and
repatriation restrictions, and foreign taxation.
RISKS OF EMERGING MARKETS
The risks of international investing are particularly significant in emerging
markets. Investing in emerging markets generally involves exposure to economic
structures that are less diverse and mature, and to political systems that are
less stable, than those of developed countries. In addition, issuers in emerging
markets typically are subject to a greater degree of change in earnings and
business prospects than are companies in developed markets.
RISKS OF SMALLER CAPITALIZATION COMPANIES
Stocks of smaller capitalization companies involve substantial risk and their
prices may be subject to more abrupt or erratic movements than those of larger,
more established companies or of market averages in general.
RISKS OF FOREIGN CURRENCY HEDGING TRANSACTIONS
If the sub-advisor's forecast of exchange rate movements is incorrect, the fund
may realize losses on its foreign currency transactions. In addition, the fund's
hedging transactions may prevent the fund from realizing the benefits of a
favorable change in the value of foreign currencies.
RISKS OF SECURITIES LENDING
The fund is subject to the risk that the other party to a securities lending
agreement will default on its obligations.
10 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class Y Shares
<PAGE>
FUND PERFORMANCE
Illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart shows you how performance of the fund's shares has varied from
year to year.
The table compares the fund's performance over different time periods to that of
the fund's benchmark index, which is a broad measure of market performance. The
fund's performance reflects fund expenses; the benchmark is unmanaged and has no
expenses.
Both the chart and the table assume that all distributions have been reinvested.
11 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
INTERNATIONAL FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR(1)
9.36% 8.13% 16.79% 26.11%
- ---------- ----------- ------------ ------------ -----------
1995 1996 1997 1998 1999
BEST QUARTER:
Quarter ending: 12/31/98
Total return 16.66%
WORST QUARTER:
Quarter ending: 9/30/98
Total return -14.16%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99(1) Date One Year Five Years Inception
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
International Fund 4/04/94 _____% _____% _______%
- ----------------------------------------------------------------------------------------------------------------------------------
Morgan Stanley Capital International Europe, Australasia, Far East Index(2) _____% _____% _______%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Performance prior to 11/21/97 is that of Qualivest International
Opportunities Fund.
(2)An unmanaged index including approximately 1,077 companies representing the
stock markets of approximately 14 European countries, Australia, New Zealand,
Japan, Hong Kong and Singapore. The since inception performance of the index is
calculated from 4/30/94.
12 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class Y Shares
<PAGE>
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
- ---------------------------------------------------------------------
SHAREHOLDER FEES
- ---------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD) None
MAXIMUM DEFERRED SALES CHARGE (LOAD) None
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- ---------------------------------------------------------------------
Management Fees 1.25%
Distribution and Service (12b-1) Fees None
Other Expenses ____%
TOTAL ____%
- ---------------------------------------------------------------------
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. See "Additional Information --
Financial Highlights." The net expenses the fund actually paid after waivers for
the fiscal year ended September 30, 1999 were:
Waiver of Fund Expenses (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____%
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 1.35%. FEE WAIVERS MAY BE DISCONTINUED AT
ANY TIME.
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
1 year $ 159
3 years $ 493
5 years $ 850
10 years $1,856
13 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
INTERNATIONAL INDEX FUND
OBJECTIVE
International Index Fund's objective is to provide investment results that
correspond to the performance of the Morgan Stanley Capital International
Europe, Australasia, Far East Index (the "EAFE Index").
MAIN INVESTMENT STRATEGIES
Under normal market conditions, International Index Fund invests at least 90% of
its total assets in common stocks included in the EAFE Index. The EAFE Index
currently includes approximately 1,077 companies representing the stock markets
of approximately 14 European countries, Australia, New Zealand, Japan, Hong Kong
and Singapore. The fund's advisor believes that the fund's objective can best be
achieved by investing in common stocks of approximately 50% to 100% of the
issues included in the EAFE Index, depending on the size of the fund. A computer
program is used to identify which stocks should be purchased or sold in order to
replicate, as closely as possible, the composition of the EAFE Index.
Because the fund may not always hold all of the stocks included in the EAFE
Index, and because the fund has expenses and the index does not, the fund will
not duplicate the index's performance precisely. However, the fund's advisor
believes that there should be a close correlation between the fund's performance
and that of the EAFE Index in both rising and falling markets.
The fund will attempt to achieve a correlation between the performance of its
portfolio and that of the EAFE Index 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 EAFE Index. If the fund is
unable to achieve a correlation of 95% over time, the fund's board of directors
will consider alternative strategies for the fund.
MAIN RISKS
The value of your investment in this fund will change daily, which means you
could lose money. The main risks of investing in this fund include:
14 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class Y Shares
<PAGE>
RISKS OF COMMON STOCKS
Stocks may decline significantly in price over short or extended periods of
time. Price changes may occur in the market as a whole, or they may occur in
only a particular company, industry or sector of the market.
RISKS OF INTERNATIONAL INVESTING
International investing involves risks not typically associated with domestic
investing. Because of these risks, the fund may be subject to greater volatility
than mutual funds that invest principally in domestic securities. Risks of
international investing include adverse currency fluctuations, potential
political and economic instability, limited liquidity and volatile prices of
non-U.S. securities, limited availability of information regarding non-U.S.
companies, investment and repatriation restrictions, and foreign taxation.
FAILURE TO MATCH THE PERFORMANCE OF THE EAFE INDEX
The fund's ability to replicate the performance of the EAFE Index may be
affected by, among other things, changes in securities markets, the manner in
which Morgan Stanley calculates the performance of the EAFE Index,
administrative and other expenses incurred by the fund, taxes (including foreign
withholding taxes, which will affect the fund), the amount and timing of cash
flows into and out of the fund, commissions, sales charges (if any) and other
expenses.
FUND PERFORMANCE
Illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart shows you how performance of the fund's shares has varied from
year to year.
The table compares the fund's performance over different time periods to that of
the fund's benchmark index, which is a broad measure of market performance. The
fund's performance reflects fund expenses; the benchmark is unmanaged and has no
expenses.
Both the chart and the table assume that all distributions have been reinvested.
15 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
INTERNATIONAL INDEX FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR(1)
4.98% 0.21% 19.72%
- -------------------- ------------------- ------------------ ------------------
1996 1997 1998 1999
BEST QUARTER:
Quarter ending: 12/31/98
Total return 20.52%
WORST QUARTER:
Quarter ending: 9/30/98
Total return -14.06%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99(1) Date One Year Inception
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
International Index Fund 7/03/95 ______% ______%
- -------------------------------------------------------------------------------------------------------------
Morgan Stanley Capital International Europe, Australasia, Far East Index(2) ______% ______%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1)On 11/21/97, the International Index Fund became the successor by merger to
the Qualivest International Opportunities Fund. Prior to the merger, the First
American Fund had not assets or liabilities. Performance presented prior to
11/21/97 is that of Qualivest International Opportunities Fund.
(2)An unmanaged index including approximately 1,077 companies representing the
stock markets of approximately 14 European countries, Australia, New Zealand,
Japan, Hong Kong and Singapore. The since inception performance of the index is
calculated from 7/31/95.
16 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class Y Shares
<PAGE>
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
- --------------------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD) None
MAXIMUM DEFERRED SALES CHARGE (LOAD) None
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- --------------------------------------------------------------------------------
Management Fees 0.70%
Distribution and Service (12b-1) Fees None
Other Expenses ____%
TOTAL ____%
- --------------------------------------------------------------------------------
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. See "Additional Information --
Financial Highlights." The net expenses the fund actually paid after waivers for
the fiscal year ended September 30, 1999 were:
Waiver of Fund Expenses (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____%
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 0.75%. FEE WAIVERS MAY BE DISCONTINUED AT
ANY TIME.
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
1 year $ 99
3 years $ 309
5 years $ 536
10 years $1,190
17 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class Y Shares
<PAGE>
POLICIES & SERVICES
BUYING AND SELLING SHARES
Class Y shares are offered through banks and other financial institutions that
have entered into sales agreements with the funds' distributor and that hold the
shares in an omnibus account with the transfer agent. Class Y shares are
available to certain accounts for which the financial institution acts in a
fiduciary, agency or custodial capacity, such as certain trust accounts and
investment advisory accounts. To find out whether you may purchase Class Y
shares, contact your financial institution.
There is no initial or deferred sales charge on your purchase of Class Y shares.
However, your broker or financial institution may receive a commission of up to
1.25% on your purchase.
CALCULATING YOUR SHARE PRICE
Your purchase price will be equal to the fund's net asset value (NAV) per share,
which is generally calculated as of the close of regular trading on the New York
Stock Exchange (usually 3 p.m. Central time) every day the exchange is open.
A fund's NAV is equal to the market value of its investments and other assets,
less any liabilities, divided by the number of fund shares. If market prices are
not readily available for an investment or if the advisor believes they are
unreliable, fair value prices may be determined in good faith using methods
approved by the funds' board of directors.
Each fund will hold portfolio securities that trade on weekends or other days
when the fund does not price its shares. Therefore, the net asset value of a
fund's shares may change on days when shareholders will not be able to purchase
or redeem their shares.
HOW TO BUY AND SELL SHARES
You may purchase or sell shares by calling your financial institution.
When purchasing shares, payment must be made by wire transfer, which can be
arranged by your financial institution. Because purchases must be paid for by
wire transfer, you can purchase shares only on days when both the New York Stock
Exchange and federally chartered banks are open. You may sell your shares on any
day when the New York Stock Exchange is open.
Purchase orders and redemption requests must be received by your financial
institution by the time specified by the institution to be assured same day
processing. In order for shares to be purchased at that day's price, the funds
must receive your purchase order by 3:00 p.m. Central time and the funds'
custodian must receive federal funds before the close of business. In order for
shares to be sold at that day's price, the funds must receive your redemption
request by 3:00 p.m. Central time. It is the responsibility of your financial
institution to promptly transmit orders to the funds. Purchase orders and
redemption requests may be restricted in the event of an early or unscheduled
close of the New York Stock Exchange.
18 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class Y Shares
<PAGE>
If the funds receive your redemption request by 3:00 p.m. Central time, payment
of your redemption proceeds will ordinarily be made by wire on the next business
day. It is possible, however, that payment could be delayed by up to seven days.
HOW TO EXCHANGE SHARES
If your investment goals or your financial needs change, you may exchange your
shares for Class Y shares of another First American fund. Exchanges will be made
at the net asset value per share of each fund at the time of the exchange. There
is no fee to exchange shares. If you are no longer eligible to hold Class Y
shares, for example, if you decide to discontinue your fiduciary, agency or
custodian account, you may exchange your shares for Class A shares at net asset
value. Class A shares have higher expenses than Class Y shares.
To exchange your shares, call your financial institution. In order for your
shares to be exchanged the same day, you must call your financial institution by
the time specified by the institution and your exchange order must be received
by the funds by 3:00 p.m. Central time. It is the responsibility of your
financial institution to promptly transmit your exchange order to the funds.
Before exchanging into any fund, be sure to read its prospectus carefully. A
fund may change or cancel its exchange policies at any time. You will be
notified of any changes. The funds have the right to limit exchanges to four
times per year.
19 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class Y Shares
<PAGE>
POLICIES & SERVICES
MANAGING YOUR INVESTMENT
STAYING INFORMED
SHAREHOLDER REPORTS
Shareholder reports are mailed twice a year, in November and May. They include
financial statements, performance information, a message from your portfolio
managers, and, on an annual basis, the auditors' report.
In an attempt to reduce shareholder costs and help eliminate duplication, the
funds will try to limit their mailings to one report for each address that lists
one or more shareholders with the same last name. If you would like additional
copies, please call 1-800-637-2548.
STATEMENTS AND CONFIRMATIONS
Statements summarizing activity in your account are mailed at least quarterly.
Confirmations are mailed following each purchase or sale of fund shares.
DIVIDENDS AND DISTRIBUTIONS
Dividends from a fund's net investment income, if any, are declared and paid
quarterly for International Index Fund and annually for Emerging Markets Fund
and International Fund. Any capital gains are distributed at least once each
year.
On the ex-dividend date for a distribution, a fund's share price is reduced by
the amount of the distribution. If you buy shares just before the ex-dividend
date, in effect, you "buy the dividend." You will pay the full price for the
shares and then receive a portion of that price back as a taxable distribution.
Dividend and capital gain distributions will be reinvested in additional shares
of the fund paying the distribution, unless you request that distributions be
reinvested in another First American fund or paid in cash. This request may be
made on your new account form or by writing to the fund. If you request that
your distributions be paid in cash but those distributions cannot be delivered
because of an incorrect mailing address, the undelivered distributions and all
future distributions will be reinvested in fund shares.
20 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class Y Shares
<PAGE>
TAXES
Some of the tax consequences of investing in the funds are discussed below. More
information about taxes is in the Statement of Additional Information. However,
because everyone's tax situation is unique, always consult your tax professional
about federal, state and local tax consequences.
TAXES ON DISTRIBUTIONS
Each fund pays its shareholders dividends from its net investment income and any
net capital gains that it has realized. For most investors, fund dividends and
distributions are considered taxable whether they are reinvested or taken in
cash (unless your investment is in an IRA or other tax-advantaged account).
Dividends from a fund's net investment income and short-term capital gains are
taxable as ordinary income. Distributions of a fund's long-term capital gains
are taxable as long-term gains, regardless of how long you have held your
shares.
TAXES ON TRANSACTIONS
The sale of fund shares, or the exchange of one fund's shares for shares of
another fund, will be a taxable event and may result in a capital gain or loss.
The gain or loss will be considered long-term if you have held your shares for
more than one year. A gain or loss on shares held for one year or less is
considered short-term and is taxed at the same rates as ordinary income.
The exchange of one class of shares for another class of shares in the same fund
will not be taxable.
FOREIGN TAX CREDITS
The funds may be required to pay withholding and other taxes imposed by foreign
countries. If a fund has more than 50% of its total assets invested in
securities of foreign corporations at the end of its taxable year, it may make
an election that will permit you either to claim a foreign tax credit with
respect to foreign taxes paid by the fund or to deduct those amounts as an
itemized deduction on your tax return. If a fund makes this election, you will
be notified and provided with sufficient information to calculate the amount you
may deduct as foreign taxes paid or your foreign tax credit.
21 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class Y Shares
<PAGE>
ADDITIONAL INFORMATION
MANAGEMENT
INVESTMENT ADVISOR
First American Asset Management
601 Second Avenue South
Minneapolis, Minnesota 55402
U.S. Bank National Association (U.S. Bank), acting through its First American
Asset Management division, is the funds' investment advisor. First American
Asset Management provides investment management services to individuals and
institutions, including corporations, foundations, pensions and retirement
plans. As of December 31, 1999, it had more than $ _____ billion in assets under
management, including investment company assets of approximately $ ____ billion.
As investment advisor, First American Asset Management manages the funds'
business and investment activities, subject to the authority of the board of
directors.
Each fund pays the investment advisor a monthly fee for providing investment
advisory services. During their most recent fiscal years, after taking into
account fee waivers, the funds paid the following investment advisory fees to
First American Asset Management:
Advisory fee
as a % of
average daily
net assets
- --------------------------------------------------------------------------------
Emerging Markets Fund ______ %
International Fund ______ %
International Index Fund ______ %
- --------------------------------------------------------------------------------
SUB-ADVISOR
Marvin & Palmer Associates, Inc.
1201 North Market Street, Suite 2300
Wilmington, Delaware 19801
Marvin & Palmer Associates (Marvin & Palmer) is the sub-advisor to Emerging
Markets Fund and International Fund, and is responsible for the investment and
reinvestment of those funds' assets and the placement of brokerage transactions
for those funds. Marvin & Palmer has been retained by the funds' investment
advisor and is paid a portion of the advisory fee.
A privately held company founded in 1986, Marvin & Palmer is engaged in the
management of global, non-United States, domestic and emerging markets equity
portfolios, principally for institutional accounts. As of December 31, 1999, the
sub-advisor managed a total of approximately $ ____ billion in investments.
22 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class Y Shares
<PAGE>
CUSTODIAN
U.S. Bank National Association
U.S. Bank Center
180 East Fifth Street
St. Paul, Minnesota 55101
ADMINISTRATOR
U.S Bank National Association
U.S. Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402
DISTRIBUTOR
SEI Investments Distribution Co.
Oaks, Pennsylvania 19456
ADDITIONAL COMPENSATION
U.S. Bank and other affiliates of U.S. Bancorp may act as fiduciary with respect
to plans subject to the Employee Retirement Income Security Act of 1974 (ERISA)
and other trust and agency accounts that invest in the funds. As described
above, U.S. Bank receives compensation for acting as the funds' investment
advisor. U.S. Bank and its affiliates also receive compensation in connection
with the following:
CUSTODY SERVICES. U.S. Bank provides or compensates others to provide custody
services to the funds. U.S. Bank is paid monthly fees equal, on an annual basis,
to 0.10% of a fund's average daily net assets. In addition, U.S. Bank is
reimbursed for its out-of-pocket expenses incurred while providing custody
services to the funds.
ADMINISTRATION SERVICES. U.S. Bank provides or compensates others to provide
administrative services to the funds including general administrative and
accounting services, transfer agency and dividend disbursing services, and
shareholder services. The funds pay U.S. Bank monthly fees equal, on an annual
basis, to 0.12% of the aggregate average daily net assets of all open-end mutual
funds in the First American fund family up to $8 billion and 0.105% of the
aggregate average daily net assets of all open-end mutual funds in the First
American fund family in excess of $8 billion. Additionally, the funds pay U.S.
Bank fees based upon the number of funds and accounts maintained.
SECURITIES LENDING SERVICES. In connection with lending their portfolio
securities, the funds pay administrative and custodial fees to U.S. Bank which
are equal to 40% of the funds' income from these securities lending
transactions.
BROKERAGE TRANSACTIONS. When purchasing and selling portfolio securities for the
funds, the funds' investment advisor may place trades through its affiliates,
U.S. Bancorp Investments, Inc. and U.S. Bancorp Piper Jaffray Inc., which will
earn commissions on such transactions.
23 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class Y Shares
<PAGE>
SALES OF FUND SHARES. U.S. Bancorp Investments, Inc. and U.S. Bancorp Piper
Jaffray, Inc. broker-dealers affiliated with U.S. Bank, have entered into
agreements with the funds' distributor to sell fund shares and will earn annual
shareholder servicing fees in connection with these sales.
PORTFOLIO MANAGEMENT
Each fund's investments are managed by a team of persons associated with Marvin
& Palmer, in the case of Emerging Markets Fund and International Fund, or First
American Asset Management, in the case of International Index Fund.
24 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class Y Shares
<PAGE>
ADDITIONAL INFORMATION
MORE ABOUT THE FUNDS
OBJECTIVES
The funds' objectives, which are described in the "Fund Summaries" section, may
be changed without shareholder approval. If a fund's objectives change, you will
be notified at least 30 days in advance. Please remember: There is no guarantee
that any fund will achieve its objectives.
INVESTMENT STRATEGIES
The funds' main investment strategies are discussed in the "Fund Summaries"
section. These are the strategies that the funds' investment advisor believes
are most likely to be important in trying to achieve the funds' objectives. You
should be aware that each fund may also use strategies and invest in securities
that are not described in this prospectus, but that are described in the
Statement of Additional Information (SAI). For a copy of the SAI, call Investor
Services at
1-800-637-2548.
TEMPORARY INVESTMENTS
In an attempt to respond to adverse market, economic, political or other
conditions, each fund may temporarily invest without limit in cash and in U.S.
dollar-denominated high-quality money market instruments and other short-term
securities, including money market funds advised by the funds' advisor. Being
invested in these securities may keep a fund from participating in a market
upswing and prevent the fund from achieving its investment objectives.
PORTFOLIO TURNOVER
Portfolio managers for Emerging Markets Fund and International Fund may trade
securities frequently, resulting, from time to time, in an annual portfolio
turnover rate of over 100%. Trading of securities may produce capital gains,
which are taxable to shareholders when distributed. Active trading may also
increase the amount of commissions or mark-ups to broker-dealers that the fund
pays when it buys and sells securities. Portfolio turnover for International
Index Fund is expected to be well below that of actively managed mutual funds.
The "Financial Highlights" section of this prospectus shows each fund's
historical portfolio turnover rate.
RISKS
The main risks of investing in the funds are summarized in the "Fund Summaries"
section. More information about fund risks is presented below.
25 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class Y Shares
<PAGE>
MARKET RISK
All stocks are subject to price movements due to changes in general economic
conditions changes in the level of prevailing interest rates, changes in
investor perceptions of the market, or the outlook for overall corporate
profitability.
SECTOR RISK
The stocks of companies within specific industries or sectors of the economy can
periodically perform differently than the overall stock market. This can be due
to changes in such things as the regulatory or competitive environment or to
changes in investor perceptions of a particular industry or sector.
COMPANY RISK
Individual stocks can perform differently than the overall market. This may be a
result of specific factors such as changes in corporate profitability due to the
success or failure of specific products or management strategies, or it may be
due to changes in investor perceptions regarding a company.
RISKS OF INTERNATIONAL INVESTING
International investing involves risks not typically associated with U.S.
investing. These risks include:
CURRENCY RISK. Because foreign securities often trade in currencies other than
the U.S. dollar, changes in currency exchange rates will affect a fund's net
asset value, the value of dividends and interest earned, and gains and losses
realized on the sale of securities. A strong U.S. dollar relative to these other
currencies will adversely affect the value of the fund.
POLITICAL AND ECONOMIC RISKS. International investing is subject to the risk of
political, social or economic instability in the country of the issuer of a
security, the difficulty of predicting international trade patterns, the
possibility of the imposition of exchange controls, expropriation, limits on
removal of currency or other assets and nationalization of assets.
FOREIGN TAX RISK. Each fund's income from foreign issuers may be subject to
non-U.S. withholding taxes. In some countries, the funds also may be subject to
taxes on trading profits and, on certain securities transactions, transfer or
stamp duties tax. To the extent foreign income taxes are paid by a fund, U.S.
shareholders may be entitled to a credit or deduction for U.S. tax purposes. See
the Statement of Additional Information for details.
RISK OF INVESTMENT RESTRICTIONS. Some countries, particularly emerging markets,
restrict to varying degrees foreign investment in their securities markets. In
some circumstances, these restrictions may limit or preclude investment in
certain countries or may increase the cost of investing in securities of
particular companies.
26 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class Y Shares
<PAGE>
FOREIGN SECURITIES MARKET RISK. Securities of many non-U.S. companies may be
less liquid and their prices more volatile than securities of comparable U.S.
companies. Securities of companies traded in many countries outside the U.S.,
particularly emerging markets countries, may be subject to further risks due to
the inexperience of local brokers and financial institutions, the possibility of
permanent or temporary termination of trading, and greater spreads between bid
and asked prices for securities. In addition, non-U.S. stock exchanges and
brokers are subject to less governmental regulation, and commissions may be
higher than in the United States. Also, there may be delays in the settlement of
non-U.S. stock exchange transactions.
INFORMATION RISK. Non-U.S. companies generally are not subject to uniform
accounting, auditing and financial reporting standards or to other regulatory
requirements that apply to U.S. companies. As a result, less information may be
available to investors concerning non-U.S. issuers. Accounting and financial
reporting standards in emerging markets may be especially lacking.
RISKS OF EMERGING MARKETS
Investing in securities of issuers in emerging markets involves exposure to
economic infrastructures that are generally less diverse and mature than, and to
political systems that can be expected to have less stability than, those of
developed countries. Other characteristics of emerging market countries that may
affect investment in their markets include certain governmental policies that
may restrict investment by foreigners and the absence of developed legal
structures governing private and foreign investments and private property. The
typical small size of the markets for securities issued by issuers located in
emerging markets and the possibility of low or nonexistent volume of trading in
those securities may also result in a lack of liquidity and in price volatility
of those securities. In addition, issuers in emerging markets typically are
subject to a greater degree of change in earnings and business prospects than
are companies in developed markets.
RISKS OF SMALLER CAPITALIZATION COMPANIES
The securities of smaller capitalization companies involve substantial risk.
Smaller capitalization companies may have limited product lines, markets or
financial resources, and they may be dependent on a limited management group.
Stocks of smaller capitalization companies may be subject to more abrupt or
erratic market movements than those of larger, more established companies or the
market averages in general.
RISKS OF ACTIVE MANAGEMENT
Emerging Markets Fund and International Fund are actively managed and their
performance therefore will reflect in part the sub-advisor's ability to make
investment decisions which are suited to achieving the funds' respective
investment objectives. Due to their active management, the funds could
underperform other mutual funds with similar investment objectives.
27 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class Y Shares
<PAGE>
RISKS OF SECURITIES LENDING
When a fund loans its portfolio securities, it will receive collateral equal to
at least 100% of the value of the loaned securities. Nevertheless, the fund
risks a delay in the recovery of the loaned securities, or even the loss of
rights in the collateral deposited by the borrower if the borrower should fail
financially. To reduce these risks, the funds enter into loan arrangements only
with institutions which the funds' advisor has determined are creditworthy under
guidelines established by the funds' board of directors.
EURO CONVERSION
On January 1, 1999, the European Union introduced a single currency, the Euro,
which was adopted as the common legal currency for participating member
countries. Existing sovereign currencies of the participating countries will
remain legal tender in those countries, as denominations of the Euro, until
January 1, 2002. Participating countries are Austria, Belgium, Finland, France,
Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain.
Whether the Euro conversion will materially affect the funds' performance is
uncertain. Each fund may be affected by the Euro's impact on the business or
financial condition of European issuers held by that fund. The ongoing process
of establishing the Euro may result in market volatility. In addition, the
transition to the Euro and the elimination of currency risk among participating
countries may change the economic environment and behavior of investors,
particularly in European markets. To the extent a fund holds non-U.S. dollar
(Euro or other) denominated securities, it will still be exposed to currency
risk due to fluctuations in those currencies versus the U.S. dollar.
28 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class Y Shares
<PAGE>
ADDITIONAL INFORMATION
FINANCIAL HIGHLIGHTS
The tables that follow present performance information about the Class Y shares
of each fund. This information is intended to help you understand each fund's
financial performance for the past five years or, if shorter, the period of the
fund's Class Y share operations. Some of this information reflects financial
results for a single fund share. Total returns in the tables represent the rate
that you would have earned or lost on an investment in a fund, assuming you
reinvested all of your dividends and distributions.
The information for the fiscal year ended September 30, 1999 has been audited by
Ernst & Young LLP, independent auditors, whose report, along with the funds'
financial statements, is included in the funds' annual report, which is
available upon request. The information for the fiscal years ended on or before
September 30, 1998, has been audited by KPMG LLP.
EMERGING MARKETS FUND
Period ended Period ended
September 30, September 30,
1999 1998(1)
- --------------------------------------------------------------------------------
PER SHARE DATA
Net Asset Value, Beginning of Period ________ $7.27
---------------------------------
Investment Operations:
Net Investment Income ________ 0.01
Net Gains (Losses) on Investments
(both realized and unrealized) ________ (1.66)
---------------------------------
Total From Investment Operations ________ (1.65)
---------------------------------
Less Distributions:
Dividends (from Net Investment Income) ________ --
Distributions (from capital gains) ________ --
---------------------------------
Total Distributions --
Net Asset Value, End of Period ________ $5.62
=================================
Total Return ________ (22.70)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) ________ $7,444
Ratio of Expenses to Average Net Assets ________ 1.46%(2)
Ratio of Net Income to Average Net Assets ________ 0.83%(2)
Ratio of Expenses to Average Net Assets
(excluding waivers) ________ 3.30%(2)
Ratio of Net Loss to Average Net Assets
(excluding waivers) ________ (1.01)%(2)
Portfolio Turnover Rate ________ 48%
- --------------------------------------------------------------------------------
(1)Class Y shares have been offered since August 7, 1998.
(2)Annualized.
29 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class Y Shares
<PAGE>
INTERNATIONAL FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period ________ $13.23 $10.31 $10.30 $10.22
------------------------------------------------------------
Investment Operations:
Net Investment Income (Loss) ________ 0.07 0.03 (0.01) 0.01
Net Gains (Losses) on Investments
(both realized and unrealized) ________ 0.01 3.06 0.22 0.07
------------------------------------------------------------
Total From Investment Operations ________ 0.08 3.09 0.21 0.08
------------------------------------------------------------
Less Distributions:
Dividends (from Net Investment Income) ________ (0.51)(1) (0.17)(1) (0.20)(1) --
Distributions (from capital gains) ________ (0.25) -- -- --
------------------------------------------------------------
Total Distributions ________ (0.76) (0.17) (0.20) --
------------------------------------------------------------
Net Asset Value, End of Period ________ $12.55 $13.23 $10.31 $10.30
============================================================
Total Return ________ 1.15% 30.38% 2.11% 0.78%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) ________ $357,475 $ 217,414 $ 135,238 $ 94,400
Ratio of Expenses to Average Net Assets ________ 1.44% 1.67% 1.72% 1.74%
Ratio of Net Income (Loss) to Average Net Assets ________ 0.42% 0.06% (0.06)% 0.12%
Ratio of Expenses to Average Net Assets (excluding waivers) ________ 1.56% 1.67% 1.72% 1.81%
Ratio of Net Income (Loss) to Average Net Assets (excluding waivers) ________ 0.30% 0.06% (0.06)% 0.05%
Portfolio Turnover Rate ________ 102% 96% 100% 57%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Includes a distribution or partial distribution in excess of net investment
income due to the tax treatment of foreign currency related transactions.
30 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class Y Shares
<PAGE>
INTERNATIONAL INDEX FUND(1)
<TABLE>
<CAPTION>
Fiscal Year Ended Ten months ended Four months ended
September 30, September 30, November 30, Fiscal year ended July 31,
- ----------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1997 1996 1995(2)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period ________ $10.99 $12.37 $10.69 $10.48 $10.00
-----------------------------------------------------------------------------------------
Investment Operations:
Net Investment Income ________ 0.14 0.06 0.13 0.09 0.01
Net Gains (Losses) on Investments
(both realized and unrealized) ________ (0.20) (1.41) 1.70 0.18 0.47
-----------------------------------------------------------------------------------------
Total From Investment Operations ________ (0.06) (1.35) 1.83 0.27 0.48
-----------------------------------------------------------------------------------------
Less Distributions:
Dividends (from Net Investment Income) ________ (0.22) (0.03) (0.12) (0.06) --
Distributions (from capital gains) ________ -- -- (0.02) -- --
Tax Return of Capital ________ -- -- (0.01) -- --
Total Distributions ________ (0.22) (0.03) (0.15) (0.06) --
-----------------------------------------------------------------------------------------
Net Asset Value, End of Period ________ $10.71 $10.99 $12.37 $10.69 $10.48
=========================================================================================
Total Return (0.73)% (10.93)% 17.24% 2.56% 4.80%
RATIOS/SUPPLEMENTAL DATA ________
Net Assets, End of Period (000) ________ $105,151 $155,976 $210,538 $142,478 $60,073
Ratio of Expenses to Average Net Assets ________ 0.74%(3) 0.66%(3) 0.73% 0.81% 1.18%(3)
Ratio of Net Income to Average Net Assets ________ 1.42%(3) 1.23%(3) 1.15% 1.18% 1.32%(3)
Ratio of Expenses to Average Net Assets
(excluding waivers) ________ 0.97%(3) 0.95%(3) 1.03% 1.10% 1.39%(3)
Ratio of Net Income to Average Net Assets
(excluding waivers) ________ 1.19%(3) 0.94%(3) 0.85% 0.89% 1.11%(3)
Portfolio Turnover Rate 0% 0% 3% 6% 0%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)The financial highlights for International Index Fund include the historical
financial highlights of the Qualivest International Opportunities Fund. The
assets of the Qualivest International Opportunities Fund were acquired by
International Index Fund on November 21, 1997. In connection with such
acquisition, Class Y shares of the Qualivest International Opportunities Fund
were exchanged for Class Y shares of International Index Fund.
(2)Class Y shares have been offered since July 3, 1995.
(3)Annualized.
31 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class Y Shares
<PAGE>
FOR MORE INFORMATION
More information about the funds is
available in the funds' Statement of
Additional Information and annual and semiannual reports.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI provides more details about the funds and their policies. A current SAI
is on file with the Securities and Exchange Commission (SEC) and is incorporated
into this prospectus by reference (which means that it is legally considered
part of this prospectus).
ANNUAL AND SEMIANNUAL REPORTS
Additional information about the funds' investments is available in the funds'
annual and semiannual reports to shareholders. In the funds' annual report, you
will find a discussion of the market conditions and investment strategies that
significantly affected the funds' performance during their last fiscal year.
You can obtain a free copy of the funds' SAI and/or free copies of the funds'
most recent annual or semiannual reports by calling Investor Services at
1-800-637-2548. The material you request will be sent by first-class mail or
other means designed to ensure equally prompt delivery, within three business
days of receipt of the request.
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, DC, or by sending your request and a duplicating fee to the SEC's
Public Reference Section, Washington, DC 20549-6009. For more information, call
1-800-SEC-0330.
Information about the funds is also available on the Internet. Text-only
versions of fund documents can be viewed online or down- loaded from the SEC's
Internet site at http://www.sec.gov.
SEC file number: 811-05309
FAIF - 4200 (2/2000)Y
32 PROSPECTUS - FIRST AMERICAN INTERNATIONAL FUNDS
Class Y Shares
<PAGE>
February 1, 2000
SECTOR FUNDS
CLASS A, CLASS B AND CLASS C SHARES
Health Sciences Fund
Real Estate Securities Fund
Technology Fund
First American
Investment Funds, Inc.
PROSPECTUS
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the shares of these funds, or determined if the
information in this prospectus is accurate or complete. Any statement to the
contrary is a criminal offense.
FIRST AMERICAN(R)
THE POWER OF DISCIPLINED INVESTING(R)
1 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class A, Class B and Class C Shares
<PAGE>
TABLE OF
CONTENTS
FUND SUMMARIES
- --------------------------------------------------------------------------------
Health Sciences Fund
- --------------------------------------------------------------------------------
Real Estate Securities Fund
- --------------------------------------------------------------------------------
Technology Fund
- --------------------------------------------------------------------------------
POLICIES & SERVICES
- --------------------------------------------------------------------------------
Buying Shares
- --------------------------------------------------------------------------------
Selling Shares
- --------------------------------------------------------------------------------
Managing Your Investment
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
Management
- --------------------------------------------------------------------------------
More About The Funds
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
2 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class A, Class B and Class C Shares
<PAGE>
FUND SUMMARIES
INTRODUCTION
This section of the prospectus describes the objectives of the First American
Sector Funds, summarizes the main investment strategies used by each fund in
trying to achieve its objectives, and highlights the risks involved with these
strategies. It also provides you with information about the performance, fees
and expenses of the funds.
AN INVESTMENT IN THE FUNDS IS NOT A DEPOSIT OF U.S. BANK NATIONAL ASSOCIATION
AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR
ANY OTHER GOVERNMENT AGENCY.
3 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class A, Class B and Class C Shares
<PAGE>
FUND SUMMARIES
HEALTH SCIENCES FUND
OBJECTIVE
Health Sciences Fund has an objective of long-term growth of capital.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Health Sciences Fund invests primarily (at least
65% of its total assets) in common stocks of companies which develop, produce or
distribute products or services connected with health care or medicine, and
which derive at least 50% of their assets, revenues or profits from these
products or services at the time of investment.
Examples of products or services connected with health care or medicine include:
o pharmaceuticals;
o health care services and administration;
o diagnostics;
o medical equipment and supplies;
o medical technology; and
o medical research and development.
The fund's advisor will invest in companies that it believes 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.
The fund's investments may include development stage companies (companies that
do not have significant revenues) and small- and mid-capitalization companies.
The fund may also invest in real estate investment trusts (REITs) that finance
medical care facilities. REITs are publicly traded corporations or trusts that
acquire, hold and manage real estate.
Up to 25% of the fund's total assets may be invested in securities of foreign
issuers which are either listed on a United States stock exchange or represented
by American Depositary Receipts.
To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.
4 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class A, Class B and Class C Shares
<PAGE>
MAIN RISKS
The value of your investment in this fund will change daily, which means you
could lose money. The main risks of investing in this fund include:
RISKS OF COMMON STOCKS
Stocks may decline significantly in price over short or extended periods of
time. Price changes may affect the market as a whole, or they may affect only a
particular company, industry or sector of the market.
RISKS OF THE HEALTH SCIENCES SECTOR
Because the fund invests primarily in stocks related to health care or medicine,
it is particularly susceptible to risks associated with the health sciences
industries. Many products and services in the health sciences industries may
become rapidly obsolete due to technological and scientific advances. In
addition, governmental regulation may have a material effect on the demand for
products and services in these industries.
RISKS OF NON-DIVERSIFICATION
The fund is non-diversified. This means that it may invest a larger portion of
its assets in a limited number of companies than a diversified fund. Because a
relatively high percentage of the fund's assets may be invested in the
securities of a limited number of issuers, and because those issuers 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 a diversified fund.
RISKS OF DEVELOPMENT STAGE, SMALL AND MID CAP STOCKS
Stocks of development stage and small capitalization companies involve
substantial risk. These stocks historically have experienced greater price
volatility than stocks of more established and larger capitalization companies,
and they may be expected to do so in the future. While stocks of mid cap
companies may be slightly less volatile than those of small cap companies, they
still involve substantial risk and their prices may be subject to more abrupt or
erratic movements than those of larger, more established companies or the market
averages in general.
RISKS OF REITs
REITs will be affected by changes in the values of and incomes from the
properties they own or the credit quality of the mortgages they hold. REITs are
dependent on specialized management skills which may affect their ability to
generate cash flow for operating purposes and to make distributions to
shareholders or unitholders.
FOREIGN SECURITY RISK
Securities of foreign issuers, even when dollar-denominated and publicly traded
in the United States, may involve risks not associated with the securities of
domestic issuers, including the risks of adverse currency fluctuations and of
political or social instability or diplomatic developments that could adversely
affect the securities.
5 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class A, Class B and Class C Shares
<PAGE>
RISKS OF SECURITIES LENDING
The fund is subject to the risk that the other party to a securities lending
agreement will default on its obligations.
FUND PERFORMANCE
Illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart shows you how performance of the fund's Class A shares has varied
from year to year. The performance of Class B and Class C shares will be lower
due to their higher expenses. Sales charges are not reflected in the chart; if
they had been, returns would be lower.
The table compares the fund's performance for Class A and Class B shares over
different time periods to that of the fund's benchmark index, which is a broad
measure of market performance. However, because Class C shares were not offered
prior to the date of this prospectus, no performance information is presented
for these shares. The fund's performance reflects sales charges and fund
expenses; the benchmark is unmanaged and has no expenses.
Both the chart and the table assume that all distributions have been reinvested.
6 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class A, Class B and Class C Shares
<PAGE>
FUND SUMMARIES
HEALTH SCIENCES FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR
16.14% -6.94%
- --------------------- ------------------- ------------------
1997 1998 1999
BEST QUARTER:
Quarter ending: 12/31/98
Total return 17.93%
WORST QUARTER:
Quarter ending: 9/30/98
Total Return -22.34%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Inception Since Since
AS OF 12/31/99 Date One Year Inception (Class A) Inception (Class B)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Health Sciences Fund (Class A) 1/31/96 ______% ______% NA
- --------------------------------------------------------------------------------------------------
Health Sciences Fund (Class B) 1/31/96 ______% NA ______%
- --------------------------------------------------------------------------------------------------
S & P Health Care Composite Index(1) ______% ______% ______%
- --------------------------------------------------------------------------------------------------
Russell 2000 Index(2) ______% ______% ______%
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) An unmanaged index comprised of health care stocks in the S & P 500 (an
unmanaged index of large capitalization stocks). Previously, the fund used the
Russell 2000 Index as a benchmark. Going forward, the fund will use the S & P
Health Care Composite Index as a comparison, as it is better suited to the
fund's investment strategies. The since inception performance of the index is
calculated from 1/31/96.
(2) An unmanaged index comprised of the smallest 2000 companies in the Russell
3000 Index. The latter index is composed of 3000 large U.S. companies
representing approximately 98% of the investable U.S. equity market. The since
inception performance of the index is calculated from 1/31/96.
7 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class A, Class B and Class C Shares
<PAGE>
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
SHAREHOLDER FEES Class A Class B Class C
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MAXIMUM SALES CHARGE (LOAD)
AS A % OF OFFERING PRICE 5.25%(2) 0.00% 1.00%
MAXIMUM DEFERRED SALES CHARGE (LOAD)
AS A % OF ORIGINAL PURCHASE PRICE OR REDEMPTION
PROCEEDS, WHICHEVER IS LESS 0.00%(3) 5.00% 1.00%
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
Management Fees 0.70% 0.70% 0.70%
Distribution and Service (12b-1) Fees 0.25% 1.00% 1.00%
Other Expenses ____% ____% ____%
TOTAL ____% ____% ____%
- -------------------------------------------------------------------------------------------------
</TABLE>
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. See "Additional Information --
Financial Highlights." The net expenses the fund actually paid after waivers for
the fiscal year ended September 30, 1999 were:
Waiver of Fund Expenses (____%) (____%) (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____% ____% ____%
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 1.15%, 1.90% AND 1.90%, RESPECTIVELY, FOR
CLASS A, CLASS B AND CLASS C SHARES. FEE WAIVERS MAY BE DISCONTINUED AT ANY
TIME.
(2)Certain investors may qualify for reduced sales charges. See "Buying Shares
- -- Calculating Your Share Price."
(3)Class A share investments of $1 million or more on which no front-end sales
charge is paid may be subject to a contingent deferred sales charge. See "Buying
Shares -- Calculating Your Share Price."
8 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class A, Class B and Class C Shares
<PAGE>
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
CLASS B CLASS B CLASS C CLASS C
assuming assuming no assuming assuming no
redemption redemption redemption redemption
at end of at end of at end of at end of
CLASS A each period each period each period each period
- --------------------------------------------------------------------------------
1 year $ 641 $ 698 $ 198 $_______ $_______
3 years $ 886 $1,012 $ 612 _______ _______
5 years $1,150 $1,252 $1,052 _______ _______
10 years $1,903 $2,080 $2,080 _______ _______
9 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class A, Class B and Class C Shares
<PAGE>
FUND SUMMARIES
REAL ESTATE SECURITIES FUND
OBJECTIVE
Real Estate Securities Fund's objective is to provide above average current
income and long-term capital appreciation.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Real Estate Securities Fund invests primarily
(at least 65% of its total assets) in income producing common stocks of publicly
traded companies engaged in the real estate industry. These companies derive at
least 50% of their revenues or profits from the ownership, construction,
management, financing or sale of real estate, or have at least 50% of the fair
market value of their assets invested in real estate. The advisor will select
companies that it believes exhibit strong management teams, a strong competitive
position, above average growth in revenues and a sound balance sheet.
A majority of the fund's total assets will be invested in real estate investment
trusts (REITs). REITs are publicly traded corporations or trusts that acquire,
hold and manage residential or commercial real estate. REITs generally can be
divided into the following three types:
o equity REITs, which invest the majority of their assets directly in real
property and derive their income primarily from rents and capital gains or
real estate appreciation;
o mortgage REITs, which invest the majority of their assets in real estate
mortgage loans and derive their income primarily from interest payments;
and
o hybrid REITs, which combine the characteristics of equity REITs and
mortgage REITs.
The fund expects to emphasize investments in equity REITs, although it may
invest in all three kinds of REITs.
To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.
10 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class A, Class B and Class C Shares
<PAGE>
MAIN RISKS
The value of your investment in this fund will change daily, which means you
could lose money. The main risks of investing in this fund include:
RISKS OF COMMON STOCKS
Stocks may decline significantly in price over short or extended periods of
time. Price changes may occur in the market as a whole, or they may occur in
only a particular company, industry or sector of the market.
RISKS OF THE REAL ESTATE INDUSTRY
Because the fund invests primarily in the real estate industry, it is
particularly susceptible 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.
RISK OF REITs
There are 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. REITs are dependent on specialized management skills which may
affect their ability to generate cash flow for operating purposes and to make
distributions to shareholders or unitholders.
RISKS OF NON-DIVERSIFICATION
The fund is non-diversified. This means that it may invest a larger portion of
its assets in a limited number of companies than a diversified fund. Because a
relatively high percentage of the fund's assets may be invested in the
securities of a limited number of issuers, and because those issuers generally
will be in the real estate industry, the fund's portfolio securities may be more
susceptible to any single economic or regulatory occurrence than the portfolio
securities of a diversified fund.
RISKS OF SECURITIES LENDING
The fund is subject to the risk that the other party to a securities lending
agreement will default on its obligations.
FUND PERFORMANCE
Illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart shows you how performance of the fund's Class A shares has varied
from year to year. The performance of Class B and Class C shares will be lower
due to their higher expenses. Sales charges are not reflected in the chart; if
they had been, returns would be lower.
The table compares the fund's performance for Class A and Class B shares over
different time periods to that of the fund's benchmark index, which is a broad
measure of market performance. However, because Class C shares were not offered
prior to the date of this prospectus, no performance information is presented
for these shares. The fund's performance reflects sales charges and fund
expenses; the benchmark is unmanaged and has no expenses.
Both the chart and the table assume that all distributions have been reinvested.
11 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class A, Class B and Class C Shares
<PAGE>
FUND SUMMARIES
REAL ESTATE SECURITIES FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR
30.63% 19.21% -16.16%
- --------------------- ------------------- ------------------ ------------------
1996 1997 1998 1999
BEST QUARTER:
Quarter ending: 12/31/96
Total return 16.59%
WORST QUARTER:
Quarter ending: 9/30/98
Total Return -9.78%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Inception Since Since
AS OF 12/31/99 Date One Year Inception (Class A) Inception (Class B)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Real Estate Securities Fund (Class A) 9/29/95 ______% ______% NA
- ----------------------------------------------------------------------------------------------------
Real Estate Securities Fund (Class B) 9/29/95 ______% NA ______%
- ----------------------------------------------------------------------------------------------------
Morgan Stanley REIT Index(1) ______% ______% ______%
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1)An unmanaged index of the most actively traded real estate investment trusts.
The since inception performance of the index is calculated from 9/30/95.
12 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class A, Class B and Class C Shares
<PAGE>
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES Class A Class B Class C
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MAXIMUM SALES CHARGE (LOAD)
AS A % OF OFFERING PRICE 5.25%(2) 0.00% 1.00%
MAXIMUM DEFERRED SALES CHARGE (LOAD)
AS A % OF ORIGINAL PURCHASE PRICE OR REDEMPTION
PROCEEDS, WHICHEVER IS LESS 0.00%(3) 5.00% 1.00%
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- -------------------------------------------------------------------------------------------------------
Management Fees 0.70% 0.70% 0.70%
Distribution and Service (12b-1) Fees 0.25% 1.00% 1.00%
Other Expenses ____% ____% ____%
TOTAL ____% ____% ____%
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. See "Additional Information --
Financial Highlights." The net expenses the fund actually paid after waivers for
the fiscal year ended September 30, 1999 were:
Waiver of Fund Expenses (____%) (____%) (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____% ____% ____%
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 1.05%, 1.80% AND 1.80%, RESPECTIVELY, FOR
CLASS A, CLASS B AND CLASS C SHARES. FEE WAIVERS MAY BE DISCONTINUED AT ANY
TIME.
(2)Certain investors may qualify for reduced sales charges. See "Buying Shares
- -- Calculating Your Share Price."
(3)Class A share investments of $1 million or more on which no front-end sales
charge is paid may be subject to a contingent deferred sales charge. See "Buying
Shares -- Calculating Your Share Price."
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
CLASS B CLASS B CLASS C CLASS C
assuming assuming no assuming assuming no
redemption redemption redemption redemption
at end of at end of at end of at end of
CLASS A each period each period each period each period
- ----------------------------------------------------------------------------
1 year $ 639 $ 696 $ 196 $_______ $_______
3 years $ 880 $1,006 $ 606 _______ _______
5 years $1,140 $1,242 $1,042 _______ _______
10 years $1,882 $2,059 $2,059 _______ _______
13 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class A, Class B and Class C Shares
<PAGE>
FUND SUMMARIES
TECHNOLOGY FUND
OBJECTIVE
Technology Fund has an objective of long-term growth of capital.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Technology Fund invests primarily (at least 65%
of its total assets) in common stocks of companies which the fund's advisor
believes either have, or will develop, products, processes or services that will
provide or will benefit significantly from technological innovations, advances
and improvements. These may include:
o inexpensive computing power, such as personal computers;
o improved methods of communications, such as satellite transmission; and
o technology related services such as internet related marketing services.
The prime emphasis of the fund is to identify companies which the advisor
believes are positioned to benefit from technological advances in areas such as
semiconductors, computers, software, communications, and online services.
Companies in which the fund invests may include development stage companies
(companies that do not have significant revenues) and small capitalization
companies. The advisor will generally select companies that it believes exhibit
strong management teams, a strong competitive position, above average growth in
revenues and a sound balance sheet.
Under certain market conditions, the fund may frequently invest in companies at
the time of their initial public offering (IPO). By virtue of its size and
institutional nature, the advisor may have greater access than individual
investors have to IPOs, including access to so-called "hot issues" which are
generally traded in the aftermarket at prices in excess of the IPO price. IPOs
will frequently be sold within 12 months of purchase which may result in
increased short-term capital gains.
Up to 25% of the fund's total assets may be invested in securities of foreign
issuers which are either listed on a United States stock exchange or represented
by American Depositary Receipts.
To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.
14 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class A, Class B and Class C Shares
<PAGE>
MAIN RISKS
The value of your investment in this fund will change daily, which means you
could lose money. The main risks of investing in this fund include:
RISKS OF COMMON STOCKS
Stocks may decline significantly in price over short or extended periods of
time. Price changes may affect the market as a whole, or they may affect only a
particular company, industry or sector of the market.
RISKS OF NON-DIVERSIFICATION
The fund is non-diversified. This means that it may invest a larger portion of
its assets in a limited number of companies than a diversified fund. Because a
relatively high percentage of the fund's assets may be invested in the
securities of a limited number of issuers, and because those issuers 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 a diversified fund.
RISKS OF THE TECHNOLOGY SECTOR
Because the fund invests primarily in technology related stocks, it is
particularly susceptible to risks associated with the technology industry.
Competitive pressures may have a significant effect on the financial condition
of companies in that industry.
RISKS OF DEVELOPMENT STAGE AND SMALL CAP STOCKS
Stocks of development stage and small capitalization companies involve
substantial risk. These stocks historically have experienced greater price
volatility than stocks of more established and larger capitalization companies,
and they may be expected to do so in the future.
RISKS OF IPOs
Companies involved in IPOs generally have limited operating histories and
prospects for future profitability are uncertain. Prices of IPOs may also be
unstable due to the absence of a prior public market, the small number of shares
available for trading and limited investor information. IPOs will frequently be
sold within 12 months of purchase. This may result in increased short-term
capital gains, which will be taxable to shareholders as ordinary income.
FOREIGN SECURITY RISK
Securities of foreign issuers, even when dollar-denominated and publicly traded
in the United States, may involve risks not associated with the securities of
domestic issuers, including the risks of adverse currency fluctuations and of
political or social instability or diplomatic developments that could adversely
affect the securities.
15 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class A, Class B and Class C Shares
<PAGE>
RISKS OF SECURITIES LENDING
The fund is subject to the risk that the other party to a securities lending
agreement will default on its obligations.
FUND PERFORMANCE
Illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart shows you how performance of the fund's Class A shares has varied
from year to year. The performance of Class B and Class C shares will be lower
due to their higher expenses. Sales charges are not reflected in the chart; if
they had been, returns would be lower.
The table compares the fund's performance for Class A and Class B shares over
different time periods to that of the fund's benchmark index, which is a broad
measure of market performance. However, because Class C shares were not offered
prior to the date of this prospectus, no performance information is presented
for these shares. The fund's performance reflects sales charges and fund
expenses; the benchmark is unmanaged and has no expenses.
Both the chart and the table assume that all distributions have been reinvested.
16 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class A, Class B and Class C Shares
<PAGE>
FUND SUMMARIES
TECHNOLOGY FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR
40.93% 22.12% 6.91% 32.47%
- ---------- ---------- --------- ---------- --------
1995 1996 1997 1998 1999
BEST QUARTER:
Quarter ending: 12/31/98
Total return 41.56%
WORST QUARTER:
Quarter ending: 9/30/98
Total Return -18.20%
<TABLE>
<CAPTION>
Since Since
AVERAGE ANNUAL TOTAL RETURNS Inception Inception Inception
AS OF 12/31/99 Date One Year Five Years (Class A) (Class B)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Technology Fund (Class A) 4/4/94 _____% _____% _____% N/A
- -------------------------------------------------------------------------------------------------
Technology Fund (Class B) 8/15/94 _____% _____% N/A _____%
- -------------------------------------------------------------------------------------------------
S & P Technology Composite Index(1) _____% _____% _____% _____%
- -------------------------------------------------------------------------------------------------
Russell 2000 Index(2) _____% _____% _____% _____%
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) An unmanaged index comprised of technology stocks in the S & P 500 (an
unmanaged index of large capitalization stocks). Previously, the fund used the
Russell 2000 Index as a benchmark. Going forward, the fund will use the S & P
Technology Composite Index as a comparison, as it is better suited to the fund's
investment strategies. The since inception performance of the indexes for Class
A and Class B shares is calculated from 4/30/94 and 8/31/94, respectively.
(2)An unmanaged index comprised of the smallest 2000 companies in the Russell
3000 Index. The latter index is composed of 3000 large U.S. companies
representing approximately 98% of the investable U.S. equity market. The since
inception performance of the indexes for Class A and Class B shares is
calculated from 4/30/94 and 8/31/94, respectively.
17 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class A, Class B and Class C Shares
<PAGE>
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
SHAREHOLDER FEES Class A Class B Class C
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MAXIMUM SALES CHARGE (LOAD)
AS A % OF OFFERING PRICE 5.25%(2) 0.00% 1.00%
MAXIMUM DEFERRED SALES CHARGE (LOAD)
AS A % OF ORIGINAL PURCHASE PRICE OR REDEMPTION
PROCEEDS, WHICHEVER IS LESS 0.00%(3) 5.00% 1.00%
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------------
Management Fees 0.70% 0.70% 0.70%
Distribution and Service (12b-1) Fees 0.25% 1.00% 1.00%
Other Expenses ____% ____% ____%
TOTAL ____% ____% ____%
- --------------------------------------------------------------------------------------------
</TABLE>
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. See "Additional Information --
Financial Highlights." The net expenses the fund actually paid after waivers for
the fiscal year ended September 30, 1999 were:
Waiver of Fund Expenses (____%) (____%) (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____% ____% ____%
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 1.15%, 1.90% AND 1.90%, RESPECTIVELY, FOR
CLASS A, CLASS B AND CLASS C SHARES. FEE WAIVERS MAY BE DISCONTINUED AT ANY
TIME.
(2)Certain investors may qualify for reduced sales charges. See "Buying Shares
- -- Calculating Your Share Price."
(3)Class A share investments of $1 million or more on which no front-end sales
charge is paid may be subject to a contingent deferred sales charge. See "Buying
Shares -- Calculating Your Share Price."
18 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class A, Class B and Class C Shares
<PAGE>
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
CLASS B CLASS B CLASS C CLASS C
assuming assuming assuming assuming
redemption no redemption redemption no redemption
at end of at end of at end of at end of
CLASS A each period each period each period each period
- -------------------------------------------------------------------------------
1 year $ 636 $ 693 $ 193 $_______ $_______
3 years $ 871 $ 997 $ 597 _______ _______
5 years $1,125 $1,226 $1,026 _______ _______
10 years $1,849 $2,027 $2,027 _______ _______
19 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class A, Class B and Class C Shares
<PAGE>
POLICIES & SERVICES
BUYING SHARES
You may become a shareholder in any of the funds with an initial investment of
$1,000 or more ($250 for a retirement plan or a Uniform Gifts to Minors
Act/Uniform Transfers to Minors Act (UGMA/UTMA) account). Additional investments
can be made for as little as $100 ($25 for a retirement plan or an UGMA/UTMA
account). The funds have the right to waive these minimum investment
requirements for employees of the funds' advisor and its affiliates. The funds
also have the right to reject any purchase order.
CHOOSING A SHARE CLASS
All funds in this prospectus offer Class A, Class B and Class C shares. Each
class has its own cost structure. The amount of your purchase and the length of
time you expect to hold your shares will be factors in determining which class
of shares is best for you.
CLASS A SHARES
If you are making an investment that qualifies for a reduced sales charge, Class
A shares may be best for you. Class A shares feature:
o a front-end sales charge, described below.
o lower annual expenses than Class B shares. See "Fund Summaries" for more
information on fees and expenses.
Because Class A shares will normally be the better choice if your investment
qualifies for a reduced sales charge:
o orders for Class B shares for $250,000 or more normally will be treated as
orders for Class A shares.
o orders for Class C shares for $1 million or more normally will be treated
as orders for Class A shares.
o orders for Class B or Class C shares by an investor eligible to purchase
Class A shares without a front-end sales charge normally will be treated
as orders for Class A shares.
CLASS B SHARES
If you want all your money to go to work for you immediately, you may prefer
Class B shares. Class B shares have no front-end sales charge. However they do
have:
o higher annual expenses than Class A shares. (See "Fees and Expenses" in
the "Fund Summaries" section.)
o a back-end sales charge, called a "contingent deferred sales charge," if
you redeem your shares within six years of purchase.
o automatic conversion to Class A shares approximately eight years after
purchase, thereby reducing future annual expenses.
20 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class A, Class B and Class C Shares
<PAGE>
CLASS C SHARES
These shares combine some of the characteristics of Class A and Class B shares.
Class C shares have a low front-end sales charge of 1%, so more of your
investment goes to work immediately than if you had purchased Class A shares.
However, Class C shares also feature:
o a 1% contingent deferred sales charge if you redeem your shares within 18
months of purchase.
o higher annual expenses than Class A shares. (See "Fees and Expenses" in
the "Fund Summaries" section.)
o no conversion to Class A shares.
Because Class C shares do not convert to Class A shares, they will continue to
have higher annual expenses than Class A shares for as long as you hold them.
12b-1 FEES
Each fund has adopted a plan under rule 12b-1 of the Investment Company Act that
allows it to pay the fund's distributor an annual fee for the distribution and
sale of its shares and for services provided to shareholders.
For 12b-1 fees are equal to:
- --------------------------------------------------------------------------------
Class A shares 0.25% of average daily net assets
Class B shares 1% of average daily net assets
Class C shares 1% of average daily net assets
Because these fees are paid out of a fund's assets on an ongoing basis, over
time these fees will increase the cost of your investment and may cost you more
than paying other types of sales charges.
The Class A share 12b-1 fee is a shareholder servicing fee. For Class B and
Class C shares, a portion of the 12b-1 fee equal to 0.25% of average daily net
assets is a shareholder servicing fee and the rest is a distribution fee.
The funds' distributor uses the shareholder servicing fee to compensate brokers,
participating institutions and "one-stop" mutual fund networks for providing
ongoing services to shareholder accounts. These institutions receive annual fees
equal to 0.25% of a fund's Class A, Class B and Class C share average daily net
assets attributable to shares sold through them. For Class B shares, and for net
asset value sales of Class A shares on which the institution receives a
commission, the institution does not begin to receive its annual fee until one
year after the shares are sold. The funds' distributor also pays institutions
that sell Class C shares a 0.75% annual distribution fee beginning one year
after the shares are sold. The distributor may pay additional fees to
institutions, using the sales charges it receives, in exchange for sales and/or
administrative services performed on behalf of the institution's customers.
21 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class A, Class B and Class C Shares
<PAGE>
CALCULATING YOUR SHARE PRICE
Your purchase price will be based on the fund's net asset value (NAV) per share,
which is generally calculated as of the close of regular trading on the New York
Stock Exchange (usually 3 p.m. Central time) every day the exchange is open.
A fund's NAV is equal to the market value of its investments and other assets,
less any liabilities, divided by the number of fund shares. If market prices are
not readily available for an investment or if the advisor believes they are
unreliable, fair value prices may be determined in good faith using methods
approved by the funds' board of directors.
CLASS A SHARES
Your purchase price is typically the net asset value of your shares, plus a
front-end sales charge. Sales charges vary depending on the amount of your
purchase. The funds' distributor receives the sales charge you pay and reallows
a portion of the sales charge to your broker or participating institution.
Maximum
Sales Charge Reallowance
as a % of as a % of as a % of
Purchase Net Amount Purchase
Price Invested Price
- ---------------------------------------------------------------
Less than $ 50,000 5.25% 5.54% 5.00%
$ 50,000 - $ 99,999 4.25% 4.44% 4.00%
$100,000 - $249,999 3.25% 3.36% 3.00%
$250,000 - $499,999 2.25% 2.30% 2.00%
$500,000 - $999,999 1.75% 1.78% 1.50%
$1 million and over 0% 0% 0%
22 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class A, Class B and Class C Shares
<PAGE>
REDUCING YOUR SALES CHARGE
As shown in the preceding tables, larger purchases of Class A shares reduce the
percentage sales charge you pay. You also may reduce your sales charge in the
following ways:
PRIOR PURCHASES. Prior purchases of Class A shares of any First American fund
(except a money market fund) will be factored into your sales charge
calculation. For example, let's say you're making a $10,000 investment. If the
current value of all other First American fund Class A shares that you hold is
$40,000 or more, your current sales charge is reduced. To receive a reduced
sales charge, you must notify the funds' transfer agent of your prior purchases.
This must be done at the time of purchase, either directly to the transfer agent
in writing or by notifying your broker or financial institution.
PURCHASES BY RELATED ACCOUNTS. Concurrent and prior purchases by certain other
accounts also will be combined with your purchase to determine your sales
charge. For example, purchases made by your spouse or children under age 21 will
reduce your sales charge. To receive a reduced sales charge, you must notify the
funds' transfer agent of purchases by any related accounts. This must be done at
the time of purchase, either directly to the transfer agent in writing or by
notifying your broker or financial institution.
LETTER OF INTENT. If you plan to invest $50,000 or more over a 13-month period
in Class A shares of any First American fund except the money market funds, you
may reduce your sales charge by signing a non-binding letter of intent. (If you
do not fulfill the letter of intent, you must pay the applicable sales charge.
In addition, if you reduce your sales charge to zero under a letter of intent
and then sell your Class A shares within 18 months of their purchase, you may be
charged a contingent deferred sales charge of 1%. See "For Investments of Over
$1 Million.")
More information on these ways to reduce your sales charge appears in the
Statement of Additional Information (SAI). The SAI also contains information on
investors who are eligible to purchase Class A shares without a sales charge.
CLASS B SHARES
Your purchase price for Class B shares is their net asset value -- there is no
front-end sales charge. However, if you redeem your shares within six years of
purchase, you will pay a back-end sales charge, called a contingent deferred
sales charge (CDSC). Although you pay no front-end sales charge when you buy
Class B shares, the funds' distributor pays a sales commission of 4.5% of the
amount invested to brokers and financial institutions which sell Class B shares.
The funds' distributor receives any CDSC imposed when you sell your Class B
shares.
Your CDSC will be based on the value of your shares at the time of purchase or
at the time of sale, whichever is less. The charge does not apply to shares you
acquired by reinvesting your dividend or capital gain distributions. Shares will
be sold in the order that minimizes your CDSC.
23 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class A, Class B and Class C Shares
<PAGE>
FOR INVESTMENTS OF OVER $1 MILLION
There is no initial sales charge on Class A share purchases of $1 million or
more. However, your broker or financial institution may receive a commission of
up to 1% on your purchase. If such a commission is paid, you will be assessed a
contingent deferred sales charge (CDSC) of 1% if you sell your shares within 18
months. To find out whether you will be assessed a CDSC, ask your broker or
financial institution. The funds' distributor receives any CDSC imposed when you
sell your Class A shares. The CDSC is based on the value of your shares at the
time of purchase or at the time of sale, whichever is less. The charge does not
apply to shares you acquired by reinvesting your dividend or capital gain
distributions. To help lower your costs, shares that are not subject to a CDSC
will be sold first. Other shares will then be sold in an order that minimizes
your CDSC. The CDSC for Class A shares will be waived for:
o redemptions following the death or disability (as defined in the Internal
Revenue Code) of a shareholder, and
o redemptions that equal the minimum required distribution from an
individual retirement account or other retirement plan to a shareholder
who has reached the age of 70 1/2.
CDSC as a % of the
Year since purchase value of your shares
- -----------------------------------------------------------------
First 5%
Second 5%
Third 4%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh 0%
Eighth 0%
Your Class B shares will automatically convert to Class A shares eight years
after the first day of the month you purchased the shares. For example, if you
purchase Class B shares on June 15, 2000, they will convert to Class A shares on
June 1, 2008.
The CDSC will be waived for:
o redemptions following the death or disability (as defined in the Internal
Revenue Code) of a shareholder.
o redemptions that equal the minimum required distribution from an
individual retirement account or other retirement plan to a shareholder
who has reached the age of 70 1/2.
o redemptions through a systematic withdrawal plan, at a rate of up to 12% a
year of your account's value. During the first year, the 12% annual limit
will be based on the value of your account on the date the plan is
established. Thereafter, it will be based on the value of your account on
the preceding December 31.
24 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class A, Class B and Class C Shares
<PAGE>
CLASS C SHARES
Your purchase price for Class C shares is their net asset value plus a front-end
sales charge equal to 1% of the purchase price (1.01% of the net amount
invested). If you redeem your shares within 18 months of purchase, you will be
assessed a contingent deferred sales charge (CDSC) of 1% of the value of your
shares at the time of purchase or at the time of sale, whichever is less. The
CDSC does not apply to shares you acquired by reinvesting your dividend or
capital gain distributions. Shares will be sold in the order that minimizes your
CDSC.
Even though your sales charge is only 1%, the funds' distributor pays a
commission equal to 2% of your purchase price to your broker or participating
institution. The distributor receives any CDSC imposed when you sell your Class
C shares.
The CDSC for Class C shares will be waived in the same circumstances as the
Class B share CDSC. See "Class B Shares" above.
Unlike Class B shares, Class C shares do not convert to Class A shares after a
specified period of time. Therefore, your shares will continue to have higher
annual expenses than Class A shares.
HOW TO BUY SHARES
You may buy shares on any day the New York Stock Exchange is open. However
purchases of shares may be restricted in the event of an early or unscheduled
close of the New York Stock Exchange. Your shares will be priced at the next NAV
calculated after your order is accepted by the fund, plus any applicable sales
charge. To make sure that your order is accepted, follow the directions for
purchasing shares given below.
BY PHONE
You may purchase shares by calling your broker or financial institution, if they
have a sales agreement with the funds' distributor. In many cases, your order
will be effective that day if received by your broker or financial institution
by the close of regular trading on the New York Stock Exchange. In some cases,
however, you will have to transmit your request by an earlier time in order for
your purchase request to be effective that day. This allows your broker or
financial institution time to process your request and transmit it to the fund.
Some financial institutions may charge a fee for helping you purchase shares.
Contact your broker or financial institution for more information.
25 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class A, Class B and Class C Shares
<PAGE>
If you are paying by wire, you may purchase shares by calling 1-800-637-2548
before 3 p.m. Central time. All information will be taken over the telephone,
and your order will be placed when the funds' custodian receives payment by
wire. Wire federal funds as follows:
U.S. Bank National Association, Minneapolis, MN
ABA Number 091000022
For Credit to: DST Systems, Inc.:
Account Number 160234580266
For Further Credit to (investor name and fund name)
You cannot purchase shares by wire on days when federally chartered banks are
closed.
BY MAIL
To purchase shares by mail, simply complete and sign a new account form, enclose
a check made payable to the fund you wish to invest in, and mail both to:
First American Funds
c/o DST Systems, Inc.
P.O. Box 219382
Kansas City, Missouri 64121-9382
After you have established an account, you may continue to purchase shares by
mailing your check to First American Funds at the same address.
Please note the following:
o All purchases must be made in U.S. dollars.
o THIRD-PARTY CHECKS, CREDIT CARDS, CREDIT CARD CHECKS AND CASH ARE NOT
ACCEPTED.
o If a check does not clear your bank, the funds reserve the right to cancel
the purchase, and you could be liable for any losses or fees incurred.
INVESTING AUTOMATICALLY
To purchase shares as part of a savings discipline, you may add to your
investment on a regular basis:
o by having $100 or more ($25 for a retirement plan or an UGMA/UTMA account)
automatically withdrawn from your bank account on a periodic basis and
invested in fund shares.
o through automatic monthly exchanges of your shares of Prime Obligations
Fund, a money market fund in the First American family of funds. Exchanges
must be made into the same class of shares that you hold in Prime
Obligations Fund.
You may apply for participation in either of these programs through your broker
or financial institution or by calling 1-800-637-2548.
26 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class A, Class B and Class C Shares
<PAGE>
POLICIES & SERVICES
SELLING SHARES
HOW TO SELL SHARES
You may sell your shares on any day when the New York Stock Exchange is open.
However redemption of shares may be restricted in the event of an early or
unscheduled close of the New York Stock Exchange. Your shares will be sold at
the next NAV calculated after your order is accepted by the fund less any
applicable contingent deferred sales charge. To make sure that your order is
accepted, follow the directions for selling shares given below.
The proceeds from your sale normally will be mailed or wired within one day, but
in no event more than seven days, after your request is received in proper form.
BY PHONE
If you purchased shares through a broker or financial institution, simply call
them to sell your shares. In many cases, your redemption will be effective that
day if received by your broker or financial institution by the close of regular
trading on the New York Stock Exchange. In some cases, however, you will have to
call by an earlier time in order for your redemption to be effective that day.
This allows your broker or financial institution time to process your request
and transmit it to the fund. Contact your broker or financial institution
directly for more information.
If you did not purchase shares through a broker or financial institution, you
may sell your shares by calling 1-800-637-2548. Proceeds can be wired to your
bank account (if the proceeds are at least $1,000 and you have previously
supplied your bank account information to the transfer agent) or sent to you by
check.
If you recently purchased your shares by check or through the Automated Clearing
House (ACH), proceeds from the sale of those shares may not be available until
your check or ACH payment has cleared, which may take up to 10 calendar days
from the date of purchase.
BY MAIL
To sell shares by mail, send a written request to your broker or financial
institution, or to the funds' transfer agent at the following address:
First American Funds
c/o DST Systems, Inc.
P.O. Box 219382
Kansas City, Missouri 64121-9382
27 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class A, Class B and Class C Shares
<PAGE>
Your request should include the following information:
o name of the fund;
o account number;
o dollar amount or number of shares redeemed;
o name on the account; and
o signatures of all registered account owners.
Signatures on a written request must be guaranteed if:
o you would like the proceeds from the sale to be paid to anyone other than
to the shareholder of record.
o you would like the check mailed to an address other than the address on
the funds' records.
o your redemption request is for $50,000 or more.
A signature guarantee assures that a signature is genuine and protects
shareholders from unauthorized account transfers. Banks, savings and loan
associations, trust companies, credit unions, broker-dealers and member firms of
a national securities exchange may guarantee signatures. Call your financial
institution to determine if it has this capability.
Proceeds from a written redemption request will be sent to you by check.
SYSTEMATIC WITHDRAWALS
If your account has a value of $5,000 or more, you may redeem a specific dollar
amount from your account on a regular basis. To set up systematic withdrawals,
contact your broker or financial institution. You should not make systematic
withdrawals if you plan to continue investing in the fund, due to sales charges
and tax liabilities.
REINVESTING AFTER A SALE
If you sell Class A shares, you may reinvest in Class A shares of that fund or
another First American fund within 180 days without a sales charge. To reinvest
in Class A shares at net asset value (without paying a sales charge), you must
notify the transfer agent directly in writing or notify your broker or financial
institution.
ACCOUNTS WITH LOW BALANCES
Except for retirement plans and UGMA/UTMA accounts, if your account balance
falls below $500 as a result of selling or exchanging shares, you may receive
written notice and be given 30 days to re-establish the minimum balance. If you
do not, the fund may close your account and send you the proceeds, less any
applicable contingent deferred sales charge, or deduct a $25 annual fee in
December of each year if your account balance at that time is below $500.
28 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class A, Class B and Class C Shares
<PAGE>
POLICIES & SERVICES
MANAGING YOUR INVESTMENT
EXCHANGING SHARES
If your investment goals or your financial needs change, you may move from one
First American fund to another. There is no fee to exchange shares.
Generally, you may exchange your shares only for shares of the same class.
However, you may exchange your Class A shares for Class Y shares of the same or
another First American fund if you subsequently become eligible to participate
in that class (for example, by opening a fiduciary, custody or agency account
with a financial institution which invests in Class Y shares.
Exchanges are made based on the net asset value per share of each fund at the
time of the exchange. When you exchange your Class A shares of one of the funds
for Class A shares of another First American fund, you do not have to pay a
sales charge. When you exchange your Class B or Class C shares for Class B or
Class C shares of another First American fund, the time you held the shares of
the "old" fund will be added to the time you hold the shares of the "new" fund
for purposes of determining your CDSC or, in the case of Class B shares,
calculating when your shares convert to Class A shares.
Before exchanging into any fund, be sure to read its prospectus carefully. A
fund may change or cancel its exchange policies at any time. You will be
notified of any changes. The funds have the right to limit exchanges to four
times per year.
BY PHONE
You may exchange shares by calling your broker, your financial institution, or
the funds' transfer agent, provided that both funds have identical shareholder
registrations. To request an exchange through the funds' transfer agent, call
1-800-637-2548. Your instructions must be received by the funds' transfer agent
before 3 p.m. Central time, or by the time specified by your broker or financial
institution, in order for shares to be exchanged the same day.
BY MAIL
To exchange shares by written request, please follow the procedures under
"Selling Shares." Be sure to include the names of both funds involved in the
exchange.
29 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class A, Class B and Class C Shares
<PAGE>
TELEPHONE TRANSACTIONS
You may buy, sell or exchange shares by telephone, unless you elected on your
new account form to restrict this privilege. If you wish to reinstate this
option on an existing account, please call Investor Services at 1-800-637-2548
to request the appropriate form.
The funds and their agents will not be responsible for any losses that may
result from acting on wire or telephone instructions that they reasonably
believe to be genuine. The funds and their agents will each follow reasonable
procedures to confirm that instructions received by telephone are genuine, which
may include taping telephone conversations.
It may be difficult to reach the funds by telephone during periods of unusual
market activity. If you are unable to reach the funds or their agents by
telephone, please consider sending written instructions.
STAYING INFORMED
SHAREHOLDER REPORTS
Shareholder reports are mailed twice a year, in November and May. They include
financial statements, performance information, a message from your portfolio
managers, and, on an annual basis, the auditors' report.
In an attempt to reduce shareholder costs and help eliminate duplication, the
funds will try to limit their mailings to one report for each address that lists
one or more shareholders with the same last name. If you would like additional
copies, please call 1-800-637-2548.
STATEMENTS AND CONFIRMATIONS
Statements summarizing activity in your account are mailed at least quarterly.
Confirmations are mailed following each purchase or sale of fund shares.
DIVIDENDS AND DISTRIBUTIONS
Dividends from a fund's net investment income are declared and paid quarterly.
Any capital gains are distributed at least once each year.
On the ex-dividend date for a distribution, a fund's share price is reduced by
the amount of the distribution. If you buy shares just before the ex-dividend
date, in effect, you "buy the dividend." You will pay the full price for the
shares and then receive a portion of that price back as a taxable distribution.
Dividend and capital gain distributions will be reinvested in additional shares
of the fund paying the distribution, unless you request that distributions be
reinvested in another First American fund or paid in cash. This request may be
made on your new account form or by writing to the fund. If you request that
your distributions be paid in cash but those distributions cannot be delivered
because of an incorrect mailing address, the undelivered distributions and all
future distributions will be reinvested in fund shares.
30 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class A, Class B and Class C Shares
<PAGE>
TAXES
Some of the tax consequences of investing in the funds are discussed below. More
information about taxes is in the Statement of Additional Information. However,
because everyone's tax situation is unique, always consult your tax professional
about federal, state and local tax consequences.
TAXES ON DISTRIBUTIONS
Each fund pays its shareholders dividends from its net investment income and any
net capital gains that it has realized. For most investors, fund dividends and
distributions are considered taxable whether they are reinvested or taken in
cash (unless your investment is in an IRA or other tax-advantaged account).
Dividends from a fund's net investment income and short-term capital gains are
taxable as ordinary income. Distributions of a fund's long-term capital gains
are taxable as long-term capital gains, regardless of how long you have held
your shares. The funds expect that, as a result of their investment objectives
and strategies, their distributions will consist primarily of ordinary income in
the case of Real Estate Securities Fund and capital gains in the case of Health
Sciences Fund and Technology Fund. A portion of the distributions paid by Real
Estate Securities Fund may be a return of capital.
TAXES ON TRANSACTIONS
The sale of fund shares, or the exchange of one fund's shares for shares of
another fund, will be a taxable event and may result in a capital gain or loss.
The gain or loss will be considered long-term if you have held your shares for
more than one year. A gain or loss on shares held for one year or less is
considered short-term and is taxed at the same rates as ordinary income.
The exchange of one class of shares for another class of shares in the same fund
will not be taxable.
31 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class A, Class B and Class C Shares
<PAGE>
ADDITIONAL INFORMATION
MANAGEMENT
INVESTMENT ADVISOR
First American Asset Management
601 Second Avenue South
Minneapolis, Minnesota 55402
U.S. Bank National Association (U.S. Bank), acting through its First American
Asset Management division, is the funds' investment advisor. First American
Asset Management provides investment management services to individuals and
institutions, including corporations, foundations, pensions and retirement
plans. As of December 31, 1999, it had more than $ ___ billion in assets under
management, including investment company assets of approximately $___ billion.
As investment advisor, First American Asset Management manages the funds'
business and investment activities, subject to the authority of the board of
directors. Each fund pays the investment advisor a monthly fee for providing
investment advisory services. During their most recent fiscal years, after
taking into account any fee waivers, the funds paid the following investment
advisory fees to First American Asset Management:
Advisory fee
as a % of
average daily
net assets
- -------------------------------------------------------------------
Health Sciences Fund % ________
Real Estate Securities Fund % ________
Technology Fund % ________
- -------------------------------------------------------------------
32 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class A, Class B and Class C Shares
<PAGE>
CUSTODIAN
U.S. Bank National Association
U.S. Bank Center
180 East Fifth Street
St. Paul, Minnesota 55101
ADMINISTRATOR
U.S Bank National Association
U.S. Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402
DISTRIBUTOR
SEI Investments Distribution Co.
Oaks, Pennsylvania 19456
ADDITIONAL COMPENSATION
U.S. Bank and other affiliates of U.S. Bancorp may act as fiduciary with respect
to plans subject to the Employee Retirement Income Security Act of 1974 (ERISA)
and other trust and agency accounts that invest in the funds. As described
above, U.S. Bank receives compensation for acting as the funds' investment
advisor. U.S. Bank and its affiliates also receive compensation in connection
with the following:
CUSTODY SERVICES. U.S. Bank provides or compensates others to provide custody
services to the funds. U.S. Bank is paid monthly fees equal, on an annual basis,
to 0.03% of a fund's average daily net assets. In addition, U.S. Bank is
reimbursed for its out-of-pocket expenses incurred while providing custody
services to the funds.
ADMINISTRATION SERVICES. U.S. Bank provides or compensates others to provide
administrative services to the funds including general administrative and
accounting services, transfer agency and dividend disbursing services, and
shareholder services. The funds pay U.S. Bank monthly fees equal, on an annual
basis, to 0.12% of the aggregate average daily net assets of all open-end mutual
funds in the First American fund family up to $8 billion and 0.105% of the
aggregate average daily net assets of all open-end mutual funds in the First
American fund family in excess of $8 billion. Additionally, the funds pay U.S.
Bank fees based upon the number of funds and accounts maintained.
SECURITIES LENDING SERVICES. In connection with lending their portfolio
securities, the funds pay administrative and custodial fees to U.S. Bank which
are equal to 40% of the funds' income from these securities lending
transactions.
BROKERAGE TRANSACTIONS When purchasing and selling portfolio securities for the
funds, the funds' investment advisor may place trades through its affiliates,
U.S. Bancorp Investments, Inc. and U.S. Bancorp Piper Jaffray Inc., which will
earn commissions on such transactions.
SALES OF FUND SHARES U.S. Bancorp Investments, Inc. and U.S. Bancorp Piper
Jaffray Inc., broker-dealers affiliated with U.S. Bank, have entered into
agreements with the funds' distributor to sell fund shares and will earn annual
shareholder servicing fees in connection with these sales.
PORTFOLIO MANAGEMENT
Each fund's investments are managed by a team of persons associated with First
American Asset Management.
33 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class A, Class B and Class C Shares
<PAGE>
ADDITIONAL INFORMATION
MORE ABOUT THE FUNDS
OBJECTIVES
The funds' objectives may be changed without shareholder approval. If a fund's
objectives change, you will be notified at least 30 days in advance. Please
remember: There is no guarantee that any fund will achieve its objectives.
INVESTMENT STRATEGIES
The funds' main investment strategies are the strategies that the funds'
investment advisor believes are most likely to be important in trying to achieve
the funds' objectives. You should be aware that each fund may also use
strategies and invest in securities that are not described in this prospectus,
but that are described in the Statement of Additional Information (SAI). For a
copy of the SAI, call Investor Services at 1-800-637-2548.
TEMPORARY INVESTMENTS
In an attempt to respond to adverse market, economic, political or other
conditions, each fund may temporarily invest without limit in cash and in U.S.
dollar-denominated high-quality money market instruments and other short-term
securities. Being invested in these securities may keep a fund from
participating in a market upswing and prevent the fund from achieving its
investment objectives.
PORTFOLIO TURNOVER
Fund managers may trade securities frequently. As a result, the annual portfolio
turnover rate of Technology fund has well exceeded, and may continue to exceed,
100%, and the annual portfolio turnover rate of the other funds may, from time
to time, exceed 100%. Trading of securities may produce capital gains, which are
taxable to shareholders when distributed. Active trading may also increase the
amount of commissions or mark-ups to broker-dealers that the fund pays when it
buys and sells securities. The "Financial Highlights" section of this prospectus
shows each fund's historical portfolio turnover rate.
RISKS
The main risks of investing in the funds are summarized in the "Fund Summaries"
section. More information about fund risks is presented below.
MARKET RISK
All stocks are subject to price movements due to changes in general economic
conditions, changes in the level of prevailing interest rates, changes in
investor perceptions of the market, or the outlook for overall corporate
profitability.
34 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class A, Class B and Class C Shares
<PAGE>
COMPANY RISK
Individual stocks can perform differently than the overall market. This may be a
result of specific factors such as changes in corporate profitability due to the
success or failure of specific products or management strategies, or it may be
due to changes in investor perceptions regarding a company.
SECTOR RISK
The stocks of companies within specific industries or sectors of the economy can
periodically perform differently than the overall stock market. This can be due
to changes in such things as the regulatory or competitive environment or to
changes in investor perceptions of a particular industry or sector.
Each fund is subject to the particular risks of the sector in which it
principally invests.
RISKS OF THE HEALTH SCIENCES SECTOR. Health Sciences Fund invests primarily in
equity securities of companies which develop, produce or distribute products or
services connected with health care or medicine. 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.
RISKS OF THE REAL ESTATE SECTOR. Real Estate Securities Fund invests primarily
in equity securities of publicly traded companies in the real estate 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 them, and
companies which service the real estate industry.
RISKS OF THE TECHNOLOGY SECTOR. Technology Fund invests primarily in equity
securities of companies which the fund's advisor believes have, or will develop,
products, processes or services that will provide or benefit significantly from
technological advances and improvements. 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 continues to expand, these
companies could become increasingly sensitive to short product cycles and
aggressive pricing.
35 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class A, Class B and Class C Shares
<PAGE>
RISKS OF DEVELOPMENT STAGE AND SMALL CAP STOCKS
Health Sciences Fund and Technology Fund may have significant investments in
development stage and small capitalization companies. Stocks of development
stage and small capitalization companies involve substantial risk. These
companies may lack the management expertise, financial resources, product
diversification and competitive strengths of larger companies. Their stock
prices may be subject to more abrupt or erratic movements than stock prices of
larger, more established companies or the market averages in general. In
addition, the frequency and volume of their trading may be less than is typical
of larger companies, making them subject to wider price fluctuations. In some
cases, there could be difficulties in selling the stocks of development stage
and small capitalization companies at the desired time and price.
RISKS OF MID CAP STOCKS
While stocks of mid cap companies may be slightly less volatile than those of
small cap companies, they still involve substantial risk. Mid cap companies may
have limited product lines, markets or financial resources, and they may be
dependent on a limited management group. Stocks of mid cap companies may be
subject to more abrupt or erratic market movements than those of larger, more
established companies or the market averages in general.
RISKS OF IPOs
Most IPOs involve a high degree of risk not normally associated with offerings
of more seasoned companies. Companies involved in IPOs generally have limited
operating histories, and their prospects for future profitability are uncertain.
These companies often are engaged in new and evolving businesses and are
particularly vulnerable to competition and to changes in technology, markets and
economic conditions. They may be dependent on certain key managers and third
parties, need more personnel and other resources to manage growth and require
significant additional capital. They may also be dependent on limited product
lines and uncertain property rights and need regulatory approvals. Investors in
IPOs can be affected by substantial dilution in the value of their shares, by
sales of additional shares and by concentration of control in existing
management and principal shareholders. Stock prices of IPOs can also be highly
unstable, due to the absence of a prior public market, the small number of
shares available for trading and limited investor information.
RISKS OF REITs
Real Estate Securities Fund invests a majority of its assets in REITs and Health
Sciences Fund also may invest 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. REITs are
subject to other risks as well, including the fact that REITs are dependent on
specialized management skills which may affect 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 the risks
associated with obtaining financing for real property.
36 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class A, Class B and Class C Shares
<PAGE>
A REIT can pass its income through to shareholders or unitholders without any
tax at the entity level if it complies with various requirements under the
Internal Revenue Code. There is the risk that a REIT held by the fund will fail
to qualify for this tax-free pass-through treatment of its income.
By investing in REITS indirectly through a fund, in addition to bearing a
proportionate share of the expenses of the fund, you will also indirectly bear
similar expenses of some of the REITs in which the fund invests.
FOREIGN SECURITY RISK
Up to 25% of each fund's total assets may be invested in securities of foreign
issuers which are either listed on a United States stock exchange or represented
by American Depositary Receipts. Securities of foreign issuers, even when
dollar-denominated and publicly traded in the United States, may involve risks
not associated with the securities of domestic issuers. For certain foreign
countries, political or social instability or diplomatic developments could
adversely affect the securities. There is also the risk of loss due to
governmental actions such as a change in tax statutes or the modification of
individual property rights. In addition, individual foreign economies may differ
favorably or unfavorably from the U.S. economy.
RISKS OF ACTIVE MANAGEMENT
Each fund is actively managed and its performance therefore will reflect in part
the advisor's ability to make investment decisions which are suited to achieving
the fund's investment objectives. Due to their active management, the funds
could underperform other mutual funds with similar investment objectives.
RISKS OF SECURITIES LENDING
When a fund loans its portfolio securities, it will receive collateral equal to
at least 100% of the value of the loaned securities. Nevertheless, the fund
risks a delay in the recovery of the loaned securities, or even the loss of
rights in the collateral deposited by the borrower if the borrower should fail
financially. To reduce these risks, the funds enter into loan arrangements only
with institutions which the funds' advisor has determined are creditworthy under
guidelines established by the funds' board of directors.
37 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class A, Class B and Class C Shares
<PAGE>
ADDITIONAL INFORMATION
FINANCIAL HIGHLIGHTS
The tables that follow present performance information about the Class A and
Class B shares of each fund. There were no Class C shares outstanding during the
periods for which information is presented. This information is intended to help
you understand each fund's financial performance for the past five years or, if
shorter, the period of the fund's operations. Some of this information reflects
financial results for a single fund share. Total returns in the tables represent
the rate that you would have earned or lost on an investment in a fund,
excluding sales charges and assuming you reinvested all of your dividends and
distributions.
The information for the fiscal year ended September 30, 1999 has been audited by
Ernst & Young LLP, independent auditors, whose report, along with the funds'
financial statements, is included in the funds' annual report, which is
available upon request. The information for the fiscal years ended on or before
September 30, 1998, has been audited by KPMG LLP.
HEALTH SCIENCES FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
- ---------------------------------------------------------------------------------------------------
CLASS A SHARES 1999 1998 1997 1996(1)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period ______ $12.05 $9.86 $10.00
-----------------------------------------------
Investment Operations:
Net Investment Income (Loss) ______ 0.01 (0.01) 0.01
Net Gains (Losses) on Investments
(both realized and unrealized) ______ (2.78) 2.30 (0.14)
-----------------------------------------------
Total From Investment Operations ______ (2.77) 2.29 (0.13)
-----------------------------------------------
Less Distributions:
Dividends (from Net Investment Income) ______ -- -- (0.01)
Distributions (from capital gains) ______ (1.46) (3) (0.10) --
-----------------------------------------------
Total Distributions ______ (1.46) (0.10) (0.01)
-----------------------------------------------
Net Asset Value, End of Period ______ $7.82 $ 12.05 $9.86
===============================================
Total Return ______ (25.24)% 23.60% (1.32)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) ______ $2,017 $ 849 $ 629
Ratio of Expenses to Average Net Assets ______ 1.15% 1.15% 1.15%(2)
Ratio of Net Income (Loss) to Average Net Assets ______ 0.04% (0.20)% 0.18%(2)
Ratio of Expenses to Average Net Assets
(excluding waivers) ______ 1.20% 1.29% 2.12%(2)
Ratio of Net Loss to Average Net Assets
(excluding waivers) ______ (0.01)% (0.34)% (0.79)%(2)
Portfolio Turnover Rate ______ 45% 54% 19%
- ---------------------------------------------------------------------------------------------------
</TABLE>
38 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class A, Class B and Class C Shares
<PAGE>
<TABLE>
<CAPTION>
Fiscal year ended September 30,
- ---------------------------------------------------------------------------------------
CLASS B SHARES 1999 1998 1997 1996(1)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period ______ $11.90 $9.81 $10.00
----------------------------------------------
Investment Operations:
Net Investment Loss ______ (0.02) (0.01) (0.02)
Net Gains (Losses) on Investments
(both realized and unrealized) ______ (2.77) 2.20 (0.16)
----------------------------------------------
Total From Investment Operations ______ (2.79) 2.19 (0.18)
----------------------------------------------
Less Distributions:
Dividends (from Net Investment Income) ______ -- -- (0.01)
Distributions (from capital gains) ______ (1.46) (3) (0.10) --
----------------------------------------------
Total Distributions ______ (1.46) (0.10) (0.01)
----------------------------------------------
Net Asset Value, End of Period ______ $7.65 $11.90 $9.81
==============================================
Total Return ______ (25.80)% 22.69% (1.86)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) ______ $645 $ 516 $ 281
Ratio of Expenses to Average Net Assets ______ 1.90% 1.90% 1.90%(2)
Ratio of Net Loss to Average Net Assets ______ (0.73)% (0.94)% (0.61)%(2)
Ratio of Expenses to Average Net Assets
(excluding waivers) ______ 1.95% 2.04% 2.87%(2)
Ratio of Net Loss to Average Net Assets
(excluding waivers) ______ (0.78)% (1.08)% (1.58)%(2)
Portfolio Turnover Rate ______ 45% 54% 19%
- ---------------------------------------------------------------------------------------
</TABLE>
(1)Class A and Class B shares have been offered since January 31, 1996.
(2)Annualized.
(3)Includes distributions in excess of net investment income.
39 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class A, Class B and Class C Shares
<PAGE>
REAL ESTATE SECURITIES FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
- -----------------------------------------------------------------------------------------------------------------------
CLASS A SHARES 1999 1998 1997 1996 1995(1)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period ______ $14.97 $11.52 $10.38 $10.37
-------------------------------------------------
Investment Operations:
Net Investment Income ______ 0.63 0.72 0.52 --
Net Gains (Losses) on Investments
(both realized and unrealized) _______ (2.40) 3.42 1.30 0.01
--------
------------------------------------------
Total From Investment Operations ______ (1.77) 4.14 1.82 0.01
-------------------------------------------------
Less Distributions:
Dividends (from Net Investment Income) ______ (0.70) (0.65) (0.51) --
Distributions (from capital gains) ______ (0.33) (0.03) -- --
Tax Return of Capital ______ -- (0.01) (0.17) --
-------------------------------------------------
Total Distributions ______ (1.03) (0.69) (0.68) --
-------------------------------------------------
Net Asset Value, End of Period ______ $12.17 $14.97 $11.52 $10.38
=================================================
Total Return (12.42)% 36.77% 18.17% 0.00%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) ______ $2,027 $ 2,105 $ 226 $ 1
Ratio of Expenses to Average Net Assets ______ 1.05% 1.05% 1.05% 1.05%(2)
Ratio of Net Income to Average Net Assets ______ 4.71% 4.46% 4.36% 0.00%(2)
Ratio of Expenses to Average Net Assets
(excluding waivers) ______ 1.18% 1.30% 1.76% 2.59%(2)
Ratio of Net Income (Loss) to Average Net Assets (excluding waivers) ______ 4.58% 4.21% 3.65% (1.54)%(2)
Portfolio Turnover Rate ______ 36% 14% 8% 0%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
40 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class A, Class B and Class C Shares
<PAGE>
<TABLE>
<CAPTION>
Fiscal year ended September 30,
- --------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES 1999 1998 1997 1996 1995(1)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period ______ $14.86 $11.46 $10.37 $10.37
----------------------------------------------------
Investment Operations:
Net Investment Income ______ 0.52 0.63 0.44 --
Net Gains (Losses) on Investments
(both realized and unrealized) ______ (2.37) 3.38 1.27 --
----------------------------------------------------
Total From Investment Operations ______ (1.85) 4.01 1.71 --
----------------------------------------------------
Less Distributions:
Dividends (from Net Investment Income) ______ (0.60) (0.57) (0.45) --
Distributions (from capital gains) ______ (0.33) (0.03) -- --
Tax Return of Capital ______ -- (0.01) (0.17) --
----------------------------------------------------
Total Distributions ______ (0.93) (0.61) (0.62) --
----------------------------------------------------
Net Asset Value, End of Period ______ $12.08 $14.86 $11.46 $10.37
====================================================
Total Return (13.04)% 35.77% 17.00% 0.00%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) ______ $3,026 $ 3,318 $ 263 $ 1
Ratio of Expenses to Average Net Assets ______ 1.80% 1.80% 1.80% 1.80%(2)
Ratio of Net Income to Average Net Assets ______ 3.98% 3.61% 4.29% 0.00%(2)
Ratio of Expenses to Average Net Assets
(excluding waivers) ______ 1.93% 2.00% 2.51% 3.34%(2)
Ratio of Net Income (Loss) to Average Net Assets (excluding waivers) ______ 3.85% 3.41% 3.58% (1.54)%(2)
Portfolio Turnover Rate ______ 36% 14% 8% 0%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Class A and Class B shares have been offered since September 29, 1995.
(2)Annualized.
41 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class A, Class B and Class C Shares
<PAGE>
TECHNOLOGY FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
- ------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period ______ $20.20 $19.25 $18.24 $11.19
---------------------------------------------------
Investment Operations:
Net Investment Loss ______ (0.13) (0.11) (0.05) (0.03)
Net Gains (Losses) on Investments
(both realized and unrealized) ______ (3.26) 3.12 2.95 7.31
---------------------------------------------------
Total From Investment Operations ______ (3.39) 3.01 2.90 7.28
---------------------------------------------------
Less Distributions:
Dividends (from Net Investment Income) ______ -- -- -- --
Distributions (from capital gains) ______ (1.21) (2.06) (1.89) (0.23)
---------------------------------------------------
Total Distributions ______ (1.21) (2.06) (1.89) (0.23)
---------------------------------------------------
Net Asset Value, End of Period ______ $15.60 $20.20 $19.25 $18.24
===================================================
Total Return ______ (16.69)% 17.71% 18.60% 66.22%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) ______ $7,703 $ 5,564 $ 4,799 $ 1,464
Ratio of Expenses to Average Net Assets ______ 1.15% 1.15% 1.15% 1.13%
Ratio of Net Loss to Average Net Assets ______ (0.60)% (0.59)% (0.85)% (0.61)%
Ratio of Expenses to Average Net Assets (excluding waivers) ______ 1.15% 1.17% 1.26% 1.55%
Ratio of Net Loss to Average Net Assets (excluding waivers) ______ (0.60)% (0.61)% (0.96)% (1.03)%
Portfolio Turnover Rate ______ 124% 150% 119% 74%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
42 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class A, Class B and Class C Shares
<PAGE>
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS B SHARES 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period ______ $19.58 $18.85 $18.02 $11.17
-----------------------------------------------------
Investment Operations:
Net Investment Loss ______ (0.24) (0.20) (0.14) (0.04)
Net Gains (Losses) on Investments
(both realized and unrealized) ______ (3.14) 2.99 2.86 7.12
-----------------------------------------------------
Total From Investment Operations ______ (3.38) 2.79 2.72 7.08
-----------------------------------------------------
Less Distributions:
Dividends (from Net Investment Income) ______ -- -- -- --
Distributions (from capital gains) ______ (1.21) (2.06) (1.89) (0.23)
-----------------------------------------------------
Total Distributions ______ (1.21) (2.06) (1.89) (0.23)
-----------------------------------------------------
Net Asset Value, End of Period ______ $14.99 $19.58 $18.85 $18.02
=====================================================
Total Return ______ (17.21)% 16.82% 17.75% 64.52%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) ______ $7,499 $ 8,463 $ 4,881 $ 2,031
Ratio of Expenses to Average Net Assets ______ 1.90% 1.90% 1.90% 1.88%
Ratio of Net Loss to Average Net Assets ______ (1.38)% (1.41)% (1.60)% (1.41)%
Ratio of Expenses to Average Net Assets (excluding waivers) ______ 1.90% 1.92% 2.01% 2.30%
Ratio of Net Loss to Average Net Assets (excluding waivers) ______ (1.38)% (1.43)% (1.71)% (1.83)%
Portfolio Turnover Rate ______ 124% 150% 119% 74%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
43 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class A, Class B and Class C Shares
<PAGE>
FOR MORE INFORMATION
More information about the funds is available in the funds' Statement of
Additional Information and annual and semiannual reports.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI provides more details about the funds and their policies. A current SAI
is on file with the Securities and Exchange Commission (SEC) and is incorporated
into this prospectus by reference (which means that it is legally considered
part of this prospectus).
ANNUAL AND SEMIANNUAL REPORTS
Additional information about the funds' investments is available in the funds'
annual and semiannual reports to shareholders. In the funds' annual report, you
will find a discussion of the market conditions and investment strategies that
significantly affected the funds' performance during their last fiscal year.
You can obtain a free copy of the funds' SAI and/or free copies of the funds'
most recent annual or semiannual reports by calling Investor Services at
1-800-637-2548. The material you request will be sent by first-class mail or
other means designed to ensure equally prompt delivery, within three business
days of receipt of the request.
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, DC, or by sending your request and a duplicating fee to the SEC's
Public Reference Section, Washington, DC 20549-6009. For more information, call
1-800-SEC-0330.
Information about the funds is also available on the Internet. Text-only
versions of fund documents can be viewed online or down- loaded from the SEC's
Internet site at http://www.sec.gov.
SEC file number: 811-05309
FAIF - 5000 (2/2000)R
44 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class A, Class B and Class C Shares
<PAGE>
FEBRUARY 1, 2000
SECTOR FUNDS
CLASS Y SHARES
Health Sciences Fund
Real Estate Securities Fund
Technology Fund
First American
Investment Funds, Inc.
PROSPECTUS
As with all mutual funds, the Securities Exchange Commission has not approved or
disapproved the shares of these funds, or determined if the information in this
prospectus is accurate or complete. Any statement to the contrary is a criminal
offense.
FIRST AMERICAN(R)
THE POWER OF DISCIPLINED INVESTING(R)
1 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class Y Shares
<PAGE>
TABLE OF
CONTENTS
FUND SUMMARIES
- --------------------------------------------------------------------------------
Health Sciences Fund
- --------------------------------------------------------------------------------
Real Estate Securities Fund
- --------------------------------------------------------------------------------
Technology Fund
- --------------------------------------------------------------------------------
POLICIES & SERVICES
- --------------------------------------------------------------------------------
Buying and Selling Shares
- --------------------------------------------------------------------------------
Managing Your Investment
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
Management
- --------------------------------------------------------------------------------
More About The Funds
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
2 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
INTRODUCTION
This section of the prospectus describes the objectives of the First American
Sector Funds, summarizes the main investment strategies used by each fund in
trying to achieve its objectives, and highlights the risks involved with these
strategies. It also provides you with information about the performance, fees
and expenses of the funds.
AN INVESTMENT IN THE FUNDS IS NOT A DEPOSIT OF U.S. BANK NATIONAL ASSOCIATION
AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR
ANY OTHER GOVERNMENT AGENCY.
3 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
HEALTH SCIENCES FUND
OBJECTIVE
Health Sciences Fund has an objective of long-term growth of capital.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Health Sciences Fund invests primarily (at least
65% of its total assets) in common stocks of companies which develop, produce or
distribute products or services connected with health care or medicine, and
which derive at least 50% of their assets, revenues or profits from these
products or services at the time of investment.
Examples of products or services connected with health care or medicine include:
o pharmaceuticals;
o health care services and administration;
o diagnostics;
o medical equipment and supplies;
o medical technology; and
o medical research and development.
The fund's advisor will invest in companies that it believes 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.
The fund's investments may include development stage companies (companies that
do not have significant revenues) and small- and mid-capitalization companies.
The fund may also invest in real estate investment trusts (REITs) that finance
medical care facilities. REITs are publicly traded corporations or trusts that
acquire, hold and manage real estate.
Up to 25% of the fund's total assets may be invested in securities of foreign
issuers which are either listed on a United States stock exchange or represented
by American Depositary Receipts.
To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.
4 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class Y Shares
<PAGE>
MAIN RISKS
The value of your investment in this fund will change daily, which means you
could lose money. The main risks of investing in this fund include:
RISKS OF COMMON STOCKS
Stocks may decline significantly in price over short or extended periods of
time. Price changes may affect the market as a whole, or they may affect only a
particular company, industry or sector of the market.
RISKS OF THE HEALTH SCIENCES SECTOR
Because the fund invests primarily in stocks related to health care or medicine,
it is particularly susceptible to risks associated with the health sciences
industries. Many products and services in the health sciences industries may
become rapidly obsolete due to technological and scientific advances. In
addition, governmental regulation may have a material effect on the demand for
products and services in these industries.
RISKS OF NON-DIVERSIFICATION
The fund is non-diversified. This means that it may invest a larger portion of
its assets in a limited number of companies than a diversified fund. Because a
relatively high percentage of the fund's assets may be invested in the
securities of a limited number of issuers, and because those issuers 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 a diversified fund.
RISKS OF DEVELOPMENT STAGE, SMALL AND MID CAP STOCKS
Stocks of development stage and small capitalization companies involve
substantial risk. These stocks historically have experienced greater price
volatility than stocks of more established and larger capitalization companies,
and they may be expected to do so in the future. While stocks of mid cap
companies may be slightly less volatile than those of small cap companies, they
still involve substantial risk and their prices may be subject to more abrupt or
erratic movements than those of larger, more established companies or the market
averages in general.
RISKS OF REITS
5 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class Y Shares
<PAGE>
REITs will be affected by changes in the values of and incomes from the
properties they own or the credit quality of the mortgages they hold. REITs are
dependent on specialized management skills which may affect their ability to
generate cash flow for operating purposes and to make distributions to
shareholders or unitholders.
FOREIGN SECURITY RISK
Securities of foreign issuers, even when dollar-denominated and publicly traded
in the United States, may involve risks not associated with the securities of
domestic issuers, including the risks of adverse currency fluctuations and of
political or social instability or diplomatic developments that could adversely
affect the securities.
RISKS OF SECURITIES LENDING
The fund is subject to the risk that the other party to a securities lending
agreement will default on its obligations.
FUND PERFORMANCE
Illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart shows you how performance of the fund's shares has varied from
year to year.
The table compares the fund's performance over different time periods to that of
the fund's benchmark index, which is a broad measure of market performance. The
fund's performance reflects fund expenses; the benchmark is unmanaged and has no
expenses.
Both the chart and the table assume that all distributions have been reinvested.
6 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
HEALTH SCIENCES FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR
16.50% -6.87%
- ------------------------ --------------------- ----------------------
1997 1998 1999
BEST QUARTER:
Quarter ending: 12/31/98
Total return 17.99%
WORST QUARTER:
Quarter ending: 9/30/98
Total Return -22.38%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99 Date One Year Inception
- ----------------------------------------------- --------------------- ---------------------- --------------------
<S> <C> <C> <C>
Health Sciences Fund 1/31/96 _______% _______%
- ----------------------------------------------- --------------------- ---------------------- --------------------
S & P Health Care Composite Index(1) _______% _______%
- ----------------------------------------------- --------------------- ---------------------- --------------------
Russell 2000 Index(2) _______% _______%
- ----------------------------------------------- --------------------- ---------------------- --------------------
</TABLE>
(1) An unmanaged index comprised of health care stocks in the S & P 500 (an
unmanaged index of large capitalization stocks). Previously, the fund used the
Russell 2000 Index as a benchmark. Going forward, the fund will use the S & P
Health Care Composite Index as a comparison, as it is better suited to the
fund's investment strategies. The since inception performance of the index is
calculated from 1/31/96.
(2) An unmanaged index comprised of the smallest 2000 companies in the Russell
3000 Index. The latter index is composed of 3000 large U.S. companies
representing approximately 98% of the investable U.S. equity market. The since
inception performance of the index is calculated from 1/31/96.
7 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class Y Shares
<PAGE>
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
SHAREHOLDER FEES
- -------------------------------------------------------------------------------------------
<S> <C>
MAXIMUM SALES CHARGE (LOAD) None
MAXIMUM DEFERRED SALES CHARGE (LOAD) None
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- -------------------------------------------------------------------------------------------
Management Fees 0.70%
Distribution and Service (12b-1) Fees None
Other Expenses ____%
TOTAL ____%
- -------------------------------------------------------------------------------------------
</TABLE>
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. See "Additional Information --
Financial Highlights." The net expenses the fund actually paid after waivers for
the fiscal year ended September 30, 1999 were:
<TABLE>
<S> <C>
Waiver of Fund Expenses (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____%
</TABLE>
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 0.90%. FEE WAIVERS MAY BE DISCONTINUED AT
ANY TIME.
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
1 year $ 97
3 years $ 303
5 years $ 525
10 years $1,166
8 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
REAL ESTATE SECURITIES FUND
OBJECTIVE
Real Estate Securities Fund's objective is to provide above average current
income and long-term capital appreciation.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Real Estate Securities Fund invests primarily
(at least 65% of its total assets) in income producing common stocks of publicly
traded companies engaged in the real estate industry. These companies derive at
least 50% of their revenues or profits from the ownership, construction,
management, financing or sale of real estate, or have at least 50% of the fair
market value of their assets invested in real estate. The advisor will select
companies that it believes exhibit strong management teams, a strong competitive
position, above average growth in revenues and a sound balance sheet.
A majority of the fund's total assets will be invested in real estate investment
trusts (REITs). REITs are publicly traded corporations or trusts that acquire,
hold and manage residential or commercial real estate. REITs generally can be
divided into the following three types:
o equity REITs, which invest the majority of their assets directly in
real property and derive their income primarily from rents and capital
gains or real estate appreciation;
o mortgage REITs, which invest the majority of their assets in real
estate mortgage loans and derive their income primarily from interest
payments; and
o hybrid REITs, which combine the characteristics of equity REITs and
mortgage REITs.
The fund expects to emphasize investments in equity REITs, although it may
invest in all three kinds of REITs.
To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.
MAIN RISKS
The value of your investment in this fund will change daily, which means you
could lose money. The main risks of investing in this fund include:
9 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class Y Shares
<PAGE>
RISKS OF COMMON STOCKS
Stocks may decline significantly in price over short or extended periods of
time. Price changes may occur in the market as a whole, or they may occur in
only a particular company, industry or sector of the market.
RISKS OF THE REAL ESTATE INDUSTRY
Because the fund invests primarily in the real estate industry, it is
particularly susceptible 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.
RISK OF REITS
There are 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. REITs are dependent on specialized management skills which may
affect their ability to generate cash flow for operating purposes and to make
distributions to shareholders or unitholders.
RISKS OF NON-DIVERSIFICATION
The fund is non-diversified. This means that it may invest a larger portion of
its assets in a limited number of companies than a diversified fund. Because a
relatively high percentage of the fund's assets may be invested in the
securities of a limited number of issuers, and because those issuers generally
will be in the real estate industry, the fund's portfolio securities may be more
susceptible to any single economic or regulatory occurrence than the portfolio
securities of a diversified fund.
RISKS OF SECURITIES LENDING
The fund is subject to the risk that the other party to a securities lending
agreement will default on its obligations.
FUND PERFORMANCE
Illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart shows you how performance of the fund's shares has varied from
year to year.
The table compares the fund's performance over different time periods to that of
the fund's benchmark index, which is a broad measure of market performance. The
fund's performance reflects fund expenses; the benchmark is unmanaged and has no
expenses.
Both the chart and the table assume that all distributions have reinvested.
10 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
REAL ESTATE SECURITIES FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR
31.00% 19.60% -15.98%
- --------------------------------------------------------------------------------
1996 1997 1998 1999
BEST QUARTER:
Quarter ending: 12/31/96
Total return 16.61%
WORST QUARTER:
Quarter ending: 9/30/98
Total Return -9.71%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99 Date One Year Inception
- ------------------------------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C>
Real Estate Securities Fund 6/30/95 _______% _______%
- ------------------------------------------- -------------------- -------------------- --------------------
Morgan Stanley REIT Index(1) _______% _______%
- ------------------------------------------- -------------------- -------------------- --------------------
</TABLE>
(1)An unmanaged index of the most actively traded real estate investment trusts.
The since inception performance for the index is calculated from 6/30/95.
11 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class Y Shares
<PAGE>
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
SHAREHOLDER FEES
- ------------------------------------------------------------------------------------------------
<S> <C>
MAXIMUM SALES CHARGE (LOAD) None
MAXIMUM DEFERRED SALES CHARGE (LOAD) None
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- ------------------------------------------------------------------------------------------------
Management Fees 0.70%
Distribution and Service (12b-1) Fees None
Other Expenses ____%
TOTAL ____%
- ------------------------------------------------------------------------------------------------
</TABLE>
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. See "Additional Information --
Financial Highlights." The net expenses the fund actually paid after waivers for
the fiscal year ended September 30, 1999 were:
<TABLE>
<S> <C>
Waiver of Fund Expenses (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____%
</TABLE>
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 0.80%. FEE WAIVERS MAY BE DISCONTINUED AT
ANY TIME.
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
1 year $ 95
3 years $ 296
5 years $ 515
10 years $1,143
12 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
TECHNOLOGY FUND
OBJECTIVE
Technology Fund has an objective of long-term growth of capital.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Technology Fund invests primarily (at least 65%
of its total assets) in common stocks of companies which the fund's advisor
believes either have, or will develop, products, processes or services that will
provide or will benefit significantly from technological innovations, advances
and improvements. These may include:
o inexpensive computing power, such as personal computers;
o improved methods of communications, such as satellite transmission;
and
o technology related services such as internet related marketing
services.
The prime emphasis of the fund is to identify companies which the advisor
believes are positioned to benefit from technological advances in areas such as
semiconductors, computers, software, communications, and online services.
Companies in which the fund invests may include development stage companies
(companies that do not have significant revenues) and small capitalization
companies. The advisor will generally select companies that it believes exhibit
strong management teams, a strong competitive position, above average growth in
revenues and a sound balance sheet.
Under certain market conditions, the fund may frequently invest in companies at
the time of their initial public offering (IPO). By virtue of its size and
institutional nature, the advisor may have greater access than individual
investors have to IPOs, including access to so-called "hot issues" which are
generally traded in the aftermarket at prices in excess of the IPO price. IPOs
will frequently be sold within 12 months of purchase which may result in
increased short-term capital gains.
Up to 25% of the fund's total assets may be invested in securities of foreign
issuers which are either listed on a United States stock exchange or represented
by American Depositary Receipts.
To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.
13 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class Y Shares
<PAGE>
MAIN RISKS
The value of your investment in this fund will change daily, which means you
could lose money. The main risks of investing in this fund include:
RISKS OF COMMON STOCKS
Stocks may decline significantly in price over short or extended periods of
time. Price changes may affect the market as a whole, or they may affect only a
particular company, industry or sector of the market.
RISKS OF NON-DIVERSIFICATION
The fund is non-diversified. This means that it may invest a larger portion of
its assets in a limited number of companies than a diversified fund. Because a
relatively high percentage of the fund's assets may be invested in the
securities of a limited number of issuers, and because those issuers 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 a diversified fund.
RISKS OF THE TECHNOLOGY SECTOR
Because the fund invests primarily in technology related stocks, it is
particularly susceptible to risks associated with the technology industry.
Competitive pressures may have a significant effect on the financial condition
of companies in that industry.
RISKS OF DEVELOPMENT STAGE AND SMALL CAP STOCKS
Stocks of development stage and small capitalization companies involve
substantial risk. These stocks historically have experienced greater price
volatility than stocks of more established and larger capitalization companies,
and they may be expected to do so in the future.
RISKS OF IPOS
Companies involved in IPOs generally have limited operating histories and
prospects for future profitability are uncertain. Prices of IPOs may also be
unstable due to the absence of a prior public market, the small number of shares
available for trading and limited investor information. IPOs will frequently be
sold within 12 months of purchase. This may result in increased short-term
capital gains, which will be taxable to shareholders as ordinary income.
FOREIGN SECURITY RISK
Securities of foreign issuers, even when dollar-denominated and publicly traded
in the United States, may involve risks not associated with the securities of
domestic issuers, including the risks of adverse currency fluctuations and of
political or social instability or diplomatic developments that could adversely
affect the securities.
14 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class Y Shares
<PAGE>
RISKS OF SECURITIES LENDING
The fund is subject to the risk that the other party to a securities lending
agreement will default on its obligations.
FUND PERFORMANCE
Illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart shows you how performance of the fund's shares has varied from
year to year.
The table compares the fund's performance over different time periods to that of
the fund's benchmark index, which is a broad measure of market performance. The
fund's performance reflects fund expenses; the benchmark is unmanaged and has no
expenses.
Both the chart and the table assume that all distributions have reinvested.
15 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
TECHNOLOGY FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR
41.02% 22.43% 7.31% 32.70%
- ----------------- -------------- -------------- ---------------- ---------------
1995 1996 1997 1998 1999
BEST QUARTER:
Quarter ending: 12/31/98
Total return 41.73%
WORST QUARTER:
Quarter ending: 9/30/98
Total Return -18.20%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99 Date One Year Five Years Inception
- ---------------------------------------- ----------------------- ----------------- ----------------- -------------------
<S> <C> <C> <C> <C>
Technology Fund 4/4/94 _____% _____% ______%
- ---------------------------------------- ----------------------- ----------------- ----------------- -------------------
S & P Technology Composite Index(1) _____% _____% ______%
- ---------------------------------------- ----------------------- ----------------- ----------------- -------------------
Russell 2000 Index(2) _____% _____% ______%
- ---------------------------------------- ----------------------- ----------------- ----------------- -------------------
</TABLE>
(1) An unmanaged index comprised of technology stocks in the S & P 500 (an
unmanaged index of large capitalization stocks). Previously, the fund used the
Russell 2000 Index as a benchmark. Going forward, the fund will use the S & P
Technology Composite Index as a comparison, as it is better suited to the fund's
investment strategies. The since inception performance of the index is
calculated from 4/30/94.
(2) An unmanaged index comprised of the smallest 2000 companies in the Russell
3000 Index. The latter index is composed of 3000 large U.S. companies
representing approximately 98% of the investable U.S. equity market. The since
inception performance of the index is calculated from 4/30/94.
16 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class Y Shares
<PAGE>
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
SHAREHOLDER FEES
- -------------------------------------------------------------------------------------------
<S> <C>
MAXIMUM SALES CHARGE (LOAD) None
MAXIMUM DEFERRED SALES CHARGE (LOAD) None
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- -------------------------------------------------------------------------------------------
Management Fees 0.70%
Distribution and Service (12b-1) Fees None
Other Expenses ____%
TOTAL ____%
- -------------------------------------------------------------------------------------------
</TABLE>
(1) Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. See "Additional Information --
Financial Highlights." The net expenses the fund actually paid after waivers for
the fiscal year ended September 30, 1999 were:
<TABLE>
<S> <C>
Waiver of Fund Expenses (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____%
</TABLE>
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 0.90%. FEE WAIVERS MAY BE DISCONTINUED AT
ANY TIME.
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
1 year $ 92
3 years $ 287
5 years $ 498
10 years $1,108
17 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class Y Shares
<PAGE>
POLICIES & SERVICES
BUYING AND SELLING SHARES
Class Y shares are offered through banks and other financial institutions that
have entered into sales agreements with the funds' distributor and that hold the
shares in an omnibus account with the transfer agent. Class Y shares are
available to certain accounts for which the financial institution acts in a
fiduciary, agency or custodial capacity, such as certain trust accounts and
investment advisory accounts. To find out whether you may purchase Class Y
shares, contact your financial institution.
There is no initial or deferred sales charge on your purchase of Class Y shares.
However, your broker or financial institution may receive a commission of up to
1.25% on your purchase.
CALCULATING YOUR SHARE PRICE
Your purchase price will be equal to the fund's net asset value (NAV) per share,
which is generally calculated as of the close of regular trading on the New York
Stock Exchange (usually 3 p.m. Central time) every day the exchange is open.
A fund's NAV is equal to the market value of its investments and other assets,
less any liabilities, divided by the number of fund shares. If market prices are
not readily available for an investment or if the advisor believes they are
unreliable, fair value prices may be determined in good faith using methods
approved by the funds' board of directors.
HOW TO BUY AND SELL SHARES
You may purchase or sell shares by calling your financial institution.
When purchasing shares, payment must be made by wire transfer, which can be
arranged by your financial institution. Because purchases must be paid for by
wire transfer, you can purchase shares only on days when both the New York Stock
Exchange and federally chartered banks are open. You may sell your shares on any
day when the New York Stock Exchange is open.
Purchase orders and redemption requests must be received by your financial
institution by the time specified by the institution to be assured same day
processing. In order for shares to be purchased at that day's price, the funds
must receive your purchase order by 3:00 p.m. Central time and the funds'
custodian must receive federal funds before the close of business. In order for
shares to be sold at that day's price, the funds must receive your redemption
request by 3:00 p.m. Central time. It is the responsibility of your financial
institution to promptly transmit orders to the funds. Purchase orders and
redemption requests may be restricted in the event of an early or unscheduled
close of the New York Stock Exchange.
18 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class Y Shares
<PAGE>
If the funds receive your redemption request by 3:00 p.m. Central time, payment
of your redemption proceeds will ordinarily be made by wire on the next business
day. It is possible, however, that payment could be delayed by up to seven days.
HOW TO EXCHANGE SHARES
If your investment goals or your financial needs change, you may exchange your
shares for Class Y shares of another First American fund. Exchanges will be made
at the net asset value per share of each fund at the time of the exchange. There
is no fee to exchange shares. If you are no longer eligible to hold Class Y
shares, for example, if you decide to discontinue your fiduciary, agency or
custodian account, you may exchange your shares for Class A shares at net asset
value. Class A shares have higher expenses than Class Y shares.
To exchange your shares, call your financial institution. In order for your
shares to be exchanged the same day, you must call your financial institution by
the time specified by the institution and your exchange order must be received
by the funds by 3:00 p.m. Central time. It is the responsibility of your
financial institution to promptly transmit your exchange order to the funds.
Before exchanging into any fund, be sure to read its prospectus carefully. A
fund may change or cancel its exchange policies at any time. You will be
notified of any changes. The funds have the right to limit exchanges to four
times per year.
19 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class Y Shares
<PAGE>
POLICIES & SERVICES
MANAGING YOUR INVESTMENT
STAYING INFORMED
SHAREHOLDER REPORTS
Shareholder reports are mailed twice a year, in November and May. They include
financial statements, performance information, a message from your portfolio
managers, and, on an annual basis, the auditors' report.
In an attempt to reduce shareholder costs and help eliminate duplication, the
funds will try to limit their mailings to one report for each address that lists
one or more shareholders with the same last name. If you would like additional
copies, please call 1-800-637-2548.
STATEMENTS AND CONFIRMATIONS
Statements summarizing activity in your account are mailed at least quarterly.
Confirmations are mailed following each purchase or sale of fund shares.
DIVIDENDS AND DISTRIBUTIONS
Dividends from a fund's net investment income are declared and paid quarterly.
Any capital gains are distributed at least once each year.
On the ex-dividend date for a distribution, a fund's share price is reduced by
the amount of the distribution. If you buy shares just before the ex-dividend
date, in effect, you "buy the dividend." You will pay the full price for the
shares and then receive a portion of that price back as a taxable distribution.
Dividend and capital gain distributions will be reinvested in additional shares
of the fund paying the distribution, unless you request that distributions be
reinvested in another First American fund or paid in cash. This request may be
made on your new account form or by writing to the fund. If you request that
your distributions be paid in cash but those distributions cannot be delivered
because of an incorrect mailing address, the undelivered distributions and all
future distributions will be reinvested in fund shares.
TAXES
Some of the tax consequences of investing in the funds are discussed below. More
information about taxes is in the Statement of Additional Information. However,
because everyone's tax situation is unique, always consult your tax professional
about federal, state and local tax consequences.
20 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class Y Shares
<PAGE>
TAXES ON DISTRIBUTIONS
Each fund pays its shareholders dividends from its net investment income and any
net capital gains that it has realized. For most investors, fund dividends and
distributions are considered taxable whether they are reinvested or taken in
cash (unless your investment is in an IRA or other tax-advantaged account).
Dividends from a fund's net investment income and short-term capital gains are
taxable as ordinary income. Distributions of a fund's long-term capital gains
are taxable as long-term gains, regardless of how long you have held your
shares. The funds expect that, as a result of their investment objectives and
strategies, their distributions will consist primarily of ordinary income in the
case of Real Estate Securities Fund and capital gains in the case of Health
Sciences Fund and Technology Fund. A portion of the distributions paid by Real
Estate Securities Fund may be a return of capital.
TAXES ON TRANSACTIONS
The sale of fund shares, or the exchange of one fund's shares for shares of
another fund, will be a taxable event and may result in a capital gain or loss.
The gain or loss will be considered long-term if you have held your shares for
more than one year. A gain or loss on shares held for one year or less is
considered short-term and is taxed at the same rates as ordinary income.
The exchange of one class of shares for another class of shares in the same fund
will not be taxable.
21 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class Y Shares
<PAGE>
ADDITIONAL INFORMATION
MANAGEMENT
INVESTMENT ADVISOR
First American Asset Management
601 Second Avenue South
Minneapolis, Minnesota 55402
U.S. Bank National Association (U.S. Bank), acting through its First American
Asset Management division, is the funds' investment advisor. First American
Asset Management provides investment management services to individuals and
institutions, including corporations, foundations, pensions and retirement
plans. As of December 31, 1999, it had more than $ ____ billion in assets under
management, including investment company assets of approximately $ ____ billion.
As investment advisor, First American Asset Management manages the funds'
business and investment activities, subject to the authority of the board of
directors. Each fund pays the investment advisor a monthly fee for providing
investment advisory services. During their most recent fiscal years, after
taking into account any fee waivers, the funds paid the following investment
advisory fees to First American Asset Management:
Advisory fee
as a % of
average daily
net assets
- -------------------------------------------------------------------------
Health Sciences Fund _______ %
Real Estate Securities Fund _______ %
Technology Fund _______ %
- -------------------------------------------------------------------------
CUSTODIAN
U.S. Bank National Association
U.S. Bank Center
180 East Fifth Street
St. Paul, Minnesota 55101
ADMINISTRATOR
U.S Bank National Association
U.S. Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402
DISTRIBUTOR
SEI Investments Distribution Co.
Oaks, Pennsylvania 19456
22 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class Y Shares
<PAGE>
ADDITIONAL COMPENSATION
U.S. Bank and other affiliates of U.S. Bancorp may act as fiduciary with respect
to plans subject to the Employee Retirement Income Security Act of 1974 (ERISA)
and other trust and agency accounts that invest in the funds. As described
above, U.S. Bank receives compensation for acting as the funds' investment
advisor. U.S. Bank and its affiliates also receive compensation in connection
with the following:
CUSTODY SERVICES. U.S. Bank provides or compensates others to provide custody
services to the funds. U.S. Bank is paid monthly fees equal, on an annual basis,
to 0.03% of a fund's average daily net assets. In addition, U.S. Bank is
reimbursed for its out-of-pocket expenses incurred while providing custody
services to the funds.
ADMINISTRATION SERVICES. U.S. Bank provides or compensates others to provide
administrative services to the funds including general administrative and
accounting services, transfer agency and dividend disbursing services, and
shareholder services. The funds pay U.S. Bank monthly fees equal, on an annual
basis, to 0.12% of the aggregate average daily net assets of all open-end mutual
funds in the First American fund family up to $8 billion and 0.105% of the
aggregate average daily net assets of all open-end mutual funds in the First
American fund family in excess of $8 billion. Additionally, the funds pay U.S.
Bank fees based upon the number of funds and accounts maintained.
SECURITIES LENDING SERVICES. In connection with lending their portfolio
securities, the funds pay administrative and custodial fees to U.S. Bank which
are equal to 40% of the funds' income from these securities lending
transactions.
BROKERAGE TRANSACTIONS When purchasing and selling portfolio securities for the
funds, the funds' investment advisor may place trades through its affiliates,
U.S. Bancorp Investments, Inc. and U.S. Bancorp Piper Jaffray Inc., which will
earn commissions on such transactions.
SALES OF FUND SHARES. U.S. Bancorp Investments, Inc. and U.S. Bancorp Piper
Jaffray, Inc. broker-dealers affiliated with U.S. Bank, have entered into
agreements with the funds' distributor to sell fund shares and will earn annual
shareholder servicing fees in connection with these sales.
PORTFOLIO MANAGEMENT
Each fund's investments are managed by a team of persons associated with First
American Asset Management.
23 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class Y Shares
<PAGE>
ADDITIONAL INFORMATION
MORE ABOUT THE FUNDS
OBJECTIVES
The funds' objectives may be changed without shareholder approval. If a fund's
objectives change, you will be notified at least 30 days in advance. Please
remember: There is no guarantee that any fund will achieve its objectives.
INVESTMENT STRATEGIES
The funds' main investment strategies are the strategies that the funds'
investment advisor believes are most likely to be important in trying to achieve
the funds' objectives. You should be aware that each fund may also use
strategies and invest in securities that are not described in this prospectus,
but that are described in the Statement of Additional Information (SAI). For a
copy of the SAI, call Investor Services at 1-800-637-2548.
TEMPORARY INVESTMENTS
In an attempt to respond to adverse market, economic, political or other
conditions, each fund may temporarily invest without limit in cash and in U.S.
dollar-denominated high-quality money market instruments and other short-term
securities. Being invested in these securities may keep a fund from
participating in a market upswing and prevent the fund from achieving its
investment objectives.
PORTFOLIO TURNOVER
Fund managers may trade securities frequently. As a result, the annual portfolio
turnover rate of Technology fund has well exceeded, and may continue to exceed,
100% and the annual portfolio turnover rate of the other funds may, from time to
time, exceed 100%. Trading of securities may produce capital gains, which are
taxable to shareholders when distributed. Active trading may also increase the
amount of commissions or mark-ups to broker-dealers that the fund pays when it
buys and sells securities. The "Financial Highlights" section of this prospectus
shows each fund's historical portfolio turnover rate.
RISKS
The main risks of investing in the funds are summarized in the "Fund Summaries"
section. More information about fund risks is presented below.
24 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class Y Shares
<PAGE>
MARKET RISK
All stocks are subject to price movements due to changes in general economic
conditions, changes in the level of prevailing interest rates, changes in
investor perceptions of the market, or the outlook for overall corporate
profitability.
COMPANY RISK
Individual stocks can perform differently than the overall market. This may be a
result of specific factors such as changes in corporate profitability due to the
success or failure of specific products or management strategies, or it may be
due to changes in investor perceptions regarding a company.
SECTOR RISK
The stocks of companies within specific industries or sectors of the economy can
periodically perform differently than the overall stock market. This can be due
to changes in such things as the regulatory or competitive environment or to
changes in investor perceptions of a particular industry or sector. Each fund is
subject to the particular risks of the sector in which it principally invests.
RISKS OF THE HEALTH SCIENCES SECTOR. Health Sciences Fund invests primarily in
equity securities of companies which develop, produce or distribute products or
services connected with health care or medicine. 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.
RISKS OF THE REAL ESTATE SECTOR. Real Estate Securities Fund invests primarily
in equity securities of publicly traded companies in the real estate 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 them, and
companies which service the real estate industry.
RISKS OF THE TECHNOLOGY SECTOR. Technology Fund invests primarily in equity
securities of companies which the fund's advisor believes have, or will develop,
products, processes or services that will provide or benefit significantly from
technological advances and improvements. 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 continues to expand, these
companies could become increasingly sensitive to short product cycles and
aggressive pricing.
25 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class Y Shares
<PAGE>
RISKS OF DEVELOPMENT STAGE AND SMALL CAP STOCKS
Health Sciences Fund and Technology Fund may have significant investments in
development stage and small capitalization companies. Stocks of development
stage and small capitalization companies involve substantial risk. These
companies may lack the management expertise, financial resources, product
diversification and competitive strengths of larger companies. Their stock
prices may be subject to more abrupt or erratic movements than stock prices of
larger, more established companies or the market averages in general. In
addition, the frequency and volume of their trading may be less than is typical
of larger companies, making them subject to wider price fluctuations. In some
cases, there could be difficulties in selling the stocks of development stage
and small capitalization companies at the desired time and price.
RISKS OF MID CAP STOCKS
While stocks of mid cap companies may be slightly less volatile than those of
small cap companies, they still involve substantial risk. Mid cap companies may
have limited product lines, markets or financial resources, and they may be
dependent on a limited management group. Stocks of mid cap companies may be
subject to more abrupt or erratic market movements than those of larger, more
established companies or the market averages in general.
RISKS OF IPOS
Most IPOs involve a high degree of risk not normally associated with offerings
of more seasoned companies. Companies involved in IPOs generally have limited
operating histories, and their prospects for future profitability are uncertain.
These companies often are engaged in new and evolving businesses and are
particularly vulnerable to competition and to changes in technology, markets and
economic conditions. They may be dependent on certain key managers and third
parties, need more personnel and other resources to manage growth and require
significant additional capital. They may also be dependent on limited product
lines and uncertain property rights and need regulatory approvals. Investors in
IPOs can be affected by substantial dilution in the value of their shares, by
sales of additional shares and by concentration of control in existing
management and principal shareholders. Stock prices of IPOs can also be highly
unstable, due to the absence of a prior public market, the small number of
shares available for trading and limited investor information.
RISKS OF REITS
Real Estate Securities Fund invests a majority of its assets in REITs and Health
Sciences Fund also may invest 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. REITs are
subject to other risks as well, including the fact that REITs are dependent on
specialized management skills which may affect 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 the risks
associated with obtaining financing for real property.
26 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class Y Shares
<PAGE>
A REIT can pass its income through to shareholders or unitholders without any
tax at the entity level if it complies with various requirements under the
Internal Revenue Code. There is the risk that a REIT held by the fund will fail
to qualify for this tax-free pass-through treatment of its income.
By investing in REITS indirectly through a fund, in addition to bearing a
proportionate share of the expenses of the fund, you will also indirectly bear
similar expenses of some of the REITs in which the fund invests.
FOREIGN SECURITY RISK
Up to 25% of each fund's total assets may be invested in securities of foreign
issuers which are either listed on a United States stock exchange or represented
by American Depositary Receipts. Securities of foreign issuers, even when
dollar-denominated and publicly traded in the United States, may involve risks
not associated with the securities of domestic issuers. For certain foreign
countries, political or social instability or diplomatic developments could
adversely affect the securities. There is also the risk of loss due to
governmental actions such as a change in tax statutes or the modification of
individual property rights. In addition, individual foreign economies may differ
favorably or unfavorably from the U.S. economy.
RISKS OF ACTIVE MANAGEMENT
Each fund is actively managed and its performance therefore will reflect in part
the advisor's ability to make investment decisions which are suited to achieving
the fund's investment objectives. Due to their active management, the funds
could underperform other mutual funds with similar investment objectives.
RISKS OF SECURITIES LENDING
When a fund loans its portfolio securities, it will receive collateral equal to
at least 100% of the value of the loaned securities. Nevertheless, the fund
risks a delay in the recovery of the loaned securities, or even the loss of
rights in the collateral deposited by the borrower if the borrower should fail
financially. To reduce these risks, the funds enter into loan arrangements only
with institutions which the funds' advisor has determined are creditworthy under
guidelines established by the funds' board of directors.
27 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class Y Shares
<PAGE>
ADDITIONAL INFORMATION
FINANCIAL HIGHLIGHTS
The tables that follow present performance information about the Class Y shares
of each fund. This information is intended to help you understand each fund's
financial performance for the past five years or, if shorter, the period of the
fund's Class Y shares operations. Some of this information reflects financial
results for a single fund share. Total returns in the tables represent the rate
that you would have earned or lost on an investment in a fund, assuming you
reinvested all of your dividends and distributions.
The information for the fiscal year ended September 30, 1999 has been audited by
Ernst & Young LLP, independent auditors, whose report, along with the funds'
financial statements, is included in the funds' annual report, which is
available upon request. The information for the fiscal years ended on or before
September 30, 1998, has been audited by KPMG LLP.
HEALTH SCIENCES FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
1999 1998 1997 1996(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period ______ $12.08 $9.87 $10.00
---------------------------------------------------------------
Investment Operations:
Net Investment Income (Loss) ______ 0.03 (0.01) 0.03
Net Gains (Losses) on Investments
(both realized and unrealized) ______ (2.78) 2.33 (0.15)
---------------------------------------------------------------
Total From Investment Operations ______ (2.75) 2.32 (0.12)
---------------------------------------------------------------
Less Distributions:
Dividends (from Net Investment Income) ______ (0.03) (0.01) (0.01)
Distributions (from capital gains) ______ (1.46) (3) (0.10) --
---------------------------------------------------------------
Total Distributions ______ (1.49) (0.11) (0.01)
---------------------------------------------------------------
Net Asset Value, End of Period ______ $7.84 $ 12.08 $9.87
===============================================================
Total Return ______ (25.10)% 23.89% (1.20)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) ______ $21,977 $41,243 $12,485
Ratio of Expenses to Average Net Assets ______ 0.90% 0.90% 0.90%(2)
Ratio of Net Income to Average Net Assets ______ 0.27% 0.06% 0.43%(2)
Ratio of Expenses to Average Net Assets (excluding waivers) ______ 0.95% 1.04% 1.87%(2)
Ratio of Net Income (Loss) to Average Net Assets (excluding waivers) ______ 0.22% (0.08)% (0.54)%(2)
Portfolio Turnover Rate ______ 45% 54% 19%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Class Y shares have been offered since January 31, 1996.
(2)Annualized.
(3)Includes distributions in excess of net investment income.
28 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class Y Shares
<PAGE>
REAL ESTATE SECURITIES FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
1999 1998 1997 1996 1995(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period ______ $14.99 $11.53 $10.37 $10.00
-----------------------------------------------------------
Investment Operations:
Net Investment Income ______ 0.67 0.74 0.57 0.13
Net Gains (Losses) on Investments
(both realized and unrealized) ______ (2.40) 3.43 1.29 0.39
-----------------------------------------------------------
Total From Investment Operations ______ (1.73) 4.17 1.86 0.52
-----------------------------------------------------------
Less Distributions:
Dividends (from Net Investment Income) ______ (0.74) (0.67) (0.53) (0.11)
Distributions (from capital gains) ______ (0.33) (0.03) -- --
Tax Return of Capital ______ -- (0.01) (0.17) (0.04)
-----------------------------------------------------------
Total Distributions ______ (1.07) (0.71) (0.70) (0.15)
-----------------------------------------------------------
Net Asset Value, End of Period ______ $12.19 $14.99 $11.53 $10.37
===========================================================
Total Return (12.18)% 37.07% 18.53% 5.19%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) ______ $58,275 $40,501 $17,895 $5,756
Ratio of Expenses to Average Net Assets ______ 0.80% 0.80% 0.80% 0.80%(2)
Ratio of Net Income to Average Net Assets ______ 5.06% 4.57% 5.13% 6.01%(2)
Ratio of Expenses to Average Net Assets (excluding waivers) ______ 0.93% 1.05% 1.51% 2.34%(2)
Ratio of Net Income to Average Net Assets (excluding waivers) ______ 4.93% 4.32% 4.42% 4.47%(2)
Portfolio Turnover Rate ______ 36% 14% 8% 0%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Class Y shares have been offered since June 30, 1995.
(2)Annualized.
29 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class Y Shares
<PAGE>
TECHNOLOGY FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period ______ $20.29 $19.29 $18.24 $11.19
-------------------------------------------------------------------------
Investment Operations:
Net Investment (Loss) ______ (0.08) (0.06) (0.04) (0.03)
Net Gains (Losses) on Investments
(both realized and unrealized) ______ (3.27) 3.12 2.98 7.31
-------------------------------------------------------------------------
Total From Investment Operations ______ (3.35) 3.06 2.94 7.28
-------------------------------------------------------------------------
Less Distributions:
Dividends (from Net Investment Income) ______ -- -- -- --
Distributions (from capital gains) ______ (1.21) (2.06) (1.89) (0.23)
-------------------------------------------------------------------------
Total Distributions ______ (1.21) (2.06) (1.89) (0.23)
-------------------------------------------------------------------------
Net Asset Value, End of Period ______ $15.73 $20.29 $19.29 $18.24
=========================================================================
Total Return ______ (16.41)% 17.95% 18.85% 66.22%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) ______ $100,985 $148,659 $64,602 $29,272
Ratio of Expenses to Average Net Assets ______ 0.90% 0.90% 0.90% 0.88%
Ratio of Net Loss to Average Net Assets ______ (0.38)% (0.41)% (0.60)% (0.35)%
Ratio of Expenses to Average Net Assets (excluding waivers) ______ 0.90% 0.92% 1.01% 1.30%
Ratio of Net (Loss) to Average Net Assets (excluding waivers) ______ (0.38)% (0.43)% (0.71)% (0.77)%
Portfolio Turnover Rate ______ 124% 150% 119% 74%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
30 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class Y Shares
<PAGE>
FOR MORE INFORMATION
More information about the funds is available in the funds' Statement of
Additional Information and annual and semiannual reports.
Statement of Additional Information (SAI) The SAI provides more details about
the funds and their policies. A current SAI is on file with the Securities and
Exchange Commission (SEC) and is incorporated into this prospectus by reference
(which means that it is legally considered part of this prospectus).
Annual and Semiannual Report Additional information about the funds' investments
is available in the funds' annual and semiannual reports to shareholders. In the
funds' annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected the funds' performance during
their last fiscal year.
You can obtain a free copy of the funds' SAI and/or free copies of the funds'
most recent annual or semiannual reports by calling Investor Services at
1-800-637-2548. The material you request will be sent by first-class mail or
other means designed to ensure equally prompt delivery, within three business
days of receipt of the request.
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, DC, or by sending your request and a duplicating fee to the SEC's
Public Reference Section, Washington, DC 20549-6009. For more information, call
1-800-SEC-0330.
Information about the funds is also available on the Internet. Text-only
versions of fund documents can be viewed online or downloaded from the SEC's
Internet site at
http://www.sec.gov.
SEC file number: 811-05309
FAIF-5200 (2/2000)Y
31 PROSPECTUS - FIRST AMERICAN SECTOR FUNDS
Class Y Shares
<PAGE>
February 1, 2000
BOND FUNDS
CLASS A, CLASS B AND CLASS C SHARES
Corporate Bond Fund
Fixed Income Fund
Intermediate Term Income Fund
Limited Term Income Fund
Strategic Income Fund
First American
Investment Funds, Inc.
PROSPECTUS
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the shares of these funds, or determined if the
information in this prospectus is accurate or complete. Any statement to the
contrary is a criminal offense.
FIRST AMERICAN(R)
THE POWER OF DISCIPLINED INVESTING(R)
1 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
TABLE OF
CONTENTS
FUND SUMMARIES
- --------------------------------------------------------------------------------
Corporate Bond Fund
- --------------------------------------------------------------------------------
Fixed Income Fund
- --------------------------------------------------------------------------------
Intermediate Term Income Fund
- --------------------------------------------------------------------------------
Limited Term Income Fund
- --------------------------------------------------------------------------------
Strategic Income Fund
- --------------------------------------------------------------------------------
POLICIES & SERVICES
- --------------------------------------------------------------------------------
Buying Shares
- --------------------------------------------------------------------------------
Selling Shares
- --------------------------------------------------------------------------------
Managing Your Investment
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
Management
- --------------------------------------------------------------------------------
More About The Funds
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
2 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
FUND SUMMARIES
INTRODUCTION
This section of the prospectus describes the objectives of the First American
Bond Funds, summarizes the main investment strategies used by each fund in
trying to achieve its objectives, and highlights the risks involved with these
strategies. It also provides you with information about the performance, fees
and expenses of the funds.
AN INVESTMENT IN THE FUNDS IS NOT A DEPOSIT OF U.S. BANK NATIONAL ASSOCIATION
AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR
ANY OTHER GOVERNMENT AGENCY.
3 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
FUND SUMMARIES
CORPORATE BOND FUND
OBJECTIVE
The Corporate Bond Fund's objective is to provide investors with a high level of
current income consistent with prudent risk to capital.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Corporate Bond Fund will invest primarily in a
combination of:
o "investment grade" corporate debt obligations;
o U.S. dollar denominated investment grade debt obligations of
foreign issuers;
o securities issued or guaranteed by the U.S. government or its
agencies and instrumentalities;
o mortgage- and asset-backed securities; and
o non-investment grade corporate debt obligations.
Fund managers employ a bottom-up approach to identify relative value in the
corporate bond market through fundamental credit research. Positions are sold in
anticipation of credit deterioration or when a security is priced expensively
relative to other comparable investments.
Up to 35% of the fund's debt securities may be rated lower than investment grade
at the time of purchase or, if unrated, be of comparable quality as determined
by the fund's advisor. However, the fund will not invest in securities rated
lower than B or equivalent rating at the time of purchase or, in unrated
securities of equivalent quality as determined by the fund's advisor. Unrated
securities will not exceed 25% of the Fund's total assets. The fund may invest
up to 25% of its total assets in foreign securities payable in U.S. dollars.
Under normal market conditions the fund attempts to maintain a weighted average
maturity for its portfolio securities of 15 years or less and an average
effective duration of four to nine years.
To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.
4 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
MAIN RISKS
The price and yield of this fund will change daily due to changes in interest
rates and other factors, which means you could lose money. The main risks of
investing in this fund include:
INTEREST RATE RISK
Debt securities typically decrease in value when interest rates rise. This risk
is usually greater for longer-term debt securities. One measure of interest rate
risk is effective duration, explained in "More About the Funds -- Investment
Strategies" Section.
INCOME RISK
The fund's income could decline due to falling market interest rates.
CREDIT RISK
An issuer of debt securities may not make timely principal or interest payments
on its securities, or the other party to a contract (such as a securities
lending agreement) may default on its obligations.
CALL RISK
During periods of falling interest rates, a bond issuer may "call" -- or repay
- -- its high-yielding bonds before their maturity date. The fund would then be
forced to invest the unanticipated proceeds at lower interest rates, resulting
in a decline in the fund's income.
RISKS OF MORTGAGE- AND ASSET-BACKED SECURITIES
Falling interest rates could cause faster than expected prepayments of the
obligations underlying mortgage- and asset-backed securities, which the fund
would have to invest at lower interest rates. On the other hand, rising interest
rates could cause prepayments of the obligations to decrease, extending the life
of mortgage- and asset-backed securities with lower payment rates. For
additional explanation, see "Prepayment Risk" and "Extension Risk" in the "More
About the Funds - Investment Strategies" Section.
FOREIGN SECURITY RISK
Securities of foreign issuers, even when dollar-denominated and publicly traded
in the United States, may involve risks not associated with the securities of
domestic issuers, including the risks of adverse currency fluctuations and of
political or social instability or diplomatic developments that could adversely
affect the securities.
RISKS OF HIGH-YIELD SECURITIES
A significant portion of the fund's portfolio may consist of lower-rated debt
obligations, which are commonly called "high-yield" securities or "junk bonds."
High-yield securities generally have more volatile prices and carry more risk to
principal than investment grade securities.
5 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
FUND PERFORMANCE
Because Corporate Bond Fund shares were not offered prior to the date of this
prospectus, no performance information is presented for these shares.
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES Class A Class B Class C
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MAXIMUM SALES CHARGE (LOAD)
AS A % OF OFFERING PRICE 4.25%(1) 0.00% 1.00%
MAXIMUM DEFERRED SALES CHARGE (LOAD)
AS A % OF OFFERING PURCHASE PRICE OR REDEMPTION PROCEEDS, WHICHEVER IS LESS 0.00%(2) 5.00% 1.00%
- ------------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------
Management Fees 0.70% 0.70% 0.70%
Distribution and Service (12b-1) Fees 0.25% 1.00% 1.00%
Other Expenses(3) ____% ____% ____%
TOTAL(4) ____% ____% ____%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Certain investors may qualify for reduced sales charges. See "Buying Shares
- -- Calculating Your Share Price."
(2)Investments of $1 million or more on which no front-end sales charge is paid
may be subject to a contingent deferred sales charge. See "Buying Shares -
Calculating Your Share Price."
(3)Other expenses are based on estimated amounts for the current fiscal year.
(4)THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT
TOTAL FUND OPERATING EXPENSES DO NOT EXCEED 1.05%, 1.80% AND 1.80%,
RESPECTIVELY, FOR THE CLASS A, CLASS B AND CLASS C SHARES. FEE WAIVERS MAY BE
DISCONTINUED AT ANY TIME.
6 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B CLASS B CLASS C CLASS C
assuming assuming no assuming assuming no
redemption redemption redemption redemption
at end of at end of at end of at end of
CLASS A each period each period each period each period
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 year $______ $______ $______ $______ $______
3 years $______ $______ $______ $______ $______
</TABLE>
7 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
FUND SUMMARIES
FIXED INCOME FUND
OBJECTIVE
Fixed Income Fund's objective is to provide investors with high current income
consistent with limited risk to capital.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Fixed Income Fund invests in investment grade
debt securities, such as:
o U.S. government securities, (securities issued or guaranteed by the
U.S. government or its agencies or instrumentalities), including
zero coupon securities;
o mortgage- and asset-backed securities; and
o corporate debt obligations.
Fund managers select securities using a "top-down" approach, which begins with
the formulation of their general economic outlook. Following this, various
sectors and industries are analyzed and selected for investment. Finally, fund
managers select individual securities within these sectors or industries.
Debt securities in the fund will be rated investment grade at the time of
purchase or, if unrated, determined to be of comparable quality by the fund's
advisor. At least 65% of the fund's debt securities must be either U.S.
government securities or securities that have received at least an A or
equivalent rating. Unrated securities will not exceed 25% of the fund's total
assets.
At least 65% of the fund's total assets will be invested in fixed rate
obligations.The fund may invest up to 15% of its total assets in foreign
securities payable in U.S. dollars.
Under normal market conditions the fund attempts to maintain a weighted average
maturity for its portfolio securities of 15 years or less and an average
effective duration of three to eight years.
To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions. It also may invest up to 25% of total assets in dollar roll
transactions. In a dollar roll transaction, the fund sells mortgage-backed
securities for delivery in the current month while contracting with the same
party to repurchase similar securities at a future date.
8 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
MAIN RISKS
The price and yield of this fund will change daily due to changes in interest
rates and other factors, which means you could lose money. The main risks of
investing in this fund include:
INTEREST RATE RISK
Debt securities typically decrease in value when interest rates rise. This risk
is usually greater for longer-term debt securities. One measure of interest rate
risk is effective duration, explained in "More About the Funds -- Investment
Strategies" Section.
INCOME RISK
The fund's income could decline due to falling market interest rates.
CREDIT RISK
An issuer of debt securities may not make timely principal or interest payments
on its securities, or the other party to a contract (such as a securities
lending agreement) may default on its obligations.
CALL RISK
During periods of falling interest rates, a bond issuer may "call" -- or repay
- -- its high-yielding bonds before their maturity date. The fund would then be
forced to invest the unanticipated proceeds at lower interest rates, resulting
in a decline in the fund's income.
RISKS OF MORTGAGE- AND ASSET-BACKED SECURITIES
Falling interest rates could cause faster than expected prepayments of the
obligations underlying mortgage- and asset-backed securities, which the fund
would have to invest at lower interest rates. On the other hand, rising interest
rates could cause prepayments of the obligations to decrease, extending the life
of mortgage- and asset-backed securities with lower payment rates. For
additional explanation, see "Prepayment Risk" and "Extension Risk" in "More
About The Funds - Investment Strategies."
FOREIGN SECURITY RISK
Securities of foreign issuers, even when dollar-denominated and publicly traded
in the United States, may involve risks not associated with the securities of
domestic issuers, including the risks of adverse currency fluctuations and of
political or social instability or diplomatic developments that could adversely
affect the securities.
RISKS OF DOLLAR ROLL TRANSACTIONS
The use of mortgage dollar rolls could increase the volatility of the fund's
share price. It could also diminish the fund's investment performance if the
advisor does not predict mortgage prepayments and interest rates correctly.
9 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
FUND PERFORMANCE
Illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart shows you how performance of the fund's Class A shares has varied
from year to year. The performance of Class B and Class C shares will be lower
due to their higher expenses. Sales charges are not reflected in the chart; if
they had been, returns would be lower.
The table compares the fund's performance for Class A and Class B shares over
different time periods to that of the fund's benchmark index, which is a broad
measure of market performance. However, because Class C shares have not been
offered for a full calendar year, no information is presented for these shares.
The fund's performance reflects sales charges and fund expenses; the benchmark
is unmanaged and has no expenses.
Both the chart and the table assume that all distributions have been reinvested.
10 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
FUND SUMMARIES
FIXED INCOME FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
7.66% 14.43% 6.46% 9.65% -2.42% 17.02% 3.20% 8.47% 8.67%
- -------------------------------------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
</TABLE>
BEST QUARTER:
Quarter ending: 6/30/89
Total Return 7.06%
WORST QUARTER:
Quarter ending: 3/31/94
Total Return -2.04%
<TABLE>
<CAPTION>
Inception Since Inception
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/99 Date One Year Five Years Ten Years (Class A) (Class B)
- ---------------------------------------------- ------------------- ------------- -------------- -------------------- ---------------
<S> <C> <C> <C> <C> <C>
Fixed Income Fund (Class A) 12/22/87 _____% _____% _____% N/A
- ---------------------------------------------- ------------------- ------------- -------------- -------------------- ---------------
Fixed Income Fund (Class B) 8/15/94 _____% N/A N/A _____%
- ---------------------------------------------- ------------------- ------------- -------------- -------------------- ---------------
Lehman Aggregate Bond Index(1) _____% _____% _____% _____%
- ---------------------------------------------- ------------------- ------------- -------------- -------------------- ---------------
Lehman Gov't/Corp Bond Index(2) _____% _____% _____% _____%
- ---------------------------------------------- ------------------- ------------- -------------- -------------------- ---------------
</TABLE>
(1)An unmanaged index composed of the Lehman Government/Corporate Bond Index,
the Lehman Mortgage Backed Securities Index and Lehman Asset Backed Securities
Index. The Lehman Government/Corporate Bond Index is comprised of Treasury
securities, other securities issued or guaranteed by the U.S. government or its
agencies or instrumentalities, including U.S. agency mortgage securities, and
investment-grade corporate debt securities. The Lehman Asset-Backed Index is
composed of debt securities backed by credit card, auto and home equity loans
that are rated investment grade or higher. The since inception performance of
the index for Class B shares is calculated from 8/31/94. Previously, the fund
used the Lehman Government/Corporate Bond Index as a benchmark. Going forward,
the fund will use the Lehman Aggregate Bond Index as a comparison, because it is
better suited to the fund's investment strategies.
(2)An unmanaged index of Treasury securities, other securities issued or
guaranteed by the U.S. government or its agencies or instrumentalities, and
investment-grade corporate debt securities. The since inception performance of
the index for Class B shares is calculated from 8/31/94.
11 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES Class A Class B Class C
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MAXIMUM SALES CHARGE (LOAD)
AS A % OF OFFERING PRICE 4.25%(2) 0.00% 1.00%
MAXIMUM DEFERRED SALES CHARGE (LOAD)
AS A % OF ORIGINAL PURCHASE PRICE OR REDEMPTION
PROCEEDS, WHICHEVER IS LESS 0.00%(3) 5.00% 1.00%
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- ------------------------------------------------------------------------------------------------------------------
Management Fees 0.70% 0.70% 0.70%
Distribution and Service (12b-1) Fees 0.25% 1.00% 1.00%
Other Expenses ____% ____% ____%
TOTAL ____% ____% ____%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. See "Additional Information --
Financial Highlights." The net expenses the fund actually paid after waivers for
the fiscal year ended September 30, 1999 were:
<TABLE>
<S> <C> <C> <C>
Waiver of Fund Expenses (____%) (____%) (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____% ____% ____%
</TABLE>
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 0.95%, 1.70% AND 1.70%, RESPECTIVELY, FOR
THE CLASS A, CLASS B AND CLASS C SHARES. FEE WAIVERS MAY BE DISCONTINUED AT ANY
TIME.
(2)Certain investors may qualify for reduced sales charges. See "Buying
Shares -- Calculating Your Share Price."
(3)Investments of $1 million or more on which no front-end sales charge is
paid may be subject to a contingent deferred sales charge. See "Buying Shares
- -- Calculating Your Share Price."
12 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B CLASS B CLASS C CLASS C
assuming assuming no assuming assuming no
redemption redemption redemption redemption
at end of at end of at end of at end of
CLASS A each period each period each period each period
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 year $ 533 $ 689 $ 189 $ 387 $ 287
3 years $ 763 $ 985 $ 585 $ 679 $ 679
5 years $1,011 $1,206 $1,006 $1,096 $1,096
10 years $1,719 $1,984 $1,984 $2,258 $2,258
</TABLE>
13 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
FUND SUMMARIES
INTERMEDIATE TERM INCOME FUND
OBJECTIVE
Intermediate Term Income Fund's objective is to provide investors with current
income to the extent consistent with preservation of capital.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Intermediate Term Income Fund invests in
investment grade debt securities, such as:
o U.S. government securities, (securities issued or guaranteed by the
U.S. government or its agencies or instrumentalities), including
zero coupon securities;
o mortgage- and asset-backed securities; and
o corporate debt obligations.
Fund managers select securities using a "top-down" approach, which begins with
the formulation of their general economic outlook. Following this, various
sectors and industries are analyzed and selected for investment. Finally, fund
managers select individual securities within these sectors or industries.
Debt securities in the fund will be rated investment grade at the time of
purchase or, if unrated, determined to be of comparable quality by the fund's
advisor. At least 65% of the fund's debt securities must be either U.S.
government securities or securities that have received at least an A or
equivalent rating. Unrated securities will not exceed 25% of the fund's total
assets.
The fund may invest up to 15% of its total assets in foreign securities
payable in U.S. dollars.
Under normal market conditions the fund attempts to maintain a weighted average
maturity for its portfolio securities of two to seven years and an average
effective duration of two to six years.
To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions. It also may invest up to 25% of total assets in dollar roll
transactions. In a dollar roll transaction, the fund sells mortgage-backed
securities for delivery in the current month while contracting with the same
party to repurchase similar securities at a future date.
14 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
MAIN RISKS
The price and yield of this fund will change daily due to changes in interest
rates and other factors, which means you could lose money. The main risks of
investing in this fund include:
INTEREST RATE RISK
Debt securities typically decrease in value when interest rates rise. This risk
is usually greater for longer-term debt securities. One measure of interest rate
risk is effective duration, explained in "More About the Funds -- Investment
Strategies" Section.
INCOME RISK
The fund's income could decline due to falling market interest rates.
CREDIT RISK
An issuer of debt securities may not make timely principal or interest payments
on its securities, or the other party to a contract (such as a securities
lending agreement) may default on its obligations.
CALL RISK
During periods of falling interest rates, a bond issuer may "call" -- or repay
- -- its high-yielding bonds before their maturity date. The fund would then be
forced to invest the unanticipated proceeds at lower interest rates, resulting
in a decline in the fund's income.
RISKS OF MORTGAGE- AND ASSET-BACKED SECURITIES
Falling interest rates could cause faster than expected prepayments of the
obligations underlying mortgage- and asset-backed securities, which the fund
would have to invest at lower interest rates. On the other hand, rising interest
rates could cause prepayments of the obligations to decrease, extending the life
of mortgage- and asset-backed securities with lower payment rates. For
additional explanation, see "Prepayment Risk" and "Extension Risk" in the "More
About the Funds - Investment Strategies" Section.
FOREIGN SECURITY RISK
Securities of foreign issuers, even when dollar-denominated and publicly traded
in the United States, may involve risks not associated with the securities of
domestic issuers, including the risks of adverse currency fluctuations and of
political or social instability or diplomatic developments that could adversely
affect the securities.
15 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
RISKS OF DOLLAR ROLL TRANSACTIONS
The use of mortgage dollar rolls could increase the volatility of the fund's
share price. It could also diminish the fund's investment performance if the
advisor does not predict mortgage prepayments and interest rates correctly.
FUND PERFORMANCE
Illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart shows you how performance of the fund's shares has varied from
year to year. Sales charges are not reflected in the chart; if they had been,
returns would be lower.
The table compares the fund's performance over different time periods to that of
the fund's benchmark index, which is a broad measure of market performance. The
fund's performance reflects sales charges and fund expenses; the benchmark is
unmanaged and has no expenses.
Both the chart and the table assume that all distributions have been reinvested.
16 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
FUND SUMMARIES
INTERMEDIATE TERM INCOME FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR
<S> <C> <C> <C> <C> <C> <C>
6.86% -1.35% 14.62% 4.22% 7.11% 8.36%
- ---------------- ----------------- ----------------- ---------------- --------------- ---------------- ---------------
1993 1994 1995 1996 1997 1998 1999
</TABLE>
BEST QUARTER:
Quarter ending: 6/30/95
Total Return 4.71%
WORST QUARTER:
Quarter ending: 3/31/94
Total Return -1.29%
<TABLE>
<CAPTION>
Inception
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/99 Date One Year Five Years Since Inception
- ----------------------------------------------------- ------------------ ------------------ ----------------- --------------------
<S> <C> <C> <C> <C>
Intermediate Term Income Fund (Class A) 12/14/92 _______% _______% _______%
- ----------------------------------------------------- ------------------ ------------------ ----------------- --------------------
Lehman Intermediate Gov't/Corp Bond Index(1) _______% _______% _______%
- ----------------------------------------------------- ------------------ ------------------ ----------------- --------------------
</TABLE>
(1)An unmanaged index of Treasury securities, other securities issued by the
U.S. government or its agencies or instrumentalities, and investment grade
corporate debt securities, in each case with maturities of one to 10 years. The
since inception performance of the index is calculated from 12/31/92.
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
17 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
SHAREHOLDER FEES Class A
- -------------------------------------------------------------------------------------------
<S> <C>
MAXIMUM SALES CHARGE (LOAD)
AS A % OF OFFERING PRICE 2.50%(2)
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- -------------------------------------------------------------------------------------------
Management Fees 0.70%
Distribution and Service (12b-1) Fees 0.25%
Other Expenses ____%
TOTAL ____%
- -------------------------------------------------------------------------------------------
</TABLE>
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor and the distributor. See
"Additional Information -- Financial Highlights." The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 1999 were:
<TABLE>
<S> <C>
Waiver of Fund Expenses (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____%
</TABLE>
THE DISTRIBUTOR INTENDS TO LIMIT ITS 12B-1 FEE TO 0.15% DURING THE CURRENT
FISCAL YEAR. IN ADDITION, THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT
FISCAL YEAR SO THAT TOTAL FUND OPERATING EXPENSES DO NOT EXCEED 0.85%. FEE
WAIVERS MAY BE DISCONTINUED AT ANY TIME.
(2)Certain investors may qualify for reduced sales charges. Investments of $1
million or more on which no front-end sales charge is paid may be subject to
a contingent deferred sales charge. See "Buying Shares -- Calculating Your
Share Price."
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
1 year $ 360
3 years $ 594
5 years $ 846
10 years $1,568
18 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
FUND SUMMARIES
LIMITED TERM INCOME FUND
OBJECTIVE
Limited Term Income Fund's objective is to provide investors with current income
while maintaining a high degree of principal stability.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Limited Term Income Fund invests in investment
grade debt securities, such as:
o mortgage- and asset-backed securities;
o corporate debt obligations;
o U.S. government securities, which are securities issued or guaranteed
by the U.S. government or its agencies or instrumentalities; and
o commercial paper.
Fund managers select securities using a "top-down" approach, which begins with
the formulation of their general economic outlook. Following this, various
sectors and industries are analyzed and selected for investment. Finally, fund
managers select individual securities within these sectors or industries.
Debt securities in the fund will be rated investment grade at the time of
purchase or, if unrated, determined to be of comparable quality by the fund's
advisor. At least 65% of the fund's debt securities must be either U.S.
government securities or securities that have received at least an A or
equivalent rating. Unrated securities will not exceed 25% of the fund's total
assets.
The fund may invest up to 15% of its total assets in foreign securities payable
in U.S. dollars.
Under normal market conditions the fund attempts to maintain a weighted average
maturity and an average effective duration for its portfolio securities of one
to three years.
To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.
19 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
MAIN RISKS
The price and yield of this fund will change daily due to changes in interest
rates and other factors, which means you could lose money. The main risks of
investing in this fund include:
INTEREST RATE RISK
Debt securities typically decrease in value when interest rates rise. This risk
is usually greater for longer-term debt securities. One measure of interest rate
risk is effective duration, explained in "More About the Funds -- Investment
Strategies" Section.
INCOME RISK
The fund's income could decline due to falling market interest rates.
CREDIT RISK
An issuer of debt securities may not make timely principal or interest payments
on its securities, or the other party to a contract (such as a securities
lending agreement) may default on its obligations.
CALL RISK
During periods of falling interest rates, a bond issuer may "call" -- or repay
- -- its high-yielding bonds before their maturity date. The fund would then be
forced to invest the unanticipated proceeds at lower interest rates, resulting
in a decline in the fund's income.
RISKS OF MORTGAGE- AND ASSET-BACKED SECURITIES
Falling interest rates could cause faster than expected prepayments of the
obligations underlying mortgage- and asset-backed securities, which the fund
would have to invest at lower interest rates. On the other hand, rising interest
rates could cause prepayments of the obligations to decrease, extending the life
of mortgage- and asset-backed securities with lower payment rates. For
additional explanation, see "Prepayment Risk" and "Extension Risk" in the "More
About the Funds - Investment Strategies" Section.
FOREIGN SECURITY RISK
Securities of foreign issuers, even when dollar-denominated and publicly traded
in the United States, may involve risks not associated with the securities of
domestic issuers, including the risks of adverse currency fluctuations and of
political or social instability or diplomatic developments that could adversely
affect the securities.
20 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
FUND PERFORMANCE
Illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart shows you how performance of the fund's shares has varied from
year to year. Sales charges are not reflected in the chart; if they had been,
returns would be lower.
The table compares the fund's performance over different time periods to that of
the fund's benchmark index, which is a broad measure of market performance. The
fund's performance reflects sales charges and fund expenses; the benchmark is
unmanaged and has no expenses.
Both the chart and the table assume that all distributions have been reinvested.
21 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
FUND SUMMARIES
LIMITED TERM INCOME FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR
<S> <C> <C> <C> <C> <C> <C>
4.14% 1.79% 8.23% 5.60% 5.93% 6.08%
- ---------------- ----------------- ----------------- ---------------- --------------- ---------------- ---------------
1993 1994 1995 1996 1997 1998 1999
</TABLE>
BEST QUARTER:
Quarter ending: 6/30/95
Total Return 2.47%
WORST QUARTER:
Quarter ending: 3/31/94
Total Return 0.03%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/99 Inception Date One Year Five Years Since Inception
- ------------------------------------------------------------ ------------------ ----------- --------------- --------------------
<S> <C> <C> <C> <C>
Limited Term Income Fund (Class A) 12/14/92 ______% ______% ______%
- ------------------------------------------------------------ ------------------ ----------- --------------- --------------------
Lehman Gov't/Corporate Index 1-3 Year Bond Index(1) ______% ______% ______%
- ------------------------------------------------------------ ------------------ ----------- --------------- --------------------
Merrill Lynch 1-Year U.S. Treasury Index(2) ______% ______% ______%
- ------------------------------------------------------------ ------------------ ----------- --------------- --------------------
</TABLE>
(1)An unmanaged index of one to three year Treasury securities, other
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and investment-grade corporate debt securities. The since
inception performance of the index is calculated from 12/31/92. Previously, the
fund used the Merrill Lynch 1-Year U.S. Treasury Index as a benchmark. Going
forward, the fund will use the Lehman Government/Corporate Index 1-3 Year Bond
Index as a comparison, because it is better suited to the fund's investment
strategies.
(2)An unmanaged index of one-year constant maturity Treasury bills. The since
inception performance of the index is calculated from 12/31/92.
22 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
- ----------------------------------------------------------------------------
SHAREHOLDER FEES Class A
- ----------------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD)
AS A % OF OFFERING PRICE 2.50%(2)
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- ----------------------------------------------------------------------------
Management Fees 0.70%
Distribution and Service (12b-1) Fees 0.25%
Other Expenses ____%
TOTAL ____%
- ----------------------------------------------------------------------------
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor and the distributor. See
"Additional Information -- Financial Highlights." The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 1999 were:
Waiver of Fund Expenses (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____%
THE DISTRIBUTOR INTENDS TO LIMIT ITS 12B-1 FEE TO 0.15% DURING THE CURRENT
FISCAL YEAR. IN ADDITION, THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT
FISCAL YEAR SO THAT TOTAL FUND OPERATING EXPENSES DO NOT EXCEED 0.60%. FEE
WAIVERS MAY BE DISCONTINUED AT ANY TIME.
(2)Certain investors may qualify for reduced sales charges. Investments of $1
million or more on which no front-end sales charge is paid may be subject to a
contingent deferred sales charge. See "Buying Shares -- Calculating Your Share
Price."
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
1 year $ 361
3 years $ 597
5 years $ 851
10 years $1,579
23 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
FUND SUMMARIES
STRATEGIC INCOME FUND
OBJECTIVE
Strategic Income Fund's objective is to provide investors with a high level of
current income.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Strategic Income Fund invests primarily (at
least 65% of its total assets) in a combination of:
o securities issued or guaranteed by the U.S. government or its agencies
or instrumentalities, including mortgage-backed securities, and
investment grade debt obligations issued by domestic issuers;
o high-yield (non-investment grade) debt obligations issued by domestic
issuers; and
o investment grade and high-yield debt obligations issued by foreign
governments and other foreign issuers.
Based upon historical returns, the fund's advisor expects these three categories
of investments to have different returns and risks under similar market
conditions. The advisor relies on the differences in the expected performance of
each category to manage risks by allocating the fund's portfolio among the three
categories above. The advisor also seeks to enhance the fund's performance by
allocating more of its portfolio to the category that the advisor expects to
offer the best balance between risk and return. Normally, the fund's assets will
be invested in each of these three categories, with no more than 50% invested in
any one category. However, the fund may from time to time invest up to 100% of
its total assets in any one category if the advisor believes it will help the
fund achieve its objective without undue risk to principal.
The fund's foreign investments may include investments in emerging markets.
The fund's investments may include securities which do not pay interest
currently, such as zero coupon securities and delayed interest securities. The
fund also may invest in payment-in-kind bonds, where interest is paid in other
securities rather than cash.
In addition to debt obligations, the fund may invest in preferred stock,
convertible securities and equity securities, including common stock and
warrants. These investments may be denominated in U.S. dollars or foreign
currencies.
There is no minimum rating requirement for securities in which the fund may
invest. In addition, there is no limitation on the average maturity or average
effective duration of securities held by the fund.
24 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions. It also may invest up to 25% of total assets in dollar roll
transactions. In a dollar roll transaction, the fund sells mortgage-backed
securities for delivery in the current month while contracting with the same
party to repurchase similar securities at a future date.
MAIN RISKS
The price and yield of this fund will change daily due to changes in interest
rates and other factors, which means you could lose money. The main risks of
investing in this fund include:
INTEREST RATE RISK
Debt securities typically decrease in value when interest rates rise. This risk
is usually greater for longer-term debt securities. One measure of interest rate
risk is effective duration, explained in "More About the Funds -- Investment
Strategies" Section.
RISKS OF FOREIGN SECURITIES
Investing in foreign securities involves risks not typically associated with
U.S. investing. Risks of foreign investing include adverse currency
fluctuations, potential political and economic instability, limited liquidity
and volatile prices of non-U.S. securities, limited availability of information
regarding non-U.S. companies, investment and repatriation restrictions and
foreign taxation.
RISKS OF HIGH-YIELD SECURITIES
A significant portion of the fund's portfolio may consist of lower-rated debt
obligations, which are commonly called "high-yield" securities or "junk bonds."
High-yield securities generally have more volatile prices and carry more risk to
principal than investment grade securities.
RISKS OF EMERGING MARKETS
The fund may invest in emerging markets, where the risks of foreign investing
are higher. Investing in emerging markets generally involves exposure to
economic structures that are less diverse and mature, and to political systems
that are less stable, than those of developed countries. In addition, issuers in
emerging markets typically are subject to a greater degree of change in earnings
and business prospects than are companies in developed markets.
INCOME RISK
The fund's income could decline due to falling market interest rates.
25 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
CREDIT RISK
An issuer of debt securities may not make timely principal or interest payments
on its securities, or the other party to a contract (such as a securities
lending agreement) may default on its obligations.
CALL RISK
During periods of falling interest rates, a bond issuer may "call" -- or repay
- -- its high-yielding bonds before their maturity date. The fund would then be
forced to invest the unanticipated proceeds at lower interest rates, resulting
in a decline in the fund's income.
RISKS OF MORTGAGE- AND ASSET-BACKED SECURITIES
Falling interest rates could cause faster than expected prepayments of the
obligations underlying mortgage- and asset-backed securities, which the fund
would have to invest at lower interest rates. On the other hand, rising interest
rates could cause prepayments of the obligations to decrease, extending the life
of mortgage- and asset-backed securities with lower payment rates. For
additional explanation, see "Prepayment Risk" and "Extension Risk" in the "More
About the Funds - Investment Strategies" Section.
RISKS OF COMMON STOCKS
The fund's investments may include common stock and warrants to purchase, or
securities convertible into, common stocks. Stocks may decline significantly in
price over short or extended periods of time. Price changes may occur in the
market as a whole, or they may occur in only a particular company, industry or
sector of the market.
RISKS OF DOLLAR ROLL TRANSACTIONS
The use of mortgage dollar rolls could increase the volatility of the fund's
share price. It could also diminish the fund's investment performance if the
advisor does not predict mortgage prepayments and interest rates correctly.
FUND PERFORMANCE
Illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart is intended to show you how performance of the fund's Class A
shares has varied from year to year. However, because Class A shares were first
offered in 1998, only one calendar year of information is available. The
performance of Class B and Class C shares will be lower due to their higher
expenses. Sales charges are not reflected in the chart; if they had been,
returns would be lower.
The table compares the fund's performance over different time periods to that of
the fund's benchmark index, which is a broad measure of market performance. The
fund's performance reflects sales charges and fund expenses; the benchmark is
unmanaged and has no expenses.
Both the chart and the table assume that all distributions have been reinvested.
26 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
FUND SUMMARIES
STRATEGIC INCOME FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR
- -----%
- ---------------------
1999
BEST QUARTER:
Quarter ending: __/__/__
Total Return _____%
WORST QUARTER:
Quarter ending: __/__/__
Total Return _____%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL Inception Since Inception Since Inception
RETURNS AS OF 12/31/99 Date One Year (Class A) (Class B)
- ------------------------------------- -------------- -------------- ------------------- ------------------
<S> <C> <C> <C> <C>
Strategic Income Fund (Class A) 7/24/98 ____% ____% NA
- ------------------------------------- -------------- -------------- ------------------- ------------------
Strategic Income Fund (Class B) 7/24/98 ____% NA ____%
- ------------------------------------- -------------- -------------- ------------------- ------------------
Lehman Aggregate Bond Index(1) ____% ____% ____%
- ------------------------------------- -------------- -------------- ------------------- ------------------
</TABLE>
(1)An unmanaged index of Treasury securities, other securities issued or
guaranteed by the U.S. government or its agencies or instrumentalities,
including U.S. agency mortgage securities, and investment-grade corporate debt
securities. The since inception performance of the index is calculated from
7/31/98.
27 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES Class A Class B Class C
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MAXIMUM SALES CHARGE (LOAD)
AS A % OF OFFERING PRICE 4.25%(2) 0.00% 1.00%
MAXIMUM DEFERRED SALES CHARGE (LOAD)
AS A % OF ORIGINAL PURCHASE PRICE OR REDEMPTION
PROCEEDS, WHICHEVER IS LESS 0.00%(3) 5.00% 1.00%
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- -------------------------------------------------------------------------------------------------------------------------
Management Fees 0.70% 0.70% 0.70%
Distribution and Service (12b-1) Fees 0.25% 1.00% 1.00%
Other Expenses ____% ____% ____%
TOTAL ____% ____% ____%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor and the distributor. See
"Additional Information -- Financial Highlights." The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 1999 were:
<TABLE>
<S> <C> <C> <C>
Waiver of Fund Expenses (____%) (____%) (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____% ____% ____%
</TABLE>
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 1.15%, 1.90% AND 1.90%, RESPECTIVELY, FOR
CLASS A, CLASS B AND CLASS C SHARES. FEE WAIVERS MAY BE DISCONTINUED AT ANY
TIME.
(2)Certain investors may qualify for reduced sales charges. See "Buying Shares
- -- Calculating Your Share Price."
(3)Investments of $1 million or more on which no front-end sales charge is paid
may be subject to a contingent deferred sales charge. See "Buying Shares --
Calculating Your Share Price."
28 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B CLASS B CLASS C CLASS C
assuming assuming no assuming assuming no
redemption redemption redemption redemption
at end of at end of at end of at end of
CLASS A each period each period each period each period
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 year $ 552 $ 708 $ 208 $ 406 $ 306
3 years $ 820 $1,043 $ 643 $ 736 $ 736
5 years $1,108 $1,303 $1,103 $1,192 $1,192
10 years $1,926 $2,187 $2,187 $2,455 $2,455
</TABLE>
29 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
POLICIES & SERVICES
BUYING SHARES
You may become a shareholder in any of the funds with an initial investment of
$1,000 or more ($250 for a retirement plan or a Uniform Gifts to Minors
Act/Uniform Transfers to Minors Act (UGMA/UTMA) account). Additional investments
can be made for as little as $100 ($25 for a retirement plan or an UGMA/UTMA
account). The funds have the right to waive these minimum investment
requirements for employees of the funds' advisor and its affiliates. The funds
also have the right to reject any purchase order.
CHOOSING A SHARE CLASS
All funds in this prospectus offer Class A shares. Corporate Bond Fund, Fixed
Income Fund and Strategic Income Fund also offer Class B and Class C shares.
Each class has its own cost structure. The amount of your purchase and the
length of time you expect to hold your shares will be factors in determining
which class of shares is best for you.
CLASS A SHARES
If you are making an investment that qualifies for a reduced sales charge, Class
A shares may be best for you. Class A shares feature:
o a front-end sales charge, described below.
o lower annual expenses than Class B or Class C shares. See "Fund
Summaries" for more information on fees and expenses.
Because Class A shares will normally be the better choice if your investment
qualifies for a reduced sales charge:
o orders for Class B shares for $250,000 or more normally will be
treated as orders for Class A shares.
o orders for Class C shares for $1 million or more normally will be
treated as orders for Class A shares.
o orders for Class B or Class C shares by an investor eligible to
purchase Class A shares without a front-end sales charge normally will
be treated as orders for Class A shares.
30 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
CLASS B SHARES
If you want all your money to go to work for you immediately, you may prefer
Class B shares. Class B shares have no front-end sales charge; however they do
have:
o higher annual expenses than Class A shares. (See "Fees and Expenses"
in the "Fund Summaries" section.)
o a back-end sales charge, called a "contingent deferred sales charge,"
if you redeem your shares within six years of purchase.
o automatic conversion to Class A shares approximately eight years after
purchase, thereby reducing future annual expenses.
CLASS C SHARES
These shares combine some of the characteristics of Class A and Class B shares.
Class C shares have a low front-end sales charge of 1%, so more of your
investment goes to work immediately than if you had purchased Class A shares.
However, Class C shares also feature:
o a 1% contingent deferred sales charge if you redeem your shares within
18 months of purchase.
o higher annual expenses than Class A shares. (See "Fees and Expenses"
in the "Fund Summaries" section.)
o no conversion to Class A shares.
Because Class C shares do not convert to Class A shares, they will continue to
have higher annual expenses than Class A shares.
12B-1 FEES
Each fund has adopted a plan under rule 12b-1 of the Investment Company Act that
allows it to pay the fund's distributor an annual fee for the distribution and
sale of its shares and for services provided to shareholders.
For 12b-1 fees are equal to:
- --------------------------------------------------------------------------------
Class A shares 0.25% of average daily net assets
Class B shares 1% of average daily net assets
Class C shares 1% of average daily net assets
Because these fees are paid out of a fund's assets on an ongoing basis, over
time these fees will increase the cost of your investment and may cost you more
than paying other types of sales charges.
31 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
The Class A share 12b-1 fee is a shareholder servicing fee. For Class B and
Class C shares, a portion of the 12b-1 fee equal to 0.25% of average daily net
assets is a shareholder servicing fee and the rest is a distribution fee.
The funds' distributor uses the shareholder servicing fee to compensate brokers,
participating institutions and "one-stop" mutual fund networks for providing
ongoing services to shareholder accounts. These institutions receive annual fees
equal to 0.25% of a fund's Class A, Class B and Class C share average daily net
assets attributable to shares sold through them. For Class B shares, and for net
asset value sales of Class A shares on which the institution receives a
commission, the institution does not begin to receive its annual fee until one
year after the shares are sold. The fund's distributor also pays institutions
that sell Class C shares a 0.75% annual distribution fee beginning one year
after the shares are sold. The distributor may pay additional fees to
institutions, using the sales charges it receives, in exchange for sales and/or
administrative services performed on behalf of the institution's customers.
The distributor is currently waiving its Class A share 12b-1 fee to 0.15% for
Limited Term Income Fund and Intermediate Term Income Fund. Therefore, the
distributor will proportionately reduce the annual fee referred to above that it
pays to institutions in connection with their sales of Class A shares of those
funds.
CALCULATING YOUR SHARE PRICE
Your purchase price will be based on the fund's net asset value (NAV) per share,
which is generally calculated as of the close of regular trading on the New York
Stock Exchange (usually 3 p.m. Central time) every day the exchange is open.
A fund's NAV is equal to the market value of its investments and other assets,
less any liabilities, divided by the number of fund shares. If market prices are
not readily available for an investment or if the advisor believes they are
unreliable, fair value prices may be determined in good faith using methods
approved by the funds' board of directors.
Strategic Income Fund may hold portfolio securities that trade on weekends or
other days when the fund does not price its shares. Therefore, the net asset
value of Strategic Income Fund's shares may change on days when shareholders
will not be able to purchase or redeem their shares.
32 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
CLASS A SHARES
Your purchase price is typically the net asset value of your shares, plus a
front-end sales charge. Sales charges vary depending on the amount of your
purchase. The funds' distributor receives the sales charge you pay and reallows
a portion of the sales charge to your broker or participating institution.
<TABLE>
<CAPTION>
INTERMEDIATE TERM INCOME FUND
LIMITED TERM INCOME FUND
Maximum
Sales Charge Reallowance
as a % of as a % of as a % of
Offering Net Asset Purchase
Price Value Price
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $ 50,000 2.50% 2.56% 2.25%
$ 50,000 - $ 99,999 2.00% 2.04% 1.75%
$100,000 - $249,999 1.50% 1.52% 1.25%
$250,000 - $499,999 1.00% 1.01% 0.75%
$500,000 - $999,999 0.75% 0.76% 0.50%
$1 million and over 0% 0% 0%
FIXED INCOME FUND
STRATEGIC INCOME FUND
CORPORATE BOND FUND
Maximum
Sales Charge Reallowance
as a % of as a % of as a % of
Offering Net Asset Purchase
Price Value Price
- -----------------------------------------------------------------------------------------------------------
Less than $ 50,000 4.25% 4.44% 4.00%
$ 50,000 - $ 99,999 4.00% 4.17% 3.75%
$100,000 - $249,999 3.25% 3.36% 3.00%
$250,000 - $499,999 2.25% 2.30% 2.00%
$500,000 - $999,999 1.75% 1.78% 1.50%
$1 million and over 0% 0% 0%
</TABLE>
33 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
FOR INVESTMENTS OF OVER $1 MILLION
There is no initial sales charge on Class A share purchases of $1 million or
more. However, your broker or financial institution may receive a commission of
up to 1% on your purchase. If such a commission of up to 1% on your purchase. If
such a commission is paid, you will be assessed a contingent deferred sales
charge (CDSC) of 1% if you sell your shares within 18 months. To find out
whether you will be assessed a CDSC, ask your broker or financial institution.
The funds' distributor receives any CDSC imposed when you sell your Class A
shares. The CDSC is based on the value of your shares at the time of purchase or
at the time of sale, whichever is less. The charge does not apply to shares you
acquired by reinvesting your dividend or capital gain distributions.
To help lower your costs, shares that are not subject to a CDSC will be sold
first. Other shares will then be sold in an order that minimizes your CDSC. The
CDSC for Class A shares will be waived for:
o redemptions following the death or disability of a shareholder and
o redemptions that equal the minimum required distribution from an
individual retirement account or other retirement plan to a
shareholder who has reached the age of 70 1/2.
REDUCING YOUR SALES CHARGE
As shown in the preceding tables, larger purchases of Class A shares reduce the
percentage sales charge you pay. You also may reduce your sales charge in the
following ways:
PRIOR PURCHASES. Prior purchases of Class A shares of any First American fund
(except a money market fund) will be factored into your sales charge
calculation. For example, let's say you're making a $10,000 investment. If the
current value of all other First American fund Class A shares that you hold is
$40,000 or more, your current sales charge is reduced. To receive a reduced
sales charge, you must notify the funds' transfer agent of your prior purchases.
This must be done at the time of purchase, either directly to the transfer agent
in writing or by notifying your broker or financial institution.
PURCHASES BY RELATED ACCOUNTS. Concurrent and prior purchases of Class A shares
by certain other accounts also will be combined with your purchase to determine
your sales charge. For example, purchases made by your spouse or children under
age 21 will reduce your sales charge. To receive a reduced sales charge, you
must notify the funds' transfer agent of purchases by any related accounts. This
must be done at the time of purchase, either directly to the transfer agent in
writing or by notifying your broker or financial institution.
34 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
LETTER OF INTENT. If you plan to invest $50,000 or more over a 13-month period
in Class A shares of any First American fund except the money market funds, you
may reduce your sales charge by signing a non-binding letter of intent. (If you
do not fulfill the letter of intent, you must pay the applicable sales charge.
In addition, if you reduce your sales charge to zero under a letter of intent
and then sell your Class A shares within 18 months of their purchase, you may be
charged a contingent deferred sales charge of 1%. See "For Investments of Over
$1 Million.")
More information on these ways to reduce your sales charge appears in the
Statement of Additional Information (SAI). The SAI also contains information on
investors who are eligible to purchase Class A shares without a sales charge.
CLASS B SHARES
Your purchase price for Class B shares is their net asset value -- there is no
front-end sales charge. However, if you redeem your shares within six years of
purchase, you will pay a back-end sales charge, called a contingent deferred
sales charge (CDSC). Although you pay no front-end sales charge when you buy
Class B shares, the funds' distributor pays a sales commission of 4.25% of the
amount invested to brokers and financial institutions which sell Class B shares.
The funds' distributor receives any CDSC imposed when you sell your Class B
shares.
Your CDSC will be based on the value of your shares at the time of purchase or
at the time of sale, whichever is less. The charge does not apply to shares you
acquired by reinvesting your dividend or capital gain distributions. Shares will
be sold in the order that minimizes your CDSC.
CDSC as a % of the
Year since purchase value of your shares
- --------------------------------------------------------------------------------
First 5%
Second 5%
Third 4%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh 0%
Eighth 0%
35 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
Your Class B shares will automatically convert to Class A shares eight years
after the first day of the month you purchased the shares. For example, if you
purchase Class B shares on June 15, 2000, they will convert to Class A shares on
June 1, 2008.
The CDSC will be waived for:
o redemptions following the death or disability (as defined in the
Internal Revenue Code) of a shareholder.
o redemptions that equal the minimum required distribution from an
individual retirement account or other retirement plan to a
shareholder who has reached the age of 70-1/2.
o redemptions through a systematic withdrawal plan, at a rate of up to
12% a year of your account's value. During the first year, the 12%
annual limit will be based on the value of your account on the date
the plan is established. Thereafter, it will be based on the value of
your account on the preceding December 31.
CLASS C SHARES
Your purchase price for Class C shares is their net asset value plus a front-end
sales charge equal to 1% of the purchase price (1.01% of the net amount
invested). If you redeem your shares within 18 months of purchase, you will be
assessed a contingent deferred sales charge (CDSC) of 1% of the value of your
shares at the time of purchase or at the time of sale, whichever is less. The
CDSC does not apply to shares you acquired by reinvesting your dividend or
capital gain distributions. Shares will be sold in the order that minimizes your
CDSC.
Even though your sales charge is only 1%, the funds' distributor pays a
commission equal to 2% of your purchase price to your broker or participating
institution. The distributor receives any CDSC imposed when you sell your Class
C shares.
The CDSC for Class C shares will be waived in the same circumstances as the
Class B share CDSC. See "Class B Shares" above.
Unlike Class B shares, Class C shares do not convert to Class A shares after a
specified period of time. Therefore, your shares will continue to have higher
annual expenses than Class A shares.
HOW TO BUY SHARES
You may buy shares on any day the New York Stock Exchange is open. However
purchases of shares may be restricted in the event of an early or unscheduled
close of the New York Stock Exchange. Your shares will be priced at the next NAV
calculated after your order is accepted by the fund, plus any applicable sales
charge. To make sure that your order is accepted, follow the directions for
purchasing shares given below.
36 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
BY PHONE
You may purchase shares by calling your broker or financial institution, if they
have a sales agreement with the funds' distributor. In many cases, your order
will be effective that day if received by your broker or financial institution
by the close of regular trading on the New York Stock Exchange. In some cases,
however, you will have to transmit your request by an earlier time in order for
your purchase request to be effective that day. This allows your broker or
financial institution time to process your request and transmit it to the fund.
Some financial institutions may charge a fee for helping you purchase shares.
Contact your broker or financial institution for more information.
If you are paying by wire, you may purchase shares by calling 1-800-637-2548
before 3 p.m. Central time. All information will be taken over the telephone,
and your order will be placed when the funds' custodian receives payment by
wire. Wire federal funds as follows:
U.S. Bank National Association, Minneapolis, MN
ABA Number 091000022
For Credit to: DST Systems, Inc.:
Account Number 160234580266
For Further Credit to (investor name and fund name)
You cannot purchase shares by wire on days when federally chartered banks are
closed.
BY MAIL
To purchase shares by mail, simply complete and sign a new account form, enclose
a check made payable to the fund you wish to invest in, and mail both to:
First American Funds
c/o DST Systems, Inc.
P.O. Box 219382
Kansas City, Missouri 64121-9382
After you have established an account, you may continue to purchase shares by
mailing your check to First American Funds at the same address.
Please note the following:
o All purchases must be made in U.S. dollars.
o THIRD-PARTY CHECKS, CREDIT CARDS, CREDIT CARD CHECKS AND CASH ARE NOT
ACCEPTED.
o If a check does not clear your bank, the funds reserve the right to
cancel the purchase, and you could be liable for any losses or fees
incurred.
37 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
INVESTING AUTOMATICALLY
To purchase shares as part of a savings discipline, you may add to your
investment on a regular basis:
o by having $100 or more ($25 for a retirement plan or an UGMA/UTMA
account) automatically withdrawn from your bank account on a periodic
basis and invested in fund shares.
o through automatic monthly exchanges of your shares of Prime
Obligations Fund, a money market fund in the First American family of
funds. Exchanges must be made into the same class of shares that you
hold in Prime Obligations Fund.
You may apply for participation in either of these programs through your broker
or financial institution or by calling 1-800-637-2548.
38 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
POLICIES & SERVICES
SELLING SHARES
HOW TO SELL SHARES
You may sell your shares on any day when the New York Stock Exchange is open.
However redemption of shares may be restricted in the event of an early or
unscheduled close of the New York Stock Exchange. Your shares will be sold at
the next NAV calculated after your order is accepted by the fund, less any
applicable contingent deferred sales charge. To make sure that your order is
accepted, follow the directions for selling shares given below.
The proceeds from your sale normally will be mailed or wired within one day, but
in no event more than seven days, after your request is received in proper form.
BY PHONE
If you purchased shares through a broker or financial institution, simply call
them to sell your shares. In many cases, your redemption will be effective that
day if received by your broker or financial institution by the close of regular
trading on the New York Stock Exchange. In some cases, however, you will have to
call by an earlier time in order for your redemption to be effective that day.
This allows your broker or financial institution time to process your request
and transmit it to the fund. Contact your broker or financial institution
directly for more information.
If you did not purchase shares through a broker or financial institution, you
may sell your shares by calling 1-800-637-2548. Proceeds can be wired to your
bank account (if the proceeds are at least $1,000 and you have previously
supplied your bank account information to the transfer agent) or sent to you by
check.
If you recently purchased your shares by check or through the Automated Clearing
House (ACH), proceeds from the sale of those shares may not be available until
your check or ACH payment has cleared, which may take up to 10 calendar days
from the date of purchase.
BY MAIL
To sell shares by mail, send a written request to your broker or financial
institution, or to the funds' transfer agent at the following address:
First American Funds
c/o DST Systems, Inc.
P.O. Box 219382
Kansas City, Missouri 64121-9382
39 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
Your request should include the following information:
o name of the fund;
o account number;
o dollar amount or number of shares redeemed;
o name on the account; and
o signatures of all registered account owners.
Signatures on a written request must be guaranteed if:
o you would like the proceeds from the sale to be paid to anyone other
than to the shareholder of record.
o you would like the check mailed to an address other than the address
on the funds' records.
o your redemption request is for $50,000 or more.
A signature guarantee assures that a signature is genuine and protects
shareholders from unauthorized account transfers. Banks, savings and loan
associations, trust companies, credit unions, broker-dealers and member firms of
a national securities exchange may guarantee signatures. Call your financial
institution to determine if it has this capability.
Proceeds from a written redemption request will be sent to you by check.
SYSTEMATIC WITHDRAWALS
If your account has a value of $5,000 or more, you may redeem a specific dollar
amount from your account on a regular basis. To set up systematic withdrawals,
contact your broker or financial institution.
You should not make systematic withdrawals if you plan to continue investing in
the fund, due to sales charges and tax liabilities.
REINVESTING AFTER A SALE
If you sell Class A shares, you may reinvest in Class A shares of that fund or
another First American fund within 180 days without a sales charge. To reinvest
in Class A shares at net asset value (without paying a sales charge), you must
notify the transfer agent directly in writing or notify your broker or financial
institution.
ACCOUNTS WITH LOW BALANCES
Except for retirement plans and UGMA/UTMA accounts, if your account balance
falls below $500 as a result of selling or exchanging shares, you may receive
written notice and be given 30 days to re-establish the minimum balance. If you
do not, the fund may close your account and send you the proceeds, less any
applicable contingent deferred sales charge, or deduct a $25 annual fee in
December of each year if your account balance at that time is below $500.
40 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
POLICIES & SERVICES
MANAGING YOUR INVESTMENT
EXCHANGING SHARES
If your investment goals or your financial needs change, you may move from one
First American fund to another. There is no fee to exchange shares.
Generally, you may exchange your shares only for shares of the same class.
However, you may exchange your Class A shares for Class Y shares of the same or
another First American fund if you subsequently become eligible to participate
in that class (for example, by opening a fiduciary, custody or agency account
with a financial institution which invests in Class Y shares.
Exchanges are made based on the net asset value per share of each fund at the
time of the exchange. When you exchange your Class A shares of one of the funds
for Class A shares of another First American fund, you do not have to pay a
sales charge. When you exchange your Class B or Class C shares for Class B or
Class C shares of another First American fund, the time you held the shares of
the "old" fund will be added to the time you hold the shares of the "new" fund
for purposes of determining your CDSC or, in the case of Class B shares,
calculating when your shares convert to Class A shares.
Before exchanging into any fund, be sure to read its prospectus carefully. A
fund may change or cancel its exchange policies at any time. You will be
notified of any changes. The funds have the right to limit exchanges to four
times per year.
BY PHONE
You may exchange shares by calling your broker, your financial institution, or
the funds' transfer agent, provided that both funds have identical shareholder
registrations. To request an exchange through the funds' transfer agent, call
1-800-637-2548. Your instructions must be received by the funds' transfer agent
before 3 p.m. Central time, or by the time specified by your broker or financial
institution, in order for shares to be exchanged the same day.
BY MAIL
To exchange shares by written request, please follow the procedures under
"Selling Shares." Be sure to include the names of both funds involved in the
exchange.
41 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
STAYING INFORMED
SHAREHOLDER REPORTS
Shareholder reports are mailed twice a year, in November and May. They include
financial statements, performance information, a message from your portfolio
managers, and, on an annual basis, the auditors' report.
In an attempt to reduce shareholder costs and help eliminate duplication, the
funds will try to limit their mailings to one report for each address that lists
one or more shareholders with the same last name. If you would like additional
copies, please call 1-800-637-2548.
STATEMENTS AND CONFIRMATIONS
Statements summarizing activity in your account are mailed at least quarterly.
Confirmations are mailed following each purchase or sale of fund shares.
TELEPHONE TRANSACTIONS
You may buy, sell or exchange shares by telephone, unless you elected on your
new account form to restrict this privilege. If you wish to reinstate this
option on an existing account, please call Investor Services at 1-800-637-2548
to request the appropriate form.
The funds and their agents will not be responsible for any losses that may
result from acting on wire or telephone instructions that they reasonably
believe to be genuine. The funds and their agents will each follow reasonable
procedures to confirm that instructions received by telephone are genuine, which
may include taping telephone conversations.
It may be difficult to reach the funds by telephone during periods of unusual
market activity. If you are unable to reach the funds or their agents by
telephone, please consider sending written instructions.
DIVIDENDS AND DISTRIBUTIONS
Dividends from a fund's net investment income are declared and paid monthly. Any
capital gains are distributed at least once each year.
On the ex-dividend date for a distribution, a fund's share price is reduced by
the amount of the distribution. If you buy shares just before the ex-dividend
date, in effect, you "buy the dividend." You will pay the full price for the
shares and then receive a portion of that price back as a taxable distribution.
Dividend and capital gain distributions will be reinvested in additional shares
of the fund paying the distribution, unless you request that distributions be
reinvested in another First American fund or paid in cash. This request may be
made on your new account form or by writing to the fund. If you request that
your distributions be paid in cash but those distributions cannot be delivered
because of an incorrect mailing address, the undelivered distributions and all
future distributions will be reinvested in fund shares.
42 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
Strategic Income Fund may realize foreign currency losses that will reduce the
amount of ordinary income that the fund has available to distribute to
shareholders. As a result, some of the distributions made by the fund may be
characterized as a return of capital rather than as taxable dividends. Strategic
Income Fund will report to shareholders after the close of the calendar year the
portion of distributions made during the year that constituted a return of
capital and the portion that constituted taxable dividends.
TAXES
Some of the tax consequences of investing in the funds are discussed below. More
information about taxes is in the Statement of Additional Information. However,
because everyone's tax situation is unique, always consult your tax professional
about federal, state and local tax consequences.
TAXES ON DISTRIBUTIONS
Each fund pays its shareholders dividends from its net investment income and any
net capital gains that it has realized. For most investors, fund dividends and
distributions are considered taxable whether they are reinvested or taken in
cash (unless your investment is in an IRA or other tax-advantaged account).
Dividends from a fund's net investment income and short-term capital gains are
taxable as ordinary income. Distributions of a fund's long-term capital gains
are taxable as long-term capital gains, regardless of how long you have held
your shares. The funds expect that, as a result of their investment objectives
and strategies, their distributions will consist primarily of ordinary income.
TAXES ON TRANSACTIONS
The sale of fund shares, or the exchange of one fund's shares for shares of
another fund, will be a taxable event and may result in a capital gain or loss.
The gain or loss will be considered long-term if you have held your shares for
more than one year. A gain or loss on shares held for one year or less is
considered short-term and is taxed at the same rates as ordinary income.
The exchange of one class of shares for another class of shares in the same fund
will not be taxable.
43 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
ADDITIONAL INFORMATION
MANAGEMENT
INVESTMENT ADVISOR
First American Asset Management
601 Second Avenue South
Minneapolis, Minnesota 55402
U.S. Bank National Association (U.S. Bank), acting through its First American
Asset Management division, is the funds' investment advisor. First American
Asset Management provides investment management services to individuals and
institutions, including corporations, foundations, pensions and retirement
plans. As of December 31, 1999, it had more than $ _____ billion in assets under
management, including investment company assets of approximately $ _____
billion. As investment advisor, First American Asset Management manages the
funds' business and investment activities, subject to the authority of the board
of directors. Each fund pays the investment advisor a monthly fee for providing
investment advisory services. During their most recent fiscal years, after
taking into account fee waivers, the funds paid the following investment
advisory fees to First American Asset Management:
Advisory fee
as a % of
average daily
net assets
- --------------------------------------------------------------------------------
Corporate Bond Fund(1) _________%
Fixed Income Fund _________%
Intermediate Term
Income Fund _________%
Limited Term Income Fund _________%
Strategic Income Fund _________%
- --------------------------------------------------------------------------------
(1)Corporate Bond Fund commenced operations as of the date of this Prospectus.
The contractual fee rate is shown in the table.
44 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
SUB-ADVISOR
Federated Global Investment Management Corp.
175 Water Street
New York, New York 10038-4964
The sub-advisor has been retained by the fund's investment advisor and is paid a
portion of the advisory fee.
Federated Global Investment Management Corp. manages the fund's investments in
investment grade and high-yield foreign government and foreign corporate debt
obligations. First American Asset Management manages the fund's investments in
U.S. government and investment grade domestic debt obligations and determines
how the fund's assets will be allocated among the three sectors in which the
fund invests.
The sub-advisor and other subsidiaries of Federated Investors serve as
investment advisors to a number of investment companies and private accounts.
CUSTODIAN
U.S Bank National Association
U.S. Bank Center
180 East Fifth Street
St. Paul, Minnesota 55101
ADMINISTRATOR
U.S Bank National Association
U.S. Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402
DISTRIBUTOR
SEI Investments Distribution Co.
Oaks, Pennsylvania 19456
ADDITIONAL COMPENSATION
U.S. Bank and other affiliates of U.S. Bancorp may act as fiduciary with respect
to plans subject to the Employee Retirement Income Security Act of 1974 (ERISA)
and other trust and agency accounts that invest in the funds. As described
above, U.S. Bank receives compensation for acting as the funds' investment
advisor. U.S. Bank and its affiliates also receive compensation in connection
with the following:
CUSTODY SERVICES. U.S. Bank provides or compensates others to provide custody
services to the funds. U.S. Bank is paid monthly fees equal, on an annual basis,
to 0.03% of a fund's average daily net assets. In addition, U.S. Bank is
reimbursed for its out-of-pocket expenses incurred while providing custody
services to the funds.
45 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
ADMINISTRATION SERVICES. U.S. Bank provides or compensates others to provide
administrative services to the funds including general administrative and
accounting services, transfer agency and dividend disbursing services, and
shareholder services. The funds pay U.S. Bank monthly fees equal, on an annual
basis, to 0.12% of the aggregate average daily net assets of all open-end mutual
funds in the First American fund family up to $8 billion and 0.105% of the
aggregate average daily net assets of all open-end mutual funds in the First
American fund family in excess of $8 billion. Additionally, the funds pay U.S.
Bank fees based upon the number of funds and accounts maintained.
SECURITIES LENDING SERVICES. In connection with lending their portfolio
securities, the funds pay administrative and custodial fees to U.S. Bank which
are equal to 40% of the funds' income from these securities lending
transactions.
BROKERAGE TRANSACTIONS. The funds purchase most of their portfolio securities
directly from the issuer or from an underwriter or market maker, and not from a
broker acting as agent. However, the funds may from time to time use brokers
when buying portfolio securities. The funds' investment advisor may place trades
through its affiliates, U.S. Bancorp Investments, Inc. and U.S. Bancorp Piper
Jaffray Inc., which will earn commissions on such transactions.
SALES OF FUND SHARES. U.S. Bancorp Investments, Inc. and U.S. Bancorp Piper
Jaffray Inc., broker-dealers affiliated with U.S. Bank, have entered into
agreements with the funds' distributor to sell fund shares and will earn annual
shareholder servicing fees in connection with these sales.
PORTFOLIO MANAGEMENT
Each fund's investments are managed by a team of persons associated with First
American Asset Management or, in the case of Strategic Income Fund, the
sub-advisor.
46 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
ADDITIONAL INFORMATION
MORE ABOUT THE FUNDS
OBJECTIVES
The funds' objectives, which are described in the "Fund Summaries" section, may
be changed without shareholder approval. If a fund's objectives change, you will
be notified at least 30 days in advance. Please remember: There is no guarantee
that any fund will achieve its objectives.
INVESTMENT STRATEGIES
The funds' main investment strategies are discussed in the "Fund Summaries"
section. These are the strategies that the funds' investment advisor believes
are most likely to be important in trying to achieve the funds' objectives. You
should be aware that each fund may also use strategies and invest in securities
that are not described in this prospectus, but that are described in the
Statement of Additional Information (SAI). For a copy of the SAI, call Investor
Services at 1-800-637-2548.
INVESTMENT APPROACH
For funds other than Strategic Income Fund and Corporate Bond Fund, fund
managers generally employ a "top-down" approach in selecting securities for the
funds. First, they determine their economic outlook and the direction in which
inflation and interest rates are expected to move. Then they choose certain
sectors or industries within the overall market. Last, they select individual
securities within those sectors for the funds. Fund managers also analyze
expected changes to the yield curve under multiple market conditions to help
define maturity and duration selection. For the Corporate Bond Fund, fund
managers employ a "bottom-up" approach to identify relative value in the
corporate bond market.
For Strategic Income Fund, the advisor is responsible for allocating the fund's
portfolio among the three categories of securities in which the fund invests, as
discussed above in the "Fund Summaries" section. After making this allocation,
the advisor uses the top-down approach discussed above to select the fund's
investments in U.S. government and investment grade domestic debt obligations.
In selecting domestic high-yield securities, the advisor focuses on individual
security selection, analyzing the business, competitive position and financial
condition of each issuer to assess whether the security's risk is commensurate
with its potential return. With regard to the fund's investments in foreign
securities, the fund's sub-advisor looks primarily for securities offering
higher interest rates. The sub-advisor attempts to manage the risks of these
securities by investing the foreign security portion of the fund's portfolio in
a large number of securities from a wide range of foreign countries, and by
allocating this portion of the portfolio among countries whose markets, based on
historical analysis, respond differently to changes in the global economy.
47 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
EFFECTIVE DURATION
Each fund, other than Strategic Income Fund, attempts to maintain the effective
duration of its portfolio securities within a specified range. Effective
duration, one measure of interest rate risk, measures how much the value of a
security is expected to change with a given change in interest rates. The longer
a security's effective duration, the more sensitive its price to changes in
interest rates. For example, if interest rates were to increase by one
percentage point, the market value of a bond with an effective duration of five
years would decrease by 5%, with all other factors being constant. However, all
other factors are rarely constant. Effective duration is based on assumptions
and subject to a number of limitations. It is most useful when interest rate
changes are small, rapid and occur equally in short-term and long-term
securities. In addition, it is difficult to calculate precisely for bonds with
prepayment options, such as mortgage- and asset-backed securities, because the
calculation requires assumptions about prepayment rates. For these reasons, the
effective durations of funds which invest a significant portion of their assets
in these securities can be greatly affected by changes in interest rates.
TEMPORARY INVESTMENTS
In an attempt to respond to adverse market, economic, political or other
conditions, each fund may temporarily invest without limit in cash and in U.S.
dollar-denominated high-quality money market instruments and other short-term
securities, including money market funds advised by the funds' advisor. These
investments may result in a lower yield than would be available from investments
with a lower quality or longer term and may prevent a fund from achieving its
investment objectives.
PORTFOLIO TURNOVER
Portfolio turnover for Corporate Bond Fund is expected to be low under normal
market conditions. Other funds may trade securities frequently, resulting, from
time to time, in an annual portfolio turnover rate of over 100%. Trading of
securities may produce capital gains, which are taxable to shareholders when
distributed. Active trading may also increase the amount of commissions or
mark-ups to broker-dealers that the fund pays when it buys and sells securities.
The "Financial Highlights" section of this prospectus shows each fund's
historical portfolio turnover rate (except for Corporate Bond Fund, which just
began operations).
RISKS
The main risks of investing in the funds are summarized in the "Fund Summaries"
section. More information about fund risks is presented below.
48 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
INTEREST RATE RISK
Debt securities in the funds will fluctuate in value with changes in interest
rates. In general, debt securities will increase in value when interest rates
fall and decrease in value when interest rates rise. Longer-term debt securities
are generally more sensitive to interest rate changes. ARMS are generally less
sensitive to interest rate changes because their interest rates move with market
rates. Securities which do not pay interest on a current basis, such as zero
coupon securities and delayed interest securities, may be highly volatile as
interest rates rise or fall. Payment-in-kind bonds, which pay interest in other
securities rather than in cash, also may be highly volatile.
INCOME RISK
The fund's income could decline due to falling market interest rates. This is
because, in a falling interest rate environment, the fund generally will have to
invest the proceeds from sales of fund shares, as well as the proceeds from
maturing portfolio securities (or portfolio securities that have been called,
see "Call Risk," or prepaid, see "Prepayment Risk") in lower-yielding
securities.
RISKS OF HIGH-YIELD SECURITIES
A significant portion of the portfolios of Strategic Income Fund and Corporate
Bond Fund may consist of lower-rated corporate debt obligations, which are
commonly referred to as "high yield" securities or "junk bonds." Although these
securities usually offer higher yields than investment grade securities, they
also involve more risk. High yield bonds may be more susceptible to real or
perceived adverse economic conditions than investment grade bonds. In addition,
the secondary trading market may be less liquid. High yield securities generally
have more volatile prices and carry more risk to principal than investment grade
securities.
LIQUIDITY RISK
Strategic Income Fund and corporate Bond Fund are exposed to liquidity risk
because of their investments in high yield bonds. Strategic Income Fund's
investment in emerging markets also exposes it to liquidity risk. Trading
opportunities are more limited for debt securities that have received ratings
below investment grade or are issued by companies located in emerging markets.
These features may make it more difficult to sell or buy a security at a
favorable price or time. Consequently, these funds may have to accept a lower
price to sell a security, sell other securities to raise cash or give up an
investment opportunity, any of which could have a negative effect on a fund's
performance. Infrequent trading may also lead to greater price volatility.
CREDIT RISK
Each fund is subject to the risk that the issuers of debt securities held by the
fund will not make payments on the securities, or that the other party to a
contract (such as a securities lending agreement or repurchase agreement) will
default on its obligations. There is also the risk that an issuer could suffer
adverse changes in financial condition that could lower the credit quality of a
security. This could lead to greater volatility in the price of the security and
in shares of the fund. Also, a change in the credit quality rating of a bond
could affect the bond's liquidity and make it more difficult for the fund to
sell. When a fund purchases unrated securities, it will depend on the advisor's
analysis of credit risk more heavily than usual.
49 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
Each fund other than Strategic Income Fund and Corporate Bond Fund attempts to
minimize credit risk by investing in securities considered at least investment
grade at the time of purchase. However, all of these securities, especially
those in the lower investment grade rating categories, have credit risk. In
adverse economic or other circumstances, issuers of these lower rated securities
are more likely to have difficulty making principal and interest payments than
issuers of higher rated securities.
CALL RISK
Many corporate bonds may be redeemed at the option of the issuer, or "called,"
before their stated maturity date. In general, an issuer will call its bonds if
they can be refinanced by issuing new bonds which bear a lower interest rate.
The funds are subject to the possibility that during periods of falling interest
rates, a bond issuer will call its high-yielding bonds. A fund would then be
forced to invest the unanticipated proceeds at lower interest rates, resulting
in a decline in the fund's income.
PREPAYMENT RISK
Mortgage-backed securities are secured by and payable from pools of mortgage
loans. Similarly, asset-backed securities are supported by obligations such as
automobile loans or home equity loans. These mortgages and other obligations
generally can be prepaid at any time without penalty. As a result, mortgage- and
asset-backed securities are subject to prepayment risk, which is the risk that
falling interest rates could cause prepayments of the securities to occur more
quickly than expected. This occurs because, as interest rates fall, more
homeowners refinance the mortgages underlying mortgage-related securities or
prepay the debt obligations underlying asset-backed securities. A fund holding
these securities must reinvest the prepayments at a time when interest rates are
falling, reducing the income of the fund. In addition, when interest rates fall,
prices on mortgage- and asset-backed securities may not rise as much as for
other types of comparable debt securities because investors may anticipate an
increase in prepayments.
EXTENSION RISK
Mortgage- and asset-backed securities also are subject to extension risk, which
is the risk that rising interest rates could cause mortgages or other
obligations underlying the securities to be prepaid more slowly than expected,
resulting in slower prepayments of the securities. This would, in effect,
convert a short- or medium-duration mortgage- or asset-backed security into a
longer-duration security, increasing its sensitivity to interest rate changes
and causing its price to decline.
RISKS OF DOLLAR ROLL TRANSACTIONS
In a dollar roll transaction, a fund sells mortgage-backed securities for
delivery in the current month while contracting with the same party to
repurchase similar securities at a future date. Because the fund gives up the
right to receive principal and interest paid on the securities sold, a mortgage
dollar roll transaction will diminish the investment performance of a fund
unless the difference between the price received for the securities sold and the
price to be paid for the securities to be purchased in the future, plus any fee
income received, exceeds any income, principal payments and appreciation on the
securities sold as part of the mortgage dollar roll. Whether mortgage dollar
rolls will benefit a fund may depend upon the advisor's ability to predict
mortgage prepayments and interest rates. In addition, the use of mortgage dollar
rolls by a fund increases the amount of the fund's assets that are subject to
market risk, which could increase the volatility of the price of the fund's
shares.
50 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
RISKS OF SECURITIES LENDING
When a fund loans its portfolio securities, it will receive collateral equal to
at least 100% of the value of the loaned securities. Nevertheless, the fund
risks a delay in the recovery of the loaned securities, or even the loss of
rights in the collateral deposited by the borrower if the borrower should fail
financially. To reduce these risks, the funds enter into loan arrangements only
with institutions which the funds' advisor has determined are creditworthy under
guidelines established by the funds' board of directors.
RISKS OF ACTIVE MANAGEMENT
Each fund is actively managed and its performance therefore will reflect in part
the advisor's ability to make investment decisions which are suited to achieving
the fund's investment objectives. Due to their active management, the funds
could underperform other mutual funds with similar investment objectives.
ADDITIONAL RISKS OF STRATEGIC INCOME FUND
RISKS OF FOREIGN INVESTING
Foreign investing involves risks not typically associated with U.S. investing.
These risks include:
CURRENCY RISK. Because foreign securities often trade in currencies other than
the U.S. dollar, changes in currency exchange rates will affect the fund's net
asset value, the value of dividends and interest earned, and gains and losses
realized on the sale of securities. A strong U.S. dollar relative to these other
currencies will adversely affect the value of the fund.
POLITICAL AND ECONOMIC RISKS. Foreign investing is subject to the risk of
political, social or economic instability in the country of the issuer of a
security, the difficulty of predicting international trade patterns, the
possibility of the imposition of exchange controls, expropriation, limits on
removal of currency or other assets and nationalization of assets.
FOREIGN TAX RISK. The fund's income from foreign issuers may be subject to
non-U.S. withholding taxes. In some countries, the fund also may be subject to
taxes on trading profits and, on certain securities transactions, transfer or
stamp duties tax. To the extent foreign income taxes are paid by the fund, U.S.
shareholders may be entitled to a credit or deduction for U.S. tax purposes. See
the Statement of Additional Information for details.
51 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
RISK OF INVESTMENT RESTRICTIONS. Some countries, particularly emerging markets,
restrict varying degrees foreign investment in their securities markets. In some
circumstances, these restrictions may limit or preclude investment in certain
countries or may increase the cost of investing in securities of particular
companies.
FOREIGN SECURITIES MARKET RISK. Securities of many non-U.S. companies may be
less liquid and their prices more volatile than securities of comparable U.S.
companies. Securities of companies traded in many countries outside the U.S.,
particularly emerging markets countries, may be subject to further risks due to
the inexperience of local brokers and financial institutions, the possibility of
permanent or temporary termination of trading, and greater spreads between bid
and asked prices for securities. In addition, non-U.S. stock exchanges and
brokers are subject to less governmental regulation, and commissions may be
higher than in the United States. Also, there may be delays in the settlement of
non-U.S. stock exchange transactions.
INFORMATION RISK. Non-U.S. companies generally are not subject to uniform
accounting, auditing and financial reporting standards or to other regulatory
requirements that apply to U.S. companies. As a result, less information may be
available to investors concerning non-U.S. issuers. Accounting and financial
reporting standards in emerging markets may be especially lacking.
RISKS OF EMERGING MARKETS
Investing in securities of issuers in emerging markets involves exposure to
economic infrastructures that are generally less diverse and mature than
political systems that can be expected to have less stability than, and to those
of developed countries. Other characteristics of emerging market countries that
may affect investment in their markets include certain governmental policies
that may restrict investment by foreigners and the absence of developed legal
structures governing private and foreign investments and private property. The
typical small size of the markets for securities issued by issuers located in
emerging markets and the possibility of low or nonexistent volume of trading in
those securities may also result in a lack of liquidity and in price volatility
of those securities. In addition, issuers in emerging markets typically are
subject to a greater degree of change in earnings and business prospects than
are companies in developed markets.
SECTOR RISK
A substantial part of Strategic Income Fund's portfolio may be comprised of
securities issued or credit enhanced by companies in similar businesses, or with
similar characteristics. As a result, the fund will be more susceptible to any
economic, business, political or other developments which generally affect these
issuers.
52 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
ADDITIONAL INFORMATION
FINANCIAL HIGHLIGHTS
The tables that follow present performance information about the Class A shares
of each fund, and the Class B and Class C shares of Fixed Income Fund and
Strategic Income Fund. No information is presented for the Corporate Bond Fund
as that fund was not offered prior to the date of this prospectus. This
information is intended to help you understand each fund's financial performance
for the past five years or, if shorter, the period of the fund's operations.
Some of this information reflects financial results for a single fund share.
Total returns in the tables represent the rate that you would have earned or
lost on an investment in a fund, excluding sales charges and assuming you
reinvested all of your dividends and distributions.
The information for the fiscal year ended September 30, 1999 has been audited by
Ernst & Young LLP, independent auditors, whose report, along with the funds'
financial statements, is included in the funds' annual report, which is
available upon request. The information for the fiscal years ended on or before
September 30, 1998, has been audited by KPMG LLP.
<TABLE>
<CAPTION>
FIXED INCOME FUND
Fiscal year ended September 30,
CLASS A SHARES 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $_____ $10.97 $10.77 $10.98 $10.37
--------------------------------------------------------------------------------
Investment Operations:
Net Investment Income ______ 0.57 0.59 0.61 0.66
Net Gains (Losses) on Investments
(both realized and unrealized) ______ 0.73 0.27 (0.11) 0.61
--------------------------------------------------------------------------------
Total From Investment Operations ______ 1.30 0.86 0.50 1.27
--------------------------------------------------------------------------------
Less Distributions:
Dividends (from net investment income) ______ (0.57 (0.59) (0.61) (0.63)
Distributions (from capital gains) ______ (0.01) (0.07) (0.10) (0.03)
--------------------------------------------------------------------------------
Total Distributions ______ (0.58) (0.66) (0.71) (0.66)
Net Asset Value, End of Period $_____ $11.69 $10.97 $10.77 $10.98
================================================================================
Total Return _____% 12.29% 8.26% 4.64% 12.78%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $_____ $205,237 $8,535 $8,332 $7,853
Ratio of Expenses to Average Net Assets _____% 0.95% 0.95% 0.95% 0.86%
Ratio of Net Income to Average Net Assets _____% 5.10% 5.44% 5.55% 6.14%
Ratio of Expenses to Average Net Assets
(excluding waivers) _____% 1.11% 1.13% 1.12% 1.19%
Ratio of Net Income to Average Net Assets
(excluding waivers) _____% 4.94% 5.26% 5.38% 5.81%
Portfolio Turnover Rate _____% 147% 130% 108% 106%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
53 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS B SHARES 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $_____ $10.91 $10.72 $10.94 $10.35
-------------------------------------------------------------------
Investment Operations:
Net Investment Income ______ 0.49 0.51 0.52 0.58
Net Gains (Losses) on Investments
(both realized and unrealized) ______ 0.73 0.26 (0.11) 0.60
-------------------------------------------------------------------
Total From Investment Operations ______ 1.22 0.77 0.41 1.18
-------------------------------------------------------------------
Less Distributions:
Dividends (from net investment income) ______ (0.49) (0.51) (0.53) (0.56)
Distributions (from capital gains) ______ (0.01) (0.07) (0.10) (0.03)
-------------------------------------------------------------------
Total Distributions ______ (0.50) (0.58) (0.63) (0.59)
-------------------------------------------------------------------
Net Asset Value, End of Period $_____ $11.63 $10.91 $10.72 $10.94
===================================================================
Total Return _____% 11.54% 7.40% 3.93% 11.75%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $_____ $17,242 $15,253 $16,092 $7,280
Ratio of Expenses to Average Net Assets _____% 1.70% 1.70% 1.70% 1.70%
Ratio of Net Income to Average Net Assets _____% 4.35% 4.68% 4.81% 5.12%
Ratio of Expenses to Average Net Assets (excluding waivers) _____% 1.86% 1.88% 1.87% 1.94%
Ratio of Net Income to Average Net Assets (excluding waivers) _____% 4.19% 4.50% 4.64% 4.88%
Portfolio Turnover Rate _____% 147% 130% 108% 106%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
54 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
<TABLE>
<CAPTION>
Fiscal period ended September 30,
CLASS C SHARES 1999(1)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $_____
-----------------------------
Investment Operations:
Net Investment Income ______
Net Gains (Losses) on Investments
(both realized and unrealized) ______
-----------------------------
Total From Investment Operations ______
-----------------------------
Less Distributions:
Dividends (from net investment income) ______
Distributions (from capital gains) ______
-----------------------------
Total Distributions ______
-----------------------------
Net Asset Value, End of Period $_____
=============================
Total Return _____%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $_____
Ratio of Expenses to Average Net Assets _____%
Ratio of Net Income to Average Net Assets _____%
Ratio of Expenses to Average Net Assets (excluding waivers) _____%
Ratio of Net Income to Average Net Assets (excluding waivers) _____%
Portfolio Turnover Rate _____%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Class C Shares have been offered since February 1, 1999.
55 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
<TABLE>
<CAPTION>
INTERMEDIATE TERM INCOME FUND
Fiscal year ended September 30,
CLASS A SHARES 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $_____ $10.00 $9.93 $9.94 $9.55
---------------------------------------------------------------------
Investment Operations:
Net Investment Income ______ 0.53 0.55 0.55 0.59
Net Gains (Losses) on Investments
(both realized and unrealized) ______ 0.47 0.15 -- 0.38
---------------------------------------------------------------------
Total From Investment Operations ______ 1.00 0.70 0.55 0.97
---------------------------------------------------------------------
Less Distributions:
Dividends (from net investment income) ______ (0.53) (0.56) (0.55) (0.58)
Distributions (from capital gains) ______ (0.02) (0.07) (0.01) --
---------------------------------------------------------------------
Total Distributions ______ (0.55) (0.63) (0.56) (0.58)
---------------------------------------------------------------------
Net Asset Value, End of Period $_____ $10.45 $10.00 $9.93 $9.94
=====================================================================
Total Return _____% 10.35% 7.19% 5.63% 10.51%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $_____ $49,130 $2,484 $2,213 $2,437
Ratio of Expenses to Average Net Assets _____% 0.70% 0.70% 0.70% 0.70%
Ratio of Net Income to Average Net Assets _____% 5.22% 5.51% 5.43% 5.97%
Ratio of Expenses to Average Net Assets (excluding waivers) _____% 1.11% 1.17% 1.13% 1.19%
Ratio of Net Income to Average Net Assets (excluding waivers) _____% 4.81% 5.04% 5.00% 5.48%
Portfolio Turnover Rate _____% 166% 165% 161% 69%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
56 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
<TABLE>
<CAPTION>
Limited Term Income Fund
Fiscal year ended September 30,
CLASS A SHARES 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $____ $9.94 $9.91 $9.92 $9.85
---------------------------------------------------------
Investment Operations:
Net Investment Income _____ 0.53 0.56 0.58 0.56
Net Gains (Losses) on Investments
(both realized and unrealized) _____ 0.10 0.03 (0.01) 0.07
---------------------------------------------------------
Total From Investment Operations _____ 0.63 0.59 0.57 0.63
---------------------------------------------------------
Less Distributions:
Dividends (from net investment income) _____ (0.53) (0.56) (0.58) (0.56)
---------------------------------------------------------
Total Distributions _____ (0.53) (0.56) (0.58) (0.56)
---------------------------------------------------------
Net Asset Value, End of Period _____ $10.04 $9.94 $9.91 $9.92
=========================================================
Total Return _____ 6.55% 6.09% 5.93% 6.57%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) _____ $5,036 $7,152 $7,627 $9,977
Ratio of Expenses to Average Net Assets _____ 0.60% 0.60% 0.60% 0.60%
Ratio of Net Income to Average Net Assets _____ 5.33% 5.61% 5.80% 5.60%
Ratio of Expenses to Average Net Assets (excluding
waivers) _____ 1.12% 1.15% 1.09% 1.22%
Ratio of Net Income to Average Net Assets (excluding waivers) _____ 4.81% 5.06% 5.31% 4.98%
Portfolio Turnover Rate _____ 112% 147% 61% 120%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
57 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
<TABLE>
<CAPTION>
STRATEGIC INCOME FUND
Period ended Period ended
September 30, September 30,
CLASS A SHARES 1999 1999(1)
- -----------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
<S> <C> <C>
Net Asset Value, Beginning of Period ________ ________
----------------------------------------------------
Investment Operations:
Net Investment Income ________ ________
Net Gains (Losses) on Investments
(both realized and unrealized) ________ ________
----------------------------------------------------
Total From Investment Operations ________ ________
----------------------------------------------------
Less Distributions:
Dividends (from net investment income) ________ ________
----------------------------------------------------
Total Distributions ________ ________
----------------------------------------------------
Net Asset Value, End of Period ________ ________
====================================================
Total Return ________ ________
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) ________ ________
Ratio of Expenses to Average Net Assets ________ ________
Ratio of Net Income to Average Net Assets ________ ________
Ratios of Expenses to Average Net Assets (excluding waivers) ________ ________
Ratio of Net Income to Average Net Assets (excluding waivers) ________ ________
Portfolio Turnover Rate ________ ________
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Class A shares have been offered since July 24, 1998.
58 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
<TABLE>
<CAPTION>
Period ended Period ended
September 30, September 30,
CLASS B SHARES 1999 1998(1)
- -------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
<S> <C> <C>
Net Asset Value, Beginning of Period ________ ________
--------------------------------------------------------
Investment Operations:
Net Investment Income ________ ________
Net Gains (Losses) on Investments
(both realized and unrealized) ________ ________
--------------------------------------------------------
Total From Investment Operations ________ ________
--------------------------------------------------------
Less Distributions:
Dividends (from net investment income) ________ ________
--------------------------------------------------------
Total Distributions ________ ________
--------------------------------------------------------
Net Asset Value, End of Period ________ ________
========================================================
Total Return ________ ________
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) ________ ________
Ratio of Expenses to Average Net Assets ________ ________
Ratio of Net Income to Average Net Assets ________ ________
Ratio of Expenses to Average Net Assets (excluding waivers) ________ ________
Ratio of Net Income to Average Net Assets (excluding waivers) ________ ________
Portfolio Turnover Rate ________ ________
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Class B shares have been offered since July 24, 1998..
(2)Annualized.
59 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
<TABLE>
<CAPTION>
Period ended
September 30,
CLASS C SHARES 1999(1)
- -------------------------------------------------------------------------------------------------
PER SHARE DATA
<S> <C>
Net Asset Value, Beginning of Period ________
--------------------------
Investment Operations:
Net Investment Income ________
Net Gains (Losses) on Investments
(both realized and unrealized) ________
--------------------------
Total From Investment Operations ________
--------------------------
Less Distributions:
Dividends (from net investment income) ________
--------------------------
Total Distributions ________
--------------------------
Net Asset Value, End of Period ________
==========================
Total Return ________
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) ________
Ratio of Expenses to Average Net Assets ________
Ratio of Net Income to Average Net Assets ________
Ratios of Expenses to Average Net Assets (excluding waivers) ________
Ratio of Net Income to Average Net Assets (excluding waivers) ________
Portfolio Turnover Rate ________
- -------------------------------------------------------------------------------------------------
</TABLE>
(1)Class C shares have been offered since February 1, 1999.
60 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
FOR MORE INFORMATION
More information about the funds is available in the funds' Statement of
Additional Information and annual and semiannual reports.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI provides more details about the funds and their policies. A current SAI
is on file with the Securities and Exchange Commission (SEC) and is incorporated
into this prospectus by reference (which means that it is legally considered
part of this prospectus).
ANNUAL AND SEMIANNUAL REPORTS
Additional information about the funds' investments is available in the funds'
annual and semiannual reports to shareholders. In the funds' annual report, you
will find a discussion of the market conditions and investment strategies that
significantly affected the funds' performance during their last fiscal year.
You can obtain a free copy of the funds' SAI and/or free copies of the funds'
most recent annual or semiannual reports by calling Investor Services at
1-800-637-2548. The material you request will be sent by first-class mail or
other means designed to ensure equally prompt delivery, within three business
days of receipt of the request.
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, DC, or by sending your request and a duplicating fee to the SEC's
Public Reference Section, Washington, DC 20549-6009. For more information, call
1-800-SEC-0330.
Information about the funds is also available on the Internet. Text-only
versions of fund documents can be viewed online or down- loaded from the SEC's
Internet site at http://www.sec.gov.
SEC file number: 811-05309
FAIF-1001 (2/2000)R
61 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class A, Class B and Class C Shares
<PAGE>
February 1, 2000
BOND FUNDS
CLASS Y SHARES
Corporate Bond Fund
Fixed Income Fund
Intermediate Term Income Fund
Limited Term Income Fund
Strategic Income Fund
First American
Investment Funds, Inc.
PROSPECTUS
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the shares of these funds, or determined if the
information in this prospectus is accurate or complete. Any statement to the
contrary is a criminal offense.
FIRST AMERICAN(R)
THE POWER OF DISCIPLINED INVESTING(R)
1 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class Y Shares
<PAGE>
TABLE OF
CONTENTS
FUND SUMMARIES
- --------------------------------------------------------------------------------
Corporate Bond Fund
- --------------------------------------------------------------------------------
Fixed Income Fund
- --------------------------------------------------------------------------------
Intermediate Term Income Fund
- --------------------------------------------------------------------------------
Limited Term Income Fund
- --------------------------------------------------------------------------------
Strategic Income Fund
- --------------------------------------------------------------------------------
POLICIES & SERVICES
- --------------------------------------------------------------------------------
Buying and Selling Shares
- --------------------------------------------------------------------------------
Managing Your Investment
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
Management
- --------------------------------------------------------------------------------
More About The Funds
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
2 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
INTRODUCTION
This section of the prospectus describes the objectives of the First American
Bond Funds, summarizes the main investment strategies used by each fund in
trying to achieve its objectives, and highlights the risks involved with these
strategies. It also provides you with information about the performance, fees
and expenses of the funds.
AN INVESTMENT IN THE FUNDS IS NOT A DEPOSIT OF U.S. BANK NATIONAL ASSOCIATION
AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR
ANY OTHER GOVERNMENT AGENCY.
3 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
CORPORATE BOND FUND
OBJECTIVE
The Corporate Bond Fund's objective is to provide investors with a high level of
current income consistent with prudent risk to capital.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Corporate Bond Fund will invest primarily in a
combination of:
o "investment grade" corporate debt obligations;
o U.S. dollar denominated investment grade debt obligations of foreign
issuers;
o securities issued or guaranteed by the U.S. government or its agencies and
instrumentalities;
o mortgage- and asset-backed securities; and
o non-investment grade corporate debt obligations.
Fund managers employ a bottom-up approach to identify relative value in the
corporate bond market through fundamental credit research. Positions are sold in
anticipation of credit deterioration or when a security is priced expensively
relative to other comparable investments.
Up to 35% of the fund's debt securities may be rated lower than investment grade
at the time of purchase or, if unrated, be of comparable quality as determined
by the fund's advisor. However, the fund will not invest in securities rated
lower than B or equivalent rating at the time of purchase or, in unrated
securities of equivalent quality as determined by the fund's advisor. Unrated
securities will not exceed 25% of the Fund's total assets. The fund may invest
up to 25% of its total assets in foreign securities payable in U.S. dollars.
Under normal market conditions the fund attempts to maintain a weighted average
maturity for its portfolio securities of 15 years or less and an average
effective duration of four to nine years.
To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.
4 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class Y Shares
<PAGE>
MAIN RISKS
The price and yield of this fund will change daily due to changes in interest
rates and other factors, which means you could lose money. The main risks of
investing in this fund include:
INTEREST RATE RISK
Debt securities typically decrease in value when interest rates rise. This risk
is usually greater for longer-term debt securities. One measure of interest rate
risk is effective duration, explained in "More About the Funds -- Investment
Strategies" Section.
INCOME RISK
The fund's income could decline due to falling market interest rates.
CREDIT RISK
An issuer of debt securities may not make timely principal or interest payments
on its securities, or the other party to a contract (such as a securities
lending agreement) may default on its obligations.
CALL RISK
During periods of falling interest rates, a bond issuer may "call" -- or repay
- -- its high-yielding bonds before their maturity date. The fund would then be
forced to invest the unanticipated proceeds at lower interest rates, resulting
in a decline in the fund's income.
RISKS OF MORTGAGE- AND ASSET-BACKED SECURITIES
Falling interest rates could cause faster than expected prepayments of the
obligations underlying mortgage- and asset-backed securities, which the fund
would have to invest at lower interest rates. On the other hand, rising interest
rates could cause prepayments of the obligations to decrease, extending the life
of mortgage- and asset-backed securities with lower payment rates. For
additional explanation, see "Prepayment Risk" and "Extension Risk" in the "More
About the Funds - Investment Strategies" Section.
FOREIGN SECURITY RISK
Securities of foreign issuers, even when dollar-denominated and publicly traded
in the United States, may involve risks not associated with the securities of
domestic issuers, including the risks of adverse currency fluctuations and of
political or social instability or diplomatic developments that could adversely
affect the securities.
RISKS OF HIGH-YIELD SECURITIES
A significant portion of the fund's portfolio may consist of lower-rated debt
obligations, which are commonly called "high-yield" securities or "junk bonds."
High-yield securities generally have more volatile prices and carry more risk to
principal than investment grade securities.
5 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class Y Shares
<PAGE>
FUND PERFORMANCE
Because Corporate Bond Fund shares were not offered prior to the date of this
prospectus, no performance information is presented for these shares.
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
- --------------------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD) None
MAXIMUM DEFERRED SALES CHARGE (LOAD) None
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- --------------------------------------------------------------------------------
Management Fees 0.70%
Distribution and Service (12b-1) Fees None
Other Expenses (1) _____%
TOTAL (2) _____%
- --------------------------------------------------------------------------------
(1) Other expenses are based on estimated amounts for the current fiscal year.
(2) THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT
TOTAL FUND OPERATING EXPENSES DO NOT EXCEED 0.80%. FEE WAIVERS MAY BE
DISCONTINUED AT ANY TIME.
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
1 year $______
3 years $______
6 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
FIXED INCOME FUND
OBJECTIVE
Fixed Income Fund's objective is to provide investors with high current income
consistent with limited risk to capital.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Fixed Income Fund invests in investment grade
debt securities, such as:
o U.S. government securities, (securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities), including zero coupon
securities;
o mortgage- and asset-backed securities; and
o corporate debt obligations.
Fund managers select securities using a "top-down" approach, which begins with
the formulation of their general economic outlook. Following this, various
sectors and industries are analyzed and selected for investment. Finally, fund
managers select individual securities within these sectors or industries.
Debt securities in the fund will be rated investment grade at the time of
purchase or, if unrated, determined to be of comparable quality by the fund's
advisor. At least 65% of the fund's debt securities must be either U.S.
government securities or securities that have received at least an A or
equivalent rating. Unrated securities will not exceed 25% of the fund's total
assets.
At least 65% of the fund's total assets will be invested in fixed rate
obligations. The fund may invest up to 15% of its total assets in foreign
securities payable in U.S. dollars.
Under normal market conditions the fund attempts to maintain a weighted average
maturity for its portfolio securities of 15 years or less and an average
effective duration of three to eight years.
To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions. It also may invest up to 25% of total assets in dollar roll
transactions. In a dollar roll transaction, the fund sells mortgage-backed
securities for delivery in the current month while contracting with the same
party to repurchase similar securities at a future date.
7 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class Y Shares
<PAGE>
MAIN RISKS
The price and yield of this fund will change daily due to changes in interest
rates and other factors, which means you could lose money. The main risks of
investing in this fund include:
INTEREST RATE RISK
Debt securities typically decrease in value when interest rates rise. This risk
is usually greater for longer-term debt securities. One measure of interest rate
risk is effective duration, explained in the "More About the Funds -- Investment
Strategies" Section.
INCOME RISK
The fund's income could decline due to falling market interest rates.
CREDIT RISK
An issuer of debt securities may not make timely principal or interest payments
on its securities, or the other party to a contract (such as a securities
lending agreement) may default on its obligations.
CALL RISK
During periods of falling interest rates, a bond issuer may "call" -- or repay
- -- its high-yielding bonds before their maturity date. The fund would then be
forced to invest the unanticipated proceeds at lower interest rates, resulting
in a decline in the fund's income.
RISKS OF MORTGAGE- AND ASSET-BACKED SECURITIES
Falling interest rates could cause faster than expected prepayments of the
obligations underlying mortgage- and asset-backed securities, which the fund
would have to invest at lower interest rates. On the other hand, rising interest
rates could cause prepayments of the obligations to decrease, extending the life
of mortgage- and asset-backed securities with lower payment rates. For
additional explanation, see "Prepayment Risk" and "Extension Risk" in the "More
About the Funds - Investment Strategies" Section.
FOREIGN SECURITY RISK
Securities of foreign issuers, even when dollar-denominated and publicly traded
in the United States, may involve risks not associated with the securities of
domestic issuers, including the risks of adverse currency fluctuations and of
political or social instability or diplomatic developments that could adversely
affect the securities.
RISKS OF DOLLAR ROLL TRANSACTIONS
The use of mortgage dollar rolls could increase the volatility of the fund's
share price. It could also diminish the fund's investment performance if the
advisor does not predict mortgage prepayments and interest rates correctly.
8 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class Y Shares
<PAGE>
FUND PERFORMANCE
Illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart shows you how performance of the fund's shares has varied from
year to year.
The table compares the fund's performance over different time periods to that of
the fund's benchmark index, which is a broad measure of market performance. The
fund's performance reflects fund expenses; the benchmark is unmanaged and has no
expenses.
Both the chart and the table assume that all distributions have been reinvested.
9 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
FIXED INCOME FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR
17.29% 3.46% 8.85% 8.93%
- ---------- ----------- ----------- ----------- ----------
1995 1996 1997 1998 1999
BEST QUARTER:
Quarter ending: 6/30/95
Total Return 6.13%
WORST QUARTER:
Quarter ending: 3/31/96
Total Return -1.63%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
Inception Since
RETURNS AS OF 12/31/99 Date One Year Five Years Inception
- --------------------------------------------- ------------- --------------- --------------
<S> <C> <C> <C> <C>
Fixed Income Fund 2/4/94 _____% _____% _____%
- --------------------------------------------- ------------- --------------- --------------
Lehman Aggregate Bond Index(1) _____% _____% _____%
- --------------------------------------------- ------------- --------------- --------------
Lehman Gov't/Corp Bond Index(2) _____% _____% _____%
- --------------------------------------------- ------------- --------------- --------------
</TABLE>
(1)An unmanaged index composed of the Lehman Government/Corporate Bond Index,
the Lehman Mortgage Backed Securities Index and Lehman Asset Backed Securities
Index. The Lehman Government/Corporate Bond Index is comprised of Treasury
securities, other securities issued or guaranteed by the U.S. government or its
agencies or instrumentalities, including U.S. agency mortgage securities, and
investment-grade corporate debt securities. The Lehman Asset-Backed Index is
composed of debt securities backed by credit card, auto and home equity loans
that are rated investment grade or higher. The since inception performance of
the index for Class B shares is calculated from 8/31/94. Previously, the fund
used the Lehman Government/Corporate Bond Index as a benchmark. Going forward,
the fund will use the Lehman Aggregate Bond Index as a comparison, because it is
better suited to the fund's investment strategies.
(2)An unmanaged index of Treasury securities, other securities issued or
guaranteed by the U.S. government or its agencies or instrumentalities, and
investment-grade corporate debt securities. The since inception performance of
the index is calculated from 2/28/94.
10 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class Y Shares
<PAGE>
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
- -----------------------------------------------------------------------
SHAREHOLDER FEES
- -----------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD) None
MAXIMUM DEFERRED SALES CHARGE (LOAD) None
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- -----------------------------------------------------------------------
Management Fees 0.70%
Distribution and Service (12b-1) Fees None
Other Expenses _____%
TOTAL _____%
- -----------------------------------------------------------------------
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. See "Additional Information --
Financial Highlights." The net expenses the fund actually paid after waivers for
the fiscal year ended September 30, 1999 were:
Waiver of Fund Expenses (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____%
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 0.70%. FEE WAIVERS MAY BE DISCONTINUED AT
ANY TIME.
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
1 year $ 88
3 years $274
5 years $477
10 years $1,061
11 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
INTERMEDIATE TERM INCOME FUND
OBJECTIVE
Intermediate Term Income Fund's objective is to provide investors with current
income to the extent consistent with preservation of capital.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Intermediate Term Income Fund invests in
investment grade debt securities, such as:
o U.S. government securities, (securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities), including zero coupon
securities;
o mortgage- and asset-backed securities; and
o corporate debt obligations.
Fund managers select securities using a "top-down" approach, which begins with
the formulation of their general economic outlook. Following this, various
sectors and industries are analyzed and selected for investment. Finally, fund
managers select individual securities within these sectors or industries.
Debt securities in the fund will be rated investment grade at the time of
purchase or, if unrated, determined to be of comparable quality by the fund's
advisor. At least 65% of the fund's debt securities must be either U.S.
government securities or securities that have received at least an A or
equivalent rating. Unrated securities will not exceed 25% of the fund's total
assets.
The fund may invest up to 15% of its total assets in foreign securities payable
in U.S. dollars.
Under normal market conditions the fund attempts to maintain a weighted average
maturity for its portfolio securities of two to seven years and an average
effective duration of two to six years.
To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions. It also may invest up to 25% of total assets in dollar roll
transactions. In a dollar roll transaction, the fund sells mortgage-backed
securities for delivery in the current month while contracting with the same
party to repurchase similar securities at a future date.
12 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class Y Shares
<PAGE>
MAIN RISKS
The price and yield of this fund will change daily due to changes in interest
rates and other factors, which means you could lose money. The main risks of
investing in this fund include:
INTEREST RATE RISK
Debt securities typically decrease in value when interest rates rise. This risk
is usually greater for longer-term debt securities. One measure of interest rate
risk is effective duration, explained in the "More About the Funds -- Investment
Strategies" Section.
INCOME RISK
The fund's income could decline due to falling market interest rates.
CREDIT RISK
An issuer of debt securities may not make timely principal or interest payments
on its securities, or the other party to a contract (such as a securities
lending agreement) may default on its obligations.
CALL RISK
During periods of falling interest rates, a bond issuer may "call" -- or repay
- -- its high-yielding bonds before their maturity date. The fund would then be
forced to invest the unanticipated proceeds at lower interest rates, resulting
in a decline in the fund's income.
RISKS OF MORTGAGE- AND ASSET-BACKED SECURITIES
Falling interest rates could cause faster than expected prepayments of the
obligations underlying mortgage- and asset-backed securities, which the fund
would have to invest at lower interest rates. On the other hand, rising interest
rates could cause prepayments of the obligations to decrease, extending the life
of mortgage- and asset-backed securities with lower payment rates. For
additional explanation, see "Prepayment Risk" and "Extension Risk" in the "More
About the Funds - Investment Strategies" Section.
FOREIGN SECURITY RISK
Securities of foreign issuers, even when dollar-denominated and publicly traded
in the United States, may involve risks not associated with the securities of
domestic issuers, including the risks of adverse currency fluctuations and of
political or social instability or diplomatic developments that could adversely
affect the securities.
13 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class Y Shares
<PAGE>
RISKS OF DOLLAR ROLL TRANSACTIONS
The use of mortgage dollar rolls could increase the volatility of the fund's
share price. It could also diminish the fund's investment performance if the
advisor does not predict mortgage prepayments and interest rates correctly.
FUND PERFORMANCE
Illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart shows you how performance of the fund's shares has varied from
year to year.
The table compares the fund's performance over different time periods to that of
the fund's benchmark index, which is a broad measure of market performance. The
fund's performance reflects fund expenses; the benchmark is unmanaged and has no
expenses.
Both the chart and the table assume that all distributions have been reinvested.
14 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
INTERMEDIATE TERM INCOME FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR
14.62% 4.22% 7.01% 8.20%
- --------- --------- --------- --------- --------
1995 1996 1997 1998 1999
BEST QUARTER:
Quarter ending: 6/30/95
Total Return 4.71%
WORST QUARTER:
Quarter ending: 3/31/96
Total Return -0.39%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
Inception Since
RETURNS AS OF 12/31/99 Date One Year Five Years Inception
- ----------------------------------------------------------- ------------- --------------- --------------
<S> <C> <C> <C> <C>
Intermediate Term Income Fund 2/4/94 ____% ____% ____%
- ----------------------------------------------------------- ------------- --------------- --------------
Lehman Intermediate Gov't/Corp Bond Index(1) ____% ____% ____%
- ----------------------------------------------------------- ------------- --------------- --------------
</TABLE>
(1)An unmanaged index of Treasury securities, other securities issued or
guaranteed by the U.S. government or its agencies or instrumentalities, and
investment-grade corporate debt securities. The since inception performance of
the index is calculated from 2/28/94.
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
15 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class Y Shares
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
- --------------------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD) None
MAXIMUM DEFERRED SALES CHARGE (LOAD) None
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- --------------------------------------------------------------------------------
Management Fees 0.70%
Distribution and Service (12b-1) Fees None
Other Expenses _____%
TOTAL _____%
- --------------------------------------------------------------------------------
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. See "Additional Information --
Financial Highlights." The net expenses the fund actually paid after waivers for
the fiscal year ended September 30, 1999 were:
Waiver of Fund Expenses (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____%
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 0.70%. FEE WAIVERS MAY BE DISCONTINUED AT
ANY TIME.
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
1 year $ 89
3 years $ 278
5 years $ 482
10 years $1,073
16 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
LIMITED TERM INCOME FUND
OBJECTIVE
Limited Term Income Fund's objective is to provide investors with current income
while maintaining a high degree of principal stability.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Limited Term Income Fund invests in investment
grade debt securities, such as:
o mortgage- and asset-backed securities;
o corporate debt obligations;
o U.S. government securities, which are securities issued or guaranteed by
the U.S. government or its agencies or instrumentalities; and
o commercial paper.
Fund managers select securities using a "top-down" approach, which begins with
the formulation of their general economic outlook. Following this, various
sectors and industries are analyzed and selected for investment. Finally, fund
managers select individual securities within these sectors or industries.
Debt securities in the fund will be rated investment grade at the time of
purchase or, if unrated, determined to be of comparable quality by the fund's
advisor. At least 65% of the fund's debt securities must be either U.S.
government securities or securities that have received at least an A or
equivalent rating. Unrated securities will not exceed 25% of the fund's total
assets.
The fund may invest up to 15% of its total assets in foreign securities payable
in U.S. dollars.
Under normal market conditions the fund attempts to maintain a weighted average
maturity and an average effective duration for its portfolio securities of one
to three years.
To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.
17 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class Y Shares
<PAGE>
MAIN RISKS
The price and yield of this fund will change daily due to changes in interest
rates and other factors, which means you could lose money. The main risks of
investing in this fund include:
INTEREST RATE RISK
Debt securities typically decrease in value when interest rates rise. This risk
is usually greater for longer-term debt securities. One measure of interest rate
risk is effective duration, explained in the "More About the Funds -- Investment
Strategies" Section.
INCOME RISK
The fund's income could decline due to falling market interest rates.
CREDIT RISK
An issuer of debt securities may not make timely principal or interest payments
on its securities, or the other party to a contract (such as a securities
lending agreement) may default on its obligations.
CALL RISK
During periods of falling interest rates, a bond issuer may "call" -- or repay
- -- its high-yielding bonds before their maturity date. The fund would then be
forced to invest the unanticipated proceeds at lower interest rates, resulting
in a decline in the fund's income.
RISKS OF MORTGAGE- AND ASSET-BACKED SECURITIES
Falling interest rates could cause faster than expected prepayments of the
obligations underlying mortgage- and asset-backed securities, which the fund
would have to invest at lower interest rates. On the other hand, rising interest
rates could cause prepayments of the obligations to decrease, extending the life
of mortgage- and asset-backed securities with lower payment rates. For
additional explanation, see "Prepayment Risk" and "Extension Risk" in the "More
About the Funds - Investment Strategies" Section.
FOREIGN SECURITY RISK
Securities of foreign issuers, even when dollar-denominated and publicly traded
in the United States, may involve risks not associated with the securities of
domestic issuers, including the risks of adverse currency fluctuations and of
political or social instability or diplomatic developments that could adversely
affect the securities.
18 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class Y Shares
<PAGE>
FUND PERFORMANCE
Illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart shows you how performance of the fund's shares has varied from
year to year.
The table compares the fund's performance over different time periods to that of
the fund's benchmark index, which is a broad measure of market performance. In
addition, the fund's performance reflects fund expenses; the benchmark is
unmanaged and has no expenses.
Both the chart and the table assume that all distributions have been reinvested.
19 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
LIMITED TERM INCOME FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR
8.23% 5.60% 5.93% 6.08%
- -------- --------- --------- --------- --------
1995 1996 1997 1998 1999
BEST QUARTER:
Quarter ending: 6/30/95
Total Return 2.47%
WORST QUARTER:
Quarter ending: 12/31/98
Total Return 0.92%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
Inception Since
RETURNS AS OF 12/31/99 Date One Year Five Years Inception
- ------------------------------------------------------------------ ------------- -------------- -------------
<S> <C> <C> <C> <C>
Limited Term Income Fund 2/4/94 ____% ____% ____%
- ------------------------------------------------------------------ ------------- -------------- -------------
Lehman Gov't/Corporate Index 1-3 Year Bond Index(1) ____% ____% ____%
- ------------------------------------------------------------------ ------------- -------------- -------------
Merrill Lynch 1-Year U.S. Treasury Index(2) ____% ____% ____%
- ------------------------------------------------------------------ ------------- -------------- -------------
</TABLE>
(1)An unmanaged index of one to three year Treasury securities, other securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and investment-grade corporate debt securities. The since
inception performance of the index is calculated from 2/28/94. Previously, the
fund used the Merrill Lynch 1-Year U.S. Treasury Index as a benchmark. Going
forward, the fund will use the Lehman Government/Corporate Index 1-3 Year Bond
Index as a comparison, because it is better suited to the fund's investment
strategies.
(2)An unmanaged index of one-year constant maturity Treasury bills. The since
inception performance of the index is calculated from 2/28/94.
20 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class Y Shares
<PAGE>
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
- -------------------------------------------------------------------------------
SHAREHOLDER FEES
- -------------------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD) None
MAXIMUM DEFERRED SALES CHARGE (LOAD) None
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- -------------------------------------------------------------------------------
Management Fees 0.70%
Distribution and Service (12b-1) Fees None
Other Expenses _____%
TOTAL _____%
- -------------------------------------------------------------------------------
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. See "Additional Information --
Financial Highlights." The net expenses the fund actually paid after waivers for
the fiscal year ended September 30, 1999 were:
Waiver of Fund Expenses (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____%
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 0.45% FEE WAIVERS MAY BE DISCONTINUED AT
ANY TIME.
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
1 year $________
3 years $________
5 years $________
10 years $________
21 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
STRATEGIC INCOME FUND
OBJECTIVE
Strategic Income Fund's objective is to provide investors with a high level of
current income.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Strategic Income Fund invests primarily (at
least 65% of its total assets) in a combination of:
o securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities, including mortgage-backed securities, and investment
grade debt obligations issued by domestic issuers;
o high-yield (non-investment grade) debt obligations issued by domestic
issuers; and
o investment grade and high-yield debt obligations issued by foreign
governments and other foreign issuers.
Based upon historical returns, the fund's advisor expects these three categories
of investments to have different returns and risks under similar market
conditions. The advisor relies on the differences in the expected performance of
each category to manage risks by allocating the fund's portfolio among the three
categories above. The advisor also seeks to enhance the fund's performance by
allocating more of its portfolio to the category that the advisor expects to
offer the best balance between risk and return. Normally, the fund's assets will
be invested in each of these three categories, with no more than 50% invested in
any one category. However, the fund may from time to time invest up to 100% of
its total assets in any one category if the advisor believes it will help the
fund achieve its objective without undue risk to principal.
The fund's foreign investments may include investments in emerging markets.
The fund's investments may include securities which do not pay interest
currently, such as zero coupon securities and delayed interest securities. The
fund also may invest in payment-in-kind bonds, where interest is paid in other
securities rather than cash.
In addition to debt obligations, the fund may invest in preferred stock,
convertible securities and equity securities, including common stock and
warrants. These investments may be denominated in U.S. dollars or foreign
currencies.
There is no minimum rating requirement for securities in which the fund may
invest. In addition, there is no limitation on the average maturity or average
effective duration of securities held by the fund.
22 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class Y Shares
<PAGE>
To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions. It also may invest up to 25% of total assets in dollar roll
transactions. In a dollar roll transaction, the fund sells mortgage-backed
securities for delivery in the current month while contracting with the same
party to repurchase similar securities at a future date.
MAIN RISKS
The price and yield of this fund will change daily due to changes in interest
rates and other factors, which means you could lose money. The main risks of
investing in this fund include:
INTEREST RATE RISK
Debt securities typically decrease in value when interest rates rise. This risk
is usually greater for longer-term debt securities. One measure of interest rate
risk is effective duration, explained in "More About the Funds -- Investment
Strategies" Section.
RISKS OF FOREIGN SECURITIES
Investing in foreign securities involves risks not typically associated with
U.S. investing. Risks of foreign investing include adverse currency
fluctuations, potential political and economic instability, limited liquidity
and volatile prices of non-U.S. securities, limited availability of information
regarding non-U.S. companies, investment and repatriation restrictions and
foreign taxation.
RISKS OF HIGH-YIELD SECURITIES
A significant portion of the fund's portfolio may consist of lower-rated debt
obligations, which are commonly called "high-yield" securities or "junk bonds."
High-yield securities generally have more volatile prices and carry more risk to
principal than investment grade securities.
RISKS OF EMERGING MARKETS
The fund may invest in emerging markets, where the risks of foreign investing
are higher. Investing in emerging markets generally involves exposure to
economic structures that are less diverse and mature, and to political systems
that are less stable, than those of developed countries. In addition, issuers in
emerging markets typically are subject to a greater degree of change in earnings
and business prospects than are companies in developed markets.
INCOME RISK
The fund's income could decline due to falling market interest rates.
23 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class Y Shares
<PAGE>
CREDIT RISK
An issuer of debt securities may not make timely principal or interest payments
on its securities, or the other party to a contract (such as a securities
lending agreement) may default on its obligations.
CALL RISK
During periods of falling interest rates, a bond issuer may "call" -- or repay
- -- its high-yielding bonds before their maturity date. The fund would then be
forced to invest the unanticipated proceeds at lower interest rates, resulting
in a decline in the fund's income.
RISKS OF MORTGAGE- AND ASSET-BACKED SECURITIES
Falling interest rates could cause faster than expected prepayments of the
obligations underlying mortgage- and asset-backed securities, which the fund
would have to invest at lower interest rates. On the other hand, rising interest
rates could cause prepayments of the obligations to decrease, extending the life
of mortgage- and asset-backed securities with lower payment rates. For
additional explanation, see "Prepayment Risk" and "Extension Risk" in the "More
About the Funds - Investment Strategies" Section.
RISKS OF COMMON STOCKS
The fund's investments may include common stock and warrants to purchase, or
securities convertible into, common stocks. Stocks may decline significantly in
price over short or extended periods of time. Price changes may occur in the
market as a whole, or they may occur in only a particular company, industry or
sector of the market.
RISKS OF DOLLAR ROLL TRANSACTIONS
The use of mortgage dollar rolls could increase the volatility of the fund's
share price. It could also diminish the fund's investment performance if the
advisor does not predict mortgage prepayments and interest rates correctly.
FUND PERFORMANCE
Illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart is intended to show you how performance of the fund's shares has
varied from year to year. However, because Class Y shares were first offered in
1998, only one calendar year of information is available.
The table compares the fund's performance over different time periods to that of
the fund's benchmark index, which is a broad measure of market performance. The
fund's performance reflects fund expenses; the benchmark is unmanaged and has no
expenses.
Both the chart and the table assume that all distributions have been reinvested.
24 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
STRATEGIC INCOME FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR
------%
- ---------
1999
BEST QUARTER:
Quarter ending: __/__/__
Total Return ______%
WORST QUARTER:
Quarter ending: __/__/__
Total Return ______%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
Inception Since
RETURNS AS OF 12/31/99 Date One Year Inception
- -------------------------------------------- -------------- --------------
<S> <C> <C> <C>
Strategic Income Fund 7/24/98 ___% ___%
- -------------------------------------------- -------------- --------------
Lehman Aggregate Bond Index(1) ___% ___%
- -------------------------------------------- -------------- --------------
</TABLE>
(1)An unmanaged index of Treasury securities, other securities issued or
guaranteed by the U.S. government or its agencies or instrumentalities,
including U.S. agency mortgage securities, and investment-grade corporate debt
securities. The since inception performance of the index is calculated from
7/31/98.
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
25 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class Y Shares
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
- --------------------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD) None
MAXIMUM DEFERRED SALES CHARGE (LOAD) None
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- --------------------------------------------------------------------------------
Management Fees 0.70%
Distribution and Service (12b-1) Fees None
Other Expenses _____%
TOTAL _____%
- --------------------------------------------------------------------------------
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. See "Additional Information --
Financial Highlights." The net expenses the fund actually paid after waivers for
the fiscal year ended September 30, 1999 were:
Waiver of Fund Expenses (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____%
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 0.90% FEE WAIVERS MAY BE DISCONTINUED AT
ANY TIME.
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
1 year $ 107
3 years $ 334
5 years $ 579
10 years $ 1,283
26 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class Y Shares
<PAGE>
POLICIES & SERVICES
BUYING AND SELLING SHARES
Class Y shares are offered through banks and other financial institutions that
have entered into sales agreements with the funds' distributor and that hold the
shares in an omnibus account with the transfer agent. Class Y shares are
available to certain accounts for which the financial institution acts in a
fiduciary, agency or custodial capacity, such as certain trust accounts and
investment advisory accounts. To find out whether you may purchase Class Y
shares, contact your financial institution.
There is no initial or deferred sales charge on your purchase of Class Y shares.
However, your broker or financial institution may receive a commission of up to
1.25% on your purchase.
CALCULATING YOUR SHARE PRICE
Your purchase price will be equal to the fund's net asset value (NAV) per share,
which is generally calculated as of the close of regular trading on the New York
Stock Exchange (usually 3 p.m. Central time) every day the exchange is open.
A fund's NAV is equal to the market value of its investments and other assets,
less any liabilities, divided by the number of fund shares. If market prices are
not readily available for an investment or if the advisor believes they are
unreliable, fair value prices may be determined in good faith using methods
approved by the funds' board of directors.
Strategic Income Fund may hold portfolio securities that trade on weekends or
other days when the fund does not price its shares. Therefore, the net asset
value of Strategic Income Fund's shares may change on days when shareholders
will not be able to purchase or redeem their shares.
HOW TO BUY AND SELL SHARES
You may purchase or sell shares by calling your financial institution.
When purchasing shares, payment must be made by wire transfer, which can be
arranged by your financial institution. Because purchases must be paid for by
wire transfer, you can purchase shares only on days when both the New York Stock
Exchange and federally chartered banks are open. You may sell your shares on any
day when the New York Stock Exchange is open.
Purchase orders and redemption requests must be received by your financial
institution by the time specified by the institution to be assured same day
processing. In order for shares to be purchased at that day's price, the funds
must receive your purchase order by 3:00 p.m. Central time and the funds'
custodian must receive federal funds before the close of business. In order for
shares to be sold at that day's price, the funds must receive your redemption
request by 3:00 p.m. Central time. It is the responsibility of your financial
institution to promptly transmit orders to the funds. Purchase orders and
redemption requests may be restricted in the event of an early or unscheduled
close of the New York Stock Exchange.
27 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class Y Shares
<PAGE>
If the funds receive your redemption request by 3:00 p.m. Central time, payment
of your redemption proceeds will ordinarily be made by wire on the next business
day. It is possible, however, that payment could be delayed by up to seven days.
HOW TO EXCHANGE SHARES
If your investment goals or your financial needs change, you may exchange your
shares for Class Y shares of another First American fund. Exchange will be made
at the net asset value per share of each fund at the time of the exchange. There
is no fee to exchange shares. If you are no longer eligible to hold Class Y
shares, for example, if you decide to discontinue your fiduciary, agency or
custodian account, you may exchange your shares for Class A shares at net asset
value. Class A shares have higher expenses than Class Y shares.
To exchange your shares, call your financial institution. In order for your
shares to be exchanged the same day, you must call your financial institution by
the time specified by the institution and your exchange order must be received
by the funds by 3:00 p.m. Central time. It is the responsibility of your
financial institution to promptly transmit your exchange order to the funds.
Before exchanging into any fund, be sure to read its prospectus carefully. A
fund may change or cancel its exchange policies at any time. You will be
notified of any changes. The funds have the right to limit exchanges to four
times per year.
28 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class Y Shares
<PAGE>
POLICIES & SERVICES
MANAGING YOUR INVESTMENT
STAYING INFORMED
SHAREHOLDER REPORTS
Shareholder reports are mailed twice a year, in November and May. They include
financial statements, performance information, a message from your portfolio
managers, and, on an annual basis, the auditors' report.
In an attempt to reduce shareholder costs and help eliminate duplication, the
funds will try to limit their mailings to one report for each address that lists
one or more shareholders with the same last name. If you would like additional
copies, please call 1-800-637-2548.
STATEMENTS AND CONFIRMATIONS
Statements summarizing activity in your account are mailed at least quarterly.
Confirmations are mailed following each purchase or sale of fund shares.
DIVIDENDS AND DISTRIBUTIONS
Dividends from a fund's net investment income are declared and paid monthly. Any
capital gains are distributed at least once each year.
On the ex-dividend date for a distribution, a fund's share price is reduced by
the amount of the distribution. If you buy shares just before the ex-dividend
date, in effect, you `buy the dividend.' You will pay the full price for the
shares and then receive a portion of that price back as a taxable distribution.
Dividend and capital gain distributions will be reinvested in additional shares
of the fund paying the distribution, unless you request that distributions be
reinvested in another First American fund or paid in cash. This request may be
made on your new account form or by writing to the fund. If you request that
your distributions be paid in cash but those distributions cannot be delivered
because of an incorrect mailing address, the undelivered distributions and all
future distributions will be reinvested in fund shares.
Strategic Income Fund may realize foreign currency losses that will reduce the
amount of ordinary income that the fund has available to distribute to
shareholders. As a result, some of the distributions made by the fund may be
characterized as a return of capital rather than as taxable dividends. Strategic
Income Fund will report to shareholders after the close of the calendar year the
portion of distributions made during the year that constituted a return of
capital and the portion that constituted taxable dividends.
29 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class Y Shares
<PAGE>
TAXES
Some of the tax consequences of investing in the funds are discussed below. More
information about taxes is in the Statement of Additional Information. However,
because everyone's tax situation is unique, always consult your tax professional
about federal, state and local tax consequences.
TAXES ON DISTRIBUTIONS
Each fund pays its shareholders dividends from its net investment income and any
net capital gains that it has realized. For most investors, fund dividends and
distributions are considered taxable whether they are reinvested or taken in
cash (unless your investment is in an IRA or other tax-advantaged account).
Dividends from a fund's net investment income and short-term capital gains are
taxable as ordinary income. Distributions of a fund's long-term capital gains
are taxable as long-term gains, regardless of how long you have held your
shares. The funds expect that, as a result of their investment objectives and
strategies, their distributions will consist primarily of ordinary income.
TAXES ON TRANSACTIONS
The sale of fund shares, or the exchange of one fund's shares for shares of
another fund, will be a taxable event and may result in a capital gain or loss.
The gain or loss will be considered long-term if you have held your shares for
more than one year. A gain or loss on shares held for one year or less is
considered short-term and is taxed at the same rates as ordinary income.
The exchange of one class of shares for another class of shares in the same fund
will not be taxable.
30 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class Y Shares
<PAGE>
ADDITIONAL INFORMATION
MANAGEMENT
INVESTMENT ADVISOR
First American Asset Management
601 Second Avenue South
Minneapolis, Minnesota 55402
U.S. Bank National Association (U.S. Bank), acting through its First American
Asset Management division, is the funds' investment advisor. First American
Asset Management provides investment management services to individuals and
institutions, including corporations, foundations, pensions and retirement
plans. As of December 31, 1999, it had more than $______ billion in assets under
management, including investment company assets of approximately $______
billion. As investment advisor, First American Asset Management manages the
funds' business and investment activities, subject to the authority of the board
of directors. Each fund pays the investment advisor a monthly fee for providing
investment advisory services. During their most recent fiscal years, after
taking into account fee waivers, the funds paid the following investment
advisory fees to First American Asset Management:
Advisory fee
as a % of
average daily
net assets
- ------------------------------------------------------------------------------
CORPORATE BOND FUND(1) _________%
FIXED INCOME FUND _________%
INTERMEDIATE TERM INCOME FUND _________%
LIMITED TERM INCOME FUND _________%
STRATEGIC INCOME FUND _________%
- ------------------------------------------------------------------------------
(1)Corporate Bond Fund commenced operations as of the date of this Prospectus.
The contractual fee rate is shown in the table
31 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class Y Shares
<PAGE>
SUB-ADVISOR
Federated Global Investment Management Corp.
175 Water Street
New York, New York 10038-4964
The sub-advisor has been retained by the fund's investment advisor and is paid a
portion of the advisory fee.
Federated Global Investment Management Corp. manages the fund's investments in
investment grade and high-yield foreign government and foreign corporate debt
obligations. First American Asset Management manages the fund's investments in
U.S. government and investment grade domestic debt obligations and determines
how the fund's assets will be allocated among the three sectors in which the
fund invests.
The sub-advisor and other subsidiaries of Federated Investors serve as
investment advisors to a number of investment companies and private accounts.
CUSTODIAN
U.S. Bank National Association
U.S. Bank Center
180 East Fifth Street
St. Paul, Minnesota 55101
ADMINISTRATOR
U.S. Bank National Association
U.S. Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402
DISTRIBUTOR
SEI Investments Distribution Co.
Oaks, Pennsylvania 19456
ADDITIONAL COMPENSATION
U.S. Bank and other affiliates of U.S. Bancorp may act as fiduciary with respect
to plans subject to the Employee Retirement Income Security Act of 1974 (ERISA)
and other trust and agency accounts that invest in the funds. As described
above, U.S. Bank receives compensation for acting as the funds' investment
advisor. U.S. Bank and its affiliates also receive compensation in connection
with the following:
CUSTODY SERVICES. U.S. Bank provides or compensates others to provide custody
services to the funds. U.S. Bank is paid monthly fees equal, on an annual basis,
to 0.03% of a fund's average daily net assets. In addition, U.S. Bank is
reimbursed for its out-of-pocket expenses incurred while providing custody
services to the funds.
ADMINISTRATION SERVICES. U.S. Bank provides or compensates others to provide
administrative services to the funds including general administrative and
accounting services, transfer agency and dividend disbursing services, and
shareholder services. The funds pay U.S. Bank monthly fees equal, on an annual
basis, to 0.12% of the aggregate average daily net assets of all open-end mutual
funds in the First American fund family up to $8 billion and 0.105% of the
aggregate average daily net assets of all open-end mutual funds in the First
American fund family in excess of $8 billion. Additionally, the funds pay U.S.
Bank fees based upon the number of funds and accounts maintained.
32 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class Y Shares
<PAGE>
SECURITIES LENDING SERVICES. In connection with lending their portfolio
securities, the funds pay administrative and custodial fees to U.S. Bank which
are equal to 40% of the funds' income from these securities lending
transactions.
BROKERAGE TRANSACTIONS. The funds purchase most of their portfolio securities
directly from the issuer or from an underwriter or market maker, and not from a
broker acting as agent. However, the funds may from time to time use brokers
when buying portfolio securities. The funds' investment advisor may place trades
through its affiliates, U.S. Bancorp Investments, Inc. and U.S. Bancorp Piper
Jaffray Inc., which will earn commissions on such transactions.
SALES OF FUND SHARES. U.S. Bancorp Investments, Inc. and U.S. Bancorp Piper
Jaffray, Inc. broker-dealers affiliated with U.S. Bank, have entered into
agreements with the funds' distributor to sell fund shares and will earn annual
shareholder servicing fees in connection with these sales.
PORTFOLIO MANAGEMENT
Each fund's investments are managed by a team of persons associated with First
American Asset Management or, in the case of Strategic Income Fund, the
sub-advisor.
33 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class Y Shares
<PAGE>
ADDITIONAL INFORMATION
MORE ABOUT THE FUNDS
OBJECTIVES
The funds' objectives, which are described in the "Fund Summaries" section, may
be changed without shareholder approval. If a fund's objectives change, you will
be notified at least 30 days in advance. Please remember: There is no guarantee
that any fund will achieve its objectives.
INVESTMENT STRATEGIES
The funds' main investment strategies are discussed in the "Fund Summaries"
section. These are the strategies that the funds' investment advisor believes
are most likely to be important in trying to achieve the funds' objectives. You
should be aware that each fund may also use strategies and invest in securities
that are not described in this prospectus, but that are described in the
Statement of Additional Information (SAI). For a copy of the SAI, call Investor
Services at 1-800-637-2548.
INVESTMENT APPROACH
For funds other than Strategic Income Fund and Corporate Bond Fund, fund
managers generally employ a "top-down" approach in selecting securities for the
funds. First, they determine their economic outlook and the direction in which
inflation and interest rates are expected to move. Then they choose certain
sectors or industries within the overall market. Last, they select individual
securities within those sectors for the funds. Fund managers also analyze
expected changes to the yield curve under multiple market conditions to help
define maturity and duration selection. For the Corporate Bond Fund, fund
managers employ a "bottom-up" approach to identify relative value in the
corporate bond market.
For Strategic Income Fund, the advisor is responsible for allocating the fund's
portfolio among the three categories of securities in which the fund invests, as
discussed above in the "Fund Summaries" section. After making this allocation,
the advisor uses the top-down approach discussed above to select the fund's
investments in U.S. government and investment grade domestic debt obligations.
In selecting domestic high-yield securities, the advisor focuses on individual
security selection, analyzing the business, competitive position and financial
condition of each issuer to assess whether the security's risk is commensurate
with its potential return. With regard to the fund's investments in foreign
securities, the fund's sub-advisor looks primarily for securities offering
higher interest rates. The sub-advisor attempts to manage the risks of these
securities by investing the foreign security portion of the fund's portfolio in
a large number of securities from a wide range of foreign countries, and by
allocating this portion of the portfolio among countries whose markets, based on
historical analysis, respond differently to changes in the global economy.
34 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class Y Shares
<PAGE>
EFFECTIVE DURATION
Each fund, other than Strategic Income Fund, attempts to maintain the effective
duration of its portfolio securities within a specified range. Effective
duration, one measure of interest rate risk, measures how much the value of a
security is expected to change with a given change in interest rates. The longer
a security's effective duration, the more sensitive its price to changes in
interest rates. For example, if interest rates were to increase by one
percentage point, the market value of a bond with an effective duration of five
years would decrease by 5%, with all other factors being constant. However, all
other factors are rarely constant. Effective duration is based on assumptions
and subject to a number of limitations. It is most useful when interest rate
changes are small, rapid and occur equally in short-term and long-term
securities. In addition, it is difficult to calculate precisely for bonds with
prepayment options, such as mortgage- and asset-backed securities, because the
calculation requires assumptions about prepayment rates. For these reasons, the
effective durations of funds which invest a significant portion of their assets
in these securities can be greatly affected by changes in interest rates.
TEMPORARY INVESTMENTS
In an attempt to respond to adverse market, economic, political or other
conditions, each fund may temporarily invest without limit in cash and in U.S.
dollar-denominated high-quality money market instruments and other short-term
securities, including money market funds advised by the funds' advisor. These
investments may result in a lower yield than would be available from investments
with a lower quality or longer term and may prevent a fund from achieving its
investment objectives.
PORTFOLIO TURNOVER
Portfolio turnover for Corporate Bond Fund is expected to be low under normal
market conditions. Other funds may trade securities frequently, resulting, from
time to time, in an annual portfolio turnover rate of over 100%. Trading of
securities may produce capital gains, which are taxable to shareholders when
distributed. Active trading may also increase the amount of commissions or
mark-ups to broker-dealers that the fund pays when it buys and sells securities.
The "Financial Highlights" section of this prospectus shows each fund's
historical portfolio turnover rate (except for Corporate Bond Fund, which just
began operations).
RISKS
The main risks of investing in the funds are summarized in the "Fund Summaries"
section. More information about fund risks is presented below.
INTEREST RATE RISK
Debt securities in the funds will fluctuate in value with changes in interest
rates. In general, debt securities will increase in value when interest rates
fall and decrease in value when interest rates rise. Longer-term debt securities
are generally more sensitive to interest rate changes. ARMS are generally less
sensitive to interest rate changes because their interest rates move with market
rates. Securities which do not pay interest on a current basis, such as zero
coupon securities and delayed interest securities, may be highly volatile as
interest rates rise or fall. Payment-in-kind bonds, which pay interest in other
securities rather than in cash, also may be highly volatile.
35 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class Y Shares
<PAGE>
INCOME RISK
The fund's income could decline due to falling market interest rates. This is
because, in a falling interest rate environment, the fund generally will have to
invest the proceeds from sales of fund shares, as well as the proceeds from
maturing portfolio securities (or portfolio securities that have been called,
see "Call Risk," or prepaid, see "Prepayment Risk") in lower-yielding
securities.
RISKS OF HIGH-YIELD SECURITIES
A significant portion of the portfolios of Strategic Income Fund and Corporate
Bond Fund may consist of lower-rated corporate debt obligations, which are
commonly referred to as "high yield" securities or "junk bonds." Although these
securities usually offer higher yields than investment grade securities, they
also involve more risk. High yield bonds may be more susceptible to real or
perceived adverse economic conditions than investment grade bonds. In addition,
the secondary trading market may be less liquid. High yield securities generally
have more volatile prices and carry more risk to principal than investment grade
securities.
LIQUIDITY RISK
Strategic Income Fund and corporate Bond Fund are exposed to liquidity risk
because of their investments in high yield bonds. Strategic Income Fund's
investment in emerging markets also exposes it to liquidity risk. Trading
opportunities are more limited for debt securities that have received ratings
below investment grade or are issued by companies located in emerging markets.
These features may make it more difficult to sell or buy a security at a
favorable price or time. Consequently, these funds may have to accept a lower
price to sell a security, sell other securities to raise cash or give up an
investment opportunity, any of which could have a negative effect on a fund's
performance. Infrequent trading may also lead to greater price volatility.
CREDIT RISK
Each fund is subject to the risk that the issuers of debt securities held by the
fund will not make payments on the securities, or that the other party to a
contract (such as a securities lending agreement or repurchase agreement) will
default on its obligations. There is also the risk that an issuer could suffer
adverse changes in financial condition that could lower the credit quality of a
security. This could lead to greater volatility in the price of the security and
in shares of the fund. Also, a change in the credit quality rating of a bond
could affect the bond's liquidity and make it more difficult for the fund to
sell. When a fund purchases unrated securities, it will depend on the advisor's
analysis of credit risk more heavily than usual.
36 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class Y Shares
<PAGE>
Each fund other than Strategic Income Fund and Corporate Bond Fund attempts to
minimize credit risk by investing in securities considered at least investment
grade at the time of purchase. However, all of these securities, especially
those in the lower investment grade rating categories, have credit risk. In
adverse economic or other circumstances, issuers of these lower rated securities
are more likely to have difficulty making principal and interest payments than
issuers of higher rated securities.
CALL RISK
Many corporate bonds may be redeemed at the option of the issuer, or "called,"
before their stated maturity date. In general, an issuer will call its bonds if
they can be refinanced by issuing new bonds which bear a lower interest rate.
The funds are subject to the possibility that during periods of falling interest
rates, a bond issuer will call its high-yielding bonds. A fund would then be
forced to invest the unanticipated proceeds at lower interest rates, resulting
in a decline in the fund's income.
PREPAYMENT RISK
Mortgage-backed securities are secured by and payable from pools of mortgage
loans. Similarly, asset-backed securities are supported by obligations such as
automobile loans or home equity loans. These mortgages and other obligations
generally can be prepaid at any time without penalty. As a result, mortgage- and
asset-backed securities are subject to prepayment risk, which is the risk that
falling interest rates could cause prepayments of the securities to occur more
quickly than expected. This occurs because, as interest rates fall, more
homeowners refinance the mortgages underlying mortgage-related securities or
prepay the debt obligations underlying asset-backed securities. A fund holding
these securities must reinvest the prepayments at a time when interest rates are
falling, reducing the income of the fund. In addition, when interest rates fall,
prices on mortgage- and asset-backed securities may not rise as much as for
other types of comparable debt securities because investors may anticipate an
increase in prepayments.
EXTENSION RISK
Mortgage- and asset-backed securities also are subject to extension risk, which
is the risk that rising interest rates could cause mortgages or other
obligations underlying the securities to be prepaid more slowly than expected,
resulting in slower prepayments of the securities. This would, in effect,
convert a short- or medium-duration mortgage- or asset-backed security into a
longer-duration security, increasing its sensitivity to interest rate changes
and causing its price to decline.
RISKS OF DOLLAR ROLL TRANSACTIONS
In a dollar roll transaction, a fund sells mortgage-backed securities for
delivery in the current month while contracting with the same party to
repurchase similar securities at a future date. Because the fund gives up the
right to receive principal and interest paid on the securities sold, a mortgage
dollar roll transaction will diminish the investment performance of a fund
unless the difference between the price received for the securities sold and the
price to be paid for the securities to be purchased in the future, plus any fee
income received, exceeds any income, principal payments and appreciation on the
securities sold as part of the mortgage dollar roll. Whether mortgage dollar
rolls will benefit a fund may depend upon the advisor's ability to predict
mortgage prepayments and interest rates. In addition, the use of mortgage dollar
rolls by a fund increases the amount of the fund's assets that are subject to
market risk, which could increase the volatility of the price of the fund's
shares.
37 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class Y Shares
<PAGE>
RISKS OF SECURITIES LENDING
When a fund loans its portfolio securities, it will receive collateral equal to
at least 100% of the value of the loaned securities. Nevertheless, the fund
risks a delay in the recovery of the loaned securities, or even the loss of
rights in the collateral deposited by the borrower if the borrower should fail
financially. To reduce these risks, the funds enter into loan arrangements only
with institutions which the funds' advisor has determined are creditworthy under
guidelines established by the funds' board of directors.
RISKS OF ACTIVE MANAGEMENT
Each fund is actively managed and its performance therefore will reflect in part
the advisor's ability to make investment decisions which are suited to achieving
the fund's investment objectives. Due to their active management, the funds
could underperform other mutual funds with similar investment objectives.
ADDITIONAL RISKS OF STRATEGIC INCOME FUND
RISKS OF FOREIGN INVESTING
Foreign investing involves risks not typically associated with U.S. investing.
These risks include:
CURRENCY RISK. Because foreign securities often trade in currencies other than
the U.S. dollar, changes in currency exchange rates will affect the fund's net
asset value, the value of dividends and interest earned, and gains and losses
realized on the sale of securities. A strong U.S. dollar relative to these other
currencies will adversely affect the value of the fund.
POLITICAL AND ECONOMIC RISKS. Foreign investing is subject to the risk of
political, social or economic instability in the country of the issuer of a
security, the difficulty of predicting international trade patterns, the
possibility of the imposition of exchange controls, expropriation, limits on
removal of currency or other assets and nationalization of assets.
FOREIGN TAX RISK. The fund's income from foreign issuers may be subject to
non-U.S. withholding taxes. In some countries, the fund also may be subject to
taxes on trading profits and, on certain securities transactions, transfer or
stamp duties tax. To the extent foreign income taxes are paid by the fund, U.S.
shareholders may be entitled to a credit or deduction for U.S. tax purposes. See
the Statement of Additional Information for details.
RISK OF INVESTMENT RESTRICTIONS. Some countries, particularly emerging markets,
restrict varying degrees foreign investment in their securities markets. In some
circumstances, these restrictions may limit or preclude investment in certain
countries or may increase the cost of investing in securities of particular
companies.
38 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class Y Shares
<PAGE>
FOREIGN SECURITIES MARKET RISK. Securities of many non-U.S. companies may be
less liquid and their prices more volatile than securities of comparable U.S.
companies. Securities of companies traded in many countries outside the U.S.,
particularly emerging markets countries, may be subject to further risks due to
the inexperience of local brokers and financial institutions, the possibility of
permanent or temporary termination of trading, and greater spreads between bid
and asked prices for securities. In addition, non-U.S. stock exchanges and
brokers are subject to less governmental regulation, and commissions may be
higher than in the United States. Also, there may be delays in the settlement of
non-U.S. stock exchange transactions.
INFORMATION RISK. Non-U.S. companies generally are not subject to uniform
accounting, auditing and financial reporting standards or to other regulatory
requirements that apply to U.S. companies. As a result, less information may be
available to investors concerning non-U.S. issuers. Accounting and financial
reporting standards in emerging markets may be especially lacking.
RISKS OF EMERGING MARKETS
Investing in securities of issuers in emerging markets involves exposure to
economic infrastructures that are generally less diverse and mature than
political systems that can be expected to have less stability than, and to those
of developed countries. Other characteristics of emerging market countries that
may affect investment in their markets include certain governmental policies
that may restrict investment by foreigners and the absence of developed legal
structures governing private and foreign investments and private property. The
typical small size of the markets for securities issued by issuers located in
emerging markets and the possibility of low or nonexistent volume of trading in
those securities may also result in a lack of liquidity and in price volatility
of those securities. In addition, issuers in emerging markets typically are
subject to a greater degree of change in earnings and business prospects than
are companies in developed markets.
SECTOR RISK
A substantial part of Strategic Income Fund's portfolio may be comprised of
securities issued or credit enhanced by companies in similar businesses, or with
similar characteristics. As a result, the fund will be more susceptible to any
economic, business, political or other developments which generally affect these
issuers.
39 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class Y Shares
<PAGE>
ADDITIONAL INFORMATION
FINANCIAL HIGHLIGHTS
The tables that follow present performance information about the Class Y shares
of each fund. No information is presented for the Corporate Bond Fund as that
fund was not offered prior to the date of this prospectus. This information is
intended to help you understand each fund's financial performance for the past
five years or, if shorter, the period of the fund's operations. Some of this
information reflects financial results for a single fund share. Total returns in
the tables represent the rate that you would have earned or lost on an
investment in a fund, assuming you reinvested all of your dividends and
distributions.
The information for the fiscal year ended September 30, 1999 has been audited by
Ernst & Young LLP, independent auditors, whose report, along with the funds'
financial statements, is included in the funds' annual report, which is
available upon request. The information for the fiscal years ended on or before
September 30, 1998, has been audited by KPMG LLP.
FIXED INCOME FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
- --------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ _____ $10.96 $10.76 $10.97 $10.37
------------------------------------------------------------------
Investment Operations:
Net Investment Income ______ 0.60 0.62 0.63 0.66
Net Gains (Losses) on Investments
(both realized and unrealized) ______ 0.74 0.27 (0.11) 0.62
------------------------------------------------------------------
Total From Investment Operations ______ 1.34 0.89 0.52 1.28
------------------------------------------------------------------
Less Distributions:
Dividends (from net investment income) ______ (0.60) (0.62) (0.63) (0.65)
Distributions (from capital gains) ______ (0.01) (0.07) (0.10) (0.03)
------------------------------------------------------------------
Total Distributions ______ (0.61) (0.69) (0.73) (0.68)
------------------------------------------------------------------
Net Asset Value, End of Period $_____ $11.69 $10.96 $10.76 $10.97
==================================================================
Total Return _____% 12.66% 8.54% 4.90% 12.86%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) _______ $1,210,661 $705,719 $391,211 $289,816
Ratio of Expenses to Average Net Assets _____% 0.70% 0.70% 0.70% 0.70%
Ratio of Net Income to Average Net Assets _____% 5.35% 5.71% 5.81% 6.28%
Ratio of Expenses to Average Net Assets (excluding
waivers) _____% 0.86% 0.88% 0.87% 0.94%
Ratio of Net Income to Average Net Assets (excluding
waivers) _____% 5.19% 5.53% 5.64% 6.04%
Portfolio Turnover Rate _____% 147% 130% 108% 106%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
40 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class Y Shares
<PAGE>
INTERMEDIATE TERM INCOME FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ _____ $9.98 $9.93 $9.94 $9.55
----------------------------------------------------------
Investment Operations:
Net Investment Income ______ 0.53 0.55 0.55 0.58
Net Gains (Losses) on Investments
(both realized and unrealized) ______ 0.46 0.13 -- 0.39
----------------------------------------------------------
Total From Investment Operations ______ 0.99 0.68 0.55 0.97
----------------------------------------------------------
Less Distributions:
Dividends (from net investment income) ______ (0.53) (0.56) (0.55) (0.58)
Distributions (from capital gains) ______ (0.02) (0.07) (0.01) --
----------------------------------------------------------
Total Distributions ______ (0.55) (0.63) (0.56) (0.58)
----------------------------------------------------------
Net Asset Value, End of Period $_____ $10.42 $9.98 $9.93 $9.94
==========================================================
Total Return _____% 10.27% 6.98% 5.63% 10.51%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $_______ $430,672 $324,250 $98,702 $88,375
Ratio of Expenses to Average Net Assets _____% 0.70% 0.70% 0.70% 0.70%
Ratio of Net Income to Average Net Assets _____% 5.24% 5.51% 5.45% 5.94%
Ratio of Expenses to Average Net Assets (excluding waivers) _____% 0.86% 0.92% 0.88% 0.94%
Ratio of Net Income to Average Net Assets (excluding
waivers) _____% 5.08% 5.29% 5.27% 5.70%
Portfolio Turnover Rate _____% 166% 165% 161% 69%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
LIMITED TERM INCOME FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
- -----------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ _____ $9.94 $9.91 $9.92 $9.85
---------------------------------------------------------------
Investment Operations:
Net Investment Income ______ 0.53 0.56 0.58 0.56
Net Gains (Losses) on Investments
(both realized and unrealized) ______ 0.10 0.03 (0.01) 0.07
---------------------------------------------------------------
Total From Investment Operations ______ 0.63 0.59 0.57 0.63
---------------------------------------------------------------
Less Distributions:
Dividends (from net investment income) ______ (0.53) (0.56) (0.58) (0.56)
---------------------------------------------------------------
Total Distributions ______ (0.53) (0.56) (0.58) (0.56)
---------------------------------------------------------------
Net Asset Value, End of Period $_____ $10.04 $9.94 $9.91 $9.92
===============================================================
Total Return $_____ 6.55% 6.09% 5.93% 6.57%
RATIOS/SUPPLEMENTAL DATA _____%
Net Assets, End of Period (000) $_____ $173,136 $184,368 $93,588 $111,439
Ratio of Expenses to Average Net Assets _____% 0.60% 0.60% 0.60% 0.60%
Ratio of Net Income to Average Net Assets _____% 5.33% 5.60% 5.80% 5.67%
Ratio of Expenses to Average Net Assets (excluding
waivers) _____% 0.87% 0.90% 0.84% 0.97%
Ratio of Net Income to Average Net Assets (excluding
waivers) _____% 5.06% 5.30% 5.56% 5.30%
Portfolio Turnover Rate _____% 112% 147% 61% 120%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
41 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class Y Shares
<PAGE>
STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
Period ended Period ended
September 30, September 30,
1999 1998(1)
- ----------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ _____ $10.00
------------------------
Investment Operations:
Net Investment Income ______ 0.14
Net Gains (Losses) on Investments
(both realized and unrealized) ______ (0.75)
------------------------
Total From Investment Operations ______ (0.61)
------------------------
Less Distributions:
Dividends (from net investment income) ______ (0.12)
------------------------
Total Distributions ______ (0.12)
========================
Net Asset Value, End of Period ______ $9.27
========================
Total Return $______ (6.13)%
RATIOS/SUPPLEMENTAL DATA _____%
Net Assets, End of Period (000) $_______ 54,491
Ratio of Expenses to Average Net Assets _____% 0.90%(2)
Ratio of Net Income to Average Net Assets _____% 8.44%(2)
Ratios of Expenses to Average Net Assets (excluding waivers) _____% 1.05%(2)
Ratio of Net Income to Average Net Assets (excluding waivers) _____% 8.29%(2)
Portfolio Turnover Rate _____% 61%
- ----------------------------------------------------------------------------------------
</TABLE>
(1)Class Y shares have been offered since July 24, 1998.
(2)Annualized.
42 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class Y Shares
<PAGE>
FOR MORE INFORMATION
More information about the funds is available in the funds' Statement of
Additional Information and annual and semiannual reports.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI provides more details about the funds and their policies. A current SAI
is on file with the Securities and Exchange Commission (SEC) and is incorporated
into this prospectus by reference (which means that it is legally considered
part of this prospectus).
ANNUAL AND SEMIANNUAL REPORTS
Additional information about the funds' investments is available in the funds'
annual and semiannual reports to shareholders. In the funds' annual report, you
will find a discussion of the market conditions and investment strategies that
significantly affected the funds' performance during their last fiscal year.
You can obtain a free copy of the funds' SAI and/or free copies of the funds'
most recent annual or semiannual reports by calling Investor Services at
1-800-637-2548. The material you request will be sent by first-class mail or
other means designed to ensure equally prompt delivery, within three business
days of receipt of the request.
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, DC, or by sending your request and a duplicating fee to the SEC's
Public Reference Section, Washington, DC 20549-6009. For more information, call
1-800-SEC-0330.
Information about the funds is also available on the Internet. Text-only
versions of fund documents can be viewed online or down-loaded from the SEC's
Internet site at http://www.sec.gov.
SEC file number: 811-05309
FAIF - 1501 (2/2000)Y
43 PROSPECTUS - FIRST AMERICAN BOND FUNDS
Class Y Shares
<PAGE>
February 1, 2000
INTERMEDIATE TAX FREE BOND FUNDS
CLASS A SHARES
California Intermediate Tax Free Fund
Colorado Intermediate Tax Free Fund
Intermediate Tax Free Fund
Minnesota Intermediate Tax Free Fund
Oregon Intermediate Tax Free Fund
First American
Investment Funds, Inc.
PROSPECTUS
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the shares of these funds, or determined if the
information in this prospectus is accurate or complete. Any statement to the
contrary is a criminal offense.
FIRST AMERICAN(R)
THE POWER OF DISCIPLINED INVESTING(R)
1 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
TABLE OF
CONTENTS
FUND SUMMARIES
- --------------------------------------------------------------------------------
California Intermediate Tax Free Fund
- --------------------------------------------------------------------------------
Colorado Intermediate Tax Free Fund
- --------------------------------------------------------------------------------
Intermediate Tax Free Fund
- --------------------------------------------------------------------------------
Minnesota Intermediate Tax Fee Fund
- --------------------------------------------------------------------------------
Oregon Intermediate Tax Free Fund
- --------------------------------------------------------------------------------
POLICIES & SERVICES
- --------------------------------------------------------------------------------
Buying Shares
- --------------------------------------------------------------------------------
Selling Shares
- --------------------------------------------------------------------------------
Managing Your Investment
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
Management
- --------------------------------------------------------------------------------
More About The Funds
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
2 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
FUND SUMMARIES
INTRODUCTION
This section of the prospectus describes the objectives of the First American
Intermediate Tax Free Bond Funds, summarizes the main investment strategies used
by each fund in trying to achieve its objectives, and highlights the risks
involved with these strategies. It also provides you with information about the
performance, fees and expenses of the funds.
AN INVESTMENT IN THE FUNDS IS NOT A DEPOSIT OF U.S. BANK NATIONAL ASSOCIATION
AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR
ANY OTHER GOVERNMENT AGENCY.
3 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
FUND SUMMARIES
CALIFORNIA INTERMEDIATE TAX FREE FUND
OBJECTIVE
California Intermediate Tax Free Fund has an objective of providing current
income that is exempt from both federal income tax and California state income
tax to the extent consistent with preservation of capital.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, California Intermediate Tax Free Fund invests at
least 80% of its net assets in municipal securities that pay interest that is
exempt from federal and California income tax, including the federal alternative
minimum tax. The fund normally may invest up to 20% of its net assets in taxable
obligations, including obligations the interest on which is subject to the
federal alternative minimum tax. The fund may invest in:
o "general obligation" bonds, which are backed by the full faith, credit and
taxing power of the issuer;
o "revenue" bonds, which are payable only from the revenues generated by a
specific project or from another specific revenue source;
o participation interests in municipal leases;
o zero coupon municipal securities, which pay no cash income to their
holders until they mature; and
o inverse floating rate municipal securities (up to 10% of the fund's total
assets).
In selecting securities for the fund, fund managers first determine their
economic outlook and the direction in which inflation and interest rates are
expected to move. In selecting individual securities consistent with this
outlook, fund managers evaluate factors such as credit quality, yield, maturity,
liquidity and portfolio diversification.
The fund only invests in securities that, at the time of purchase, are either
rated investment grade or are unrated and determined to be of comparable quality
by the fund's advisor. Unrated securities will not exceed 25% of the fund's
total assets (not including unrated securities that have been pre-refunded with
U.S. Government securities and U.S. Government agency securities).
The fund will attempt to maintain the weighted average maturity of its portfolio
securities at 3 to 10 years under normal market conditions.
4 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
MAIN RISKS
The price and yield of this fund will change daily due to changes in interest
rates and other factors, which means you could lose money. The main risks of
investing in this fund include:
INTEREST RATE RISK
Debt securities typically decrease in value when interest rates rise. This risk
is usually greater for longer-term debt securities. Inverse floating rate
municipal securities may be highly volatile as interest rates rise or fall.
INCOME RISK
The fund's income could decline due to falling market interest rates.
CREDIT RISK
An issuer of debt securities may not make timely principal or interest payments
on its securities. The revenue bonds and municipal lease obligations in which
the fund invests may entail greater credit risk than the fund's investments in
general obligation bonds.
CALL RISK
Some municipal securities held by the fund may be redeemed by the issuer, or
"called," prior to their stated maturity dates. If a security is redeemed during
a time of declining interest rates, the fund may be unable to reinvest in
securities providing as high a level of income.
RISKS OF MUNICIPAL LEASE OBLIGATIONS
Many municipal leases and contracts contain "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.
POLITICAL AND ECONOMIC RISK
Because the fund invests primarily in municipal securities issued by the state
of California and its political subdivisions, the fund will be particularly
affected by political and economic conditions and developments in that state.
See the Statement of Additional Information for details. The value of municipal
securities owned by the fund also may be adversely affected by future changes in
federal or state income tax laws, including rate reductions or the imposition of
a flat tax.
RISKS OF NON-DIVERSIFICATION
The fund is non-diversified. This means that it may invest a larger portion of
its assets in a limited number of issuers than a diversified fund. Because a
relatively high percentage of the fund's assets may be invested in the
securities of a limited number of issuers, the fund may be more susceptible to
any single economic, political or regulatory occurrence than a diversified fund.
5 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
FUND PERFORMANCE
Illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart shows you how performance of the fund's shares has varied from
year to year. Sales charges are not reflected in the chart; if they had been,
returns would be lower.
The table compares the fund's performance over different time periods to that of
the fund's benchmark index, which is a broad measure of market performance. The
fund's performance reflects sales charges and fund expenses; the benchmark is
unmanaged and has no expenses.
Both the chart and the table assume that all distributions have been reinvested.
6 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
FUND SUMMARIES
CALIFORNIA INTERMEDIATE TAX FREE FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR(1)
8.88% -3.04% 12.50% 4.34% 6.75% 5.82%
- --------- ---------- ---------- --------- --------- --------- ---------
1993 1994 1995 1996 1997 1998 1999
BEST QUARTER:
Quarter ending: 3/31/95
Total Return 5.11%
WORST QUARTER:
Quarter ending: 3/31/94
Total Return -3.44%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99 (1) Date One Year Five Years Inception
- ----------------------------------------------------------- ------------- --------------- --------------
<S> <C> <C>
California Intermediate Tax Free Fund 5/31/92 ____% ____% ____%
- ----------------------------------------------------------- ------------- --------------- --------------
Lehman Brothers 7-Year Municipal Bond Index(2) ____% ____% ____%
- ----------------------------------------------------------- ------------- --------------- --------------
</TABLE>
(1)Performance prior to 8/8/97, is that of the California Intermediate Tax Free
Fund's predecessor common trust funds, adjusted to reflect the fund's Class A
share fees and expenses. The common trust funds were not registered under the
Investment Company Act of 1940 and therefore were not subject to certain
investment restrictions that might have adversely affected performance.
(2)An unmanaged index comprised of fixed rate, investment grade tax-exempt bonds
with maturities between six and eight years. The since inception performance for
the index is calculated from 5/31/92.
7 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
SHAREHOLDER FEES Class A
- ------------------------------------------------------------------------------------------
<S> <C>
MAXIMUM SALES CHARGE (LOAD) AS A % OF OFFERING PRICE 2.50%(2)
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- ------------------------------------------------------------------------------------------
Management Fees 0.70%
Distribution and Service (12b-1) Fees 0.25%
Other Expenses ____%
TOTAL ____%
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor and the distributor. See
"Additional Information -- Financial Highlights." The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 1999 were:
<TABLE>
<S> <C>
Waiver of Fund Expenses (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____%
</TABLE>
THE DISTRIBUTOR INTENDS TO WAIVE PAYMENT OF ALL 12B-1 FEES DURING THE CURRENT
FISCAL YEAR. IN ADDITION, THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT
FISCAL YEAR SO THAT TOTAL FUND OPERATING EXPENSES DO NOT EXCEED 0.70%. FEE
WAIVERS MAY BE DISCONTINUED AT ANY TIME.
(2) Certain investors may qualify for reduced sales charges. Investments of $1
million or more on which no front-end sales charge is paid may be subject to a
contingent deferred sales charge. See "Buying Shares -- Calculating Your Share
Price."
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
1 year $ 370
3 years $ 624
5 years $ 898
10 years $1,679
8 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
FUND SUMMARIES
COLORADO INTERMEDIATE TAX FREE FUND
OBJECTIVE
Colorado Intermediate Tax Free Fund has an objective of providing current income
that is exempt from both federal income tax and Colorado state income tax to the
extent consistent with preservation of capital.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Colorado Intermediate Tax Free Fund invests at
least 80% of its net assets in municipal securities that pay interest that is
exempt from federal and Colorado income tax, including the federal alternative
minimum tax. The fund normally may invest up to 20% of its net assets in taxable
obligations, including obligations the interest on which is subject to the
federal alternative minimum tax. The fund may invest in:
o "general obligation" bonds, which are backed by the full faith, credit and
taxing power of the issuer;
o "revenue" bonds, which are payable only from the revenues generated by a
specific project or from another specific revenue source;
o participation interests in municipal leases;
o zero coupon municipal securities, which pay no cash income to their
holders until they mature; and
o inverse floating rate municipal securities (up to 10% of the fund's total
assets).
In selecting securities for the fund, fund managers first determine their
economic outlook and the direction in which inflation and interest rates are
expected to move. In selecting individual securities consistent with this
outlook, fund managers evaluate factors such as credit quality, yield, maturity,
liquidity and portfolio diversification.
The fund only invests in securities that, at the time of purchase, are either
rated investment grade or are unrated and determined to be of comparable quality
by the fund's advisor. Unrated securities will not exceed 25% of the fund's
total assets (not including unrated securities that have been pre-refunded with
U.S. Government securities and U.S. Government agency securities).
The fund will attempt to maintain the weighted average maturity of its portfolio
securities at 3 to 10 years under normal market conditions.
9 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
MAIN RISKS
The price and yield of this fund will change daily due to changes in interest
rates and other factors, which means you could lose money. The main risks of
investing in this fund include:
INTEREST RATE RISK
Debt securities typically decrease in value when interest rates rise. This risk
is usually greater for longer-term debt securities. Inverse floating rate
securities may be highly volatile as interest rates rise or fall.
INCOME RISK
The fund's income could decline due to falling market interest rates.
CREDIT RISK
An issuer of debt securities may not make timely principal or interest payments
on its securities. The revenue bonds and municipal lease obligations in which
the fund invests may entail greater credit risk than the fund's investments in
general obligation bonds.
CALL RISK
Some municipal securities held by the fund may be redeemed by the issuer, or
"called," prior to their stated maturity dates. If a security is redeemed during
a time of declining interest rates, the fund may be unable to reinvest in
securities providing as high a level of income.
RISKS OF MUNICIPAL LEASE OBLIGATIONS
Many municipal leases and contracts contain "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.
POLITICAL AND ECONOMIC RISK
Because the fund invests primarily in municipal securities issued by the state
of Colorado and its political subdivisions, the fund will be particularly
affected by political and economic conditions and developments in that state.
See the Statement of Additional Information for details. The value of municipal
securities owned by the fund also may be adversely affected by future changes in
federal or state income tax laws, including rate reductions or the imposition of
a flat tax.
RISKS OF NON-DIVERSIFICATION
The fund is non-diversified. This means that it may invest a larger portion of
its assets in a limited number of issuers than a diversified fund. Because a
relatively high percentage of the fund's assets may be invested in the
securities of a limited number of issuers, the fund may be more susceptible to
any single economic, political or regulatory occurrence than a diversified fund.
10 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
FUND PERFORMANCE
Illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart shows you how performance of the fund's shares has varied from
year to year. Sales charges are not reflected in the chart; if they had been,
returns would be lower.
The table compares the fund's performance over different time periods to that of
the fund's benchmark index, which is a broad measure of market performance. The
fund's performance reflects sales charges and fund expenses; the benchmark is
unmanaged and has no expenses.
Both the chart and the table assume that all distributions have been reinvested.
11 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
FUND SUMMARIES
COLORADO INTERMEDIATE TAX FREE FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR
12.33% 3.86% 7.07% 5.44%
- --------- -------- -------- --------- --------
1995 1996 1997 1998 1999
BEST QUARTER:
Quarter ending: 3/31/95
Total Return 5.18%
WORST QUARTER:
Quarter ending: 3/31/96
Total Return -0.36%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99 Date One Year Five Years Inception
- ----------------------------------------------------------- ------------- --------------- --------------
<S> <C> <C>
Colorado Intermediate Tax Free Fund 4/4/94 ____% ____% ____%
- ----------------------------------------------------------- ------------- --------------- --------------
Lehman Brothers 7-Year Municipal Bond Index(1) ____% ____% ____%
- ----------------------------------------------------------- ------------- --------------- --------------
</TABLE>
(1)An unmanaged index comprised of fixed rate, investment grade tax-exempt bonds
with maturities between six and eight years. The since inception performance for
the index is calculated from 4/30/94.
12 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
SHAREHOLDER FEES Class A
- ----------------------------------------------------------------------------------------
<S> <C>
MAXIMUM SALES CHARGE (LOAD) AS A % OF OFFERING PRICE 2.50%(2)
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------------
Management Fees 0.70%
Distribution and Service (12b-1) Fees 0.25%
Other Expenses ____%
TOTAL ____%
- ----------------------------------------------------------------------------------------
</TABLE>
(1) Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor and the distributor. See
"Additional Information -- Financial Highlights." The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 1999 were:
<TABLE>
<S> <C>
Waiver of Fund Expenses (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____%
</TABLE>
THE DISTRIBUTOR INTENDS TO WAIVE PAYMENT OF ALL 12B-1 FEES DURING THE CURRENT
FISCAL YEAR. IN ADDITION, THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT
FISCAL YEAR SO THAT TOTAL OPERATING EXPENSES DO NOT EXCEED 0.70%. FEE WAIVERS
MAY BE DISCONTINUED AT ANY TIME.
(2) Certain investors may qualify for reduced sales charges. Investments of $1
million or more on which no front-end sales charge is paid may be subject to a
contingent deferred sales charge. See "Buying Shares -- Calculating Your Share
Price."
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
1 year $ 366
3 years $ 612
5 years $ 878
10 years $ 1,635
13 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
FUND SUMMARIES
INTERMEDIATE TAX FREE FUND
OBJECTIVE
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.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Intermediate Tax Free Fund invests at least 80%
of its net assets in municipal securities that pay interest that is exempt from
federal income tax, including the federal alternative minimum tax. The fund
normally may invest up to 20% of its net assets in taxable obligations,
including obligations the interest on which is subject to the federal
alternative minimum tax. The fund may invest in:
o "general obligation" bonds, which are backed by the full faith, credit and
taxing power of the issuer;
o "revenue" bonds, which are payable only from the revenues generated by a
specific project or from another specific revenue source;
o participation interests in municipal leases;
o zero coupon municipal securities, which pay no cash income to their
holders until they mature; and
o inverse floating rate municipal securities (up to 10% of the fund's total
assets).
In selecting securities for the fund, fund managers first determine their
economic outlook and the direction in which inflation and interest rates are
expected to move. In selecting individual securities consistent with this
outlook, fund managers evaluate factors such as credit quality, yield, maturity,
liquidity and portfolio and geographical diversification.
The fund only invests in securities that, at the time of purchase, are either
rated investment grade or are unrated and determined to be of comparable quality
by the fund's advisor. Unrated securities will not exceed 25% of the fund's
total assets (not including unrated securities that have been pre-refunded with
U.S. Government securities and U.S. Government agency securities).
The fund will attempt to maintain the weighted average maturity of its portfolio
securities at 3 to 10 years under normal market conditions.
14 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
MAIN RISKS
The price and yield of this fund will change daily due to changes in interest
rates and other factors, which means you could lose money. The main risks of
investing in this fund include:
INTEREST RATE RISK
Debt securities typically decrease in value when interest rates rise. This risk
is usually greater for longer-term debt securities. Inverse floating rate
securities may be highly volatile as interest rates rise or fall.
INCOME RISK
The fund's income could decline due to falling market interest rates.
CREDIT RISK
An issuer of debt securities may not make timely principal or interest payments
on its securities. The revenue bonds and municipal lease obligations in which
the fund invests may entail greater credit risk than the fund's investments in
general obligation bonds.
CALL RISK
Some municipal securities held by the fund may be redeemed by the issuer, or
"called," prior to their stated maturity dates. If a security is redeemed during
a time of declining interest rates, the fund may be unable to reinvest in
securities providing as high a level of income.
RISKS OF MUNICIPAL LEASE OBLIGATIONS
Many municipal leases and contracts contain "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.
POLITICAL AND ECONOMIC RISK
The value of municipal securities owned by the fund may be adversely affected by
state and local political and economic conditions and developments, or by future
changes in federal or state income tax laws, including rate reductions or the
imposition of a flat tax.
15 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
FUND PERFORMANCE
Illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart shows you how performance of the fund's shares has varied from
year to year. Sales charges are not reflected in the chart; if they had been,
returns would be lower.
The table compares the fund's performance over different time periods to that of
the fund's benchmark index, which is a broad measure of market performance. The
fund's performance reflects sales charges and fund expenses; the benchmark is
unmanaged and has no expenses.
Both the chart and the table assume that all distributions have been reinvested.
16 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
FUND SUMMARIES
INTERMEDIATE TAX FREE FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR
5.54% 8.44% 6.49% 8.20% -2.95% 12.89% 3.72% 6.79% 5.38%
- -------- ------- ------- ------- -------- -------- ------- ------- -------- ----
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
BEST QUARTER:
Quarter ending: 3/31/95
Total Return 5.10%
WORST QUARTER:
Quarter ending: 3/31/94
Total Return -4.10%
<TABLE>
<CAPTION>
Ten
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/99 Inception Date One Year Five Years Years
- --------------------------------------------------------------- ------------- --------------- ----------
<S> <C> <C> <C> <C>
Intermediate Tax Free Fund 12/22/87 ____% ____% ____%
- --------------------------------------------------------------- ------------- --------------- ----------
Lehman 7-Year Municipal Bond Index(1) ____% ____% ____%
- --------------------------------------------------------------- ------------- --------------- ----------
Lehman Brothers 7-Year G.O. Index(2) ____% ____% ____%
- --------------------------------------------------------------- ------------- --------------- ----------
</TABLE>
(1)An unmanaged index comprised of fixed rate, investment grade tax-exempt bonds
with maturities between six and eight years. Previously, the fund used the
Lehman 7-Year G.O. Index as a benchmark. Going forward, the fund will use the
Lehman 7-Year Municipal Bond Index as a comparison, because it is better suited
to the fund's investment strategies.
(2)An unmanaged index comprised of fixed rate, investment grade, general
obligation tax-exempt bonds with maturities between six and eight years.
17 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
SHAREHOLDER FEES Class A
- ----------------------------------------------------------------------------------------
<S> <C>
MAXIMUM SALES CHARGE (LOAD) AS A % OF OFFERING PRICE 2.50%(2)
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------------
Management Fees 0.70%
Distribution and Service (12b-1) Fees 0.25%
Other Expenses ____%
TOTAL ____%
- ----------------------------------------------------------------------------------------
</TABLE>
(1) Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor and the distributor. See
"Additional Information -- Financial Highlights." The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 1999 were:
<TABLE>
<S> <C>
Waiver of Fund Expenses (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____%
</TABLE>
THE DISTRIBUTOR INTENDS TO WAIVE PAYMENT OF ALL 12B-1 FEES DURING THE CURRENT
FISCAL YEAR. IN ADDITION, THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT
FISCAL YEAR SO THAT TOTAL FUND OPERATING EXPENSES DO NOT EXCEED 0.70%. FEE
WAIVERS MAY BE DISCONTINUED AT ANY TIME.
(2) Certain investors may qualify for reduced sales charges. Investments of $1
million or more on which no front-end sales charge is paid may be subject to a
contingent deferred sales charge. See "Buying Shares -- Calculating Your Share
Price."
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
1 year $ 360
3 years $ 594
5 years $ 846
10 years $ 1,568
18 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
FUND SUMMARIES
MINNESOTA INTERMEDIATE TAX FREE FUND
OBJECTIVE
Minnesota Intermediate Tax Free Fund has an objective of providing current
income that is exempt from both federal income tax and Minnesota state income
tax to the extent consistent with preservation of capital.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Minnesota Intermediate Tax Free Fund invests at
least 80% of its net assets in municipal securities that pay interest that is
exempt from federal and Minnesota income tax, including federal and state of
Minnesota alternative minimum tax. The fund normally may invest up to 20% of its
net assets in taxable obligations, including obligations the interest on which
is subject to federal and state of Minnesota alternative minimum tax.
The fund may invest in:
o "general obligation" bonds, which are backed by the full faith, credit and
taxing power of the issuer;
o "revenue" bonds, which are payable only from the revenues generated by a
specific project or from another specific revenue source;
o participation interests in municipal leases;
o zero coupon municipal securities, which pay no cash income to their
holders until they mature; and
o inverse floating rate municipal securities (up to 10% of the fund's total
assets).
In selecting securities for the fund, fund managers first determine their
economic outlook and the direction in which inflation and interest rates are
expected to move. In selecting individual securities consistent with this
outlook, fund managers evaluate factors such as credit quality, yield, maturity,
liquidity and portfolio diversification.
The fund only invests in securities that, at the time of purchase, are either
rated investment grade or are unrated and determined to be of comparable quality
by the fund's advisor. Unrated securities will not exceed 25% of the fund's
total assets (not including unrated securities that have been pre-refunded with
U.S. Government securities and U.S. Government agency securities).
The fund will attempt to maintain the weighted average maturity of its portfolio
securities at 3 to 10 years under normal market conditions.
19 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
MAIN RISKS
The price and yield of this fund will change daily due to changes in interest
rates and other factors, which means you could lose money. The main risks of
investing in this fund include:
INTEREST RATE RISK
Debt securities typically decrease in value when interest rates rise. This risk
is usually greater for longer-term debt securities. Inverse floating rate
municipal securities may be highly volatile as interest rates rise or fall.
INCOME RISK
The fund's income could decline due to falling market interest rates.
CREDIT RISK
An issuer of debt securities may not make timely principal or interest payments
on its securities. The revenue bonds and municipal lease obligations in which
the fund invests may entail greater credit risk than the fund's investments in
general obligation bonds.
CALL RISK
Some municipal securities held by the fund may be redeemed by the issuer, or
"called," prior to their stated maturity dates. If a security is redeemed during
a time of declining interest rates, the fund may be unable to reinvest in
securities providing as high a level of income.
RISKS OF MUNICIPAL LEASE OBLIGATIONS
Many municipal leases and contracts contain "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.
POLITICAL AND ECONOMIC RISK
Because the fund invests primarily in municipal securities issued by the state
of Minnesota and its political subdivisions, the fund will be particularly
affected by political and economic conditions and developments in that state.
See the Statement of Additional Information for details. The value of municipal
securities owned by the fund also may be adversely affected by future changes in
federal or state income tax laws, including rate reductions or the imposition of
a flat tax.
RISKS OF NON-DIVERSIFICATION
The fund is non-diversified. This means that it may invest a larger portion of
its assets in a limited number of issuers than a diversified fund. Because a
relatively high percentage of the fund's assets may be invested in the
securities of a limited number of issuers, the fund may be more susceptible to
any single economic, political or regulatory occurrence than a diversified fund.
20 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
FUND PERFORMANCE
Illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart shows you how performance of the fund's shares has varied from
year to year. Sales charges are not reflected in the chart; if they had been,
returns would be lower.
The table compares the fund's performance over different time periods to that of
the fund's benchmark index, which is a broad measure of market performance. The
fund's performance reflects sales charges and fund expenses; the benchmark is
unmanaged and has no expenses.
Both the chart and the table assume that all distributions have been reinvested.
21 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
FUND SUMMARIES
MINNESOTA INTERMEDIATE TAX FREE FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR
12.67% 3.82% 6.74% 5.34%
- -------- ------- ------- -------- --------
1995 1996 1997 1998 1999
BEST QUARTER:
Quarter ending: 3/31/95
Total Return 5.30%
WORST QUARTER:
Quarter ending: 3/31/96
Total Return -0.27%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Since
AS OF 12/31/99 Inception Date One Year Five Years Inception
- ---------------------------------------------------------------- ------------- --------------- --------------
<S> <C> <C>
Minnesota Intermediate Tax Free Fund 2/25/94 ____% ____% ____%
- ---------------------------------------------------------------- ------------- --------------- --------------
Lehman Brothers 7-Year Municipal Bond Index(1) ____% ____% ____%
- ---------------------------------------------------------------- ------------- --------------- --------------
</TABLE>
(1) An unmanaged index comprised of fixed rate, investment grade tax-exempt
bonds with maturities between six and eight years. The since inception
performance for the index is calculated from 2/28/94.
22 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
- ---------------------------------------------------------------------
SHAREHOLDER FEES Class A
- ---------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD) AS A % OF OFFERING PRICE 2.50%(2)
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- ---------------------------------------------------------------------
Management Fees 0.70%
Distribution and Service (12b-1) Fees 0.25%
Other Expenses ____%
TOTAL ____%
- ---------------------------------------------------------------------
(1) Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor and the distributor. See
"Additional Information -- Financial Highlights." The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 1999 were:
Waiver of Fund Expenses (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____%
THE DISTRIBUTOR INTENDS TO WAIVE PAYMENT OF ALL 12B-1 FEES DURING THE CURRENT
FISCAL YEAR. IN ADDITION, THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT
FISCAL YEAR SO THAT TOTAL FUND OPERATING EXPENSES DO NOT EXCEED 0.70%. FEE
WAIVERS MAY BE DISCONTINUED AT ANY TIME.
(2) Certain investors may qualify for reduced sales charges. Investments of $1
million or more on which no front-end sales charge is paid may be subject to a
contingent deferred sales charge. See "Buying Shares -- Calculating Your Share
Price."
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
1 year $ 360
3 years $ 594
5 years $ 846
10 years $ 1,568
23 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
FUND SUMMARIES
OREGON INTERMEDIATE TAX FREE FUND
OBJECTIVE
Oregon Intermediate Tax Free Fund has an objective of providing current income
that is exempt from both federal income tax and Oregon state income tax to the
extent consistent with preservation of capital.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Oregon Intermediate Tax Free Fund invests at
least 80% of its net assets in municipal securities that pay interest that is
exempt from federal and Oregon ncome tax, including the federal alternative
minimum tax. The fund normally may invest up to 20% of its net assets in taxable
obligations, including obligations the interest on which is subject to the
federal alternative minimum tax. The fund may invest in:
o "general obligation" bonds, which are backed by the full faith, credit and
taxing power of the issuer;
o "revenue" bonds, which are payable only from the revenues generated by a
specific project or from another specific revenue source;
o participation interests in municipal leases;
o zero coupon municipal securities, which pay no cash income to their
holders until they mature; and
o inverse floating rate municipal securities (up to 10% of the fund's total
assets).
In selecting securities for the fund, fund managers first determine their
economic outlook and the direction in which inflation and interest rates are
expected to move. In selecting individual securities consistent with this
outlook, fund managers evaluate factors such as credit quality, yield, maturity,
liquidity and portfolio diversification.
The fund only invests in securities that, at the time of purchase, are either
rated investment grade or are unrated and determined to be of comparable quality
by the fund's advisor. Unrated securities will not exceed 25% of the fund's
total assets (not including unrated securities that have been pre-refunded with
U.S. Government securities and U.S. Government agency securities).
The fund will attempt to maintain the weighted average maturity of its portfolio
securities at 3 to 10 years under normal market conditions.
24 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
MAIN RISKS
The price and yield of this fund will change daily due to changes in interest
rates and other factors, which means you could lose money. The main risks of
investing in this fund include:
INTEREST RATE RISK
Debt securities typically decrease in value when interest rates rise. This risk
is usually greater for longer-term debt securities. Inverse floating rate
municipal securities may be highly volatile as interest rates rise or fall.
INCOME RISK
The fund's income could decline due to falling market interest rates.
CREDIT RISK
An issuer of debt securities may not make timely principal or interest payments
on its securities. The revenue bonds and municipal lease obligations in which
the fund invests may entail greater credit risk than the fund's investments in
general obligation bonds.
CALL RISK
Some municipal securities held by the fund may be redeemed by the issuer, or
"called," prior to their stated maturity dates. If a security is redeemed during
a time of declining interest rates, the fund may be unable to reinvest in
securities providing as high a level of income.
RISKS OF MUNICIPAL LEASE OBLIGATIONS
Many municipal leases and contracts contain "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.
POLITICAL AND ECONOMIC RISK
Because the fund invests primarily in municipal securities issued by the state
of Oregon and its political subdivisions, the fund will be particularly affected
by political and economic conditions and developments in that state. See the
Statement of Additional Information for details. The value of municipal
securities owned by the fund also may be adversely affected by future changes in
federal or state income tax laws, including rate reductions or the imposition of
a flat tax.
RISKS OF NON-DIVERSIFICATION
The fund is non-diversified. This means that it may invest a larger portion of
its assets in a limited number of issuers than a diversified fund. Because a
relatively high percentage of the fund's assets may be invested in the
securities of a limited number of issuers, the fund may be more susceptible to
any single economic, political or regulatory occurrence than a diversified fund.
25 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
FUND PERFORMANCE
Illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart shows you how performance of the fund's shares has varied from
year to year. Sales charges are not reflected in the chart; if they had been,
returns would be lower.
The table compares the fund's performance over different time periods to that of
the fund's benchmark index, which is a broad measure of market performance. The
fund's performance reflects fund expenses; the benchmark is unmanaged and has no
expenses.
Information in the bar chart and the table is for the fund's Class Y shares,
which are offered through another prospectus. Class A shares were not offered
prior to the date of this prospectus. The Class A and Class Y shares will have
substantially similar returns, because they are invested in the same portfolio
of securities. However, Class A share returns will be lower because these shares
have higher expenses.
Both the chart and the table assume that all distributions have been reinvested.
26 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
FUND SUMMARIES
OREGON INTERMEDIATE TAX FREE FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR(1)
7.63% 9.89% 7.19% 8.96% -2.66% 11.27% 3.31% 7.06% 5.36%
- ------- ------- ------- ------- -------- -------- ------- ------- -------- ----
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
BEST QUARTER:
Quarter ending: 6/30/89
Total Return 4.64%
WORST QUARTER:
Quarter ending: 3/31/94
Total Return -3.41%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Ten
AS OF 12/31/99 (1) Inception Date One Year Five Years Years
- ----------------------------------------------------------------- ------------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Oregon Intermediate Tax Free Fund (Class Y)(2) 8/8/97 ____% ____% ____%
- ----------------------------------------------------------------- ------------- --------------- ----------
Lehman Brothers 7-Year Municipal Bond Index(3) ____% ____% ____%
- ----------------------------------------------------------------- ------------- --------------- ----------
</TABLE>
(1) Performance prior to 8/8/97 is that of the fund's predecessor common trust
fund, adjusted to reflect the fund's Class Y share fees and expenses. The common
trust fund was not registered under the Investment Company Act and therefore was
not subject to certain investment restrictions that might have adversely
affected performance.
(2) Class Y share returns have been adjusted to reflect the 2.50% front-end
sales charge imposed on Class A shares. Class Y shares have no sales charges.
Class A share inception date is 2/1/99.
(3) An unmanaged index comprised of fixed rate, investment grade tax-exempt
bonds with maturities between six and eight years.
27 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
SHAREHOLDER FEES Class A
- -----------------------------------------------------------------------------------------
<S> <C>
MAXIMUM SALES CHARGE (LOAD) AS A % OF OFFERING PRICE 2.50%(2)
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------------
Management Fees 0.70%
Distribution and Service (12b-1) Fees 0.25%
Other Expenses ____%
TOTAL ____%
- -----------------------------------------------------------------------------------------
</TABLE>
(1) Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor and the distributor. See
"Additional Information -- Financial Highlights." The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 1999 were:
<TABLE>
<S> <C>
Waiver of Fund Expenses (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____%
</TABLE>
THE DISTRIBUTOR INTENDS TO WAIVE PAYMENT OF ALL 12B-1 FEES DURING THE CURRENT
FISCAL YEAR. IN ADDITION, THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT
FISCAL YEAR SO THAT TOTAL FUND OPERATING EXPENSES DO NOT EXCEED 0.70%. FEE
WAIVERS MAY BE DISCONTINUED AT ANY TIME.
(2) Certain investors may qualify for reduced sales charges. Investments of $1
million or more on which no front-end sales charge is paid may be subject to a
contingent deferred sales charge. See "Buying Shares -- Calculating Your Share
Price."
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
1 year $ 361
3 years $ 597
5 years $ 851
10 years $ 1,579
28 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
POLICIES & SERVICES
BUYING SHARES
You may become a shareholder in any of the funds with an initial investment of
$1,000 or more ($250 for a retirement plan or a Uniform Gifts to Minors
Act/Uniform Transfers to Minors Act (UGMA/UTMA) account). Additional investments
can be made for as little as $100 ($25 for a retirement plan or an UGMA/UTMA
account). The funds have the right to waive these minimum investment
requirements for employees of the funds' advisor and its affiliates. The funds
also have the right to reject any purchase order.
12b-1 FEES
Each fund has adopted a plan under rule 12b-1 of the Investment Company Act that
allows it to pay the fund's distributor an annual fee for the distribution and
sale of its shares and for services provided to shareholders. Class A shares of
the funds pay shareholder servicing fees equal, on an annual basis to 0.25% of
average daily net assets.
The funds' distributor uses the shareholder servicing fee to compensate brokers,
participating institutions and "one-stop" mutual fund networks for providing
ongoing services to shareholder accounts. These institutions receive annual fees
equal to 0.25% of a fund's Class A share average daily net assets. However, if
an institution sells Class A shares at net asset value and receives a commission
on that sale, the institution does not begin to receive its annual fee until one
year after the shares are sold. The distributor may pay additional fees to
institutions using the sales charges it receives, in exchange for sales and/or
administrative services performed on behalf of the institution's customers.
The distributor is currently waiving its Class A share 12b-1 fee for each fund.
Therefore, the distributor will not pay institutions the annual fee referred to
above in connection with their sales of Class A shares of the funds.
CALCULATING YOUR SHARE PRICE
Your purchase price will be based on the fund's net asset value (NAV) per share,
which is generally calculated as of the close of regular trading on the New York
Stock Exchange (usually 3 p.m. Central time) every day the exchange is open.
A fund's NAV is equal to the market value of its investments and other assets,
less any liabilities, divided by the number of fund shares. If market prices are
not readily available for an investment or if the advisor believes they are
unreliable, fair value prices may be determined in good faith using methods
approved by the funds' board of directors.
Your purchase price is typically the net asset value of your shares, plus a
front-end sales charge. Sales charges vary depending on the amount of your
purchase. The funds' distributor receives the sales charge you pay and reallows
a portion of the sales charge to your broker or participating institution.
29 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
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Sales Charge
Maximum
Reallowance
As a % of As a % of as a % of
Offering Net Asset Purchase
Price Value Price
- ----------------------------------------------------------------------------
Less than $ 50,000 2.50% 2.56% 2.25%
$ 50,000 - $ 99,999 2.00% 2.04% 1.75%
$100,000 - $249,999 1.50% 1.52% 1.25%
$250,000 - $499,999 1.00% 1.01% 0.75%
$500,000 - $999,999 0.75% 0.76% 0.50%
$1 million and over 0.00% 0.00% 0.00%
REDUCING YOUR SALES CHARGE
As shown in the preceding tables, larger purchases of Class A shares reduce the
percentage sales charge you pay. You also may reduce your sales charge in the
following ways:
PRIOR PURCHASES. Prior purchases of Class A shares of any First American fund
(except a money market fund) will be factored into your sales charge
calculation. For example, let's say you're making a $10,000 investment. If the
current value of all other First American fund Class A shares that you hold is
$40,000 or more, your current sales charge is reduced. To receive a reduced
sales charge, you must notify the funds' transfer agent of your prior purchases.
This must be done at the time of purchase, either directly to the transfer agent
in writing or by notifying your broker or financial institution.
PURCHASES BY RELATED ACCOUNTS. Concurrent and prior purchases of Class A shares
by certain other accounts also will be combined to determine your sales charge.
For example, purchases made by your spouse or children under age 21 will reduce
your sales charge. To receive a reduced sales charge, you must notify the funds'
transfer agent of purchases by any related accounts. This must be done at the
time of purchase, either directly to the transfer agent in writing or by
notifying your broker or financial institution.
LETTER OF INTENT. If you plan to invest $50,000 or more over a 13-month period
in Class A shares of any First American fund except the money market funds, you
may reduce your sales charge by signing a non-binding letter of intent. (If you
do not fulfill the letter of intent, you must pay the applicable sales charge.
In addition, if you reduce your sales charge to zero under a letter of intent
and then sell your Class A shares within 18 months of their purchase, you may be
charged a contingent deferred sales charge of 1%. (See "For Investments of Over
$1 Million.")
30 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
More information on these ways to reduce your sales charge appears in the
Statement of Additional Information (SAI). The SAI also contains information on
investors who are eligible to purchase Class A shares without a sales charge.
FOR INVESTMENTS OF OVER $1 MILLION
There is no initial sales charge on Class A share purchases of $1 million or
more. However, your broker or financial institution may receive a commission of
up to 1% on your purchase. If such a commission is paid, you will be assessed a
contingent deferred sales charge (CDSC) of 1% if you sell your shares within 18
months. The funds' distributor receives any CDSC imposed when you sell your
Class A shares. The CDSC is based on the value of your shares at the time of
purchase or at the time of sale, whichever is less. The charge does not apply to
shares you acquired by reinvesting your dividend or capital gain distribution.
To help lower your costs, shares that are not subject to a CDSC will be sold
first. Other shares will then be sold in an order that minimizes your CDSC. The
CDSC for Class A shares will be waived for:
o redemptions following the death or disability of a shareholder and
o redemptions that equal the minimum required distribution from an
individual retirement account or other retirement plan to a shareholder
who has reached the age of 70-1/2.
HOW TO BUY SHARES
You may buy shares on any day the New York Stock Exchange is open. However
purchases of shares may be restricted in the event of an early or unscheduled
close of the New York Stock Exchange. Your shares will be priced at the next NAV
calculated after your order is accepted by the fund, plus any applicable sales
charge. To make sure that your order is accepted, follow the directions for
purchasing shares given below.
BY PHONE
You may purchase shares by calling your broker or financial institution, if they
have a sales agreement with the funds' distributor. In many cases, your order
will be effective that day if received by your broker or financial institution
by the close of regular trading on the New York Stock Exchange. In some cases,
however, you will have to transmit your request by an earlier time in order for
your purchase request to be effective that day. This allows your broker or
financial institution time to process your request and transmit it to the fund.
Some financial institutions may charge a fee for helping you purchase shares.
Contact your broker or financial institution for more information.
31 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
If you are paying by wire, you may purchase shares by calling 1-800-637-2548
before 3 p.m. Central time. All information will be taken over the telephone,
and your order will be placed when the funds' custodian receives payment by
wire. Wire federal funds as follows:
U.S. Bank National Association, Minneapolis, MN
ABA Number 091000022
For Credit to: DST Systems, Inc.:
Account Number 160234580266
For Further Credit to (investor name and fund name)
You cannot purchase shares by wire on days when federally chartered banks are
closed.
BY MAIL
To purchase shares by mail, simply complete and sign a new account form, enclose
a check made payable to the fund you wish to invest in, and mail both to:
First American Funds
c/o DST Systems, Inc.
P.O. Box 219382
Kansas City, Missouri 64121-9382
After you have established an account, you may continue to purchase shares by
mailing your check to First American Funds at the same address.
Please note the following:
o all purchases must be made in U.S. dollars.
o THIRD-PARTY CHECKS, CREDIT CARDS, CREDIT CARD CHECKS AND CASH ARE NOT
ACCEPTED.
o if a check does not clear your bank, the funds reserve the right to cancel
the purchase, and you could be liable for any losses or fees incurred.
INVESTING AUTOMATICALLY
To purchase shares as part of a savings discipline, you may add to your
investment on a regular basis:
o by having $100 or more ($25 for a retirement plan or an UGMA/UTMA account)
automatically withdrawn from your checking account on a periodic basis and
invested in fund shares.
o through automatic monthly exchanges of your shares of Prime Obligations
Fund, a money market fund in the First American family of funds. Exchanges
must be made into the same class of shares that you hold in Prime
Obligations Fund.
You may apply for participation in either of these programs through your broker
or financial institution or by calling 1-800-637-2548.
32 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
POLICIES & SERVICES
SELLING SHARES
HOW TO SELL SHARES
You may sell your shares on any day when the New York Stock Exchange is open.
However redemption of shares may be restricted in the event of an early or
unscheduled close of the New York Stock Exchange. Your shares will be sold at
the next NAV calculated after your order is accepted by the fund, less any
applicable contingent deferred sales charge. To make sure that your order is
accepted, follow the directions for selling shares given below.
The proceeds from your sale normally will be mailed or wired within one day, but
in no event more than seven days, after your request is received in proper form.
BY PHONE
If you purchased shares through a broker or financial institution, simply call
them to sell your shares. In many cases, your redemption will be effective that
day if received by your broker or financial institution by the close of regular
trading on the New York Stock Exchange. In some cases, however, you will have to
call by an earlier time in order for your redemption to be effective that day.
This allows your broker or financial institution time to process your request
and transmit it to the fund. Contact your broker or financial institution
directly for more information.
If you did not purchase shares through a broker or financial institution, you
may sell your shares by calling 1-800-637-2548. Proceeds can be wired to your
bank account (if the proceeds are at least $1,000 and you have previously
supplied your bank account information to the transfer agent) or sent to you by
check.
If you recently purchased your shares by check or through the Automated Clearing
House (ACH), proceeds from the sale of those shares may not be available until
your check or ACH payment has cleared, which may take up to 10 calendar days
from the date of purchase.
BY MAIL
To sell shares by mail, send a written request to your broker or financial
institution, or to the funds' transfer agent at the following address:
First American Funds
c/o DST Systems, Inc.
P.O. Box 219382
Kansas City, Missouri 64121-9382
33 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
Your request should include the following information:
o name of the fund;
o account number;
o dollar amount or number of shares redeemed;
o name on the account; and
o signatures of all registered account owners.
Signatures on a written request must be guaranteed if:
o you would like the proceeds from the sale to be paid to anyone other than
to the shareholder of record.
o you would like the check mailed to an address other than the address on
the funds' records.
o your redemption request is for $50,000 or more.
A signature guarantee assures that a signature is genuine and protects
shareholders from unauthorized account transfers. Banks, savings and loan
associations, trust companies, credit unions, broker-dealers and member firms of
a national securities exchange may guarantee signatures. Call your financial
institution to determine if it has this capability.
Proceeds from a written redemption request will be sent to you by check.
SYSTEMATIC WITHDRAWALS
If your account has a value of $5,000 or more, you may redeem a specific dollar
amount from your account on a regular basis. To set up systematic withdrawals,
contact your broker or financial institution.
You should not make systematic withdrawals if you plan to continue investing in
the fund, due to sales charges and tax liabilities.
REINVESTING AFTER A SALE
If you sell Class A shares, you may reinvest in Class A shares of that fund or
another First American fund within 180 days without a sales charge. To reinvest
in Class A shares at net asset value (without paying a sales charge), you must
notify the transfer agent directly in writing or notify your broker or financial
institution.
ACCOUNTS WITH LOW BALANCES
Except for retirement plans and UGMA/UTMA accounts, if your account balance
falls below $500 as a result of selling or exchanging shares, you may receive
written notice and be given 30 days to re-establish the minimum balance. If you
do not, the fund may close your account and send you the proceeds, less any
applicable contingent deferred sales charge, or deduct a $25 annual fee in
December of each year if your account balance at that time is below $500.
34 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
POLICIES & SERVICES
MANAGING YOUR INVESTMENT
EXCHANGING SHARES
If your investment goals or your financial needs change, you may move from one
First American fund to another. There is no fee to exchange shares.
Generally, you may exchange your shares only for shares of the same class.
However, you may exchange your Class A shares for Class Y shares of the same or
another First American fund if you subsequently become eligible to participate
in that class (for example, by opening a fiduciary, custody or agency account
with a financial institution which invests in Class Y shares.
Exchanges are made based on the net asset value per share of each fund at the
time of the exchange. When you exchange your Class A shares of one of the funds
for Class A shares of another First American fund, you do not have to pay a
sales charge.
Before exchanging into any fund, be sure to read its prospectus carefully. A
fund may change or cancel its exchange policies at any time. You will be
notified of any changes. The funds have the right to limit exchanges to four
times per year.
BY PHONE
You may exchange shares by calling your broker, your financial institution, or
the funds' transfer agent, provided that both funds have identical shareholder
registrations. To request an exchange through the funds' transfer agent, call
1-800-637-2548. Your instructions must be received by the funds' transfer agent
before 3 p.m. Central time, or by the time specified by your broker or financial
institution, in order for shares to be exchanged the same day.
BY MAIL
To exchange shares by written request, please follow the procedures under
"Selling Shares." Be sure to include the names of both funds involved in the
exchange.
TELEPHONE TRANSACTIONS
You may buy, sell or exchange shares by telephone, unless you elected on your
new account form to restrict this privilege. If you wish to reinstate this
option on an existing account, please call Investor Services at 1-800-637-2548
to request the appropriate form.
The funds and their agents will not be responsible for any losses that may
result from acting on wire or telephone instructions that they reasonably
believe to be genuine. The funds and their agents will each follow reasonable
procedures to confirm that instructions received by telephone are genuine, which
may include taping telephone conversations.
35 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
It may be difficult to reach the funds by telephone during periods of unusual
market activity. If you are unable to reach the funds or their agents by
telephone, please consider sending written instructions.
STAYING INFORMED
SHAREHOLDER REPORTS
Shareholder reports are mailed twice a year, in November and May. They include
financial statements, performance information, a message from your portfolio
managers, and, on an annual basis, the auditors' report.
In an attempt to reduce shareholder costs and help eliminate duplication, the
funds will try to limit their mailings to one report for each address that lists
one or more shareholders with the same last name. If you would like additional
copies, please call 1-800-637-2548.
STATEMENTS AND CONFIRMATIONS
Statements summarizing activity in your account are mailed at least quarterly.
Confirmations are mailed following each purchase or sale of fund shares.
DIVIDENDS AND DISTRIBUTIONS
Dividends from a fund's net investment income are declared and paid monthly. Any
capital gains are distributed at least once each year.
On the ex-dividend date for a distribution, a fund's share price is reduced by
the amount of the distribution. If you buy shares just before the ex-dividend
date, in effect, you "buy the dividend." You will pay the full price for the
shares and then receive a portion of that price back as a distribution, all or a
portion of which may be taxable (to the same extent the distribution is
otherwise taxable to fund shareholders).
Dividend and capital gain distributions will be reinvested in additional shares
of the fund paying the distribution, unless you request that distributions be
reinvested in another First American fund or paid in cash. This request may be
made on your new account form or by writing to the fund. If you request that
your distributions be paid in cash but those distributions cannot be delivered
because of an incorrect mailing address, the undelivered distributions and all
future distributions will be reinvested in fund shares.
36 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
TAXES
Some of the tax consequences of investing in the funds are discussed below. More
information about taxes is in the Statement of Additional Information. However,
because everyone's tax situation is unique, always consult your tax professional
about federal, state and local tax consequences.
TAXES ON DISTRIBUTIONS
Each fund intends to meet certain federal tax requirements so that distributions
of tax-exempt interest income may be treated as "exempt-interest dividends."
These dividends are not subject to regular federal income tax. However, each
fund may invest up to 20% of its net assets in municipal securities the interest
on which is subject to the alternative minimum tax. Any portion of
exempt-interest dividends attributable to interest on these securities may
increase some shareholders' alternative minimum tax. The funds expect that their
distributions will consist primarily of exempt-interest dividends. Intermediate
Tax Free Fund's exempt-interest dividends may be subject to state or local
taxes.
Distributions paid from any interest income that is not tax-exempt and from any
net realized capital gains will be taxable whether you reinvest those
distributions or take them in cash. Distributions of a fund's net capital gains
are taxable as long-term capital gains, regardless of how long you have held
your shares.
TAXES ON TRANSACTIONS
The sale of fund shares, or the exchange of one fund's shares for shares of
another fund, will be a taxable event and may result in a capital gain or loss.
The gain or loss will be considered long-term if you have held your shares for
more than one year. A gain or loss on shares held for one year or less is
considered short-term and is taxed at the same rates as ordinary income.
The exchange of one class of shares for another class of shares in the same fund
will not be taxable.
CALIFORNIA INCOME TAXATION
California Intermediate Tax Free Fund intends to comply with certain state tax
requirements so that dividends it pays that are attributable to interest on
California municipal securities will be excluded from the California taxable
income of individuals, trusts and estates. To meet these requirements, at least
50% of the value of the fund's total assets must consist of obligations which
pay interest that is exempt from California personal income tax. Exempt-interest
dividends are not excluded from the California taxable income of corporations
and financial institutions. In addition, dividends derived from interest paid on
California municipal bonds (including securities treated for federal purposes as
private activity bonds) will not be subject to the alternative minimum tax that
California imposes on individuals, trusts and estates.
37 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
COLORADO INCOME TAXATION
Dividends paid by Colorado Intermediate Tax Free Fund will be exempt from
Colorado income taxes for individuals, trusts, estates and corporations to the
extent that they are derived from interest on Colorado municipal securities. In
addition, dividends derived from interest on Colorado municipal securities
(including securities treated for federal purposes as private activity bonds)
will not be subject to the alternative minimum tax that Colorado imposes on
individuals, trusts and estates.
MINNESOTA INCOME TAXATION
Minnesota Intermediate Tax Free Fund intends to comply with certain state tax
requirements so that dividends it pays that are attributable to interest on
Minnesota municipal securities will be excluded from the Minnesota taxable net
income of individuals, estates and trusts. To meet these requirements, at least
95% of the exempt-interest dividends paid by the fund must be derived from
interest income on Minnesota municipal securities. A portion of the fund's
dividends may be subject to the Minnesota alternative minimum tax.
Exempt-interest dividends are not excluded from the Minnesota taxable income of
corporations and financial institutions.
OREGON INCOME TAXATION
Dividends paid by Oregon Intermediate Tax Free Fund will be exempt from Oregon
income taxes for individuals, trusts and estates to the extent that they are
derived from interest on Oregon municipal securities. Such dividends will not be
excluded from the Oregon taxable income of corporations.
38 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
ADDITIONAL INFORMATION
MANAGEMENT
INVESTMENT ADVISOR
First American Asset Management
601 Second Avenue South
Minneapolis, Minnesota 55402
U.S. Bank National Association (U.S. Bank), acting through its First American
Asset Management division, is the funds' investment advisor. First American
Asset Management provides investment management services to individuals and
institutions, including corporations, foundations, pensions and retirement
plans. As of December 31, 1999, it had more than $ ____ billion in assets under
management, including investment company assets of approximately $____ billion.
As investment advisor, First American Asset Management manages the funds'
business and investment activities, subject to the authority of the board of
directors. Each fund pays the investment advisor a monthly fee for providing
investment advisory services. During their most recent fiscal years, after
taking into account fee waivers, the funds paid the following investment
advisory fees to First American Asset Management:
Advisory fee
as a % of
average daily
net assets
- --------------------------------------------------------------------------------
CALIFORNIA INTERMEDIATE TAX FREE FUND _____%
COLORADO INTERMEDIATE TAX FREE FUND _____%
INTERMEDIATE TAX FREE FUND _____%
MINNESOTA INTERMEDIATE TAX FREE FUND _____%
OREGON INTERMEDIATE TAX FREE FUND _____%
CUSTODIAN
U.S. Bank National Association
U.S. Bank Center
180 East Fifth Street
St. Paul, Minnesota 55101
ADMINISTRATOR
U.S Bank National Association
U.S. Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402
39 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
DISTRIBUTOR
SEI Investments Distribution Co.
Oaks, Pennsylvania 19456
ADDITIONAL COMPENSATION
U.S. Bank and other affiliates of U.S. Bancorp may act as fiduciary with respect
to plans subject to the Employee Retirement Income Security Act of 1974 (ERISA)
and other trust and agency accounts that invest in the funds. As described
above, U.S. Bank receives compensation for acting as the funds' investment
advisor. U.S. Bank and its affiliates also receive compensation in connection
with the following:
CUSTODY SERVICES. U.S. Bank provides or compensates others to provide custody
services to the funds. U.S. Bank is paid monthly fees equal, on an annual basis,
to 0.03% of a fund's average daily net assets. In addition, U.S. Bank is
reimbursed for its out-of-pocket expenses incurred while providing custody
services to the funds.
ADMINISTRATION SERVICES. U.S. Bank provides or compensates others to provide
administrative services to the funds including general administrative and
accounting services, transfer agency and dividend disbursing services, and
shareholder services. The funds pay U.S. Bank monthly fees equal, on an annual
basis, to 0.12% of the aggregate average daily net assets of all open-end mutual
funds in the First American fund family up to $8 billion and 0.105% of the
aggregate average daily net assets of all open-end mutual funds in the First
American fund family in excess of $8 billion. Additionally, the funds pay U.S.
Bank fees based upon the number of funds and accounts maintained.
SECURITIES LENDING SERVICES. In connection with lending their portfolio
securities, the funds pay administrative and custodial fees to U.S. Bank which
are equal to 40% of the funds' income from these securities lending
transactions.
BROKERAGE TRANSACTIONS. The funds purchase most of their portfolio securities
directly from the issuer or from an underwriter or market maker, and not from a
broker acting as agent. However, the funds may from time to time use brokers
when buying portfolio securities. The funds' investment advisor may place trades
through its affiliates, U.S. Bancorp Investments, Inc. and U.S. Bancorp Piper
Jaffray Inc., which will earn commissions on such transactions.
SALES OF FUND SHARES. U.S. Bancorp Investments, Inc. and U.S. Bancorp Piper
Jaffray Inc., broker-dealers affiliated with U.S. Bank, have entered into
agreements with the funds' distributor to sell fund shares and will earn annual
shareholder servicing fees in connection with these sales.
PORTFOLIO MANAGEMENT
Each fund's investments are managed by a team of persons associated with First
American Asset Management.
40 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
ADDITIONAL INFORMATION
MORE ABOUT THE FUNDS
OBJECTIVES
The Funds' objectives, which are described in the "Fund Summaries" section, may
be changed without shareholder approval. If a fund's objectives change, you will
be notified at least 30 days in advance. Please remember: There is no guarantee
that any fund will achieve its objectives.
INVESTMENT STRATEGIES
The funds' main investment strategies are discussed in the "Fund Summaries"
section. These are the strategies that the funds' investment advisor believes
are most likely to be important in trying to achieve the funds' objectives. You
should be aware that each fund may also use strategies and invest in securities
that are not described in this prospectus, but that are described in the
Statement of Additional Information (SAI). For a copy of the SAI, call Investor
Services at 1-800-637-2548.
INVESTMENT APPROACH
In selecting securities for the funds, fund managers first determine their
economic outlook and the direction in which inflation and interest rates are
expected to move. In selecting individual securities consistent with this
outlook, the fund managers evaluate factors such as credit quality, yield,
maturity, liquidity and portfolio diversification. In the case of Intermediate
Tax Free Fund, geographical diversification is also a factor. Fund managers
conduct research on potential and current holdings in the funds to determine
whether a fund should purchase or retain a security. This is a continuing
process the focus of which changes according to market conditions, the
availability of various permitted investments, and cash flows into and out of
the funds.
MUNICIPAL SECURITIES
Municipal securities are issued to finance public infrastructure projects such
as streets and highways, schools, water and sewer systems, hospitals, and
airports. They also may be issued to refinance outstanding obligations as well
as to obtain funds for general operating expenses and for loans to other public
institutions and facilities.
The funds may invest in "general obligation" bonds, which are backed by the full
faith, credit and taxing power of the issuer, and in "revenue" bonds, which are
payable only from the revenues generated by a specific project or from another
specific revenue source. 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 government unit to acquire equipment or
facilities. Municipal leases frequently have special risks which generally are
not associated with general obligation bonds or revenue bonds. See "Risks --
Risks of Municipal Lease Obligations" below.
41 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
Up to 10% of each fund's total assets may be invested in inverse floating rate
municipal securities. The values of these securities may be highly volatile as
interest rates rise or fall. See "Risks -- Risks of Inverse Floating Rate
Securities" below.
REFUNDED BONDS
Refunded bonds may have originally been issued as general obligation or revenue
bonds, but become refunded when they are secured by an escrow fund, usually
consisting entirely of direct U.S. government obligations and/or U.S. government
agency obligations.
TEMPORARY INVESTMENTS
In an attempt to respond to adverse market, economic, political or other
conditions, each fund may temporarily invest without limit in cash and in U.S.
dollar-denominated high-quality money market instruments and other short-term
securities, including securities which pay income that is subject to federal and
state income tax. These investments may include money market funds advised by
the funds' advisor. Because these investments may be taxable, and may result in
a lower yield than would be available from investments with a lower quality or
longer term, they may prevent a fund from achieving its investment objective.
PORTFOLIO TURNOVER
Fund managers may trade securities frequently, resulting, from time to time, in
an annual portfolio turnover rate of over 100%. Trading of securities may
produce capital gains, which are taxable to shareholders when distributed.
Active trading may also increase the amount of commissions or mark-ups to
broker-dealers that the fund pays when it buys and sells securities. The
"Financial Highlights" section of this prospectus shows each fund's historical
portfolio turnover rate.
RISKS
The main risks of investing in the funds are summarized in the "Fund Summaries"
section. More information about fund risks is presented below.
INTEREST RATE RISK
Debt securities in the funds will fluctuate in value with changes in interest
rates. In general, debt securities will increase in value when interest rates
fall and decrease in value when interest rates rise. Longer-term debt securities
are generally more sensitive to interest rate changes. Each fund may invest in
zero coupon securities, which do not pay interest on a current basis and which
may be highly volatile as interest rates rise or fall. The funds' investments in
inverse floating rate municipal securities also may be highly volatile with
changing interest rates. See "Risks of Inverse Floating Rate Securities" below.
42 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
INCOME RISK
The fund's income could decline due to falling market interest rates. This is
because, in a falling interest rate environment, the fund generally will have to
invest the proceeds from sales of fund shares, as well as the proceeds from
maturing portfolio securities (or portfolio securities that have been called,
see "Call Risk") in lower-yielding securities.
CREDIT RISK
Each fund is subject to the risk that the issuers of debt securities held by the
fund will not make payments on the securities, or that the other party to a
contract (such as a repurchase agreement) will default on its obligations. There
is also the risk that an issuer could suffer adverse changes in financial
condition that could lower the credit quality of a security. This could lead to
greater volatility in the price of the security and in shares of the fund. Also,
a change in the credit quality rating of a bond could affect the bond's
liquidity and make it more difficult for the fund to sell.
Each fund attempts to minimize credit risk by investing in securities considered
at least investment grade at the time of purchase. However, all of these
securities, especially those in the lower investment grade rating categories,
have credit risk. In adverse economic or other circumstances, issuers of these
lower rated securities are more likely to have difficulty making principal and
interest payments than issuers of higher rated securities. When a fund purchases
unrated securities, it will depend on the advisor's analysis of credit risk more
heavily than usual.
CALL RISK
Many municipal bonds may be redeemed at the option of the issuer, or "called,"
before their stated maturity date. In general, an issuer will call its bonds if
they can be refinanced by issuing new bonds which bear a lower interest rate.
The funds are subject to the possibility that during periods of falling interest
rates, a municipal bond issuer will call its high-yielding bonds. A fund would
then be forced to invest the unanticipated proceeds at lower interest rates,
resulting in a decline in the fund's income.
POLITICAL AND ECONOMIC RISK
The values of municipal securities 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
municipal securities 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 revenue of issuers (for example, legislation or court decisions
reducing state aid to local governments or mandating additional services). To
the extent a fund invests in the securities of issuers located in a single
state, it will be disproportionately affected by political and economic
conditions and developments in that state. The value of municipal securities
also may be adversely affected by future changes in federal or state income tax
laws, including rate reductions or the imposition of a flat tax.
43 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
RISKS OF INVERSE FLOATING RATE SECURITIES
Each fund may invest up to 10% of its total assets in inverse floating rate
municipal securities. These securities pay interest at a rate that varies
inversely to changes in the interest rate of specified municipal securities or a
specified index. The interest rate on this type of security will generally
change at a multiple of any change in the reference interest rate. As a result,
the values of these securities may be highly volatile as interest rates rise or
fall.
RISKS OF MUNICIPAL LEASE OBLIGATIONS
Each fund may purchase participation interests in municipal leases. These are
undivided interests in a lease, installment purchase contract or conditional
sale contract entered into by a state or local government unit to acquire
equipment or facilities. Participation interests in municipal leases pose
special risks because many leases and contracts contain "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. Although these kinds of
obligations are secured by the leased equipment or facilities, it might be
difficult and time consuming to dispose of the equipment or facilities in the
event of non-appropriation, and the fund might not recover the full principal
amount of the obligation.
RISKS OF ACTIVE MANAGEMENT
Each fund is actively managed and its performance therefore will reflect in part
the advisor's ability to make investment decisions which are suited to achieving
the fund's investment objectives. Due to their active management, the funds
could underperform other mutual funds with similar investment objectives.
44 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
ADDITIONAL INFORMATION
FINANCIAL HIGHLIGHTS
The tables that follow present performance information about the Class A shares
of the funds. This information is intended to help you understand each fund's
financial performance for the past five years or, if shorter, the period of the
fund's operations. Some of this information reflects financial results for a
single fund share. Total returns in the tables represent the rate that you would
have earned or lost on an investment in a fund, excluding sales charges and
assuming you reinvested all of your dividends and distributions.
The information for the fiscal year ended September 30, 1999 has been audited by
Ernst & Young LLP, independent auditors, whose report, along with the funds'
financial statements, is included in the funds' annual report, which is
available upon request. The information for the fiscal years ended on or before
September 30, 1998, has been audited by KPMG LLP.
CALIFORNIA INTERMEDIATE TAX FREE FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
1999 1998 1997(1)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $_____ $10.04 $10.00
---------------------------------------------
Investment Operations:
Net Investment Income ______ 0.43 0.06
Net Gains (Losses) on Investments (both realized and unrealized) ______ 0.33 0.04
---------------------------------------------
Total From Investment Operations ______ 0.76 0.10
---------------------------------------------
Less Distributions:
Dividends (from Net Investment Income) ______ (0.43) (0.06)
Distributions (from capital gains) ______ -- --
---------------------------------------------
Total Distributions ______ (0.43) (0.06)
---------------------------------------------
Net Asset Value, End of Period $_____ $10.37 $10.04
=============================================
Total Return _____% 7.80% 1.02%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $_____ $ 82 $ 1
Ratio of Expenses to Average Net Assets _____% 0.70% 0.69%(2)
Ratio of Net Investment Income to Average Net Assets _____% 4.22% 4.48%(2)
Ratio of Expenses to Average Net Assets (excluding waivers) _____% 1.21% 1.36%(2)
Ratio of Net Investment Income to Average Net Assets (excluding waivers) _____% 3.71% 3.81%(2)
Portfolio Turnover Rate _____% 22% 3%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)The fund commenced operations on August 8, 1997.
(2)Annualized.
45 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
COLORADO INTERMEDIATE TAX FREE FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $_____ $10.61 $10.42 $10.51 $10.15
-----------------------------------------------------------
Investment Operations:
Net Investment Income ______ 0.47 0.48 0.49 0.49
Net Gains (Losses) on Investments
(both realized and unrealized) ______ 0.30 0.24 (0.04) 0.36
-----------------------------------------------------------
Total From Investment Operations ______ 0.77 0.72 0.45 0.85
-----------------------------------------------------------
Less Distributions:
Dividends (from Net Investment Income) ______ (0.47) (0.48) (0.49) (0.49)
Distributions (from capital gains) ______ (0.02) (0.05) (0.05) --
-----------------------------------------------------------
Total Distributions ______ (0.49) (0.53) (0.54) (0.49)
-----------------------------------------------------------
Net Asset Value, End of Period $_____ $10.89 $10.61 $10.42 $10.51
===========================================================
Total Return _____% 7.43% 7.11% 4.39% 8.57%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $_____ $4,301 $4,187 $2,861 $2,189
Ratio of Expenses to Average Net Assets _____% 0.70% 0.70% 0.70% 0.70%
Ratio of Net Investment Income to Average Net Assets _____% 4.43% 4.55% 4.69% 4.83%
Ratio of Expenses to Average Net Assets (excluding waivers) _____% 1.17% 1.16% 1.18% 1.27%
Ratio of Net Investment Income to Average Net Assets (excluding 4.21%
waivers) _____% 3.96% 4.09% 4.26%
Portfolio Turnover Rate _____% 19% 11% 20% 19%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
46 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
INTERMEDIATE TAX FREE FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Data
Net Asset Value, Beginning of Period $_____ $10.84 $10.66 $10.72 $10.28
---------------------------------------------------------
Investment Operations:
Net Investment Income ______ 0.47 0.47 0.46 0.49
Net Gains (Losses) on Investments
(both realized and unrealized) ______ 0.27 0.24 0.01 0.43
---------------------------------------------------------
Total From Investment Operations ______ 0.74 0.71 0.47 0.92
---------------------------------------------------------
Less Distributions:
Dividends (from Net Investment Income) ______ (0.47) (0.47) (0.46) (0.48)
Distributions (from capital gains) ______ (0.06) (0.06) (0.07) --
---------------------------------------------------------
Total Distributions ______ (0.53) (0.53) (0.53) (0.48)
---------------------------------------------------------
Net Asset Value, End of Period $_____ $11.05 $10.84 $10.66 $10.72
=========================================================
Total Return _____% 7.04% 6.84% 4.45% 9.15%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $_____ $9,196 $3,849 $2,618 $983
Ratio of Expenses to Average Net Assets _____% 0.70% 0.67% 0.66% 0.67%
Ratio of Net Investment Income to Average Net Assets _____% 4.31% 4.41% 4.35% 4.71%
Ratio of Expenses to Average Net Assets
(excluding waivers) _____% 1.11% 1.18% 1.17% 1.30%
Ratio of Net Investment Income to Average Net Assets (excluding
waivers) _____% 3.90% 3.90% 3.84% 4.08%
Portfolio Turnover Rate _____% 27% 66% 53% 68%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
47 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
MINNESOTA INTERMEDIATE TAX FREE FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $_____ $10.09 $9.91 $9.92 $9.58
-----------------------------------------------------------
Investment Operations:
Net Investment Income ______ 0.43 0.44 0.45 0.46
Net Gains (Losses) on Investments
(both realized and unrealized) ______ 0.24 0.21 0.02 0.33
-----------------------------------------------------------
Total From Investment Operations ______ 0.67 0.65 0.47 0.79
-----------------------------------------------------------
Less Distributions:
Dividends (from Net Investment Income) ______ (0.43) (0.44) (0.45) (0.45)
Distributions (from capital gains) ______ (0.04) (0.03) (0.03) --
-----------------------------------------------------------
Total Distributions ______ (0.47) (0.47) (0.48) (0.45)
-----------------------------------------------------------
Net Asset Value, End of Period $_____ $10.29 $10.09 $9.91 $9.92
===========================================================
Total Return _____% 6.80% 6.72% 4.80% 8.46%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $_____ $10,330 $7,453 $3,916 $2,219
Ratio of Expenses to Average Net Assets _____% 0.70% 0.70% 0.70% 0.70%
Ratio of Net Investment Income to Average Net Assets _____% 4.30% 4.49% 4.52% 4.74%
Ratio of Expenses to Average Net Assets (excluding waivers) _____% 1.11% 1.15% 1.18% 1.25%
Ratio of Net Investment Income to Average Net Assets (excluding
waivers) _____% 3.89% 4.04% 4.04% 4.19%
Portfolio Turnover Rate _____% 24% 20% 19% 38%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
48 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
OREGON INTERMEDIATE TAX FREE FUND
<TABLE>
<CAPTION>
Fiscal period ended September 30,
1999(1)
- --------------------------------------------------------------------------------
<S> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $_____
------
Investment Operations:
Net Investment Income ______
Net Gains (Losses) on Investments
(both realized and unrealized) ______
------
Total From Investment Operations ______
------
Less Distributions:
Dividends (from Net Investment Income) ______
Distributions (from capital gains) ______
------
Total Distributions ______
------
Net Asset Value, End of Period $_____
======
Total Return _____%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $_____
Ratio of Expenses to Average Net Assets _____%
Ratio of Net Investment Income to Average Net Assets _____%
Ratio of Expenses to Average Net Assets (excluding waivers) _____%
Ratio of Net Investment Income to Average Net Assets (excluding waivers) _____%
Portfolio Turnover Rate _____%
- --------------------------------------------------------------------------------
</TABLE>
(1)Class C Shares have been offered since February 1, 1999.
49 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
FOR MORE INFORMATION
More information about the funds is available in the funds' Statement of
Additional Information and annual and semiannual reports.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI provides more details about the funds and their policies. A current SAI
is on file with the Securities and Exchange Commission (SEC) and is incorporated
into this prospectus by reference (which means that it is legally considered
part of this prospectus).
ANNUAL AND SEMIANNUAL REPORTS
Additional information about the funds' investments is available in the funds'
annual and semiannual reports to shareholders. In the funds' annual report, you
will find a discussion of the market conditions and investment strategies that
significantly affected the funds' performance during their last fiscal year.
You can obtain a free copy of the funds' SAI and/or free copies of the funds'
most recent annual or semiannual reports by calling Investor Services at
1-800-637-2548. The material you request will be sent by first-class mail or
other means designed to ensure equally prompt delivery, within three business
days of receipt of the request.
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, DC, or by sending your request and a duplicating fee to the SEC's
Public Reference Section, Washington, DC 20549-6009. For more information, call
1-800-SEC-0330.
Information about the funds is also available on the Internet. Text-only
versions of fund documents can be viewed online or downloaded from the SEC's
Internet site at http://www.sec.gov.
SEC file number: 811-05309
FAIF-1002 (2/2000)R
50 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class A Shares
<PAGE>
February 1, 2000
INTERMEDIATE TAX FREE BOND FUNDS
CLASS Y SHARES
California Intermediate Tax Free Fund
Colorado Intermediate Tax Free Fund
Intermediate Tax Free Fund
Minnesota Intermediate Tax Free Fund
Oregon Intermediate Tax Free Fund
First American
Investment Funds, Inc.
PROSPECTUS
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the shares of these funds, or determined if the
information in this prospectus is accurate or complete. Any statement to the
contrary is a criminal offense.
FIRST AMERICAN(R)
THE POWER OF DISCIPLINED INVESTING(R)
1 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
TABLE OF
CONTENTS
FUND SUMMARIES
- ---------------------------------------------------------------------------
California Intermediate Tax Free Fund
- ---------------------------------------------------------------------------
Colorado Intermediate Tax Free Fund
- ---------------------------------------------------------------------------
Intermediate Tax Free Fund
- ---------------------------------------------------------------------------
Minnesota Intermediate Tax Fee Fund
- ---------------------------------------------------------------------------
Oregon Intermediate Tax Free Fund
- ---------------------------------------------------------------------------
POLICIES & SERVICES
- ---------------------------------------------------------------------------
Buying and Selling Shares
- ---------------------------------------------------------------------------
Managing Your Investment
- ---------------------------------------------------------------------------
ADDITIONAL INFORMATION
- ---------------------------------------------------------------------------
Management
- ---------------------------------------------------------------------------
More About The Funds
- ---------------------------------------------------------------------------
Financial Highlights
- ---------------------------------------------------------------------------
FOR MORE INFORMATION
- ---------------------------------------------------------------------------
2 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
INTRODUCTION
This section of the prospectus describes the objectives of the First American
Intermediate Tax Free Bond Funds, summarizes the main investment strategies used
by each fund in trying to achieve its objectives, and highlights the risks
involved with these strategies. It also provides you with information about the
performance, fees and expenses of the funds.
AN INVESTMENT IN THE FUNDS IS NOT A DEPOSIT OF U.S. BANK NATIONAL ASSOCIATION
AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR
ANY OTHER GOVERNMENT AGENCY.
3 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
CALIFORNIA INTERMEDIATE TAX FREE FUND
OBJECTIVE
California Intermediate Tax Free Fund has an objective of providing current
income that is exempt from both federal income tax and California state income
tax to the extent consistent with preservation of capital.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, California Intermediate Tax Free Fund invests at
least 80% of its net assets in municipal securities that pay interest that is
exempt from federal and California income tax, including the federal alternative
minimum tax. The fund normally may invest up to 20% of its net assets in taxable
obligations, including obligations the interest on which is subject to the
federal alternative minimum tax. The fund may invest in:
o "general obligation" bonds, which are backed by the full faith, credit and
taxing power of the issuer;
o "revenue" bonds, which are payable only from the revenues generated by a
specific project or from another specific revenue source;
o participation interests in municipal leases;
o zero coupon municipal securities, which pay no cash income to their holders
until they mature; and
o inverse floating rate municipal securities (up to 10% of the fund's total
assets).
In selecting securities for the fund, fund managers first determine their
economic outlook and the direction in which inflation and interest rates are
expected to move. In selecting individual securities consistent with this
outlook, fund managers evaluate factors such as credit quality, yield, maturity,
liquidity and portfolio diversification.
The fund only invests in securities that, at the time of purchase, are either
rated investment grade or are unrated and determined to be of comparable quality
by the fund's advisor. Unrated securities will not exceed 25% of the fund's
total assets (not including unrated securities that have been pre-refunded with
U.S. Government securities and U.S. Government agency securities).
The fund will attempt to maintain the weighted average maturity of its portfolio
securities at 3 to 10 years under normal market conditions.
MAIN RISKS
The price and yield of this fund will change daily due to changes in interest
rates and other factors, which means you could lose money. The main risks of
investing in this fund include:
4 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
INTEREST RATE RISK
Debt securities typically decrease in value when interest rates rise. This risk
is usually greater for longer-term debt securities. Inverse floating rate
municipal securities may be highly volatile as interest rates rise or fall.
INCOME RISK
The fund's income could decline due to falling market interest rates.
CREDIT RISK
An issuer of debt securities may not make timely principal or interest payments
on its securities. The revenue bonds and municipal lease obligations in which
the fund invests may entail greater credit risk than the fund's investments in
general obligation bonds.
CALL RISK
Some municipal securities held by the fund may be redeemed by the issuer, or
"called," prior to their stated maturity dates. If a security is redeemed during
a time of declining interest rates, the fund may be unable to reinvest in
securities providing as high a level of income.
RISKS OF MUNICIPAL LEASE OBLIGATIONS
Many municipal leases and contracts contain "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.
POLITICAL AND ECONOMIC RISK
Because the fund invests primarily in municipal securities issued by the state
of California and its political subdivisions, the fund will be particularly
affected by political and economic conditions and developments in that state.
See the Statement of Additional Information for details. The value of municipal
securities owned by the fund also may be adversely affected by future changes in
federal or state income tax laws, including rate reductions or the imposition of
a flat tax.
RISKS OF NON-DIVERSIFICATION
The fund is non-diversified. This means that it may invest a larger portion of
its assets in a limited number of issuers than a diversified fund. Because a
relatively high percentage of the fund's assets may be invested in the
securities of a limited number of issuers, the fund may be more susceptible to
any single economic, political or regulatory occurrence than a diversified fund.
5 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
FUND PERFORMANCE
Illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart shows you how performance of the fund's shares has varied from
year to year.
The table compares the fund's performance over different time periods to that of
the fund's benchmark index, which is a broad measure of market performance. The
fund's performance reflects fund expenses; the benchmark is unmanaged and has no
expenses.
Both the chart and the table assume that all distributions have been reinvested.
6 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
CALIFORNIA INTERMEDIATE TAX FREE FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR(1)
8.88% -3.04% 12.50% 4.34% 6.65% 5.93%
- --------------------------------------------------------------
1993 1994 1995 1996 1997 1998 1999
BEST QUARTER:
Quarter ending: 3/31/95
Total Return 5.11%
WORST QUARTER:
Quarter ending: 3/31/94
Total Return -3.44%
<TABLE>
<CAPTION>
Inception Since
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/99(1) Date One Year Five Years Inception
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
California Intermediate Tax Free Fund 5/31/92 ____% ____% ____%
- --------------------------------------------------------------------------------------------------
Lehman Brothers 7-Year Municipal Bond Index(2) ____% ____% ____%
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) Performance prior to 8/8/97 is that of the predecessor common trust funds,
adjusted to reflect the fund's Class Y share fees and expenses. The common trust
funds were not registered under the Investment Company Act of 1940 and therefore
were not subject to certain investment restrictions that might have adversely
affected performance.
(2) An unmanaged index comprised of fixed rate, investment grade tax-exempt
bonds with maturities between six and eight years. The since inception
performance for the index is calculated from 5/31/92.
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
7 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
SHAREHOLDER FEES
- -------------------------------------------------------------------------------------------
<S> <C>
MAXIMUM SALES CHARGE (LOAD) None
MAXIMUM DEFERRED SALES CHARGE (LOAD) None
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- -------------------------------------------------------------------------------------------
Management Fees 0.70%
Distribution and Service (12b-1) Fees None
Other Expenses ____%
TOTAL ____%
- -------------------------------------------------------------------------------------------
</TABLE>
(1) Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. See "Additional Information --
Financial Highlights." The net expenses the fund actually paid after waivers for
the fiscal year ended September 30, 1999 were:
<TABLE>
<S> <C>
Waiver of Fund Expenses (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____%
</TABLE>
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 0.70%. FEE WAIVERS MAY BE DISCONTINUED AT
ANY TIME.
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
1 year $ 98
3 years $ 306
5 years $ 531
10 years $1,178
8 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
COLORADO INTERMEDIATE TAX FREE FUND
OBJECTIVE
Colorado Intermediate Tax Free Fund has an objective of providing current income
that is exempt from both federal income tax and Colorado state income tax to the
extent consistent with preservation of capital.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Colorado Intermediate Tax Free Fund invests at
least 80% of its net assets in municipal securities that pay interest that is
exempt from federal and Colorado income tax, including the federal alternative
minimum tax. The fund normally may invest up to 20% of its net assets in taxable
obligations, including obligations the interest on which is subject to the
federal alternative minimum tax. The fund may invest in:
o "general obligation" bonds, which are backed by the full faith, credit and
taxing power of the issuer;
o "revenue" bonds, which are payable only from the revenues generated by a
specific project or from another specific revenue source;
o participation interests in municipal leases;
o zero coupon municipal securities, which pay no cash income to their holders
until they mature; and
o inverse floating rate municipal securities (up to 10% of the fund's total
assets).
In selecting securities for the fund, fund managers first determine their
economic outlook and the direction in which inflation and interest rates are
expected to move. In selecting individual securities consistent with this
outlook, fund managers evaluate factors such as credit quality, yield, maturity,
liquidity and portfolio diversification.
The fund only invests in securities that, at the time of purchase, are either
rated investment grade or are unrated and determined to be of comparable quality
by the fund's advisor. Unrated securities will not exceed 25% of the fund's
total assets (not including unrated securities that have been pre-refunded with
U.S. Government securities and U.S. Government agency securities).
The fund will attempt to maintain the weighted average maturity of its portfolio
securities at 3 to 10 years under normal market conditions.
MAIN RISKS
The price and yield of this fund will change daily due to changes in interest
rates and other factors, which means you could lose money. The main risks of
investing in this fund include:
9 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
INTEREST RATE RISK
Debt securities typically decrease in value when interest rates rise. This risk
is usually greater for longer-term debt securities. Inverse floating rate
municipal securities may be highly volatile as interest rates rise or fall.
INCOME RISK
The fund's income could decline due to falling market interest rates.
CREDIT RISK
An issuer of debt securities may not make timely principal or interest payments
on its securities. The revenue bonds and municipal lease obligations in which
the fund invests may entail greater credit risk than the fund's investments in
general obligation bonds.
CALL RISK
Some municipal securities held by the fund may be redeemed by the issuer, or
"called," prior to their stated maturity dates. If a security is redeemed during
a time of declining interest rates, the fund may be unable to reinvest in
securities providing as high a level of income.
RISKS OF MUNICIPAL LEASE OBLIGATIONS
Many municipal leases and contracts contain "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.
POLITICAL AND ECONOMIC RISK
Because the fund invests primarily in municipal securities issued by the state
of Colorado and its political subdivisions, the fund will be particularly
affected by political and economic conditions and developments in that state.
See the Statement of Additional Information for details. The value of municipal
securities owned by the fund also may be adversely affected by future changes in
federal or state income tax laws, including rate reductions or the imposition of
a flat tax.
RISKS OF NON-DIVERSIFICATION
The fund is non-diversified. This means that it may invest a larger portion of
its assets in a limited number of issuers than a diversified fund. Because a
relatively high percentage of the fund's assets may be invested in the
securities of a limited number of issuers, the fund may be more susceptible to
any single economic, political or regulatory occurrence than a diversified fund.
10 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
FUND PERFORMANCE
Illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart shows you how performance of the fund's shares has varied from
year to year.
The table compares the fund's performance over different time periods to that of
the fund's benchmark index, which is a broad measure of market performance. The
fund's performance reflects fund expenses; the benchmark is unmanaged and has no
expenses.
Both the chart and the table assume that all distributions have been reinvested.
11 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
COLORADO INTERMEDIATE TAX FREE FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR
12.33% 3.86% 7.07% 5.25%
- ----------------------------------------------------------
1995 1996 1997 1998 1999
BEST QUARTER:
Quarter ending: 3/31/95
Total Return 5.18%
WORST QUARTER:
Quarter ending: 3/31/96
Total Return -0.36%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99 Date One Year Five Years Inception
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Colorado Intermediate Tax Free Fund 4/4/94 ____% ____% ____%
- -------------------------------------------------------------------------------------------------
Lehman Brothers 7-Year Municipal Bond Index(1) ____% ____% ____%
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) An unmanaged index comprised of fixed rate, investment grade tax-exempt
bonds with maturities between six and eight years. The since inception
performance for the index is calculated from 4/30/94.
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
12 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
SHAREHOLDER FEES
- --------------------------------------------------------------------------------------------
<S> <C>
MAXIMUM SALES CHARGE (LOAD) None
MAXIMUM DEFERRED SALES CHARGE (LOAD) None
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------------
Management Fees 0.70%
Distribution and Service (12b-1) Fees None
Other Expenses ____%
TOTAL ____%
- --------------------------------------------------------------------------------------------
</TABLE>
(1) Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. See "Additional Information --
Financial Highlights." The net expenses the fund actually paid after waivers for
the fiscal year ended September 30, 1999 were:
<TABLE>
<S> <C>
Waiver of Fund Expenses (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____%
</TABLE>
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 0.70%. FEE WAIVERS MAY BE DISCONTINUED AT
ANY TIME.
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
1 year $ 94
3 years $ 293
5 years $ 509
10 years $1,131
13 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
INTERMEDIATE TAX FREE FUND
OBJECTIVE
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.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Intermediate Tax Free Fund invests at least 80%
of its net assets in municipal securities that pay interest that is exempt from
federal income tax, including the federal alternative minimum tax. The fund
normally may invest up to 20% of its net assets in taxable obligations,
including obligations the interest on which is subject to the federal
alternative minimum tax. The fund may invest in:
o "general obligation" bonds, which are backed by the full faith, credit and
taxing power of the issuer;
o "revenue" bonds, which are payable only from the revenues generated by a
specific project or from another specific revenue source;
o participation interests in municipal leases;
o zero coupon municipal securities, which pay no cash income to their holders
until they mature; and
o inverse floating rate municipal securities (up to 10% of the fund's total
assets).
In selecting securities for the fund, fund managers first determine their
economic outlook and the direction in which inflation and interest rates are
expected to move. In selecting individual securities consistent with this
outlook, fund managers evaluate factors such as credit quality, yield, maturity,
liquidity and portfolio and geographical diversification.
The fund only invests in securities that, at the time of purchase, are either
rated investment grade or are unrated and determined to be of comparable quality
by the fund's advisor. Unrated securities will not exceed 25% of the fund's
total assets (not including unrated securities that have been pre-refunded with
U.S. Government securities and U.S. Government agency securities).
The fund will attempt to maintain the weighted average maturity of its portfolio
securities at 3 to 10 years under normal market conditions.
14 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
MAIN RISKS
The price and yield of this fund will change daily due to changes in interest
rates and other factors, which means you could lose money. The main risks of
investing in this fund include:
INTEREST RATE RISK
Debt securities typically decrease in value when interest rates rise. This risk
is usually greater for longer-term debt securities. Inverse floating rate
municipal securities may be highly volatile as interest rates rise or fall.
INCOME RISK
The fund's income could decline due to falling market interest rates.
CREDIT RISK
An issuer of debt securities may not make timely principal or interest payments
on its securities. The revenue bonds and municipal lease obligations in which
the fund invests may entail greater credit risk than the fund's investments in
general obligation bonds.
CALL RISK
Some municipal securities held by the fund may be redeemed by the issuer, or
"called," prior to their stated maturity dates. If a security is redeemed during
a time of declining interest rates, the fund may be unable to reinvest in
securities providing as high a level of income.
RISKS OF MUNICIPAL LEASE OBLIGATIONS
Many municipal leases and contracts contain "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.
POLITICAL AND ECONOMIC RISK
The value of municipal securities owned by the fund may be adversely affected by
state and local political and economic conditions and developments, or by future
changes in federal or state income tax laws, including rate reductions or the
imposition of a flat tax.
FUND PERFORMANCE
Illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart shows you how performance of the fund's shares has varied from
year to year.
The table compares the fund's performance over different time periods to that of
the fund's benchmark index, which is a broad measure of market performance. The
fund's performance reflects fund expenses; the benchmark is unmanaged and has no
expenses.
Both the chart and the table assume that all distributions have been reinvested.
15 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
INTERMEDIATE TAX FREE FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR
12.79% 3.72% 6.80% 5.39%
- ------------------------------------------------------------
1995 1996 1997 1998 1999
BEST QUARTER:
Quarter ending: 3/31/95
Total Return 5.00%
WORST QUARTER:
Quarter ending: 3/31/96
Total Return -0.31%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99 Date One Year Five Years Inception
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Intermediate Tax Free Fund 2/4/94 ____% ____% ____%
- -------------------------------------------------------------------------------------------------
Lehman Brother 7-Year Municipal Bond Index(1) ____% ____% ____%
- -------------------------------------------------------------------------------------------------
Lehman Brothers 7-Year G.O. Index(2) ____% ____% ____%
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) An unmanaged index comprised of fixed rate, investment grade tax-exempt
bonds with maturities between six and eight years. The since inception
performance for the index is calculated from 2/28/94. Previously, the fund used
the Lehman 7-Year G.O. Index as a benchmark. Going forward, the fund will use
the Lehman 7-Year Municipal Bond Index as a comparison, because it is better
suited to the fund's investment strategies.
(2) An unmanaged index comprised of fixed rate, investment grade, general
obligation tax-exempt bonds with maturities between six and eight years. The
since inception performance for the index is calculated from 2/28/94.
16 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
SHAREHOLDER FEES
- ------------------------------------------------------------------------------------------
<S> <C>
MAXIMUM SALES CHARGE (LOAD) None
MAXIMUM DEFERRED SALES CHARGE (LOAD) None
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- ------------------------------------------------------------------------------------------
Management Fees 0.70%
Distribution and Service (12b-1) Fees None
Other Expenses ____%
TOTAL ____%
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. See "Additional Information --
Financial Highlights." The net expenses the fund actually paid after waivers for
the fiscal year ended September 30, 1999 were:
<TABLE>
<S> <C>
Waiver of Fund Expenses (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____%
</TABLE>
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 0.70%. FEE WAIVERS MAY BE DISCONTINUED AT
ANY TIME.
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
1 year $ 88
3 years $ 274
5 years $ 477
10 years $1,061
17 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
MINNESOTA INTERMEDIATE TAX FREE FUND
OBJECTIVE
Minnesota Intermediate Tax Free Fund has an objective of providing current
income that is exempt from both federal income tax and Minnesota state income
tax to the extent consistent with preservation of capital.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Minnesota Intermediate Tax Free Fund invests at
least 80% of its net assets in municipal securities that pay interest that is
exempt from federal and Minnesota income tax, including federal and state of
Minnesota alternative minimum tax. The fund normally may invest up to 20% of its
net assets in taxable obligations, including obligations the interest on which
is subject to federal and state of Minnesota alternative minimum tax.
The fund may invest in:
o "general obligation" bonds, which are backed by the full faith, credit and
taxing power of the issuer;
o "revenue" bonds, which are payable only from the revenues generated by a
specific project or from another specific revenue source;
o participation interests in municipal leases;
o zero coupon municipal securities, which pay no cash income to their holders
until they mature; and
o inverse floating rate municipal securities (up to 10% of the fund's total
assets).
In selecting securities for the fund, fund managers first determine their
economic outlook and the direction in which inflation and interest rates are
expected to move. In selecting individual securities consistent with this
outlook, fund managers evaluate factors such as credit quality, yield, maturity,
liquidity and portfolio diversification.
The fund only invests in securities that, at the time of purchase, are either
rated investment grade or are unrated and determined to be of comparable quality
by the fund's advisor. Unrated securities will not exceed 25% of the fund's
total assets (not including unrated securities that have been pre-refunded with
U.S. Government securities and U.S. Government agency securities).
The fund will attempt to maintain the weighted average maturity of its portfolio
securities at 3 to 10 years under normal market conditions.
18 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
MAIN RISKS
The price and yield of this fund will change daily due to changes in interest
rates and other factors, which means you could lose money. The main risks of
investing in this fund include:
INTEREST RATE RISK
Debt securities typically decrease in value when interest rates rise. This risk
is usually greater for longer-term debt securities. Inverse floating rate
municipal securities may be highly volatile as interest rates rise or fall.
INCOME RISK
The fund's income could decline due to falling market interest rates.
CREDIT RISK
An issuer of debt securities may not make timely principal or interest payments
on its securities. The revenue bonds and municipal lease obligations in which
the fund invests may entail greater credit risk than the fund's investments in
general obligation bonds.
CALL RISK
Some municipal securities held by the fund may be redeemed by the issuer, or
"called," prior to their stated maturity dates. If a security is redeemed during
a time of declining interest rates, the fund may be unable to reinvest in
securities providing as high a level of income.
RISKS OF MUNICIPAL LEASE OBLIGATIONS
Many municipal leases and contracts contain "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.
POLITICAL AND ECONOMIC RISK
Because the fund invests primarily in municipal securities issued by the state
of Minnesota and its political subdivisions, the fund will be particularly
affected by political and economic conditions and developments in that state.
See the Statement of Additional Information for details. The value of municipal
securities owned by the fund also may be adversely affected by future changes in
federal or state income tax laws, including rate reductions or the imposition of
a flat tax.
19 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
RISKS OF NON-DIVERSIFICATION
The fund is non-diversified. This means that it may invest a larger portion of
its assets in a limited number of issuers than a diversified fund. Because a
relatively high percentage of the fund's assets may be invested in the
securities of a limited number of issuers, the fund may be more susceptible to
any single economic, political or regulatory occurrence than a diversified fund.
FUND PERFORMANCE
Illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart shows you how performance of the fund's shares has varied from
year to year.
The table compares the fund's performance over different time periods to that of
the fund's benchmark index, which is a broad measure of market performance. The
fund's performance reflects fund expenses; the benchmark is unmanaged and has no
expenses.
Both the chart and the table assume that all distributions have been reinvested.
20 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
MINNESOTA INTERMEDIATE TAX FREE FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR
12.66% 3.51% 6.65% 5.25%
- --------------------------------------------------------------
1995 1996 1997 1998 1999
BEST QUARTER:
Quarter ending: 3/31/95
Total Return 5.19%
WORST QUARTER:
Quarter ending: 3/31/96
Total Return -0.37%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99 Date One Year Five Years Inception
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Minnesota Intermediate Tax Free Fund 2/25/94 ____% ____% ____%
- ---------------------------------------------------------------------------------------------------
Lehman Brothers 7-Year Municipal Bond Index(1) ____% ____% ____%
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) An unmanaged index comprised of fixed rate, investment grade tax-exempt
bonds with maturities between six and eight years. The since inception
performance for the index is calculated from 2/28/94.
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
21 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
SHAREHOLDER FEES
- -------------------------------------------------------------------------------------------
<S> <C>
MAXIMUM SALES CHARGE (LOAD) None
MAXIMUM DEFERRED SALES CHARGE (LOAD) None
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- -------------------------------------------------------------------------------------------
Management Fees 0.70%
Distribution and Service (12b-1) Fees None
Other Expenses ____%
TOTAL ____%
- -------------------------------------------------------------------------------------------
</TABLE>
(1) Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. See "Additional Information --
Financial Highlights." The net expenses the fund actually paid after waivers for
the fiscal year ended September 30, 1999 were:
<TABLE>
<S> <C>
Waiver of Fund Expenses (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____%
</TABLE>
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 0.70%. FEE WAIVERS MAY BE DISCONTINUED AT
ANY TIME.
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
1 year $ 88
3 years $ 274
5 years $ 477
10 years $ 1,061
22 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
OREGON INTERMEDIATE TAX FREE FUND
OBJECTIVE
Oregon Intermediate Tax Free Fund has an objective of providing current income
that is exempt from both federal income tax and Oregon state income tax to the
extent consistent with preservation of capital.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Oregon Intermediate Tax Free Fund invests at
least 80% of its net assets in municipal securities that pay interest that is
exempt from federal income tax, including the federal alternative minimum tax.
The fund normally may invest up to 20% of its net assets in taxable obligations,
including obligations the interest on which is subject to the federal
alternative minimum tax. The fund may invest in:
o "general obligation" bonds, which are backed by the full faith, credit and
taxing power of the issuer;
o "revenue" bonds, which are payable only from the revenues generated by a
specific project or from another specific revenue source;
o participation interests in municipal leases;
o zero coupon municipal securities, which pay no cash income to their holders
until they mature; and
o inverse floating rate municipal securities (up to 10% of the fund's total
assets).
In selecting securities for the fund, fund managers first determine their
economic outlook and the direction in which inflation and interest rates are
expected to move. In selecting individual securities consistent with this
outlook, fund managers evaluate factors such as credit quality, yield, maturity,
liquidity and portfolio diversification.
The fund only invests in securities that, at the time of purchase, are either
rated investment grade or are unrated and determined to be of comparable quality
by the fund's advisor. Unrated securities will not exceed 25% of the fund's
total assets (not including unrated securities that have been pre-refunded with
U.S. Government securities and U.S. Government agency securities).
The fund will attempt to maintain the weighted average maturity of its portfolio
securities at 3 to 10 years under normal market conditions.
MAIN RISKS
The price and yield of this fund will change daily due to changes in interest
rates and other factors, which means you could lose money. The main risks of
investing in this fund include:
23 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
INTEREST RATE RISK
Debt securities typically decrease in value when interest rates rise. This risk
is usually greater for longer-term debt securities. Inverse floating rate
municipal securities may be highly volatile as interest rates rise or fall.
INCOME RISK
The fund's income could decline due to falling market interest rates.
CREDIT RISK
An issuer of debt securities may not make timely principal or interest payments
on its securities. The revenue bonds and municipal lease obligations in which
the fund invests may entail greater credit risk than the fund's investments in
general obligation bonds.
CALL RISK
Some municipal securities held by the fund may be redeemed by the issuer, or
"called," prior to their stated maturity dates. If a security is redeemed during
a time of declining interest rates, the fund may be unable to reinvest in
securities providing as high a level of income.
RISKS OF MUNICIPAL LEASE OBLIGATIONS
Many municipal leases and contracts contain "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.
POLITICAL AND ECONOMIC RISK
Because the fund invests primarily in municipal securities issued by the state
of Oregon and its political subdivisions, the fund will be particularly affected
by political and economic conditions and developments in that state. See the
Statement of Additional Information for details. The value of municipal
securities owned by the fund also may be adversely affected by future changes in
federal or state income tax laws, including rate reductions or the imposition of
a flat tax.
RISKS OF NON-DIVERSIFICATION
The fund is non-diversified. This means that it may invest a larger portion of
its assets in a limited number of issuers than a diversified fund. Because a
relatively high percentage of the fund's assets may be invested in the
securities of a limited number of issuers, the fund may be more susceptible to
any single economic, political or regulatory occurrence than a diversified fund.
24 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
FUND PERFORMANCE
Illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart shows you how performance of the fund's shares has varied from
year to year.
The table compares the fund's performance over different time periods to that of
the fund's benchmark index, which is a broad measure of market performance. The
fund's performance reflects fund expenses; the benchmark is unmanaged and has no
expenses.
Both the chart and the table assume that all distributions have been reinvested.
25 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
OREGON INTERMEDIATE TAX FREE FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR(1)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
7.63% 9.89% 7.19% 8.96% -2.66% 11.27% 3.31% 7.06% 5.36%
- -----------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
</TABLE>
BEST QUARTER:
Quarter ending: 6/30/89
Total Return 4.64%
WORST QUARTER:
Quarter ending: 3/31/94
Total Return -3.41%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
AS OF 12/31/99(1) One Year Five Years Ten Years
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Oregon Intermediate Tax Free Fund ____% ____% ____%
- ------------------------------------------------------------------------------------------
Lehman Brothers 7-Year Municipal Bond Index(2) ____% ____% ____%
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Performance prior to 8/8/97 is that of the Oregon Intermediate Tax Free
Fund's predecessor common trust fund, adjusted to reflect the fund's Class Y
share fees and expenses. The common trust fund was not registered under the
Investment Company Act of 1940 and therefore was not subject to certain
investment restrictions that might have adversely affected performance.
(2) An unmanaged index comprised of fixed rate, investment grade tax-exempt
bonds with maturities between six and eight years.
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
26 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
SHAREHOLDER FEES
- -------------------------------------------------------------------------------------------
<S> <C>
MAXIMUM SALES CHARGE (LOAD) None
MAXIMUM DEFERRED SALES CHARGE (LOAD) None
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- -------------------------------------------------------------------------------------------
Management Fees 0.70%
Distribution and Service (12b-1) Fees None
Other Expenses ____%
TOTAL ____%
- -------------------------------------------------------------------------------------------
</TABLE>
(1) Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. See "Additional Information --
Financial Highlights." The net expenses the fund actually paid after waivers for
the fiscal year ended September 30, 1999 were:
<TABLE>
<S> <C>
Waiver of Fund Expenses (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____%
</TABLE>
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 0.70%. FEE WAIVERS MAY BE DISCONTINUED AT
ANY TIME.
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
1 year $ 89
3 years $ 278
5 years $ 482
10 years $ 1,073
27 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
POLICIES & SERVICES
BUYING AND SELLING SHARES
Class Y shares are offered through banks and other financial institutions that
have entered into sales agreements with the funds' distributor and that hold the
shares in an omnibus account with the transfer agent. Class Y shares are
available to certain accounts for which the financial institution acts in a
fiduciary, agency or custodial capacity, such as certain trust accounts and
investment advisory accounts. To find out whether you may purchase Class Y
shares, contact your financial institution.
There is no initial or deferred sales charge on your purchase of Class Y shares.
However, your broker or financial institution may receive a commission of up to
1.25% on your purchase.
CALCULATING YOUR SHARE PRICE
Your purchase price will be equal to the fund's net asset value (NAV) per share,
which is generally calculated as of the close of regular trading on the New York
Stock Exchange (usually 3 p.m. Central time) every day the exchange is open.
A fund's NAV is equal to the market value of its investments and other assets,
less any liabilities, divided by the number of fund shares. If market prices are
not readily available for an investment or if the advisor believes they are
unreliable, fair value prices may be determined in good faith using methods
approved by the funds' board of directors.
HOW TO BUY AND SELL SHARES
You may purchase or sell shares by calling your financial institution.
When purchasing shares, payment must be made by wire transfer, which can be
arranged by your financial institution. Because purchases must be paid for by
wire transfer, you can purchase shares only on days when both the New York Stock
Exchange and federally chartered banks are open. You may sell your shares on any
day when the New York Stock Exchange is open.
Purchase orders and redemption requests must be received by your financial
institution by the time specified by the institution to be assured same day
processing. In order for shares to be purchased at that day's price, the funds
must receive your purchase order by 3:00 p.m. Central time and the funds'
custodian must receive federal funds before the close of business. In order for
shares to be sold at that day's price, the funds must receive your redemption
request by 3:00 p.m. Central time. It is the responsibility of your financial
institution to promptly transmit orders to the funds. Purchase orders and
redemption requests may be restricted in the event of an early or unscheduled
close of the New York Stock Exchange.
If the funds receive your redemption request by 3:00 p.m. Central time, payment
of your redemption proceeds will ordinarily be made by wire on the next business
day. It is possible, however, that payment could be delayed by up to seven days.
28 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
HOW TO EXCHANGE SHARES
If your investment goals or your financial needs change, you may exchange your
shares for Class Y shares of another First American fund. Exchanges will be made
at the net asset value per share of each fund at the time of the exchange. There
is no fee to exchange shares. If you are no longer eligible to hold Class Y
shares, for example, if you decide to discontinue your fiduciary, agency or
custodian account, you may exchange your shares for Class A shares at net asset
value. Class A shares have higher expenses than Class Y shares.
To exchange your shares, call your financial institution. In order for your
shares to be exchanged the same day, you must call your financial institution by
the time specified by the institution and your exchange order must be received
by the funds by 3:00 p.m. Central time. It is the responsibility of your
financial institution to promptly transmit your exchange order to the funds.
Before exchanging into any fund, be sure to read its prospectus carefully. A
fund may change or cancel its exchange policies at any time. You will be
notified of any changes. The funds have the right to limit exchanges to four
times per year.
29 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
POLICIES & SERVICES
MANAGING YOUR INVESTMENT
STAYING INFORMED
SHAREHOLDER REPORTS
Shareholder reports are mailed twice a year, in November and May. They include
financial statements, performance information, a message from your portfolio
managers, and, on an annual basis, the auditors' report.
In an attempt to reduce shareholder costs and help eliminate duplication, the
funds will try to limit their mailings to one report for each address that lists
one or more shareholders with the same last name. If you would like additional
copies, please call 1-800-637-2548.
STATEMENTS AND CONFIRMATIONS
Statements summarizing activity in your account are mailed at least quarterly.
Confirmations are mailed following each purchase or sale of fund shares.
DIVIDENDS AND DISTRIBUTIONS
Dividends from a fund's net investment income are declared and paid monthly. Any
capital gains are distributed at least once each year.
On the ex-dividend date for a distribution, a fund's share price is reduced by
the amount of the distribution. If you buy shares just before the ex-dividend
date, in effect, you "buy the dividend." You will pay the full price for the
shares and then receive a portion of that price back as a distribution, all or a
portion of which may be taxable (to the same extent the distribution is
otherwise taxable to fund shareholders).
Dividend and capital gain distributions will be reinvested in additional shares
of the fund paying the distribution, unless you request that distributions be
reinvested in another First American fund or paid in cash. This request may be
made on your new account form or by writing to the fund. If you request that
your distributions be paid in cash but those distributions cannot be delivered
because of an incorrect mailing address, the undelivered distributions and all
future distributions will be reinvested in fund shares.
TAXES
Some of the tax consequences of investing in the funds are discussed below. More
information about taxes is in the Statement of Additional Information. However,
because everyone's tax situation is unique, always consult your tax professional
about federal, state and local tax consequences.
30 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
TAXES ON DISTRIBUTIONS
Each fund intends to meet certain federal tax requirements so that distributions
of tax-exempt interest income may be treated as "exempt-interest dividends."
These dividends are not subject to regular federal income tax. However, each
fund may invest up to 20% of its net assets in municipal securities the interest
on which is subject to the alternative minimum tax. Any portion of
exempt-interest dividends attributable to interest on these securities may
increase some shareholders' alternative minimum tax. The funds expect that their
distributions will consist primarily of exempt-interest dividends. Intermediate
Tax Free Fund's exempt-interest dividends may be subject to state or local
taxes.
Distributions paid from any interest income that is not tax-exempt and from any
net realized capital gains will be taxable whether you reinvest those
distributions or take them in cash. Distributions of a fund's long-term capital
gains are taxable as long-term gains, regardless of how long you have held your
shares.
TAXES ON TRANSACTIONS
The sale of fund shares, or the exchange of one fund's shares for shares of
another fund, will be a taxable event and may result in a capital gain or loss.
The gain or loss will be considered long-term if you have held your shares for
more than one year. A gain or loss on shares held for one year or less is
considered short-term and is taxed at the same rates as ordinary income.
The exchange of one class of shares for another class of shares in the same fund
will not be taxable.
CALIFORNIA INCOME TAXATION
California Intermediate Tax Free Fund intends to comply with certain state tax
requirements so that dividends it pays that are attributable to interest on
California municipal securities will be excluded from the California taxable
income of individuals, trusts and estates. To meet these requirements, at least
50% of the value of the fund's total assets must consist of obligations which
pay interest that is exempt from California personal income tax. Exempt-interest
dividends are not excluded from the California taxable income of corporations
and financial institutions. In addition, dividends derived from interest paid on
California municipal bonds (including securities treated for federal purposes as
private activity bonds) will not be subject to the alternative minimum tax that
California imposes on individuals, trusts and estates.
COLORADO INCOME TAXATION
Dividends paid by Colorado Intermediate Tax Free Fund will be exempt from
Colorado income taxes for individuals, trusts, estates and corporations to the
extent that they are derived from interest on Colorado municipal securities. In
addition, dividends derived from interest on Colorado municipal securities
(including securities treated for federal purposes as private activity bonds)
will not be subject to the alternative minimum tax that Colorado imposes on
individuals, trusts and estates.
31 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
MINNESOTA INCOME TAXATION
Minnesota Intermediate Tax Free Fund intends to comply with certain state tax
requirements so that dividends it pays that are attributable to interest on
Minnesota municipal securities will be excluded from the Minnesota taxable net
income of individuals estates and trusts. To meet these requirements, at least
95% of the exempt-interest dividends paid by the fund must be derived from
interest income on Minnesota municipal securities. A portion of the fund's
dividends may be subject to the Minnesota alternative minimum tax.
Exempt-interest dividends are not excluded from the Minnesota taxable income of
corporations and financial institutions.
OREGON INCOME TAXATION
Dividends paid by Oregon Intermediate Tax Free Fund will be exempt from Oregon
income taxes for individuals, trusts and estates to the extent that they are
derived from interest on Oregon municipal securities. Such dividends will not be
excluded from the Oregon taxable income of corporations.
32 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
ADDITIONAL INFORMATION
MANAGEMENT
INVESTMENT ADVISOR
First American Asset Management
601 Second Avenue South
Minneapolis, Minnesota 55402
U.S. Bank National Association (U.S. Bank), acting through its First American
Asset Management division, is the funds' investment advisor. First American
Asset Management provides investment management services to individuals and
institutions, including corporations, foundations, pensions and retirement
plans. As of December 31, 1999, it had more than $ _____ billion in assets under
management, including investment company assets of approximately $_____ billion.
As investment advisor, First American Asset Management manages the funds'
business and investment activities, subject to the authority of the board of
directors. Each fund pays the investment advisor a monthly fee for providing
investment advisory services. During their most recent fiscal years, after
taking into account fee waivers, the funds paid the following investment
advisory fees to First American Asset Management:
Advisory fee
as a % of
average daily
net assets
- --------------------------------------------------------------------------------
California Intermediate
Tax Free Fund _________%
Colorado Intermediate
Tax Free Fund _________%
Intermediate Tax Free Fund _________%
Minnesota Intermediate Tax Free Fund _________%
Oregon Intermediate Tax Free Fund _________%
CUSTODIAN
U.S. Bank National Association
U.S. Bank Center
180 East Fifth Street
St. Paul, Minnesota 55101
ADMINISTRATOR
U.S Bank National Association
U.S. Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402
33 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
DISTRIBUTOR
SEI Investments Distribution Co.
Oaks, Pennsylvania 19456
ADDITIONAL COMPENSATION
U.S. Bank and other affiliates of U.S. Bancorp may act as fiduciary with respect
to plans subject to the Employee Retirement Income Security Act of 1974 (ERISA)
and other trust and agency accounts that invest in the funds. As described
above, U.S. Bank receives compensation for acting as the funds' investment
advisor. U.S. Bank and its affiliates also receive compensation in connection
with the following:
CUSTODY SERVICES. U.S. Bank provides or compensates others to provide custody
services to the funds. U.S. Bank is paid monthly fees equal, on an annual basis,
to 0.03% of a fund's average daily net assets. In addition, U.S. Bank is
reimbursed for its out-of-pocket expenses incurred while providing custody
services to the funds.
ADMINISTRATION SERVICES. U.S. Bank provides or compensates others to provide
administrative services to the funds including general administrative and
accounting services, transfer agency and dividend disbursing services, and
shareholder services. The funds pay U.S. Bank monthly fees equal, on an annual
basis, to 0.12% of the aggregate average daily net assets of all open-end mutual
funds in the First American fund family up to $8 billion and 0.105% of the
aggregate average daily net assets of all open-end mutual funds in the First
American fund family in excess of $8 billion. Additionally, the funds pay U.S.
Bank fees based upon the number of funds and accounts maintained.
SECURITIES LENDING SERVICES. In connection with lending their portfolio
securities, the funds pay administrative and custodial fees to U.S. Bank which
are equal to 40% of the funds' income from these securities lending
transactions.
BROKERAGE TRANSACTIONS. The funds purchase most of their portfolio securities
directly from the issuer or from an underwriter or market maker, and not from a
broker acting as agent. However, the funds may from time to time use brokers
when buying portfolio securities. The funds' investment advisor may place trades
through its affiliates, U.S. Bancorp Investments, Inc. and U.S. Bancorp Piper
Jaffray Inc., which will earn commissions on such transactions.
SALES OF FUND SHARES. U.S. Bancorp Investments, Inc. and U.S. Bancorp Piper
Jaffray, Inc. broker-dealers affiliated with U.S. Bank, have entered into
agreements with the funds' distributor to sell fund shares and will earn annual
shareholder servicing fees in connection with these sales.
PORTFOLIO MANAGEMENT
Each fund's investments are managed by a team of persons associated with First
American Asset Management.
34 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
ADDITIONAL INFORMATION
MORE ABOUT THE FUNDS
OBJECTIVES
The Funds' objectives, which are described in the "Fund Summaries" section, may
be changed without shareholder approval. If a fund's objectives change, you will
be notified at least 30 days in advance. Please remember: There is no guarantee
that any fund will achieve its objectives.
INVESTMENT STRATEGIES
The funds' main investment strategies are discussed in the "Fund Summaries"
section. These are the strategies that the funds' investment advisor believes
are most likely to be important in trying to achieve the funds' objectives. You
should be aware that each fund may also use strategies and invest in securities
that are not described in this prospectus, but that are described in the
Statement of Additional Information (SAI). For a copy of the SAI, call Investor
Services at 1-800-637-2548.
INVESTMENT APPROACH
In selecting securities for the funds, fund managers first determine their
economic outlook and the direction in which inflation and interest rates are
expected to move. In selecting individual securities consistent with this
outlook, the fund managers evaluate factors such as credit quality, yield,
maturity, liquidity and portfolio diversification. In the case of Intermediate
Tax Free Fund, geographical diversification is also a factor. Fund managers
conduct research on potential and current holdings in the funds to determine
whether a fund should purchase or retain a security. This is a continuing
process the focus of which changes according to market conditions, the
availability of various permitted investments, and cash flows into and out of
the funds.
MUNICIPAL SECURITIES
Municipal securities are issued to finance public infrastructure projects such
as streets and highways, schools, water and sewer systems, hospitals, and
airports. They also may be issued to refinance outstanding obligations as well
as to obtain funds for general operating expenses and for loans to other public
institutions and facilities.
The funds may invest in "general obligation" bonds, which are backed by the full
faith, credit and taxing power of the issuer, and in "revenue" bonds, which are
payable only from the revenues generated by a specific project or from another
specific revenue source. 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 government unit to acquire equipment or
facilities. Municipal leases frequently have special risks which generally are
not associated with general obligation bonds or revenue bonds. See "Risks --
Risks of Municipal Lease Obligations" below.
35 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
Up to 10% of each fund's total assets may be invested in inverse floating rate
municipal securities. The values of these securities may be highly volatile as
interest rates rise or fall. See "Risks -- Risks of Inverse Floating Rate
Securities" below.
REFUNDED BONDS
Refunded bonds may have originally been issued as general obligation or revenue
bonds, but become refunded when they are secured by an escrow fund, usually
consisting entirely of direct U.S. government obligations and/or U.S. government
agency obligations.
TEMPORARY INVESTMENTS
In an attempt to respond to adverse market, economic, political or other
conditions, each fund may temporarily invest without limit in cash and in U.S.
dollar-denominated high-quality money market instruments and other short-term
securities, including securities which pay income that is subject to federal and
state income tax. These investments may include money market funds advised by
the funds' advisor. Because these investments may be taxable, and may result in
a lower yield than would be available from investments with a lower quality or
longer term, they may prevent a fund from achieving its investment objective.
PORTFOLIO TURNOVER
Fund managers may trade securities frequently, resulting, from time to time, in
an annual portfolio turnover rate of over 100%. Trading of securities may
produce capital gains, which are taxable to shareholders when distributed.
Active trading may also increase the amount of commissions or mark-ups to
broker-dealers that the fund pays when it buys and sells securities. The
"Financial Highlights" section of this prospectus shows each fund's historical
portfolio turnover rate.
RISKS
The main risks of investing in the funds are summarized in the "Fund Summaries"
section. More information about fund risks is presented below.
36 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
INTEREST RATE RISK
Debt securities in the funds will fluctuate in value with changes in interest
rates. In general, debt securities will increase in value when interest rates
fall and decrease in value when interest rates rise. Longer-term debt securities
are generally more sensitive to interest rate changes. Each fund may invest in
zero coupon securities, which do not pay interest on a current basis and which
may be highly volatile as interest rates rise or fall. The funds' investments in
inverse floating rate municipal securities also may be highly volatile with
changing interest rates. See "Risks of Inverse Floating Rate Securities" below.
INCOME RISK
The fund's income could decline due to falling market interest rates. This is
because, in a falling interest rate environment, the fund generally will have to
invest the proceeds from sales of fund shares, as well as the proceeds from
maturing portfolio securities (or portfolio securities that have been called,
see "Call Risk") in lower-yielding securities.
CREDIT RISK
Each fund is subject to the risk that the issuers of debt securities held by the
fund will not make payments on the securities, or that the other party to a
contract (such as a repurchase agreement) will default on its obligations. There
is also the risk that an issuer could suffer adverse changes in financial
condition that could lower the credit quality of a security. This could lead to
greater volatility in the price of the security and in shares of the fund. Also,
a change in the credit quality rating of a bond could affect the bond's
liquidity and make it more difficult for the fund to sell.
Each fund attempts to minimize credit risk by investing in securities considered
at least investment grade at the time of purchase. However, all of these
securities, especially those in the lower investment grade rating categories,
have credit risk. In adverse economic or other circumstances, issuers of these
lower rated securities are more likely to have difficulty making principal and
interest payments than issuers of higher rated securities. When a fund purchases
unrated securities, it will depend on the advisor's analysis of credit risk more
heavily than usual.
CALL RISK
Many municipal bonds may be redeemed at the option of the issuer, or "called,"
before their stated maturity date. In general, an issuer will call its bonds if
they can be refinanced by issuing new bonds which bear a lower interest rate.
The funds are subject to the possibility that during periods of falling interest
rates, a municipal bond issuer will call its high-yielding bonds. A fund would
then be forced to invest the unanticipated proceeds at lower interest rates,
resulting in a decline in the fund's income.
POLITICAL AND ECONOMIC RISK
The values of municipal securities 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
municipal securities 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 revenue of issuers (for example, legislation or court decisions
reducing state aid to local governments or mandating additional services). To
the extent a fund invests in the securities of issuers located in a single
state, it will be disproportionately affected by political and economic
conditions and developments in that state. The value of municipal securities
also may be adversely affected by future changes in federal or state income tax
laws, including rate reductions or the imposition of a flat tax.
37 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
RISKS OF INVERSE FLOATING RATE SECURITIES.
Each fund may invest up to 10% of its total assets in inverse floating rate
municipal securities. These securities pay interest at a rate that varies
inversely to changes in the interest rate of specified municipal securities or a
specified index. The interest rate on this type of security will generally
change at a multiple of any change in the reference interest rate. As a result,
the values of these securities may be highly volatile as interest rates rise or
fall.
RISKS OF MUNICIPAL LEASE OBLIGATIONS
Each fund may purchase participation interests in municipal leases. These are
undivided interests in a lease, installment purchase contract or conditional
sale contract entered into by a state or local government unit to acquire
equipment or facilities. Participation interests in municipal leases pose
special risks because many leases and contracts contain "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. Although these kinds of
obligations are secured by the leased equipment or facilities, it might be
difficult and time consuming to dispose of the equipment or facilities in the
event of non-appropriation, and the fund might not recover the full principal
amount of the obligation.
RISKS OF ACTIVE MANAGEMENT
Each fund is actively managed and its performance therefore will reflect in part
the advisor's ability to make investment decisions which are suited to achieving
the fund's investment objectives. Due to their active management, the funds
could underperform other mutual funds with similar investment objectives.
38 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
ADDITIONAL INFORMATION
FINANCIAL HIGHLIGHTS
The tables that follow present performance information about the Class Y shares
of the funds. This information is intended to help you understand each fund's
financial performance for the past five years or, if shorter, the period of the
fund's Class Y share operations. Some of this information reflects financial
results for a single fund share. Total returns in the tables represent the rate
that you would have earned or lost on an investment in a fund, assuming you
reinvested all of your dividends and distributions.
The information for the fiscal year ended September 30, 1999 has been audited by
Ernst & Young LLP, independent auditors, whose report, along with the funds'
financial statements, is included in the funds' annual report, which is
available upon request. The information for the fiscal years ended on or before
September 30, 1998, has been audited by KPMG LLP.
CALIFORNIA INTERMEDIATE TAX FREE FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
1999 1998 1997(1)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $_____ $10.03 $10.00
---------------------------------------------
Investment Operations:
Net Investment Income ______ 0.43 0.06
Net Gains (Losses) on Investments
(both realized and unrealized) ______ 0.33 0.03
---------------------------------------------
Total From Investment Operations ______ 0.76 0.09
---------------------------------------------
Less Distributions:
Dividends (from Net Investment Income) ______ (0.43) (0.06)
---------------------------------------------
Total Distributions ______ (0.43) (0.06)
---------------------------------------------
Net Asset Value, End of Period ______ $10.36 $10.03
=============================================
Total Return _____% 7.80% 0.92%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) ______ $37,275 $33,287
Ratio of Expenses to Average Net Assets ____% 0.70% 0.69%(2)
Ratio of Net Investment Income to Average Net Assets ____% 4.27% 4.14%(2)
Ratio of Expenses to Average Net Assets (excluding waivers) ____% 0.96% 1.11%(2)
Ratio of Net Investment Income to Average Net Assets (excluding waivers) ____% 4.01% 3.72%(2)
Portfolio Turnover Rate ____% 22% 3%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Class Y shares have been offered since August 8, 1997.
(2) Annualized.
39 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
COLORADO INTERMEDIATE TAX FREE FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $_____ $10.61 $10.42 $10.51 $10.16
---------------------------------------------------------
Investment Operations:
Net Investment Income ______ 0.47 0.48 0.49 0.48
Net Gains (Losses) on Investments
(both realized and unrealized) ______ 0.29 0.24 (0.04) 0.36
---------------------------------------------------------
Total From Investment Operations ______ 0.76 0.72 0.45 0.84
---------------------------------------------------------
Less Distributions:
Dividends (from Net Investment Income) ______ (0.47) (0.48) (0.49) (0.49)
Distributions (from capital gains) ______ (0.02) (0.05) (0.05) --
---------------------------------------------------------
Total Distributions ______ (0.49) (0.53) (0.54) (0.49)
---------------------------------------------------------
Net Asset Value, End of Period ______ $10.88 $10.61 $10.42 $10.51
=========================================================
Total Return ____% 7.33% 7.11% 4.39% 8.47%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $______ $59,631 $54,378 $48,927 $50,071
Ratio of Expenses to Average Net Assets ____% 0.70% 0.70% 0.70% 0.70%
Ratio of Net Investment Income to Average Net Assets ____% 4.43% 4.55% 4.69% 4.84%
Ratio of Expenses to Average Net Assets (excluding waivers) ____% 0.92% 0.91% 0.93% 1.02%
Ratio of Net Investment Income to Average Net Assets (excluding waivers) ____% 4.21% 4.34% 4.46% 4.52%
Portfolio Turnover Rate ____% 19% 11% 20% 19%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
40 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
INTERMEDIATE TAX FREE FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $_____ $10.82 $10.65 $10.72 $10.28
----------------------------------------------------------
Investment Operations:
Net Investment Income ______ 0.47 0.47 0.46 0.49
Net Gains (Losses) on Investments
(both realized and unrealized) ______ 0.27 0.23 -- 0.43
----------------------------------------------------------
Total From Investment Operations ______ 0.74 0.70 0.46 0.92
----------------------------------------------------------
Less Distributions:
Dividends (from Net Investment Income) ______ (0.47) (0.47) (0.46) (0.48)
Distributions (from capital gains) ______ (0.06) (0.06) (0.07) --
----------------------------------------------------------
Total Distributions ______ (0.53) (0.53) (0.53) (0.48)
----------------------------------------------------------
Net Asset Value, End of Period ______ $11.03 $10.82 $10.65 $10.72
==========================================================
Total Return ____% 7.05% 6.75% 4.35% 9.15%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $_____ $460,714 $431,000 $66,994 $46,025
Ratio of Expenses to Average Net Assets ____% 0.70% 0.67% 0.66% 0.67%
Ratio of Net Investment Income to Average Net Assets ____% 4.32% 4.40% 4.35% 4.73%
Ratio of Expenses to Average Net Assets (excluding waivers) ____% 0.86% 0.93% 0.92% 1.05%
Ratio of Net Investment Income to Average Net Assets (excluding waivers) ____% 4.16% 4.14% 4.09% 4.35%
Portfolio Turnover Rate ____% 27% 66% 53% 68%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
41 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
MINNESOTA INTERMEDIATE TAX FREE FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $_____ $10.06 $9.91 $9.92 $9.59
-------------------------------------------------------------
Investment Operations:
Net Investment Income ______ 0.43 0.44 0.45 0.45
Net Gains (Losses) on Investments
(both realized and unrealized) ______ 0.24 0.18 0.02 0.33
-------------------------------------------------------------
Total From Investment Operations ______ 0.67 0.62 0.47 0.78
-------------------------------------------------------------
Less Distributions:
Dividends (from Net Investment Income) ______ (0.43) (0.44) (0.45) (0.45)
Distributions (from capital gains) ______ (0.04) (0.03) (0.03) --
-------------------------------------------------------------
Total Distributions ______ (0.47) (0.47) (0.48) (0.45)
-------------------------------------------------------------
Net Asset Value, End of Period ______ $10.26 $10.06 $9.91 $9.92
=============================================================
Total Return ____% 6.82% 6.42% 4.80% 8.34%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $_____ $317,598 $297,122 $93,394 $61,693
Ratio of Expenses to Average Net Assets ____% 0.70% 0.70% 0.70% 0.70%
Ratio of Net Income to Average Net Assets ____% 4.30% 4.47% 4.53% 4.76%
Ratio of Expenses to Average Net Assets (excluding waivers) ____% 0.86% 0.90% 0.93% 1.00%
Ratio of Net Income to Average Net Assets (excluding waivers) ____% 4.14% 4.27% 4.30% 4.46%
Portfolio Turnover Rate ____% 24% 20% 19% 38%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
42 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
OREGON INTERMEDIATE TAX FREE FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
1999 1998 1997(1)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $_____ $10.05 $10.00
------------------------------------------------
Income From Investment Operations:
Net Investment Income ______ 0.45 0.07
Net Gains or Losses on Investments
(both realized and unrealized) ______ 0.21 0.05
------------------------------------------------
Total From Investment Operations ______ 0.66 0.12
------------------------------------------------
Less Distributions:
Dividends (from net investment income) ______ (0.45) (0.07)
Distributions (from capital gains) ______ (0.02) --
------------------------------------------------
Total Distributions ______ (0.47) (0.07)
------------------------------------------------
Net Asset Value, End of Period ______ $10.24 $10.05
================================================
Total Return ____% 6.66% 1.17%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $_____ $187,383 $182,069
Ratio of Expenses to Average Net Assets ____% 0.70% 0.70%(2)
Ratio of Net Investment Income to Average Net Assets ____% 4.43% 4.55%(2)
Ratio of Expenses to Average Net Assets (excluding waivers) ____% 0.87% 1.09%(2)
Ratio of Net Investment Income to Average Net Assets (excluding waivers) ____% 4.26% 4.16%(2)
Portfolio Turnover Rate ____% 20% 4%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Class Y shares have been offered since August 8, 1997.
(2) Annualized.
43 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
More information about the funds is available in the funds' Statement of
Additional Information and annual and semiannual reports.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI provides more details about the funds and their policies. A current SAI
is on file with the Securities and Exchange Commission (SEC) and is incorporated
into this prospectus by reference (which means that it is legally considered
part of this prospectus).
ANNUAL AND SEMIANNUAL REPORTS
Additional information about the funds' investments is available in the funds'
annual and semiannual reports to shareholders. In the funds' annual report, you
will find a discussion of the market conditions and investment strategies that
significantly affected the funds' performance during their last fiscal year.
You can obtain a free copy of the funds' SAI and/or free copies of the funds'
most recent annual or semiannual reports by calling Investor Services at
1-800-637-2548. The material you request will be sent by first-class mail or
other means designed to ensure equally prompt delivery, within three business
days of receipt of the request.
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, DC, or by sending your request and a duplicating fee to the SEC's
Public Reference Section, Washington, DC 20549-6009. For more information, call
1-800-SEC-0330.
Information about the funds is also available on the Internet. Text-only
versions of fund documents can be viewed online or down- loaded from the SEC's
Internet site at http://www.sec.gov.
SEC file number: 811-05309
FAIF - 1502 (2/2000)Y
44 PROSPECTUS - FIRST AMERICAN INTERMEDIATE TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
February 1, 2000
TAX FREE BOND FUNDS
CLASS A AND CLASS C SHARES
Arizona Tax Free Fund
California Tax Free Fund
Colorado Tax Free Fund
Minnesota Tax Free Fund
Tax Free Fund
First American
Investment Funds, Inc.
PROSPECTUS
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the shares of these funds, or determined if the
information in this prospectus is accurate or complete. Any statement to the
contrary is a criminal offense.
FIRST AMERICAN(R)
THE POWER OF DISCIPLINED INVESTING(R)
1 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
TABLE OF
CONTENTS
FUND SUMMARIES
- ----------------------------------------------------------------------
Arizona Tax Free Fund
- ----------------------------------------------------------------------
California Tax Free Fund
- ----------------------------------------------------------------------
Colorado Tax Free Fund
- ----------------------------------------------------------------------
Minnesota Tax Free Fund
- ----------------------------------------------------------------------
Tax Free Fund
- ----------------------------------------------------------------------
POLICIES & SERVICES
- ----------------------------------------------------------------------
Buying Shares
- ----------------------------------------------------------------------
Selling Shares
- ----------------------------------------------------------------------
Managing Your Investment
- ----------------------------------------------------------------------
ADDITIONAL INFORMATION
- ----------------------------------------------------------------------
Management
- ----------------------------------------------------------------------
More About The Funds
- ----------------------------------------------------------------------
Financial Highlights
- ----------------------------------------------------------------------
FOR MORE INFORMATION
- ----------------------------------------------------------------------
2 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
FUND SUMMARIES
INTRODUCTION
This section of the prospectus describes the objectives of the First American
Tax Free Bond Funds, summarizes the main investment strategies used by each fund
in trying to achieve its objectives, and highlights the risks involved with
these strategies. It also provides you with information about the performance,
fees and expenses of the funds.
AN INVESTMENT IN THE FUNDS IS NOT A DEPOSIT OF U.S. BANK NATIONAL ASSOCIATION
AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR
ANY OTHER GOVERNMENT AGENCY.
3 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
FUND SUMMARIES
ARIZONA TAX FREE FUND
OBJECTIVE
Arizona Tax Free Fund has an objective of providing maximum current income that
is exempt from both federal income tax and Arizona state income tax to the
extent consistent with prudent investment risk.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Arizona Tax Free Fund invests at least 80% of
its net assets in municipal securities that pay interest that is exempt from
federal and Arizona income tax, including the federal alternative minimum tax.
The fund normally may invest up to 20% of its net assets in taxable obligations,
including obligations the interest on which is subject to the federal
alternative minimum tax. The fund may invest in:
o "general obligation" bonds, which are backed by the full faith, credit and
taxing power of the issuer;
o "revenue" bonds, which are payable only from the revenues generated by a
specific project or from another specific revenue source;
o participation interests in municipal leases;
o zero coupon municipal securities, which pay no cash income to their holders
until they mature; and
o inverse floating rate municipal securities (up to 10% of the fund's total
assets).
In selecting securities for the fund, fund managers first determine their
economic outlook and the direction in which inflation and interest rates are
expected to move. In selecting individual securities consistent with this
outlook, fund managers evaluate factors such as credit quality, yield, maturity,
liquidity and portfolio diversification.
The fund only invests in securities that, at the time of purchase, are either
rated investment grade or are unrated and determined to be of comparable quality
by the fund's advisor. Unrated securities will not exceed 25% of the fund's
total assets (not including unrated securities that have been pre-refunded with
U.S. Government securities and U.S. Government agency securities).
The fund will attempt to maintain the weighted average maturity of its portfolio
securities at 10 to 25 years under normal market conditions.
4 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
MAIN RISKS
The price and yield of this fund will change daily due to changes in interest
rates and other factors, which means you could lose money. The main risks of
investing in this fund include:
INTEREST RATE RISK
Debt securities typically decrease in value when interest rates rise. This risk
is usually greater for longer-term debt securities. Inverse floating rate
securities may be highly volatile as interest rates rise or fall.
INCOME RISK
The fund's income could decline due to falling market interest rates.
CREDIT RISK
An issuer of debt securities may not make timely principal or interest payments
on its securities. The revenue bonds and municipal lease obligations in which
the fund invests may entail greater credit risk than the fund's investments in
general obligation bonds.
CALL RISK
Some municipal securities held by the fund may be redeemed by the issuer, or
"called," prior to their stated maturity dates. If a security is redeemed during
a time of declining interest rates, the fund may be unable to reinvest in
securities providing as high a level of income.
RISKS OF MUNICIPAL LEASE OBLIGATIONS
Many municipal leases and contracts contain "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.
POLITICAL AND ECONOMIC RISK
Because the fund invests primarily in municipal securities issued by the state
of Arizona and its political subdivisions, the fund will be particularly
affected by political and economic conditions and developments in that state.
See the Statement of Additional Information for details. The value of municipal
securities owned by the fund also may be adversely affected by future changes in
federal or state income tax laws, including rate reductions or the imposition of
a flat tax.
5 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
RISKS OF NON-DIVERSIFICATION
The fund is non-diversified. This means that it may invest a larger portion of
its assets in a limited number of issuers than a diversified fund. Because a
relatively high percentage of the fund's assets may be invested in the
securities of a limited number of issuers, the fund may be more susceptible to
any single economic, political or regulatory occurrence than a diversified fund.
FUND PERFORMANCE
Because Arizona Tax Free Fund shares were not offered prior to the date of this
prospectus, no performance information is presented for these shares.
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
SHAREHOLDER FEES Class A Class C
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
MAXIMUM SALES CHARGE (LOAD)
AS A % OF OFFERING PRICE 2.50%(1) 1.00%
MAXIMUM DEFERRED SALES CHARGE (LOAD)
AS A % OF ORIGINAL PURCHASE PRICE OR REDEMPTION
PROCEEDS, WHICHEVER IS LESS 0.00%(2) 1.00%
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------------------
Management Fees 0.70% 0.70%
Distribution and Service (12b-1) Fees 0.25% 1.00%
Other Expenses(3) ____% ____%
TOTAL(4) ____% ____%
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) Certain investors may qualify for reduced sales charges. See "Buying Shares
- -- Calculating Your Share Price."
(2) Investments of $1 million or more on which no front-end sales charge is paid
may be subject to a contingent deferred sales charge. See "Buying Shares --
Calculating Your Share Price."
(3) "Other expenses" are based on estimated amounts for the current fiscal year.
6 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
(4) THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT
TOTAL FUND OPERATING EXPENSES DO NOT EXCEED 0.95% AND 1.35%, RESPECTIVELY, FOR
CLASS A AND CLASS C SHARES. FEE WAIVERS MAY BE DISCONTINUED AT ANY TIME.
- -------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- -------------------------------------------------------------------------------
CLASS C CLASS C
assuming assuming no
redemption redemption
at end of at end of
CLASS A each period each period
- --------------------------------------------------------------------------------
1 year $ 356 $ 383 $ 283
3 years $ 582 $ 667 $ 667
7 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
FUND SUMMARIES
CALIFORNIA TAX FREE FUND
OBJECTIVE
California Tax Free Fund has an objective of providing maximum current income
that is exempt from both federal income tax and California state income tax to
the extent consistent with prudent investment risk.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, California Tax Free Fund invests at least 80% of
its net assets in municipal securities that pay interest that is exempt from
federal and California income tax, including the federal alternative minimum
tax. The fund normally may invest up to 20% of its net assets in taxable
obligations, including obligations the interest on which is subject to the
federal alternative minimum tax. The fund may invest in:
o "general obligation" bonds, which are backed by the full faith, credit and
taxing power of the issuer;
o "revenue" bonds, which are payable only from the revenues generated by a
specific project or from another specific revenue source;
o participation interests in municipal leases;
o zero coupon municipal securities, which pay no cash income to their holders
until they mature; and
o inverse floating rate municipal securities (up to 10% of the fund's total
assets).
In selecting securities for the fund, fund managers first determine their
economic outlook and the direction in which inflation and interest rates are
expected to move. In selecting individual securities consistent with this
outlook, fund managers evaluate factors such as credit quality, yield, maturity,
liquidity and portfolio diversification.
The fund only invests in securities that, at the time of purchase, are either
rated investment grade or are unrated and determined to be of comparable quality
by the fund's advisor. Unrated securities will not exceed 25% of the fund's
total assets (not including unrated securities that have been pre-refunded with
U.S. Government securities and U.S. Government agency securities).
The fund will attempt to maintain the weighted average maturity of its portfolio
securities at 10 to 25 years under normal market conditions.
8 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
MAIN RISKS
The price and yield of this fund will change daily due to changes in interest
rates and other factors, which means you could lose money. The main risks of
investing in this fund include:
INTEREST RATE RISK
Debt securities typically decrease in value when interest rates rise. This risk
is usually greater for longer-term debt securities. Inverse floating rate
securities may be highly volatile as interest rates rise or fall.
INCOME RISK
The fund's income could decline due to falling market interest rates.
CREDIT RISK
An issuer of debt securities may not make timely principal or interest payments
on its securities. The revenue bonds and municipal lease obligations in which
the fund invests may entail greater credit risk than the fund's investments in
general obligation bonds.
CALL RISK
Some municipal securities held by the fund may be redeemed by the issuer, or
"called," prior to their stated maturity dates. If a security is redeemed during
a time of declining interest rates, the fund may be unable to reinvest in
securities providing as high a level of income.
RISKS OF MUNICIPAL LEASE OBLIGATIONS
Many municipal leases and contracts contain "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.
POLITICAL AND ECONOMIC RISK
Because the fund invests primarily in municipal securities issued by the state
of California and its political subdivisions, the fund will be particularly
affected by political and economic conditions and developments in that state.
See the Statement of Additional Information for details. The value of municipal
securities owned by the fund also may be adversely affected by future changes in
federal or state income tax laws, including rate reductions or the imposition of
a flat tax.
9 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
RISKS OF NON-DIVERSIFICATION
The fund is non-diversified. This means that it may invest a larger portion of
its assets in a limited number of issuers than a diversified fund. Because a
relatively high percentage of the fund's assets may be invested in the
securities of a limited number of issuers, the fund may be more susceptible to
any single economic, political or regulatory occurrence than a diversified fund.
FUND PERFORMANCE
Because California Tax Free Fund shares were not offered prior to the date of
this prospectus, no performance information is presented for these shares.
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
SHAREHOLDER FEES Class A Class C
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
MAXIMUM SALES CHARGE (LOAD)
AS A % OF OFFERING PRICE 2.50%(1) 1.00%
MAXIMUM DEFERRED SALES CHARGE (LOAD)
AS A % OF ORIGINAL PURCHASE PRICE OR REDEMPTION
PROCEEDS, WHICHEVER IS LESS 0.00%(2) 1.00%
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------------------
Management Fees 0.70% 0.70%
Distribution and Service (12b-1) Fees 0.25% 1.00%
Other Expenses(3) ____% ____%
TOTAL(4) ____% ____%
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) Certain investors may qualify for reduced sales charges. See "Buying Shares
- - Calculating Your Share Price."
(2) Investments of $1 million or more on which no front-end sales charge is paid
may be subject to a contingent deferred sales charge. See "Buying Shares --
Calculating Your Share Price."
(3) "Other expenses" are based on estimated amounts for the current fiscal year.
(4) THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT
TOTAL FUND OPERATING EXPENSES DO NOT EXCEED 0.95% AND 1.35%, RESPECTIVELY, FOR
CLASS A AND CLASS C SHARES. FEE WAIVERS MAY BE DISCONTINUED AT ANY TIME.
10 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
CLASS C CLASS C
assuming assuming no
redemption redemption
at end of at end of
CLASS A each period each period
- --------------------------------------------------------------------------------
1 year $ 356 $ 383 $ 283
3 years $ 582 $ 667 $ 667
11 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
FUND SUMMARIES
COLORADO TAX FREE FUND
OBJECTIVE
Colorado Tax Free Fund has an objective of providing maximum current income that
is exempt from both federal income tax and Colorado state income tax to the
extent consistent with prudent investment risk.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Colorado Tax Free Fund invests at least 80% of
its net assets in municipal securities that pay interest that is exempt from
federal and Colorado income tax, including the federal alternative minimum tax.
The fund normally may invest up to 20% of its net assets in taxable obligations,
including obligations the interest on which is subject to the federal
alternative minimum tax. The fund may invest in:
o "general obligation" bonds, which are backed by the full faith, credit and
taxing power of the issuer;
o "revenue" bonds, which are payable only from the revenues generated by a
specific project or from another specific revenue source;
o participation interests in municipal leases;
o zero coupon municipal securities, which pay no cash income to their holders
until they mature; and
o inverse floating rate municipal securities (up to 10% of the fund's total
assets).
In selecting securities for the fund, fund managers first determine their
economic outlook and the direction in which inflation and interest rates are
expected to move. In selecting individual securities consistent with this
outlook, fund managers evaluate factors such as credit quality, yield, maturity,
liquidity and portfolio diversification.
The fund only invests in securities that, at the time of purchase, are either
rated investment grade or are unrated and determined to be of comparable quality
by the fund's advisor. Unrated securities will not exceed 25% of the fund's
total assets (not including unrated securities that have been pre-refunded with
U.S. Government securities and U.S. Government agency securities).
The fund will attempt to maintain the weighted average maturity of its portfolio
securities at 10 to 25 years under normal market conditions.
12 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
MAIN RISKS
The price and yield of this fund will change daily due to changes in interest
rates and other factors, which means you could lose money. The main risks of
investing in this fund include:
INTEREST RATE RISK
Debt securities typically decrease in value when interest rates rise. This risk
is usually greater for longer-term debt securities. Inverse floating rate
securities may be highly volatile as interest rates rise or fall.
INCOME RISK
The fund's income could decline due to falling market interest rates.
CREDIT RISK
An issuer of debt securities may not make timely principal or interest payments
on its securities. The revenue bonds and municipal lease obligations in which
the fund invests may entail greater credit risk than the fund's investments in
general obligation bonds.
CALL RISK
Some municipal securities held by the fund may be redeemed by the issuer, or
"called," prior to their stated maturity dates. If a security is redeemed during
a time of declining interest rates, the fund may be unable to reinvest in
securities providing as high a level of income.
RISKS OF MUNICIPAL LEASE OBLIGATIONS
Many municipal leases and contracts contain "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.
POLITICAL AND ECONOMIC RISK
Because the fund invests primarily in municipal securities issued by the state
of Colorado and its political subdivisions, the fund will be particularly
affected by political and economic conditions and developments in that state.
See the Statement of Additional Information for details. The value of municipal
securities owned by the fund also may be adversely affected by future changes in
federal or state income tax laws, including rate reductions or the imposition of
a flat tax.
13 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
RISKS OF NON-DIVERSIFICATION
The fund is non-diversified. This means that it may invest a larger portion of
its assets in a limited number of issuers than a diversified fund. Because a
relatively high percentage of the fund's assets may be invested in the
securities of a limited number of issuers, the fund may be more susceptible to
any single economic, political or regulatory occurrence than a diversified fund.
FUND PERFORMANCE
Because Colorado Tax Free Fund shares were not offered prior to the date of this
prospectus, no performance information is presented for these shares.
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
SHAREHOLDER FEES Class A Class C
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
MAXIMUM SALES CHARGE (LOAD)
AS A % OF OFFERING PRICE 2.50%(1) 1.00%
MAXIMUM DEFERRED SALES CHARGE (LOAD)
AS A % OF ORIGINAL PURCHASE PRICE OR REDEMPTION
PROCEEDS, WHICHEVER IS LESS 0.00%(2) 1.00%
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------------------
Management Fees 0.70% 0.70%
Distribution and Service (12b-1) Fees 0.25% 1.00%
Other Expenses(3) ____% ____%
TOTAL(4) ____% ____%
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) Certain investors may qualify for reduced sales charges. See "Buying Shares
- - Calculating Your Share Price."
(2) Investments of $1 million or more on which no front-end sales charge is paid
may be subject to a contingent deferred sales charge. See "Buying Shares --
Calculating Your Share Price."
(3) "Other expenses" are based on estimated amounts for the current fiscal year.
14 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
(4) THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT
TOTAL FUND OPERATING EXPENSES DO NOT EXCEED 0.95% AND 1.35%, RESPECTIVELY, FOR
CLASS A AND CLASS C SHARES. FEE WAIVERS MAY BE DISCONTINUED AT ANY TIME.
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
CLASS C CLASS C
assuming assuming no
redemption redemption
at end of at end of
CLASS A each period each period
- --------------------------------------------------------------------------------
1 year $ 356 $ 383 $ 283
3 years $ 582 $ 667 $ 667
5 years $ 825 $ 1,075 $ 1,075
10 years $ 1,523 $ 2,216 $ 2,216
15 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
FUND SUMMARIES
MINNESOTA TAX FREE FUND
OBJECTIVE
Minnesota Tax Free Fund has an objective of providing maximum current income
that is exempt from both federal income tax and Minnesota state income tax to
the extent consistent with prudent investment risk.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Minnesota Tax Free Fund invests at least 80% of
its net assets in municipal securities that pay interest that is exempt from
federal and Minnesota income tax, including federal and state of Minnesota
alternative minimum tax. The fund normally may invest up to 20% of its net
assets in taxable obligations, including obligations the interest on which is
subject to federal and state of Minnesota alternative minimum tax. The fund may
invest in:
o "general obligation" bonds, which are backed by the full faith, credit and
taxing power of the issuer;
o "revenue" bonds, which are payable only from the revenues generated by a
specific project or from another specific revenue source;
o participation interests in municipal leases;
o zero coupon municipal, which pay no cash income to their holders until they
mature; and
o inverse floating rate municipal securities (up to 10% of the fund's total
assets).
In selecting securities for the fund, fund managers first determine their
economic outlook and the direction in which inflation and interest rates are
expected to move. In selecting individual securities consistent with this
outlook, fund managers evaluate factors such as credit quality, yield, maturity,
liquidity and portfolio diversification.
The fund only invests in securities that, at the time of purchase, are either
rated investment grade or are unrated and determined to be of comparable quality
by the fund's advisor. Unrated securities will not exceed 25% of the fund's
total assets (not including unrated securities that have been pre-refunded with
U.S. Government securities and U.S. Government agency securities).
The fund will attempt to maintain the weighted average maturity of its portfolio
securities at 10 to 25 years under normal market conditions.
16 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
MAIN RISKS
The price and yield of this fund will change daily due to changes in interest
rates and other factors, which means you could lose money. The main risks of
investing in this fund include:
INTEREST RATE RISK
Debt securities typically decrease in value when interest rates rise. This risk
is usually greater for longer-term debt securities. Inverse floating rate
securities may be highly volatile as interest rates rise or fall.
INCOME RISK
The fund's income could decline due to falling market interest rates.
CREDIT RISK
An issuer of debt securities may not make timely principal or interest payments
on its securities. The revenue bonds and municipal lease obligations in which
the fund invests may entail greater credit risk than the fund's investments in
general obligation bonds.
CALL RISK
Some municipal securities held by the fund may be redeemed by the issuer, or
"called," prior to their stated maturity dates. If a security is redeemed during
a time of declining interest rates, the fund may be unable to reinvest in
securities providing as high a level of income.
RISKS OF MUNICIPAL LEASE OBLIGATIONS
Many municipal leases and contracts contain "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.
POLITICAL AND ECONOMIC RISK
Because the fund invests primarily in municipal securities issued by the state
of Minnesota and its political subdivisions, the fund will be particularly
affected by political and economic conditions and developments in that state.
See the Statement of Additional Information for details. The value of municipal
securities owned by the fund also may be adversely affected by future changes in
federal or state income tax laws, including rate reductions or the imposition of
a flat tax.
RISKS OF NON-DIVERSIFICATION
The fund is non-diversified. This means that it may invest a larger portion of
its assets in a limited number of issuers than a diversified fund. Because a
relatively high percentage of the fund's assets may be invested in the
securities of a limited number of issuers, the fund may be more susceptible to
any single economic, political or regulatory occurrence than a diversified fund.
17 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
FUND PERFORMANCE
Illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, how the fund has performed in the past
does not necessarily indicate how it will perform in the future.
The bar chart shows you how performance of the fund's Class A shares has varied
from year to year. The performance of Class C shares will be lower due to their
higher expenses. Sales charges are not reflected in the chart; if they had been,
returns would be lower.
The table compares the fund's performance for Class A shares over different time
periods to that of the fund's benchmark index, which is a broad measure of
market performance. However, because Class C shares have not been offered for a
full calendar year, no information is presented for these shares. The fund's
performance reflects sales charges and fund expenses; the benchmark is unmanaged
and has no expenses.
Both the chart and the table assume that all distributions have been reinvested.
18 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
FUND SUMMARIES
MINNESOTA TAX FREE FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR(1)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6.40% 10.97% 8.14% 11.97% -5.47% 19.37% 2.73% 8.77% 6.40%
- ----------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
</TABLE>
BEST QUARTER:
Quarter ending: 3/31/95
Total Return 7.83%
WORST QUARTER:
Quarter ending: 3/31/94
Total Return -4.94%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
AS OF 12/31/99(1) Inception Dates One Year Five Years Ten Years
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Minnesota Tax Free Fund (Class A) 7/11/88 ____% ____% ____%
- ------------------------------------------------------------------------------------------------------
Lehman Brothers Municipal Bond Index(2) ____% ____% ____%
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) On 7/31/98, the Minnesota Tax Free Fund became the successor by merger to
the Piper Minnesota Tax-Exempt Fund, a series of Piper Funds, Inc. Prior to the
merger, the First American Fund had no assets or liabilities. Performance
presented prior to 7/31/98 represents that of the Piper Minnesota Tax-Exempt
Fund.
(2) An unmanaged index comprised of fixed rate, investment grade tax-exempt
bonds with remaining maturities of one year of more.
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
19 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES Class A Class C
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MAXIMUM SALES CHARGE (LOAD)
AS A % OF OFFERING PRICE 2.50%(2) 1.00%
MAXIMUM DEFERRED SALES CHARGE (LOAD)
AS A % OF ORIGINAL PURCHASE PRICE OR REDEMPTION
PROCEEDS, WHICHEVER IS LESS 0.00%(3) 1.00%
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------------------------------------
Management Fees 0.70% 0.70%
Distribution and Service (12b-1) Fees 0.25% 1.00%
Other Expenses ____% ____%
TOTAL ____% ____%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor and the distributor. See
"Additional Information -- Financial Highlights." The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 1999 were:
<TABLE>
<S> <C> <C>
Waiver of Fund Expenses (____%) (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____% ____%
</TABLE>
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 0.95% AND 1.35%, RESPECTIVELY, FOR CLASS A
AND CLASS C SHARES. FEE WAIVERS MAY BE DISCONTINUED AT ANY TIME.
(2) Certain investors may qualify for reduced sales charges. See "Buying Shares
- -- Calculating Your Share Price."
(3) Class A share investments of $1 million or more on which no front-end sales
charge is paid may be subject to a contingent deferred sales charge. See "Buying
Shares -- Calculating Your Share Price."
20 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
CLASS C CLASS C
assuming assuming no
redemption redemption
at end of at end of
CLASS A each period each period
- --------------------------------------------------------------------------------
1 year $ 356 $ 383 $ 283
3 years $ 582 $ 667 $ 667
5 years $ 825 $ 1,075 $ 1,075
10 years $ 1,523 $ 2,216 $ 2,216
21 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
FUND SUMMARIES
TAX FREE FUND
OBJECTIVE
Tax Free Fund has an objective of providing maximum current income that is
exempt from federal income tax to the extent consistent with prudent investment
risk.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Tax Free Fund invests at least 80% of its net
assets in municipal securities that pay interest that is exempt from federal
income tax, including the federal alternative minimum tax. The fund normally may
invest up to 20% of its net assets in taxable obligations, including obligations
subject to the federal alternative minimum tax. The fund may invest in:
o "general obligation" bonds, which are backed by the full faith, credit and
taxing power of the issuer;
o "revenue" bonds, which are payable only from the revenues generated by a
specific project or from another specific revenue source;
o participation interests in municipal leases;
o zero coupon municipal securities, which pay no cash income to their holders
until they mature; and
o inverse floating rate municipal securities (up to 10% of the fund's total
assets).
In selecting securities for the fund, fund managers first determine their
economic outlook and the direction in which inflation and interest rates are
expected to move. In selecting individual securities consistent with this
outlook, fund managers evaluate factors such as credit quality, yield, maturity,
liquidity and portfolio and geographical diversification.
The fund only invests in securities that, at the time of purchase, are either
rated investment grade or are unrated and determined to be of comparable quality
by the fund's advisor. Unrated securities will not exceed 25% of the fund's
total assets (not including unrated securities that have been pre-refunded with
U.S. Government securities and U.S. Government agency securities).
The fund will attempt to maintain the weighted average maturity of its portfolio
securities at 10 to 25 years under normal market conditions.
22 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
MAIN RISKS
The price and yield of this fund will change daily due to changes in interest
rates and other factors, which means you could lose money. The main risks of
investing in this fund include:
INTEREST RATE RISK
Debt securities typically decrease in value when interest rates rise. This risk
is usually greater for longer-term debt securities. Inverse floating rate
municipal securities may be highly volatile as interest rates rise or fall.
INCOME RISK
The fund's income could decline due to falling market interest rates.
CREDIT RISK
An issuer of debt securities may not make timely principal or interest payments
on its securities. The revenue bonds and municipal lease obligations in which
the fund invests may entail greater credit risk than the fund's investments in
general obligation bonds.
CALL RISK
Some municipal securities held by the fund may be redeemed by the issuer, or
"called," prior to their stated maturity dates. If a security is redeemed during
a time of declining interest rates, the fund may be unable to reinvest in
securities providing as high a level of income.
RISKS OF MUNICIPAL LEASE OBLIGATIONS
Many municipal leases and contracts contain "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.
POLITICAL AND ECONOMIC CONDITIONS
The value of municipal securities owned by the fund may be adversely affected by
state and local political and economic conditions and developments, or by future
changes in federal or state income tax laws, including rate reductions or the
imposition of a flat tax.
FUND PERFORMANCE
Illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, how the fund has performed in the past
does not necessarily indicate how it will perform in the future.
23 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
The bar chart shows you how performance of the fund's Class A shares has varied
from year to year. The performance of Class C shares will be lower due to their
higher expenses. Sales charges are not reflected in the chart; if they had been,
returns would be lower.
The table compares the fund's performance for Class A shares over different time
periods to that of the fund's benchmark index, which is a broad measure of
market performance. However, because Class C shares have not been offered for a
full calendar year, no information is presented for these shares. The fund's
performance reflects sales charges and fund expenses; the benchmark is unmanaged
and has no expenses.
Both the chart and the table assume that all distributions have been reinvested.
24 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
FUND SUMMARIES
TAX FREE FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR(1)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
7.24% 12.03% 8.58% 14.55% -8.46% 18.54% 3.45% 9.04% 5.93%
- ----------------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
</TABLE>
BEST QUARTER:
Quarter ending: 3/31/95
Total Return 7.99%
WORST QUARTER:
Quarter ending: 3/31/94
Total Return -7.65%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Ten
AS OF 12/31/99(1) Inception Dates One Year Five Years Years
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax Free Fund (Class A) 7/11/88 ____% ____% ____%
- -------------------------------------------------------------------------------------------------------
Lehman Brothers Municipal Bond Index(2) ____% ____% ____%
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) On 7/31/98, the Tax Free Fund became the successor by merger to the Piper
National Tax-Exempt Fund, a series of Piper Funds, Inc. Prior to the merger, the
First American Fund had no assets or liabilities. Performance presented prior to
7/31/98 represents that of the Piper National Tax-Exempt Fund.
(2) An unmanaged index comprised of fixed rate, investment grade tax-exempt
bonds with remaining maturities of one year or more.
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
25 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES Class A Class C
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MAXIMUM SALES CHARGE (LOAD)
AS A % OF OFFERING PRICE 2.50%(2) 1.00%
MAXIMUM DEFERRED SALES CHARGE (LOAD)
AS A % OF ORIGINAL PURCHASE PRICE OR REDEMPTION
PROCEEDS, WHICHEVER IS LESS 0.00%(3) 1.00%
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------------------------------
Management Fees 0.70% 0.70%
Distribution and Service (12b-1) Fees 0.25% 1.00%
Other Expenses ____% ____%
TOTAL ____% ____%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor and the distributor. See
"Additional Information -- Financial Highlights." The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 1999 were:
<TABLE>
<S> <C> <C>
Waiver of Fund Expenses (____%) (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____% ____%
</TABLE>
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 0.95% AND 1.35%, RESPECTIVELY, FOR CLASS A
AND CLASS C SHARES. FEE WAIVERS MAY BE DISCONTINUED AT ANY TIME.
(2) Certain investors may qualify for reduced sales charges. See "Buying Shares
- - Calculating Your Share Price."
(3) Investments of $1 million or more on which no front-end sales charge is paid
may be subject to a contingent deferred sales charge. See "Buying Shares --
Calculating Your Share Price."
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
26 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
CLASS C CLASS C
assuming assuming no
redemption redemption
at end of at end of
CLASS A each period each period
- --------------------------------------------------------------------------------
1 year $ 365 $ 392 $ 292
3 years $ 609 $ 694 $ 694
5 years $ 872 $ 1,121 $ 1,121
10 years $ 1,624 $ 2,310 $ 2,310
27 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
POLICIES & SERVICES
BUYING SHARES
You may become a shareholder in any of the funds with an initial investment of
$1,000 or more ($250 for a retirement plan or a Uniform Gifts to Minors
Act/Uniform Transfers to Minors Act (UGMA/UTMA) account). Additional investments
can be made for as little as $100 ($25 for a retirement plan or an UGMA/UTMA
account). The funds have the right to waive these minimum investment
requirements for employees of the funds' advisor and its affiliates. The funds
also have the right to reject any purchase order.
CHOOSING A SHARE CLASS
Each class has its own cost structure. The amount of your purchase and the
length of time you expect to hold your shares will be factors in determining
which class of shares is best for you.
CLASS A SHARES
If you are making an investment that qualifies for a reduced sales charge, Class
A shares may be best for you. Class A shares feature:
o a front-end sales charge, described below.
o lower annual expenses than Class C shares. See "Fund Summaries" for more
information on fees and expenses.
Because Class A shares will normally be the better choice if your investment
qualifies for a reduced sales charge:
o orders for Class C shares for $1 million or more normally will be treated
as orders for Class A shares.
o orders for Class C shares by an investor eligible to purchase Class A
shares without a front-end sales charge normally will be treated as orders
for Class A shares.
CLASS C SHARES
Class C shares have a low front-end sales charge of 1%, so more of your
investment goes to work immediately than if you had purchased Class A shares.
However, Class C shares also feature:
o a 1% contingent deferred sales charge if you redeem your shares within 18
months of purchase.
o higher annual expenses than Class A shares. (See "Fees and Expenses" in the
"Fund Summaries" section.)
o no conversion to Class A shares.
28 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
Because Class C shares do not convert to Class A shares, they will continue to
have higher annual expenses than Class A shares.
12b-1 FEES
Each fund has adopted a plan under rule 12b-1 of the Investment Company Act that
allows it to pay the fund's distributor an annual fee for the distribution and
sale of its shares and for services provided to shareholders.
For 12b-1 fees are equal to:
- --------------------------------------------------------------------------------
Class A shares 0.25% of average daily net assets
Class C shares 1% of average daily net assets
Because these fees are paid out of a fund's assets on an ongoing basis, over
time these fees will increase the cost of your investment and may cost you more
than paying other types of sales charges.
The Class A share 12b-1 fee is a shareholder servicing fee. For Class C shares,
a portion of the 12b-1 fee up to 0.25% of average daily net assets is a
shareholder servicing fee and the rest is a distribution fee. The advisor is
currently waiving 0.10% of the shareholder servicing fee and 0.25% of the
distribution fee. Fee waivers may be discontinued at any time.
The funds' distributor uses the shareholder servicing fee to compensate brokers,
participating institutions and "one-stop" mutual fund networks for providing
ongoing services to shareholder accounts. These institutions receive annual fees
equal to 0.25% of a fund's Class A share average daily net assets and 0.15% of a
fund Class C share average daily net assets attributable to shares sold through
such institutions. However, if an institution sells Class A shares at net asset
value and receives a commission on that sale, the institution does not begin to
receive its annual fee until one year after the shares are sold. The funds'
distributor also pays institutions which sell Class C shares a 0.50% annual
distribution fee beginning one year after the shares are sold. The distributor
may pay additional fees to institutions using the sales charges it receives, in
exchange for sales and/or administrative services performed on behalf of the
institution's customers.
CALCULATING YOUR SHARE PRICE
Your purchase price will be based on the fund's net asset value (NAV) per share,
which is generally calculated as of the close of regular trading on the New York
Stock Exchange (usually 3 p.m. Central time) every day the exchange is open.
29 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
A fund's NAV is equal to the market value of its investments and other assets,
less any liabilities, divided by the number of fund shares. If market prices are
not readily available for an investment or if the advisor believes they are
unreliable, fair value prices may be determined in good faith using methods
approved by the funds' board of directors.
CLASS A SHARES
Your purchase price is typically the net asset value of your shares, plus a
front-end sales charge. Sales charges vary depending on the amount of your
purchase. The funds' distributor receives the sales charge you pay and reallows
a portion of the sales charge to your broker or participating institution.
Sales Charge
Maximum
Reallowance
As a % of As a % of as a % of
Offering Net Asset Purchase
Price Value Price
- --------------------------------------------------------------------------------
Less than $ 50,000 2.50% 2.56% 2.25%
$ 50,000 - $ 99,999 2.00% 2.04% 1.75%
$100,000 - $249,999 1.50% 1.52% 1.25%
$250,000 - $499,999 1.00% 1.01% 0.75%
$500,000 - $999,999 0.75% 0.76% 0.50%
$1 million and over 0.00% 0.00% 0.00%
REDUCING YOUR SALES CHARGE
As shown in the preceding tables, larger purchases of Class A shares reduce the
percentage sales charge you pay. You also may reduce your sales charge in the
following ways:
PRIOR PURCHASES. Prior purchases of Class A shares of any First American fund
(except a money market fund) will be factored into your sales charge
calculation. For example, let's say you're making a $10,000 investment. If the
current value of all other First American fund Class A shares that you hold is
$40,000 or more, your current sales charge is reduced. To receive a reduced
sales charge, you must notify the funds' transfer agent of your prior purchases.
This must be done at the time of purchase, either directly to the transfer agent
in writing or by notifying your broker or financial institution.
30 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
PURCHASES BY RELATED ACCOUNTS. Concurrent and prior purchases of Class A shares
by certain other accounts also will be combined to determine your sales charge.
For example, purchases made by your spouse or children under age 21 will reduce
your sales charge. To receive a reduced sales charge, you must notify the funds'
transfer agent of purchases by any related accounts. This must be done at the
time of purchase, either directly to the transfer agent in writing or by
notifying your broker or financial institution.
LETTER OF INTENT. If you plan to invest $50,000 or more over a 13-month period
in Class A shares of any First American fund except the money market funds, you
may reduce your sales charge by signing a non-binding letter of intent. (If you
do not fulfill the letter of intent, you must pay the applicable sales charge.
In addition, if you reduce your sales charge to zero under a letter of intent
and then sell your Class A shares within 18 months of their purchase, you may be
charged a contingent deferred sales charge of 1%. (See "For Investments of Over
$1 Million.")
More information on these ways to reduce your sales charge appears in the
Statement of Additional Information (SAI). The SAI also contains information on
investors who are eligible to purchase Class A shares without a sales charge.
FOR INVESTMENTS OF OVER $1 MILLION
There is no initial sales charge on Class A share purchases of $1 million or
more. However, your broker or financial institution may receive a commission of
up to 1% on your purchase. If such a commission is paid, you will be assessed a
contingent deferred sales charge (CDSC) of 1% if you sell your shares within 18
months. The funds' distributor receives any CDSC imposed when you sell your
Class A shares. The CDSC is based on the value of your shares at the time of
purchase or at the time of sale, whichever is less. The charge does not apply to
shares you acquired by reinvesting your dividend or capital gain distribution.
To help lower your costs, shares that are not subject to a CDSC will be sold
first. Other shares to a CDSC will be sold first. Other shares will then be sold
in an order that minimizes your CDSC. The CDSC for Class A shares will be waived
for:
o redemptions following the death or disability of a shareholder, and
o redemptions that equal the minimum required distribution from an individual
retirement account or other retirement plan to a shareholder who has
reached the age of 70-1/2.
CLASS C SHARES
Your purchase price for Class C shares is their net asset value plus a front-end
sales charge equal to 1% of the purchase price (1.01% of the net amount
invested). If you redeem your shares within 18 months of purchase, you will be
assessed a contingent deferred sales charge (CDSC) of 1% of the value of your
shares at the time of purchase or at the time of sale, whichever is less. The
CDSC does not apply to shares you acquired by reinvesting your dividend or
capital gain distributions. Shares will be sold in the order that minimizes your
CDSC.
31 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
Even though your sales charge is only 1%, the funds' distributor pays a
commission equal to 2% of your purchase price to your broker or participating
institution. The distributor receives any CDSC imposed when you sell your Class
C shares.
The CDSC for Class C shares will be waived for:
o redemptions following the death or disability (as defined in the Internal
Revenue Code) of a shareholder.
o redemptions that equal the minimum required distribution from an individual
retirement account or other retirement plan to a shareholder who has
reached the age of 70-1/2.
o redemptions through a systematic withdrawal plan, at a rate of up to 12% a
year of your account's value. During the first year, the 12% annual limit
will be based on the value of your account on the date the plan is
established. Thereafter, it will be based on the value of your account on
the preceding December 31.
o Class C shares do not convert to Class A shares after a specified period of
time. Therefore, your shares will continue to have higher annual expenses
than Class A shares.
HOW TO BUY SHARES
You may buy shares on any day the New York Stock Exchange is open. However,
purchases of shares may be restricted in the event of an early or unscheduled
close of the New York Stock Exchange. Your shares will be priced at the next NAV
calculated after your order is accepted by the fund, plus any applicable sales
charge. To make sure that your order is accepted, follow the directions for
purchasing shares given below.
BY PHONE
You may purchase shares by calling your broker or financial institution, if they
have a sales agreement with the funds' distributor. In many cases, your order
will be effective that day if received by your broker or financial institution
by the close of regular trading on the New York Stock Exchange. In some cases,
however, you will have to transmit your request by an earlier time in order for
your purchase request to be effective that day. This allows your broker or
financial institution time to process your request and transmit it to the fund.
Some financial institutions may charge a fee for helping you purchase shares.
Contact your broker or financial institution for more information.
If you are paying by wire, you may purchase shares by calling 1-800-637-2548
before 3 p.m. Central time. All information will be taken over the telephone,
and your order will be placed when the funds' custodian receives payment by
wire. Wire federal funds as follows:
32 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
U.S. Bank National Association, Minneapolis, MN
ABA Number 091000022
For Credit to: DST Systems, Inc.:
Account Number 160234580266
For Further Credit to (investor name and fund name)
You cannot purchase shares by wire on days when federally chartered banks are
closed.
BY MAIL
To purchase shares by mail, simply complete and sign a new account form, enclose
a check made payable to the fund you wish to invest in, and mail both to:
First American Funds
c/o DST Systems, Inc.
P.O. Box 219382
Kansas City, Missouri 64121-9382
After you have established an account, you may continue to purchase shares by
mailing your check to First American Funds at the same address.
Please note the following:
o All purchases must be made in U.S. dollars.
o THIRD-PARTY CHECKS, CREDIT CARDS, CREDIT CARD CHECKS AND CASH ARE NOT
ACCEPTED.
o If a check does not clear your bank, the funds reserve the right to cancel
the purchase, and you could be liable for any losses or fees incurred.
INVESTING AUTOMATICALLY
To purchase shares as part of a savings discipline, you may add to your
investment on a regular basis:
o by having $100 or more ($25 for a retirement plan or an UGMA/UTMA account)
automatically withdrawn from your checking account on a periodic basis and
invested in fund shares.
o through automatic monthly exchanges of your shares of Prime Obligations
Fund, a money market fund in the First American family of funds. Exchanges
must be made into the same class of shares that you hold in Prime
Obligations Fund.
You may apply for participation in either of these programs through your broker
or financial institution or by calling 1-800-637-2548.
33 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
POLICIES & SERVICES
SELLING SHARES
HOW TO SELL SHARES
You may sell your shares on any day when the New York Stock Exchange is open.
However redemption of shares may be restricted in the event of an early or
unscheduled close of the New York Stock Exchange. Your shares will be sold at
the next NAV calculated after your order is accepted by the fund, less any
applicable contingent deferred sales charge. To make sure that your order is
accepted, follow the directions for selling shares given below.
The proceeds from your sale normally will be mailed or wired within one day, but
in no event more than seven days, after your request is received in proper form.
BY PHONE
If you purchased shares through a broker or financial institution, simply call
them to sell your shares. In many cases, your redemption will be effective that
day if received by your broker or financial institution by the close of regular
trading on the New York Stock Exchange. In some cases, however, you will have to
call by an earlier time in order for your redemption to be effective that day.
This allows your broker or financial institution time to process your request
and transmit it to the fund. Contact your broker or financial institution
directly for more information.
If you did not purchase shares through a broker or financial institution, you
may sell your shares by calling 1-800-637-2548. Proceeds can be wired to your
bank account (if the proceeds are at least $1,000 and you have previously
supplied your bank account information to the transfer agent) or sent to you by
check.
If you recently purchased your shares by check or through the Automated Clearing
House (ACH), proceeds from the sale of those shares may not be available until
your check or ACH payment has cleared, which may take up to 10 calendar days
from the date of purchase.
BY MAIL
To sell shares by mail, send a written request to your broker or financial
institution, or to the funds' transfer agent at the following address:
First American Funds
c/o DST Systems, Inc.
P.O. Box 219382
Kansas City, Missouri 64121-9382
34 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
Your request should include the following information:
o name of the fund;
o account number;
o dollar amount or number of shares redeemed;
o name on the account; and
o signatures of all registered account owners.
Signatures on a written request must be guaranteed if:
o you would like the proceeds from the sale to be paid to anyone other than
to the shareholder of record.
o you would like the check mailed to an address other than the address on the
funds' records.
o your redemption request is for $50,000 or more.
A signature guarantee assures that a signature is genuine and protects
shareholders from unauthorized account transfers. Banks, savings and loan
associations, trust companies, credit unions, broker-dealers and member firms of
a national securities exchange may guarantee signatures. Call your financial
institution to determine if it has this capability.
Proceeds from a written redemption request will be sent to you by check.
SYSTEMATIC WITHDRAWALS
If your account has a value of $5,000 or more, you may redeem a specific dollar
amount from your account on a regular basis. To set up systematic withdrawals,
contact your broker or financial institution.
You should not make systematic withdrawals if you plan to continue investing in
the fund, due to sales charges and tax liabilities.
REINVESTING AFTER A SALE
If you sell Class A shares, you may reinvest in Class A shares of that fund or
another First American fund within 180 days without a sales charge. To reinvest
in Class A shares at net asset value (without paying a sales charge), you must
notify the transfer agent directly in writing or notify your broker or financial
institution.
35 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
ACCOUNTS WITH LOW BALANCES
Except for retirement plans and UGMA/UTMA accounts, if your account balance
falls below $500 as a result of selling or exchanging shares, you may receive
written notice and be given 30 days to re-establish the minimum balance. If you
do not, the fund may close your account and send you the proceeds, less any
applicable contingent deferred sales charge, or deduct a $25 annual fee in
December of each year if your account balance at that time is below $500.
36 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
POLICIES & SERVICES
MANAGING YOUR INVESTMENT
EXCHANGING SHARES
If your investment goals or your financial needs change, you may move from one
First American fund to another. There is no fee to exchange shares.
Generally, you may exchange your shares only for shares of the same class.
However, you may exchange your Class A shares for Class Y shares of the same or
another First American fund if you subsequently become eligible to participate
in that class (for example, by opening a fiduciary, custody or agency account
with a financial institution which invests in Class Y shares.
Exchanges are made based on the net asset value per share of each fund at the
time of the exchange. When you exchange your Class A shares of one of the funds
for Class A shares of another First American fund, you do not have to pay a
sales charge. When you exchange your Class C shares for Class C shares of
another First American fund, the time you held the shares of the "old" fund will
be added to the time you hold the shares of the "new" fund for purposes of
determining your CDSC.
Before exchanging into any fund, be sure to read its prospectus carefully. A
fund may change or cancel its exchange policies at any time. You will be
notified of any changes. The funds have the right to limit exchanges to four
times per year.
BY PHONE
You may exchange shares by calling your broker, your financial institution, or
the funds' transfer agent, provided that both funds have identical shareholder
registrations. To request an exchange through the funds' transfer agent, call
1-800-637-2548. Your instructions must be received by the funds' transfer agent
before 3 p.m. Central time, or by the time specified by your broker or financial
institution, in order for shares to be exchanged the same day.
BY MAIL
To exchange shares by written request, please follow the procedures under
"Selling Shares." Be sure to include the names of both funds involved in the
exchange.
TELEPHONE TRANSACTIONS
You may buy, sell or exchange shares by telephone, unless you elected on your
new account form to restrict this privilege. If you wish to reinstate this
option on an existing account, please call Investor Services at 1-800-637-2548
to request the appropriate form.
37 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
The funds and their agents will not be responsible for any losses that may
result from acting on wire or telephone instructions that they reasonably
believe to be genuine. The funds and their agents will each follow reasonable
procedures to confirm that instructions received by telephone are genuine, which
may include taping telephone conversations.
It may be difficult to reach the funds by telephone during periods of unusual
market activity. If you are unable to reach the funds or their agents by
telephone, please consider sending written instructions.
STAYING INFORMED
SHAREHOLDER REPORTS
Shareholder reports are mailed twice a year, in November and May. They include
financial statements, performance information, a message from your portfolio
managers, and, on an annual basis, the auditors' report.
In an attempt to reduce shareholder costs and help eliminate duplication, the
funds will try to limit their mailings to one report for each address that lists
one or more shareholders with the same last name. If you would like additional
copies, please call 1-800-637-2548.
STATEMENTS AND CONFIRMATIONS
Statements summarizing activity in your account are mailed at least quarterly.
Confirmations are mailed following each purchase or sale of fund shares.
DIVIDENDS AND DISTRIBUTIONS
Dividends from a fund's net investment income are declared and paid monthly. Any
capital gains are distributed at least once each year.
On the ex-dividend date for a distribution, a fund's share price is reduced by
the amount of the distribution. If you buy shares just before the ex-dividend
date, in effect, you "buy the dividend." You will pay the full price for the
shares and then receive a portion of that price back as a distribution, all or a
portion of which may be taxable (to the same extent the distribution is
otherwise taxable to fund shareholders).
Dividend and capital gain distributions will be reinvested in additional shares
of the fund paying the distribution, unless you request that distributions be
reinvested in another First American fund or paid in cash. This request may be
made on your new account form or by writing to the fund. If you request that
your distributions be paid in cash but those distributions cannot be delivered
because of an incorrect mailing address, the undelivered distributions and all
future distributions will be reinvested in fund shares.
38 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
TAXES
Some of the tax consequences of investing in the funds are discussed below. More
information about taxes is in the Statement of Additional Information. However,
because everyone's tax situation is unique, always consult your tax professional
about federal, state and local tax consequences.
TAXES ON DISTRIBUTIONS
Each fund intends to meet certain federal tax requirements so that distributions
of tax-exempt interest income may be treated as "exempt-interest dividends."
These dividends are not subject to regular federal income tax. However, each
fund may invest up to 20% of its net assets in municipal securities subject to
the alternative minimum tax. Any portion of exempt-interest dividends
attributable to interest on these securities may increase some shareholders'
alternative minimum tax. The funds expect that their distributions will consist
primarily of exempt-interest dividends. Tax Free Fund's exempt-interest
dividends may be subject to state or local taxes.
Distributions paid from any interest income that is not tax-exempt and from any
net realized capital gains will be taxable whether you reinvest those
distributions or take them in cash. Distributions of a fund's net capital gains
are taxable as long-term capital gains, regardless of how long you have held
your shares.
TAXES ON TRANSACTIONS
The sale of fund shares, or the exchange of one fund's shares for shares of
another fund, will be a taxable event and may result in a capital gain or loss.
The gain or loss will be considered long-term if you have held your shares for
more than one year. A gain or loss on shares held for one year or less is
considered short-term and is taxed at the same rates as ordinary income.
The exchange of one class of shares for another class of shares in the same fund
will not be taxable.
ARIZONA INCOME TAXATION
Dividends paid by Arizona Tax Free Fund will be exempt from Arizona income taxes
for individuals, trust, estates and corporations to the extent they are derived
from interest on Arizona municipal securities.
CALIFORNIA INCOME TAXATION
California Tax Free Fund intends to comply with certain state tax requirements
so that dividends it pays that are attributable to interest on California
municipal securities will be excluded from the California taxable income of
individuals, trusts and estates. To meet these requirements, at least 50% of the
value of the fund's total assets must consist of obligations which pay interest
that is exempt from California personal income tax. Exempt-interest dividends
are not excluded from the California taxable income of corporations and
financial institutions. In addition, dividends derived from interest paid on
California municipal bonds (including securities treated for federal purposes as
private activity bonds) will not be subject to the alternative minimum tax that
California imposes on individuals, trusts and estates.
39 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
COLORADO INCOME TAXATION
Dividends paid by Colorado Tax Free Fund will be exempt from Colorado income
taxes for individuals, trusts, estates and corporations to the extent that they
are derived from interest on Colorado municipal securities. In addition,
dividends derived from interest on Colorado municipal securities (including
securities treated for federal purposes as private activity bonds) will not be
subject to the alternative minimum tax that Colorado imposes on individuals,
trusts and estates.
MINNESOTA INCOME TAXATION
Minnesota Tax Free Fund intends to comply with certain state tax requirements so
that dividends it pays that are attributable to interest on Minnesota municipal
securities will be excluded from the Minnesota taxable net income of
individuals, estates and trusts. To meet these requirements, at least 95% of the
exempt-interest dividends paid by the fund must be derived from interest income
on Minnesota municipal securities. A portion of the fund's dividends may be
subject to the Minnesota alternative minimum tax. Exempt-interest dividends are
not excluded from the Minnesota taxable income of corporations and financial
institutions.
40 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
ADDITIONAL INFORMATION
MANAGEMENT
INVESTMENT ADVISOR
First American Asset Management
601 Second Avenue South
Minneapolis, Minnesota 55402
U.S. Bank National Association (U.S. Bank), acting through its First American
Asset Management division, is the funds' investment advisor. First American
Asset Management provides investment management services to individuals and
institutions, including corporations, foundations, pensions and retirement
plans. As of December 31, 1999, it had more than $_____ billion in assets under
management, including investment company assets of approximately $_____ billion.
As investment advisor, First American Asset Management manages the funds'
business and investment activities, subject to the authority of the board of
directors. Each fund pays the investment advisor a monthly fee for providing
investment advisory services. During their most recent fiscal years, after
taking into account fee waivers, the funds paid the following investment
advisory fees to First American Asset Management:
Advisory fee
as a % of
average daily
net assets
- --------------------------------------------------------------------------------
Arizona Tax Free Fund(1) _________%
California Tax Free Fund(1) _________%
Colorado Tax Free Fund(1) _________%
Minnesota Tax Free Fund _________%
Tax Free Fund _________%
- --------------------------------------------------------------------------------
(1) Arizona Tax Free Fund, California Tax Free Fund and Colorado Tax Free Fund
commenced operations as of the date of this prospectus. The contractual fee rate
is shown in the table.
CUSTODIAN
U.S. Bank National Association
U.S. Bank Center
180 East Fifth Street
St. Paul, Minnesota 55101
41 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
ADMINISTRATOR
U.S Bank National Association
U.S. Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402
DISTRIBUTOR
SEI Investments Distribution Co.
Oaks, Pennsylvania 19456
ADDITIONAL COMPENSATION
U.S. Bank and other affiliates of U.S. Bancorp may act as fiduciary with respect
to plans subject to the Employee Retirement Income Security Act of 1974 (ERISA)
and other trust and agency accounts that invest in the funds. As described
above, U.S. Bank receives compensation for acting as the funds' investment
advisor. U.S. Bank and its affiliates also receive compensation in connection
with the following:
CUSTODY SERVICES. U.S. Bank provides or compensates others to provide custody
services to the funds. U.S. Bank is paid monthly fees equal, on an annual basis,
to 0.03% of a fund's average daily net assets. In addition, U.S. Bank is
reimbursed for its out-of-pocket expenses incurred while providing custody
services to the funds.
ADMINISTRATION SERVICES. U.S. Bank provides or compensates others to provide
administrative services to the funds including general administrative and
accounting services, transfer agency and dividend disbursing services, and
shareholder services. The funds pay U.S. Bank monthly fees equal, on an annual
basis, to 0.12% of the aggregate average daily net assets of all open-end mutual
funds in the First American fund family up to $8 billion and 0.105% of the
aggregate average daily net assets of all open-end mutual funds in the First
American fund family in excess of $8 billion. Additionally, the funds pay U.S.
Bank fees based upon the number of funds and accounts maintained.
SECURITIES LENDING SERVICES. In connection with lending their portfolio
securities, the funds pay administrative and custodial fees to U.S. Bank which
are equal to 40% of the funds' income from these securities lending
transactions.
BROKERAGE TRANSACTIONS. The funds purchase most of their portfolio securities
directly from the issuer or from an underwriter or market maker, and not from a
broker acting as agent. However, the funds may from time to time use brokers
when buying portfolio securities. The funds' investment advisor may place trades
through its affiliates, U.S. Bancorp Investments, Inc. and U.S. Bancorp Piper
Jaffray Inc., which will earn commissions on such transactions.
SALES OF FUND SHARES. U.S. Bancorp Investments, Inc. and U.S. Bancorp Piper
Jaffray Inc., broker-dealers affiliated with U.S. Bank, have entered into
agreements with the funds' distributor to sell fund shares and will earn annual
shareholder servicing fees in connection with these sales.
PORTFOLIO MANAGEMENT
Each fund's investments are managed by a team of persons associated with First
American Asset Management.
42 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
ADDITIONAL INFORMATION
MORE ABOUT THE FUNDS
OBJECTIVES
The Funds' objectives, which are described in the "Fund Summaries" section, may
be changed without shareholder approval. If a fund's objectives change, you will
be notified at least 30 days in advance. Please remember: There is no guarantee
that any fund will achieve its objectives.
INVESTMENT STRATEGIES
The funds' main investment strategies are discussed in the "Fund Summaries"
section. These are the strategies that the funds' investment advisor believes
are most likely to be important in trying to achieve the funds' objectives. You
should be aware that each fund may also use strategies and invest in securities
that are not described in this prospectus, but that are described in the
Statement of Additional Information (SAI). For a copy of the SAI, call Investor
Services at 1-800-637-2548.
INVESTMENT APPROACH
In selecting securities for the funds, fund managers first determine their
economic outlook and the direction in which inflation and interest rates are
expected to move. In selecting individual securities consistent with this
outlook, the fund managers evaluate factors such as credit quality, yield,
maturity, liquidity and portfolio diversification. In the case of Tax Free Fund,
geographical diversification is also a factor. Fund managers conduct research on
potential and current holdings in the funds to determine whether a fund should
purchase or retain a security. This is a continuing process the focus of which
changes according to market conditions, the availability of various permitted
investments, and cash flows into and out of the funds.
MUNICIPAL SECURITIES
Municipal securities are issued to finance public infrastructure projects such
as streets and highways, schools, water and sewer systems, hospitals, and
airports. They also may be issued to refinance outstanding obligations as well
as to obtain funds for general operating expenses and for loans to other public
institutions and facilities.
The funds may invest in "general obligation" bonds, which are backed by the full
faith, credit and taxing power of the issuer, and in "revenue" bonds, which are
payable only from the revenues generated by a specific project or from another
specific revenue source. 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 government unit to acquire equipment or
facilities. Municipal leases frequently have special risks which generally are
not associated with general obligation bonds or revenue bonds. See "Risks --
Risks of Municipal Lease Obligations" below.
43 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
Up to 10% of each fund's total assets may be invested in inverse floating rate
municipal securities. The values of these securities may be highly volatile as
interest rates rise or fall. See "Risks -- Risks of Inverse Floating Rate
Securities" below.
REFUNDED BONDS
Refunded bonds may have originally been issued as general obligation or revenue
bonds, but become refunded when they are secured by an escrow fund, usually
consisting entirely of direct U.S. government obligations and/or U.S. government
agency obligations.
TEMPORARY INVESTMENTS
In an attempt to respond to adverse market, economic, political or other
conditions, each fund may temporarily invest without limit in cash and in U.S.
dollar-denominated high-quality money market instruments and other short-term
securities, including securities which pay income that is subject to federal and
state income tax. These investments may include money market funds advised by
the funds' advisor. Because these investments may be taxable, and may result in
a lower yield than would be available from investments with a lower quality or
longer term, they may prevent a fund from achieving its investment objective.
PORTFOLIO TURNOVER
Fund managers may trade securities frequently, resulting, from time to time, in
an annual portfolio turnover rate of over 100%. Trading of securities may
produce capital gains, which are taxable to shareholders when distributed.
Active trading may also increase the amount of commissions or mark-ups to
broker-dealers that the fund pays when it buys and sells securities. The
"Financial Highlights" section of this prospectus shows each fund's historical
portfolio turnover rate.
RISKS
The main risks of investing in the funds are summarized in the "Fund Summaries"
section. More information about fund risks is presented below.
INTEREST RATE RISK
Debt securities in the funds will fluctuate in value with changes in interest
rates. In general, debt securities will increase in value when interest rates
fall and decrease in value when interest rates rise. Longer-term debt securities
are generally more sensitive to interest rate changes. Each fund may invest in
zero coupon securities, which do not pay interest on a current basis and which
may be highly volatile as interest rates rise or fall. The funds' investments in
inverse floating rate municipal securities also may be highly volatile with
changing interest rates. See "Risks of Inverse Floating Rate Securities" below.
44 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
INCOME RISK
The fund's income could decline due to falling market interest rates. This is
because, in a falling interest rate environment, the fund generally will have to
invest the proceeds from sales of fund shares, as well as the proceeds from
maturing portfolio securities (or portfolio securities that have been called,
see "Call Risk") in lower-yielding securities.
CREDIT RISK
Each fund is subject to the risk that the issuers of debt securities held by the
fund will not make payments on the securities, or that the other party to a
contract (such as a repurchase agreement) will default on its obligations. There
is also the risk that an issuer could suffer adverse changes in financial
condition that could lower the credit quality of a security. This could lead to
greater volatility in the price of the security and in shares of the fund. Also,
a change in the credit quality rating of a bond could affect the bond's
liquidity and make it more difficult for the fund to sell.
Each fund attempts to minimize credit risk by investing in securities considered
at least investment grade at the time of purchase. However, all of these
securities, especially those in the lower investment grade rating categories,
have credit risk. In adverse economic or other circumstances, issuers of these
lower rated securities are more likely to have difficulty making principal and
interest payments than issuers of higher rated securities. When a fund purchases
unrated securities, it will depend on the advisor\'s analysis of credit risk
more heavily than usual.
CALL RISK
Many municipal bonds may be redeemed at the option of the issuer, or "called,"
before their stated maturity date. In general, an issuer will call its bonds if
they can be refinanced by issuing new bonds which bear a lower interest rate.
The funds are subject to the possibility that during periods of falling interest
rates, a municipal bond issuer will call its high-yielding bonds. A fund would
then be forced to invest the unanticipated proceeds at lower interest rates,
resulting in a decline in the fund's income.
POLITICAL AND ECONOMIC RISK
The values of municipal securities 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
municipal securities 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 revenue of issuers (for example, legislation or court decisions
reducing state aid to local governments or mandating additional services). To
the extent a fund invests in the securities of issuers located in a single
state, it will be disproportionately affected by political and economic
conditions and developments in that state. The value of municipal securities
also may be adversely affected by future changes in federal or state income tax
laws, including rate reductions or the imposition of a flat tax.
45 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
RISKS OF INVERSE FLOATING RATE SECURITIES
Each fund may invest up to 10% of its total assets in inverse floating rate
municipal securities. These securities pay interest at a rate that varies
inversely to changes in the interest rate of specified municipal securities or a
specified index. The interest rate on this type of security will generally
change at a multiple of any change in the reference interest rate. As a result,
the values of these securities may be highly volatile as interest rates rise or
fall.
RISKS OF MUNICIPAL LEASE OBLIGATIONS
Each fund may purchase participation interests in municipal leases. These are
undivided interests in a lease, installment purchase contract or conditional
sale contract entered into by a state or local government unit to acquire
equipment or facilities. Participation interests in municipal leases pose
special risks because many leases and contracts contain "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. Although these kinds of
obligations are secured by the leased equipment or facilities, it might be
difficult and time consuming to dispose of the equipment or facilities in the
event of non-appropriation, and the fund might not recover the full principal
amount of the obligation.
RISKS OF ACTIVE MANAGEMENT
Each fund is actively managed and its performance therefore will reflect in part
the advisor's ability to make investment decisions which are suited to achieving
the fund's investment objectives. Due to their active management, the funds
could underperform other mutual funds with similar investment objectives.
46 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
ADDITIONAL INFORMATION
FINANCIAL HIGHLIGHTS
The tables that follow present performance information about the Class A shares
and Class C shares of Minnesota Tax Free Fund and Tax Free Fund. Arizona Tax
Free Fund, California Tax Free Fund and Colorado Tax Free Fund were not offered
prior to the date of this prospectus. Therefore, no information is presented for
those funds. This information is intended to help you understand each fund's
financial performance for the past five years or, if shorter, the period of the
fund's operations. Some of this information reflects financial results for a
single fund share. Total returns in the tables represent the rate that you would
have earned or lost on an investment in a fund, excluding sales charges and
assuming you reinvested all of your dividends and distributions.
The information for the fiscal year ended September 30, 1999 has been audited by
Ernst & Young LLP, independent auditors, whose report, along with the funds'
financial statements, is included in the funds' annual report, which is
available upon request. The information for the fiscal years ended on or before
September 30, 1998, has been audited by KPMG LLP.
MINNESOTA TAX FREE FUND(1)
<TABLE>
<CAPTION>
Fiscal year ended September 30,
1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $_____ $11.15 $10.89 $10.81 $10.28
---------------------------------------------------------------
Investment Operations:
Net Investment Income ______ 0.57 0.57 0.59 0.66
Net Gains (Losses) on Investments
(both realized and unrealized) ______ 0.36 0.31 0.07 0.53
---------------------------------------------------------------
Total From Investment Operations ______ 0.93 0.88 0.66 1.19
---------------------------------------------------------------
Less Distributions:
Dividends (from Net Investment Income) ______ (0.56) (0.57) (0.58) (0.66)
Distributions (from capital gains) ______ (0.06) (0.05) -- --
---------------------------------------------------------------
Total Distributions ______ (0.62) (0.62) (0.58) (0.66)
---------------------------------------------------------------
Net Asset Value, End of Period ______ $11.46 $11.15 $10.89 $10.81
===============================================================
Total Return ____% 8.58% 8.32% 6.24% 11.38%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $_____ $118,937 $125,659 $125,677 $133,857
Ratio of Expenses to Average Net Assets ____% 0.95% 0.95% 0.90% 0.91%
Ratio of Net Investment Income to Average Net Assets ____% 5.05% 5.17% 5.38% 5.80%
Ratio of Expenses to Average Net Assets (excluding waivers) ____% 1.01% 1.01% 0.99% 0.99%
Ratio of Net Investment Income to Average Net Assets (excluding
waivers) ____% 4.99% 5.11% 5.29% 5.72%
Portfolio Turnover Rate ____% 16% 17% 35% 30%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The financial highlights for the periods prior to July 31, 1998 are those of
Minnesota Tax-Exempt Fund, a series of Piper Funds Inc. This predecessor fund
was reorganized into the fund as of the close of business on July 31, 1998.
47 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
<TABLE>
<CAPTION>
Fiscal period ended September 30,
CLASS C SHARES 1999(1)
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $_____
---------------
Investment Operations:
Net Investment Income ______
Net Gains (Losses) on Investments
(both realized and unrealized) ______
---------------
Total From Investment Operations ______
---------------
Less Distributions:
Dividends (from Net Investment Income) ______
Distributions (from capital gains) ______
---------------
Total Distributions ______
---------------
Net Asset Value, End of Period $_____
===============
Total Return _____%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $_____
Ratio of Expenses to Average Net Assets _____%
Ratio of Net Investment Income to Average Net Assets _____%
Ratio of Expenses to Average Net Assets (excluding waivers) _____%
Ratio of Net Investment Income to Average Net Assets (excluding waivers) _____%
Portfolio Turnover Rate _____%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Class C Shares have been offered since February 1, 1999.
48 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
TAX FREE FUND(1)
<TABLE>
<CAPTION>
Fiscal year ended September 30,
1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $_____ $11.21 $10.81 $10.69 $10.22
--------------------------------------------------------------
Income From Investment Operations:
Net Investment Income ______ 0.55 0.54 0.56 0.60
Net Gains or Losses on Investments
(both realized and unrealized) ______ 0.36 0.42 0.12 0.47
--------------------------------------------------------------
Total From Investment Operations ______ 0.91 0.96 0.68 1.07
--------------------------------------------------------------
Less Distributions:
Dividends (from Net Investment Income) ______ (0.54) (0.54) (0.56) (0.60)
Distributions (from capital gains) ______ (0.05) (0.02) -- --
--------------------------------------------------------------
Total Distributions ______ (0.59) (0.56) (0.56) (0.60)
--------------------------------------------------------------
Net Asset Value, End of Period ______ $11.53 $11.21 $10.81 $10.69
==============================================================
Total Return ____% 8.41% 9.09% 6.42% 10.30%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $_____ $40,351 $49,638 $45,935 $57,061
Ratio of Expenses to Average Net Assets ____% 1.10% 1.11% 1.03% 1.01%
Ratio of Net Investment Income to Average Net Assets ____% 4.84% 4.91% 5.15% 5.37%
Ratio of Expenses to Average Net Assets (excluding waivers) ____% 1.16% 1.17% 1.13% 1.09%
Ratio of Net Investment Income to Average Net Assets (excluding
waivers) ____% 4.78% 4.85% 5.05% 5.29%
Portfolio Turnover Rate ____% 7% 28% 43% 28%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The financial highlights for the periods prior to July 31, 1998 are those of
National Tax-Exempt Fund, a series of Piper Funds Inc. This predecessor fund was
reorganized into the fund as of the close of business on July 31, 1998.
49 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
<TABLE>
<CAPTION>
Fiscal period ended September 30,
CLASS C SHARES 1999(1)
- ------------------------------------------------------------------------------------------------
<S> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $_____
---------------
Investment Operations:
Net Investment Income ______
Net Gains (Losses) on Investments
(both realized and unrealized) ______
---------------
Total From Investment Operations ______
---------------
Less Distributions:
Dividends (from Net Investment Income) ______
Distributions (from capital gains) ______
---------------
Total Distributions ______
---------------
Net Asset Value, End of Period $_____
===============
Total Return _____%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $_____
Ratio of Expenses to Average Net Assets _____%
Ratio of Net Investment Income to Average Net Assets _____%
Ratio of Expenses to Average Net Assets (excluding waivers) _____%
Ratio of Net Investment Income to Average Net Assets (excluding waivers) _____%
Portfolio Turnover Rate _____%
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) Class C Shares have been offered since February 1, 1999.
50 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
FOR MORE INFORMATION
More information about the funds is available in the funds' Statement of
Additional Information and annual and semiannual reports.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI provides more details about the funds and their policies. A current SAI
is on file with the Securities and Exchange Commission (SEC) and is incorporated
into this prospectus by reference (which means that it is legally considered
part of this prospectus).
ANNUAL AND SEMIANNUAL REPORTS
Additional information about the funds' investments is available in the funds'
annual and semiannual reports to shareholders. In the funds' annual report, you
will find a discussion of the market conditions and investment strategies that
significantly affected the funds' performance during their last fiscal year.
You can obtain a free copy of the funds' SAI and/or free copies of the funds'
most recent annual or semiannual reports by calling Investor Services at
1-800-637-2548. The material you request will be sent by first-class mail or
other means designed to ensure equally prompt delivery, within three business
days of receipt of the request.
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, DC, or by sending your request and a duplicating fee to the SEC's
Public Reference Section, Washington, DC 20549-6009. For more information, call
1-800-SEC-0330.
Information about the funds is also available on the Internet. Text-only
versions of fund documents can be viewed online or downloaded from the SEC's
Internet site at http://www.sec.gov.
SEC file number: 811-05309
FAIF-1002 (2/2000)R
51 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class A and Class C Shares
<PAGE>
February 1, 2000
TAX FREE BOND FUNDS
CLASS Y SHARES
Arizona Tax Free Fund
California Tax Free Fund
Colorado Tax Free Fund
Minnesota Tax Free Fund
Tax Free Fund
First American
Investment Funds, Inc.
PROSPECTUS
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the shares of these funds, or determined if the
information in this prospectus is accurate or complete. Any statement to the
contrary is a criminal offense.
FIRST AMERICAN(R)
THE POWER OF DISCIPLINED INVESTING(R)
1 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
TABLE OF
CONTENTS
FUND SUMMARIES
- -------------------------------------------------------------------------
Arizona Tax Free Fund
- -------------------------------------------------------------------------
California Tax Free Fund
- -------------------------------------------------------------------------
Colorado Tax Free Fund
- -------------------------------------------------------------------------
Minnesota Tax Free Fund
- -------------------------------------------------------------------------
Tax Free Fund
- -------------------------------------------------------------------------
POLICIES & SERVICES
- -------------------------------------------------------------------------
Buying and Selling Shares
- -------------------------------------------------------------------------
Managing Your Investment
- -------------------------------------------------------------------------
ADDITIONAL INFORMATION
- -------------------------------------------------------------------------
Management
- -------------------------------------------------------------------------
More About The Funds
- -------------------------------------------------------------------------
Financial Highlights
- -------------------------------------------------------------------------
FOR MORE INFORMATION
- -------------------------------------------------------------------------
2 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
INTRODUCTION
This section of the prospectus describes the objectives of the First American
Tax Free Bond Funds, summarizes the main investment strategies used by each fund
in trying to achieve its objectives, and highlights the risks involved with
these strategies. It also provides you with information about the performance,
fees and expenses of the funds.
AN INVESTMENT IN THE FUNDS IS NOT A DEPOSIT OF U.S. BANK NATIONAL ASSOCIATION
AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR
ANY OTHER GOVERNMENT AGENCY.
3 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
ARIZONA TAX FREE FUND
OBJECTIVE
Arizona Tax Free Fund has an objective of providing maximum current income that
is exempt from both federal income tax and Arizona state income tax to the
extent consistent with prudent investment risk.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Arizona Tax Free Fund invests at least 80% of
its net assets in municipal securities that pay interest that is exempt from
federal and Arizona income tax, including the federal alternative minimum tax.
The fund normally may invest up to 20% of its net assets in taxable obligations,
including obligations the interest on which is subject to the federal
alternative minimum tax. The fund may invest in:
o "general obligation" bonds, which are backed by the full faith, credit and
taxing power of the issuer;
o "revenue" bonds, which are payable only from the revenues generated by a
specific project or from another specific revenue source;
o participation interests in municipal leases;
o zero coupon municipal securities, which pay no cash income to their holders
until they mature; and
o inverse floating rate municipal securities (up to 10% of the fund's total
assets).
In selecting securities for the fund, fund managers first determine their
economic outlook and the direction in which inflation and interest rates are
expected to move. In selecting individual securities consistent with this
outlook, fund managers evaluate factors such as credit quality, yield, maturity,
liquidity and portfolio diversification.
The fund only invests in securities that, at the time of purchase, are either
rated investment grade or are unrated and determined to be of comparable quality
by the fund's advisor. Unrated securities will not exceed 25% of the fund's
total assets (not including unrated securities that have been pre-refunded with
U.S. Government securities and U.S. Government agency securities).
The fund will attempt to maintain the weighted average maturity of its portfolio
securities at 10 to 25 years under normal market conditions.
4 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
MAIN RISKS
The price and yield of this fund will change daily due to changes in interest
rates and other factors, which means you could lose money. The main risks of
investing in this fund include:
INTEREST RATE RISK
Debt securities typically decrease in value when interest rates rise. This risk
is usually greater for longer-term debt securities. Inverse floating rate
securities may be highly volatile as interest rates rise or fall.
INCOME RISK
The fund's income could decline due to falling market interest rates.
CREDIT RISK
An issuer of debt securities may not make timely principal or interest payments
on its securities. The revenue bonds and municipal lease obligations in which
the fund invests may entail greater credit risk than the fund's investments in
general obligation bonds.
CALL RISK
Some municipal securities held by the fund may be redeemed by the issuer, or
"called," prior to their stated maturity dates. If a security is redeemed during
a time of declining interest rates, the fund may be unable to reinvest in
securities providing as high a level of income.
RISKS OF MUNICIPAL LEASE OBLIGATIONS
Many municipal leases and contracts contain "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.
POLITICAL AND ECONOMIC RISK
Because the fund invests primarily in municipal securities issued by the state
of Arizona and its political subdivisions, the fund will be particularly
affected by political and economic conditions and developments in that state.
See the Statement of Additional Information for details. The value of municipal
securities owned by the fund also may be adversely affected by future changes in
federal or state income tax laws, including rate reductions or the imposition of
a flat tax.
RISKS OF NON-DIVERSIFICATION
The fund is non-diversified. This means that it may invest a larger portion of
its assets in a limited number of issuers than a diversified fund. Because a
relatively high percentage of the fund's assets may be invested in the
securities of a limited number of issuers, the fund may be more susceptible to
any single economic, political or regulatory occurrence than a diversified fund.
5 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
FUND PERFORMANCE
Because Arizona Tax Free Fund shares were not offered prior to the date of this
prospectus, no performance information is presented for these shares.
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
SHAREHOLDER FEES
- -----------------------------------------------------------------------------------------
<S> <C>
MAXIMUM SALES CHARGE (LOAD) None
MAXIMUM DEFERRED SALES CHARGE (LOAD) None
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------------
Management Fees 0.70%
Distribution and Service (12b-1) Fees None
Other Expenses(1) ____%
TOTAL(2) ____%
- -----------------------------------------------------------------------------------------
</TABLE>
(1) Other expenses are based on estimated amounts for the current fiscal year.
(2) THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT
TOTAL FUND OPERATING EXPENSES DO NOT EXCEED 0.70%. FEE WAIVERS MAY BE
DISCONTINUED AT ANY TIME.
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
1 year $ 84
3 years $ 262
6 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
CALIFORNIA TAX FREE FUND
OBJECTIVE
California Tax Free Fund has an objective of providing maximum current income
that is exempt from both federal income tax and California state income tax to
the extent consistent with prudent investment risk.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, California Tax Free Fund invests at least 80% of
its net assets in municipal securities that pay interest that is exempt from
federal and California income tax, including the federal alternative minimum
tax. The fund normally may invest up to 20% of its net assets in taxable
obligations, including obligations the interest on which is subject to the
federal alternative minimum tax. The fund may invest in:
o "general obligation" bonds, which are backed by the full faith, credit and
taxing power of the issuer;
o "revenue" bonds, which are payable only from the revenues generated by a
specific project or from another specific revenue source;
o participation interests in municipal leases;
o zero coupon municipal securities, which pay no cash income to their holders
until they mature; and
o inverse floating rate municipal securities (up to 10% of the fund's total
assets).
In selecting securities for the fund, fund managers first determine their
economic outlook and the direction in which inflation and interest rates are
expected to move. In selecting individual securities consistent with this
outlook, fund managers evaluate factors such as credit quality, yield, maturity,
liquidity and portfolio diversification.
The fund only invests in securities that, at the time of purchase, are either
rated investment grade or are unrated and determined to be of comparable quality
by the fund's advisor. Unrated securities will not exceed 25% of the fund's
total assets (not including unrated securities that have been pre-refunded with
U.S. Government securities and U.S. Government agency securities).
The fund will attempt to maintain the weighted average maturity of its portfolio
securities at 10 to 25 years under normal market conditions.
7 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
MAIN RISKS
The price and yield of this fund will change daily due to changes in interest
rates and other factors, which means you could lose money. The main risks of
investing in this fund include:
INTEREST RATE RISK
Debt securities typically decrease in value when interest rates rise. This risk
is usually greater for longer-term debt securities. Inverse floating rate
securities may be highly volatile as interest rates rise or fall.
INCOME RISK
The fund's income could decline due to falling market interest rates.
CREDIT RISK
An issuer of debt securities may not make timely principal or interest payments
on its securities. The revenue bonds and municipal lease obligations in which
the fund invests may entail greater credit risk than the fund's investments in
general obligation bonds.
CALL RISK
Some municipal securities held by the fund may be redeemed by the issuer, or
"called," prior to their stated maturity dates. If a security is redeemed during
a time of declining interest rates, the fund may be unable to reinvest in
securities providing as high a level of income.
RISKS OF MUNICIPAL LEASE OBLIGATIONS
Many municipal leases and contracts contain "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.
POLITICAL AND ECONOMIC RISK
Because the fund invests primarily in municipal securities issued by the state
of California and its political subdivisions, the fund will be particularly
affected by political and economic conditions and developments in that state.
See the Statement of Additional Information for details. The value of municipal
securities owned by the fund also may be adversely affected by future changes in
federal or state income tax laws, including rate reductions or the imposition of
a flat tax.
RISKS OF NON-DIVERSIFICATION
The fund is non-diversified. This means that it may invest a larger portion of
its assets in a limited number of issuers than a diversified fund. Because a
relatively high percentage of the fund's assets may be invested in the
securities of a limited number of issuers, the fund may be more susceptible to
any single economic, political or regulatory occurrence than a diversified fund.
8 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
FUND PERFORMANCE
Because California Tax Free Fund shares were not offered prior to the date of
this prospectus, no performance information is presented for these shares.
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
SHAREHOLDER FEES
- --------------------------------------------------------------------------------------
<S> <C>
MAXIMUM SALES CHARGE (LOAD) None
MAXIMUM DEFERRED SALES CHARGE (LOAD) None
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------
Management Fees 0.70%
Distribution and Service (12b-1) Fees None
Other Expenses(1) ____%
TOTAL(2) ____%
- --------------------------------------------------------------------------------------
</TABLE>
(1) Other expenses are based on estimated amounts for the current fiscal year.
(2) THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT
TOTAL FUND OPERATING EXPENSES DO NOT EXCEED 0.70%. FEE WAIVERS MAY BE
DISCONTINUED AT ANY TIME.
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
1 year $ 84
3 years $ 262
9 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
COLORADO TAX FREE FUND
OBJECTIVE
Colorado Tax Free Fund has an objective of providing maximum current income that
is exempt from both federal income tax and Colorado state income tax to the
extent consistent with prudent investment risk.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Colorado Tax Free Fund invests at least 80% of
its net assets in municipal securities that pay interest that is exempt from
federal and Colorado income tax, including the federal alternative minimum tax.
The fund normally may invest up to 20% of its net assets in taxable obligations,
including obligations the interest on which is subject to the federal
alternative minimum tax. The fund may invest in:
o "general obligation" bonds, which are backed by the full faith, credit and
taxing power of the issuer;
o "revenue" bonds, which are payable only from the revenues generated by a
specific project or from another specific revenue source;
o participation interests in municipal leases;
o zero coupon municipal securities, which pay no cash income to their holders
until they mature; and
o inverse floating rate municipal securities (up to 10% of the fund's total
assets).
In selecting securities for the fund, fund managers first determine their
economic outlook and the direction in which inflation and interest rates are
expected to move. In selecting individual securities consistent with this
outlook, fund managers evaluate factors such as credit quality, yield, maturity,
liquidity and portfolio diversification.
The fund only invests in securities that, at the time of purchase, are either
rated investment grade or are unrated and determined to be of comparable quality
by the fund's advisor. Unrated securities will not exceed 25% of the fund's
total assets (not including unrated securities that have been pre-refunded with
U.S. Government securities and U.S. Government agency securities).
The fund will attempt to maintain the weighted average maturity of its portfolio
securities at 10 to 25 years under normal market conditions.
10 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
MAIN RISKS
The price and yield of this fund will change daily due to changes in interest
rates and other factors, which means you could lose money. The main risks of
investing in this fund include:
INTEREST RATE RISK
Debt securities typically decrease in value when interest rates rise. This risk
is usually greater for longer-term debt securities. Inverse floating rate
securities may be highly volatile as interest rates rise or fall.
INCOME RISK
The fund's income could decline due to falling market interest rates.
CREDIT RISK
An issuer of debt securities may not make timely principal or interest payments
on its securities. The revenue bonds and municipal lease obligations in which
the fund invests may entail greater credit risk than the fund's investments in
general obligation bonds.
CALL RISK
Some municipal securities held by the fund may be redeemed by the issuer, or
"called," prior to their stated maturity dates. If a security is redeemed during
a time of declining interest rates, the fund may be unable to reinvest in
securities providing as high a level of income.
RISKS OF MUNICIPAL LEASE OBLIGATIONS
Many municipal leases and contracts contain "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.
POLITICAL AND ECONOMIC RISK
Because the fund invests primarily in municipal securities issued by the state
of Colorado and its political subdivisions, the fund will be particularly
affected by political and economic conditions and developments in that state.
See the Statement of Additional Information for details. The value of municipal
securities owned by the fund also may be adversely affected by future changes in
federal or state income tax laws, including rate reductions or the imposition of
a flat tax.
RISKS OF NON-DIVERSIFICATION
The fund is non-diversified. This means that it may invest a larger portion of
its assets in a limited number of issuers than a diversified fund. Because a
relatively high percentage of the fund's assets may be invested in the
securities of a limited number of issuers, the fund may be more susceptible to
any single economic, political or regulatory occurrence than a diversified fund.
11 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
FUND PERFORMANCE
Because Colorado Tax Free Fund shares were not offered prior to the date of this
prospectus, no performance information is presented for these shares.
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
SHAREHOLDER FEES
- ---------------------------------------------------------------------------------------
<S> <C>
MAXIMUM SALES CHARGE (LOAD) None
MAXIMUM DEFERRED SALES CHARGE (LOAD) None
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------
Management Fees 0.70%
Distribution and Service (12b-1) Fees None
Other Expenses(1) ____%
TOTAL(2) ____%
- ---------------------------------------------------------------------------------------
</TABLE>
(1) Other expenses are based on estimated amounts for the current fiscal year.
(2) THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT
TOTAL FUND OPERATING EXPENSES DO NOT EXCEED 0.70%. FEE WAIVERS MAY BE
DISCONTINUED AT ANY TIME.
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
1 year $ 84
3 years $ 262
12 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
MINNESOTA TAX FREE FUND
OBJECTIVE
Minnesota Tax Free Fund has an objective of providing maximum current income
that is exempt from both federal income tax and Minnesota state income tax to
the extent consistent with prudent investment risk.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Minnesota Tax Free Fund invests at least 80% of
its net assets in municipal securities that pay interest that is exempt from
federal and Minnesota income tax, including federal and state of Minnesota
alternative minimum tax. The fund normally may invest up to 20% of its net
assets in taxable obligations, including obligations the interest on which is
subject to federal and state of Minnesota alternative minimum tax. The fund may
invest in:
o "general obligation" bonds, which are backed by the full faith, credit and
taxing power of the issuer;
o "revenue" bonds, which are payable only from the revenues generated by a
specific project or from another specific revenue source;
o participation interests in municipal leases;
o zero coupon municipal securities, which pay no cash income to their holders
until they mature; and
o inverse floating rate municipal securities (up to 10% of the fund's total
assets).
In selecting securities for the fund, fund managers first determine their
economic outlook and the direction in which inflation and interest rates are
expected to move. In selecting individual securities consistent with this
outlook, fund managers evaluate factors such as credit quality, yield, maturity,
liquidity and portfolio diversification.
The fund only invests in securities that, at the time of purchase, are either
rated investment grade or are unrated and determined to be of comparable quality
by the fund's advisor. Unrated securities will not exceed 25% of the fund's
total assets (not including unrated securities that have been pre-refunded with
U.S. Government securities and U.S. Government agency securities).
The fund will attempt to maintain the weighted average maturity of its portfolio
securities at 10 to 25 years under normal market conditions.
13 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
MAIN RISKS
The price and yield of this fund will change daily due to changes in interest
rates and other factors, which means you could lose money. The main risks of
investing in this fund include:
INTEREST RATE RISK
Debt securities typically decrease in value when interest rates rise. This risk
is usually greater for longer-term debt securities. Inverse floating rate
municipal securities may be highly volatile as interest rates rise or fall.
INCOME RISK
The fund's income could decline due to falling market interest rates.
CREDIT RISK
An issuer of debt securities may not make timely principal or interest payments
on its securities. The revenue bonds and municipal lease obligations in which
the fund invests may entail greater credit risk than the fund's investments in
general obligation bonds.
CALL RISK
Some municipal securities held by the fund may be redeemed by the issuer, or
"called," prior to their stated maturity dates. If a security is redeemed during
a time of declining interest rates, the fund may be unable to reinvest in
securities providing as high a level of income.
RISKS OF MUNICIPAL LEASE OBLIGATIONS
Many municipal leases and contracts contain "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.
POLITICAL AND ECONOMIC RISK
Because the fund invests primarily in municipal securities issued by the state
of Minnesota and its political subdivisions, the fund will be particularly
affected by political and economic conditions and developments in that state.
See the Statement of Additional Information for details. The value of municipal
securities owned by the fund also may be adversely affected by future changes in
federal or state income tax laws, including rate reductions or the imposition of
a flat tax.
RISKS OF NON-DIVERSIFICATION
The fund is non-diversified. This means that it may invest a larger portion of
its assets in a limited number of issuers than a diversified fund. Because a
relatively high percentage of the fund's assets may be invested in the
securities of a limited number of issuers, the fund may be more susceptible to
any single economic, political or regulatory occurrence than a diversified fund.
14 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
FUND PERFORMANCE
Illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart shows you how performance of the fund's shares has varied from
year to year.
The table compares the fund's performance over different time periods to that of
the fund's benchmark index, which is a broad measure of market performance. The
fund's performance reflects fund expenses; the benchmark is unmanaged and has no
expenses.
Both the chart and the table assume that all distributions have been reinvested.
15 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
MINNESOTA TAX FREE FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR(1)
6.55%
- ---------------------
1998 1999
BEST QUARTER:
Quarter ending: 9/30/98
Total return 3.02%
WORST QUARTER:
Quarter ending: 12/31/98
Total Return 0.70%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99(1) Date One Year Inception
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Minnesota Tax Free Fund 8/1/97 ____% ____%
- --------------------------------------------------------------------------------------
Lehman Brothers Municipal Bond Index(2) ____% ____%
- --------------------------------------------------------------------------------------
</TABLE>
(1) On 7/31/98, the Minnesota Tax Free Fund became the successor by merger to
the Piper Minnesota Tax-Exempt Fund, a series of Piper Funds, Inc. Prior to the
merger, the First American Fund had no assets or liabilities. Performance
presented prior to 7/31/98 represents that of the Piper Minnesota Tax-Exempt
Fund.
(2) An unmanaged index comprised of fixed rate, investment grade tax-exempt
bonds with remaining maturities of one year or more. The since inception
performance for the index is calculated from 8/31/97.
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
16 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
SHAREHOLDER FEES
- -------------------------------------------------------------------------------------------
<S> <C>
MAXIMUM SALES CHARGE (LOAD) None
MAXIMUM DEFERRED SALES CHARGE (LOAD) None
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- -------------------------------------------------------------------------------------------
Management Fees 0.70%
Distribution and Service (12b-1) Fees None
Other Expenses ____%
TOTAL ____%
- -------------------------------------------------------------------------------------------
</TABLE>
(1) Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. See "Additional Information --
Financial Highlights." The net expenses the fund actually paid after waivers for
the fiscal year ended September 30, 1999 were:
<TABLE>
<S> <C>
Waiver of Fund Expenses (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____%
</TABLE>
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 0.70%. FEE WAIVERS MAY BE DISCONTINUED AT
ANY TIME.
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
1 year $ 84
3 years $ 262
5 years $ 455
10 years $1,014
17 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
TAX FREE FUND
OBJECTIVE
Tax Free Fund has an objective of providing maximum current income that is
exempt from federal income tax to the extent consistent with prudent investment
risk.
MAIN INVESTMENT STRATEGIES
Under normal market conditions, Tax Free Fund invests at least 80% of its net
assets in municipal securities that pay interest that is exempt from federal
income tax, including the federal alternative minimum tax. The fund normally may
invest up to 20% of its net assets in taxable obligations, including obligations
the interest on which is subject to the federal alternative minimum tax. The
fund may invest in:
o "general obligation" bonds, which are backed by the full faith, credit and
taxing power of the issuer;
o "revenue" bonds, which are payable only from the revenues generated by a
specific project or from another specific revenue source;
o participation interests in municipal leases;
o zero coupon municipal securities, which pay no cash income to their holders
until they mature; and
o inverse floating rate municipal securities (up to 10% of the fund's total
assets).
In selecting securities for the fund, fund managers first determine their
economic outlook and the direction in which inflation and interest rates are
expected to move. In selecting individual securities consistent with this
outlook, fund managers evaluate factors such as credit quality, yield, maturity,
liquidity and portfolio and geographical diversification.
The fund only invests in securities that, at the time of purchase, are either
rated investment grade or are unrated and determined to be of comparable quality
by the fund's advisor. Unrated securities will not exceed 25% of the fund's
total assets (not including unrated securities that have been pre-refunded with
U.S. Government securities and U.S. Government agency securities).
The fund will attempt to maintain the weighted average maturity of its portfolio
securities at 10 to 25 years under normal market conditions.
18 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
MAIN RISKS
The price and yield of this fund will change daily due to changes in interest
rates and other factors, which means you could lose money. The main risks of
investing in this fund include:
INTEREST RATE RISK
Debt securities typically decrease in value when interest rates rise. This risk
is usually greater for longer-term debt securities. Inverse floating rate
municipal securities may be highly volatile as interest rates rise or fall.
INCOME RISK
The fund's income could decline due to falling market interest rates.
CREDIT RISK
An issuer of debt securities may not make timely principal or interest payments
on its securities. The revenue bonds and municipal lease obligations in which
the fund invests may entail greater credit risk than the fund's investments in
general obligation bonds.
CALL RISK
Some municipal securities held by the fund may be redeemed by the issuer, or
"called," prior to their stated maturity dates. If a security is redeemed during
a time of declining interest rates, the fund may be unable to reinvest in
securities providing as high a level of income.
RISKS OF MUNICIPAL LEASE OBLIGATIONS
Many municipal leases and contracts contain "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.
POLITICAL AND ECONOMIC CONDITIONS
The value of municipal securities owned by the fund may be adversely affected by
state and local political and economic conditions and developments, or by future
changes in federal or state income tax laws, including rate reductions or the
imposition of a flat tax.
19 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
FUND PERFORMANCE
Illustrations on the next page provide you with information on the fund's
volatility and performance. Of course, past performance does not guarantee
future results.
The bar chart shows you how performance of the fund's shares has varied from
year to year. However, because Class Y shares were first offered in 1998, only
one calendar year of information is available.
The table compares the fund's performance over different time periods to that of
the fund's benchmark index, which is a broad measure of market performance. The
fund's performance reflects fund expenses; the benchmark is unmanaged and has no
expenses.
Both the chart and the table assume that all distributions have been reinvested.
20 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
FUND SUMMARIES
TAX FREE FUND (CONTINUED)
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR
- ----------
1999
BEST QUARTER:
Quarter ending: __/__/__
Total return _____%
WORST QUARTER:
Quarter ending: __/__/__
Total Return _____%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
AS OF 12/31/99 Inception Date One Year Since Inception
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax Free Fund 7/31/98 ____% ____%
- ------------------------------------------------------------------------------------------------
Lehman Brothers Municipal Bond Index(1) ____% ____%
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) An unmanaged index comprised of fixed rate, investment grade tax-exempt
bonds with remaining maturities of one year or more. The since inception
performance for the index is calculated from 7/31/98.
FEES AND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of the fund.
You pay shareholder fees directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from fund assets. The
figures below show fund expenses during the fiscal year ended September 30,
1999.(1)
21 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
SHAREHOLDER FEES
- --------------------------------------------------------------------------------------------
<S> <C>
MAXIMUM SALES CHARGE (LOAD) None
MAXIMUM DEFERRED SALES CHARGE (LOAD) None
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------------
Management Fees 0.70%
Distribution and Service (12b-1) Fees None
Other Expenses ____%
TOTAL ____%
- --------------------------------------------------------------------------------------------
</TABLE>
(1) Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. See "Additional Information --
Financial Highlights." The net expenses the fund actually paid after waivers for
the fiscal year ended September 30, 1999 were:
<TABLE>
<S> <C>
Waiver of Fund Expenses (____%)
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) ____%
</TABLE>
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 0.70%. FEE WAIVERS MAY BE DISCONTINUED AT
ANY TIME.
- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 for the time periods indicated, that your investment has a 5%
return each year, and that the fund's operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
- --------------------------------------------------------------------------------
1 year $ 93
3 years $ 290
5 years $ 504
10 years $ 1,120
22 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
POLICIES & SERVICES
BUYING AND SELLING SHARES
Class Y shares are offered through banks and other financial institutions that
have entered into sales agreements with the funds' distributor and that hold the
shares in an omnibus account with the transfer agent. Class Y shares are
available to certain accounts for which the financial institution acts in a
fiduciary, agency or custodial capacity, such as certain trust accounts and
investment advisory accounts. To find out whether you may purchase Class Y
shares, contact your financial institution.
There is no initial or deferred sales charge on your purchase of Class Y shares.
However, your broker or financial institution may receive a commission of up to
1.25% on your purchase.
CALCULATING YOUR SHARE PRICE
Your purchase price will be equal to the fund's net asset value (NAV) per share,
which is generally calculated as of the close of regular trading on the New York
Stock Exchange (usually 3 p.m. Central time) every day the exchange is open.
A fund's NAV is equal to the market value of its investments and other assets,
less any liabilities, divided by the number of fund shares. If market prices are
not readily available for an investment or if the advisor believes they are
unreliable, fair value prices may be determined in good faith using methods
approved by the funds' board of directors.
HOW TO BUY AND SELL SHARES
You may purchase or sell shares by calling your financial institution.
When purchasing shares, payment must be made by wire transfer, which can be
arranged by your financial institution. Because purchases must be paid for by
wire transfer, you can purchase shares only on days when both the New York Stock
Exchange and federally chartered banks are open. You may sell your shares on any
day when the New York Stock Exchange is open.
Purchase orders and redemption requests must be received by your financial
institution by the time specified by the institution to be assured same day
processing. In order for shares to be purchased at that day's price, the funds
must receive your purchase order by 3:00 p.m. Central time and the funds'
custodian must receive federal funds before the close of business. In order for
shares to be sold at that day's price, the funds must receive your redemption
request by 3:00 p.m. Central time. It is the responsibility of your financial
institution to promptly transmit orders to the funds. Purchase orders and
redemption requests may be restricted in the event of an early or unscheduled
close of the New York Stock Exchange.
If the funds receive your redemption request by 3:00 p.m. Central time, payment
of your redemption proceeds will ordinarily be made by wire on the next business
day. It is possible, however, that payment could be delayed by up to seven days.
23 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
HOW TO EXCHANGE SHARES
If your investment goals or your financial needs change, you may exchange your
shares for Class Y shares of another First American fund. Exchanges will be made
at the net asset value per share of each fund at the time of the exchange. There
is no fee to exchange shares. If you are no longer eligible to hold Class Y
shares, for example, if you decide to discontinue your fiduciary, agency or
custodian account, you may exchange your shares for Class A shares at net asset
value.Class A shares have higher expenses than Class Y shares.
To exchange your shares, call your financial institution. In order for your
shares to be exchanged the same day, you must call your financial institution by
the time specified by the institution and your exchange order must be received
by the funds by 3:00 p.m. Central time. It is the responsibility of your
financial institution to promptly transmit your exchange order to the funds.
Before exchanging into any fund, be sure to read its prospectus carefully. A
fund may change or cancel its exchange policies at any time. You will be
notified of any changes. The funds have the right to limit exchanges to four
times per year.
24 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
POLICIES & SERVICES
MANAGING YOUR INVESTMENT
STAYING INFORMED
SHAREHOLDER REPORTS
Shareholder reports are mailed twice a year, in November and May. They include
financial statements, performance information, a message from your portfolio
managers, and, on an annual basis, the auditors' report.
In an attempt to reduce shareholder costs and help eliminate duplication, the
funds will try to limit their mailings to one report for each address that lists
one or more shareholders with the same last name. If you would like additional
copies, please call 1-800-637-2548.
STATEMENTS AND CONFIRMATIONS
Statements summarizing activity in your account are mailed at least quarterly.
Confirmations are mailed following each purchase or sale of fund shares.
DIVIDENDS AND DISTRIBUTIONS
Dividends from a fund's net investment income are declared and paid monthly. Any
capital gains are distributed at least once each year.
On the ex-dividend date for a distribution, a fund's share price is reduced by
the amount of the distribution. If you buy shares just before the ex-dividend
date, in effect, you "buy the dividend." You will pay the full price for the
shares and then receive a portion of that price back as a distribution, all or a
portion of which may be taxable (to the same extent the distribution is
otherwise taxable to fund shareholders).
Dividend and capital gain distributions will be reinvested in additional shares
of the fund paying the distribution, unless you request that distributions be
reinvested in another First American fund or paid in cash. This request may be
made on your new account form or by writing to the fund. If you request that
your distributions be paid in cash but those distributions cannot be delivered
because of an incorrect mailing address, the undelivered distributions and all
future distributions will be reinvested in fund shares.
TAXES
Some of the tax consequences of investing in the funds are discussed below. More
information about taxes is in the Statement of Additional Information. However,
because everyone's tax situation is unique, always consult your tax professional
about federal, state and local tax consequences.
25 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
TAXES ON DISTRIBUTIONS
Each fund intends to meet certain federal tax requirements so that distributions
of tax-exempt interest income may be treated as "exempt-interest dividends."
These dividends are not subject to regular federal income tax. However, each
fund may invest up to 20% of its net assets in municipal securities subject to
the alternative minimum tax. Any portion of exempt-interest dividends
attributable to interest on these securities may increase some shareholders'
alternative minimum tax. The funds expect that their distributions will consist
primarily of exempt-interest dividends. Tax Free Fund's exempt-interest
dividends may be subject to state or local taxes.
Distributions paid from any interest income that is not tax-exempt and from any
net realized capital gains will be taxable whether you reinvest those
distributions or take them in cash. Distributions of a fund's long-term capital
gains are taxable as long-term gains, regardless of how long you have held your
shares.
26 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
TAXES ON TRANSACTIONS
The sale of fund shares, or the exchange of one fund's shares for shares of
another fund, will be a taxable event and may result in a capital gain or loss.
The gain or loss will be considered long-term if you have held your shares for
more than one year. A gain or loss on shares held for one year or less is
considered short-term and is taxed at the same rates as ordinary income.
The exchange of one class of shares for another class of shares in the same fund
will not be taxable.
ARIZONA INCOME TAXATION
Dividends paid by Arizona Tax Free Fund will be exempt from Arizona income taxes
for individuals, trust, estates and corporations to the extent they are derived
from interest on Arizona municipal securities.
CALIFORNIA INCOME TAXATION
California Tax Free Fund intends to comply with certain state tax requirements
so that dividends it pays that are attributable to interest on California
municipal securities will be excluded from the California taxable income of
individuals, trusts and estates. To meet these requirements, at least 50% of the
value of the fund's total assets must consist of obligations which pay interest
that is exempt from California personal income tax. Exempt-interest dividends
are not excluded from the California taxable income of corporations and
financial institutions. In addition, dividends derived from interest paid on
California municipal bonds (including securities treated for federal purposes as
private activity bonds) will not be subject to the alternative minimum tax that
California imposes on individuals, trusts and estates.
COLORADO INCOME TAXATION
Dividends paid by Colorado Tax Free Fund will be exempt from Colorado income
taxes for individuals, trusts, estates and corporations to the extent that they
are derived from interest on Colorado municipal securities. In addition,
dividends derived from interest on Colorado municipal securities (including
securities treated for federal purposes as private activity bonds) will not be
subject to the alternative minimum tax that Colorado imposes on individuals,
trusts and estates.
MINNESOTA INCOME TAXATION
Minnesota Tax Free Fund intends to comply with certain state tax requirements so
that dividends it pays that are attributable to interest on Minnesota municipal
securities will be excluded from the Minnesota taxable net income of individuals
estates and trusts. To meet these requirements, at least 95% of the
exempt-interest dividends paid by the fund must be derived from interest income
on Minnesota municipal securities. A portion of the fund's dividends may be
subject to the Minnesota alternative minimum tax. Exempt-interest dividends are
not excluded from the Minnesota taxable income of corporations and financial
institutions.
27 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
ADDITIONAL INFORMATION
MANAGEMENT
INVESTMENT ADVISOR
First American Asset Management
601 Second Avenue South
Minneapolis, Minnesota 55402
U.S. Bank National Association (U.S. Bank), acting through its First American
Asset Management division, is the funds' investment advisor. First American
Asset Management provides investment management services to individuals and
institutions, including corporations, foundations, pensions and retirement
plans. As of December 31, 1999, it had more than $____ billion in assets under
management, including investment company assets of approximately $______
billion. As investment advisor, First American Asset Management manages the
funds' business and investment activities, subject to the authority of the board
of directors. Each fund pays the investment advisor a monthly fee for providing
investment advisory services. During their most recent fiscal years, after
taking into account fee waivers, the funds paid the following investment
advisory fees to First American Asset Management:
Advisory fee
as a % of
average daily
net assets
- --------------------------------------------------------------------------------
Arizona Tax Free Fund(1) _________%
California Tax Free Fund (1) _________%
Colorado Tax Free Fund(1) _________%
Minnesota Tax Free Fund _________%
Tax Free Fund(2) _________%
- --------------------------------------------------------------------------------
(1) Arizona Tax Free Fund, California Tax Free Fund and Colorado Tax Free Fund
commenced operations as of the date of this prospectus. The contractual fee rate
is shown in the table.
CUSTODIAN
U.S. Bank National Association
U.S. Bank Center
180 East Fifth Street
St. Paul, Minnesota 55101
ADMINISTRATOR
U.S Bank National Association
U.S. Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402
28 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
DISTRIBUTOR
SEI Investments Distribution Co.
Oaks, Pennsylvania 19456
ADDITIONAL COMPENSATION
U.S. Bank and other affiliates of U.S. Bancorp may act as fiduciary with respect
to plans subject to the Employee Retirement Income Security Act of 1974 (ERISA)
and other trust and agency accounts that invest in the funds. As described
above, U.S. Bank receives compensation for acting as the funds' investment
advisor. U.S. Bank and its affiliates also receive compensation in connection
with the following:
CUSTODY SERVICES. U.S. Bank provides or compensates others to provide custody
services to the funds. U.S. Bank is paid monthly fees equal, on an annual basis,
to 0.03% of a fund's average daily net assets. In addition, U.S. Bank is
reimbursed for its out-of-pocket expenses incurred while providing custody
services to the funds.
ADMINISTRATION SERVICES. U.S. Bank provides or compensates others to provide
administrative services to the funds including general administrative and
accounting services, transfer agency and dividend disbursing services, and
shareholder services. The funds pay U.S. Bank monthly fees equal, on an annual
basis, to 0.12% of the aggregate average daily net assets of all open-end mutual
funds in the First American fund family up to $8 billion and 0.105% of the
aggregate average daily net assets of all open-end mutual funds in the First
American fund family in excess of $8 billion. Additionally, the funds pay U.S.
Bank fees based upon the number of funds and accounts maintained.
SECURITIES LENDING SERVICES. In connection with lending their portfolio
securities, the funds pay administrative and custodial fees to U.S. Bank which
are equal to 40% of the funds' income from these securities lending
transactions.
BROKERAGE TRANSACTIONS. The funds purchase most of their portfolio securities
directly from the issuer or from an underwriter or market maker, and not from a
broker acting as agent. However, the funds may from time to time use brokers
when buying portfolio securities. The funds' investment advisor may place trades
through its affiliates, U.S. Bancorp Investments, Inc. and U.S. Bancorp Piper
Jaffray Inc., which will earn commissions on such transactions.
SALES OF FUND SHARES. U.S. Bancorp Investments, Inc. and U.S. Bancorp Piper
Jaffray, Inc. broker-dealers affiliated with U.S. Bank, have entered into
agreements with the funds' distributor to sell fund shares and will earn annual
shareholder servicing fees in connection with these sales.
PORTFOLIO MANAGEMENT
Each fund's investments are managed by a team of persons associated with First
American Asset Management.
29 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
ADDITIONAL INFORMATION
MORE ABOUT THE FUNDS
OBJECTIVES
The Funds' objectives, which are described in the "Fund Summaries" section, may
be changed without shareholder approval. If a fund's objectives change, you will
be notified at least 30 days in advance. Please remember: There is no guarantee
that any fund will achieve its objectives.
INVESTMENT STRATEGIES
The funds' main investment strategies are discussed in the "Fund Summaries"
section. These are the strategies that the funds' investment advisor believes
are most likely to be important in trying to achieve the funds' objectives. You
should be aware that each fund may also use strategies and invest in securities
that are not described in this prospectus, but that are described in the
Statement of Additional Information (SAI). For a copy of the SAI, call Investor
Services at 1-800-637-2548.
INVESTMENT APPROACH
In selecting securities for the funds, fund managers first determine their
economic outlook and the direction in which inflation and interest rates are
expected to move. In selecting individual securities consistent with this
outlook, the fund managers evaluate factors such as credit quality, yield,
maturity, liquidity and portfolio diversification. In the case of Tax Free Fund,
geographical diversification is also a factor. Fund managers conduct research on
potential and current holdings in the funds to determine whether a fund should
purchase or retain a security. This is a continuing process the focus of which
changes according to market conditions, the availability of various permitted
investments, and cash flows into and out of the funds.
MUNICIPAL SECURITIES
Municipal securities are issued to finance public infrastructure projects such
as streets and highways, schools, water and sewer systems, hospitals, and
airports. They also may be issued to refinance outstanding obligations as well
as to obtain funds for general operating expenses and for loans to other public
institutions and facilities.
The funds may invest in "general obligation" bonds, which are backed by the full
faith, credit and taxing power of the issuer, and in "revenue" bonds, which are
payable only from the revenues generated by a specific project or from another
specific revenue source. 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 government unit to acquire equipment or
facilities. Municipal leases frequently have special risks which generally are
not associated with general obligation bonds or revenue bonds. See "Risks --
Risks of Municipal Lease Obligations" below.
30 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
Up to 10% of each fund's total assets may be invested in inverse floating rate
municipal securities. The values of these securities may be highly volatile as
interest rates rise or fall. See "Risks -- Risks of Inverse Floating Rate
Securities" below.
REFUNDED BONDS
Refunded bonds may have originally been issued as general obligation or revenue
bonds, but become refunded when they are secured by an escrow fund, usually
consisting entirely of direct U.S. government obligations and/or U.S. government
agency obligations.
TEMPORARY INVESTMENTS
In an attempt to respond to adverse market, economic, political or other
conditions, each fund may temporarily invest without limit in cash and in U.S.
dollar-denominated high-quality money market instruments and other short-term
securities, including securities which pay income that is subject to federal and
state income tax. These investments may include money market funds advised by
the funds' advisor. Because these investments may be taxable, and may result in
a lower yield than would be available from investments with a lower quality or
longer term, they may prevent a fund from achieving its investment objective.
PORTFOLIO TURNOVER
Fund managers may trade securities frequently, resulting, from time to time, in
an annual portfolio turnover rate of over 100%. Trading of securities may
produce capital gains, which are taxable to shareholders when distributed.
Active trading may also increase the amount of commissions or mark-ups to
broker-dealers that the fund pays when it buys and sells securities. The
"Financial Highlights" section of this prospectus shows each fund's historical
portfolio turnover rate.
RISKS
The main risks of investing in the funds are summarized in the "Fund Summaries"
section. More information about fund risks is presented below.
31 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
INTEREST RATE RISK
Debt securities in the funds will fluctuate in value with changes in interest
rates. In general, debt securities will increase in value when interest rates
fall and decrease in value when interest rates rise. Longer-term debt securities
are generally more sensitive to interest rate changes. Each fund may invest in
zero coupon securities, which do not pay interest on a current basis and which
may be highly volatile as interest rates rise or fall. The funds' investments in
inverse floating rate municipal securities also may be highly volatile with
changing interest rates. See "Risks of Inverse Floating Rate Securities" below.
INCOME RISK
The fund's income could decline due to falling market interest rates. This is
because, in a falling interest rate environment, the fund generally will have to
invest the proceeds from sales of fund shares, as well as the proceeds from
maturing portfolio securities (or portfolio securities that have been called,
see "Call Risk") in lower-yielding securities.
CREDIT RISK
Each fund is subject to the risk that the issuers of debt securities held by the
fund will not make payments on the securities, or that the other party to a
contract (such as a repurchase agreement) will default on its obligations. There
is also the risk that an issuer could suffer adverse changes in financial
condition that could lower the credit quality of a security. This could lead to
greater volatility in the price of the security and in shares of the fund. Also,
a change in the credit quality rating of a bond could affect the bond's
liquidity and make it more difficult for the fund to sell.
Each fund attempts to minimize credit risk by investing in securities considered
at least investment grade at the time of purchase. However, all of these
securities, especially those in the lower investment grade rating categories,
have credit risk. In adverse economic or other circumstances, issuers of these
lower rated securities are more likely to have difficulty making principal and
interest payments than issuers of higher rated securities. When a fund purchases
unrated securities, it will depend on the advisor's analysis of credit risk more
heavily than usual.
CALL RISK
Many municipal bonds may be redeemed at the option of the issuer, or "called,"
before their stated maturity date. In general, an issuer will call its bonds if
they can be refinanced by issuing new bonds which bear a lower interest rate.
The funds are subject to the possibility that during periods of falling interest
rates, a municipal bond issuer will call its high-yielding bonds. A fund would
then be forced to invest the unanticipated proceeds at lower interest rates,
resulting in a decline in the fund's income.
32 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
POLITICAL AND ECONOMIC RISK
The values of municipal securities 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
municipal securities 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 revenue of issuers (for example, legislation or court decisions
reducing state aid to local governments or mandating additional services). To
the extent a fund invests in the securities of issuers located in a single
state, it will be disproportionately affected by political and economic
conditions and developments in that state. The value of municipal securities
also may be adversely affected by future changes in federal or state income tax
laws, including rate reductions or the imposition of a flat tax.
RISKS OF INVERSE FLOATING RATE SECURITIES.
Each fund may invest up to 10% of its total assets in inverse floating rate
municipal securities. These securities pay interest at a rate that varies
inversely to changes in the interest rate of specified municipal securities or a
specified index. The interest rate on this type of security will generally
change at a multiple of any change in the reference interest rate. As a result,
the values of these securities may be highly volatile as interest rates rise or
fall.
RISKS OF MUNICIPAL LEASE OBLIGATIONS
Each fund may purchase participation interests in municipal leases. These are
undivided interests in a lease, installment purchase contract or conditional
sale contract entered into by a state or local government unit to acquire
equipment or facilities. Participation interests in municipal leases pose
special risks because many leases and contracts contain "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. Although these kinds of
obligations are secured by the leased equipment or facilities, it might be
difficult and time consuming to dispose of the equipment or facilities in the
event of non-appropriation, and the fund might not recover the full principal
amount of the obligation.
RISKS OF ACTIVE MANAGEMENT
Each fund is actively managed and its performance therefore will reflect in part
the advisor's ability to make investment decisions which are suited to achieving
the fund's investment objectives. Due to their active management, the funds
could underperform other mutual funds with similar investment objectives.
33 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
ADDITIONAL INFORMATION
FINANCIAL HIGHLIGHTS
The tables that follow present performance information about the Class Y shares
of the Minnesota Tax Free Fund and Tax Free Fund. Arizona Tax Free Fund,
California Tax Free Fund and Colorado Tax Free Fund were not offered prior to
the date of this prospectus. Therefore, no information is presented for those
funds. This information is intended to help you understand each fund's financial
performance for the past five years or, if shorter, the period of the fund's
Class Y share operations. Some of this information reflects financial results
for a single fund share. Total returns in the tables represent the rate that you
would have earned or lost on an investment in a fund, assuming you reinvested
all of your dividends and distributions.
The information for the fiscal year ended September 30, 1999 has been audited by
Ernst & Young LLP, independent auditors, whose report, along with the funds'
financial statements, is included in the funds' annual report, which is
available upon request. The information for the fiscal years ended on or before
September 30, 1998, has been audited by KPMG LLP.
MINNESOTA TAX FREE FUND(1)
<TABLE>
<CAPTION>
Fiscal year ended September 30,
1999 1998 1997(2)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $_____ $11.14 $11.16
--------------------------------------------
Investment Operations:
Net Investment Income ______ 0.60 0.10
Net Gains (Losses) on Investments
(both realized and unrealized) ______ 0.36 (0.02)
--------------------------------------------
Total From Investment Operations ______ 0.96 0.08
--------------------------------------------
Less Distributions:
Dividends (from Net Investment Income) ______ (0.59) (0.10)
Distributions (from capital gains) ______ (0.06) --
--------------------------------------------
Total Distributions ______ (0.65) (0.10)
--------------------------------------------
Net Asset Value, End of Period ______ $11.45 $11.14
============================================
Total Return ____% 8.83% 0.72%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $_____ $8,155 $9,010
Ratio of Expenses to Average Net Assets ____% 0.78% 0.75%(3)
Ratio of Net Investment Income to Average Net Assets ____% 5.79% 5.73%(3)
Ratio of Expenses to Average Net Assets (excluding waivers) ____% 0.82% 0.75%(3)
Ratio of Net Investment Income to Average Net Assets (excluding
waivers) ____% 5.75% 5.73%(3)
Portfolio Turnover Rate ____% 16% 17%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The financial highlights for the periods prior to July 31, 1998 are those of
Minnesota Tax-Exempt Fund, a series of Piper Funds Inc. This predecessor fund
was reorganized into the fund as of the close of business on July 31, 1998.
(2) Class Y shares have been offered since August 1, 1997.
(3) Annualized.
34 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
TAX FREE FUND
<TABLE>
<CAPTION>
Period ended Period ended
September 30, September 30,
1999 1998(1)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $_____ $11.31
----------------------------------
Income From Investment Operations:
Net Investment Income ______ 0.10
Net Gains or Losses on Investments
(both realized and unrealized) ______ 0.22
----------------------------------
Total From Investment Operations ______ 0.32
----------------------------------
Less Distributions:
Dividends (from Net Investment Income) ______ (0.09)
----------------------------------
Total Distributions ______ (0.09)
----------------------------------
Net Asset Value, End of Period ______ $11.54
==================================
Total Return ______ 2.83%
RATIOS/SUPPLEMENTAL DATA ____%
Net Assets, End of Period (000) ______ $355
Ratio of Expenses to Average Net Assets $_____ 0.85%(2)
Ratio of Net Investment Income to Average Net Assets ____% 5.61%(2)
Ratio of Expenses to Average Net Assets (excluding waivers) ____% 0.91%(2)
Ratio of Net Investment Income to Average Net Assets (excluding waivers) ____% 5.55%(2)
Portfolio Turnover Rate ____% 7%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Class Y shares have been offered since July 31, 1998.
(2) Annualized.
35 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
FOR MORE INFORMATION
More information about the funds is available in the funds' Statement of
Additional Information and annual and semiannual reports.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI provides more details about the funds and their policies. A current SAI
is on file with the Securities and Exchange Commission (SEC) and is incorporated
into this prospectus by reference (which means that it is legally considered
part of this prospectus).
ANNUAL AND SEMIANNUAL REPORTS
Additional information about the funds' investments is available in the funds'
annual and semiannual reports to shareholders. In the funds' annual report, you
will find a discussion of the market conditions and investment strategies that
significantly affected the funds' performance during their last fiscal year.
You can obtain a free copy of the funds' SAI and/or free copies of the funds'
most recent annual or semiannual reports by calling Investor Services at
1-800-637-2548. The material you request will be sent by first-class mail or
other means designed to ensure equally prompt delivery, within three business
days of receipt of the request.
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, DC, or by sending your request and a duplicating fee to the SEC's
Public Reference Section, Washington, DC 20549-6009. For more information, call
1-800-SEC-0330.
Information about the funds is also available on the Internet. Text-only
versions of fund documents can be viewed online or down- loaded from the SEC's
Internet site at http://www.sec.gov.
SEC file number: 811-05309
FAIF - 1502 (2/2000)Y
36 PROSPECTUS - FIRST AMERICAN TAX FREE BOND FUNDS
Class Y Shares
<PAGE>
FIRST AMERICAN INVESTMENT FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION
DATED FEBRUARY 1, 2000
BALANCED FUND CORPORATE BOND FUND
EQUITY INCOME FUND FIXED INCOME FUND
EQUITY INDEX FUND INTERMEDIATE TERM INCOME FUND
LARGE CAP GROWTH FUND LIMITED TERM INCOME FUND
LARGE CAP VALUE FUND STRATEGIC INCOME FUND
MID CAP GROWTH FUND ARIZONA TAX FREE FUND
MID CAP VALUE FUND CALIFORNIA INTERMEDIATE TAX FREE FUND
SMALL CAP GROWTH FUND CALIFORNIA TAX FREE FUND
SMALL CAP VALUE FUND COLORADO INTERMEDIATE TAX FREE FUND
EMERGING MARKETS FUND COLORADO TAX FREE FUND
INTERNATIONAL FUND INTERMEDIATE TAX FREE FUND
INTERNATIONAL INDEX FUND MINNESOTA INTERMEDIATE TAX FREE FUND
HEALTH SCIENCES FUND MINNESOTA TAX FREE FUND
REAL ESTATE SECURITIES FUND OREGON INTERMEDIATE TAX FREE FUND
TECHNOLOGY FUND TAX FREE FUND
This Statement of Additional Information relates to the Class A, Class B, Class
C and Class Y 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 February 1, 2000. The financial
statements included as part of the Funds' Annual Report to shareholders for the
fiscal year ended September 30, 1999 are incorporated by reference into this
Statement of Additional Information. This Statement of Additional Information is
incorporated into the Funds' Prospectuses by reference. To obtain copies of
Prospectuses or the Funds' Annual Report(s) at no charge, write the Funds'
distributor, SEI Investments Distribution Co., Oaks, Pennsylvania 19456, or call
Investor Services at 1-800-637-2548. Please retain this Statement of Additional
Information for future reference.
i
<PAGE>
TABLE OF CONTENTS
PAGE
GENERAL INFORMATION
ADDITIONAL INFORMATION CONCERNING FUND INVESTMENTS
Short-Term Investments
U.S. Government Securities
Repurchase Agreements
When-Issued and Delayed Delivery Transactions
Lending of Portfolio Securities
Options Transactions
Futures and Options on Futures
Fixed Income Securities -- Equity Funds
Foreign Securities
Foreign Currency Transactions
Mortgage-Backed Securities
REIT Securities
Asset-backed Securities
Municipal Bonds and Other Municipal Obligations
Temporary Taxable Investments
Inverse Floating Rate Municipal Obligations
Zero Coupon Securities
Adjustable Rate Mortgage Securities
Interest Rate Transactions
Guaranteed Investment Contracts
Debt Obligations Rated Less Than Investment Grade
Debt Obligations -- Strategic Income Fund
Floating Rate Corporate Debt Obligations
Fixed Rate Corporate Debt Obligations
Payment-In-Kind Debentures and Delayed Interest Securities
Preferred Stock
Participation Interests
Closed-End Investment Companies
U.S. Treasury Inflation-Protection Securities
Special Factors Affecting Arizona Tax Free Fund
Special Factors Affecting California Intermediate Tax Free Fund and
California Tax Free Fund
Special Factors Affecting Colorado Intermediate Tax Free Fund and
Colorado Tax Free Fund
Special Factors Affecting Minnesota Intermediate Tax Free Fund and
Minnesota Tax Free Fund
Special Factors Affecting Oregon Intermediate Tax Free Fund
CFTC Information
INVESTMENT RESTRICTIONS
DIRECTORS AND EXECUTIVE OFFICERS
Directors
Executive Officers
Compensation
INVESTMENT ADVISORY AND OTHER SERVICES
Investment Advisory Agreement
ii
<PAGE>
SUB-ADVISORY AGREEMENT FOR EMERGING MARKETS FUND,
INTERNATIONAL FUND AND STRATEGIC INCOME FUND
Administration Agreement
Distributor and Distribution Plans
Custodian; Counsel; Auditors
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE
CAPITAL STOCK
NET ASSET VALUE AND PUBLIC OFFERING PRICE
FUND PERFORMANCE
TAXATION
REDUCING SALES CHARGES
Class A Sales Charge
Sales of Class A Shares at Net Asset Value
ADDITIONAL INFORMATION ABOUT SELLING SHARES
By Telephone
By Mail
Redemptions Before Purchase Instruments Clear
RATINGS
Ratings of Corporate Debt Obligations and Municipal Bonds
Ratings of Preferred Stock 82
Ratings of Municipal Notes
Ratings of Commercial Paper
Best's Rating System for Insurance Companies
FINANCIAL STATEMENTS
iii
<PAGE>
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 30 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. These series are referred to in this Statement
of Additional Information as the "Funds."
For purposes of this Statement of Additional Information, "Equity
Funds" shall constitute Balanced Fund, Equity Income Fund, Equity Index Fund,
Large Cap Growth Fund, Large Cap Value Fund, Mid Cap Growth Fund, Mid Cap Value
Fund, Small Cap Growth Fund, Small Cap Value Fund, Emerging Markets Fund,
International Fund, International Index Fund, Health Sciences Fund, Technology
Fund and Real Estate Securities Fund. "Bond Funds" shall constitute Corporate
Bond Fund, Fixed Income Fund, Intermediate Term Income Fund, Limited Term Income
Fund and Strategic Income Fund. "Tax Free Funds" shall constitute Arizona Tax
Free Fund, California Intermediate Tax Free Fund, California Tax Free Fund,
Colorado Intermediate Tax Free Fund, Colorado Tax Free Fund, Intermediate Tax
Free Fund, Tax Free Fund, Minnesota Intermediate Tax Free Fund, Minnesota Tax
Free Fund and Oregon Intermediate Tax Free Fund. Each of the Funds are open-end
management investment companies and, except for the Tax Free Funds (other than
Tax Free Fund and Intermediate Tax Free Fund), Real Estate Securities Fund,
Health Sciences Fund and Technology Fund, are diversified investment companies.
The Tax Free Funds (other than Tax Free Fund and Intermediate Tax Free Fund),
Technology Fund, Real Estate Securities Fund and Health Sciences Fund are
non-diversified investment companies.
Shareholders may purchase shares of each Fund through four separate
classes, Class A, Class B (except for the Tax Free Funds and certain Bond
Funds), Class C (except certain Bond Funds and certain Tax Free Funds) and Class
Y, which provide for variations in distribution costs, shareholder servicing
fees, voting rights and dividends. To the extent permitted by the Investment
Company Act of 1940 (the "1940 Act"), 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, Class B and
Class C Shares of the Funds. Except for differences among the classes pertaining
to distribution costs and shareholder servicing fees, each share of each Fund
represents an equal proportionate interest in that Fund.
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.
This Statement of Additional Information may also refer to
affiliated investment companies, including: First American Funds, Inc. ("FAF");
First American Strategy Funds, Inc. ("FASF"); First American Insurance
Portfolios, Inc. ("FAIP"); and eleven separate closed-end funds (American
Strategic Income Portfolio Inc., American Strategic Income Portfolio Inc.-II,
American Strategic Income Portfolio Inc.-III, American Municipal Income
Portfolio Inc., Minnesota Municipal Income Portfolio Inc., American Select
Portfolio Inc., American Municipal Term Trust Inc., American Municipal Term
Trust Inc.-II, American Municipal Term Trust Inc.-III, Minnesota Municipal Term
Trust Inc., and Minnesota Municipal Term Trust Inc.-II) collectively referred to
as the First American Closed-End Funds ("FACEF").
1
<PAGE>
ADDITIONAL INFORMATION CONCERNING FUND INVESTMENTS
The main investment strategies of each Fund are set forth in each
Fund's Prospectus. Additional information concerning main investment strategies
of the Funds, and other investment strategies which may be used by the Funds, is
set forth below. The Funds have attempted to identify any investment strategies
that will be employed in pursuing each Fund's investment objective. However, in
the absence of an affirmative limitation, a Fund may utilize any strategy or
technique that is consistent with its investment objective. The Funds do not
anticipate that any such strategy or technique would exceed 5% of a Fund's
assets absent specific identification of that practice. Additional information
concerning the Funds' investment restrictions is set forth below under
"Investment Restrictions."
If a percentage limitation on investments by a Fund stated in this
Section or in "Investment Restrictions" below is adhered to at the time of an
investment, a later increase or decrease in percentage resulting from changes in
asset value will not be deemed to violate the limitation except in the case of
the limitations on borrowing. 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 (other than
Corporate Bond Fund and Strategic Income Fund) be invested in non-investment
grade securities. Descriptions of the rating categories of Standard & Poor's
Ratings Services, a division of The McGraw-Hill Companies, Inc. ("Standard &
Poor's") and Moody's Investors Service, Inc. ("Moody's") are contained in
"Ratings" below.
SHORT-TERM INVESTMENTS
Most of the Funds can invest in a variety of short-term instruments
such as rated commercial paper and variable amount master demand notes; United
States dollar-denominated time and savings deposits (including certificates of
deposit); bankers' acceptances; obligations of the United States Government or
its agencies or instrumentalities (including, in the case of Balanced Fund, zero
coupon securities); repurchase agreements collateralized by eligible investments
of a Fund; securities of other mutual funds that 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. The other mutual funds in which
the Funds may so invest include money market funds advised by U.S. Bank National
Association, the Funds' investment advisor ("U.S. Bank" or the "Advisor"),
subject to certain restrictions contained in an exemptive order issued by the
Securities and Exchange Commission ("SEC") with respect thereto.
Tax Free Funds, Bond Funds and the Balanced Fund may also invest in
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. In each instance, these 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.
Short-term investments and repurchase agreements may be entered into
on a joint basis by the Funds and other funds advised by the Advisor to the
extent permitted by an exemptive order issued by the Securities and Exchange
Commission with respect to the Funds. 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 Rating Services, a division of the
McGraw-Hill Companies, Inc. ("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 Advisor 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."
2
<PAGE>
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 Advisor
or the applicable Funds' investment sub-advisor 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.
VARIABLE RATE DEMAND OBLIGATIONS. Variable rate demand obligations
("VRDO") are securities in which the interest rate is adjusted at pre-designated
periodic intervals. VRDOs may include a demand feature which is a put that
entitles the holder to receive the principal amount of the underlying security
or securities and which may be exercised either at any time on no more than 30
days' notice or at specified intervals not exceeding 397 calendar days on no
more than 30 days' notice.
U.S. GOVERNMENT SECURITIES
The U.S. government securities in which the Funds may invest are
either issued or guaranteed by the U.S. government, its agencies or
instrumentalities. The U.S. government securities in which the Funds invest
principally are:
o direct obligations of the U.S. Treasury, such as U.S. Treasury
bills, notes, and bonds;
o notes, bonds, and discount notes issued and guaranteed by U.S.
government agencies and instrumentalities supported by the
full faith and credit of the United States;
o notes, bonds, and discount notes of U.S. government agencies
or instrumentalities which receive or have access to federal
funding; and
o notes, bonds, and discount notes of other U.S. government
instrumentalities supported only by the credit of the
instrumentalities.
The government securities in which the Funds may invest are backed
in a variety of ways by the U.S. government or its agencies or
instrumentalities. Some of these securities, such as Government National
Mortgage Association ("GNMA") mortgage-backed securities, are backed by the full
faith and credit of the U.S. government. Other securities, such as obligations
of the Federal National Mortgage Association ("FNMA") or the Federal Home Loan
Mortgage Corporation ("FHLMC") are backed by the credit of the agency or
instrumentality issuing the obligations but not the full faith and credit of the
U.S. government. No assurances can be given that the U.S. government will
provide financial support to these other agencies or instrumentalities because
it is not obligated to do so. See "--Mortgage-Backed Securities" below for a
description of these securities and the Funds that may invest in such
securities.
REPURCHASE AGREEMENTS
The Funds may invest in repurchase agreements to the extent
specified in their respective Prospectuses. 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
3
<PAGE>
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 Advisor or, in the case of
Emerging Markets Fund and International Fund, such Fund's investment
sub-advisor, will monitor the creditworthiness of the firms with which the Funds
enter into repurchase agreements. In the case of Strategic Income Fund, the
Advisor and the Fund's investment sub-advisor will monitor the creditworthiness
of the firms with which the Fund enters into repurchase agreements.
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
Each of the Funds (excluding Equity Index Fund and International
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.
In connection with their ability to purchase securities on a
when-issued or delayed delivery basis, Balanced Fund (with respect to its fixed
income assets) and the Bond Funds may enter into mortgage "dollar rolls" in
which the Fund sells securities and simultaneously contracts with the same
counterparty to repurchase similar (same type, coupon and maturity) but not
identical securities on a specified future date. In a mortgage dollar roll, a
Fund gives up the right to receive principal and interest paid on the securities
sold. However, the Fund would benefit to the extent of any difference between
the price received for the securities sold and the lower forward price for the
future purchase plus any fee income received. Unless such benefits exceed the
income, capital appreciation and gain or loss due to mortgage prepayments that
would have been realized on the securities sold as part of the mortgage dollar
roll, the use of this technique will diminish the investment performance of the
Fund compared with what such performance would have been without the use of
mortgage dollar rolls. The Fund will hold and maintain in a segregated account
until the settlement date cash or liquid securities in an amount equal to the
forward purchase price.
When a Fund agrees to purchase securities on a when-issued or
delayed delivery basis, the Fund's custodian will maintain in a segregated
account cash or liquid securities in an amount sufficient to meet the Fund's
purchase 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 Advisor or a Fund's
investment sub-advisor, if any, 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 total 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 total assets.
4
<PAGE>
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 Advisor
or, in the case of Emerging Markets Fund, International Fund or Strategic Income
Fund, such Fund's sub-advisor has determined are creditworthy under guidelines
established by the Board of Directors. 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 (including fees to the Advisor, acting as
securities lending agent) in connection with these loans which, in the case of
U.S. Bank, are 40% of the Funds' income from such securities lending
transactions.
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. This
collateral must be valued daily by the Advisor or the applicable Fund's
sub-advisor 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
at any time by the lending Fund or the borrower. 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.
U.S. Bank, the Funds' custodian and investment advisor, may act as
securities lending agent for the Funds and receive separate compensation for
such services, subject to compliance with conditions contained in an SEC
exemptive order permitting U.S. Bank to provide such services and receive such
compensation.
OPTIONS TRANSACTIONS
To the extent set forth below, the Funds may purchase put and call
options on equity securities, stock indices, interest rate indices and/or
foreign currencies on securities that they own or have the right to acquire.
These transactions will be undertaken for the purpose of reducing risk to the
Funds; that is, for "hedging" purposes. Options on futures contracts are
discussed below under "-- Futures and Options on Futures."
OPTIONS ON SECURITIES. The Equity Funds (other than Equity Index
Fund and International Index Fund), Tax Free Funds and Strategic Income Fund may
purchase put and call options on securities they own or have the right to
acquire. 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.
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, a 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.
OPTIONS ON STOCK INDICES. The Equity Funds (other than Equity Index
Fund and International Index Fund), Strategic Income Fund and Corporate Bond
Fund may purchase put and call 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
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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. The Bond Funds and Tax Free Funds
may purchase put and call 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 less 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 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.
WRITING OF CALL OPTIONS. The Equity Funds (other than Equity Index
Fund and International Index Fund) and Strategic Income Fund may write (sell)
covered call options. 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
Emerging Markets Fund, International Fund and Strategic Income Fund) on foreign
currencies. The Equity Funds (other than Emerging Markets Fund and International
Fund) may write (sell) covered call options covering up to 25% of the equity
securities owned by such Funds, and, in the case of Emerging Markets Fund and
International Fund, covering up to 50% of the equity securities owned by such
Funds. Strategic Income Fund may write (sell) covered call options on equity
securities covering up to 25% of its net assets.
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. These Funds may also write
call options on stock indices the movements of which generally correlate with
those of the respective Funds' portfolio holdings. These transactions, which
would be undertaken principally to produce additional income, entail the risk of
an imperfect correlation between movements of the index covered by the option
and movements in the price of the Fund's portfolio securities.
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.
LIMITATIONS. None of the Funds other than Mid Cap Growth Fund,
Emerging Markets Fund and 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.
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FUTURES AND OPTIONS ON FUTURES
Balanced Fund, Equity Index Fund, International Fund, Emerging
Markets Fund, International Index Fund, the Bond Funds and the Tax Free Funds
may engage in futures transactions and options on futures transactions. Emerging
Markets Fund, International Fund and Strategic Income Fund may enter into
contracts for the future delivery of securities and options thereon. Emerging
Markets Fund, International Fund, Strategic Income Fund, Equity Index Fund and
International Index Fund may enter into stock index futures contracts and
options thereon. Balanced Fund, the Bond Funds and the Tax Free Funds may enter
into interest rate futures, interest rate index futures (for the Bond Funds and
Tax Free Funds) and options thereon. In addition, Emerging Markets Fund,
International Fund and Strategic Income Fund may enter into contracts for the
future delivery of foreign currencies and options thereon.
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.
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 equal to at least 100% of
its performance under such contracts.
A Fund may use futures contracts and options on futures in an effort
to hedge against market risks and, in the case of Emerging Markets Fund and
International Fund, as part of its management of foreign currency transactions.
In addition, Equity Index Fund and International 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 Composite Index or the Morgan Stanley Europe,
Australia, Far East Composite Index (the "EAFE Index"), respectively, 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 Code.
Where a Fund is permitted to purchase options on futures, its
potential loss is limited to the amount of the premiums paid for the options. As
stated above, this amount may not exceed 5% of a Fund's total assets. Where a
Fund is permitted to enter into futures contracts obligating it to purchase
securities, currency or an index in the future at a specified price, such Fund
could lose 100% of its net assets in connection therewith if it engaged
extensively in such transactions and if the market value or index value of the
subject securities, currency or index at the delivery or settlement date fell to
zero for all contracts into which a Fund was permitted to enter. Where a Fund is
permitted to enter into futures contracts obligating it to sell securities or
currencies (as is the case with respect only to Emerging Markets Fund,
International Fund and Strategic Income Fund), its potential losses are
unlimited if it does not own the securities or currencies covered by the
contracts and it is unable to close out the contracts prior to the settlement
date.
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
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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 -- EQUITY FUNDS
The fixed income securities in which Balanced Fund, Equity Income
Fund, Large Cap Growth Fund, Large Cap Value Fund, Mid Cap Growth Fund, Mid Cap
Value Fund, Small Cap Growth Fund, Small Cap Value Fund, Health Sciences Fund,
Real Estate Securities Fund and Technology 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.
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 Advisor. 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.
In addition, Equity Income Fund may invest up to 25% of its total
assets, and each of the other Funds may invest up to 5% of its net assets, in
less than investment grade convertible debt obligations. For a description of
such obligations and the risks associated therewith, see "-- Debt Obligations
Rated Less Than Investment Grade."
The fixed income securities specified above, as well as the fixed
income securities in which Balanced Fund may invest as described in the
applicable prospectus, 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 Emerging Markets Fund,
International Fund and International Index Fund invest principally in foreign
securities (Strategic Income Fund invests significantly in foreign securities),
and certain other Funds may invest lesser proportions of their assets in
securities of foreign issuers that are either listed on a United States
securities exchange or represented by American Depositary Receipts. In addition,
Large Cap Growth Fund, Large Cap Value Fund, Equity Income Fund, Mid Cap Growth
Fund, Mid Cap Value Fund, Small Cap Growth Fund, Small Cap Value Fund, Health
Sciences Fund, Real Estate Securities Fund and Technology Fund each may invest
up to 25% of its total assets (25% of the equity portion of the Balanced Fund)
in securities of foreign issuers which are either listed on a United States
securities exchange or represented by American Depositary Receipts.
Furthermore, Limited Term Income Fund, Intermediate Term Income Fund
and Fixed Income Fund may invest up to 15%, and Corporate Bond Fund may invest
up to 25%, of 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 and political
subdivision thereof; (ii) any other foreign government agency or
instrumentality; (iii) foreign subsidiaries of U.S. corporations and (iv) bonds
of foreign issuers having total capital and surplus at the time of investment of
at least $1 billion.
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.
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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.
EMERGING MARKETS. Emerging Markets Fund, International Fund and
Strategic Income Fund may invest in securities issued by the governmental and
corporate issuers that are located in emerging market countries. Investing in
securities of issuers in emerging market countries involves exposure to economic
infrastructures that are generally less diverse and mature than, and to
political systems that can be expected to have less stability than, those of
developed countries. Other characteristics of emerging market countries that may
affect investment in their markets include certain governmental policies that
may restrict investment by foreigners and the absence of developed legal
structures governing private and foreign investments and private property. The
typical small size of the markets for securities issued by issuers located in
emerging markets and the possibility of low or nonexistent volume of trading in
those securities may also result in a lack of liquidity and in price volatility
of those securities. In addition, issuers in emerging market countries are
typically subject to a greater degree of change in earnings and business
prospects than are companies in developed markets.
JAPANESE SECURITIES. Japanese securities comprised a significant
portion of the EAFE Index. As a result, securities of Japanese companies may
represent a significant component of International Index Fund's investment
assets.
Japan is politically organized as a democratic, parliamentary
republic and has a population of approximately 122 million. The Japanese economy
is heavily industrial and export-oriented. Although Japan is dependent upon
foreign economies for raw materials, Japan's balance of payments in recent years
has been strong and positive. Japan has eight stock exchanges located throughout
the country, but over 80% of all trading is conducted on the Tokyo Stock
Exchange. Prices of stocks listed on the Japanese stock exchanges are quoted
continuously during regular business hours. Trading commissions are at fixed
scale rates which vary by the type and the value of the transaction, but can be
negotiable for large transactions. Securities in Japan are denominated and
quoted in yen. Yen are fully convertible and transferable based on floating
exchange rates into all currencies, without administrative or legal
restrictions, for both nonresidents and residents of Japan.
A significant investment in Japanese securities by International
Index Fund may entail a higher degree of risk than with more diversified
international portfolios.
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. Emerging
Markets Fund, International Fund, International Index Fund and Strategic Income
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
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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.
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 Emerging Markets Fund, International Fund,
International Index Fund or Strategic Income Fund is uninvested. In addition,
settlement problems could cause such Funds 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
Emerging Markets Fund, International Fund, International Index Fund
and Strategic Income Fund invest in securities which are purchased and sold in
foreign currencies. The value of their 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. These Funds also will
incur costs in converting United States dollars to local currencies, and vice
versa.
Emerging Markets Fund, International Fund, International Index Fund
and Strategic Income Fund will conduct their 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 an amount of a specific currency at a
specific price on a future date agreed upon by the parties. These forward
currency contracts are traded directly between currency traders (usually large
commercial banks) and their customers.
Emerging Markets Fund, International Fund and Strategic Income Fund
may enter into forward currency contracts in order to hedge against adverse
movements in exchange rates between currencies. These Funds 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. Emerging Markets Fund,
International Fund and Strategic Income Fund also may hedge foreign currency
exchange rate risk by engaging in currency 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 applicable Fund's investment sub-advisor'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 their respective investment sub-advisor's view regarding future
exchange rates proves to have been incorrect, Emerging Markets Fund,
International Fund and Strategic Income Fund may realize losses on their foreign
currency transactions.
As stated above, Emerging Markets Fund, International Fund and
Strategic Income Fund may engage in a variety of foreign currency transactions
in connection with their 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
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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. The Funds will not enter into such
forward contracts or maintain a net exposure in such contracts where the Funds
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
Funds will comply with applicable SEC announcements requiring them to segregate
assets to cover the Funds' 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 to
the extent that the position has been "covered" by entering into an offsetting
position. The Funds (except Strategic Income Fund) generally will not enter into
a forward contract with a term longer than one year, and Strategic Income Fund
will not enter into a forward contract with a term longer than six months.
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 their financial
futures transactions, Emerging Markets Fund, International Fund and Strategic
Income Fund may use foreign currency futures contracts and options on such
futures contracts. Through the purchase or sale of such contracts, these Funds
may be able to achieve many of the same objectives as through investing in
forward foreign currency exchange contracts.
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 Emerging Markets Fund, International Fund or Strategic Income
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 a 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 a 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, Balanced Fund and the
Bond Funds also may invest in mortgage-backed securities. Each of these Funds
will invest only in mortgage-backed securities that are Agency Pass-Through
Certificates or collateralized mortgage obligations ("CMOs"), as defined and
described below. In addition, Strategic Income Fund and Corporate Bond Fund may
invest in private pass-through securities. Furthermore, Strategic Income Fund
may invest in Real Estate Mortgage Investment Conduits ("REMICs").
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. GNMA is a wholly-owned
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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 FNMA 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
FHLMC's operations or to assist FHLMC in any other manner.
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.
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. 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
precision.
Private mortgage pass-through securities ("Private Pass-Throughs")
are structured similarly to GNMA, FNMA and FHLMC mortgage pass-through
securities and are issued by originators of and investors in mortgage loans,
including savings and loan associations, mortgage bankers, commercial banks,
investment banks and special purpose subsidiaries of the foregoing. These
securities usually are backed by a pool of conventional fixed rate or adjustable
loans. Since Private Pass-Throughs typically are not guaranteed by an entity
having the credit status of GNMA, FNMA or FHLMC, such securities generally are
structured with one or more types of credit enhancement. Such credit support
falls into two categories: (i) liquidity protection and (ii) protection against
losses resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provisions of advances, generally by the
entity administering the pool of assets, to ensure that the pass-through of
payments due on the underlying pool occurs in a timely fashion. Protection
against losses resulting from ultimate default enhances the likelihood of
ultimate payment of the obligations on at least a portion of the assets in the
pool. Such protection may be provided through guarantees, insurance policies or
letters of credit obtained by the issuer or sponsor from third parties, through
various means of structuring the transaction or through a combination of such
approaches. The Funds will not pay any additional fees for such credit support,
although the existence of credit support may increase the price of a security.
The ratings of securities for which third-party credit enhancement
provides liquidity protection or protection against losses from default are
generally dependent upon the continued creditworthiness of the enhancement
provider. The ratings of such securities could be subject to reduction in the
event of deterioration in the creditworthiness of the credit enhancement
provider even in cases where the delinquency and loss experience on the
underlying pool of assets is better than expected.
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
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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 Advisor. 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.
For instance, holders may hold interests in CMO tranches called Z-tranches which
defer interest and principal payments until one or other classes of the CMO have
been paid in full. In addition, for example:
o 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.
o 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.
o 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.
o 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.
o 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.
o 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.
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REMICs are offerings of multiple class real estate mortgage-backed
securities which qualify and elect treatment as such under provisions of the
Internal Revenue Code. Issuers of REMICs may take several forms, such as trusts,
partnerships, corporations, associations, or segregated pools of mortgages. Once
REMIC status is elected and obtained, the entity is not subject to federal
income taxation. Instead, income is passed through the entity and is taxed to
the person or persons who hold interests in the REMIC. A REMIC interest must
consist of one or more classes of "regular interests," some of which may offer
adjustable rates of interest (the type in which Strategic Income Fund primarily
invests), and a single class of "residual interests." To qualify as a REMIC,
substantially all the assets of the entity must be in assets directly or
indirectly secured principally by real property.
It generally is more difficult to predict the effect of changes in
market interest rates on the return on mortgage-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. None of the Funds
(except Limited Term Income Fund) will invest more than 10% of their total
assets in interest-only, principal-only, inverse interest only or inverse
floating rate mortgage-backed securities. Limited Term Income Fund will not
invest in interest-only, principal-only, inverse interest-only or inverse
floating rate mortgage-backed securities.
REIT SECURITIES
A majority of Real Estate Securities 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 services 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.
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 income 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.
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 income 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
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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.
ASSET-BACKED SECURITIES
Balanced Fund and the Bond Funds 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.
MUNICIPAL BONDS AND OTHER MUNICIPAL OBLIGATIONS
The Tax Free Funds may invest 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" 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 upon a default by the issuer of
its principal and interest payment obligations. 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 bond 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 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.
REFUNDED BONDS. Tax Free Funds may not invest more than 25% of fund
assets in unrated securities. Investments in refunded bonds are excluded from
this limitation. Refunded bonds may have originally been issued as general
obligation or revenue bonds, but become refunded when they are secured by an
escrow fund, usually consisting entirely of direct U.S. government obligations
and/or U.S. government agency obligations sufficient for paying the bondholders.
For the purposes of excluding refunded bonds from the 25% limitation on unrated
securities in the Tax Free Funds, there are two types of refunded bonds:
pre-refunded bonds and escrowed-to-maturity ("ETMS") bonds.
The escrow fund for a pre-refunded municipal bond may be structured
so that the refunded bonds are to be called at the first possible date or a
subsequent call date established in the original bond debenture. The call price
usually includes a premium from one to three percent above par. This type of
structure usually is used for those refundings that either reduce the issuer's
interest payment expenses or change the debt maturity schedule. In escrow funds
for a ETMS refunded municipal bonds, the maturity schedules of the securities in
the escrow funds match the regular debt-service requirements on the bonds as
originally stated in the bond indentures.
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DERIVATIVE MUNICIPAL SECURITIES. Tax Free Funds may also acquire
derivative municipal securities, which are custodial receipts of certificates
underwritten by securities dealers or banks that evidence ownership of future
interest payments, principal payments or both on certain municipal securities.
The underwriter of these certificates or receipts typically purchases municipal
securities and deposits them in an irrevocable trust or custodial account with a
custodian bank, which then issues receipts or certificates that evidence
ownership of the periodic unmatured coupon payments and the final principal
payment on the obligation.
The principal and interest payments on the municipal securities
underlying custodial receipts may be allocated in a number of ways. For example,
payments may be allocated such that certain custodial receipts may have variable
or floating interest rates and others may be stripped securities which pay only
the principal or interest due on the underlying municipal securities. Tax Free
Funds may each invest up to 10% of their total assets in custodial receipts
which have inverse floating interest rates.
MUNICIPAL LEASES. The Tax Free Funds 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 sales
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, the Tax Free Funds have adopted and
follow procedures for determining whether municipal lease obligations purchased
by the Funds are liquid and for monitoring the liquidity of municipal lease
securities held in each 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 security, the nature of the marketplace in which the security trades, and
other factors which the Advisor may deem relevant. As set forth in "Investment
Restrictions" below, each such Fund is subject to limitations on the percentage
of illiquid securities it can hold.
TEMPORARY TAXABLE INVESTMENTS
The Tax Free Funds may make temporary taxable investments. 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 (including zero
coupon securities); (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.
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INVERSE FLOATING RATE MUNICIPAL OBLIGATIONS
Each of the Tax Free Funds may invest up to 10% of its total 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 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.
ZERO COUPON SECURITIES
The Bond Funds and Tax Free Funds may invest in zero coupon, fixed
income securities. Zero coupon securities pay no cash income to their holders
until they mature and are issued at substantial discounts from their value at
maturity. When held to maturity, their entire return comes from the difference
between their purchase price and their maturity value. Because interest on zero
coupon securities is not paid on a current basis, the values of securities of
this type are subject to greater fluctuations than are the value of securities
that distribute income regularly and may be more speculative than such
securities. Accordingly, the values of these securities may be highly volatile
as interest rates rise or fall.
ADJUSTABLE RATE MORTGAGE SECURITIES
The Bond Funds and Balanced Fund may invest in adjustable rate
mortgage securities ("ARMS"). ARMS are pass-through mortgage securities
collateralized by mortgages with interest rates that are adjusted from time to
time. ARMS also include adjustable rate tranches of CMOs. The adjustments
usually are determined in accordance with a predetermined interest rate index
and may be subject to certain limits. While the values of ARMS, like other debt
securities, generally vary inversely with changes in market interest rates
(increasing in value during periods of declining interest rates and decreasing
in value during periods of increasing interest rates), the values of ARMS should
generally be more resistant to price swings than other debt securities because
the interest rates of ARMs move with market interest rates. The adjustable rate
feature of ARMS will not, however, eliminate fluctuations in the prices of ARMS,
particularly during periods of extreme fluctuations in interest rates.
ARMS typically have caps which limit the maximum amount by which the
interest rate may be increased or decreased at periodic intervals or over the
life of the loan. To the extent interest rates increase in excess of the caps,
ARMS can be expected to behave more like traditional debt securities and to
decline in value to a greater extent than would be the case in the absence of
such caps. Also, since many adjustable rate mortgages only reset on an annual
basis, it can be expected that the prices of ARMS will fluctuate to the extent
changes in prevailing interest rates are not immediately reflected in the
interest rates payable on the underlying adjustable rate mortgages. The extent
to which the prices of ARMS fluctuate with changes in interest rates will also
be affected by the indices underlying the ARMS.
INTEREST RATE TRANSACTIONS
Tax Free Funds may purchase or sell interest rate caps and floors to
preserve a return or a spread on a particular investment or portion of its
portfolio or for other non-speculative purposes. The purchase of an interest
rate cap entitles the purchaser, to the extent a specified index exceeds a
predetermined interest rate, to receive payments of interest on a
contractually-based principal amount from the party selling such interest rate
cap. The purchase of an interest rate floor entitles the purchaser, to the
extent a specified index falls below a predetermined interest rate, to receive
payments of interest on a contractually-based principal amount from the party
selling such interest rate floor.
GUARANTEED INVESTMENT CONTRACTS
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
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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.
DEBT OBLIGATIONS -- RATED LESS THAN INVESTMENT GRADE
Strategic Income Fund and Corporate Bond Fund may invest in both
investment grade debt obligations. 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." Corporate Bond
Fund may invest in both investment grade and non-investment grade (lower-rated)
bonds rated at least B or equivalent rating. There are no minimum rating
requirements for investments by Strategic Income Fund. From time to time, the
Fund's portfolio may consist primarily of lower-rated (i.e., rated Ba or lower
by Moody's, or BB or lower by Standard & Poor's) corporate debt obligations,
which are commonly referred to as "junk bonds."
The "equity securities" in which certain Funds 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." Corporate Bond Fund may invest in both investment grade and
non-investment grade (lower-rated) bonds rated at least B or equivalent rating.
Participation in non-investment grade securities globally involves
greater returns in the form of higher average yields. 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. If the issuer of a security held by a Fund
defaulted, the Fund might incur additional expenses to seek recovery.
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 a 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 a Fund's use of less than investment grade convertible debt
obligations may be more dependent on the Advisor's and applicable sub-advisor's
own credit analysis than is the case with investment grade obligations.
DEBT OBLIGATIONS - STRATEGIC INCOME FUND
The Fund's investments may include U.S. dollar-denominated debt obligations
known as "Brady Bonds," which are issued for the exchange of existing commercial
bank loans to foreign entities for new obligations that are generally
collateralized by zero coupon Treasury securities having the same maturity.
Certain debt obligations in which the Fund invests may involve equity
characteristics. The Fund may, for example, invest in unit offerings that
combine debt
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securities and common stock equivalents such as warrants, rights and options. It
is anticipated that the majority of the value attributable to the unit will
relate to its debt component.
FLOATING RATE CORPORATE DEBT OBLIGATIONS
Strategic Income Fund and Corporate Bond Fund expect to invest in
floating rate corporate debt obligations, including increasing rate securities.
Floating rate securities are generally offered at an initial interest rate which
is at or above prevailing market rates. The interest rate paid on these
securities is then reset periodically (commonly every 90 days) to an increment
over some predetermined interest rate index. Commonly utilized indices include
the three-month Treasury bill rate, the 180-day Treasury bill rate, the
one-month or three-month London Interbank Offered Rate (LIBOR), the prime rate
of a bank, the commercial paper rates, or the longer-term rates on U.S. Treasury
securities.
FIXED RATE CORPORATE DEBT OBLIGATIONS
The Bond Funds and Balanced Fund will also invest in fixed rate
securities. Fixed rate securities tend to exhibit more price volatility during
times of rising or falling interest rates than securities with floating rates of
interest. This is because floating rate securities, as described above, behave
like short-term instruments in that the rate of interest they pay is subject to
periodic adjustments based on a designated interest rate index. Fixed rate
securities pay a fixed rate of interest and are more sensitive to fluctuating
interest rates. In periods of rising interest rates the value of a fixed rate
security is likely to fall. Fixed rate securities with short-term
characteristics are not subject to the same price volatility as fixed rate
securities without such characteristics. Therefore, they behave more like
floating rate securities with respect to price volatility.
PAYMENT-IN-KIND DEBENTURES AND DELAYED INTEREST SECURITIES
Strategic Income Fund and Corporate Bond Fund may invest in
debentures the interest on which may be paid in other securities rather than
cash ("PIKs"). Typically, during a specified term prior to the debenture's
maturity, the issuer of a PIK may provide for the option or the obligation to
make interest payments in debentures, common stock or other instruments (i.e.,
"in kind" rather than in cash). The type of instrument in which interest may or
will be paid would be known by the Fund at the time of investment. While PIKs
generate income for purposes of generally accepted accounting standards, they do
not generate cash flow and thus could cause the Fund to be forced to liquidate
securities at an inopportune time in order to distribute cash, as required by
the Internal Revenue Code of 1986 (the "Code").
Unlike PIKs, delayed interest securities do not pay interest for a
specified period. Because values of securities of this type are subject to
greater fluctuations than are the values of securities that distribute income
regularly, they may be more speculative than such securities.
PREFERRED STOCK
The Equity Funds, Strategic Income Fund and Corporate Bond Fund may
invest in preferred stock. Preferred stock, unlike common stock, offers a stated
dividend rate payable from the issuer's earnings. Preferred stock dividends may
be cumulative or non-cumulative, participating, or auction rate. If interest
rates rise, the fixed dividend on preferred stocks may be less attractive,
causing the price of preferred stocks to decline. Preferred stock may have
mandatory sinking fund provisions, as well as call/redemption provisions prior
to maturity, a negative feature when interest rates decline.
Although the Bond 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 the Bond Funds as soon as practicable in an orderly
manner.
PARTICIPATION INTERESTS
Strategic Income Fund and Corporate Bond Fund may acquire
participation interests in senior, fully secured floating rate loans that are
made primarily to U.S. companies. Each Fund's investments in participation
interests are subject to its limitation on investments in illiquid securities.
The Funds may purchase only those participation interests
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that mature in one year or less, or, if maturing in more than one year, have a
floating rate that is automatically adjusted at least once each year according
to a specified rate for such investments, such as a published interest rate or
interest rate index. Participation interests are primarily dependent upon the
creditworthiness of the borrower for payment of interest and principal. Such
borrowers may have difficulty making payments and may have senior securities
rated as low as C by Moody's, or D by Standard & Poor's.
CLOSED-END INVESTMENT COMPANIES
The Tax Free Funds may invest up to 10% of their total assets in
securities of closed-end investment companies that invest in municipal bonds and
other municipal obligations. Shares of certain closed-end investment companies
may at times be acquired only at market prices representing premiums to their
net asset values. In the event that shares acquired at a premium subsequently
decline in price relative to their net asset value or the value of portfolio
investments held by such closed-end companies declines, the Tax Free Funds and
their shareholders may experience a loss. If a Fund acquires shares of
closed-end investment companies, Fund shareholders would bear both their
proportionate share of the expenses in the Fund (including management and
advisory fees) and, indirectly, the expenses of such closed-end investment
companies.
U.S. TREASURY INFLATION-PROTECTION SECURITIES
To the extent they may invest in fixed-income securities, the Funds
may invest in U.S. Treasury inflation-protection securities, which are issued by
the United States Department of Treasury ("Treasury") with a nominal return
linked to the inflation rate in prices. The index used to measure inflation is
the non-seasonally adjusted U.S. City Average All Items Consumer Price Index for
All Urban Consumers ("CPI-U").
The value of the principal is adjusted for inflation, and pays
interest every six months. The interest payment is equal to a fixed percentage
of the inflation-adjusted value of the principal. The final payment of principal
of the security will not be less than the original par amount of the security at
issuance.
The principal of the inflation-protection security is indexed to the
non-seasonally adjusted CPI-U. To calculate the inflation-adjusted principal
value for a particular valuation date, the value of the principal at issuance is
multiplied by the index ratio applicable to that valuation date. The index ratio
for any date is the ratio of the reference CPI applicable to such date to the
reference CPI applicable to the original issue date. Semiannual coupon interest
is determined by multiplying the inflation-adjusted principal amount by one-half
of the stated rate of interest on each interest payment date.
Inflation-adjusted principal or the original par amount, whichever
is larger, is paid on the maturity date as specified in the applicable offering
announcement. If at maturity the inflation-adjusted principal is less than the
original principal value of the security, an additional amount is paid at
maturity so that the additional amount plus the inflation-adjusted principal
equals the original principal amount. Some inflation-protection securities may
be stripped into principal and interest components. In the case of a stripped
security, the holder of the stripped principal component would receive this
additional amount. The final interest payment, however, will be based on the
final inflation-adjusted principal value, not the original par amount.
The reference CPI for the first day of any calendar month is the
CPI-U for the third preceding calendar month. (For example, the reference CPI
for December 1 is the CPI-U reported for September of the same year, which is
released in October.) The reference CPI for any other day of the month is
calculated by a linear interpolation between the reference CPI applicable to the
first day of the month and the reference CPI applicable to the first day of the
following month.
Any revisions the Bureau of Labor Statistics (or successor agency)
makes to any CPI-U number that has been previously released will not be used in
calculations of the value of outstanding inflation-protection securities. In the
case that the CPI-U for a particular month is not reported by the last day of
the following month, the Treasury will announce an index number based on the
last year-over-year CPI-U inflation rate available. Any calculations of the
Treasury's payment obligations on the inflation-protection security that need
that month's CPI-U number will be based on the index number that the Treasury
has announced. If the CPI-U is rebased to a different year, the Treasury will
continue to use the CPI-U series based on the base reference period in effect
when the security was first issued as long
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as that series continues to be published. If the CPI-U is discontinued during
the period the inflation-protection security is outstanding, the Treasury will,
in consultation with the Bureau of Labor Statistics (or successor agency),
determine an appropriate substitute index and methodology for linking the
discontinued series with the new price index series. Determinations of the
Secretary of the Treasury in this regard are final.
Inflation-protection securities will be held and transferred in
either of two book-entry systems: the commercial book-entry system (TRADES) and
TREASURY DIRECT. The securities will be maintained and transferred at their
original par amount, i.e., not at their inflation-adjusted value. STRIPS
components will be maintained and transferred in TRADES at their value based on
the original par amount of the fully constituted security.
SPECIAL FACTORS AFFECTING ARIZONA TAX FREE FUND
As described in the Prospectuses relating to Arizona Tax Free Fund,
except during temporary defensive periods, the fund will invest most of its
total assets in Arizona municipal obligations. The fund therefore is susceptible
to political, economic and regulatory factors affecting issuers of Arizona
municipal obligations. The following information provides only a brief summary
of the complex factors affecting the financial situation in Arizona.
STATE AND LOCAL GOVERNMENT BOND ISSUE. Under its constitution, the
State of Arizona is not permitted to issue general obligation bonds secured by
the full faith and credit of the State. However, certain agencies and
instrumentalities of the State are authorized to issue bonds secured by revenues
from specific projects and activities. The State enters into certain lease
transactions that are subject to annual renewal at the option of the State.
Local governmental units in the State are also authorized to incur indebtedness.
The major source of financing for such local government indebtedness is an ad
valorem property tax. In addition, in order to finance public projects, local
governments in the State can issue revenue bonds payable from the revenues of a
utility or enterprise or from the proceeds of an excise tax, or assessment bonds
payable from special assessments. Arizona local governments have also financed
public projects through leases which are subject to annual appropriation at the
option of the local government.
There is a statutory restriction on the amount of annual increases
in taxes that can be levied by the various taxing jurisdictions in the State
without voter approval. This restriction does not apply to taxes levied to pay
general obligation debt.
GENERAL ECONOMIC CONDITIONS. Arizona has a diversified economic base
that is not dependent on any single industry. Principal economic sectors include
services, manufacturing, mining, tourism, and the military. Agriculture, which
was at one time a major sector, now plays a much smaller role in the State's
economy. For several decades, the population of the State has grown at a
substantially higher rate than the population of the United States. While the
State's economy flourished during the early 80's, a substantial amount of
overbuilding occurred, adversely affecting Arizona-based financial institutions,
many of which were placed under the control of the Resolution Trust Corporation.
Spillover effects produced further weakening in the State's economy. The Arizona
economy has begun to grow again, albeit at a slower pace than experienced before
the real estate collapse. The North American Free Trade Agreement is generally
viewed as beneficial to the State. However, current and proposed reductions in
federal military expenditures may adversely affect the Arizona economy.
From time to time, there are voter initiatives and legislative
proposals which attempt to further limit the amount of annual increases in taxes
that can be levied by the various taxing jurisdictions without voter approval,
or to restructure the State's revenue mix among sales, income, property and
other taxes. It is possible that if any such proposals were enacted, there would
be an adverse impact on State or local government financing. It is not possible
to predict whether any such proposals will be enacted in the future or what
would be their possible impact on state or local government financing.
Arizona is required by law to maintain a balanced budget. To achieve
this objective, the state has, at various times in the past, utilized a
combination of spending reductions or reductions in the rate of growth in
spending, and tax increases. In recent years, the State's fiscal situation has
improved even while tax reduction measures have been enacted each year since
1992. The 1998 legislature enacted a $120 million tax reduction package,
resulting in the seventh consecutive year of significant state tax reduction. In
earlier years, the 1997 legislature enacted a $110 million income tax reduction
package, the 1996 legislature enacted a $200 million property tax reduction
package, and an income tax reduction of $200 million was enacted in 1995.
Although the 1998 general election ballot will not include
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questions related to the state tax structure generally, efforts were made to
bring such issues to the ballot, and may be made again in 2000 and in future
years.
Arizona State government tax revenue growth in fiscal year 1997
increased by 6.5% over fiscal year 1996, even after factoring in tax reductions.
The 5.1% increase in sales tax revenue for fiscal year 1997, and projected
increases of 5.0% for fiscal year 1998 and fiscal year 1999, respectively,
reflect continued strong economic growth in the state. The state general fund
ended fiscal year 1997 with a total general fund balance of approximately $762
million, representing approximately 16% of total general fund expenditures for
fiscal year 1997. Included in the total balance is a general fund ending balance
of approximately $516 million, and a budget stabilization ("rainy day") fund
balance of approximately $246 million. The total general fund balance at the end
of fiscal year 1998 was approximately $814 million. While these balances are
indicative of present fiscal health, the overall fiscal picture could change
rapidly and dramatically for the worse, depending on fluctuations in revenues
resulting from an economic recession or other adverse conditions.
In 1998, the Legislature adopted a comprehensive plan to overhaul
the state's K-12 education capital finance system. Under this plan, a
substantial commitment of state general fund revenues to the system has been
made, totaling approximately $360 million in fiscal year 1999, with greater
amounts likely in future years. There may be additional legislative activity
during 1999 and beyond in the areas of tax reform and school finance. The
combined impact of the commitment of resources to K-12 education capital
finance, continued tax reduction, and the inability to increase revenues without
a two-thirds of both houses of the legislature, together with other actions and
circumstances, may result in deteriorating fiscal conditions in the future,
which may adversely affect state fund balances and fiscal health.
SPECIAL FACTORS AFFECTING CALIFORNIA INTERMEDIATE TAX FREE FUND AND CALIFORNIA
TAX FREE FUND
As described in the Prospectuses relating to California Intermediate
Tax Free Fund and California Tax Free Fund, except during temporary defensive
periods, the funds will invest most of their total assets in California
municipal obligations. The funds therefore are susceptible to political,
economic and regulatory factors affecting issuers of California municipal
obligations. The following information provides only a brief summary of the
complex factors affecting the financial situation in California. 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 California. It should be noted that the creditworthiness of
obligations issued by local California issuers may be unrelated to the
creditworthiness of obligations issued by the State of California, and that
there is no obligation on the part of California to make payment on such local
obligations in the event of default.
GENERAL ECONOMIC CONDITIONS. California's economy is the largest
among the 50 states and one of the largest in the world. This diversified
economy has major components in agriculture, manufacturing, high-technology,
trade, entertainment, tourism, construction and services.
As 1998 unfolded, the impact of Asia's recession on California began
to emerge. High-technology manufacturing employment -- aerospace and electronics
- -- peaked in March 1998, and by November 1998, had lost almost 15,000 jobs, or
nearly 3% of the industries' workforce. Total nonfarm employment started 1998
with annual growth above 3%, but more recently, the year-to-year pace has slowed
to around 2.7%.
Overall, however, California's economy continued to expand in 1998.
Nonfarm employment growth averaged 3.2% and personal income was up more than 6%.
The jobless rate was below 6% most of the year. Nonresidential construction
activity remained strong, with building permit value up almost 18%. Homebuilding
continued on a moderate recovery path, with permits for new houses reaching
126,000 units, a 13% increase over 1997. The construction industry led
California's employment growth in 1998. From October 1997 to October 1998,
construction jobs increased by more than 9%.
Although weak export demand is likely to persist through at least
1999, there are other elements in the California economy that will help
partially offset the Asia-related problems. Demand for computer services and
software remains extremely strong, buoyed by the recent demand to fix Year 2000
problems, the continued explosive growth of the Internet, and by financial
sector needs related to the new Euro currency. The strength in construction
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activity will continue to boost prospects for related manufacturing industries.
Although California economic growth will slow from the pace of 1997 and 1998,
gains in employment and income should continue to outpace the nation.
California's population grew by 574,000 people in 1997 to a total of
32.96 million. This reflects a 1.8% increase of population for the year,
compared to 1.0% growth posted in calendar year 1996. California's population is
concentrated in metropolitan areas specifically in Los Angeles and San Diego
Counties.
California enjoys a large and diverse labor force. For calendar year
1997, the total civilian labor force was 15,971,000 with 14,965,000 individuals
employed and 1,006,000, or 6.3%, unemployed. In comparison, the unemployment
rate for the United States during the same time was 4.9%.
BUDGETARY PROCESS. The State's fiscal year begins on July 1 and ends
on June 30. The annual budget is proposed by the Governor by January 10 of each
year for the next fiscal year (the "Governor's Budget"). Under State law, the
annual proposed Governor's Budget cannot provide for projected expenditures in
excess of projected revenues and balances available from prior fiscal years.
Under the State Constitution, money may be drawn from the Treasury only through
an appropriation made by law. The primary source of the annual expenditure
authorizations is the Budget Act as approved by the Legislature and signed by
the Governor. The Budget Act must be approved by a two-thirds majority vote of
each House of the Legislature. The Governor may reduce or eliminate specific
line items in the Budget Act or any other appropriations bill without vetoing
the entire bill. Such individual line-item vetoes are subject to override by a
two-thirds majority vote of each House of the Legislature.
Appropriations also may be included in legislation other than the
Budget Act. Bills containing appropriations (except K-14 education) must be
approved by a two-thirds majority vote in each House of the Legislature and be
signed by the Governor. Bills containing K-14 education appropriations only
require a simple majority vote. Continuing appropriations, available without
regard to fiscal year, may also be provided by statute or the State
Constitution. Funds necessary to meet an appropriation need not be in the State
Treasury at the time such appropriation is enacted; revenues may be appropriated
in anticipation of their receipt.
REVENUES AND EXPENDITURES. The moneys of the State are segregated
into the General Fund and approximately 600 Special Funds. The General Fund
consists of revenues received by the State Treasury and not required by law to
be credited to any other fund, as well as earnings from the investment of State
moneys not allocable to another fund. The General Fund is the principal
operating fund for the majority of governmental activities and is the depository
of most of the major revenue sources of the State. The General Fund may be
expended as a consequence of appropriation measures enacted by the Legislature
and approved by the Governor, as well as appropriations pursuant to various
constitutional authorizations and initiative statutes.
Moneys on deposit in the State's Centralized Treasury System are
invested by the Treasurer in the Pooled Money Investment Account ("PMIA"). As of
January 15, 1999, the PMIA held approximately $20.0 billion of State moneys, and
$15.3 billion of moneys invested for 2,641 local governmental entities through
the Local Agency Investment Fund ("LAIF"). The total assets of the PMIA as of
January 15, 1999 were $35.3 billion. The Treasurer does not invest in leveraged
products or inverse floating rate securities. The investment policy permits the
use of reverse repurchase agreements subject to limits of no more than 10% of
PMIA. All reverse repurchase agreements are cash matched either to the maturity
of the reinvestment or an adequately positive cash flow date which is
approximate to the maturity date. The average life of the investment portfolio
of the PMIA as of January 15, 1999 was 192 days.
SPECIAL FUND FOR ECONOMIC UNCERTAINTIES. The Special Fund for
Economic Uncertainties ("SFEU") is funded with General Fund revenues and was
established to protect the State from unforeseen revenue reductions and/or
unanticipated expenditure increases. Amounts in the SFEU may be transferred by
the State Controller as necessary to meet cash needs of the General Fund. The
State Controller is required to return moneys so transferred without payment of
interest as soon as there are sufficient moneys in the General Fund. For
budgeting and accounting purposes, any appropriation made from the SFEU is
deemed an appropriation from the General Fund. For year-end reporting purposes,
the State Controller is required to add the balance in the SFEU to the balance
in the General Fund so as to show the total moneys then available for General
Fund purposes. Inter-fund borrowing has been used for many years to meet
temporary imbalances of receipts and disbursements in the General Fund. As of
December 31, 1998, the General Fund had outstanding internal loans from Special
Funds of $1.1 billion (in addition, there are $1.7 billion of external loans
represented by the 1998-99 Revenue Anticipation Notes, which mature on June 30,
1999).
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The revised projected 1997-98 fiscal year General Fund Reserve for Economic
Uncertanties was 2,594.6 million. The Special Fund for Economic Uncertanties was
$74.6 million as of June 30, 1998.
PROPOSITION 13. The primary units of local government in California
are the counties. Counties are responsible for the provision of many basic
services, including indigent health care, welfare, courts, jails and public
safety in unincorporated areas. There are also about 480 unincorporated cities,
and thousands of other special districts formed for education, utility and other
services. The fiscal condition of local governments has been constrained since
the enactment of "Proposition 13" in 1978, which reduced and limited the future
growth of property taxes, and limited the ability of local governments to impose
"special taxes" (those devoted to a specific purpose) without two-thirds voter
approval. A recent California Supreme Court decision has upheld the
constitutionality of an initiative statute, previously held invalid by lower
courts, which requires voter approval for "general" as well as "special" taxes
at the local level. Counties, in particular, have had fewer options to raise
revenues than many other local government entities, yet have been required to
maintain many services.
In the aftermath of Proposition 13, the State provided aid from the
General Fund to make up some of the loss of property tax moneys, including
taking over the principal responsibility for funding local K-12 schools and
community colleges. Under the pressure of the recent recession, the Legislature
has eliminated the remnants of this post-Proposition 13 aid to entities other
than K-14 education districts, although it has also provided additional funding
sources (such as sales taxes) and reduced mandates for local services. Many
counties continue to be under severe fiscal stress. While such stress has in
recent years most often been experienced by smaller, rural counties, larger
urban counties, such as Los Angeles, have also been affected.
STATE APPROPRIATIONS LIMIT. The State is subject to an annual
appropriations limit imposed by Article XIII B of the State Constitution (the
"Appropriations Limit"). The Appropriations Limit does not restrict
appropriations to pay debt service on voter-authorized bonds. Article XIII B
prohibits the State from spending "appropriations subject to limitation" in
excess of the Appropriations Limit. "Appropriations subject to limitation," with
respect to the State, are authorizations to spend "proceeds of taxes," which
consist of tax revenues, and certain other funds, including proceeds from
regulatory licenses, user charges or other fees to the extent that such proceeds
exceed "the cost reasonably borne by that entity in providing the regulation,
product or service," but "proceeds of taxes" exclude most state subventions to
local governments, tax refunds and some benefit payments such as unemployment
insurance. No limit is imposed on appropriations of funds which are not
"proceeds of taxes," such as reasonable user charges or fees and certain other
non-tax funds.
Not included in the Appropriations Limit are appropriations for the
debt service costs of bonds existing or authorized by January 1, 1979, or
subsequently authorized by the voters, appropriations required to comply with
mandates of courts or the federal government, appropriations for qualified
capital outlay projects, appropriations of revenues derived from any increase in
gasoline taxes and motor vehicle weight fees above January 1, 1990 levels, and
appropriation of certain special taxes imposed by initiative (e.g., cigarette
and tobacco taxes). The Appropriations Limit may also be exceeded in cases of
emergency.
ORANGE COUNTY, CA. On December 6, 1994, Orange County, together with
its pooled investment funds (the "Pools") filed for protection under Chapter 9
of the federal Bankruptcy Code, after reports that the Pools had suffered
significant market losses in their investments, causing a liquidity crisis for
the Pools and Orange County. More than 200 other public entities, most of which,
but not all, are located in Orange County, were also depositors in the Pools.
Orange County has reported the Pools' loss at about $1.69 billion, or about 23%
of their initial deposits of approximately $7.5 billion. Many of the entities
which deposited moneys in the Pools, including Orange County, faced interim
and/or extended cash flow difficulties because of the bankruptcy filing and may
be required to reduce programs or capital projects. Orange County has embarked
on a fiscal recovery plan based on sharp reductions in services and personnel,
and rescheduling of outstanding short term debt using certain new revenues
transferred to Orange County from other local governments pursuant to special
legislation enacted in October, 1995. The State has no existing obligation with
respect to any outstanding obligations or securities of Orange County or any of
the other participating entities.
LITIGATION GENERALLY. The State is a party to numerous legal
proceedings, many of which normally occur in governmental operations. In the
consolidated state case of Malibu Video Systems, et al. v. Kathleen Brown and
Abramovitz, et al., a stipulated judgment has been entered requiring return of
$119 million plus interest to specified
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special funds over a period of up to five years beginning in fiscal year
1996-1997. The lawsuit challenges the transfer of monies from special fund
accounts within the State Treasury to the State's General Fund pursuant to the
Budget Acts of 1991, 1992, 1993, and 1994. Plaintiffs allege that the monetary
transfers violated various statutes and provisions of the State Constitution.
FISCAL YEAR 1997 - 1998. General Fund revenues and transfers for fiscal
year 1997-98 were $55.0 billion, an 11.7% increase from the prior year.
Expenditures for the 1997-98 fiscal year were $53.1 billion, an 8% increase. As
of June 30, 1998, the General Fund balance was $2.8 billion. The General Fund
ended the 1997-98 fiscal year with a cash surplus of $935 million, the first
time the State has recorded a surplus without short-term borrowing in the last
nine years.
Overall, General Fund revenues and transfers represent nearly 80% of
total revenues. The remaining 20% are special funds, dedicated to specific
programs. The three largest revenue sources (personal income, sales, and bank
and corporation) account for about 75% of total revenues.
The 1997-98 fiscal year continued the trend of the past three years
in which tax revenues to the General Fund exceeded levels that were anticipated
when the budgets were enacted. These additional revenues totaled roughly $2.2
billion in 1997-98.
1998-99 FISCAL YEAR. A revised balance of $618 million is expected
in the General Fund Reserve for Economic Uncertainties at June 30, 1999. The
balance in the General Fund at the end of fiscal year 1999 is forecast at $1.1
billion. For fiscal year 1998-99, the Governor's Budget assumes total General
Fund revenues of $56.3 billion, a 2.4% net increase from 1997-98. This revised
estimate reflects the impact of the tax relief legislation which reduces current
year collections $851 million from the baseline estimate, with a more moderate
revenue loss in the budget year. After accounting for non-economic factors,
underlying General Fund revenue growth for 1998-99 is estimated at 4.0%. Special
Fund revenues are estimated to be $15.2 billion and appropriated Special Fund
expenditures are projected at $15.7 billion.
K-12 education remains the state's top funding priority -- over 42
cents of every General Fund dollar is spent on K-12 education. Education, public
safety, and health and human services expenditures constitute nearly 90% of all
state General Fund expenditures. General Fund expenditures for 1998-99 were
proposed in the following amounts and programs: $25.6 billion or 41.6% for K-12
education, $16.4 billion or 27% for health and human services, $7.7 billion or
12.8% for higher education, and $4.6 billion, or 7.5% for youth and correctional
programs. The remaining expenditures were in areas such as business,
transportation, housing, and environmental protection.
Personal income tax revenues for 1998-99 are expected to reach $28.5
billion. Sales and use tax receipts are forecast at $18.6 billion, a 5.6%
increase. Bank and corporation tax receipts are expected to reach $5.9 million,
a 1.5% increase.
DEBT ADMINISTRATION AND LIMITATION. The State Treasurer is
responsible for the sale of debt obligations of the State and its various
authorities and agencies. The State Constitution prohibits the creation of
indebtedness of the State unless a bond law is approved by a majority of the
electorate voting at a general election or a direct primary. General obligation
bond acts provide that debt service on general obligation bonds shall be
appropriated annually from the General Fund and all debt service on general
obligation bonds is paid from the General Fund. Under the State Constitution,
debt service on general obligation bonds is the second charge to the General
Fund after the application of moneys in the General Fund to the support of the
public school system and public institutions of higher education. Certain
general obligation bond programs receive revenues from sources other than the
sale of bonds or the investment of bond proceeds. The State had $19.3 billion
aggregate principal amount of general obligation bonds outstanding, and $14.3
billion authorized and unissued, as of December 31, 1997. Outstanding lease
revenue bonds totaled $6.7 billion as of December 31, 1998, and are estimated to
total $6.6 billion as of June 30, 1999.
From July 1, 1997 to July 1, 1998, the State issued approximately
$1.26 billion in non-self liquidating general obligation bonds and $1.0 billion
in revenue bonds. Refunding bonds, which are used to refinance existing
long-term debt, accounted for $1.0 billion of the general obligation bonds and
$514 million of the revenue bonds.
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General Fund general obligation debt service expenditures for fiscal
year 1997-98 were $1.865 billion, and are estimated at $1.926 billion for fiscal
year 1998-99.
SPECIAL FACTORS AFFECTING COLORADO INTERMEDIATE TAX FREE FUND AND COLORADO TAX
FREE FUND
As described in the Prospectuses relating to Colorado Intermediate
Tax Free Fund and Colorado Tax Free Fund, except during temporary defensive
periods, the funds will invest most of its total assets in Colorado municipal
obligations. The funds are therefore 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 the
State 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 1997-98 increased
15.4% over fiscal year 1996-97 to reach $5,401.2 million. The current estimate
for fiscal year 1998-99 is $5,779.0 million, or an increase of 7.0%. State cash
funds, which consist of a variety of program revenues, totalled $2,087.2 million
for fiscal year 1997-98, and are projected to increase 4.5% for fiscal year
1998-99 to $2,181.2 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 1998-99 are limited to an increase of no more than 5.5% over 1997-98
expenditures. The 5.5% increase factor is equal to the sum of 1997 inflation of
3.3% and population growth of 2.2%. Based upon total general fund tax
collections and state cash revenues for fiscal year 1997-98 of $7,435.2 million,
expenditures for 1998-99 will be limited to $7,249.9 million. December 20, 1998
estimates show total revenues for the 1998-99 fiscal year to be $7,905.2
million, or $655.3 million over the limit. The 1998 fiscal year General Fund and
program revenues (cash funds) were $563.2 million more than expenditures allowed
under the spending limitation. This is the second time the State breached the
limit since its implementation in 1992. This excess revenue of $563.2 million
will be refunded to Colorado taxpayers during the 1999 tax filing season.
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
Colorado 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
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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 to taxpayers in the next
fiscal year unless voters approve a revenue change as an offset.
The state's refund for 1998-99 is more than a half-billion dollars,
compared to only $139 million in fiscal year 1997 Refunds will continue for the
next five years.
COLORADO ECONOMY. Colorado's economic base is comprised of the
mining, construction, real estate, business services, communications and
recreational industries. The recessions in Asia and South American are expected
to affect the West and Colorado more than the U.S., as a whole, as declines in
tourism from these affected areas hurt the states in the Pacific and Southwest
with the strongest economic ties.
The State is also vulnerable to construction and real estate cycles.
Colorado began its current construction expansion ahead of the U.S. Total
construction is up 1% during 1998, through October, due to heavy construction
such as dams, water supply systems, and roads. However, there are signs of
weakness in residential, commercial and institutional construction.
Colorado employment has slowed from 4.0% in 1997 to 3.7% in 1998.
Total nonagricultural wage and salary employment was 2,057,800 as of September
1998. This was an increase of 61,000 from September 1997. Services and trade
remain the two largest industries. Services employment comprised 30% of the
total nonagricultural employment while the trade industry comprised 24%. The
unemployment rate as of September 1998 was 3.5% (seasonally adjusted). This was
an increase from September 1997 which had an unemployment rate of 3.2%.
Total personal income in Colorado during 1998 is projected to
increase of 7.7%, about the same rate as 7.6% reached in 1997. During 1997,
total United States personal income increased 5.6% and is estimated to increase
4.9% in 1998. Preliminary estimates for Colorado personal income predict an
annual growth rate of 7.2% for 1999.
Total population in Colorado increased 2.2% during 1997. The
preliminary estimate for total population increase for 1998 is 2.0%.
SPECIAL FACTORS AFFECTING MINNESOTA INTERMEDIATE TAX FREE FUND AND MINNESOTA TAX
FREE FUND
As described in the Prospectuses relating to Minnesota Intermediate
Tax Free Fund and Minnesota Tax Free Fund, except during temporary defensive
periods, these Funds will invest most of their total assets in Minnesota
municipal obligations. 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.
Diversity and a significant natural resource base are two important
characteristics of the Minnesota economy. Generally, the structure of the
State's economy parallels the structure of the United States economy as a whole.
There are, however, employment concentrations in the manufacturing categories of
industrial machinery, instruments and miscellaneous, food, paper and related
industries, and printing and publishing. During the period from 1980 to 1990,
overall employment growth in Minnesota lagged behind national employment growth,
in large part due to declining
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agricultural employment. The rate of non-farm employment growth in Minnesota
exceeded the rate of national growth, however, in the period of 1990 to 1998.
The State's unemployment rate continues to be substantially less than the
national unemployment rate. Since 1980, Minnesota per capita income generally
has remained above the national average.
The State relies heavily on a progressive individual income tax and
a retail sales tax for revenue, which results in a fiscal system that is
sensitive to economic conditions. On a number of occasions in previous 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. In June 1999, the Minnesota Department of Finance projected, under
current laws, that the State will complete the June 30, 2001 biennium with an
unrestricted balance of $130 million, plus a $350 million cash flow account
balance, plus a $622 million budget reserve. Total General Fund expenditures and
transfers for the biennium are projected to be $23.4 billion. 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. Risks are inherent in making revenue and expenditure
forecasts. Economic or fiscal conditions less favorable than those reflected in
State budget forecasts 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, but
generally the State has no obligation to make payments on local obligations in
the event of a default. Even with respect to revenue obligations, no assurance
can be given that economic or other fiscal difficulties and the resultant impact
on State and local government finances will not adversely affect the ability of
the respective obligors to make timely payment of the principal and interest on
Minnesota municipal obligations that are held by the Funds or the value or
marketability of such obligations.
Certain Minnesota tax legislation and possible future changes in
federal and State income tax laws, including rate reductions, could adversely
affect the value and marketability of the Minnesota municipal obligations that
are held by the Funds. See "Distributions and Taxes".
SPECIAL FACTORS AFFECTING OREGON INTERMEDIATE TAX FREE FUND
As described in the Prospectus relating to Oregon Intermediate Tax
Free Fund, except during temporary defensive periods, Oregon Intermediate Tax
Free Fund will invest most of its total assets in Oregon municipal obligations.
This Fund therefore is susceptible to political, economic and regulatory factors
affecting issuers of Oregon municipal obligations. The following information
provides only a brief summary of the complex factors affecting the financial
situation in Oregon. 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 Oregon. It should be noted that the creditworthiness
of obligations issued by local Oregon issuers may be unrelated to the
creditworthiness of obligations issued by the State of Oregon, and that there is
no obligation on the part of Oregon to make payment on such local obligations in
the event of default.
GENERAL ECONOMIC CONDITIONS. Oregon's December 1998 forecast issued
by the Department of Administrative Services predicts that the state's economy
is feeling the effects of the Asian recessions. High technology manufacturing,
forest products, and agriculture have all been slowed by declining exports to
Asia. Despite the State's economic slowdown, Oregon's construction sector has
largely held up. However, it is not as strong either as in the mid-1990s. A key
reason for stability in the construction sector is the housing market. Low
mortgage rates and high affordability have sustained Oregon's long housing
expansion. Housing starts are estimated to total 25,200 for 1998. Yet, overall,
the state's 1999 measures of general economic activity are expected to be the
weakest since 1991.
A pattern of slowing growth is expected for both personal income and
employment. Total non-farm wage and salary employment is projected to increase
2.6% for 1998, down from 3.4% in 1997. Job growth is expected to slow further to
1.3% in 1999. Personal income will grow a projected 5.1% for 1998 and 4.0% for
1999, down from 6.5%
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growth in 1997. The State's population is forecast to increase 1.3% in 1998, up
slightly from an estimated 1.1% in 1997.
Oregon's unemployment rate increased slightly from 5.5% in November
1997 to 5.6% in November 1998. This is much higher than the national
unemployment rates of 4.6% in November 1997 and 4.4% in November 1998.
The statewide timber harvest is expected to be 3.89 billion board
feet for 1998 and 3.83 billion board fee for 1999, a slight decrease from 4.13
billion board feet in 1997. The 1997 statewide timber harvest was an increase of
5.0% from 1996. In the agricultural industry, cash commodities include farm
forest products, cattle and calves, nursery crops, dairy, wheat, potatoes,
alfalfa hay, and perennial rye grass seed.
BUDGETARY PROCESS. The Oregon budget is approved on a biennial basis
by separate appropriation measures. A biennium begins July 1 and ends June 30 of
odd-numbered years. Measures are passed for the approaching biennium during each
regular Legislative session, held beginning in January of odd-numbered years.
Because the Oregon Legislative Assembly meets in regular session for
approximately six months of each biennium, provision is made for interim funding
through the Legislative Emergency Board. The Emergency Board is authorized to
make allocations of General Fund monies to State agencies from the State
Emergency Fund. The Emergency Board may also authorize increases in expenditure
limitations from Other or Federal Funds (dedicated or continuously appropriated
funds), and may take other actions to meet emergency needs when the Legislative
Assembly is not in session. The most significant feature of the budgeting
process in Oregon is the constitutional requirement that the budget be in
balance at the end of each biennium. Because of this provision, Oregon may not
budget a deficit and is required to alleviate any revenue shortfalls within each
biennium.
REVENUE AND EXPENDITURES. The Oregon Biennial budget is a two-year
fiscal plan balancing proposed spending against expected revenues. The total
budget consists of three segments distinguished by source of revenues: program
supported by General Fund revenues; programs supported by Other Funds (dedicated
fund) revenues, including lottery funds; and, Federal Funds. General Fund
revenue totaled $7,731.58 million for the 1995-1997 biennium.
General Fund revenue is projected to be $8,292.4 million for the
1997-99 biennium. The beginning balance is estimated at $800.1 million for a
total General Fund resource estimate of $9,092.6 million. The December 1997-99
General Fund revenue estimate is $67 million higher than the 1997 Close of
Session (COS) forecast. The ending balance is now estimated to be $359 million.
The State is involved in certain legal proceedings that, if decided
against the State, may require the State to make significant future expenditures
or may impair future revenue sources. Because of the prospective nature of these
legal proceedings, no provision for these potential liabilities has been
recorded in the publicly disclosed financial statements.
In the November 1994 general election, Oregonians approved a ballot
measure, introduced through the initiative process, that will have, or may have,
a material financial impact on the State. "Measure 11" amends Oregon statutes to
require mandated minimum sentences for certain felonies, effective April 1,
1995. "Measure 11" creates a need for an estimated 6,085 new prison beds by the
year 2001 and calls for State correction facility construction costs of
approximately $462 million in the next five years. The State also estimates
increases in State expenditures for correctional operations, beginning with an
increase of $3.2 million in fiscal year 1996, with accelerating costs that
should peak at an annual increase of up to $101.6 million by fiscal year 2001.
Because these demands will be made by on the State General Fund, they will
reduce amounts that otherwise would be available in the future for the Oregon
Legislative Assembly to appropriate for other purposes.
In November of 1996, voters approved Ballot Measure 47, the property
tax cut and cap. It will reduce revenues to schools, cities and counties by as
much as $1 billion and put pressure on the General Fund to make up some or all
of the difference.
Ballot Measure 50, passed by Oregon voters in May of 1997, limits
the taxes a property owner must pay. It limits taxes on each property by rolling
back the 1997-98 assessed value of each property to 90% of its 1995-96 value.
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The measure also limits future growth on taxable value to 3% a year, with
exceptions for items such as new construction, remodeling, subdivisions, and
rezoning. It establishes permanent tax rates for Oregon's local taxing
districts, yet allows voters to approve new, short-term option levies outside
the permanent rate limit if approved by a majority of a 50% voter turnout.
DEBT ADMINISTRATION AND LIMITATION. Oregon statutes give the State
Treasurer authority to review and approve the terms and conditions of sale for
State agency bonds. The Governor, by statute, seeks the advice of the State
Treasurer when recommending the total biennial bonding level for State programs.
Agencies may not request that the Treasurer issue bonds or certificates of
requirements for state agencies on proposed and outstanding debt.
Statutes contain management and reporting requirements for state agencies on
proposed and outstanding debt.
A variety of general obligation and revenue bond programs have been
approved in Oregon to finance public purpose programs and projects. General
obligation bond authority requires voter approval or a constitutional amendment,
while revenue bonds may be issued under statutory authority. However, under the
Oregon Constitution the state may issue up to $50,000 of general obligation debt
without specific voter approval. The State Legislative Assembly has the right to
place limits on general obligation bond programs which are more restrictive than
those approved by the voters. General obligation authorizations are normally
expressed as a percentage of statewide True Cash Value (TCV) of taxable
property. Revenue bonds usually are limited by the Legislative Assembly to a
specific dollar amount.
The State's constitution authorizes the issuance of general
obligation bonds for financing community colleges, highway construction, and
pollution control facilities. Higher education institutions and activities and
community colleges are financed through an appropriation from the General Fund.
Facilities acquired under the pollution control program are required to
conservatively appear to be at least 70% self-supporting and self-liquidating
from revenues, gifts, federal government grants, user charges, assessments, and
other fees.
Additionally, the State's constitution authorizes the issuance of
general obligation bonds to make farm and home loans to veterans, provide loans
for state residents to construct water development projects, provide credit for
multi-family housing for elderly and disabled persons, and for small scale local
energy projects. These bonds are self-supporting and are accounted for as
enterprise funds. Certain provisions of the Water Resources general obligation
bond indenture conflict with State statutes. Upon the advice of the Attorney
General, the method of handling investment interest is in compliance with the
statutes rather than the bond indenture. Currently there is litigation pending
against the State concerning this treatment of the investment interest.
The State's constitution further authorizes the issuance of general
obligation bonds for financing higher education building projects, facilities,
institutions, and activities. As of September 1, 1997, the total balance of
general obligation bonds was $3.26 billion. The debt service requirements for
general obligation bonds, including interest of approximately $2.39 billion, as
of September 1, 1997, was $5.66 billion.
In addition to general obligation and direct revenue bonds, the
State of Oregon issues industrial development revenue bonds ("IDBs"), Oregon
Mass Transportation Financing Authority revenue bonds and Health, Housing,
Educational and Cultural Facilities Authority ("HHECFA") revenue bonds. The IDBs
are issued to finance the expansion, enhancement or relocation of private
industry in the State. Before such bonds are issued, the project application
must be reviewed and approved by both the Oregon State Treasury and the Oregon
Economic Development Commission. Strict guidelines for eligibility have been
developed to ensure that the program meets a clearly defined development
objective. IDBs issued by the State are secured solely by payments from the
private company and there is no obligation, either actual or implied, to provide
state funds to secure the bonds. The Oregon Mass Transportation Financing
Authority ("OMTFA") reviews financing requests from local mass transit districts
and may authorize issuance of revenue bonds to finance eligible projects. The
State has no financial obligation for these bonds, which are secured solely by
payments from local transit districts.
The State is statutorily authorized to enter into financing
agreements through the issuance of certificates of participation. Certificates
of participation have been used for the acquisition of computer systems by the
Department of Transportation, Department of Administrative Services, and the
Department of Higher Education. Also, certificates of participation have been
used for the acquisition or construction of buildings by the Department of
Administrative Services, Department of Fish and Wildlife, Department of
Corrections, State Police, and Department of Higher
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Education. Further, certificates of participation were used in the acquisition
of telecommunication systems by the Department of Administrative Services and
the Adult & Family Services Division. As of September 1, 1997, the certificates
of participation debt totaled $634.9 million. The debt service requirements for
certificates of participation for 1995-1997 is estimated at $70.1 million.
HHECFA is a public corporation created in 1989, and modified in
1991, to assist with the assembling and financing of lands for health care,
housing, educational and cultural uses and for the construction and financing of
facilities for such uses. The Authority reviews proposed projects and makes
recommendations to the State Treasurer as to the issuance of bonds to finance
proposed projects. The State has no financial obligation for these bonds, which
are secured solely by payments from the entities for which the projects were
financed.
The Treasurer on behalf of the State may also issue federally
taxable bonds in those situations where securing a federal tax exemption is
unlikely or undesirable; regulate "current" as well as "advance" refunding
bonds; enter into financing agreements, including lease purchase agreements,
installment sales agreements and loan agreements to finance real or personal
property and approve certificates of participation with respect to the financing
agreements. Amounts payable by the State under a financing agreement are limited
to funds appropriated or otherwise made available by the Legislative Assembly
for such payment. The principal amount of such financing agreements are treated
as bonds subject to maximum annual bonding levels established by the Legislative
Assembly under Oregon statute.
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 a 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 Tax Free Funds, 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. Neither
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Intermediate Tax Free Fund nor Tax Free Fund will 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 and
Minnesota 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 each 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 when-issued 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 that Strategic Income
Fund may borrow up to one-third of its total assets and pledge
up to 15% of its total assets to service such borrowings. 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. Make short sales of securities.
5. 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 Markets Fund,
International Fund, Technology Fund and Strategic Income Fund
as may be necessary to make margin payments in connection with
foreign currency futures and other derivative transactions.
6. 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 shall 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.
7. 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
the Funds (other than Equity Income Fund, Equity Index Fund,
Large Cap Growth Fund, Large Cap Value Fund, Mid Cap Growth
Fund, Mid Cap Value Fund, Small Cap Value Fund, Emerging
Markets Fund, International Index Fund, Minnesota Tax Free
Fund and Tax Free Fund) may invest in mortgage-backed
securities.
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8. 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.
9. Lend any of their assets, except portfolio securities
representing up to one-third of the value of their total
assets.
The following restriction is non-fundamental and may be changed by
FAIF's Board of Directors without a shareholder vote: None of the Funds will
invest more than 15% of its net assets in all forms of illiquid investments.
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 Advisor. For
example, an asset-backed security known as "Money Store 94-D 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 FAF since December 1994 and of FAIF since September 1994, of FASF
since June 1996 and of FAIP since August 1999; Chairman (1989-1993) and Chief
Executive Officer (1993-present), Okabena Company (private family investment
office). Age: 56.
Roger A. Gibson, 1020 15th Street, Ste. 41A, Denver, Colorado 80202:
Director of FAF, FAIF and FASF since October 1997, and of FAIP since August
1999; Vice President North America-Mountain Region for United Airlines since
June 1995; prior to his current position, served most recently as Vice President
Customer Service for United Airlines in the West Region in San Francisco and the
Mountain Region in Denver, Colorado; employee at United Airlines since 1967.
Age: 52.
Andrew M. Hunter III, 537 Harrington Road, Wayzata, Minnesota 55391:
Director of FAIF, FAF and FASF since January 1997, and of FAIP since August
1999; Chairman of Hunter, Keith Industries, a diversified manufacturing and
services management company, since 1975. Age: 51.
Leonard W. Kedrowski, 16 Dellwood Avenue, Dellwood, Minnesota 55110:
Director of FAF and FAIF since November 1993, of FASF since June 1996, and of
FAIP since August 1999; President and owner of Executive Management Consulting,
Inc., a management consulting firm; 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: 57.
* John M. Murphy, Jr., 601 Second Avenue South, Minneapolis,
Minnesota 55402; Director of FAIF, FAF and FASF since June 1999, and of FAIP
since August 1999; Executive Vice President of U.S. Bancorp since January 1999;
Chairman and Chief Investment Officer of First American Asset Management and
U.S. Bank Trust, N.A., and Executive Vice President of U.S. Bancorp, from 1991
to 1999. Age 57.
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* Robert L. Spies, 4715 Twin Lakes Avenue, Brooklyn Center,
Minnesota 55429: Director of FAIF, FAF and FASF since January 31, 1997, and of
FAIP since August 1999; employed by First Bank System, Inc. and subsidiaries
from 1957 to January 31, 1997, most recently as Vice President, First Bank
National Association. Age: 65.
Joseph D. Strauss, 8617 Edenbrook Crossing, # 443, Brooklyn Park,
Minnesota 55443: Director of FAF since 1984 and of FAIF since April 1991, of
FASF since June 1996, and of FAIP since August 1999; Chairman of FAF's and
FAIF's Boards from 1993 to September 1997 and of FASF's Board from June 1996 to
September 1997; 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: 58.
Virginia L. Stringer, 712 Linwood Avenue, St. Paul, Minnesota 55105:
Director of FAIF since August 1987, of FAF since April 1991, of FASF since June
1996, and of FAIP since August 1999; Chair of FAIF's, FAF's and FASF's Boards
since September 1997; 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:
54.
EXECUTIVE OFFICERS
Mark Nagle, SEI Investments Company, Oaks, Pennsylvania 19456;
President of FAIF, FAF and FASF since September 1998, and of FAIP since
September 1999; President and Senior Vice President of Fund Accounting and
Administration of the Sub-Administrator since 1998; Vice President of Fund
Accounting and Administration of the Sub-Administrator from 1996 to 1998; Vice
President of the Distributor since December 1997; Vice President of Fund
Accounting, BISYS Fund Services, Inc., from November 1995 to November 1996;
Senior Vice President, Fidelity Investments, prior to November 1995. Age: 41.
James F. Volk, SEI Investments Company, Oaks, Pennsylvania 19456;
Controller and Treasurer of FAIF, FAF, FASF and FAIP since September 1999;
Director, Investment Accounting Operations and Co-director, International Fund
Accounting Group, SEI Investments Mutual Funds Services since February 1996;
Assistant Chief Accountant, SEC's Division of Investment Management from 1993 to
1996; Senior Manager, Coopers & Lybrand, from 1984 to 1993. Age: 37.
Michael J. Radmer, 220 South Sixth Street, Minneapolis, Minnesota
55402; Secretary of FAIF since April 1991, and of FAF since 1981, and of FASF
since June 1996, and of FAIP since September 1999; Partner, Dorsey & Whitney
LLP, a Minneapolis-based law firm and general counsel of FAIF, FAF and FASF.
Age: 55.
James D. Alt, 220 South Sixth Street, Minneapolis, Minnesota 55402;
Assistant Secretary of FAF, FAIF and FASF since September 1998, and of FAIP
since September 1999; Partner, Dorsey & Whitney LLP, a Minneapolis- based law
firm. Age: 48.
Kathleen L. Prudhomme, 220 South Sixth Street, Minneapolis,
Minnesota 55402; Assistant Secretary of FAF, FAIF and FASF since September 1998,
and of FAIP since September 1999; Partner, Dorsey & Whitney LLP, a Minneapolis-
based law firm. Age: 46.
Kevin P. Robins, SEI Investments Company, Oaks, Pennsylvania 19456:
Vice President and Assistant Secretary of FAIF and FAF since April 1994, and of
FASF since June 1996 and of FAIP since September 1999; Senior Vice President and
General Counsel of the Sub-Administrator and Distributor since 1994. Vice
President of the Administrator and Distributor from 1992 to 1994. Associate,
Morgan Lewis & Bockius from 1988 to 1992. Age: 37.
Todd Cipperman, SEI Investments Company, Oaks, Pennsylvania 19456:
Vice President and Assistant Secretary of FAIF, FAF and FASF since December
1996, and of FAIP since September 1999; Vice President and Assistant Secretary
of the Sub-Administrator and the Distributor since 1995. Associate, Dewey
Ballantine from 1994 to 1995; Associate, Winston & Stawn from 1991 to 1994. Age:
33.
Lydia A. Gavalis, SEI Investments Company, Oaks, Pennsylvania 19456;
Vice President and Assistant Secretary of FAIF, FAF and FASF since January 1998,
and of FAIP since September 1999; Vice President and
34
<PAGE>
Assistant Secretary of the Sub-Administrator and the Distributor each since
January 1998. Assistant General Counsel and Director of Arbitration,
Philadelphia Stock Exchange from 1989 to 1998. Age: 37.
Lynda J. Streigel, SEI Investments Company, Oaks, Pennsylvania
19456; Vice President and Assistant Secretary of FAIF, FAF and FASF since
January 1998, and of FAIP since September 1999; Vice President and Assistant
Secretary of the Sub-Administrator and the Distributor since January 1998;
Senior Asset Management Counsel, Barnett Banks, Inc. from 1993 to 1997; Partner,
Groom and Nordberg, Chartered from 1996 to 1997; and Associate General Counsel,
Riggs Bank, N.A. from 1992 to 1995. Age: 53.
James R. Foggo, SEI Investments Company, Oaks, Pennsylvania 19456;
Vice President and Assistant Secretary of FAIF, FAF and FASF since September
1998, and of FAIP since September 1999; Vice President and Assistant Secretary
of the Administrator and Distributor since September 1998; Associate Attorney,
Paul, Weiss, Rifkind, Wharton and Garrison from January 1998 to August 1998;
Associate Attorney, Baker & McKenzie from January 1995 to January 1998. Age: 36.
Edward T. Searle, SEI Investments Company, Oaks, Pennsylvania
19456;Vice President and Assistant Secretary of FAF, FAIF, FASF and FAIP since
September 1999; Vice President and Assistant Secretary of the Administrator and
Distributor since August 1999; Associate, Drinker, Biddle, and Reath, LLP from
1998 to 1999; Associate, Ballard, Spahr, Andrews and Ingersoll, LLP from 1995 to
1998. Age: 45.
COMPENSATION
The First American Family of Funds, which includes FAIF, FAF, FASF,
FAIP and FACEF, currently pays only to directors of the funds who are not paid
employees or affiliates of the funds a fee of $27,000 per year ($40,500 in the
case of the Chair) plus $4,000 ($6,000 in the case of the Chair) per meeting of
the Board attended and $1,200 per committee meeting attended ($1,800 in the case
of a committee chair) and reimburses travel expenses of directors and officers
to attend Board meetings. In the event of telephonic Board or committee
meetings, each director receives a fee of $500 per Board or committee meeting
($750 in the case of the Chair or committee chair). In addition, directors may
receive a per diem fee of $1,500 per day, plus travel expenses when directors
travel out of town on Fund business. However, directors do not receive the
$1,500 per diem amount plus the foregoing Board or committee fee for an
out-of-town committee or Board meeting but instead receive the greater of the
total per diem fee or meeting fee. Legal fees and expenses are also paid to
Dorsey & Whitney LLP, the law firm of which Michael J. Radmer, secretary of
FAIF, FAF, FASF, FAIP and FACEF, James D. Alt, assistant secretary of of FAIF,
FAF, FASF, FAIP and FACEF, and Kathleen L. Prudhomme, assistant secretary of of
FAIF, FAF, FASF, FAIP and FACEF, are partners. The following table sets forth
information concerning aggregate compensation paid to each director of FAIF (i)
by FAIF (column 2), and (ii) by FAIF, FAF, FASF and FACEF collectively (column
5) during the fiscal year ended September 30, 1999 (no fees were paid by FAIP
during the fiscal year ended September 30, 1999). 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)
NAME OF PERSON, POSITION AGGREGATE PENSION OR ESTIMATED ANNUAL TOTAL COMPENSATION FROM
COMPENSATION FROM RETIREMENT BENEFITS BENEFITS UPON REGISTRANT AND FUND
REGISTRANT ACCRUED AS PART OF RETIREMENT COMPLEX PAID
FUND EXPENSES TO DIRECTORS
<S> <C> <C> <C> <C>
Robert J. Dayton, Director $ 22,917.57 -0- -0- $ 64,750.00
Roger A. Gibson, Director 19,891.39 -0- -0- 56,200.00
Andrew M. Hunter III, Director 24,255.46 -0- -0- 68,530.00
Leonard W. Kedrowski, Director 22,015.02 -0- -0- 62,200.00
Robert L. Spies, Director 21,377.93 -0- -0- 60,400.00
John M. Murphy, Jr., Director 0 _____ _____ 0
Joseph D. Strauss, Director 25,876.50 -0- -0- 73,110.00
Virginia L. Stringer, Director 73,110.00 -0- -0- 80,052.00
</TABLE>
The directors may elect to defer payment of up to 100% of the fees
they receive in accordance with a Deferred Compensation Plan (the "Plan"). Under
the Plan, a director may elect to have his or her deferred fees treated as if
they had been invested in the shares of one or more funds and the amount paid to
the director under the Plan will be
35
<PAGE>
determined based on the performance of such investments. Distributions may be
taken in a lump sum or over a period years. The Plan will remain unfunded for
federal income tax purposes under the Internal Revenue Code of 1986, as amended.
Deferral of director fees in accordance with the Plan will have a negligible
impact on fund assets and liabilities and will not obligate the funds to retain
any director or pay any particular level of compensation.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISORY AGREEMENT
U.S. Bank National Association (the "Advisor"), 601 Second Avenue
South, Minneapolis, Minnesota 55480, serves as the investment Advisor and
manager of the Funds through its First American Asset Management group. The
Advisor 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 Advisor is a subsidiary of U.S.
Bancorp ("USB"), 601 Second Avenue South, Minneapolis, Minnesota 55480, which is
a regional multi-state bank holding company headquartered in Minneapolis,
Minnesota that primarily serves the Midwestern, Rocky Mountain and Northwestern
states. USB operates four banks and eleven trust companies with banking offices
in 16 contiguous states. USB also has various other subsidiaries engaged in
financial services. At September 30, 1999 on a pro forma combined basis, USB and
its consolidated subsidiaries had consolidated assets of more than $77 billion,
consolidated deposits of more than $47 billion and shareholders' equity of more
than $6 billion.
Pursuant to an Investment Advisory Agreement dated April 2, 1991
(the "Advisory Agreement") as amended, the Funds engage the Advisor to act as
investment Advisor for and to manage the investment of the assets of the Funds.
Each Fund, other than International Fund, pays the Advisor monthly fees
calculated on an annual basis equal to 0.70% of its average daily net assets.
Emerging Markets Fund and International Fund pay the Advisor monthly fees
calculated on an annual basis equal to 1.25% of their respective average daily
net assets. The Advisory Agreement requires the Advisor to provide FAIF with all
necessary office space, personnel and facilities necessary and incident to the
Advisor's performance of its services thereunder. The Advisor 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 Advisor or any of its
affiliates.
In addition to the investment advisory fee, each Fund pays all its
expenses that are not expressly assumed by the Advisor 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 Advisor 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 Advisor
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 advisors
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 court or the
appropriate regulatory agencies, FAIF has received an opinion from its counsel
that the Advisor 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 Advisor might be
36
<PAGE>
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.
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,
1997, September 30, 1998 and September 30, 1999:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1998 SEPTEMBER 30, 1999
ADVISORY FEE ADVISORY FEE ADVISORY FEE
BEFORE WAIVER AFTER WAIVER BEFORE WAIVER AFTER WAIVER BEFORE WAIVER AFTER WAIVER
<S> <C> <C> <C> <C> <C> <C>
Balanced Fund $2,969,361 $2,633,982 $4,180,744 $3,605,822 $_________ $_________
Equity Income Fund 1,471,595 1,105,166 2,807,799 2,340,742 _________ _________
Equity Index Fund 3,273,380 822,100 6,944,675 1,728,802 _________ _________
Large Cap Growth Fund 3,690,541 3,206,103 5,350,388 4,849,232 _________ _________
Large Cap Value Fund 6,016,828 5,258,308 10,557,867 9,380,815 _________ _________
Mid Cap Growth Fund * * 2,121,828(4) 2,100,572(4) _________ _________
Mid Cap Value Fund 3,025,411 3,002,763 4,518,491 4,499,104 _________ _________
Small Cap Growth Fund(1) 819,610 398,861 273,024 _________ _________
Small Cap Value Fund 1,288,688(2) 1,287,355(2) 2,861,342(3) 2,795,846(3) _________ _________
Emerging Markets Fund 123,423(4) 0 _________ _________
International Fund 2,143,703 2,143,703 4,152,050 3,761,297 _________ _________
International Index Fund 210,642(2) 798,785(3) 557,647(3) _________ _________
Health Sciences Fund 238,884 189,036 263,071 243,244 _________ _________
Real Estate Securities Fund 141,149 448,259 368,112 _________ _________
Technology Fund 872,103 843,048 1,023,293 1,017,496 _________ _________
Corporate Bond Fund * * * * * *
Fixed Income Fund 4,163,377 3,118,330 7,919,082 6,074,019 _________ _________
Intermediate Term Income Fund 1,097,629 756,616 3,051,944 2,336,617 _________ _________
Limited Term Income Fund 477,717 1,318,172 802,647 _________ _________
Strategic Income Fund 121,401 96,427 _________ _________
Arizona Tax Free Fund * * * * * *
California Intermediate Tax Free Fund 32,438 13,450 243,857 152,957 _________ _________
California Tax Free Fund * * * * * *
Colorado Intermediate Tax Free Fund 381,297 265,043 421,494 289,302 _________ _________
Colorado Tax Free Fund * * * * * *
Intermediate Tax Free Fund 3,150,791 2,427,240 _________ _________
Minnesota Intermediate Tax Free Fund 1,853,372 1,326,104 2,203,876 1,687,229 _________ _________
Minnesota Tax Free Fund 687,617(4) 639,522(4) _________ _________
Oregon Intermediate Tax Free Fund 180,599 80,601 1,271,276 949,861 _________ _________
Tax Free Fund 240,188(4) 210,860(4) _________ _________
</TABLE>
*Fund was not in operation during this fiscal year.
(1) Piper Small Company Growth Fund is the financial reporting survivor of
Small Cap Growth Fund. The total advisory fees for Piper Small Company
Growth Fund for the fiscal years ended September 30, 1996 and September
30, 1997 were $307,937 and $223,793, respectively.
(2) For the four month period from August 1, 1997 to November 30, 1997.
(3) For the ten month period from December 1, 1997 to September 30, 1998.
(4) Includes advisory fees paid to Piper Capital Management Inc., of the
Fund's predecessor arising from a merger transaction between certain FAIF
Funds and Piper Funds Inc., Piper Funds II Inc., Piper Institutional Funds
Inc. and Piper Global Funds Inc.
37
<PAGE>
SUB-ADVISORY AGREEMENT FOR EMERGING MARKETS FUND,
INTERNATIONAL FUND AND STRATEGIC INCOME FUND
Marvin & Palmer Associates, Inc., 1201 North Market Street, Suite
2300, Wilmington, Delaware 19801 ("Marvin & Palmer") is sub-advisor for Emerging
Markets Fund and International Fund under agreements with the Advisor (the
"Marvin & Palmer Sub-Advisory Agreements"). Marvin & Palmer, a privately-held
company, was founded in 1986 by David F. Marvin and Stanley Palmer. Marvin &
Palmer is engaged in the management of global, non-United States and United
States emerging markets equity portfolios for institutional accounts. At
December 31, 1999, Marvin & Palmer managed a total of approximately $ ____
billion in investments. Pursuant to Marvin & Palmer Sub-Advisory Agreements,
Marvin & Palmer is responsible for the investment and reinvestment of Emerging
Markets Fund's and International Fund's assets and the placement of brokerage
transactions in connection therewith. Under the Marvin & Palmer Sub-Advisory
Agreements, Marvin & Palmer is required, among other things, to report to the
Advisor or the Board regularly at such times and in such detail as the Advisor
or the Board may from time to time request in order to permit the Advisor and
the Board to determine the adherence of Emerging Markets Fund and International
Fund to their respective investment objectives, policies and restrictions. The
Marvin & Palmer Sub-Advisory Agreements also requires Marvin & Palmer to provide
all office space, personnel and facilities necessary and incident to Marvin &
Palmer's performance of its services under the Marvin & Palmer Sub-Advisory
Agreements.
For its services to International Fund under the Marvin & Palmer
Sub-Advisory Agreements, Marvin & Palmer is paid a monthly fee by the Advisor
calculated on an annual basis equal to 0.75% of the first $100 million of
International Fund's average daily net assets, 0.50% of International Fund's
average daily net assets in excess of $100 million up to $300 million, 0.45% of
International Fund's average daily net assets in excess of $300 million up to
$500 million and 0.40% of International Fund's average daily net assets in
excess of $500 million.
For its services to Emerging Markets Fund under the Marvin & Palmer
Sub-Advisory Agreements, Marvin & Palmer is paid a monthly fee by the Advisor
calculated on an annual basis equal to 0.85% of the first $100 million of
Emerging Markets Fund's average daily net assets, 0.60% of Emerging Markets
Fund's average daily net assets in excess of $100 million up to $300 million,
0.55% of Emerging Markets Fund's average daily net assets in excess of $300
million up to $500 million, and 0.50% of Emerging Markets Fund's average daily
net assets in excess of $500 million.
Federated Global Investment Management Corp., 175 Water Street, New
York, New York 10038-4965 ("Federated Global"), a subsidiary of Federated
Investors ("Federated"), is a sub-advisor for Strategic Income Fund under an
agreement with the Advisor (the "Federated Sub-Advisory Agreement"). Federated
Global, which is a Delaware corporation, is a registered investment advisors
under the Investment Adviser's Act of 1940. As of September 30, 1999, Federated
Global. and such other subsidiaries of Federated rendered investment advice
regarding over $115.2 billion of assets. Pursuant to the Federated Sub-Advisory
Agreement, Federated Global is responsible for the investment of the
international portion of Strategic Income Fund's assets. Under the Federated
Sub-Advisory Agreement, Federated Global is required, among other things, to
report to the Advisor or the Board regularly at such times and in such detail as
the Advisor or the Board may from time to time request in order to permit the
Advisor and the board to determine the adherence of Strategic Income Fund to its
investment objectives, policies and restrictions. The Federated Sub-Advisory
Agreement also requires the Federated Global to provide all office space,
personnel and facilities necessary and incident to Federated Global's
performance of its services under the Federated Sub-Advisory Agreement.
For its services under the Sub-Advisory Agreement, Federated Global
is paid a monthly fee by the Advisor calculated on an annual basis equal to
0.40% of the first $25 million of Strategic Income Fund's average daily net
assets, 0.33% of Strategic Income Fund's average daily net assets in excess of
$25 million up to $50 million, 0.26% of Strategic Income Fund's average daily
net assets in excess of $50 million up to $100 million and 0.21% of Strategic
Income Fund's average daily net assets in excess of $100 million.
38
<PAGE>
ADMINISTRATION AGREEMENT
U.S. Bank National Association (the "Administrator"), 601 Second
Avenue South, Minneapolis, Minnesota 55402, serves as the Administrator for the
Funds pursuant to an Administration Agreement between it and the Funds. The
Administrator is a subsidiary of USB. Under the Administration Agreement, the
Administrator is compensated to provide, or, compensates other entities to
provide services to the Funds. These services include, various legal, oversight
and administrative services, accounting services, transfer agency and dividend
disbursing services and shareholder services. The funds pay U.S. Bank monthly
fees equal, on an annual basis, to 0.12% of the aggregate average daily assets
of all open-end mutual funds in the First American fund family up to $8 billion,
and 0.105% of the aggregate average daily net assets of all open-end mutual
funds in the First American fund family in excess of $8 billion. In addition,
the funds pay U.S. Bank annual fees of $18,500 per CUSIP, shareholder account
fees of $15 per account and closed account fees of $3.50 per account.
Prior to January 1, 2000, SEI Investments Management Corporation
served as the administrator for the Funds. SEI Investments Management
Corporation is a wholly-owned subsidiary of SEI Investments Company, which also
owns the Funds' Distrbutor. See "- Distributor and Distribution Plans" below.
The Funds paid to SEI Investment Management a fee equal to (i) 0.12% of each
Fund's average daily net assets until aggregate net assets of all Funds exceeded
$8 billion and (ii) 0.105% to the extent aggregate net assets of all Funds
exceeded $8 billion.
The following table sets forth total administrative fees, after
waivers, paid by each of the Funds for the fiscal years ended September 30,
1997, September 30, 1998 and September 30, 1999:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPT. 30, 1997 SEPT. 30, 1998 SEPT. 30, 1999
<S> <C> <C> <C>
Balanced Fund $ 483,173 $ 657,769 $ ________
Equity Income Fund 238,527 442,245 ________
Equity Index Fund 532,263 1,091,829 ________
Large Cap Growth Fund 599,349 842,335 ________
Large Cap Value Fund 977,071 1,660,665 ________
Mid Cap Growth Fund * 210,497(4) ________
Mid Cap Value Fund 491,566 711,009 ________
Small Cap Growth Fund(1) 135,387 61,021 ________
Small Cap Value Fund 209,129(2) 449,312 ________
Emerging Markets Fund * 42,593(4) ________
International Fund 195,362 366,970 ________
International Index Fund 86,702(2) 125,892 ________
Health Sciences Fund 48,839 41,425 ________
Real Estate Securities Fund 49,002 70,555 ________
Technology Fund 141,679 161,074 ________
Corporate Bond Fund * * *
Fixed Income Fund 676,891 1,245,286 ________
Intermediate Term Income Fund 178,052 480,270 ________
Limited Term Income Fund 134,340 207,448 ________
Strategic Income Fund * 18,848 ________
Arizona Tax Free Fund * * *
California Intermediate Tax Free Fund 5,200 38,445 ________
California Tax Free Fund * * *
Colorado Intermediate Tax Free Fund 62,075 66,315 ________
Colorado Tax Free Fund * * *
Intermediate Tax Free Fund * 496,225 ________
Minnesota Intermediate Tax Free Fund 301,176 346,914 ________
Minnesota Tax Free Fund * 106,844(4) ________
Oregon Intermediate Tax Free Fund 28,951 200,197 ________
Tax Free Fund * 40,574(4) ________
- --------------------------------------------------------------------------------------------
</TABLE>
* Fund was not in operation during this fiscal year.
(1) On July 31, 1998, Piper Small Company Growth Fund and Small Cap Growth
Fund consummated a reorganization transaction pursuant to which shares of
Piper Small Company Growth Fund were exchanged for shares of Small Cap
Growth Fund. Piper Small Company Growth Fund is the financial reporting
survivor
39
<PAGE>
of Small Cap Growth Fund. During the foregoing fiscal years, Piper Small
Company Growth Fund did not pay any administration fees.
(2) For the four month period from August 1, 1997 to November 30, 1997.
(3) Commenced operations on August 8, 1997.
(4) Includes administrative fees paid to the administrator of the Fund's
predecessor arising from a merger transaction between certain FAIF Funds
and Piper Funds Inc., Piper Funds II Inc., Piper Institutional Funds Inc.
and Piper Global Funds Inc.
DISTRIBUTOR AND DISTRIBUTION PLANS
SEI Investments Distribution Co. (the "Distributor") serves as the
distributor for the Class A, Class B, Class C and Class Y Shares of the Funds.
The Distributor is a wholly-owned subsidiary of SEI Investments Company.
The Distributor serves as distributor for the Class A and Class Y
Shares pursuant to a Distribution Agreement dated February 10, 1994 (the "Class
A/Class Y 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. In addition,
the Distributor serves as distributor for the Class C Shares pursuant to a
Distribution and Service Agreement dated December 9, 1998 ("Class C Distribution
and Service Agreement") between itself and the Funds. These agreements are
referred to collectively as the "Distribution Agreements."
Fund shares and other securities distributed by the Distributor are
not deposits or obligations of, or endorsed or guaranteed by, U.S. Bank or its
affiliates, and are not insured by the Bank Insurance Fund, which is
administered by the Federal Deposit Insurance Corporation.
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, Class B and
Class C 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 Y 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 Class A Shares of each Fund also pay a
shareholder servicing 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 shareholder servicing activities with
respect to the Class A Shares. The shareholder servicing fee is intended to
compensate the Distributor for ongoing servicing and/or maintenance of
shareholder accounts and may be used by the Distributor to provide compensation
to institutions through which shareholders hold their shares for ongoing
servicing and/or maintenance of shareholder accounts. This fee is calculated and
paid each month based on average daily net assets of Class A Shares of each Fund
for that month.
The Class B and Class C 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 respective Class B and Class C 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 and Class C Shares. This fee is
calculated and paid each month based on average daily net assets of the
respective Class B and Class C Shares 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 respective Class B
and Class C Shares pursuant to a service plan (the "Class B and Class C Service
Plan"), which fee may be used by the Distributor to provide compensation for
shareholder servicing activities with respect to the Class B and Class C Shares
of a Fund. The shareholder servicing fee is intended to compensate the
Distributor for ongoing servicing and/or maintenance of shareholder accounts and
may be used by the Distributor to provide compensation to institutions through
which shareholders hold their shares for ongoing servicing and/or maintenance of
shareholder accounts. Although Class B
40
<PAGE>
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 Distributor also
receives any contingent deferred sales charge paid with respect to sales of
Class B and Class C Shares.
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.
The following tables set forth the amount of underwriting
commissions paid by each Fund and the amount of such commissions retained by SEI
Investments Distribution Co., the Funds' principal underwriter.
<TABLE>
<CAPTION>
TOTAL UNDERWRITING COMMISSIONS
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1998 SEPTEMBER 30, 1999
<S> <C> <C> <C>
Balanced Fund $ 260,351 $ 1,388,236 $ _________
Equity Income Fund $ 32,893 $ 298,410 $ _________
Equity Index Fund $ 144,427 $ 1,940,988 $ _________
Large Cap Growth Fund $ 25,408 $ 232,067 $ _________
Large Cap Value Fund $ 244,029 $ 1,359,139 $ _________
Mid Cap Growth Fund $ -- $ -- $ _________
Mid Cap Value Fund $ 210,081 $ 1,110,165 $ _________
Small Cap Growth Fund(1) $ 13,289 $ 51,922 $ _________
Small Cap Value Fund $ -- $ 120,770 $ _________
Emerging Markets Fund $ -- $ -- $ _________
International Fund $ 11,830 $ 66,662 $ _________
International Index Fund $ -- $ 15,154 $ _________
Health Sciences Fund $ 3,150 $ 30,570 $ _________
Real Estate Securities Fund $ 35,002 $ 162,439 $ _________
Technology Fund $ -- $ 130,824 $ _________
Corporate Bond Fund $ __________ $ __________ $ _________
Fixed Income Fund $ 10,441 $ 235,845 $ _________
Intermediate Term Income Fund $ -- $ 1,344 $ _________
Limited Term Income Fund $ 478 $ 759 $ _________
Strategic Income Fund $ -- $ -- $ _________
Arizona Tax Free Fund $ __________ $ __________ $ _________
California Intermediate Tax Free Fund $ 27 $ -- $ _________
California Tax Free Fund $ __________ $ __________ $ _________
Colorado Intermediate Tax Free Fund $ 17,044 $ 19,530 $ _________
Colorado Tax Free Fund $ __________ $ __________ $ _________
Intermediate Tax Free Fund $ 12,628 $ 44,172 $ _________
Minnesota Intermediate Tax Free Fund $ 15,797 $ 27,430 $ _________
Minnesota Tax Free Fund $ -- $ -- $ _________
Oregon Intermediate Tax Free Fund $ $ _________
Tax Free Fund $ -- $ $ _________
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
UNDERWRITING COMMISSIONS
RETAINED BY THE UNDERWRITER
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1998 SEPTEMBER 30, 1999
<S> <C> <C> <C>
Balanced Fund $ $ 64,621 $ _________
Equity Income Fund $ 3,625 $ 18,985 $ _________
Equity Index Fund $ 16,016 $ 101,556 $ _________
Large Cap Growth Fund $ 2,816 $ 10,315 $ _________
Large Cap Value Fund $ 27,240 $ 52,979 $ _________
Mid Cap Growth Fund $ -- $ -- $ _________
Mid Cap Value Fund $ 23,420 $ 88,234 $ _________
Small Cap Growth Fund $ 1,459 $ 3,092 $ _________
Small Cap Value Fund $ -- $ 13,051 $ _________
Emerging Markets Fund $ -- $ -- $ _________
International Fund $ 1,403 $ 6,734 $ _________
International Index Fund $ -- $ 1,026 $ _________
Health Sciences Fund $ 363 $ 1,572 $ _________
Real Estate Securities Fund $ 3,812 $ 1,613 $ _________
Technology Fund $ -- $ 2,825 $ _________
Corporate Bond Fund
Fixed Income Fund $ 384 $ 8,577 $ _________
Intermediate Term Income Fund $ -- $ 150 $ _________
Limited Term Income Fund $ 26 $ 73 $ _________
Strategic Income Fund $ -- $ 2 $ _________
Arizona Tax Free Fund
California Intermediate Tax Free Fund $ 3 $ 3 $ _________
California Tax Free Fund
Colorado Intermediate Tax Free Fund $ 1,285 $ 2,330 $ _________
Colorado Tax Free Fund
Intermediate Tax Free Fund $ 1,385 $ 4,859 $ _________
Minnesota Intermediate Tax Free Fund $ 1,760 $ 4,094 $ _________
Minnesota Tax Free Fund $ -- $ -- $ _________
Oregon Intermediate Tax Free Fund $ $ -- $ _________
Tax Free Fund $ -- $ -- $ _________
</TABLE>
SEI Investments Distribution Co. received the following compensation
from each Fund during its most recent fiscal year.
<TABLE>
<CAPTION>
NET UNDERWRITING COMPENSATION ON BROKERAGE OTHER
DISCOUNTS AND REDEMPTIONS AND COMMISSIONS COMPENSATION
COMMISSIONS REPURCHASES
<S> <C> <C> <C> <C>
Balanced Fund $ $ $ $
Equity Income Fund $ _______ $ _______ $ _______ $ _______
Equity Index Fund $ _______ $ _______ $ _______ $ _______
Large Cap Growth Fund $ _______ $ _______ $ _______ $ _______
Large Cap Value Fund $ _______ $ _______ $ _______ $ _______
Mid Cap Growth Fund $ _______ $ _______ $ _______ $ _______
Mid Cap Value Fund $ _______ $ _______ $ _______ $ _______
Small Cap Growth Fund(1) $ _______ $ _______ $ _______ $ _______
Small Cap Value Fund $ _______ $ _______ $ _______ $ _______
Emerging Markets Fund $ _______ $ _______ $ _______ $ _______
International Fund $ _______ $ _______ $ _______ $ _______
International Index Fund $ _______ $ _______ $ _______ $ _______
Health Sciences Fund $ _______ $ _______ $ _______ $ _______
Real Estate Securities Fund $ _______ $ _______ $ _______ $ _______
Technology Fund $ _______ $ _______ $ _______ $ _______
Corporate Bond Fund $ _______ $ _______ $ _______ $ _______
Fixed Income Fund $ _______ $ _______ $ _______ $ _______
Intermediate Term Income Fund $ _______ $ _______ $ _______ $ _______
Limited Term Income Fund $ _______ $ _______ $ _______ $ _______
Strategic Income Fund $ _______ $ _______ $ _______ $ _______
Arizona Tax Free Fund $ _______ $ _______ $ _______ $ _______
California Intermediate Tax Free Fund $ _______ $ _______ $ _______ $ _______
California Tax Free Fund $ _______ $ _______ $ _______ $ _______
Colorado Intermediate Tax Free Fund $ _______ $ _______ $ _______ $ _______
Colorado Tax Free Fund $ _______ $ _______ $ _______ $ _______
Intermediate Tax Free Fund $ _______ $ _______ $ _______ $ _______
Minnesota Intermediate Tax Free Fund $ _______ $ _______ $ _______ $ _______
Minnesota Tax Free Fund $ _______ $ _______ $ _______ $ _______
Oregon Intermediate Tax Free Fund $ _______ $ _______ $ _______ $ _______
Tax Free Fund $ $ $ $
</TABLE>
FAIF has adopted Plans of Distribution with respect to the Class A,
Class B and Class C 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
42
<PAGE>
sales charges paid upon purchase of Class A, Class B and Class C 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 and C Plans
authorize the Distributor to retain the contingent deferred sales charge applied
on redemptions of Class B and C Shares, respectively, except that portion which
is reallowed to Participating Institutions. The Plans recognize that the
Distributor, any Participating Institution, the Administrator, and the Advisor,
in their discretion, may from time to time use their own assets to pay for
certain additional costs of distributing Class A, Class B and Class C Shares.
Any such arrangements to pay such additional costs may be commenced or
discontinued by the Distributor, any Participating Institution, the
Administrator, or the Advisor at any time.
The following table sets forth the total Rule 12b-1 fees, after
waivers, paid by each of the Funds for the fiscal years ended September 30,
1997, September 30, 1998 and September 30, 1999 with respect to the Class A
Shares, Class B and Class C Shares of the Funds. As noted above, no distribution
fees are paid with respect to Class Y Shares of the Funds.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1998 SEPTEMBER 30, 1999
RULE 12b-1 FEES RULE 12b-1 FEES RULE 12b-1 FEES
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS C
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
<S> <C> <C> <C> <C> <C> <C> <C>
Balanced Fund $ 65,211 $ 284,082 $ 122,168 $ 570,281
Equity Income Fund 10,355 50,769 25,185 78,673
Equity Index Fund 24,989 139,149 90,541 352,463
Large Cap Growth Fund 21,223 75,168 101,527 108,747
Large Cap Value Fund 82,694 367,871 218,512 613,014
Mid Cap Growth Fund * * 802,902(4) 7,188
Mid Cap Value Fund 59,658 227,800 99,294 416,365
Small Cap Growth Fund(1) 9,165 8,939 108,828 6,449
Small Cap Value Fund 23,014 0 37,953 1,991
Emerging Markets Fund * * 50,048(4) 0
International Fund 9,497 15,477 33,622 26,250
International Index Fund 1,250 0 3,536 642
Health Sciences Fund 1,725 3,921 5,499 6,575
Real Estate Securities Fund 2,975 17,056 5,618 34,621
Technology Fund 12,736 58,415 24,444 85,332
Corporate Bond Fund
Fixed Income Fund 20,065 15,180 88,855 160,408
Intermediate Term Income Fund 0 0 0 *
Limited Term Income Fund 0 0 0 *
Strategic Income Fund * * 21,319 58
Arizona Tax Free Fund
California Intermediate Tax Free
Fund(3) 0 0 0 *
California Tax Free Fund
Colorado Intermediate Tax Free Fund 0 0 0 *
Colorado Tax Free Fund
Intermediate Tax Free Fund 0 *
Minnesota Intermediate Tax Free Fund 0 0 0 *
Minnesota Tax Free Fund 282,169(4) *
Oregon Intermediate Tax Free Fund 0 0 * *
Tax Free Fund 105,088(4) *
</TABLE>
* Fund or class was not in operation during this fiscal year.
43
<PAGE>
(1) Piper Small Company Growth Fund is the financial reporting survivor of
Small Cap Growth Fund. Total distribution fees for the fiscal year ended
September 30, 1997 paid by Piper Small Company Growth Fund were $101,905.
(2) For the four month period from August 1, 1997 to November 30, 1997.
(3) Commenced operations on August 8, 1997.
(4) Includes distribution fees paid to the distributor of the Fund's
predecessor arising from a merger transaction between certain FAIF Funds
and Piper Funds Inc., Piper Funds II Inc., Piper Institutional Funds Inc.
and Piper Global Funds, Inc.
CUSTODIAN; COUNSEL; AUDITORS
CUSTODIAN. The custodian of the Funds' assets is U.S. Bank National
Association (the "Custodian"), U.S. Bank Center, 180 East Fifth Street, St.
Paul, Minnesota 55101. The Custodian is a subsidiary of USB. 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, for Emerging Markets Fund and 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 the Funds, the Custodian is paid
a monthly fee calculated on an annual basis equal to 0.03% (0.10% in the case of
Emerging Markets Fund, International Index Fund and International Fund) of such
Fund's average daily net assets. Sub-custodian fees with respect to Emerging
Markets Fund and 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.
COUNSEL. Dorsey & Whitney LLP, 220 South Sixth Street, Minneapolis,
Minnesota 55402, is independent counsel for the Funds.
AUDITORS. Ernst & Young LLP, 1400 Pillsbury Center, Minneapolis,
Minnesota 55402, serves as the Funds' independent auditors, providing audit
services, including audits of the annual financial statements and assistance and
consultation in connection with SEC filings for the year ended September 30,
1999.
KPMG LLP, 90 South Seventh Street, Minneapolis, Minnesota 55402,
acted as the Funds' independent auditors, providing audit services including
audits of the annual financial statements and assistance and consultation in
connection with SEC filings for the fiscal periods ended on or before September
30, 1998.
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE
Decisions with respect to placement of the Funds' portfolio
transactions are made by the Advisor or, in the case of Emerging Markets Fund,
International Fund and Strategic Income Fund, their respective investment
sub-advisors. 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 Advisor or applicable investment sub-advisor
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
Advisor or applicable investment sub-advisor 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
44
<PAGE>
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 Advisor and applicable investment sub-advisor do 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 Advisor and investment sub-advisor to posted commission rates as well as to
other information concerning the level of commissions charged on comparable
transactions by other qualified brokers.
It is expected that Emerging Markets Fund, International Fund,
International Index Fund and Strategic Income 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
commission paid in connection with most such foreign stock transactions
generally is higher than negotiated commission 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
Depositary 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 generally 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 Advisor,
Federated Global or Marvin & Palmer may consider ability to provide supplemental
performance, statistical and other research information as well as computer
hardware and software for research purposes for consideration, analysis and
evaluation by the staff of the Advisor, Federated Global or Marvin & Palmer. In
accordance with this policy, the Funds do not execute brokerage transactions
solely on the basis of the lowest commission rate available 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 Advisor, Federated
Global or Marvin & Palmer would include advice, both directly and indirectly 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
Advisor, Federated Global or Marvin & Palmer to supplement its own investment
research activities and enable the Advisor, Federated Global or Marvin & Palmer
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 Advisor, Federated Global or Marvin & Palmer
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 Advisor, Federated
Global or Marvin & Palmer 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 Advisor, Federated
Global or Marvin & Palmer in performing services for the Funds. The Advisor,
Federated Global or Marvin & Palmer 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 Advisor, Federated Global or Marvin & Palmer 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
Advisor, Federated Global or Marvin & Palmer, except as noted below. The
Advisor, Federated Global or Marvin & Palmer 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 Advisor, Federated Global or Marvin & Palmer with
45
<PAGE>
research services, which the Advisor, Federated Global or Marvin & Palmer
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 Advisor,
Federated Global or Marvin & Palmer 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 Advisor,
Federated Global or Marvin & Palmer 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 Advisor,
Federated Global or Marvin & Palmer 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 Advisor or the Distributor unless such transactions, including the
frequency thereof, the receipt of commission 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 Advisor, Federated Global or Marvin
& Palmer 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 Advisor, Federated Global or Marvin & Palmer 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.
The following table sets forth the aggregate brokerage commissions
paid by each of the Funds during the fiscal years ended September 30, 1997,
September 30, 1998 and September 30, 1999:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPT. 30, 1997 SEPT. 30, 1998 SEPT. 30, 1999
<S> <C> <C> <C>
Balanced Fund $ 290,704 $ 564,182 $ __________
Equity Income Fund 180,195 111,956 __________
Equity Index Fund 117,618 194,935 __________
Large Cap Growth Fund 327,653 580,279 __________
Large Cap Value Fund 1,205,280 2,567,632 __________
Mid Cap Growth Fund * 276,054(4) __________
Micro Cap Value Fund 31,662 127,010 __________
Small Cap Growth Fund(1) 63,981 49,672 __________
Small Cap Value Fund 5,845(2) 239,609(3) __________
Emerging Markets Fund * 74,024(4) __________
International Fund 818,016 467,074 __________
International Index Fund 81,688(2) 103,733(3) __________
Health Sciences Fund 17,550 29,340 __________
Real Estate Securities Fund 56,817 138,009 __________
Technology Fund 60,918 157,398 __________
Corporate Bond Fund
Fixed Income Fund 0 0 __________
Intermediate Term Income Fund 0 0 __________
Limited Term Income Fund 0 0 __________
Strategic Income Fund * 0 __________
California Intermediate Tax Free Fund 0 0 __________
Colorado Intermediate Tax Free Fund 0 0 __________
Intermediate Tax Free Fund * 0 __________
Minnesota Intermediate Tax Free Fund 0 0 __________
Minnesota Tax Free Fund * 0 __________
Oregon Intermediate Tax Free Fund 0 0 __________
Tax Free Fund * 0 __________
- --------------------------------------------------------------------------------------------
</TABLE>
* Fund was not in operation during this fiscal year.
46
<PAGE>
(1) Piper Small Company Growth Fund is the financial reporting survivor of
Small Cap Growth Fund. Piper Small Company Growth Fund paid aggregate
brokerage commissions during the fiscal years ended September 30, 1995,
September 30, 1996 and September 30, 1997, of $125,638, $65,924 and
$4,020, respectively.
(2) For the four month period from August 1, 1997 to November 30, 1997.
(3) For the ten month period from December 1, 1997 to September 30, 1998.
(4) Includes brokerage commissions paid by the Fund's predecessor arising from
a merger transaction between certain FAIF Funds and Piper Funds Inc.,
Piper Funds II Inc., Piper Institutional Funds Inc. and Piper Global Funds
Inc.
At September 30, 1998, Equity Index Fund held an equity security of
Lehman Brothers Holding, Inc. which is deemed to be a "regular broker or dealer"
of the Funds under the 1940 Act (or of such broker-dealer's parent companies) in
the amount of $432,225. In addition, at September 30, 1998, Fixed Income Fund
held a corporate obligation of Lehman Brothers Holding in the amount of
$24,695,748 and a mortgage backed security of Merrill Lynch, Inc. in the amount
of $9,594,107.25; Limited Term Income Fund held corporate obligations of Bear
Stearns Company in the amount of $7,596,375 and of Lehman Brothers Holding, Inc.
in the amount of $4,836,250; and Intermediate Term Income Fund held a corporate
obligation of Bear Stearns Company in the amount of $13,167,050, all of which
are deemed to be "regular brokers or dealers." [UPDATE IN JANUARY]
CAPITAL STOCK
Each share of a Fund's $.01 par value common stock 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 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 of shares, 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 of shares.
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.
As of November 1, 1999, the directors of FAIF, owned shares of FAIF,
FAF and FASF with an aggregate net asset value of $4.4 million. As of November
1, 1999, the directors and officers of FAIF as a group owned less than one
percent of each class of each Fund's outstanding shares. As of January 15, 1999,
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 CLASS Y
<S> <C> <C> <C> <C>
BALANCED FUND
USB Piper Jaffray Cust
FBO Raymond Wirtz
IRA 200 772871
222 SO 9th St.
Minneapolis, MN 55402-3389 9.22%
U S Bancorp Investments Inc.
FBO 140302741
100 South Fifth Street Suite 1400
Minneapolis, MN 55402-1217 6.80%
</TABLE>
47
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
U S Bancorp Investments Inc.
FBO 175113201
100 South Fifth Street Suite 1400
Minneapolis, MN 55402-1217 5.16%
U S Bancorp Investments Inc.
FBO 190624471
100 South Fifth Street Suite 1400
Minneapolis, MN 55402-1217 6.70%
Donaldson Lufkin Jenrette
Securities Corp Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052 6.95%
James E Roberts & Nancy L Roberts JTWROS
830 Oriole Court
Geneseo, IL 61254-1156 6.88%
NFSC FEBO # BCC-362000
Charles L Ciesman
1319 Ramsey St. W
Stillwater, MN 55082-5541 6.83%
Dorsey & Whitney Master TR BAL FD
Dorsey & Whitney LLP
Pillsbury Center South
220 South Sixth Street
Minneapolis, MN 55402 6.89%
US Bank National Association Cust
Daily Valued Retirement Programs
Attn Reconciliation SPFT0401
180 East 5th St.
St. Paul, MN 55101-2667 64.80%
EQUITY INCOME
U.S. Bancorp Investments, Inc.
FBO 176158571
100 South Fifth Street Suite 1400
Minneapolis, MN 55402-1217 13.49%
First American Strategy Income Fund
US Bank National Assn
Attn Mutual Funds Department
P.O. Box 64010
Saint Paul, MN 55164-0010 5.66%
EQUITY INDEX FUND
United Way of St. Paul, Inc.
Attn: Julie Neville
166 E. 4th St.
St. Paul, MN 55101 5.62%
USB Cash Bal Pen Equity
Attn: Kevin Newton
USB Benefits
4000 West Broadway Ave.
Robbinsdale, MN 55422 11.32%
US Bank National Association Cust
Daily Valued Retirement Programs
Attn Reconciliation SPFT0401
180 East 5th St.
St. Paul, MN 55101-2667 19.44%
</TABLE>
48
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
US Bank Tr
US Bancorp CAP
U/A 01-01-1984
180 5th St. E STE SPEN0502
Saint Paul, MN 55101-2667 18.36%
MetLife Defined Contribution Group
As Agent for First Tr Natl Assoc TR
FBO UTD Healthcare Corp 401(k) SP
180 E Fifth St.
PO Box 64488
St. Paul, MN 55164-0488 16.07%
LARGE CAP GROWTH
Donaldson Lufkin Jenrette
Securities Corp Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052 25.62%
Lawrence A Yoble
7844 Sycamore Dr.
Lincoln, NE 68506-1855 5.45%
Roy Bennett III & Justine Bennett JTWROS
197 Bryant #2
Palo Alto, CA 94301-1104 5.14%
US Bank National Association Cust
Daily Valued Retirement Programs
Attn Reconciliation SPFT0401
180 East 5th St.
St. Paul, MN 55101-2667 7.58%
US Bank National Association Cust
Daily Valued Retirement Programs
Attn Reconciliation SPFT0401
180 East 5th St.
St. Paul, MN 55101-2667 7.16%
USB Cash Bal Pen Equity
Attn: Kevin Newton
USB Benefits
4000 West Broadway Ave.
Robbinsdale, MN 55422 9.85%
LARGE CAP VALUE
U. S. Bancorp Investments, Inc.
FBO 176158571
100 South Fifth Street Suite 1400
Minneapolis, MN 55402-1217 16.49%
Donaldson Lufkin Jenrette
Securities Corp Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052 16.62%
US Bank National Association Cust
Daily Valued Retirement Programs
Attn Reconciliation SPFT0401
180 East 5th St.
St. Paul, MN 55101-2667 17.48%
</TABLE>
49
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
US Bank TR
US Bancorp CAP
U/A 01-01-1984
180 5th St. E STE SPEN0502
Saint Paul, MN 55101-2667 13.34%
State Street Bank & Trust Co.
As Trustee for AMD RSP Profit Sharing Plan
Defined Contribution Services SPG
PO Box 351
Boston, MA 02101-0351 10.14%
USB Cash Bal Pen Equity
Attn: Kevin Newton
USB Benefits
4000 West Broadway Ave.
Robbinsdale, MN 55422 10.35%
MID CAP GROWTH
Donaldson Lufkin Jenrette
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052 25.54%
Donaldson Lufkin Jenrette
Securities Corp Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052 6.43%
James E Roberts & Nancy L Roberts JTWROS
830 Oriole Court
Geneseo, IL 61254-1156 20.79%
Ryan E Roberts
12345 E 400th Street
Orion, IL 61273-9020 10.39%
Judith G Gerber TTEE
Judith G Gerber TR
U/A DTD 12/30/85
955 Oxford Lane
Colorado Springs, CO 80906-1900 5.27%
First American Strategy Growth and Income Fund
US Bank National Assn
Attn Mutual Funds Department
P.O. Box 64010
Saint Paul, MN 55164-0010 5.75%
U. S. Bancorp Investments, Inc.
FBO 384005031
100 South Fifth Street Suite 1400
Minneapolis, MN 55402-1217 5.10%
U. S. Bancorp Investments, Inc.
FBO 140115061
100 South Fifth Street Suite 1400
Minneapolis, MN 55402-1217 5.79%
USB Piper Jaffray as Cust
FBO Bonnie M Lundeen
IRA 420465244
222 So 9th ST.
Minneapolis, MN 55402-3389 8.41%
US Bank National Association Cust
Daily Valued Retirement Programs
Attn Reconciliation SPFT0401
180 East 5th Street
St. Paul, MN 55101-2667 10.22%
</TABLE>
50
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
US Bank National Association Cust
Daily Valued Retirement Programs
Attn Reconciliation SPFT0401
180 East 5th Street
St. Paul, MN 55101-2667 12.23%
BOB & Co
C/O BankBoston
Mutual Funds 45 02 93
P.O. Box 1809
Boston, MA 02105-1809 6.75%
USB Cash Bal Pen Equity
Attn: Kevin Newton
USB Benefits
4000 West Broadway Ave.
Robbinsdale, MN 55422 41.45%
MID CAP VALUE
Piper Jaffray Cust
FBO Veronica Viro
IRA 380738065
222 SO 9th St.
Minneapolis, MN 55402-3389 7.17%
USB Piper Jaffray as Cust
FBO Daniel E Sparling
IRA 410680125
222 So 9th St.
Minneapolis, MN 55402-3389 6.31%
USB Piper Jaffray as Cust
FBO George Tinklin S/D
IRA ACCT 830689865
222 So 9th St.
Minneapolis, MN 55402-3389 5.26%
USB Piper Jaffray as Cust
FBO Betty A Dannen S/D
IRA ACCT 380230485
222 So 9th St.
Minneapolis, MN 55402-3389 16.00%
USB Piper Jaffray as Cust
FBO Robert L Dorr S/D
IRA ACCT 380246304
222 So 9th St.
Minneapolis, MN 55402-3389 5.97%
PJHPRIME
Arliss M Stockdale
2018 Polk Dr
Ames IA 50010-4317 5.08%
Donaldson Lufkin Jenrette
Securities Corp Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052 29.16%
US Bank National Association Cust
Daily Valued Retirement Programs
Attn Reconciliation SPFT0401
180 East 5th St.
St. Paul, MN 55101-2667 15.13%
</TABLE>
51
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
US Bank TR
US Bancorp CAP
U/A 01-01-1984
180 5th St. E STE SPEN0502
Saint Paul, MN 55101-2667 14.57%
Investors Bank & Trust Co Tr
U/A 06-15-98
Hormel Foods Corp Trust
Attn Bob Dana
PO Box 9130
Boston, MA 02117-9130 5.40%
USB Cash Bal Pen Equity
Attn: Kevin Newton
USB Benefits
4000 West Broadway Ave.
Robbinsdale, MN 55422 24.35%
SMALL CAP GROWTH
U.S. Bancorp Investments, Inc.
FBO 413788861
100 South Fifth Street Suite 1400
Minneapolis, MN 55402-1217 5.27%
Brian L Johnson & Joan M Johnson JTWROS
PO Box 400
Spooner, WI 54801-0400 5.76%
US Bank National Association Cust
Daily Valued Retirement Programs
Attn Reconciliation SPFT0401
180 East 5th St.
St. Paul, MN 55101-2667 6.74%
Michael Cody, Michael Vierling
Dennis Kispert TTEES
John Cody TR U/W John F Cody
2334 University Ave. STE 190
Saint Paul, MN 55114-1802 5.85%
U.S. Bancorp Investments, Inc.
FBO 380419351
100 South Fifth Street Suite 1400
Minneapolis, MN 55402-1217 5.88%
Attn. Rick Irish
Ricks Master Marine
1411 S Thistle
Seattle, WA 98108-4458 6.17%
Piper Jaffray as Cust
FBO Benjamin Bauer
IRA 200162999
222 South 9th St.
Minneapolis, MN 55402-3389 6.32%
Donaldson Lufkin Jenrette
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052 17.53%
Donaldson Lufkin Jenrette
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052 9.14%
</TABLE>
52
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Donaldson Lufkin Jenrette
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052 5.08%
USB Cash Bal Pen Equity
Attn: Kevin Newton
USB Benefits
4000 West Broadway Ave.
Robbinsdale, MN 55422 19.32%
SMALL CAP VALUE
US Bank TR
US Bancorp CAP
U/A 01-01-1984
180 5th St. E Ste SPEN 0502
Saint Paul, MN 55101-2667 14.11%
USB Cash Bal Pen Equity
Attn: Kevin Newton
USB Benefits
4000 West Broadway Ave.
Robbinsdale, MN 55422 14.72%
U.S. Bancorp Investments, Inc.
FBO 140298621
100 South Fifth Street Suite 1400
Minneapolis, MN 55402-1217 19.65%
Richard E Brown
141 South Street
Jamaica Plain, MA 02130-3823 8.77%
Donaldson Lufkin Jenrette
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052 23.98%
U.S. Bancorp Investments, Inc.
FBO 385974561
100 South Fifth Street Suite 1400
Minneapolis, MN 55402-1217 5.08%
U.S. Bancorp Investments, Inc.
FBO 386747011
100 S 5th St. Suite 1400
Minneapolis, MN 55402-1217 6.60%
Aggr Equity Port Blended 1
U.S. Bancorp Tower, Suite 3900
Attn: Scott Towsey
Portland, OR 97204 5.74%
EMERGING MARKETS
Dain Rauscher Incorporated
FBO Barret V Marston
5428 East Caron St.
Paradise Valle, AZ 85253-1616 11.73%
Norwest Bank Minnesota
FBO Hilde Family Partners LTD
C/O Mutual Funds #07512600
P.O. Box 1533
Minneapolis, MN 55480-1533 39.77%
USB Cash Bal Pen Equity
Attn: Kevin Newton
USB Benefits
4000 West Broadway Ave.
Robbinsdale, MN 55422 61.15%
</TABLE>
53
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
First American Strategy Growth Fund
US Bank National Assn
Attn Mutual Funds Department
PO Box 64010
Saint Paul, MN 55164-0010 5.33%
SEI Corporation
Attn: Rob Silvestri
One Freedom Valley Dr.
Oaks, PA 19456 7.21%
US Bank Ntnl Assn Cust
J M Brown Company
NDFI Simple IRA DTD 09-17-1998
FBO Heidi Brown
5712 Grand Ave. S
Minneapolis, MN 55419-1805 8.42%
US Bank Ntnl Assn Cust
J M Brown Company
NDFI Simple IRA DTD 09-17-1998
FBO Amy Katherine Norberg
7500 Highway 7 Apt. 472
St. Louis Park, MN 55426-4153 6.14%
US Bank Ntnl Assn Cust
Roger C Stoddard DDS P A
NDFI Simple IRA DTD 10-06-1998
FBO Roger C Stoddard
9710 53rd St. N
Lake Elmo, MN 55042-9630 14.84%
US Bancorp Investments, Inc.
FBO 118103061
100 South Fifth Street Suite 1400
Minneapolis, MN 55402-1217 7.53%
US Bancorp Investments, Inc.
FBO 560393731
100 South Fifth Street Suite 1400
Minneapolis, MN 55402-1217 39.78%
USB Piper Jaffray Cust
FBO Jodi Fritz
Roth IRA 810299536
222 So 9th St.
Minneapolis, MN 55402-3389 6.45%
US Bancorp Investments, Inc.
FBO 140403641
100 South Fifth Street Suite 1400
Minneapolis, MN 55402-1217 7.61%
First American Strategy Aggressive Growth Fund
US Bank National Assn
Attn Mutual Funds Department
PO Box 64010
Saint Paul, MN 55164-0010 8.81%
INTERNATIONAL FUND
US Bank National Association Cust
Daily Valued Retirement Programs
Attn Reconciliation SPFT0401
180 East 5th St.
St. Paul, MN 55101-2667 7.27%
</TABLE>
54
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
US Bank Tr
US Bancorp CAP
U/A 01-01-1984
180 5th St. E STE SPEN0502
Saint Paul, MN 55101-2667 10.80%
US Bank National Association Cust
Daily Valued Retirement Programs
Attn Reconciliation SPFT0401
180 East 5th St.
St. Paul, MN 55101-2667 10.05%
Millerbrand Mfr Co.
Employees Profit Sharing
Retirement Acct DTD 4/26/1995
622 6th St. N
Winsted, MN 55395-1045 10.90%
U S Bancorp Investments Inc.
FBO 120014001
100 South Fifth Street Suite 1400
Minneapolis, MN 55402-1217 5.43%
PJH Prime Account
Thomas A Toussaint
6864 Stonewood Ct.
Eden Prairie, MN 55346-2946 6.79%
Prime Account
Naomi K Evans
Piper Jaffray Horizon
6518 Gleason Ct.
Edina, MN 55436-1850 10.61%
USB Cash Bal Pen Equity
Attn: Kevin Newton
USB Benefits
4000 West Broadway Ave.
Robbinsdale, MN 55422 6.92%
INTERNATIONAL INDEX FUND
U.S. Bancorp Investments, Inc.
FBO 412227871
100 South Fifth St. Suite 1400
Minneapolis, MN 55402-1217 12.47%
Bear Stearns Securities Corp.
FBO 103-82001-17
1 Metrotech Center North
Brooklyn, NY 11201-3870 23.99%
USB Piper Jaffray as Cust
FBO Robert W Peterson
IRA 120 581228
222 So 9th St.
Minneapolis, MN 55402-3389 16.79%
USB Cash Bal Pen Equity
Attn: Kevin Newton
USB Benefits
4000 West Broadway Ave.
Robbinsdale, MN 55422 71.87%
</TABLE>
55
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
HEALTH SCIENCES FUND
Brian E Palmer & Virginia B Palmer Co-TTEES
Eugene P Palmer Credit TR 6-1-94
C/O Dorsey & Whitney
Pillsbury Center S, 220 S 6th St.
Mineapolis, MN 55402 5.09%
US Bancorp Investments, Inc.
FBO 130266871
100 South Fifth Street Suite 1400
Minneapolis, MN 55402-1217 29.43%
Jerry A Reed & Portia L Reed Ten Com
1919 St. James Rd.
Lincoln, NE 68506-1657 5.05%
Johanna M Hill 1917 Trust
Apt. 1409
24-5th Ave.
New York, NY 10011 7.03%
Mari H Harpur 1917 Trust
314 W 90th, Apt 2A
New York, NY 10024 8.84%
J J Hill Reference Library Agy
J J Hill Reference Library
Fouth & Market
St. Paul, MN 55102 8.31%
REAL ESTATE SECURITIES FUND
U S Bancorp Investments Inc.
FBO 360403841
100 South Fifth Street Suite 1400
Minneapolis, MN 55402-1217 7.55%
Donaldson Lufkin Jenrette
Securities Corporation Inc.
PO Box 2052
Jersey City, NJ 07303-2052 6.08%
First American Strategy Income Fund
US Bank National Assn
Attn Mutual Funds Department
PO Box 64010
Saint Paul, MN 55164-0010 9.92%
USB Cash Bal Pen-Oil Gas Real
Attn: Kevin Newton
USB Benefits
4000 West Broadway Ave.
Robbinsdale, MN 55422 11.89%
Bear Stearns Securities Corp
FBO 183-70593-18
1 Metrotech Center North
Brooklyn, NY 11201-3870 5.65%
Brian L.Johnson
PO Box 400
Spooner, WI 54801 8.77%
Donaldson Lufkin Jenrette
Securities Corporation, Inc.
PO Box 2052
Jersey City, NJ 07303-2052 5.02%
</TABLE>
56
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
TECHNOLOGY FUND
US Bank National Association Cust
Daily Valued Retirement Programs
Attn Reconciliation SPFT0401
180 East 5th St.
St. Paul, MN 55101-2667 14.54%
Clair H Morgan
8535 Irvington Rd.
Omaha, NE 68122-2410 8.95%
BT Alex Brown Incorporated
FBO 233-00254-18
PO Box 1346
Baltimore, MD 21203-1346 6.79%
NFSC FEBO #X07-165930
Doncor Limited
Box 1170G
Grand Caymon
Cayman Islands 6.42%
CORPORATE BOND FUND*
FIXED INCOME
First American Strategy Growth & Income Fund
US Bank National Assn
Attn Mutual Funds Department
P.O. Box 64010
Saint Paul, MN 55164-0010 5.66%
USB Cash Bal Pen Equity
Attn: Kevin Newton
USB Benefits
4000 West Broadway Ave.
Robbinsdale, MN 55422 20.14%
US Bank National Association Cust
Daily Valued Retirement Programs
Attn Reconciliation SPFT0401
180 East 5th St.
St. Paul, MN 55101-2667 6.76%
US Bank TR
US Bancorp CAP
U/A 01-01-1984
180 5th St. E STE SPEN0502
Saint Paul, MN 55101-2667 5.71%
Donaldson Lufkin Jenrette
Securities Corp Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052 6.09%
Donaldson Lufkin Jenrette
Securities Corp Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052 5.65%
Donaldson Lufkin Jenrette
Securities Corp Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052 20.37%
</TABLE>
57
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Piper Jaffray as Cust
FBO Benjamin Bauer
IRA 200 162999
222 So 9th St.
Minneapolis, MN 55402-3389 6.15%
U S Bancorp Investments Inc.
FBO 190591791
100 South Fifth Street Suite 1400
Minneapolis, MN 55402-1217 10.42%
NFSC FEBO # BCC-362786
Alice L Peterson
1033 Gershwin Ave North Apt 131
Oakdale, MN 55128-6147 8.27%
INTERMEDIATE TERM INCOME
US Bank National Association Cust
Daily Valued Retirement Programs
Attn Reconciliation SPFT0401
180 East 5th St.
St. Paul, MN 55101-2667 6.68%
Moderate Balanced Portfolio Blended
U.S. Bancorp Tower, Suite 3900
Attn: Scott Towsey
Portland, OR 97204 5.21%
LIMITED TERM INCOME
Charles A Beck MD
Charles A Beck MD LTD
Money Purchase Trust
71 W 156 Street Apt. 210
Harvey, IL 60426-4293 6.29%
Planned Parenthood of Minnesota
Operating Reserve Fund
Thomas Webber, Exc. Director
1965 Ford Parkway
St. Paul, MN 55116-1996 17.26%
Centco
FBO Amsco Windows
P.O. Box 1488
Provo, UT 84603-1488 5.85%
US Bank National Association Cust
Daily Valued Retirement Programs
Attn Reconciliation SPFT0401
180 East 5th St.
St. Paul, MN 55101-2667 9.73%
STRATEGIC INCOME FUND
USB Cash Bal Pen Equity
Attn: Kevin Newton
USB Benefits
4000 West Broadway Ave.
Robbinsdale, MN 55422 34.43%
First American Strategy Growth and Income Fund
US Bank National Assn
Attn Mutual Funds Department
PO Box 64010
Saint Paul, MN 55164-0010 9.85%
</TABLE>
58
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
First American Strategy Income Fund
US Bank National Assn
Attn Mutual Funds Department
PO Box 64010
Saint Paul, MN 55164-0010 6.34%
U S Bancorp Investments Inc.
FBO 365956841
100 South Fifth Street Suite 1400
Minneapolis, MN 55402-1217 5.63%
U S Bancorp Investments Inc.
FBO 140380871
100 South Fifth Street Suite 1400
Minneapolis, MN 55402-1217 5.32%
U S Bancorp Investments Inc.
FBO 181186121
100 South Fifth Street Suite 1400
Minneapolis, MN 55402-1217 9.16%
Donaldson Lufkin Jenrette
Securities Corp Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052 9.43%
U S Bancorp Investments Inc.
FBO 389293941
100 South Fifth Street Suite 1400
Minneapolis, MN 55402-1217 6.78%
U S Bancorp Investments Inc.
FBO 594026771
100 South Fifth Street Suite 1400
Minneapolis, MN 55402-1217 7.86%
U S Bancorp Investments Inc.
FBO 364696251
100 South Fifth Street Suite 1400
Minneapolis, MN 55402-1217 5.46%
U S Bancorp Investments Inc.
FBO 180068251
100 South Fifth Street Suite 1400
Minneapolis, MN 55402-1217 10.21%
U S Bancorp Investments Inc.
FBO 397083261
100 South Fifth Street Suite 1400
Minneapolis, MN 55402-1217 5.03%
US Bank Natl Assn Cust
IRA A/C Louis P Cellette
901 88th LN NW
Coon Rapids, MN 55433-5933 8.88%
USB Piper Jaffray Cust
FBO R Ronald Schultz
IRA 840 628022
222 So 9th St.
Minneapolis, MN 55402-3389 8.03%
ARIZONA TAX FREE FUND*
CALIFORNIA INTERMEDIATE TAX FREE
Northern Trust Bank of California
N A as Successor TR
FBO John Rouzie Trust
A/C 02 00808
P.O. Box 92956
Chicago, IL 60675-2956 43.40%
</TABLE>
59
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
U.S. Bancorp Investments, Inc.
FBO 118138541
100 South Fifth Street Suite 1400
Minneapolis, MN 55402-1217 5.13%
U.S. Bancorp Investments, Inc.
FBO 118224831
100 South Fifth Street Suite 1400
Minneapolis, MN 55402-1217 38.54%
Harris Torgerson
Verley Dahl Torgerson TR
DTD 6/1/1998 Harris O & Verley Dahl Torgerson
Trustees
21 Rue Cannes
Newport Beach, CA 92660 5.01%
John H Hauschild TR U/A
43 Monarch Bay
Dana Point, CA 92629 5.72%
CALIFORNIA TAX FREE FUND*
COLORADO INTERMEDIATE TAX FREE
Dain Rauscher Incorporated
FBO Peter Kooi
5150 Columbine St.
Denver, CO 80216-2305 23.44%
Alpine Trust & Asset Management
Marilyn C Simons RVOC TR
A/C #70400003
225 N 5th St.
Grand Junction, CO 81501-2611 8.65%
George R. Webster Invest. Advisory
1875 Sunburst Drive
Vail, CO 81657 5.26%
COLORADO TAX FREE FUND*
INTERMEDIATE TERM TAX-FREE
Carl S Thomas
8633 Trianon Ln
Las Vegas, NV 89128-4875 14.11%
Drial & Co.
C/o Laird Norton TR Co
801 2nd Ave. Fl 16
Seattle, WA 98104-1576 8.89%
Brian L Johnson & Joan M Johnson JTWROS
P.O. Box 400
Spooner, WI 54801-0400 12.25%
TAX FREE
D A Davidson & Co Inc
FBO Kenneth G Hansen
Box 5015
Great Falls, MT 59403-5015 6.35%
</TABLE>
60
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Robert E Schaffler & Robert F Schaffler JTWROS
1028 Shady Oak Dr
North Mankato, MN 56003-3435 18.08%
Margaret A Gromer
612 13th St. SW
Pipestone, MN 56164-1008 13.51%
Michael Gromer
612 13th St. SW
Pipestone, MN 56164-1008 21.28%
Amy Lynn Gromer
327 C Street SE #1
Washington, DC 20003-2018 16.76%
Vera E Meixner
2799 W Highway 14
Owtonna, MN 55060-4848 30.29%
D A Davidson & Co Inc
FBO Kaye L Hansen
Box 5015
Great Falls, MT 59403-5015 6.70%
Darol B Walvatne TR
U/A December 21, 1993
Darol B Walvatne Trust
3255 16th Ave SW Apt.10
Fargo, ND 58103-4526 5.66%
Lloyd L Boehnen
Florida Account
P.O. Box 66
Mitchell, SD 57301-00366 9.25%
U. S. Bancorp Investments, Inc.
FBO 118044401
100 South Fifth Street Suite 1400
Minneapolis, MN 55402-1217 5.16%
John W Kirk, Deceased
Lois K Huber
14630-138 Way NE
Woodinville, WA 98072 5.68%
Struve Anna Furth TR UW
Marjorie W Baird
8928 N E 33rd Place
Bellevue, WA 98004 6.07%
MINNESOTA INTERMEDIATE TAX FREE
U S Bancorp Investments Inc.
FBO 130015321
100 South Fifth Street Suite 1400
Minneapolis, MN 55402-1217 14.31%
U S Bancorp Investments Inc.
FBO 112089981
100 South Fifth Street Suite 1400
Minneapolis, MN 55402-1217 13.85%
Alfred P Gale
2350 Highland Rd.
Maple Plain, MN 55359-9570 10.29%
</TABLE>
61
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Daniel Lee Barber
Gail Barber JT Ten
648 Hillwood Drive
Shakopee, MN 55379-8963 11.40%
MINNESOTA TAX FREE
U S Bancorp Investments Inc.
FBO 177903611
100 South Fifth Street Suite 1400
Minneapolis, MN 55402-1217 5.89%
U S Bancorp Investments Inc.
FBO 175026341
100 South Fifth Street Suite 1400
Minneapolis, MN 55402-1217 6.59%
U S Bancorp Investments Inc.
FBO 176869241
100 South Fifth Street Suite 1400
Minneapolis, MN 55402-1217 5.54%
U S Bancorp Investments Inc.
FBO 190516221
100 South Fifth Street Suite 1400
Minneapolis, MN 55402-1217 5.79%
U S Bancorp Investments Inc.
FBO 176279511
100 South Fifth Street Suite 1400
Minneapolis, MN 55402-1217 5.75%
U S Bancorp Investments Inc.
FBO 185803991
100 South Fifth Street Suite 1400
Minneapolis, MN 55402-1217 5.89%
Harold Rahm
309 Main St.
Cold Spring, MN 56320-2534 6.46%
Donaldson Lufkin Jenrette
Securities Corp Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052 14.90%
Donaldson Lufkin Jenrette
Securities Corp Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052 7.71%
U S Bancorp Investments Inc.
FBO 130116481
100 South Fifth Street Suite 1400
Minneapolis, MN 55402-1217 5.36%
Jane N Mooty & John W Mooty TR
Jane N Mooty Rev Trust
U/A DTD 02/18/91
P.O. Box 390570
Edina, MN 55439 12.21%
Norvin E Ekrem
2501 Dresden Lane
Golden Valley, MN 55422 6.33%
Prime Account
Daniel D Childers TTEE
Daniel D Childers Rev Tr
U/A DTD 01/29/91
3324 Riviera Road
Sartell, MN 56377 10.82%
</TABLE>
62
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Harold F Griffiths
Bond Account
Griffiths Corp
2727 Niagara Lane
Minneapolis, MN 55447 7.60%
OREGON INTERMEDIATE TAX FREE
Dorothy L Hart
1605 Oak St.
La Grande, OR 97850-1521 19.33%
Florence L Hart
1310 Walnut St.
La Grande, OR 97850-1435 19.33%
Amarban Partnership
P.O. Box 10788
Bainbridge Island, WA 98110-0788 7.13%
U.S. Bancorp Investments, Inc.
FBO 180491631
100 South Fifth Street Suite 1400
Minneapolis, MN 55402-1217 5.90%
U.S. Bancorp Investments, Inc.
FBO 118035411
100 South Fifth Street Suite 1400
Minneapolis, MN 55402-1217 5.96%
U.S. Bancorp Investments, Inc.
FBO 118042911
100 South Fifth Street Suite 1400
Minneapolis, MN 55402-1217 6.25%
Willamette View Foundation TTE
Gloria S King Executive Director
Edith S Shlenker TR
U/A DTD 06/06/86
12705 SE River Rd.
Portland, OR 97222 13.22%
</TABLE>
* Fund was not in operation during this fiscal year.
NET ASSET VALUE AND PUBLIC OFFERING PRICE
The public offering price of the shares of a Fund generally equals
the Fund's net asset value plus any applicable sales charge. A summary of any
applicable sales charge assessed on Fund share purchases is set forth in the
Fund's Prospectuses. The public offering price of each Fund's Class A Shares as
of September 30, 1999 was as set forth below. Please note that the public
offering prices of Class B, Class C and Y Shares are the same as net asset value
since no sales charges are imposed on the purchase of such shares.
PUBLIC OFFERING PRICE
-----------------------
Balanced Fund $ ________
Equity Income Fund ________
Equity Index Fund ________
Large Cap Growth Fund ________
Large Cap Value Fund ________
Mid Cap Growth Fund ________
Mid Cap Value Fund ________
Small Cap Growth Fund ________
Small Cap Value Fund ________
Emerging Markets Fund ________
International Fund ________
63
<PAGE>
International Index Fund ________
Health Sciences Fund ________
Real Estate Securities Fund ________
Technology Fund ________
Corporate Bond Fund ________
Fixed Income Fund ________
Intermediate Term Income Fund ________
Limited Term Income Fund ________
Strategic Income Fund ________
Arizona Tax Free Fund ________
California Intermediate Tax Free Fund ________
California Tax Free Fund ________
Colorado Intermediate Tax Free Fund ________
Colorado Tax Free Fund ________
Intermediate Tax Free Fund ________
Minnesota Intermediate Tax Free Fund ________
Minnesota Tax Free Fund ________
Oregon Intermediate Tax Free Fund ________
Tax Free Fund ________
The net asset value of each Fund's shares is determined on each day
during which the New York Stock Exchange (the "NYSE") and federally-chartered
banks are 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, Martin Luther King, Jr. 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, 1999, the net asset values per share for each
class of shares of the Funds were calculated as follows.
- --------------------------------------------------------------------------------
NET ASSET
NET ASSETS SHARES VALUE PER SHARE
(IN DOLLARS) OUTSTANDING (IN DOLLARS)
- --------------------------------------------------------------------------------
BALANCED FUND
- --------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------
Class B
- --------------------------------------------------------------------------------
Class C
- --------------------------------------------------------------------------------
Class Y
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EQUITY INCOME FUND
- --------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------
Class B
- --------------------------------------------------------------------------------
Class C
- --------------------------------------------------------------------------------
Class Y
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EQUITY INDEX FUND
- --------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------
Class B
- --------------------------------------------------------------------------------
Class C
- --------------------------------------------------------------------------------
Class Y
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LARGE CAP GROWTH FUND
- --------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------
Class B
- --------------------------------------------------------------------------------
Class C
- --------------------------------------------------------------------------------
Class Y
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LARGE CAP VALUE FUND
- --------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------
Class B
- --------------------------------------------------------------------------------
Class C
- --------------------------------------------------------------------------------
Class Y
- --------------------------------------------------------------------------------
64
<PAGE>
- --------------------------------------------------------------------------------
MID CAP GROWTH FUND
- --------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------
Class B
- --------------------------------------------------------------------------------
Class C
- --------------------------------------------------------------------------------
Class Y
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MID CAP VALUE FUND
- --------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------
Class B
- --------------------------------------------------------------------------------
Class C
- --------------------------------------------------------------------------------
Class Y
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SMALL CAP GROWTH FUND
- --------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------
Class B
- --------------------------------------------------------------------------------
Class C
- --------------------------------------------------------------------------------
Class Y
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SMALL CAP VALUE FUND
- --------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------
Class B
- --------------------------------------------------------------------------------
Class C
- --------------------------------------------------------------------------------
Class Y
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EMERGING MARKETS FUND
- --------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------
Class B
- --------------------------------------------------------------------------------
Class C
- --------------------------------------------------------------------------------
Class Y
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INTERNATIONAL FUND
- --------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------
Class B
- --------------------------------------------------------------------------------
Class C
- --------------------------------------------------------------------------------
Class Y
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INTERNATIONAL INDEX FUND
- --------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------
Class B
- --------------------------------------------------------------------------------
Class C
- --------------------------------------------------------------------------------
Class Y
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HEALTH SCIENCES FUND
- --------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------
Class B
- --------------------------------------------------------------------------------
Class C
- --------------------------------------------------------------------------------
Class Y
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REAL ESTATE SECURITIES FUND
- --------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------
Class B
- --------------------------------------------------------------------------------
Class C
- --------------------------------------------------------------------------------
Class Y
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TECHNOLOGY FUND
- --------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------
Class B
- --------------------------------------------------------------------------------
Class C
- --------------------------------------------------------------------------------
Class Y
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CORPORATE BOND FUND
- --------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------
Class B
- --------------------------------------------------------------------------------
Class C
- --------------------------------------------------------------------------------
Class Y
- --------------------------------------------------------------------------------
65
<PAGE>
- --------------------------------------------------------------------------------
FIXED INCOME FUND
- --------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------
Class B
- --------------------------------------------------------------------------------
Class C
- --------------------------------------------------------------------------------
Class Y
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INTERMEDIATE TERM INCOME FUND
- --------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------
Class Y
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LIMITED TERM INCOME FUND
- --------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------
Class Y
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------
Class B
- --------------------------------------------------------------------------------
Class C
- --------------------------------------------------------------------------------
Class Y
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ARIZONA TAX FREE FUND
- --------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------
Class C
- --------------------------------------------------------------------------------
Class Y
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CALIFORNIA INTERMEDIATE TAX FREE FUND
- --------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------
Class Y
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CALIFORNIA TAX FREE FUND
- --------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------
Class C
- --------------------------------------------------------------------------------
Class Y
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COLORADO INTERMEDIATE TAX FREE FUND
- --------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------
Class Y
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COLORADO TAX FREE FUND
- --------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------
Class C
- --------------------------------------------------------------------------------
Class Y
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INTERMEDIATE TAX FREE FUND
- --------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------
Class Y
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MINNESOTA INTERMEDIATE TAX FREE FUND
- --------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------
Class Y
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MINNESOTA TAX FREE FUND
- --------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------
Class C
- --------------------------------------------------------------------------------
Class Y
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
OREGON INTERMEDIATE TAX FREE FUND
- --------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------
Class Y
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TAX FREE FUND
- --------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------
Class C
- --------------------------------------------------------------------------------
Class Y
- --------------------------------------------------------------------------------
66
<PAGE>
FUND PERFORMANCE
Advertisements and other sales literature for the Funds may refer to
a Fund's "average annual total return" and "cumulative total return." In
addition, each Fund may provide yield calculations in advertisements and other
sales literature. All such yield and total return quotations are based on
historical earnings and are not intended to indicate future performance. The
return on and principal value of an investment in any of the Funds will
fluctuate, so that an investor's shares, when redeemed, may be worth more or
less than their original cost.
AVERAGE ANNUAL TOTAL RETURN. Average annual total return is the
average annual compounded rate of return on a hypothetical $1,000 investment
made at the beginning of the advertised period. Average annual total return
figures are computed according to the following formula:
P(1 + T)n = 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 deducts the maximum sales charge from the initial hypothetical
$1,000 investment, assumes all dividends and capital gains distributions are
reinvested at net asset value on the appropriate reinvestment dates as described
in the applicable Prospectus, and includes all recurring fees, such as
investment advisory and management fees, charged to all shareholder accounts.
For Class B and Class C Shares, the calculation assumes the maximum deferred
sales load is deducted at the times, in the amounts and under the terms
disclosed in the applicable Prospectus. Average annual total return quotations
may be accompanied by quotations that do not reflect the sales charges, and
therefore will be higher.
The Advisor and Distributor have waived a portion of their fees on
a voluntary basis, thereby increasing total return and yield. These fees may or
may not be waived in the future in the Advisor's or Distributor's discretion.
CUMULATIVE TOTAL RETURN. Cumulative total return is calculated by
subtracting a hypothetical $1,000 investment in a Fund from the redeemable value
of such investment at the end of the advertised period, dividing such difference
by $1,000 and multiplying the quotient by 100. Cumulative total return is
computed according to the following formula:
CTR = (ERV-P) 100
-----
P
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 assumes all dividends and capital gain distributions are
reinvested at net asset value on the appropriate reinvestment dates as described
in the applicable Prospectus and includes all recurring fees, such as investment
advisory and management fees, charged to all shareholder accounts.
Based on the foregoing, the cumulative and the average annual total
returns for each class of the Funds from inception through September 30, 1999
were as set forth below. The performance for Class A, Class B and Class C Shares
will normally be lower than for Class Y Shares because Class A, Class B and
Class C Shares are subject to sales and distribution charges and/or shareholder
servicing fees not charged to Class Y Shares.
67
<PAGE>
<TABLE>
<CAPTION>
- ----------------------- -------------------- -------------------- -------------------- ------------------- -------------------
Cumulative Average Annual Average Annual Average Annual Average Annual
Since Inception * Since Inception * One Year Five Year Ten Year
- ----------------------- -------------------- -------------------- -------------------- ------------------- -------------------
Without With Without With Without With Without With Without With
- ----------------------- -------------------- -------------------- -------------------- ------------------- -------------------
Sales Charge Sales Charge Sales Charge Sales Charge Sales Charge
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balanced Fund
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class A
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class B
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class C
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class Y
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Equity Income
Fund
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
***Class A
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class B
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class C
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class Y
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Equity Index
Fund
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class A
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class B
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class C
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class Y
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Large Cap
Growth Fund
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
***Class A
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class B
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class C
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class Y
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Large Cap
Value Fund
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class A
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class B
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class C
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class Y
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Mid Cap Growth
Fund
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class A
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class B
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class C
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class Y
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Mid Cap Value
Fund
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class A
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class B
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class C
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class Y
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Small Cap
Growth Fund (2)
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class A
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class B
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class C
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class Y
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Small Cap Value
Fund (3)
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class A
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class B
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class C
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class Y
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
</TABLE>
68
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Emerging Markets Fund
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class A
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class B
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class C
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class Y
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
International
Fund
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class A
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class B
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class C
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class Y
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
International
Index Fund (4)
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class A
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class B
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class C
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class Y
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Health Sciences
Fund
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class A
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class B
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class C
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class Y
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Real Estate
Securities Fund
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class A
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class B
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class C
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class Y
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Technology Fund
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class A
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class B
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class C
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class Y
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Fixed Income
Fund
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class A
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class B
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class C
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class Y
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Intermediate Term
Income
Fund
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class A
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class Y
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Limited Term
Income Fund
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class A
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class Y
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Strategic Income
Fund
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class A
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class B
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class C
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class Y
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
</TABLE>
69
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Arizona Tax Free Fund
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class A
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class C
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class Y
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
California
Intermediate Tax Free
Fund(5)
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class A
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class Y
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
California Tax Free
Fund
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class A
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class C
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class Y
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Colorado Intermediate
Tax Free Fund
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class A
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class Y
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Colorado Tax Free Fund
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class A
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class C
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class Y
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Intermediate Tax
Free Fund
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class A
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class Y
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Minnesota
Intermediate Tax
Free Fund
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class A
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class Y
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Minnesota Tax
Free Fund
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class A
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class C
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class Y
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Oregon Intermediate
Tax Free
Fund (6)
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class A
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class Y
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Tax Free fund
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class A
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class C
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Class Y
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
- ----------------------- --------- ---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
</TABLE>
70
<PAGE>
+ For the ten year period ending March 31, 1998.
* The following are the inceptions dates for the Funds. Balanced Fund, Class
A, December 14, 1992; Class B, August 15, 1994; Class C, February 1, 1999;
Class Y, February 4, 1994; Equity Income Fund, Class A, December 18, 1992;
Class B, August 15, 1994; Class C, February 1, 1999; Class Y, August 2,
1994; Equity Index Fund, Class A, December 14, 1992; Class B, August 15,
1994; Class C, February 1, 1999; Class Y, February 4, 1994; Diversified
Growth Fund (now known as Large Cap Growth Fund), Class A, December 18,
1992; Class B, August 15, 1994; Class C, February 1, 1999; Class Y, August
2, 1994; Stock Fund (now known as Large Cap Value Fund); Class B, August
15, 1994; Class C, February 1, 1999; Class Y, February 4, 1994; Mid Cap
Growth Fund, Class A, July 31, 1998; Class B, July 31, 1998; Class C,
February 1, 1999; Class Y, July 31, 1998; Special Equity Fund (now known
as Mid Cap Value Fund); Class B, August 15, 1994; Class C, February 1,
1999; Class Y, February 4, 1994; Small Cap Growth Fund (Class A, B and Y),
July 31, 1998; Class C, February 1, 1999; Small Cap Value Fund, November
24, 1997; Emerging Markets Fund (Class A, B and Y), July 31, 1998; Class
C, February 1, 1999; International Fund, Class A, April 7, 1994; Class B,
August 15, 1994; Class C, February 1, 1999; Class Y, April 4, 1994;
International Index Fund (Class A, B and Y), November 24, 1997; Class C,
February 1, 1999; Health Sciences Fund, Class A, Class B and Class Y,
January 31, 1996; Class C, February 1, 2000; Real Estate Securities Fund,
Class A, September 29, 1995; Class B, September 29, 1995; Class C,
February 1, 2000; Class Y, June 30, 1995; Technology Fund, Class A, April
4, 1994; Class B, August 15, 1994; Class C, February 1, 2000; Class Y,
April 4, 1994; Fixed Income Fund, Class B, August 15, 1994; Class C,
February 1, 1999; Class Y, February 4, 1994; Intermediate Term Income
Fund, Class A, December 14, 1992; Class Y, February 4, 1994; Limited Term
Income Fund, Class A, December 14, 1992; Class B, August 15, 1994 (closed
January 31, 1995); Class Y, February 4, 1994; Strategic Income Fund (Class
A, B and Y), July 20, 1998; Class C, February 1, 1999; Arizona Tax Free
Fund, Class A, Class C and Class y, February 1, 2000; California
Intermediate Tax Free Fund, Class A and Y, August 8, 1997; California Tax
Free Fund, Class A, Class C and Class Y, February 1, 2000; Colorado
Intermediate Tax Free Fund, Class A and Class Y, April 4, 1994; Colorado
Tax Free Fund, Class A, Class C and Class Y, February 1, 2000;
Intermediate Tax Free Fund, Class A, December 22, 1987; Class Y, February
4, 1994; Minnesota Insured Intermediate Tax Free Fund (now known as
Minnesota Intermediate Tax Free Fund), Class A, February 25, 1994; Class
Y, February 28, 1994; Minnesota Tax Free Fund, Class A, July 11, 1988;
Class C, February 1, 1999; Class Y, August 1, 1997; Oregon Intermediate
Tax Free Fund, Class A, February 1, 1999; Class Y, August 8, 1997; Tax
Free Fund, Class A, July 11, 1988; Class C, February 1, 1999; Class Y,
August 3, 1998.
** Not in operation for entire period.
*** Performance is presented for the period beginning March 25, 1994, the date
U.S. Bank National Association became the Advisor. The per share income
and capital changes for these Funds since inception can be found in the
financial highlights section of the prospectus and annual report to
shareholders. Total return figures from inception of these Funds are
available upon request from the Funds' Distributor, SEI Investments
Distribution Co., Oaks, Pennsylvania 19456.
(1) Reflects performance commencing on September 25, 1987 of a predecessor
common trust fund of Micro Cap Value Fund, adjusted for fees and expenses
for periods prior to August 8, 1997 (the inception date of Micro Cap Value
Fund). The common trust fund was not registered under the 1940 Act and
therefore was not subject to certain investment restrictions that may have
adversely affected performance.
(2) Reflects performance of Piper Small Company Growth Fund, which consummated
a reorganization transaction with Small Cap Growth Fund on July 31, 1998.
Piper Small Company Growth Fund is the financial reporting survivor.
Effective September 12, 1996, shareholders of Piper Small Company Growth
Fund approved a change in the Fund's investment objective from high total
investment return consistent with prudent investment risk to long-term
capital appreciation. In connection with this change, the fund's
investment policies were revised accordingly.
(3) Reflects performance commencing January 1, 1988 of a predecessor common
trust fund of the Qualivest Small Companies Value Fund, adjusted for fees
and expenses for periods prior to August 1, 1994 (the inception date of
the Qualivest Small Companies Value Fund). The common trust fund was not
registered under the 1940 Act and therefore was not subject to certain
investment restrictions that may have adversely affected performance. On
November 1, 1997, Small Cap Value Fund became the successor by merger to
the Qualivest Small Companies Value Fund.
(4) Reflects performance commencing on July 3, 1995 of the Qualivest
International Opportunities Fund. On November 21, 1997, the International
Index Fund became the successor by merger to the Qualivest International
Opportunities Fund.
(5) Reflects performance commencing on May 31, 1992 of predecessor common
trust funds of California Intermediate Tax Free Fund, adjusted for fees
and expenses for periods prior to August 8, 1997 (the inception date of
California Intermediate Tax Free Fund). The common trust funds were not
registered under the 1940 Act and therefore were not subject to certain
investment restrictions that may have adversely affected performance.
(6) Reflects performance commencing on October 31, 1986 of a predecessor
common trust fund of Oregon Intermediate Tax Free Fund, adjusted for fees
and expenses for periods prior to August 8, 1997 (the inception date of
Oregon Intermediate Tax Free Fund). The common trust fund was not
registered under the 1940 Act and therefore was not subject to certain
investment restrictions that may have adversely affected performance.
YIELD. Yield is computed by dividing the net investment income per share
(as defined under Securities and Exchange Commission rules and regulations)
earned during the advertised period by the offering price per share (including
the maximum sales charge) on the last day of the period. The result will then be
"annualized" using a formula that provides for semi-annual compounding of
income. Yield is computed according to the following formula:
YIELD = 2[(a-b + 1)6 - 1]
---
cd
Where: a = dividends and interest earned during the period;
b = expenses accrued for the period (net of
reimbursements);
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends; and
d = the maximum offering price per share on the last day
of the period.
71
<PAGE>
Based upon the 30-day period ended September 30, 1999, the yields
for the Class A, Class B, Class C and Class Y Shares of the Funds were as set
forth below.
CLASS A CLASS B CLASS Y CLASS C
Balanced Fund % % % %
Equity Income Fund
Equity Index Fund
Large Cap Growth Fund
Large Cap Value Fund
Mid Cap Growth Fund
Mid Cap Value Fund
Small Cap Growth Fund
Small Cap Value Fund
Emerging Markets Fund
International Fund
International Index Fund
Health Sciences Fund
Real Estate Securities Fund
Technology Fund
Fixed Income Fund
Intermediate Term Income Fund
Corporate Bond Fund
Limited Term Income Fund
Strategic Income Fund
Arizona Tax Free Fund
California Intermediate Tax Free Fund
California Tax Free Fund
Colorado Intermediate Tax Free Fund
Colorado Tax Free Fund
Intermediate Tax Free Fund
Minnesota Intermediate Tax Free Fund
Minnesota Tax Free Fund
Oregon Intermediate Tax Free Fund
Tax Free Fund
- -----------------
* Not in operation during fiscal period ended September 30, 1999.
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 Arizona income
taxes; (iii) exempt from both federal and California income taxes; (iv) exempt
from both federal and Colorado income taxes; (v) exempt from both federal and
Minnesota income taxes; and (vi) exempt from both federal and Oregon income
taxes, under selected income tax brackets scheduled to be in effect in 2000. The
31.6%, 34.5%, 39.2% and 42.7% combined federal/Arizona rates assume that the
investor is subject to a 5.04 % Arizona income tax rate and a marginal federal
income tax rate of 28%, 31%, 36% and 39.6%, respectively. The 34.7%, 37.4%,
42.0% and 45.2% combined federal/California rates assume that the investor is
subject to a 9.3% marginal California income tax rate and a marginal federal
income tax rate of 28%, 31%, 36% and 39.6%, respectively. The 31.4%, 34.3%,
39.0% and 42.5% combined federal/Colorado rates assume that the investor is
subject to a 4.75% Colorado income tax rate and a marginal federal income tax
rate of 28%, 31%, 36% and 39.6%, respectively. The 33.8%, 36.5%, 41.1%, and
44.4% combined federal/Minnesota rates assume that the investor is subject to an
8.0% marginal Minnesota income tax rate and a marginal federal income tax rate
of 28%. 31%, 36% and 39.6%, respectively. The 34.5%, 37.2%, 41.8% and 45.0%
combined federal/Oregon rates assume that the investor is subject to a 9%
marginal Oregon income tax rate and a marginal federal income tax rate of 28%,
31%, 36% and 39.6%, respectively. The combined rates reflect the deductibility
of state income taxes for purposes of calculating federal taxable income but do
not reflect federal rules concerning the phase-out of personal exemptions and
limitations on the allowance of itemized deductions for certain
72
<PAGE>
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>
TAX-EQUIVALENT YIELDS
COMBINED FEDERAL AND ARIZONA TAX COMBINED FEDERAL AND CALIFORNIA
FEDERAL TAX BRACKETS BRACKETS TAX BRACKETS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Tax-Free
Yields 28% 31% 36% 39.6% 31.6% 34.5% 39.2% 42.7% 34.7% 37.4% 42.0% 45.2%
3.0% 4.17% 4.35% 4.69% 4.97% 4.4% 4.6% 4.9% 5.2% 4.59% 4.79% 5.17% 5.47%
3.5 4.86 5.07 5.47 5.79 5.1 5.3 5.8 6.1 5.37 5.59 6.03 6.39
4.0 5.56 5.80 6.25 6.62 5.8 6.1 6.6 7.0 6.13 6.39 6.90 7.30
4.5 6.25 6.52 7.03 7.45 6.6 6.9 7.4 7.9 6.89 7.19 7.76 8.21
5.0 6.94 7.25 7.81 8.28 7.3 7.6 8.2 8.7 7.66 7.99 8.62 9.12
5.5 7.64 7.97 8.59 9.11 8.0 8.4 9.0 9.6 8.42 8.79 9.48 10.04
6.0 8.33 8.70 9.38 9.93 8.8 9.2 9.9 10.5 9.19 9.58 10.34 10.95
6.5 9.03 9.42 10.16 10.76 9.5 9.9 10.7 11.3 9.95 10.38 11.21 11.86
</TABLE>
<TABLE>
<CAPTION>
TAX-EQUIVALENT YIELDS
COMBINED FEDERAL AND COMBINED FEDERAL AND MINNESOTA COMBINED FEDERAL AND OREGON TAX
COLORADO TAX BRACKETS TAX BRACKETS BRACKETS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
31.4% 34.3% 39% 42.5% % 33.80 % 36.5 % 41.1 % 44.4 34.5% 37.2% 41.8% 45.0%
3.0% 4.4% 4.6% 4.9% 5.2% 4.5 % 4.7 % 5.1 % 5.4% 4.58% 4.78% 5.15% 5.45%
3.5 5.1 5.3 5.7 6.1 5.3 5.5 5.9 6.3 5.34 5.57 6.01 6.36
4.0 5.8 6.1 6.6 7.0 6.0 6.3 6.8 7.2 6.11 6.37 6.87 7.27
4.5 6.6 6.8 7.4 7.8 6.8 7.1 7.6 8.1 6.87 7.17 7.73 8.18
5.0 7.3 7.6 8.2 8.7 7.6 7.9 8.5 9.0 7.63 7.96 8.59 9.09
5.5 8.0 8.4 9.0 9.6 8.3 8.7 9.3 9.9 8.40 8.76 9.45 10.00
6.0 8.7 9.1 9.8 10.4 9.1 9.4 10.2 10.8 9.16 9.55 10.31 10.91
6.5 9.5 9.9 10.7 11.3 9.8 10.2 11.0 11.7 9.92 10.35 11.17 11.82
</TABLE>
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. The combined federal/state income tax rates
take into account the deductibility of state income taxes in calculating federal
tax rates. Based upon the maximum federal income tax rate of 39.6% and the
combined maximum federal/state tax rates of 42.7% for Arizona, 45.2% for
California, 42.5% for Colorado, 44.4% for Minnesota and 45.0% for Oregon, the
tax equivalent yields for the Tax Free Funds named below for the 30-day period
ended September 30, 1999, computed as described above, were as follows:
- --------------------------------------------------------------------------------
CLASS A CLASS C CLASS Y
- --------------------------------------------------------------------------------
Arizona Tax Free Fund * * *
- --------------------------------------------------------------------------------
California Intermediate Tax Free Fund
- --------------------------------------------------------------------------------
California Tax Free Fund * * *
- --------------------------------------------------------------------------------
Colorado Intermediate Tax Free Fund
- --------------------------------------------------------------------------------
Colorado Tax Free Fund * * *
- --------------------------------------------------------------------------------
Intermediate Tax Free Fund
- --------------------------------------------------------------------------------
Minnesota Intermediate Tax Free Fund
- --------------------------------------------------------------------------------
Minnesota Tax Free Fund
- --------------------------------------------------------------------------------
Oregon Intermediate Tax Free Fund
- --------------------------------------------------------------------------------
Tax Free Fund
- --------------------------------------------------------------------------------
- ----------------
73
<PAGE>
* Not in operation during fiscal period ended September 30, 1999.
CERTAIN PERFORMANCE COMPARISONS. In addition to advertising total
return and yield, comparative performance information may be used from time to
time in advertising the Funds' shares, including data from Lipper Analytical
Services, Inc. ("Lipper"), Morningstar, other industry publications and other
entities or organizations which track the performance of investment companies.
The performance of each Fund may be compared to that of its unmanaged benchmark
index and to the performance of similar funds as reported by Lipper or such
other database services.
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, 1999, the historical distribution rates
of the Class A, Class B, Class C and Class Y Shares of the Funds were as set
forth below.
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS Y
- --------------------------------------------------------------------------------
Balanced Fund
- --------------------------------------------------------------------------------
Equity Income Fund
- --------------------------------------------------------------------------------
Equity Index Fund
- --------------------------------------------------------------------------------
Large Cap Growth Fund
- --------------------------------------------------------------------------------
Large Cap Value Fund
- --------------------------------------------------------------------------------
Mid Cap Growth Fund
- --------------------------------------------------------------------------------
Mid Cap Value Fund
- --------------------------------------------------------------------------------
Small Cap Growth Fund
- --------------------------------------------------------------------------------
Small Cap Value Fund
- --------------------------------------------------------------------------------
Emerging Markets Fund
- --------------------------------------------------------------------------------
International Fund
- --------------------------------------------------------------------------------
International Index Fund
- --------------------------------------------------------------------------------
Health Sciences Fund
- --------------------------------------------------------------------------------
Real Estate Securities Fund
- --------------------------------------------------------------------------------
Technology Fund
- --------------------------------------------------------------------------------
Corporate Bond Fund
- --------------------------------------------------------------------------------
Fixed Income Fund
- --------------------------------------------------------------------------------
Intermediate Term Income Fund
- --------------------------------------------------------------------------------
Limited Term Income Fund
- --------------------------------------------------------------------------------
Strategic Income Fund
- --------------------------------------------------------------------------------
Arizona Tax Free Fund
- --------------------------------------------------------------------------------
California Intermediate Tax Free Fund
- --------------------------------------------------------------------------------
California Tax Free Fund
- --------------------------------------------------------------------------------
Colorado Intermediate Tax Free Fund
- --------------------------------------------------------------------------------
Colorado Tax Free Fund
- --------------------------------------------------------------------------------
Intermediate Tax Free Fund
- --------------------------------------------------------------------------------
Minnesota Intermediate Tax Free Fund
- --------------------------------------------------------------------------------
Minnesota Tax Free Fund
- --------------------------------------------------------------------------------
Oregon Intermediate Tax Free Fund
- --------------------------------------------------------------------------------
Tax Free Fund
- --------------------------------------------------------------------------------
* Not in operation during fiscal period ended September 30, 1999.
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
74
<PAGE>
current distribution rates for the one or three-month period (as appropriate)
ended September 30, 1999, for the Funds were as set forth below.
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS Y
- --------------------------------------------------------------------------------
Balanced Fund
- --------------------------------------------------------------------------------
Equity Income Fund
- --------------------------------------------------------------------------------
Equity Index Fund
- --------------------------------------------------------------------------------
Large Cap Growth Fund
- --------------------------------------------------------------------------------
Large Cap Value Fund
- --------------------------------------------------------------------------------
Mid Cap Growth Fund
- --------------------------------------------------------------------------------
Mid Cap Value Fund
- --------------------------------------------------------------------------------
Small Cap Growth Fund
- --------------------------------------------------------------------------------
Small Cap Value Fund
- --------------------------------------------------------------------------------
Emerging Markets Fund
- --------------------------------------------------------------------------------
International Fund
- --------------------------------------------------------------------------------
International Index Fund
- --------------------------------------------------------------------------------
Health Sciences Fund
- --------------------------------------------------------------------------------
Real Estate Securities Fund
- --------------------------------------------------------------------------------
Technology Fund
- --------------------------------------------------------------------------------
Corporate Bond Fund
- --------------------------------------------------------------------------------
Fixed Income Fund
- --------------------------------------------------------------------------------
Intermediate Term Income Fund
- --------------------------------------------------------------------------------
Limited Term Income Fund
- --------------------------------------------------------------------------------
Strategic Income Fund
- --------------------------------------------------------------------------------
Arizona Tax Free Fund
- --------------------------------------------------------------------------------
California Intermediate Tax Free Fund
- --------------------------------------------------------------------------------
California Tax Free Fund
- --------------------------------------------------------------------------------
Colorado Intermediate Tax Free Fund
- --------------------------------------------------------------------------------
Colorado Tax Free Fund
- --------------------------------------------------------------------------------
Intermediate Tax Free Fund
- --------------------------------------------------------------------------------
Minnesota Intermediate Tax Free Fund
- --------------------------------------------------------------------------------
Minnesota Tax Free Fund
- --------------------------------------------------------------------------------
Oregon Intermediate Tax Free Fund
- --------------------------------------------------------------------------------
Tax Free Fund
- --------------------------------------------------------------------------------
* Not in operation during fiscal period ended September 30, 1999.
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
"--Tax Exempt vs. Taxable Income," the annualized current distribution rates for
the month ended September 30, 1999, for each class of the Tax Free Funds were as
set forth below. Please note that there were no Class C Shares outstanding as of
September 30, 1999.
- --------------------------------------------------------------------------------
CLASS A CLASS C CLASS Y
- --------------------------------------------------------------------------------
Arizona Tax Free Fund * * *
- --------------------------------------------------------------------------------
California Intermediate Tax Free Fund
- --------------------------------------------------------------------------------
California Tax Free Fund * * *
- --------------------------------------------------------------------------------
Colorado Intermediate Tax Free Fund
- --------------------------------------------------------------------------------
Colorado Tax Free Fund * * *
- --------------------------------------------------------------------------------
Intermediate Tax Free Fund
- --------------------------------------------------------------------------------
Minnesota Intermediate Tax Free Fund
- --------------------------------------------------------------------------------
75
<PAGE>
- --------------------------------------------------------------------------------
Minnesota Tax Free Fund
- --------------------------------------------------------------------------------
Oregon Intermediate Tax Free Fund
- --------------------------------------------------------------------------------
Tax Free Fund
- --------------------------------------------------------------------------------
- ----------------
* Not in operation during fiscal period ended September 30, 1999.
PREDECESSOR COMMON TRUST FUND INFORMATION. From time to time, Small
Cap Value Fund, California Intermediate Tax Free Fund and Oregon Intermediate
Tax Free Fund may advertise performance information which includes performance
data for certain predecessor common trust funds.
On November 21, 1997, Small Cap Value Fund acquired the assets and
assumed all identified liabilities of the Qualivest Small Companies Value Fund.
The Qualivest Small Companies Value Fund commenced operations on August 1, 1994,
when substantially all of the assets of a certain common trust fund which was
exempt from registration under the 1940 Act was transferred to such fund.
California Intermediate Tax Free Fund and Oregon Intermediate Tax
Free Fund each commenced operations when substantially all of the assets of
certain common trust funds which were exempt from registration under the 1940
Act were transferred to these Funds. For each such Fund, one predecessor common
trust fund was managed by the Advisor, while the other was managed by Qualivest
Capital Management, Inc. prior to the acquisition of its parent company by the
Advisor's parent company. The personnel who managed that common trust fund on
behalf of Qualivest Capital Management, Inc. became employees of the Advisor,
and assumed management of the applicable Fund, at the time the assets were
transferred from the common trust fund to the applicable Fund.
Such performance data is deemed relevant because the respective
common trust funds were managed using investment objectives, policies and
restrictions very similar to those of their corresponding Funds. However, the
predecessor common trust funds were not subject to certain investment
restrictions that are imposed by the 1940 Act. Accordingly, if the common trust
funds had been registered under the 1940 Act, their performance could have been
adversely affected by virtue of such investment restrictions. In addition, the
predecessor common trust funds did not incur the same expenses as the
corresponding Funds.
TAXATION
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.
If a Fund invests in U.S. Treasury inflation-protection securities,
it will be required to treat as original issue discount any increase in the
principal amount of the securities that occurs during the course of its taxable
year. If a Fund purchases such inflation-protection securities that are issued
in stripped form either as tripped bonds or coupons, it will be treated as if it
had purchased a newly issued debt instrument having original issue discount.
Generally, the original issue discount equals the difference between the "stated
redemption price at maturity" of the obligation and its "issue price" as those
terms are defined in the Code. A Fund holding an obligation with original issue
discount is required to accrue as ordinary income a portion of such original
issue discount even though it receives no cash currently as interest payment
corresponding to the amount of the original issue discount. Because each Fund is
required to distribute substantially all of its net investment income (including
accrued original issue discount) in order to be taxed as a regulated investment
company, it may be required to distribute an amount greater than the total cash
income it actually receives. Accordingly, in order to make the required
distributions, a Fund may be required to borrow or liquidate securities.
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.
76
<PAGE>
Some of the investment practices that may be employed by the Funds
will be subject to special provisions that, among other things, may defer the
use of certain losses of such Funds, affect the holding period of the securities
held by the Funds and, particularly in the case of transactions in or with
respect to foreign currencies, affect the character of the gains or losses
realized. These provisions may also require the Funds to mark-to-market some of
the positions in their respective portfolios (i.e., treat them as closed out) or
to accrue original discount, both of which may cause such Funds to recognize
income without receiving cash with which to make distributions in amounts
necessary to satisfy the distribution requirements for qualification as a
regulated investment company and for avoiding income and excise taxes.
Accordingly, in order to make the required distributions, a Fund may be required
to borrow or liquidate securities. Each Fund will monitor its transactions and
may make certain elections in order to mitigate the effect of these rules and
prevent disqualification of the Funds as regulated investments companies.
It is expected that any net gain realized from the closing out of
futures contracts, options, or 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.
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 of 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.
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
"Managing Your Investment -- Exchanging Your Shares" in the Prospectuses), such
exchange will be considered a taxable sale of the shares being exchanged.
Furthermore, if a shareholder of Class A or Class B 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.
Pursuant to the Code, distributions of net investment income by a
Fund to a shareholder who is a foreign shareholder (as defined below) 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.
A foreign shareholder is any person who is not (i) a citizen or
resident of the United States, (ii) a corporation, partnership or other entity
organized in the United States or under the laws of the Untied States or a
political subdivision thereof, (iii) an estate whose income is includible in
gross income for U.S. federal income tax purposes of (iv) a trust whose
administration is subject to the primary supervision of the U.S. court and which
has one or more U.S. fiduciaries who have authority to control all substantial
decisions of the trust.
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.
With respect to the Minnesota Intermediate Tax Free Fund and the
Minnesota Tax Free Fund, the 1995 Minnesota Legislature enacted a statement of
intent (codified at Minn. Stat. ss. 289A.50, subdivision 10) that interest on
obligations of Minnesota governmental units and Indian tribes be included in net
income of individuals, estates and
77
<PAGE>
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 being 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
Intermediate Tax Free Fund and the Minnesota Tax Free Fund are 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 Funds
would become taxable under this Minnesota statutory provisions.
REDUCING SALES CHARGES
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: 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 Funds' 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 Advisor, Marvin &
Palmer, Federated Global, 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
78
<PAGE>
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 advisors, financial
planners and registered broker-dealers who are purchasing shares on behalf of
their customers and by purchasers through "one-stop" mutual fund networks
through which the Funds are made available. In addition, Class A Shares may be
purchased at net asset value without a sales charge by investors participating
in asset allocation "wrap" accounts offered by the Advisor or any of its
affiliates, and by retirement and deferred compensation plans and the trusts
used to fund such plans (including, but not limited to, those defined in
Sections 401(a), 403(b) and 457 of the Internal Revenue Code and "rabbi
trusts"), which plans and trusts purchase through "one-stop" mutual fund
networks. No commission is paid in connection with net asset value purchases of
Class A Shares made pursuant to this paragraph, nor is any contingent deferred
sales charge imposed upon the redemption of such shares.
Class A Shares may also be purchased without a sales charge by
retirement and deferred compensation plans and trusts used to fund such plans,
as defined in Sections 401(a), 403(b) and 457 of the Internal Revenue Code,
which either have 200 or more eligible participants or purchase shares through
an affiliate of the Advisor. A contingent deferred sales charge of 1.00% will be
imposed if shares are redeemed within 18 months of purchase. Securities firms,
financial institutions and other industry professionals that enter into sales
agreements with the Funds' distributor to perform share distribution services
may receive a commission on such sales equal to 1.00% of the first $3 million of
shares purchased, 0.75% of shares purchased in excess of $3 million up to $5
million, and 0.50% of shares purchased in excess of $5 million.
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.
ADDITIONAL INFORMATION ABOUT SELLING SHARES
BY TELEPHONE
A shareholder may redeem shares of a Fund, if he or she elects the
privilege on the initial shareholder application, 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 (less the amount of any applicable contingent
deferred sales charge). 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 unless the financial
institution has been authorized to accept redemption requests on behalf of the
Funds. 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. Certain
financial institutions are authorized to act as the Funds' agent for the purpose
of accepting redemption requests, and the Funds will be deemed to have received
a redemption request upon receipt of the request by the financial institution.
Shareholders who did not purchase their shares of a Fund through a
financial institution may redeem their shares by telephoning Investor Services
at 1-800-637-2548. 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. Wire instructions must be previously
established on the account or provided in writing. 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 any loss, liability, cost or expense
for acting upon wire transfer instructions or telephone instructions that it
reasonably believes to be genuine. The Transfer Agent and the Funds will each
employ reasonable procedures to confirm that instructions communicated are
genuine. These procedures may include taping of
79
<PAGE>
telephone conversations. To ensure authenticity of redemption or exchange
instructions received by telephone, the Transfer Agent examines each shareholder
request by verifying the account number and/or tax identification number at the
time such request is made. The Transfer Agent subsequently sends confirmation of
both exchange sales and exchange purchases to the shareholder for verification.
If reasonable procedures are not employed, the Transfer Agent and the Funds may
be liable for any losses due to unauthorized or fraudulent telephone
transactions.
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 $25,000 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:
o 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");
o a member firm of the New York, American, Boston, Midwest, or
Pacific Stock Exchanges or of the National Association of
Securities Dealers;
o a savings bank or savings and loan association the deposits of
which are insured by the Savings Association;
o 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 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.
REDEMPTIONS 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.
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
80
<PAGE>
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
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.
Securities rated SD or D are in selective default or default, respectively. Such
a rating is assigned when an obligor has failed to pay one or more of its
financial obligations (rated or unrated) when it came due.
MOODY'S
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
81
<PAGE>
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. 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.
82
<PAGE>
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. 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
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. 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.
83
<PAGE>
RATINGS OF COMMERCIAL PAPER
STANDARD & POOR'S. 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. 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.
FINANCIAL STATEMENTS
The financial statements of FAIF included in its annual report to
shareholders dated September 30, 1999 are incorporated herein by reference.
84
<PAGE>
FIRST AMERICAN INVESTMENT FUNDS, INC.
PART C -- OTHER INFORMATION
ITEM 23. EXHIBITS
(a)(1) Amended and Restated Articles of Incorporation, as amended
through April 2, 1998 (Incorporated by reference to Exhibit
(1) to Post-Effective Amendment No. 36.)
* (a)(2) Articles Supplementary, designating new Series.
* (b) Bylaws, as amended through September 8, 1999.
(c) Not applicable.
(d)(1) Investment Advisory Agreement dated April 2, 1991, between the
Registrant and First Bank National Association, as amended and
supplemented through August 1994 (Incorporated by reference to
Exhibit (5)(a) to Post-Effective Amendment No. 21.)
* (d)(2) Amendment No. 10 to Investment Advisory Agreement.
(d)(3) Sub-Advisory Agreement dated March 28, 1994, between First
Bank National Association and Marvin & Palmer Associates,
Inc., with respect to International Fund (Incorporated by
reference to Exhibit 5(b) to Post-Effective Amendment No. 21.)
(d)(4) Sub-Advisory Agreement dated July 23, 1998, between U.S. Bank
National Association and Marvin & Palmer Associates, Inc.,
with respect to Emerging Markets Fund (Incorporated by
reference to Exhibit 5(f) to Post-Effective Amendment No. 39.)
(d)(5) Sub-Advisory Agreement dated July 24, 1998, between U.S. Bank
National Association and Federated Global Research Corp., with
respect to Strategic Income Fund (Incorporated by reference to
Exhibit 5(g) to Post-Effective Amendment No. 39.)
(d)(6) Amendment No. 1 to Sub-Advisory Agreement between Bank
National Association and Marvin & Palmer Associates, Inc.,
with respect to International Fund (Incorporated by reference
to Exhibit 5(d) to Post-Effective Amendment No. 34.)
(e)(1) Distribution Agreement [Class A and Class Y Shares,] dated
February 10, 1994, between the Registrant and SEI Financial
Services Company (Incorporated by reference to Exhibit (6)(a)
to Post-Effective Amendment No. 21.)
(e)(2) Distribution and Service Agreement [Class B] dated August 1,
1994, as amended September 14, 1994 between Registrant and SEI
Financial Services Company (Incorporated by reference to
Exhibit (6)(b) to Post-Effective Amendment No. 21.)
(e)(3) Distribution and Service Agreement [Class C] dated December 9,
1998, between Registrant and SEI Investments Distribution Co.
(Incorporated by reference to Exhibit (e)(3) to Post-Effective
Amendment No. 42)
(e)(4) Form of Dealer Agreement (Incorporated by reference to Exhibit
(6)(c) to Post-Effective Amendment No. 21.)
<PAGE>
(f) Not applicable.
(g)(1) Custodian Agreement dated September 20, 1993, between the
Registrant and First Trust National Association, as
supplemented through August 1994 (Incorporated by reference to
Exhibit (8) to Post-Effective Amendment No. 18.)
(g)(2) Supplement dated March 15, 1994, to Custodian Agreement dated
September 20, 1993.
(g)(3) Further Supplement dated November 21, 1997, with respect to
International Index Fund, and July 23, 1998, with respect to
Strategic Income Fund and Emerging Markets Fund, to Custodian
Agreement dated September 20, 1993 (Incorporated by reference
to Exhibit 8(c) to Post-Effective Amendment No. 39.)
* (g)(4) Compensation Agreement dated July 23, 1998, pursuant to
Custodian Agreement dated September 20, 1993, as amended.
(g)(5) Assignment of Custodian Agreements and Security Lending Agency
Agreement to U.S. Bank National Association, dated May 1, 1998
(Incorporated by reference to Exhibit (g)(5) to Post-Effective
Amendment No. 41.)
** (g)(6) Supplement to Custodian Agreement dated December 8, 1999.
** (h)(1) Administration Agreement dated December 8, 1999, by and
between U.S. Bank National Association and First American
Investment Funds, Inc.
(i)(1) Opinion and Consent of D'Ancona & Pflaum dated November 10,
1987 (Incorporated by reference to Exhibit (10)(a) to
Post-Effective Amendment No. 21.)
(i)(2) Opinion and Consent of Dorsey & Whitney (Incorporated by
reference to Exhibit (10)(a) to Post-Effective Amendment No.
15.)
(i)(3) Opinion and Consent of Dorsey & Whitney, LLP with respect to
Strategic Income Fund, Class HH, dated July 24, 1998
(Incorporated by reference to Exhibit (10)(c) to
Post-Effective Amendment No. 38.)
(i)(4) Opinion and Consent of Dorsey & Whitney, LLP with respect to
Adjustable Rate Mortgage Securities Fund (Class CC), Tax Free
Fund (Class DD), Minnesota Tax Free Fund (Class EE), Mid Cap
Growth Fund (Class FF) and Emerging Markets Fund (Class GG),
dated July 31, 1998 (Incorporated by reference to Exhibit
10(d) to Post-Effective Amendment No. 39.)
(j)(1) Opinion and Consent of Dorsey & Whitney, dated November 25,
1991 (Incorporated by reference to Exhibit (11)(b) to
Post-Effective Amendment No. 21.)
** (j)(2) Consent of Ernst & Young LLP.
** (j)(3) Consent of KPMG Peat Marwick LLP.
(k) Not applicable
(l) Not applicable
<PAGE>
* (m)(1) Form of Distribution Plan [Class A], as amended.
(m)(2) Class B Distribution Plan (Incorporated by reference to
Exhibit 15(b) to Post-Effective Amendment No. 21.)
(m)(3) Service Plan [Class B] (Incorporated by reference to Exhibit
(15)(c) to Post-Effective Amendment No. 21.)
(m)(4) Class C Distribution Plan (Incorporated by reference to
Exhibit (m)(4) to Post-Effective Amendment No. 42)
(m)(5) Service Plan [Class C] (Incorporated by reference to Exhibit
(m)(5) to Post-Effective Amendment No. 42)
* (n)(1) Multiple Class Plan Pursuant to Rule 18f-3, dated June 14,
1995, as amended September 1999.
* Filed herewith
** To be filed by Amendment.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND
Not applicable.
ITEM 25. INDEMNIFICATION
The first four paragraphs of Item 27 of Part C of Pre-Effective
Amendment No. 1 to the Registrant's Registration Statement on Form N-1A, dated
November 27, 1987, are incorporated herein by reference.
On February 18, 1988 the indemnification provisions of the Maryland
General Corporation Law (the "Law") were amended to permit, among other things,
corporations to indemnify directors and officers unless it is proved that the
individual (1) acted in bad faith or with active and deliberate dishonesty, (2)
actually received an improper personal benefit in money, property or services,
or (3) in the case of a criminal proceeding, had reasonable cause to believe
that his act or omission was unlawful. The Law was also amended to permit
corporations to indemnify directors and officers for amounts paid in settlement
of stockholders' derivative suits.
The Registrant undertakes that no indemnification or advance will be
made unless it is consistent with Sections 17(h) or 17(i) of the Investment
Company Act of 1940, as now enacted or hereafter amended, and Securities and
Exchange Commission rules, regulations, and releases (including, without
limitation, Investment Company Act of 1940 Release No. 11330, September 2,
1980).
Insofar as the indemnification for liability arising under the
Securities Act of 1933, as amended, may be permitted to directors, officers, and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange
<PAGE>
Commission such indemnification is against public policy as expressed in such
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933, as amended, and will be governed by the final adjudication of such
issue.
The Registrant maintains officers' and directors' liability insurance
providing coverage, with certain exceptions, for acts and omissions in the
course of the covered persons' duties as officers and directors.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Information on the business of the Registrant's investment adviser,
U.S. Bank National Association (the "Manager"), is described in the section of
each series' Statement of Additional Information, filed as part of this
Registration Statement, entitled "Investment Advisory and Other Services." The
directors and officers of the Manager are listed below, together with their
principal occupation or other positions of a substantial nature during the past
two fiscal years. This information is as of October 25, 1999.
<TABLE>
<CAPTION>
POSITIONS AND OFFICES OTHER POSITIONS AND OFFICES
NAME WITH THE MANAGER AND PRINCIPAL BUSINESS ADDRESS
---- ---------------- ------------------------------
<S> <C> <C>
John F. Grundhofer Chairman and Chief Executive Officer Chairman and Chief
Executive Officer of U.S. Bancorp*
Richard A. Zona Director and Vice Chairman Vice Chairman--Finance of U.S. Bancorp*
Philip G. Heasley Director, President and Chief President and Chief Operating Officer of
Operating Officer U.S. Bancorp*
J. Robert Hoffmann Director, Executive Vice President Executive Vice President and Chief Credit
and Chief Credit Officer of U.S. Officer Bancorp*
Lee R. Mitau Director, Executive Vice President, Executive Vice President, General Counsel
Secretary and General Counsel and Secretary of U.S. Bancorp*
Susan E. Lester Director, Executive Vice President Executive Vice President and Chief
and Chief Financial Officer Financial Officer of U.S. Bancorp*
Gary T. Duim Director and Vice Chairman Vice Chairman of U.S. Bancorp*
Peter E. Raskind Director, Executive Vice President Head of Branch Channel*
</TABLE>
- ---------------------------------
* Address: 601 Second Avenue South, Minneapolis, Minnesota 55402.
<PAGE>
ITEM 27. PRINCIPAL UNDERWRITERS:
(a) State the name of each investment company (other than the
Registrant) for which each principal underwriter currently distributing the
Registrant's securities also acts as a principal underwriter, distributor or
investment adviser:
Registrant's distributor, SEI Investments Distribution Co. (the
"Distributor") acts as distributor for SEI Liquid Asset Trust, SEI Daily Income
Trust, SEI Tax Exempt Trust, SEI Index Funds, SEI Institutional Managed Trust,
SEI Institutional International Trust, The Advisors' Inner Circle Fund, The
Pillar Funds, CUFund, STI Classic Funds, First American Funds, Inc., First
American Investment Funds, Inc., The Arbor Fund, Boston 1784 Funds, The PBHG
Funds, Inc., The Achievement Funds Trust, Bishop Street Funds, STI Classic
Variable Trust, ARK Funds, Huntington Funds, SEI Asset Allocation Trust, TIP
Funds, SEI Institutional Investments Trust, First American Strategy Funds, Inc.,
Highmark Funds, Armada Funds, PBHG Insurance Series Fund, Inc., Expedition
Funds, Alpha Select Funds, Oak Associates Funds, The Nevis Funds, Inc., The
Parkstone Group of Funds, CNI Charter Funds, The Parkstone Advantage Funds and
Ameriund Funds, Inc. pursuant to distribution agreements dated November 29,
1982, July 15, 1982, December 3, 1982, July 10, 1985, January 22, 1987, August
30, 1988, November 14, 1991, February 28, 1992, May 1, 1992, May 29, 1992,
November 1, 1992, November 1, 1992, January 28, 1993, June 1, 1993, July 16,
1993, December 27, 1994, January 27, 1995, March 1, 1995, August 18, 1995,
November 1, 1995, January 11, 1996, April 1, 1996, April 28, 1996, June 14,
1996, October 1, 1996, February 15, 1997, March 8, 1997, April 1, 1997, June 9,
1997, January 1, 1998, February 27, 1998, June 29, 1998, September 14, 1998,
April 1, 1999, May 1, 1999 and July 13, 1999, respectively.
The Distributor provides numerous financial services to investment
managers, pension plan sponsors, and bank trust departments. These services
include portfolio evaluation, performance measurement, and consulting services
("Funds Evaluation") and automated execution, clearing and settlement of
securities transactions ("MarketLink").
(b) Provide the information required by the following table for each
director, officer, or partner of each principal underwriter named in the
response to Item 20. Unless otherwise noted, the business address of each
director or officer is One Freedom Valley Drive, Oaks, Pennsylvania 19456.
<TABLE>
<CAPTION>
POSITIONS AND OFFICES WITH POSITIONS AND OFFICES WITH
NAME UNDERWRITER REGISTRANT
---- ----------- ----------
<S> <C> <C>
Alfred P. West, Jr. Director, Chairman & Chief Executive Officer --
Richard B. Lieb Director, Executive Vice President --
Carmen V. Romeo Director --
Mark J. Held President & Chief Operating Officer --
Gilbert L. Beebower Executive Vice President --
Dennis J. McGonigle Executive Vice President --
Robert M. Silvestri Chief Financial Officer & Treasurer --
Leo J. Dolan, Jr. Senior Vice President --
Carl A. Guarino Senior Vice President --
Larry Hutchinson Senior Vice President --
Jack May Senior Vice President --
Hartland J. McKeown Senior Vice President --
Kevin P. Robins Senior Vice President & General Counsel Vice President & Assistant Secretary
Patrick K. Walsh Senior Vice President --
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Ronert Aller Vice President --
Gordon W. Carpenter Vice President --
Todd Cipperman Vice President & Assistant Secretary --
S. Courtney E. Collier Vice President & Assistant Secretary Vice President & Assistant Secretary
Richard Deak Vice President & Assistant Secretary
Robert Crudup Vice President & Managing Director --
Barbara Doyne Vice President --
Jeff Drennen Vice President --
James R. Foggo Vice President & Assistant Secretary --
Vic Galef Vice President & Managing Director --
Lydia A. Gavalis Vice President & Assistant Secretary Vice President & Assistant Secretary
Kathy Heilig Vice President
Greg Gettinger Vice President & Assistant Secretary --
Jeff Jacobs Vice President --
Samuel King Vice President --
Kim Kirk Vice President & Managing Director --
John Krzeminski Vice President & Managing Director --
Carolyn McLaurin Vice President & Managing Director --
Mark Nagle Vice President President
Joanne Nelson Vice President --
Cynthia M. Parrish Vice President & Assistant Secretary --
Kim Rainey Vice President --
Rob Redecan Vice President --
Maria Rinehart Vice President --
Edward Searle Vice President & Assistant Secretary
Steve Smith Vice President --
Daniel Spaventa Vice President --
Kathryn L. Stanton Vice President & Assistant Secretary --
Lynda J. Striegel Vice President & Assistant Secretary Vice President & Assistant Secretary
Lori L. White Vice President & Assistant Secretary --
Wayne M. Withrow Vice President & Managing Director --
</TABLE>
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books, and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder are maintained by SEI Investments Distribution Co., Oaks,
Pennsylvania 19456.
ITEM 29. MANAGEMENT SERVICES
Not applicable.
ITEM 30. UNDERTAKINGS
Not applicable.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant certifies that it
meets all of the requirements for effectiveness of this Registration Statement
under Rule 485(a) of the Securities Act of 1933, as amended, and has duly caused
this Post-Effective Amendment to its Registration Statement No. 333-16905 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Oaks, Commonwealth of Pennsylvania, on the 17th day of November, 1999.
FIRST AMERICAN INVESTMENT FUNDS, INC.
ATTEST: /s/ James Volk By: /s/ James R. Foggo
---------------------------- -----------------------------
James Volk James R. Foggo
Vice President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed below by the
following persons in the capacity and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ James Volk Controller (Principal **
- ---------------------------- Financial and Accounting Officer)
James Volk
* Director **
- ----------------------------
John M. Murphy, Jr.
* Director **
- ----------------------------
Robert J. Dayton
* Director **
- ----------------------------
Andrew M. Hunter III
* Director **
- ----------------------------
Leonard W. Kedrowski
* Director **
- ----------------------------
Robert L. Spies
* Director **
- ----------------------------
Joseph D. Strauss
* Director **
- ----------------------------
Virginia L. Stringer
* Director **
- ----------------------------
Roger A. Gibson
* By: /s/ James R. Foggo
-----------------------
James R. Foggo
Attorney-in-Fact
November 17, 1999.
<PAGE>
Exhibit (a)(3)
FIRST AMERICAN INVESTMENT FUNDS, INC.
ARTICLES SUPPLEMENTARY
First American Investment Funds, Inc., a corporation organized under the laws of
the State of Maryland (the "Corporation"), does hereby file for record with the
State Department of Assessments and Taxation of Maryland the following Articles
Supplementary to its Articles of Incorporation:
FIRST: The Corporation is registered as an open-end investment company under the
Investment Company Act of 1940 (the "1940 Act"). As hereinafter set forth, the
Corporation has classified its authorized capital stock in accordance with the
Maryland General Corporation Law.
SECOND: Immediately before the classifications hereinafter set forth, the
Corporation had authority to issue two hundred eighty billion (280,000,000,000)
shares of common stock (individually, a "Share" and collectively, the "Shares"),
of the par value of $.0001 per Share and of the aggregate par value of
twenty-eight million dollars ($28,000,000), classified as follows:
(1) Class A Common Shares (formerly referred to as "government bond
fund shares"): Two billion (2,000,000,000) Shares.
(2) Class A, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(3) Class A, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(4) Class A, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(5) Class B Common Shares (formerly referred to as "fixed income
fund shares"): Two billion (2,000,000,000) Shares.
(6) Class B, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(7) Class B, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(8) Class B, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(9) Class C Common Shares (formerly referred to as "municipal bond
fund shares"): Two billion (2,000,000,000) Shares.
(10) Class C, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
<PAGE>
(11) Class C, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(12) Class C, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(13) Class D Common Shares (formerly referred to as "stock fund
shares"): Two billion (2,000,000,000) Shares.
(14) Class D, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(15) Class D, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(16) Class D, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(17) Class E Common Shares (formerly referred to as "special equity
fund shares"): Two billion (2,000,000,000) Shares.
(18) Class E, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(19) Class E, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(20) Class E, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(21) Class F Common Shares (formerly referred to as "asset
allocation fund shares"): Two billion (2,000,000,000) Shares.
(22) Class F, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(23) Class F, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(24) Class G Common Shares (formerly referred to as "balanced fund
shares"): Two billion (2,000,000,000) Shares.
(25) Class G, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(26) Class G, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(27) Class G, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(28) Class H Common Shares (formerly referred to as "equity index
fund shares"): Two billion (2,000,000,000) Shares.
(29) Class H, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(30) Class H, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(31) Class H, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
<PAGE>
(32) Class I Common Shares (formerly referred to as "intermediate
term income fund shares"): Two billion (2,000,000,000) Shares.
(33) Class I, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(34) Class I, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(35) Class I, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(36) Class J Common Shares (formerly referred to as "limited term
income fund shares"): Two billion (2,000,000,000) Shares.
(37) Class J, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(38) Class J, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(39) Class J, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(40) Class K Common Shares (formerly referred to as "mortgage
securities fund shares"): Two billion (2,000,000,000) Shares.
(41) Class K, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(42) Class K, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(43) Class L Common Shares (formerly referred to as "regional equity
fund shares"): Two billion (2,000,000,000) Shares.
(44) Class L, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(45) Class L, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(46) Class L, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(47) Class M Common Shares: Two billion (2,000,000,000) Shares.
(48) Class M, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(49) Class M, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(50) Class M, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(51) Class N Common Shares: Two billion (2,000,000,000) Shares.
(52) Class N, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
<PAGE>
(53) Class N, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(54) Class N, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(55) Class O Common Shares: Two billion (2,000,000,000) Shares.
(56) Class O, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(57) Class O, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(58) Class O, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(59) Class P Common Shares: Two billion (2,000,000,000) Shares.
(60) Class P, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(61) Class P, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(62) Class P, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(63) Class Q Common Shares: Two billion (2,000,000,000) Shares.
(64) Class Q, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(65) Class Q, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(66) Class Q, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(67) Class R Common Shares: Two billion (2,000,000,000) Shares.
(68) Class R, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(69) Class R, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(70) Class S Common Shares: Two billion (2,000,000,000) Shares.
(71) Class S, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(72) Class S, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(73) Class S, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(74) Class T Common Shares: Two billion (2,000,000,000) Shares.
(75) Class T, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
<PAGE>
(76) Class T, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(77) Class T, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(78) Class U Common Shares: Two billion (2,000,000,000) Shares.
(79) Class U, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(80) Class U, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(81) Class V Common Shares: Two billion (2,000,000,000) Shares.
(82) Class V, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(83) Class V, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(84) Class V, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(85) Class W Common Shares: Two billion (2,000,000,000) Shares.
(86) Class W, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(87) Class W, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(88) Class W, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(89) Class X Common Shares: Two billion (2,000,000,000) Shares.
(90) Class X, Series 1 Common Shares: Two billion (2,000,000,000)
Shares.
(91) Class X, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(92) Class Y Common Shares: Two billion (2,000,000,000) Shares.
(93) Class Y, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(94) Class Y, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(95) Class Z Common Shares: Two billion (2,000,000,000) Shares.
(96) Class Z, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(97) Class Z, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(98) Class Z, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
<PAGE>
(99) Class AA Common Shares: Two billion (2,000,000,000) Shares.
(100) Class AA, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(101) Class AA, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(102) Class AA, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(103) Class BB Common Shares: Two billion (2,000,000,000) Shares.
(104) Class BB, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(105) Class BB, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(106) Class BB, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(107) Class CC Common Shares: Two billion (2,000,000,000) Shares.
(108) Class CC, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(109) Class CC, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(110) Class CC, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(111) Class DD Common Shares: Two billion (2,000,000,000) Shares.
(112) Class DD, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(113) Class DD, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(114) Class DD, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(115) Class EE Common Shares: Two billion (2,000,000,000) Shares.
(116) Class EE, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(117) Class EE, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(118) Class EE, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(119) Class FF Common Shares: Two billion (2,000,000,000) Shares.
(120) Class FF, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(121) Class FF, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
<PAGE>
(122) Class FF, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(123) Class GG Common Shares: Two billion (2,000,000,000) Shares.
(124) Class GG, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(125) Class GG, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(126) Class GG, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(127) Class HH Common Shares: Two billion (2,000,000,000) Shares.
(128) Class HH, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(129) Class HH, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(130) Class HH, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(131) Unclassified Shares: Twenty billion (20,000,000,000) Shares.
THIRD: Pursuant to the authority contained in Sections 2-105(c) and 2-208.1 of
the Maryland General Corporation Law, the Board of Directors of the Corporation,
by resolution adopted at a meeting held on September 8, 1999, authorized an
increase in the total authorized shares of the Corporation from two hundred
eighty billion (280,000,000,000) shares of common stock, of the par value of
$.0001 per share, and of the aggregate par value of twenty-eight million dollars
($28,000,000), to three hundred billion (300,000,000,000) shares of common
stock, of the par value of $.0001 per share, and of the aggregate par value of
thirty million dollars ($30,000,000).
FOURTH: Pursuant to the authority contained in Article IV of the Articles of
Incorporation of the Corporation and Section 2-208 of the Maryland General
Corporation Law, the Board of Directors of the Corporation, by resolution
adopted September 8, 1999, classified the following additional Shares out of the
authorized, unissued and unclassified Shares of the Corporation:
(1) Class I I, Common Shares: Two billion (2,000,000,000) Shares.
(2) Class I I, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(3) Class I I, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(4) Class JJ Common Shares: Two billion (2,000,000,000) Shares.
(5) Class JJ, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(6) Class JJ, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(7) Class KK Common Shares: Two billion (2,000,000,000) Shares.
<PAGE>
(8) Class KK, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(9) Class KK, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(10) Class LL Common Shares: Two billion (2,000,000,000) Shares.
(11) Class LL, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(12) Class LL, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(13) Class LL, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
FIFTH: The Shares classified pursuant to FOURTH above shall have the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption, set forth in the Corporation's Articles of Incorporation. Any Class
or Series of Shares classified pursuant to FOURTH above may be subject to such
charges and expenses (including by way of example, but not by way of limitation,
such front-end and deferred sales charges as may be permitted under the 1940 Act
and rules of the National Association of Securities Dealers, Inc. ("NASD"),
expenses under Rule 12b-1 plans, administration plans, service plans, or other
plans or arrangements, however designated) adopted from time to time by the
Board of Directors of the Corporation in accordance, to the extent applicable,
with the 1940 Act, and all of the charges and expenses to which such a Class or
Series is subject shall be borne by such Class or Series and shall be
appropriately reflected (in the manner determined by the Board of Directors) in
determining the net asset value and the amounts payable with respect to
dividends and distributions on and redemptions or liquidations of, the Shares of
such Class or Series.
SIXTH: Immediately after the classifications hereinbefore set forth and upon
filing for record of these Articles Supplementary, the Corporation has authority
to issue three hundred billion (300,000,000,000) shares of common stock
(individually, a "Share" and collectively, the "Shares"), of the par value of
$.0001 per Share and of the aggregate par value of thirty million dollars
($30,000,000), classified as follows:
(1) Class A Common Shares (formerly referred to as "government bond
fund shares"): Two billion (2,000,000,000) Shares.
(2) Class A, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(3) Class A, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(4) Class A, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(5) Class B Common Shares (formerly referred to as "fixed income
fund shares"): Two billion (2,000,000,000) Shares.
(6) Class B, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(7) Class B, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
<PAGE>
(8) Class B, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(9) Class C Common Shares (formerly referred to as "municipal bond
fund shares"): Two billion (2,000,000,000) Shares.
(10) Class C, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(11) Class C, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(12) Class C, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(13) Class D Common Shares (formerly referred to as "stock fund
shares"): Two billion (2,000,000,000) Shares.
(14) Class D, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(15) Class D, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(16) Class D, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(17) Class E Common Shares (formerly referred to as "special equity
fund shares"): Two billion (2,000,000,000) Shares.
(18) Class E, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(19) Class E, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(20) Class E, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(21) Class F Common Shares (formerly referred to as "asset
allocation fund shares"): Two billion (2,000,000,000) Shares.
(22) Class F, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(23) Class F, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(24) Class G Common Shares (formerly referred to as "balanced fund
shares"): Two billion (2,000,000,000) Shares.
(25) Class G, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(26) Class G, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(27) Class G, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
<PAGE>
(28) Class H Common Shares (formerly referred to as "equity index
fund shares"): Two billion (2,000,000,000) Shares.
(29) Class H, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(30) Class H, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(31) Class H, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(32) Class I Common Shares (formerly referred to as "intermediate
term income fund shares"): Two billion (2,000,000,000) Shares.
(33) Class I, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(34) Class I, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(35) Class I, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(36) Class J Common Shares (formerly referred to as "limited term
income fund shares"): Two billion (2,000,000,000) Shares.
(37) Class J, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(38) Class J, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(39) Class J, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(40) Class K Common Shares (formerly referred to as "mortgage
securities fund shares"): Two billion (2,000,000,000) Shares.
(41) Class K, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(42) Class K, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(43) Class L Common Shares (formerly referred to as "regional equity
fund shares"): Two billion (2,000,000,000) Shares.
(44) Class L, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(45) Class L, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(46) Class L, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(47) Class M Common Shares: Two billion (2,000,000,000) Shares.
(48) Class M, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
<PAGE>
(49) Class M, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(50) Class M, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(51) Class N Common Shares: Two billion (2,000,000,000) Shares.
(52) Class N, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(53) Class N, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(54) Class N, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(55) Class O Common Shares: Two billion (2,000,000,000) Shares.
(56) Class O, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(57) Class O, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(58) Class O, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(59) Class P Common Shares: Two billion (2,000,000,000) Shares.
(60) Class P, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(61) Class P, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(62) Class P, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(63) Class Q Common Shares: Two billion (2,000,000,000) Shares.
(64) Class Q, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(65) Class Q, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(66) Class Q, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(67) Class R Common Shares: Two billion (2,000,000,000) Shares.
(68) Class R, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(69) Class R, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(70) Class S Common Shares: Two billion (2,000,000,000) Shares.
(71) Class S, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(72) Class S, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
<PAGE>
(73) Class S, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(74) Class T Common Shares: Two billion (2,000,000,000) Shares.
(75) Class T, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(76) Class T, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(77) Class T, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(78) Class U Common Shares: Two billion (2,000,000,000) Shares.
(79) Class U, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(80) Class U, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(81) Class V Common Shares: Two billion (2,000,000,000) Shares.
(82) Class V, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(83) Class V, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(84) Class V, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(85) Class W Common Shares: Two billion (2,000,000,000) Shares.
(86) Class W, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(87) Class W, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(88) Class W, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(89) Class X Common Shares: Two billion (2,000,000,000) Shares.
(90) Class X, Series 1 Common Shares: Two billion (2,000,000,000)
Shares.
(91) Class X, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(92) Class Y Common Shares: Two billion (2,000,000,000) Shares.
(93) Class Y, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(94) Class Y, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(95) Class Z Common Shares: Two billion (2,000,000,000) Shares.
<PAGE>
(96) Class Z, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(97) Class Z, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(98) Class Z, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(99) Class AA Common Shares: Two billion (2,000,000,000) Shares.
(100) Class AA, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(101) Class AA, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(102) Class AA, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(103) Class BB Common Shares: Two billion (2,000,000,000) Shares.
(104) Class BB, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(105) Class BB, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(106) Class BB, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(107) Class CC Common Shares: Two billion (2,000,000,000) Shares.
(108) Class CC, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(109) Class CC, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(110) Class CC, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(111) Class DD Common Shares: Two billion (2,000,000,000) Shares.
(112) Class DD, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(113) Class DD, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(114) Class DD, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(115) Class EE Common Shares: Two billion (2,000,000,000) Shares.
(116) Class EE, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(117) Class EE, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(118) Class EE, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
<PAGE>
(119) Class FF Common Shares: Two billion (2,000,000,000) Shares.
(120) Class FF, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(121) Class FF, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(122) Class FF, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(123) Class GG Common Shares: Two billion (2,000,000,000) Shares.
(124) Class GG, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(125) Class GG, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(126) Class GG, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(127) Class HH Common Shares: Two billion (2,000,000,000) Shares.
(128) Class HH, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(129) Class HH, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(130) Class HH, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(131) Class I I Common Shares: Two billion (2,000,000,000) Shares.
(132) Class I I, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(133) Class I I, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(134) Class JJ Common Shares: Two billion (2,000,000,000) Shares.
(135) Class JJ, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(136) Class JJ, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(137) Class KK Common Shares: Two billion (2,000,000,000) Shares.
(138) Class KK, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
(139) Class KK, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(140) Class LL Common Shares: Two billion (2,000,000,000) Shares.
(141) Class LL, Series 2 Common Shares: Two billion (2,000,000,000)
Shares.
<PAGE>
(142) Class LL, Series 3 Common Shares: Two billion (2,000,000,000)
Shares.
(143) Class LL, Series 4 Common Shares: Two billion (2,000,000,000)
Shares.
(144) Unclassified Shares: Fourteen billion (14,000,000,000) Shares.
SEVENTH: The aforesaid action by the Board of Directors of the Corporation was
taken pursuant to authority and power contained in the Articles of Incorporation
of the Corporation.
The undersigned officer of the Corporation hereby acknowledges, in the name and
on behalf of the Corporation, the foregoing Articles Supplementary to be the
corporate act of the Corporation and further certifies that, to the best of his
or her knowledge, information and belief, the matters and facts set forth
therein with respect to the approval thereof are true in all material respects,
under the penalties of perjury.
IN WITNESS WHEREOF, the Corporation has caused these Articles Supplementary to
be signed in its name and on its behalf by its Vice President and witnessed by
its Assistant Secretary on ______________________, 1999.
FIRST AMERICAN INVESTMENT FUNDS, INC.
By
James R. Foggo, Vice President
WITNESS:
James D. Alt, Assistant Secretary
<PAGE>
Exhibit (b)
NAME CHANGE FROM "SECURAL MUTUAL FUNDS, INC." TO "FIRST AMERICAN INVESTMENT
FUNDS, INC." APPROVED AT BOARD OF DIRECTORS' MEETINGS ON FEBRUARY 12, 1991;
AMENDMENT ADDING NEW SECTION 8 TO ARTICLE I APPROVED AT BOARD OF DIRECTORS'
MEETING ON DECEMBER 15, 1992; AMENDMENTS TO ARTICLE III APPROVED AT BOARD OF
DIRECTORS' MEETINGS ON SEPTEMBER 7, 1993; AMENDMENT ADDING NEW SECTION 3 TO
ARTICLE V APPROVED AT BOARD OF DIRECTORS' MEETING ON DECEMBER 7, 1993; AMENDMENT
TO ARTICLE V, SECTION 3 CHANGING FUND NAMES APPROVED AT BOARD OF DIRECTORS'
MEETING ON MARCH 7, 1994; AMENDMENT TO ARTICLE V, SECTION 3 PROVIDING FOR NAMES
OF NEW CLASSES AND SERIES APPROVED AT BOARD OF DIRECTORS MEETING ON JUNE 8,
1994; AMENDMENT TO ARTICLE V, SECTION 3 PROVIDING FOR NAMES OF NEW CLASSES AND
SERIES APPROVED AT BOARD OF DIRECTORS MEETING ON DECEMBER 7, 1994; AMENDMENT TO
ARTICLE V, SECTION 3 PROVIDING FOR NAMES OF NEW CLASSES AND SERIES APPROVED AT
BOARD OF DIRECTORS MEETING ON MARCH 6, 1995; AMENDMENT TO ARTICLE V, SECTION 3
PROVIDING FOR NAMES OF NEW CLASSES AND SERIES APPROVED AT BOARD OF DIRECTORS
MEETING ON DECEMBER 6, 1995; AMENDMENT TO ARTICLE V, SECTION 3 PROVIDING FOR
NAMES OF NEW CLASSES AND SERIES APPROVED AT BOARD OF DIRECTORS MEETING ON JUNE
4, 1997; AMENDMENT TO ARTICLE V, SECTION 3 PROVIDING FOR NAMES OF CLASSES AND
SERIES APPROVED AT BOARD OF DIRECTORS MEETING ON FEBRUARY 23, 1998; AMENDMENT TO
ARTICLE V, SECTION 3 PROVIDING FOR NAMES OF NEW CLASSES AND SERIES APPROVED AT
BOARD OF DIRECTORS MEETING ON DECEMBER 9, 1998; AMENDMENT TO ARTICLE II, SECTION
8 SPECIFYING COMMITTEE QUORUM APPROVED AT BOARD OF DIRECTORS MEETING ON FEBRUARY
23, 1999; AMENDMENT TO ARTICLE V, SECTION 3 PROVIDING FOR NAMES OF NEW CLASSES
AND SERIES APPROVED AT BOARD OF DIRECTORS MEETING ON SEPTEMBER 8, 1999.
BYLAWS
OF
FIRST AMERICAN INVESTMENT FUNDS, INC.
(A MARYLAND CORPORATION)
ARTICLE I
STOCKHOLDERS
SECTION 1. Meetings. Annual or special meetings of stockholders may be
held on such date and at such time as shall be set or provided for by the Board
of Directors or, if not so set or provided for, then as stated in the notice of
meeting. The notice of meeting shall state the purpose or purposes for which the
meeting is called.
SECTION 2. Place of Meetings. All meetings of stockholders shall be
held at such place in the United States as is set or provided for by the Board
of Directors or, if not so set or provided for, then as stated in the notice of
meeting.
SECTION 3. Organization. At any meeting of the stockholders, in the
absence of the Chairman of the Board of Directors, if any, and of the President
or a Vice President acting in his stead, the stockholders shall choose a
chairman to preside over the meeting. In the absence of the Secretary or an
Assistant Secretary, acting in his stead, the chairman of the meeting shall
appoint a secretary to keep the record of all the votes and minutes of the
proceedings.
SECTION 4. Proxies. At any meeting of the stockholders, every
stockholder having the right to vote shall be entitled to vote in person or by
proxy appointed by an instrument executed in writing by such stockholder or his
duly authorized attorney-in-fact and bearing a date not more than eleven (11)
months prior to said meeting, unless otherwise provided in the proxy.
<PAGE>
SECTION 5. Voting. At any meeting of the stockholders, every
stockholder shall be entitled to one vote or a fractional vote on each matter
submitted to a vote for each share or fractional share of stock standing in his
name on the books of the Corporation as of the close of business on the record
date for such meeting. Unless the voting is conducted by inspectors, all
questions relating to the qualifications of voters, validity of proxies and
acceptance or rejection of votes shall be decided by the chairman of the
meeting.
SECTION 6. Record Date; Closing of Transfer Books. The Board of
Directors may fix, in advance, a date as the record date for the purpose of
determining stockholders entitled to notice of, or to vote at, any meeting of
stockholders, or stockholders entitled to receive payment of any dividend or the
allotment of any rights, or in order to make a determination of stockholders for
any other proper purpose. Such date, in any case, shall be not more than sixty
days, and in case of a meeting of stockholders not less than ten days, prior to
the date on which the particular action requiring such determination of
stockholders is to be taken. In lieu of fixing a record date, the Board of
Directors may provide that the stock transfer books shall be closed for a stated
period but not to exceed, in any case, twenty days. If the stock transfer books
are closed for the purpose of determining stockholders entitled to notice of or
to vote at a meeting of stockholders, such books shall be closed for at least
ten days immediately preceding such meeting.
SECTION 7. Registered Stockholders. The Corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares and shall not be bound to recognize any equitable or other claim
to or interest in such share or shares on the part of any other person, whether
or not it shall have express or other notice thereof.
SECTION 8. Calling of Special Meeting of Shareholders. A special
meeting of stockholders shall be called upon the written request of the holders
of shares entitled to cast not less than 10% of all votes entitled to vote at
such meeting.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. Number, Qualification, Tenure and Vacancies. The initial
Board of Directors shall consist of five (5) directors. Except as hereinafter
provided, a director shall be elected to serve until his successor shall be
elected and shall qualify or until his earlier death, resignation, retirement or
removal. The directors may at any time when the stockholders are not assembled
in meeting, establish, increase or decrease their own number by majority vote of
the entire Board of Directors; provided, that the number of directors shall
never be less than three (3) nor more than twelve (12). The number of directors
may not be decreased so as to affect the term of any incumbent director. If the
number be increased, the additional directors to fill the vacancies thus created
may, except as hereinafter provided, by elected by majority vote of the entire
Board of Directors. Any vacancy occurring for any cause may be filled by a
majority of the remaining members of the Board of Directors, although such
majority is less than a quorum; provided, however, that after filling any
vacancy for any cause whatsoever two-thirds (2/3) of the entire Board of
Directors shall have been elected by the stockholders of the Corporation. A
director elected under any circumstance shall be elected to hold office until
his successor is elected and qualified, or until such director's earlier death,
resignation, retirement or removal.
<PAGE>
SECTION 2. When Stockholder Meeting Required. If at any time less than
a majority of the directors holding office were elected by the stockholders of
the Corporation, the directors or the President or Secretary shall cause a
meeting of stockholders to be held as soon as possible and, in any event, within
sixty (60) days, unless extended by order of the Securities and Exchange
Commission, for the purpose of electing directors to fill any vacancy.
SECTION 3. Regular Meetings. Regular meetings of the Board of Directors
may be held at such time and place as shall be determined from time to time by
agreement or fixed by resolution of the Board of Directors.
SECTION 4. Special Meetings. Special meetings of the Board of Directors
may be called at any time by the Chairman of the Board or President and shall be
called by the Secretary upon the written request of any two (2) directors.
SECTION 5. Notice of Meetings. Except as otherwise provided in these
Bylaws, notice need not be given of regular meetings of the Board of Directors
held at times fixed by agreement or resolution of the Board of Directors. Notice
of special meetings of the Board of Directors, stating the place, date and time
thereof, shall be given not less than two (2) days before such meeting to each
director. Notice to a director may be given personally, by telegram, cable or
wireless, by telephone, by mail, or by leaving such notice at his place of
residence or usual place of business. If mailed, such notice shall be deemed to
be given when deposited in the United States mail, postage prepaid, directed to
the director at his address as it appears on the records of the Corporation.
Meetings may be held at any time without notice if all the directors are
present, or if those not present waive notice of the meeting in writing. If the
President shall determine in advance that a quorum would not be present on the
date set for any regular or special meeting, such meeting may be held at such
later date, time and place as he shall determine, upon at least twenty-four (24)
hours' notice.
SECTION 6. Quorum. A majority of the directors then in office, at a
meeting duly assembled, but not less than one-third of the entire Board of
Directors nor in any event less than two directors, shall constitute a quorum
for the transaction of business. The vote of a majority of directors present at
a meeting at which a quorum is present shall be the act of the Board of
Directors, except as may be otherwise specifically provided by statute or by the
Articles of Incorporation or by these Bylaws. If at any meeting of the Board of
Directors, there shall be less than a quorum present, a majority of those
present may adjourn the meeting, without further notice, from time to time until
a quorum shall have been obtained.
<PAGE>
SECTION 7. Removal. At any meeting of stockholders, duly called and at
which a quorum is present, the stockholders may, by the affirmative vote of the
holders of a majority of the votes entitled to be cast thereon, remove any
director or directors from office and may elect a successor or successors to
fill any resulting vacancies.
SECTION 8. Committees. The Board of Directors, may, by resolution
adopted by a majority of the entire Board of Directors, from time to time
appoint from among its members one or more committees as it may determine. Each
committee appointed by the Board of Directors shall be composed of two (2) or
more directors and may, to the extent provided in such resolution, have and
exercise all the powers of the Board of Directors, except the power to declare
dividends, to issue stock or to recommend to stockholders any action requiring
stockholder approval. Each such committee shall serve at the pleasure of the
Board of Directors. Each such committee shall keep a record of its proceedings
and shall adopt its own rules of procedure. It shall make reports as may be
required by the Board of Directors.
A quorum of any committee shall consist of one-third of its members
unless the committee is comprised of two or three members, in which event a
quorum shall consist of two members. If a Pricing Committee is appointed and a
member of such committee is absent from a committee meeting, the remainder of
the committee (although not constituting a quorum) may appoint another director
to act in place of the absent member.
ARTICLE III
OFFICERS AND CHAIRMAN OF THE BOARD OF DIRECTORS
SECTION 1. Offices. The elected officers of the Corporation shall be
the President, the Secretary and the Treasurer, and may also include one or more
Vice Presidents, one or more Assistant Secretaries, one or more Assistant
Treasurers and such other officers as the Board of Directors may determine. Any
two or more offices may be held by the same person, except that no person may
hold both the office of President and the office of Vice President. A person who
holds more than one office in the Corporation shall not act in more than one
capacity to execute, acknowledge or verify an instrument required by law to be
executed, acknowledged or verified by more than one officer.
SECTION 2. Selection, Term of Office and Vacancies. The initial
officers of the Corporation shall be elected by the Board of Directors at the
first meeting of the Board of Directors. Additional officers may be elected at
any regular or special meeting of the Board of Directors. Each officer shall
serve at the pleasure of the Board of Directors or until his earlier death,
resignation or retirement. If any office becomes vacant, the vacancy shall be
filled by the Board of Directors.
SECTION 3. Chairman of the Board. The Board of Directors may elect one
of its members as Chairman of the Board. Except as otherwise provided in these
Bylaws, in the event the Board of Directors elects a Chairman of the Board of
Directors, he shall preside at all meetings of the stockholders and the Board of
Directors and shall perform such other duties as from time to time may be
assigned to him by the Board of Directors. The Chairman of the Board of
Directors will under no circumstances be deemed to be an "officer" of the
Corporation, and an individual serving as Chairman of the Board of Directors
will not be deemed to be an "affiliated person" with respect to the Corporation
(under the Investment Company Act of 1940, as amended) solely by virtue of such
person's position as Chairman of the Board of Directors of the Corporation.
<PAGE>
SECTION 4. President. The president shall be the chair executive
officer of the Corporation and shall perform such other duties as from time to
time may be assigned to him by the Board of Directors. He shall perform the
duties of the Chairman of the Board of Directors in the event there is no
Chairman or in the event the Chairman is absent.
SECTION 5. Vice Presidents. A Vice President shall perform such duties
as may be assigned by the President or the Board of Directors. In the absence of
the President and in accordance with such order of priority as may be
established by the Board of Directors, he may perform the duties of the
President, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the President.
SECTION 6. Secretary. The Secretary shall (a) keep the minutes of the
stockholders' and Board of Directors' meetings in one or more books provided for
that purpose, and shall perform like duties for committees when requested, (b)
see that all notices are duly given in accordance with the provisions of these
Bylaws or as required by law, (c) be custodian of the corporate records and of
the seal of the Corporation and see that the seal of the Corporation is affixed
to all documents the execution of which on behalf of the Corporation under its
seal is duly authorized or required by law, and (d) in general perform all
duties incident to the office of Secretary and such other duties as may be
assigned by the President or the Board of Directors.
SECTION 7. Assistant Secretaries. One or more Assistant Secretaries may
be elected by the Board of Directors or appointed by the President. In the
absence of the Secretary and in accordance with such order as may be established
by the Board of Directors, an Assistant Secretary shall have the power to
perform his duties including the certification, execution and attestation of
corporate records and corporate instruments. Assistant Secretaries shall perform
such other duties as may be assigned to them by the President or the Board of
Directors.
SECTION 8. Treasurer. The Treasurer (a) shall be the principal
financial officer of the Corporation, (b) shall see that all funds and
securities of the Corporation are held by the custodian of the Corporation's
assets, and (c) shall be the principal accounting officer of the Corporation.
SECTION 9. Assistant Treasurers. One or more Assistant Treasurers may
be elected by the Board of Directors or appointed by the President. In the
absence of the Treasurer and in accordance with such order as may be established
by the Board of Directors, an Assistant Treasurer shall have the power to
perform his duties. Assistant Treasurers shall perform such other duties as may
be assigned to them by the President or the Board of Directors.
<PAGE>
SECTION 10. Other Officers. The Board of Directors may appoint or may
authorize the Chairman of the Board or the President to appoint such other
officers and agents as the appointer may deem necessary and proper, who shall
hold their offices for such terms and shall exercise such powers and perform
such duties as shall be determined from time to time by the appointer.
SECTION 11. Bond. If required by the Board of Directors, the Treasurer
and such other directors, officers, employees and agents of the Corporation as
the Board of Directors may specify, shall give the Corporation a bond in such
amount, in such form and with such security, surety or sureties, as may be
satisfactory to the Board of Directors, conditioned on the faithful performance
of the duties of their office and for the restoration to the Corporation, in
case of their death, resignation, or removal from their office of all books,
papers, vouchers, monies, securities and property of whatever kind in their
possession belonging to the Corporation. All premiums on such bonds shall be
paid by the Corporation.
SECTION 12. Removal. Any officer (or the Chairman of the Board of
Directors) of the Corporation may be removed by the Board of Directors whenever,
in its judgment, the best interests of the Corporation will be served thereby,
but such removal shall be without prejudice to the contractual rights, if any,
of the officer (or the Chairman of the Board of Directors) so removed.
ARTICLE IV
CAPITAL STOCK
SECTION 1. Stock Certificates. Certificates representing shares of
stock of the Corporation shall be in such form consistent with the laws of the
State of Maryland as shall be determined by the Board of Directors. All
certificates for shares of stock shall be consecutively numbered or otherwise
identified. The name and address of the person to whom the shares of stock
represented thereby are issued, with the number of shares and date of issue,
shall be entered on the stock transfer records of the Corporation.
SECTION 2. Redemption and Transfer. Any holder of stock of the
Corporation desiring to redeem or transfer shares of stock standing in the name
of such holder on the books of the Corporation shall deliver to the Corporation
or to its agent duly authorized for such purpose a written unconditional
request, in form acceptable to the Corporation, for such redemption or transfer.
If certificates evidencing such shares have been issued, such certificates shall
also be so delivered in transferable form duly endorsed or accompanied by all
necessary stock transfer stamps or currency or certified or bank cashier's check
payable to the order of the Corporation for the appropriate price thereof. The
Corporation or its duly authorized agent may require that the signature of a
redeeming stockholder on any or all of the request, endorsement or stock power
be guaranteed and that other documentation in accordance with the custom of
brokers be so delivered where appropriate, such as proof of capacity and power
to make request or transfer. All documents and funds shall be deemed to have
been delivered only when physically deposited at such office or other place of
deposit as the Corporation or its duly authorized agent shall from time to time
designate. At any time during which the right of redemption is suspended or
payment for such shares is postponed pursuant to the Investment Company Act of
1940, as amended, or any rule, regulation or order thereunder, any stockholder
may withdraw his request (and certificates and funds, if any) or may leave the
same on deposit, in which case the redemption price shall be the net asset value
next applicable after such suspension or postponement is terminated.
<PAGE>
SECTION 3. Lost, Mutilated, Destroyed or Wrongfully Taken Certificates.
Any person claiming a stock certificate to have been lost, mutilated, destroyed
or wrongfully taken, and who requests the issuance of a new certificate before
the Corporation has notice that the certificate alleged to have been lost,
mutilated, destroyed or wrongfully taken has been acquired by a bona fide
purchaser, shall make an affidavit of that fact and shall give the Corporation
and its transfer agents and registrars a bond, with sufficient surety, to
indemnify them against any loss or claim arising as a result of the issuance of
a new certificate. The form and amount of such bond and the surety thereon shall
in each case be deemed sufficient if satisfactory to the President or Treasurer
of the Corporation.
ARTICLE V
GENERAL PROVISIONS
SECTION 1. Fiscal Year. The fiscal year of the Corporation shall be
established by resolution of the Board of Directors.
SECTION 2. Amendments. These Bylaws may be altered, amended or repealed
and new Bylaws may be adopted by a majority of the entire Board of Directors at
any meeting of the Board of Directors.
SECTION 3. Names of Classes and Series of Shares. The names of the
classes and series of shares which have been classified by the Corporation in
its Articles of Incorporation and in Articles Supplementary shall be as follows:
<TABLE>
<CAPTION>
Designation of Shares in
Articles of Incorporation
or Articles Supplementary Name of Class or Series
- ------------------------- -----------------------
<S> <C>
Class A, Common Shares Intermediate Government Bond Fund,
Retail Class or Class A
Class A, Series 2 Common Shares Intermediate Government Bond Fund,
Institutional Class or Class Y
Class A, Series 3 Common Shares Intermediate Government Bond Fund,
CDSC Class or Class B
Class A, Series 4 Common Shares Intermediate Government Bond Fund, Class C
Class B, Common Shares Fixed Income Fund, Retail Class or Class A
Class B, Series 2 Common Shares Fixed Income Fund, Institutional Class or Class Y
Class B, Series 3 Common Shares Fixed Income Fund, CDSC Class or Class B
Class B, Series 4 Common Shares Fixed Income Fund, Class C
Class C, Common Shares Intermediate Tax Free Fund, Retail Class or Class A
Class C, Series 2 Common Shares Intermediate Tax Free Fund, Institutional
Class or Class Y
Class C, Series 3 Common Shares Intermediate Tax Free Fund, CDSC Class or Class B
Class C, Series 4 Common Shares Intermediate Tax Free Fund, Class C
Class D, Common Shares Large Cap Value Fund, Retail Class or Class A [formerly Stock Fund]
Class D, Series 2 Common Shares Large Cap Value Fund, Institutional Class or Class Y [formerly Stock Fund]
Class D, Series 3 Common Shares Large Cap Value Fund, CDSC Class or Class B [formerly Stock Fund]
Class D, Series 4 Common Shares Large Cap Value Fund, Class C
Class E, Common Shares Mid Cap Value Fund, Retail Class or Class A [formerly Special Equity Fund]
Class E, Series 2 Common Shares Mid Cap Value Fund, Institutional Class or Class Y [formerly Special Equity Fund]
Class E, Series 3 Common Shares Mid Cap Value Fund, CDSC Class or Class B [formerly Special Equity Fund]
Class E, Series 4 Common Shares Mid Cap Value Fund, Class C
Class F, Common Shares Reserved [formerly Asset Allocation Fund, Retail Class or Class A]
Class F, Series 2 Common Shares Reserved [formerly Asset Allocation Fund, Institutional Class or Class C]
Class F, Series 3 Common Shares Reserved [formerly Asset Allocation Fund, CDSC Class or Class B
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Class G, Common Shares Balanced Fund, Retail Class or Class A
Class G, Series 2 Common Shares Balanced Fund, Institutional Class or Class Y
Class G, Series 3 Common Shares Balanced Fund, CDSC Class or Class B
Class G, Series 4 Common Shares Balanced Fund, Class C
Class H, Common Shares Equity Index Fund, Retail Class or Class A
Class H, Series 2 Common Shares Equity Index Fund, Institutional Class or Class Y
Class H, Series 3 Common Shares Equity Index Fund, CDSC Class or Class B
Class H, Series 4 Common Shares Equity Index Fund, Class C
Class I, Common Shares Intermediate Term Income Fund, Retail
Class or Class A
Class I, Series 2 Common Shares Intermediate Term Income Fund,
Institutional Class or Class Y
Class I, Series 3 Common Shares Intermediate Term Income Fund,
CDSC Class or Class B
Class I, Series 4 Common Shares Intermediate Term Income Fund, Class C
Class J, Common Shares Limited Term Income Fund, Retail Class or Class A
Class J, Series 2 Common Shares Limited Term Income Fund,
Institutional Class or Class Y
Class J, Series 3 Common Shares Limited Term Income Fund, CDSC Class or Class B
Class J, Series 4 Common Shares Limited Term Income Fund, Class C
Class K, Common Shares Reserved [formerly Mortgage Securities Fund, Retail Class or Class A]
Class K, Series 2 Common Shares Reserved [formerly Mortgage Securities Fund, Institutional Class or Class C]
Class K, Series 3 Common Shares Reserved [formerly Mortgage Securities Fund, CDSC Class or Class B]
Class L, Common Shares Regional Equity Fund, Retail Class or Class A
Class L, Series 2 Common Shares Regional Equity Fund, Institutional Class or Class Y
Class L, Series 3 Common Shares Regional Equity Fund, CDSC Class or Class B
Class L, Series 4 Common Shares Regional Equity Fund, Class C
Class M, Common Shares Minnesota Intermediate Tax Free Fund, Retail Class
or Class A [formerly Minnesota Insured Intermediate Tax
Free Fund]
Class M, Series 2 Common Shares Minnesota Intermediate Tax Free Fund, Institutional
Class or Class Y [formerly Minnesota Insured Intermediate
Tax Free Fund]
Class M, Series 3 Common Shares Minnesota Intermediate Tax Free Fund, CDSC Class or Class B
[formerly Minnesota Insured Intermediate Tax Free Fund]
Class M, Series 4 Common Shares Minnesota Intermediate Tax Free Fund, Class C
Class N, Common Shares Colorado Intermediate Tax Free Fund,
Retail Class or Class A
Class N, Series 2 Common Shares Colorado Intermediate Tax Free Fund,
Institutional Class or Class Y
Class N, Series 3 Common Shares Colorado Intermediate Tax Free Fund,
CDSC Class or Class B
Class N, Series 4 Common Shares Colorado Intermediate Tax Free Fund, Class C
Class O, Common Shares Small Cap Growth Fund, Retail Class or Class A [formerly Emerging Growth Fund]
Class O, Series 2 Common Shares Small Cap Growth Fund, Institutional Class or Class Y [formerly Emerging Growth Fund]
Class O, Series 3 Common Shares Small Cap Growth Fund, CDSC Class or Class B [formerly Emerging
Growth Fund]
Class O, Series 4 Common Shares Small Cap Growth Fund, Class C
Class P, Common Shares Technology Fund, Retail Class or Class A
Class P, Series 2 Common Shares Technology Fund, Institutional Class or Class Y
Class P, Series 3 Common Shares Technology Fund, CDSC Class or Class B
Class P, Series 4 Common Shares Technology Fund, Class C
Class Q, Common Shares International Fund, Retail Class or Class A
Class Q, Series 2 Common Shares International Fund, Institutional Class or Class Y
Class Q, Series 3 Common Shares International Fund, CDSC Class or Class B
Class Q, Series 4 Common Shares International Fund, Class C
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Class R, Common Shares Reserved [formerly Limited Volatility Stock Fund, Retail Class or Class A]
Class R, Series 2 Common Shares Reserved [formerly Limited Volatility Stock Fund, Institutional Class or Class C]
Class R, Series 3 Common Shares Reserved [formerly Limited Volatility Stock Fund, CDSC Class or Class B]
Class S, Common Shares Large Cap Growth Fund, Retail Class or Class A [formerly Diversified Growth Fund]
Class S, Series 2 Common Shares Large Cap Growth Fund, CDSC Class or Class B [formerly Diversified Growth Fund]
Class S, Series 3 Common Shares Large Cap Growth Fund, Institutional Class or Class Y [formerly Diversified Growth Fund]
Class S, Series 4 Common Shares Large Cap Growth Fund, Class C
Class T, Common Shares Equity Income Fund, Retail Class or Class A
Class T, Series 2 Common Shares Equity Income Fund, CDSC Class or Class B
Class T, Series 3 Common Shares Equity Income Fund, Institutional Class or Class Y
Class T, Series 4 Common Shares Equity Income Fund, Class C
Class U, Common Shares Reserved [formerly Limited Term Tax Free Income Fund, Retail Class or Class A]
Class U, Series 2 Common Shares Reserved [formerly Limited Term Tax Free Income Fund, CDSC Class or Class B]
Class U, Series 3 Common Shares Reserved [formerly Limited Term Tax Free Income Fund, Institutional Class or Class C]
Class V, Common Shares Real Estate Securities Fund, Retail Class or Class A
Class V, Series 2 Common Shares Real Estate Securities Fund, CDSC Class or Class B
Class V, Series 3 Common Shares Real Estate Securities Fund, Institutional Class or Class Y
Class V, Series 4 Common Shares Real Estate Securities Fund, Class C
Class W, Common Shares Health Sciences Fund, Retail Class or Class A
Class W, Series 2 Common Shares Health Sciences Fund, CDSC Class or Class B
Class W, Series 3 Common Shares Health Sciences Fund, Institutional Class or Class Y
Class W, Series 4 Common Shares Health Sciences Fund, Class C
Class X, Common Shares Oregon Intermediate Tax Free Fund, Institutional Class or Class Y
Class X, Series 2 Common Shares Oregon Intermediate Tax Free Fund, Class A
Class X, Series 3 Common Shares Oregon Intermediate Tax Free Fund, Class C
Class Y, Common Shares California Intermediate Tax Free Fund, Retail Class or Class A
Class Y, Series 2 Common Shares California Intermediate Tax Free Fund, Institutional Class or Class Y
Class Y, Series 3 Common Shares California Intermediate Tax Free Fund, Class C
Class Z, Common Shares Micro Cap Value Fund, Retail Class or Class A
Class Z, Series 2 Common Shares Micro Cap Value Fund, CDSC Class or Class B
Class Z, Series 3 Common Shares Micro Cap Value Fund, Institutional Class or Class Y
Class Z, Series 4 Common Shares Micro Cap Value Fund, Class C
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Class AA, Common Shares Small Cap Value Fund, Retail Class or Class A
Class AA, Series 2 Common Shares Small Cap Value Fund, CDSC Class or Class B
Class AA, Series 3 Common Shares Small Cap Value Fund, Institutional Class or Class Y
Class AA, Series 4 Common Shares Small Cap Value Fund, Class C
Class BB, Common Shares International Index Fund, Retail Class or Class A
Class BB, Series 2 Common Shares International Index Fund, CDSC Class or Class B
Class BB, Series 3 Common Shares International Index Fund, Institutional Class or Class Y
Class BB, Series 4 Common Shares International Index Fund, Class C
Class CC, Common Shares Adjustable Rate Mortgage Securities Fund, Retail Class or Class A
Class CC, Series 2 Common Shares Adjustable Rate Mortgage Securities Fund, CDSC Class or Class B
Class CC, Series 3 Common Shares Adjustable Rate Mortgage Securities Fund, Institutional Class or Class Y
Class CC, Series 4 Common Shares Adjustable Rate Mortgage Securities Fund, Class C
Class DD, Common Shares Tax Free Fund, Retail Class or Class A
Class DD, Series 2 Common Shares Tax Free Fund, CDSC Class or Class B
Class DD, Series 3 Common Shares Tax Free Fund, Institutional Class or Class Y
Class DD, Series 4 Common Shares Tax Free Fund, Class C
Class EE, Common Shares Minnesota Tax Free Fund, Retail Class or Class A
Class EE, Series 2 Common Shares Minnesota Tax Free Fund, CDSC Class or Class B
Class EE, Series 3 Common Shares Minnesota Tax Free Fund, Institutional Class or Class Y
Class EE, Series 4 Common Shares Minnesota Tax Free Fund, Class C
Class FF, Common Shares Mid Cap Growth Fund, Retail Class or Class A
Class FF, Series 2 Common Shares Mid Cap Growth Fund, CDSC Class or Class B
Class FF, Series 3 Common Shares Mid Cap Growth Fund, Institutional Class or Class Y
Class FF, Series 4 Common Shares Mid Cap Growth Fund, Class C
Class GG, Common Shares Emerging Markets Fund, Retail Class or Class A
Class GG, Series 2 Common Shares Emerging Markets Fund, CDSC Class or Class B
Class GG, Series 3 Common Shares Emerging Markets Fund, Institutional Class or Class Y
Class GG, Series 4 Common Shares Emerging Markets Fund, Class C
Class HH, Common Shares Strategic Income Fund, Retail Class or Class A
Class HH, Series 2 Common Shares Strategic Income Fund, CDSC Class or Class B
Class HH, Series 3 Common Shares Strategic Income Fund, Institutional Class or Class Y
Class HH, Series 4 Common Shares Strategic Income Fund, Class C
Class I I, Common Shares California Tax Free Fund, Class A
Class I I, Series 2 Common Shares California Tax Free Fund, Class C
Class I I, Series 3 Common Shares California Tax Free Fund, Class Y
Class JJ, Common Shares Arizona Tax Free Fund, Class A
Class JJ, Series 2 Common Shares Arizona Tax Free Fund, Class C
Class JJ, Series 3 Common Shares Arizona Tax Free Fund, Class Y
Class KK, Common Shares Colorado Tax Free Fund, Class A
Class KK, Series 2 Common Shares Colorado Tax Free Fund, Class C
Class KK, Series 3 Common Shares Colorado Tax Free Fund, Class Y
Class LL, Common Shares Corporate Bond Fund, Class A
Class LL, Series 2 Common Shares Corporate Bond Fund, Class B
Class LL, Series 3 Common Shares Corporate Bond Fund, Class C
Class LL, Series 4 Common Shares Corporate Bond Fund, Class Y
</TABLE>
<PAGE>
Exhibit (d)(2)
FIRST AMERICAN INVESTMENT FUNDS, INC.
AMENDMENT TO INVESTMENT ADVISORY AGREEMENT
AMENDMENT NO. 10
TO
EXHIBIT A
EFFECTIVE DATES:
- ----------------
PORTFOLIO EFFECTIVE DATE
- --------- --------------
Large Cap Value Fund April 2, 1991
Mid Cap Value Fund April 2, 1991
Fixed Income Fund April 2, 1991
Intermediate Government Bond Fund April 2, 1991
Intermediate Tax Free Fund April 2, 1991
Intermediate Term Income Fund September 15, 1992
Equity Index Fund September 15, 1992
Regional Equity Fund September 15, 1992
Limited Term Income Fund September 15, 1992
Balanced Fund September 15, 1992
Minnesota Intermediate Tax Free Fund December 31, 1993
Colorado Intermediate Tax Free Fund December 31, 1993
Small Cap Growth Fund December 31, 1993
Technology Fund December 31, 1993
International Fund December 31, 1993
Equity Income Fund January 31, 1994
Large Cap Growth Fund January 31, 1994
Real Estate Securities Fund June 12, 1995
Health Sciences Fund January 31, 1996
Oregon Intermediate Tax Free Fund August 5, 1997
California Intermediate Tax Free Fund August 5, 1997
Micro Cap Value Fund August 5, 1997
Small Cap Value Fund November 21, 1997
International Index Fund November 21, 1997
Adjustable Rate Mortgage Sec Fund July 24, 1998
Tax Free Fund July 24, 1998
Minnesota Tax Free Fund July 24, 1998
Mid Cap Growth Fund July 24, 1998
Emerging Markets Fund July 24, 1998
Strategic Income Fund July 24, 1998
California Tax Free Fund February 1, 2000
Arizona Tax Free Fund February 1, 2000
Colorado Tax Free Fund February 1, 2000
Corporate Bond Fund February 1, 2000
ADVISORY FEES:
- -------------
<PAGE>
<TABLE>
<CAPTION>
Annual Advisory Fee
AS A PERCENTAGE OF
Portfolio AVERAGE DAILY NET ASSETS AVERAGE DAILY NET ASSETS
- --------- ------------------------ ------------------------
<S> <C> <C>
LARGE CAP VALUE FUND On All Assets .70%
Mid Cap Value Fund On All Assets .70%
Fixed Income Fund On All Assets .70%
Intermediate Government Bond Fund On All Assets .70%
Intermediate Tax Free Fund On All Assets .70%
Intermediate Term Income Fund On All Assets .70%
Equity Index Fund On All Assets .70%
Regional Equity Fund On All Assets .70%
Limited Term Income Fund On All Assets .70%
Balanced Fund On All Assets .70%
Minnesota Intermediate Tax Free Fund On All Assets .70%
Colorado Intermediate Tax Free Fund On All Assets .70%
Small Cap Growth Fund On All Assets .70%
Technology Fund On All Assets .70%
International Fund On All Assets 1.25%
Equity Income Fund On All Assets .70%
Large Cap Growth Fund On All Assets .70%
Real Estate Securities Fund On All Assets .70%
Health Sciences Fund On All Assets .70%
Oregon Intermediate Tax Free Fund On All Assets .70%
California Intermediate Tax Free Fund On All Assets .70%
Micro Cap Value Fund On All Assets .70%
Small Cap Value Fund On All Assets .70%
International Index Fund On All Assets .70%
Adjustable Rate Mortgage Securities Fund On All Assets .70%
Tax Free Fund On All Assets .70%
Minnesota Tax Free Fund On All Assets .70%
Mid Cap Growth Fund On All Assets .70%
Emerging Markets Fund On All Assets 1.25%
Strategic Income Fund On All Assets .70%
California Tax Free Fund On All Assets .70%
Arizona Tax Free Fund On All Assets .70%
Colorado Tax Free Fund On All Assets .70%
Corporate Bond Fund On All Assets .70%
</TABLE>
<PAGE>
Exhibit (g)(4)
FIRST AMERICAN INVESTMENT FUNDS, INC.
COMPENSATION AGREEMENT DATED AS OF SEPTEMBER 9, 1999
PURSUANT TO CUSTODIAN AGREEMENT
WHEREAS, First American Investment Funds, Inc., a Maryland corporation
(hereinafter called the "Fund"), and First Trust National Association, a
national banking association organized and existing under the laws of the United
States of America, previously entered into that Custodian Agreement dated
September 20, 1993 (the "Custodian Agreement"); and
WHEREAS, First Trust National Association, with the consent of the Fund,
assigned its rights and obligations under the Custodian Agreement to U.S. Bank
National Association, a national banking association organized and existing
under the laws of the United States of America (the "Custodian") by an
Assignment and Assumption Agreement dated as of May 1, 1998; and
WHEREAS, Article 12 of the Custodian Agreement provides that the Custodian shall
be paid compensation at such rates and at such times as may from time to time be
agreed on in writing by the parties thereto; and
WHEREAS, the Fund and the Custodian previously entered into that Compensation
Agreement dated as of July 23, 1998, for such purpose with respect to the
then-existing series of the Fund; and
WHEREAS, the Fund and the Custodian wish to amend such compensation agreement in
order to add provisions thereto relating to certain new funds.
NOW, THEREFORE, the Fund and the Custodian agree as follows:
1. The compensation payable to the Custodian pursuant to the Custodian Agreement
with respect to the respective series of the Fund shall be payable monthly at
the following annual rates as percentages of the respective series' average
daily net assets: Large Cap Value Fund, Equity Index Fund, Balanced Fund,
Regional Equity Fund, Mid Cap Value Fund, Limited Term Income Fund, Intermediate
Term Income Fund, Fixed Income Fund, Intermediate Government Bond Fund, Health
Sciences Fund, Real Estate Securities Fund, Equity Income Fund, Large Cap Growth
Fund, Small Cap Growth Fund, Technology Fund, Intermediate Tax Free Fund,
Minnesota Intermediate Tax Free Fund, Colorado Intermediate Tax Free Fund,
Oregon Intermediate Tax Free Fund, California Intermediate Tax Free Fund, Micro
Cap Value Fund, Small Cap Value Fund, Adjustable Rate Mortgage Securities Fund,
Tax Free Fund, Minnesota Tax Free Fund, Mid Cap Growth Fund, Strategic Income
Fund, California Tax Free Fund, Arizona Tax Free Fund, Colorado Tax Free Fund,
and Corporate Bond Fund, .03%; and International Fund, International Index Fund,
and Emerging Markets Fund, 0.10%. The Custodian shall pay sub-custodian fees
with respect to those funds which are authorized to utilize foreign
sub-custodians out of the compensation payable to the Custodian with respect to
such funds as set forth above. The Fund shall reimburse the Custodian for all
other out-of-pocket expenses incurred by the Custodian in connection with the
performance of the Custodian's services under the Custodian Agreement.
<PAGE>
2. This Compensation Agreement restates and supersedes all prior compensation
agreements pursuant to Article 12 of the Custodian Agreement.
IN WITNESS WHEREOF, the Fund and the Custodian have caused this instrument to be
executed in duplicate as of the date first above written by their duly
authorized officers.
FIRST AMERICAN INVESTMENT
FUNDS, INC.
By
Its
U.S. BANK NATIONAL ASSOCIATION
By
Its
<PAGE>
Exhibit (m)(1)
DISTRIBUTION PLAN
[RETAIL CLASS]
FIRST AMERICAN INVESTMENT FUNDS, INC.
WHEREAS, FIRST AMERICAN INVESTMENT FUNDS, INC. (the "Fund") is engaged
in business as an open-end investment company registered under the Investment
Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Directors of the Fund have determined that there is a
reasonable likelihood that the following Distribution Plan will benefit the Fund
and the owners of retail class shares of Common Stock ("Shareholders") in the
Fund;
NOW, THEREFORE, the Directors of the Fund hereby adopt this
Distribution Plan pursuant to Rule 12b-1 under the 1940 Act.
Section 1. The Fund has adopted this retail class Distribution Plan
("Plan") to enable the Fund to directly or indirectly bear expenses relating to
the distribution and shareholder servicing of retail class securities of the
Portfolios listed on Exhibit A (each a "Portfolio") of which the Fund is the
issuer.
Section 2. The retail class of each Portfolio is authorized to pay the
principal underwriter of the Fund's shares (the "Distributor") a total fee in
connection with the servicing of shareholder accounts of such class and in
connection with distribution-related services provided in respect of such class,
calculated and payable monthly, at the annual rate of .25% of the value of the
average daily net assets of such class. All or any portion of such total fee may
be payable as a Shareholder Servicing Fee, and all or any portion of such total
fee may be payable as a Distribution Fee, as determined from time to time by the
Fund's Board of Directors. Until further action by the Board of Directors, all
of such fee shall be designated and payable as a Shareholder Servicing Fee.
Section 3.
(a) The Shareholder Servicing Fee may be used by the Distributor
to provide compensation for ongoing servicing and/or
maintenance of shareholder accounts with respect to the retail
class of the applicable Portfolios of the Fund. Compensation
may be paid by the Distributor to persons, including employees
of the Distributor, and institutions who respond to inquiries
of holders of such retail class shares regarding their
ownership of shares or their accounts with the Fund or who
provide other administrative or accounting services not
otherwise required to be provided by the Fund's investment
adviser, transfer agent or other agent of the Fund.
<PAGE>
(b) The Distribution Fee may be used by the Distributor to provide
initial and ongoing sales compensation to its investment
executives and to other broker-dealers in respect of sales of
retail class shares of the applicable Portfolios of the Fund
and to pay for other advertising and promotional expenses in
connection with the distribution of such retail class shares.
These advertising a promotional expenses include, by way of
example but not by way of limitation, costs of printing and
mailing prospectuses, statements of additional information and
shareholder reports to prospective investors; preparation and
distribution of sales literature; advertising of any type; an
allocation of overhead and other expenses of the Distributor
related to the distribution of such retail class shares; and
payments to, and expenses of, officers, employees or
representatives of the Distributor, of other broker-dealers,
banks or other financial institutions, and of any other
persons who provide support services in connection with the
distribution of such retail class shares, including travel,
entertainment, and telephone expenses.
(c) Payments under the plan are not tied exclusively to the
expenses for shareholder servicing and distribution related
activities actually incurred by the Distributor, so that such
payments may exceed expenses actually incurred by the
Distributor. The Fund's Board of Directors will evaluate the
appropriateness of the Plan and its payment terms on a
continuing basis and in doing so will consider all relevant
factors, including expenses borne by the Distributor and
amounts it receives under the plan.
(d) The Fund's investment adviser and the Distributor may, at
their option and in their sole discretion, make payments from
their own resources to cover costs of additional distribution
and shareholder servicing activities.
Section 4. This Plan shall not take effect with respect to a Portfolio
until it has been approved (a) by a vote of at least a majority of the
outstanding voting securities of the retail class shares of such Portfolio; and
(b) together with any related agreements, by votes of the majority of both (i)
the Directors of the Fund and (ii) the Qualified Directors, cast in person at a
Board of Directors meeting called for the purpose of voting on this Plan or such
agreement.
Section 5. This Plan shall continue in effect for a period of more than
one year after it takes effect only for so long as such continuance is
specifically approved at least annually in the manner provided in Part (b) of
Section 4 herein for the approval of this Plan.
Section 6. Any person authorized to direct the disposition of monies
paid or payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Directors of the Fund, at least quarterly, a written report of
the amounts so expended and the purposes for which such expenditures were made.
Section 7. This Plan may be terminated at any time with respect to any
Portfolio by the vote of a majority of the Qualified Directors or by vote of a
majority of the Portfolio's outstanding retail class voting securities.
<PAGE>
Section 8. All agreements with any person relating to implementation of
this Plan shall be in writing, and any agreement related to this Plan shall
provide (a) that such agreement may be terminated at any time with respect to
any Portfolio, without payment of any penalty, by the vote of a majority of the
Qualified Directors or by the vote of Shareholders holding a majority of the
Portfolio's outstanding retail class voting securities, on not more than 60 days
written notice to any other party to the agreement; and (b) that such agreement
shall terminate automatically in the event of its assignment.
Section 9. This Plan may not be amended to increase materially the
amount of distribution expenses permitted pursuant to Section 2 hereof without
the approval of Shareholders holding a majority of the outstanding retail class
voting securities of the applicable Portfolio, and all material amendments to
this Plan shall be approved in the manner provided in Part (b) of Section 4
herein for the approval of this Plan.
Section 10. As used in this Plan, (a) the term "Qualified Directors
"shall mean those Directors of the Fund who are not interested persons of the
Fund, and have no direct or indirect financial interest in the operation of this
Plan or any agreements related to it, and (b) the terms "assignment" and
"interested person" shall have the respective meanings specified in the 1940 Act
and the rules and regulations thereunder, subject to such exemptions as may be
granted by the Securities and Exchange Commission.
Section 11. While this Plan is in effect, the selection and nomination
of those Directors who are not interested persons of the Fund within the meaning
of Section 2(a)(19) of the 1940 Act shall be committed to the discretion of the
Directors then in office who are not interested persons of the Fund.
Section 12. This Plan shall not obligate the Fund or any other party to
enter into an agreement with any particular person.
<PAGE>
FIRST AMERICAN INVESTMENT FUNDS, INC.
EXHIBIT A
TO
PLAN OF DISTRIBUTION
EFFECTIVE DATES:
- ----------------
PORTFOLIO EFFECTIVE DATE
- --------- --------------
Large Cap Value Fund April 2, 1991
Mid Cap Value Fund April 2, 1991
Fixed Income Fund April 2, 1991
Intermediate Government Bond Fund April 2, 1991
Intermediate Tax Free Fund April 2, 1991
Intermediate Term Income Fund September 15, 1992
Equity Index Fund September 15, 1992
Regional Equity Fund September 15, 1992
Limited Term Income Fund September 15, 1992
Balanced Fund September 15, 1992
Minnesota Intermediate Tax Free Fund December 31, 1993
Colorado Intermediate Tax Free Fund December 31, 1993
Small Cap Growth Fund December 31, 1993
Technology Fund December 31, 1993
INTERNATIONAL FUND December 31, 1993
- ------------------
Equity Income Fund January 31, 1994
Large Cap Growth Fund January 31, 1994
Real Estate Securities Fund June 12, 1995
Health Sciences Fund January 31, 1996
Oregon Intermediate Tax Free Fund August 5, 1997
California Intermediate Tax Free Fund August 5, 1997
Micro Cap Value Fund August 5, 1997
Small Cap Value Fund November 21, 1997
International Index Fund November 21, 1997
Adjustable Rate Mortgage Securities Fund July 24, 1998
Tax Free Fund July 24, 1998
Minnesota Tax Free Fund July 24, 1998
Mid Cap Growth Fund July 24, 1998
Emerging Markets Fund July 24, 1998
Strategic Income Fund July 24, 1998
California Tax Free Fund February 1, 2000
Arizona Tax Free Fund February 1, 2000
Colorado Tax Free Fund February 1, 2000
Corporate Bond Fund February 1, 2000
<PAGE>
Exhibit (n)(1)
FIRST AMERICAN INVESTMENT FUNDS, INC.
MULTIPLE CLASS PLAN PURSUANT TO RULE 18F-3
ADOPTED JUNE 14, 1995
(AS LAST AMENDED SEPTEMBER 1999)
I. PREAMBLE.
Each of the funds listed below (each a "Fund," and collectively the "Funds"),
each a portfolio of First American Investment Funds, Inc. (the "Company"), has
elected to rely on Rule 18f-3 under the Investment Company Act of 1940, as
amended (the "1940 Act") in offering multiple classes of shares in each Fund:
Balanced Fund International Fund
Real Estate Securities Fund Health Sciences Fund
Equity Income Fund Technology Fund
Equity Index Fund Limited Term Income Fund
Large Cap Value Fund Intermediate Term Income Fund
Large Cap Growth Fund Fixed Income Fund
Mid Cap Value Fund Intermediate Government Bond Fund
Regional Equity Fund Intermediate Tax Free Fund
Small Cap Growth Fund California Intermediate Tax Free Fund
Small Cap Value Fund Colorado Intermediate Tax Free Fund
Micro Cap Value Fund Minnesota Intermediate Tax Free Fund
International Index Fund Oregon Intermediate Tax Free Fund
Mid Cap Growth Fund Emerging Markets Fund
Adjustable Rate Mortgatge Tax Free Fund
Securities Fund Minnesota Tax Free Fund
Strategic Income Fund California Tax Free Fund
Arizona Tax Free Fund Colorado Tax Free Fund
Corporate Bond Fund
This Plan sets forth the differences among classes of shares of the Funds,
including distribution arrangements, shareholder services, expense allocations,
conversion and exchange options, and voting rights.
II. ATTRIBUTES OF SHARE CLASSES.
The attributes of each existing class of the existing Funds (i.e., Class A
[Retail A], Class B [Retail B], Class C [Level Load], and Class Y
[Institutional]), with respect to distribution arrangements, shareholder
services, and conversion and exchange options shall be as set forth in the
following materials:
<PAGE>
A. Retail Classes Prospectuses of the respective Funds in the forms most
recently filed with the Securities and Exchange Commission (the "SEC")
prior to the date of this Plan as amended (with respect to the Class A,
Class B and Class C shares of each Fund).
B. Institutional Class Prospectuses of the respective Funds in the forms
most recently filed with the SEC prior to the date of this Plan as
amended (with respect to the Class Y shares of each Fund).
C. Statements of Additional Information of the respective Funds in the
forms most recently filed with the SEC prior to the date of this Plan
as amended (with respect to each Fund).
D. Class A Plan of Distribution in the form reapproved by the Board of
Directors in June 1999 (with respect to the Class A shares of each
Fund).
E. Class B Plan of Distribution in the form reapproved by the Board of
Directors in June 1999 (with respect to the Class B shares of each
Fund).
F. Class B Service Plan in the form reapproved by the Board of Directors
on in June 1999 (with respect to the Class B shares of each Fund).
G. Class C Plan of Distribution in the form approved by the Board of
Directors on in June 1999.
Expenses of such existing classes of the Funds shall continue to be allocated in
the manner set forth in III below. Each such existing class shall have exclusive
voting rights on any matter submitted to shareholders that relates solely to its
arrangement and shall have separate voting rights on any matter submitted to
shareholders in which the interests of one class differ from the interests of
any other class.
III. EXPENSE ALLOCATIONS.
Expenses of the existing classes of the existing Funds shall be allocated as
follows:
A. Distribution fees and service fees relating to the respective classes
of shares, as set forth in the materials referred to in II above, shall
be borne exclusively by the classes of shares to which they relate.
B. Except as set forth in A above, expenses of the Funds shall be borne at
the Fund level and shall not be allocated on a class basis.
Unless and until this Plan is amended to provide otherwise, the methodology and
procedures for calculating the net asset value of the respective classes of
shares of the Funds and the allocation of income and expenses among the
respective classes shall be as set forth in the "SEI Financial Management
Corporation -- Multi-Class Accounting Methodology" and "Report" dated February
10, 1995 rendered by Arthur Andersen L.L.P.
<PAGE>
The foregoing allocations shall in all cases be made in a manner consistent with
the Company's private letter ruling from the Internal Revenue Service with
respect to multiple classes of shares.
IV. AMENDMENT OF PLAN; PERIODIC REVIEW.
A. New Funds and New Classes. With respect to any new portfolio of the
Company created after the date of this Plan and any new class of shares
of the existing Funds created after the date of this Plan, the Board of
Directors of the Company shall approve amendments to this Plan setting
forth the attributes of the classes of shares of such new portfolio or
of such new class of shares.
B. Material Amendments and Periodic Reviews. The Board of Directors of the
Company, including a majority of the independent directors, shall
periodically review this Plan for its continued appropriateness and
shall approve any material amendment of this Plan as it relates to any
class of any Fund covered by this Plan.
