1933 Act Registration No. 33-16905
1940 Act Registration No. 811-5309
As filed with the Securities and Exchange Commission on December 28, 2000
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. 46 |X|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 |X|
Amendment No. 46
FIRST AMERICAN INVESTMENT FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
601 Second Avenue South
Minneapolis, Minnesota 55402
(Address of Principal Executive Offices) (Zip Code)
(612) 973-0384
(Registrant's Telephone Number, including Area Code)
Christopher O. Petersen
U.S. Bank - MPFP2016
601 Second Avenue South
Minneapolis, Minnesota 55402
(Name and Address of Agent for Service)
It is proposed that this filing shall become effective (check appropriate box):
| | immediately upon filing pursuant to paragraph (b) of Rule 485
|X| on December 30, 2000 pursuant to paragraph (b) of Rule 485
| | 60 days after filing pursuant to paragraph (a)(1) of Rule 485
| | on December 28, 2000 pursuant to paragraph (a)(1) of Rule 485
| | 75 days after filing pursuant to paragraph (a)(2) of Rule 485
| | on (date) pursuant to paragraph (a)(2) of Rule 485
<PAGE>
DECEMBER 30, 2000
ASSET CLASSES
(*) EQUITY FUNDS
* FUNDS OF FUNDS
* BOND FUNDS
* TAX FREE FUNDS
* MONEY MARKET FUNDS
PROSPECTUS
FIRST AMERICAN INVESTMENT FUNDS, INC.
FIRST AMERICAN
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
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.
[LOGO] FIRST AMERICAN FUNDS(R)
THE POWER OF DISCIPLINED INVESTING(R)
<PAGE>
Table of
CONTENTS
FUND SUMMARIES
--------------------------------------------------------------------------------
Balanced Fund 3
--------------------------------------------------------------------------------
Equity Income Fund 6
--------------------------------------------------------------------------------
Equity Index Fund 8
--------------------------------------------------------------------------------
Large Cap Growth Fund 10
--------------------------------------------------------------------------------
Large Cap Value Fund 12
--------------------------------------------------------------------------------
POLICIES & SERVICES
--------------------------------------------------------------------------------
Buying Shares 14
--------------------------------------------------------------------------------
Selling Shares 18
--------------------------------------------------------------------------------
Managing Your Investment 19
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
Management 21
--------------------------------------------------------------------------------
More About The Funds 22
--------------------------------------------------------------------------------
Financial Highlights 24
--------------------------------------------------------------------------------
FOR MORE INFORMATION Back Cover
--------------------------------------------------------------------------------
<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.
1 PROSPECTUS - First American Large Cap Funds
Class A, Class B, and Class C Shares
<PAGE>
THIS PAGE WAS INTENTIONALLY LEFT BLANK.
2
<PAGE>
Fund Summaries
BALANCED FUND
--------------------------------------------------------------------------------
OBJECTIVE
Balanced Fund's objective is to maximize total return (capital appreciation plus
income).
--------------------------------------------------------------------------------
MAIN INVESTMENT STRATEGIES
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 will utilize separate value and growth strategies to select
securities for the fund. Although no limits will be placed on the fund's equity
holdings invested in the value strategy versus the growth strategy, the advisor
expects that, over the long term, the fund will be invested in an equal mix of
value and growth securities.
In implementing the value strategy, the advisor will select securities that it
believes:
* are undervalued relative to other securities in the same industry or market.
* exhibit good or improving fundamentals.
* exhibit an identifiable catalyst that could close the gap between market
value and fair value over the next one to two years.
In implementing the growth strategy, the advisor will select securities that
exhibit the potential for superior growth based on factors such as:
* above average growth in revenue and earnings.
* strong competitive position.
* strong management.
* sound financial condition.
Up to 25% of the equity portion of the fund may be invested in securities of
foreign issuers that 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: U.S. government securities
(securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities) including zero coupon bonds; mortgage- and asset-backed
securities; and 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.
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 effective maturity for its
portfolio securities of 15 years or less and an average effective duration of
three to eight years. The fund's weighted average effective maturity and average
effective duration are measures of how the fund may react to interest rate
changes.
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:
RISK 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, growth 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 "More About
The Funds -- Investment Strategies."
INCOME RISK. The fund's income could decline due to falling market interest
rates.
3 PROSPECTUS - First American Large Cap Funds
Class A, Class B, and Class C Shares
<PAGE>
Fund Summaries
BALANCED FUND CONTINUED
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
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 were, 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 indices, which are broad
measures of market performance. 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 benchmarks are
unmanaged and have no expenses.
Both the chart and the table assume that all distributions have been reinvested.
4 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(1)
[BAR CHART]
12.31% 0.79% 26.51% 17.76% 16.98% 10.47% 3.10%
-----------------------------------------------------------------
1993 1994 1995 1996 1997 1998 1999
Best Quarter: Quarter ending June 30, 1997 10.08%
Worst Quarter: Quarter ending September 30, 1998 (5.78)%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Inception Since Inception Since Inception
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 (2.31)% 13.47% 11.41% NA
--------------------------------------------------------------------------------------------------------------
Balanced Fund (Class B) 8/15/94 (2.19)% 13.61% NA 12.56%
--------------------------------------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index(2) 21.04% 28.55% 21.52% 25.95%
--------------------------------------------------------------------------------------------------------------
Lehman Aggregate Bond Index(3) (0.83)% 7.73% 7.70% 8.27%
--------------------------------------------------------------------------------------------------------------
Lehman Gov't/Credit Bond Index(4) (2.15)% 7.60% 6.42% 6.88%
--------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Total return for the period from 1/1/00 through 9/30/00 was 2.88%.
(2)An unmanaged index of large capitalization stocks. 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.
(3)An unmanaged index composed of the Lehman Government/Credit Bond Index, the
Lehman Mortgage Backed Securities Index and the Lehman Asset Backed
Securities Index. The Lehman Government/Credit 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 Mortgage Backed Securities Index is comprised of the mortgage-backed
pass through securities of Ginnie Mae, Fannie Mae and Freddie Mac. The Lehman
Asset Backed Index is comprised of debt securities rated investment grade or
higher that are backed by credit card, auto and home equity loans. The since
inception performance of the index for Class A shares and Class B shares is
calculated from 12/31/92 and 8/31/94, respectively. Previously, the fund used
the Lehman Government/Credit Bond Index as a benchmark. Going forward, the
fund will use the Lehman Aggregate Bond Index as a comparison because its
composition better matches the fund's investment strategies.
(4)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 (see Fn.2), and investment grade
corporate debt securities. 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.
--------------------------------------------------------------------------------
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,
2000.(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 MAINTENANCE FEE(4)
ONLY CHARGED TO ACCOUNTS WITH BALANCES BELOW $500 $ 25 $ 25 $ 25
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 0.22% 0.22% 0.22%
TOTAL 1.17% 1.92% 1.92%
--------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 2000,
were:
<TABLE>
<S> <C> <C> <C>
Waiver of Fund Expenses (0.12)% (0.12)% (0.12)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 1.05% 1.80% 1.80%
</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."
(4)The fund reserves the right to charge your account an annual maintenance fee
of $25 if your balance falls below $500 as a result of selling or exchanging
shares. See "Policies & Services -- Selling Shares, Accounts with Low
Balances."
--------------------------------------------------------------------------------
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 redemption assuming no redemption assuming redemption assuming no redemption
CLASS A at end of each period at end of each period at end of each period at end of each period
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 year $ 638 $ 695 $ 195 $ 393 $ 293
3 years $ 877 $1,003 $ 603 $ 697 $ 697
5 years $1,135 $1,237 $1,037 $1,126 $1,126
10 years $1,871 $2,048 $2,048 $2,321 $2,321
</TABLE>
5 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:
* the ability to pay above average dividends.
* the ability to finance expected growth.
* 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.
--------------------------------------------------------------------------------
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
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 were, 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 indices, which are 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 benchmarks
are unmanaged and have 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
EQUITY INCOME FUND CONTINUED
--------------------------------------------------------------------------------
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR(1),(2)
[BAR CHART]
4.70% 3.85% 22.73% 19.80% 27.53% 15.68% 3.86%
---------------------------------------------------------------
1993 1994 1995 1996 1997 1998 1999
Best Quarter: Quarter ending June 30, 1997 11.95%
Worst Quarter: Quarter ending September 30, 1999 (8.67%)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Inception Since Inception Since Inception
AS OF 12/31/99(2) Date One Year Five Years (Class A) (Class B)
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Equity Income Fund (Class A) 12/18/92 (1.59)% 16.38% 12.78% NA
--------------------------------------------------------------------------------------------------------------
Equity Income Fund (Class B) 8/15/94 (1.53)% 16.63% NA 15.60%
--------------------------------------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index(3) 21.04% 28.55% 21.52% 25.95%
--------------------------------------------------------------------------------------------------------------
Lehman Gov't/Credit Bond Index(4) (2.15)% 7.60% 6.42% 6.88%
--------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Total return for the period from 1/1/00 through 9/30/00 was 5.43%.
(2)First American Asset Management became the investment advisor of the Equity
Income Fund on 3/25/94. Prior to the change, Boulevard Bank was the
investment advisor of the fund.
(3)An unmanaged index of large capitalization stocks. 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.
(4)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 A and Class B shares is calculated from 12/31/92 and
8/31/94, respectively.
--------------------------------------------------------------------------------
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,
2000.(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 MAINTENANCE FEE(4)
ONLY CHARGED TO ACCOUNTS WITH BALANCES BELOW $500 $ 25 $ 25 $ 25
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 0.19% 0.19% 0.19%
TOTAL 1.14% 1.89% 1.89%
------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 2000,
were:
<TABLE>
<S> <C> <C> <C>
Waiver of Fund Expenses (0.14)% (0.14)% (0.14)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 1.00% 1.75% 1.75%
</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."
(4)The fund reserves the right to charge your account an annual maintenance fee
of $25 if your balance falls below $500 as a result of selling or exchanging
shares. See "Policies & Services -- Selling Shares, Accounts with Low
Balances."
--------------------------------------------------------------------------------
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 redemption assuming no redemption assuming redemption assuming no redemption
CLASS A at end of each period at end of each period at end of each period at end of 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>
7 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.
--------------------------------------------------------------------------------
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
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 were, 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. 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.
8 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(1)
[BAR GRAPH]
9.80% 1.02% 36.63% 22.13% 32.51% 28.24% 20.12%
-----------------------------------------------------------------
1993 1994 1995 1996 1997 1998 1999
Best Quarter: Quarter ending December 31, 1998 21.30%
Worst Quarter: Quarter ending September 30, 1998 (9.96)%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Inception Since Inception Since Inception
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 13.79% 26.41% 19.92% NA
-----------------------------------------------------------------------------------------------------------------
Equity Index Fund (Class B) 8/15/94 14.21% 26.69% NA 24.69%
-----------------------------------------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index(2) 21.04% 28.55% 21.52% 25.95%
-----------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Total return for the period from 1/1/00 through 9/30/00 was (2.06)%.
(2)An unmanaged index of large capitalization stocks. 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.
--------------------------------------------------------------------------------
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,
2000.(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 MAINTENANCE FEE(4)
ONLY CHARGED TO ACCOUNTS WITH BALANCES BELOW $500 $ 25 $ 25 $ 25
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 0.19% 0.19% 0.19%
TOTAL 1.14% 1.89% 1.89%
--------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 2000,
were:
<TABLE>
<S> <C> <C> <C>
Waiver of Fund Expenses (0.54)% (0.54)% (0.54)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 0.60% 1.35% 1.35%
</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."
(4)The fund reserves the right to charge your account an annual maintenance fee
of $25 if your balance falls below $500 as a result of selling or exchanging
shares. See "Policies & Services -- Selling Shares, Accounts with Low
Balances."
--------------------------------------------------------------------------------
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 redemption assuming no redemption assuming redemption assuming no redemption
CLASS A at end of each period at end of each period at end of each period at end of 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>
9 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:
* above average growth in revenue and earnings.
* strong competitive position.
* strong management.
* 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.
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 were, 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. 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 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),(2)
[BAR CHART]
-2.15% -1.00% 32.43% 22.93% 21.42% 23.56% 37.76%
------------------------------------------------------------------
1993 1994 1995 1996 1997 1998 1999
Best Quarter: Quarter ending December 31, 1999 22.65%
Worst Quarter: Quarter ending September 30, 1998 (14.22)%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Inception Since Inception Since Inception
AS OF 12/31/99(2) Date One Year Five Years (Class A) (Class B)
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Large Cap Growth Fund (Class A) 12/18/92 30.50% 26.10% 17.00% NA
--------------------------------------------------------------------------------------------------------------
Large Cap Growth Fund (Class B) 8/15/94 31.64% 26.37% NA 25.38%
--------------------------------------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index(3) 21.04% 28.55% 21.52% 25.95%
--------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Total return for the period from 1/1/00 through 9/30/00 was 2.57%.
(2)First American Asset Management became the investment advisor of the Large
Cap Growth Fund on 3/25/94. Prior to the change, Boulevard Bank was the
investment advisor of the fund.
(3)An unmanaged index of large capitalization stocks. 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.
--------------------------------------------------------------------------------
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,
2000.(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 MAINTENANCE FEE(4)
ONLY CHARGED TO ACCOUNTS WITH BALANCES BELOW $500 $ 25 $ 25 $ 25
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 0.19% 0.19% 0.19%
TOTAL 1.14% 1.89% 1.89%
-------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 2000,
were:
<TABLE>
<S> <C> <C> <C>
Waiver of Fund Expenses (0.09)% (0.09)% (0.09)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 1.05% 1.80% 1.80%
</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."
(4)The fund reserves the right to charge your account an annual maintenance fee
of $25 if your balance falls below $500 as a result of selling or exchanging
shares. See "Policies & Services -- Selling Shares, Accounts with Low
Balances."
--------------------------------------------------------------------------------
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 redemption assuming no redemption assuming redemption assuming no redemption
CLASS A at end of each period at end of each period at end of each period at end of 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>
11 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:
* are undervalued relative to other securities in the same industry or market.
* exhibit good or improving fundamentals.
* 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.
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 were, 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. 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
LARGE CAP VALUE FUND CONTINUED
--------------------------------------------------------------------------------
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR(1)
[BAR CHART]
-2.01% 21.46% 7.98% 15.10% 4.12% 31.94% 29.10% 22.41% 9.71% 7.91%
--------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Best Quarter: Quarter ending December 31, 1998 16.55%
Worst Quarter: Quarter ending September 30, 1998 (13.91)%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Inception Ten Years Since Inception
AS OF 12/31/99 Date One Year Five Years (Class A) (Class B)
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Large Cap Value Fund (Class A) 12/22/87 2.26% 18.52% 13.67% NA
--------------------------------------------------------------------------------------------------------
Large Cap Value Fund (Class B) 8/15/94 2.35% 18.71% NA 17.27%
--------------------------------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index(2) 21.04% 28.55% 18.20% 25.95%
--------------------------------------------------------------------------------------------------------
</TABLE>
(1)Total return for the period from 1/1/00 through 9/30/00 was (2.17)%.
(2)An unmanaged index of large capitalization stocks. The since inception
performance of the index for Class B shares 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,
2000.(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 MAINTENANCE FEE(4)
ONLY CHARGED TO ACCOUNTS WITH BALANCES BELOW $500 $ 25 $ 25 $ 25
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 0.18% 0.18% 0.18%
TOTAL 1.13% 1.88% 1.88%
-------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 2000,
were:
<TABLE>
<S> <C> <C> <C>
Waiver of Fund Expenses (0.08)% (0.08)% (0.08)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 1.05% 1.80% 1.80%
</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."
(4)The fund reserves the right to charge your account an annual maintenance fee
of $25 if your balance falls below $500 as a result of selling or exchanging
shares. See "Policies & Services -- Selling Shares, Accounts with Low
Balances."
--------------------------------------------------------------------------------
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 redemption assuming no redemption assuming redemption assuming no redemption
CLASS A at end of each period at end of each period at end of each period at end of 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 $2,003 $2,003 $2,379 $2,379
</TABLE>
13 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:
* a front-end sales charge, described below.
* 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:
* orders for Class B shares for $250,000 or more will be treated as orders for
Class A shares.
* orders for Class C shares for $1 million or more will be treated as orders
for Class A shares.
* orders for Class B or Class C shares by an investor eligible to purchase
Class A shares without a front-end sales charge 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, Class B shares do have:
* higher annual expenses than Class A shares. See "Fund Summaries -- Fees and
Expenses."
* a back-end sales charge, called a "contingent deferred sales charge," if you
redeem your shares within six years of purchase.
* 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:
* a 1% contingent deferred sales charge if you redeem your shares within 18
months of purchase.
* higher annual expenses than Class A shares. See "Fund Summaries -- Fees and
Expenses."
* 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 0.75% is a distribution fee.
The funds' distributor uses the shareholder servicing fee to compensate
investment professionals, participating institutions and "one-stop" mutual fund
networks (institutions) for providing ongoing services to shareholder accounts.
These institutions receive shareholder servicing 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 net asset value sales of Class A shares on which
the institution receives a commission, the institution does not begin to receive
its shareholder servicing 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 funds'
distributor retains the Class B share 0.75% annual distribution fee in order to
finance the payment of sales commissions to institutions which sell Class B
shares. See "Buying Shares -- Class B Shares." The advisor or the distributor
may pay additional fees to institutions out of their own assets in exchange for
sales and/or administrative services performed on behalf of the institution's
customers.
14 PROSPECTUS - First American Large Cap Funds
Class A, Class B, and Class C Shares
<PAGE>
Policies & Services
BUYING SHARES CONTINUED
--------------------------------------------------------------------------------
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 for Class A shares 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
investment professional 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%
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. That is, you will receive credit for either the original purchase
price or the current net asset value of the other Class A shares you hold at the
time of your purchase, whichever is greater. For example, let's say you're
making a $10,000 investment and you already own other First American fund Class
A shares that you purchased for $25,000, but are now valued at $45,000. Since
the current net asset value of your shares is greater than their purchase price,
you will receive credit for their current value and your sales charge will be
based on a total purchase amount of $55,000. To receive a reduced sales charge,
you must notify the fund of your prior purchases. This must be done at the time
of purchase, either directly with the fund in writing or by notifying your
investment professional or financial institution.
PURCHASES BY RELATED ACCOUNTS. Concurrent and prior purchases of Class A shares
of any First American fund 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 of purchases by any related
accounts. This must be done at the time of purchase, either directly with the
funds in writing or by notifying your investment professional 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 investment professional 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
investment professional 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:
* redemptions following the death or disability (as defined in the Internal
Revenue Code) of a shareholder.
* 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.
* 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 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,
15 PROSPECTUS - First American Large Cap Funds
Class A, Class B, and Class C Shares
<PAGE>
Policies & Services
BUYING SHARES CONTINUED
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 4.35% of the amount invested
to investment professionals 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 and any related shares acquired by reinvesting your dividend
or capital gain distributions 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, 2001, they will convert to Class A
shares on June 1, 2009.
The CDSC will be waived for:
* redemptions following the death or disability (as defined in the Internal
Revenue Code) of a shareholder.
* 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 701/2.
* 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 investment professional or
participating institution. Additionally, the advisor may pay its affiliated
broker-dealer, U.S. Bancorp Piper Jaffray Inc., an additional commission of up
to 3% of your purchase price. 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 net
asset value 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 investment professional 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 investment professional 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 investment professional 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 investment professional or financial institution for more information.
If you are paying by wire, you may purchase shares by calling Investor Services
at 1-800-637-2548 before the close of regular trading on the New York Stock
Exchange (usually 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, account number and fund name)
You cannot purchase shares by wire on days when federally chartered banks are
closed.
16 PROSPECTUS - First American Large Cap Funds
Class A, Class B, and Class C Shares
<PAGE>
Policies & Services
BUYING SHARES CONTINUED
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:
* all purchases must be made in U.S. dollars.
* third-party checks, credit cards, credit card checks, and cash are not
accepted.
* 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:
* by having $100 or more ($25 for a retirement plan or a Uniform Gifts to
Minors Act/Uniform Transfers to Minors Act account) automatically withdrawn
from your bank account on a periodic basis and invested in fund shares.
* 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
investment professional or financial institution or by calling Investor Services
at 1-800-637-2548.
17 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 net asset value calculated after your order is accepted by the fund,
less any applicable contingent deferred sales charge. Be sure to read the
section "Buying Shares" for a description of contingent deferred sales charges.
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 three days,
but in no event more than seven days, after your request is received in proper
form.
To minimize the effect of large redemption requests, each fund reserves the
right to fulfill these redemption requests by distributing readily marketable
securities in the fund's portfolio, rather than paying you in cash. See
"Policies & Services -- Managing Your Investment, Redemption In-Kind."
BY PHONE. If you purchased shares through an investment professional or
financial institution, simply call them to sell your shares. In many cases, your
redemption will be effective that day if received by your investment
professional 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
investment professional or financial institution time to process your request
and transmit it to the fund. Contact your investment professional or financial
institution directly for more information.
If you did not purchase shares through an investment professional or financial
institution, you may sell your shares by calling Investor Services at
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 fund) or sent to you by check. The funds reserve the right to limit
telephone exchanges to $50,000 per day.
--------------------------------------------------------------------------------
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 has cleared, which may take up to 15 calendar days from the
date of purchase.
BY MAIL. To sell shares by mail, send a written request to your investment
professional or financial institution, or to the fund 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:
* name of the fund.
* account number.
* dollar amount or number of shares redeemed.
* name on the account.
* signatures of all registered account owners.
Signatures on a written request must be guaranteed if:
* you would like the proceeds from the sale to be paid to anyone other than to
the shareholder of record.
* you would like the check mailed to an address other than the address on the
funds' records.
* 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 unless
another form of payment is requested.
--------------------------------------------------------------------------------
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 investment professional 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 of a First American fund, 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 fund directly in writing or notify your
investment professional or financial institution.
ACCOUNTS WITH LOW BALANCES
Except for retirement plans and Uniform Gifts to Minors Act/Uniform Transfers to
Minors Act accounts, if your account balance falls below $500 as a result of
selling or exchanging shares, the fund reserves the right to either:
* deduct a $25 annual account maintenance fee, or
* close your account and send you the proceeds, less any applicable
contingent deferred sales charge.
Before taking any action, however, the fund will send you written notice of the
action it intends to take and give you 30 days to re-establish a minimum account
balance of $500.
18 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. If both funds have identical shareholder registration, you may
exchange shares by calling your investment professional, your financial
institution, or by calling the funds directly. To request an exchange through
the funds, call Investor Services at 1-800-637-2548. Your instructions must be
received before 3 p.m. Central time, or by the time specified by your investment
professional 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.
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.
--------------------------------------------------------------------------------
REDEMPTION IN-KIND
Generally, proceeds from redemption requests will be paid in cash. However, to
minimize the effect of large redemption requests on a fund and its remaining
shareholders, each fund reserves the right to pay part or all of the proceeds
from a redemption request in a proportionate share of readily marketable
securities in the fund instead of in cash. In selecting securities for a
redemption in-kind, the advisor will consider the best interests of the fund and
the remaining fund shareholders, and will value these securities in accordance
with the pricing methods employed to calculate the fund's net asset value per
share. If you receive redemption proceeds in-kind, you should expect to incur
transaction costs upon the disposition of the securities received in the
redemption.
19 PROSPECTUS - First American Large Cap Funds
Class A, Class B, and Class C Shares
<PAGE>
Policies & Services
MANAGING YOUR INVESTMENT CONTINUED
--------------------------------------------------------------------------------
STAYING INFORMED
SHAREHOLDER REPORTS. Shareholder reports are mailed twice a year, in November
and May. They include financial statements and performance information, and on
an annual basis, a message from your portfolio managers and 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 Investor Services at 1-800-637-2548.
STATEMENTS AND CONFIRMATIONS. Statements summarizing activity in your account
are mailed 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, your investment
professional or your financial institution. 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.
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.
If in redemption of his or her shares a shareholder receives a distribution of
readily marketable securities instead of cash, the shareholder will be treated
as receiving an amount equal to the fair market value of the securities at the
time of the distribution for purposes of determining capital gain or loss on the
redemption, and will also acquire a basis in the shares for federal income tax
purposes equal to their fair market value.
The exchange of one class of shares for another class of shares in the same fund
will not be taxable.
20 PROSPECTUS - First American Large Cap Funds
Class A, Class B, and Class C Shares
<PAGE>
Additional Information
MANAGEMENT
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 September 30, 2000, it had more than $77 billion in assets under
management, including investment company assets of more than $33 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 the fiscal year ended September 30, 2000, 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 0.58%
EQUITY INCOME FUND 0.56%
EQUITY INDEX FUND 0.16%
LARGE CAP GROWTH FUND 0.61%
LARGE CAP VALUE FUND 0.59%
--------------------------------------------------------------------------------
Direct Correspondence to:
First American Funds
P.O. Box 1330
Minneapolis, Minnesota 55440-1330
Investment Advisor
First American Asset Management
601 Second Avenue South
Minneapolis, Minnesota 55402
Distributor
SEI Investments Distribution Co.
Oaks, Pennsylvania 19456
PENDING ACQUISITION
On October 4, 2000, U.S. Bancorp, the parent company of the funds' investment
advisor, announced that it had entered into an agreement to be acquired by
Firstar Corporation. It is anticipated that this acquisition will be completed
in the first quarter of 2001, subject to regulatory approval, the approval of
U.S. Bancorp shareholders and the satisfaction of customary closing conditions.
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 all open-end funds in the First American family of
funds. These services include general administrative and accounting services,
transfer agency and dividend disbursing services, and shareholder services. U.S.
Bank receives total 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. These fees are allocated among the funds in the First American family
of funds on the basis of their relative net asset values. The funds also pay
U.S. Bank fees based upon the number of funds and accounts maintained. In
addition, U.S. Bank is reimbursed for its out-of-pocket expenses incurred while
providing administrative services to the funds.
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 these transactions.
SHAREHOLDER SERVICING FEES. To the extent that fund shares are held through U.S.
Bank or its broker-dealer affiliates, U.S., Bancorp Investments, Inc. and U.S.
Bancorp Piper Jaffray Inc., those entities may receive shareholder servicing
fees from the funds' distributor.
PORTFOLIO MANAGEMENT
Each fund's investments are managed by a team of persons associated with First
American Asset Management.
21 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.
EFFECTIVE MATURITY. Balanced Fund normally attempts to maintain a weighted
average effective maturity for the debt securities in its portfolio of 15 years
or less. Effective maturity differs from actual stated or final maturity, which
may be substantially longer. In calculating effective maturity, the advisor
estimates the effect of expected principal payments and call provisions on
securities held in the portfolio. Effective maturity provides the advisor with a
better estimate of interest rate risk under normal market conditions, but may
underestimate interest rate risk in an environment of adverse (rising) interest
rates.
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 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.
22 PROSPECTUS - First American Large Cap Funds
Class A, Class B, and Class C Shares
<PAGE>
Additional Information
MORE ABOUT THE FUNDS CONTINUED
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.
--------------------------------------------------------------------------------
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 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.
23 PROSPECTUS - First American Large Cap Funds
Class A, Class B, and Class C Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
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. 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 the fund, excluding sales charges and assuming you reinvested
all of your dividends and distributions.
The information for the fiscal years ended September 30, 2000 and September 30,
1999, has been derived from the financial statements 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 other auditors.
BALANCED FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS A SHARES 2000 1999 1998 1997 1996
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 13.46 $ 13.98 $ 15.41 $ 13.14 $ 12.12
------- ------- ------- ------- -------
Investment Operations:
Net Investment Income 0.36 0.38 0.40 0.39 0.39
Net Gains (Losses) on Investments
(both realized and unrealized) 0.24 1.07 ( 0.30) 2.85 1.43
------- ------- ------- ------- -------
Total From Investment Operations 0.60 1.45 0.10 3.24 1.82
------- ------- ------- ------- -------
Less Distributions:
Dividends (from net investment income) ( 0.36) ( 0.38) ( 0.41) ( 0.39) ( 0.39)
Distributions (from capital gains) ( 1.25) ( 1.59) ( 1.12) ( 0.58) ( 0.41)
------- ------- ------- ------- -------
Total Distributions ( 1.61) ( 1.97) ( 1.53) ( 0.97) ( 0.80)
------- ------- ------- ------- -------
Net Asset Value, End of Period $ 12.45 $ 13.46 $ 13.98 $ 15.41 $ 13.14
======= ======= ======= ======= =======
Total Return 4.50% 10.75% 0.72% 25.80% 15.61%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $54,605 $69,753 $78,269 $32,309 $20,927
Ratio of Expenses to Average Net Assets 1.05% 1.05% 1.05% 1.05% 1.05%
Ratio of Net Income to Average Net Assets 2.86% 2.69% 2.82% 2.74% 3.05%
Ratio of Expenses to Average Net Assets (excluding waivers) 1.17% 1.16% 1.15% 1.13% 1.14%
Ratio of Net Income to Average Net Assets (excluding waivers) 2.74% 2.58% 2.72% 2.66% 2.96%
Portfolio Turnover Rate 65% 77% 103% 84% 73%
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
24 PROSPECTUS - First American Large Cap Funds
Class A, Class B, and Class C Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
BALANCED FUND (CONTINUED)
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS B SHARES 2000 1999 1998 1997 1996
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 13.40 $ 13.93 $ 15.36 $ 13.10 $ 12.09
------- ------- ------- ------- -------
Investment Operations:
Net Investment Income 0.27 0.28 0.30 0.29 0.31
Net Gains (Losses) on Investments
(both realized and unrealized) 0.22 1.06 (0.31) 2.84 1.42
------- ------- ------- ------- -------
Total From Investment Operations 0.49 1.34 (0.01) 3.13 1.73
------- ------- ------- ------- -------
Less Distributions:
Dividends (from net investment income) ( 0.27) ( 0.28) ( 0.30) ( 0.29) ( 0.31)
Distributions (from capital gains) ( 1.25) ( 1.59) ( 1.12) ( 0.58) ( 0.41)
------- ------- ------- ------- -------
Total Distributions ( 1.52) ( 1.87) ( 1.42) ( 0.87) ( 0.72)
------- ------- ------- ------- -------
Net Asset Value, End of Period $ 12.37 $ 13.40 $ 13.93 $ 15.36 $ 13.10
======= ======= ======= ======= =======
Total Return 3.59% 9.94% ( 0.02)% 24.93% 14.78%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $49,457 $60,623 $59,323 $43,707 $15,542
Ratio of Expenses to Average Net Assets 1.80% 1.80% 1.80% 1.80% 1.80%
Ratio of Net Income to Average Net Assets 2.11% 1.94% 2.02% 1.99% 2.32%
Ratio of Expenses to Average Net Assets (excluding waivers) 1.92% 1.91% 1.90% 1.88% 1.89%
Ratio of Net Income to Average Net Assets (excluding waivers) 1.99% 1.83% 1.92% 1.91% 2.23%
Portfolio Turnover Rate 65% 77% 103% 84% 73%
-------------------------------------------------------------------------------------------------------------------------
Fiscal year ended September 30,
CLASS C SHARES 2000 1999(1)
-------------------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 13.45 $ 13.69
------- -------
Investment Operations:
Net Investment Income 0.28 0.23
Net Gains (Losses) on Investments (both realized and unrealized) 0.22 ( 0.25)
------- -------
Total From Investment Operations 0.50 (0.02)
------- -------
Less Distributions:
Dividends (from net investment income) (0.27) (0.22)
Distributions (from capital gains) (1.25) --
-------- -------
Total Distributions (1.52) (0.22)
-------- -------
Net Asset Value, End of Period $ 12.43 $ 13.45
======== =======
Total Return 3.65% (0.21)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 1,499 $ 1,388
Ratio of Expenses to Average Net Assets 1.80% 1.81%(2)
Ratio of Net Income to Average Net Assets 2.11% 2.05%(2)
Ratios of Expenses to Average Net Assets (excluding waivers) 1.92% 1.91%(2)
Ratio of Net Income to Average Net Assets (excluding waivers) 1.99% 1.95%(2)
Portfolio Turnover Rate 65% 77%
-------------------------------------------------------------------------------------------------
</TABLE>
(1)Class C shares have been offered since February 1, 1999.
(2)Annualized.
25 PROSPECTUS - First American Large Cap Funds
Class A, Class B, and Class C Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
EQUITY INCOME FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS A SHARES 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 15.94 $ 15.70 $ 15.69 $ 12.65 $ 11.24
------- ------- ------- ------- -------
Investment Operations:
Net Investment Income 0.28 0.36 0.41 0.40 0.39
Net Gains (Losses) on Investments
(both realized and unrealized) 1.45 1.15 0.86 3.40 1.42
------- ------- ------- ------- -------
Total From Investment Operations 1.73 1.51 1.27 3.80 1.81
------- ------- ------- ------- -------
Less Distributions:
Dividends (from net investment income) ( 0.28) ( 0.37) ( 0.41) ( 0.41) ( 0.39)
Distributions (from capital gains) ( 1.10) ( 0.90) ( 0.85) ( 0.35) ( 0.01)
------- ------- ------- -------- --------
Total Distributions ( 1.38) ( 1.27) ( 1.26) ( 0.76) ( 0.40)
------- ------- ------- -------- --------
Net Asset Value, End of Period $ 16.29 $ 15.94 $ 15.70 $ 15.69 $ 12.65
======= ======= ======= ======== ========
Total Return 11.11% 9.74% 8.38% 31.16% 16.41%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $20,607 $18,970 $11,018 $ 7,276 $ 2,581
Ratio of Expenses to Average Net Assets 1.00% 1.00% 1.00% 1.00% 1.00%
Ratio of Net Income to Average Net Assets 1.69% 2.01% 2.58% 2.96% 3.25%
Ratio of Expenses to Average Net Assets (excluding waivers) 1.14% 1.13% 1.12% 1.17% 1.20%
Ratio of Net Income to Average Net Assets (excluding waivers) 1.55% 1.88% 2.46% 2.79% 3.05%
Portfolio Turnover Rate 36% 35% 14% 39% 23%
-------------------------------------------------------------------------------------------------------------------------
Fiscal year ended September 30,
CLASS B SHARES 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 15.90 $ 15.65 $ 15.62 $ 12.61 $ 11.20
------- ------- ------- ------- -------
Investment Operations:
Net Investment Income 0.18 0.24 0.30 0.29 0.31
Net Gains (Losses) on Investments
(both realized and unrealized) 1.44 1.16 0.87 3.37 1.42
------- ------- ------- ------- -------
Total From Investment Operations 1.62 1.40 1.17 3.66 1.73
------- ------- ------- ------- -------
Less Distributions:
Dividends (from net investment income) ( 0.18) ( 0.25) ( 0.29) ( 0.30) ( 0.31)
Distributions (from capital gains) ( 1.10) ( 0.90) ( 0.85) ( 0.35) ( 0.01)
------- ------- -------- -------- --------
Total Distributions ( 1.28) ( 1.15) ( 1.14) ( 0.65) ( 0.32)
------- ------- -------- -------- --------
Net Asset Value, End of Period $ 16.24 $ 15.90 $ 15.65 $ 15.62 $ 12.61
======= ======= ======= ======= =======
Total Return 10.35% 9.10% 7.77% 30.06% 15.66%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $10,366 $10,971 $ 8,570 $ 6,619 $ 3,770
Ratio of Expenses to Average Net Assets 1.75% 1.75% 1.75% 1.75% 1.75%
Ratio of Net Income to Average Net Assets 0.95% 1.34% 1.81% 2.19% 2.49%
Ratio of Expenses to Average Net Assets (excluding waivers) 1.89% 1.88% 1.87% 1.92% 1.95%
Ratio of Net Income to Average Net Assets (excluding waivers) 0.81% 1.21% 1.69% 2.02% 2.29%
Portfolio Turnover Rate 36% 35% 14% 39% 23%
------------------------------------------------------------------------------------------------------------------------
</TABLE>
26 PROSPECTUS - First American Large Cap Funds
Class A, Class B, and Class C Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
EQUITY INCOME FUND (CONTINUED)
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS C SHARES 2000 1999(1)
--------------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 15.93 $ 16.62
------- -------
Investment Operations:
Net Investment Income 0.19 0.21
Net Gains (Losses) on Investments
(both realized and unrealized) 1.44 (0.70)
------- -------
Total From Investment Operations 1.63 (0.49)
------- -------
Less Distributions:
Dividends (from net investment income) (0.18) (0.20)
Distributions (from capital gains) (1.10) --
-------- -------
Total Distributions (1.28) (0.20)
-------- -------
Net Asset Value, End of Period $ 16.28 $ 15.93
======== =======
Total Return 10.41% (3.02)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 2,511 $ 1,700
Ratio of Expenses to Average Net Assets 1.75% 1.76%(2)
Ratio of Net Income to Average Net Assets 0.88% 0.65%(2)
Ratios of Expenses to Average Net Assets (excluding waivers) 1.89% 1.88%(2)
Ratio of Net Income to Average Net Assets (excluding waivers) 0.74% 0.53%(2)
Portfolio Turnover Rate 36% 35%
---------------------------------------------------------------------------------------------
</TABLE>
(1)Class C shares have been offered since February 1, 1999.
(2)Annualized.
27 PROSPECTUS - First American Large Cap Funds
Class A, Class B, and Class C Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
EQUITY INDEX FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS A SHARES 2000 1999 1998 1997 1996
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 25.52 $ 20.61 $ 20.76 $ 15.49 $ 13.35
-------- -------- -------- -------- --------
Investment Operations:
Net Investment Income 0.17 0.21 0.24 0.12 0.27
Net Gains (Losses) on Investments
(both realized and unrealized) 2.91 5.36 1.39 5.70 2.32
-------- -------- -------- -------- --------
Total From Investment Operations 3.08 5.57 1.63 5.82 2.59
-------- -------- -------- -------- --------
Less Distributions:
Dividends (from net investment income) (0.17) (0.22) (0.24) (0.12) (0.27)
Distributions (from capital gains) (0.68) (0.44) (1.54) (0.43) (0.18)
-------- -------- -------- -------- --------
Total Distributions (0.85) (0.66) (1.78) (0.55) (0.45)
-------- -------- -------- -------- --------
Net Asset Value, End of Period $ 27.75 $ 25.52 $ 20.61 $ 20.76 $ 15.49
======== ======== ======== ======== ========
Total Return 12.11% 27.30% 8.50% 39.47% 19.75%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $134,180 $110,439 $ 46,010 $ 15,977 $ 6,221
Ratio of Expenses to Average Net Assets 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of Net Income to Average Net Assets 0.62% 0.85% 1.11% 1.36% 1.87%
Ratio of Expenses to Average Net Assets (excluding waivers) 1.14% 1.14% 1.13% 1.13% 1.15%
Ratio of Net Income to Average Net Assets
(excluding waivers) 0.08% 0.31% 0.58% 0.83% 1.32%
Portfolio Turnover Rate 16% 7% 14% 8% 10%
--------------------------------------------------------------------------------------------------------------------------------
Fiscal year ended September 30,
CLASS B SHARES 2000 1999 1998 1997 1996
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 25.34 $ 20.49 $ 20.67 $ 15.43 $ 13.30
-------- -------- -------- -------- --------
Investment Operations:
Net Investment Income 0.00 0.05 0.09 0.12 0.17
Net Gains (Losses) on Investments
(both realized and unrealized) 2.84 5.30 1.36 5.67 2.31
-------- -------- -------- -------- --------
Total From Investment Operations 2.84 5.35 1.45 5.79 2.48
-------- -------- -------- -------- --------
Less Distributions:
Dividends (from net investment income) (0.01) (0.06) (0.09) (0.12) (0.17)
Distributions (from capital gains) (0.68) (0.44) (1.54) (0.43) (0.18)
-------- -------- -------- -------- --------
Total Distributions (0.69) (0.50) (1.63) (0.55) (0.35)
-------- -------- -------- -------- --------
Net Asset Value, End of Period $ 27.49 $ 25.34 $ 20.49 $ 20.67 $ 15.43
======== ======== ======== ======== ========
Total Return 11.25% 26.38% 7.66% 38.45% 18.95%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $121,092 $ 99,054 $ 44,122 $ 23,733 $ 8,252
Ratio of Expenses to Average Net Assets 1.35% 1.35% 1.35% 1.35% 1.35%
Ratio of Net Income (Loss) to Average Net Assets (0.13)% 0.10% 0.37% 0.61% 1.11%
Ratio of Expenses to Average Net Assets (excluding waivers) 1.89% 1.89% 1.88% 1.88% 1.90%
Ratio of Net Income (Loss) to Average Net Assets
(excluding waivers) (0.67)% (0.44)% (0.16)% 0.08% 0.56%
Portfolio Turnover Rate 16% 7% 14% 8% 10%
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
28 PROSPECTUS - First American Large Cap Funds
Class A, Class B, and Class C Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
EQUITY INDEX FUND (CONTINUED)
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS C SHARES 2000 1999(1)
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 25.48 $ 25.35
---------- ----------
Investment Operations:
Net Investment Income 0.00 0.06
Net Gains (Losses) on Investments
(both realized and unrealized) 2.88 0.13
---------- ----------
Total From Investment Operations 2.88 0.19
---------- ----------
Less Distributions:
Dividends (from net investment income) (0.02) (0.06)
Distributions (from capital gains) (0.68) --
---------- ----------
Total Distributions (0.70) (0.06)
---------- ----------
Net Asset Value, End of Period $ 27.66 $ 25.48
========== ==========
Total Return 11.32% 0.76%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 34,811 $ 16,861
Ratio of Expenses to Average Net Assets 1.35% 1.35%(2)
Ratio of Net Income (Loss) to Average Net Assets (0.13)% 0.07%(2)
Ratios of Expenses to Average Net Assets (excluding waivers) 1.89% 1.89%(2)
Ratio of Net Income (Loss) to Average Net Assets (excluding waivers) (0.67)% (0.47)%(2)
Portfolio Turnover Rate 16% 7%
------------------------------------------------------------------------------------------------------
</TABLE>
(1)Class C shares have been offered since February 1, 1999.
(2)Annualized.
29 PROSPECTUS - First American Large Cap Funds
Class A, Class B, and Class C Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
LARGE CAP GROWTH FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS A SHARES 2000 1999 1998 1997 1996
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 19.75 $ 16.25 $ 17.63 $ 13.63 $ 11.75
-------- -------- -------- -------- --------
Investment Operations:
Net Investment Income (Loss) (0.09) 0.02 0.09 0.09 0.15
Net Gains (Losses) on Investments
(both realized and unrealized) 4.87 5.39 (0.02) 4.28 1.88
-------- -------- -------- -------- --------
Total From Investment Operations 4.78 5.41 0.07 4.37 2.03
-------- -------- -------- -------- --------
Less Distributions:
Dividends (from net investment income) -- (0.03) (0.09) (0.10) (0.15)
Distributions (from capital gains) (2.98) (1.88) (1.36) (0.27) --
-------- -------- -------- -------- --------
Total Distributions (2.98) (1.91) (1.45) (0.37) (0.15)
-------- -------- -------- -------- --------
Net Asset Value, End of Period $ 21.55 $ 19.75 $ 16.25 $ 17.63 $ 13.63
======== ======== ======== ======== ========
Total Return 25.74% 36.00% 0.61% 32.69% 17.38%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $208,556 $168,153 $140,948 $ 12,017 $ 5,318
Ratio of Expenses to Average Net Assets 1.05% 1.05% 1.05% 1.05% 1.04%
Ratio of Net Income (Loss) to Average Net Assets (0.45)% (0.05)% 0.56% 0.57% 1.13%
Ratio of Expenses to Average Net Assets (excluding waivers) 1.14% 1.14% 1.11% 1.14% 1.17%
Ratio of Net Income (Loss) to Average Net Assets
(excluding waivers) (0.54)% (0.14)% 0.50% 0.48% 1.00%
Portfolio Turnover Rate 47% 57% 38% 34% 21%
--------------------------------------------------------------------------------------------------------------------------------
Fiscal year ended September 30,
CLASS B SHARES 2000 1999 1998 1997 1996
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 19.38 $ 16.06 $ 17.47 $ 13.57 $ 11.73
-------- -------- -------- -------- --------
Investment Operations:
Net Investment Income (Loss) (0.22) 0.07 0.03 0.01 0.08
Net Gains (Losses) on Investments
(both realized and unrealized) 4.75 5.13 (0.05) 4.18 1.84
-------- -------- -------- -------- --------
Total From Investment Operations 4.53 5.20 (0.02) 4.19 1.92
-------- -------- -------- -------- --------
Less Distributions:
Dividends (from net investment income) -- -- (0.03) (0.02) (0.08)
Distributions (from capital gains) (2.98) (1.88) (1.36) (0.27) --
-------- -------- -------- -------- --------
Total Distributions (2.98) (1.88) (1.39) (0.29) (0.08)
-------- -------- -------- -------- --------
Net Asset Value, End of Period $ 20.93 $ 19.38 $ 16.06 $ 17.47 $ 13.57
======== ======== ======== ======== ========
Total Return 24.84% 34.99% 0.09% 31.42% 16.41%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 36,272 $ 19,011 $ 11,177 $ 9,487 $ 5,775
Ratio of Expenses to Average Net Assets 1.80% 1.80% 1.80% 1.80% 1.79%
Ratio of Net Income (Loss) to Average Net Assets (1.20)% (0.83)% (0.20)% (0.18)% 0.36%
Ratio of Expenses to Average Net Assets (excluding waivers) 1.89% 1.89% 1.86% 1.89% 1.92%
Ratio of Net Income (Loss) to Average Net Assets
(excluding waivers) (1.29)% (0.92)% (0.26)% (0.27)% 0.23%
Portfolio Turnover Rate 47% 57% 38% 34% 21%
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
30 PROSPECTUS - First American Large Cap Funds
Class A, Class B, and Class C Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
LARGE CAP GROWTH FUND (CONTINUED)
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS C SHARES 2000 1999(1)
-------------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 19.67 $ 18.56
-------- --------
Investment Operations:
Net Investment Income (Loss) (0.09) 0.01
Net Gains (Losses) on Investments
(both realized and unrealized) 4.70 1.11
-------- --------
Total From Investment Operations 4.61 1.12
-------- --------
Less Distributions:
Dividends (from net investment income) -- (0.01)
Distributions (from capital gains) (2.98) --
-------- --------
Total Distributions (2.98) (0.01)
-------- --------
Net Asset Value, End of Period $ 21.30 $ 19.67
======== ========
Total Return 24.89% 6.04%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 17,538 $ 962
Ratio of Expenses to Average Net Assets 1.80% 1.80%(2)
Ratio of Net Loss to Average Net Assets (1.20)% (1.09)%(2)
Ratios of Expenses to Average Net Assets (excluding waivers) 1.89% 1.89%(2)
Ratio of Net Loss to Average Net Assets (excluding waivers) (1.29)% (1.18)%(2)
Portfolio Turnover Rate 47% 57%
-------------------------------------------------------------------------------------------
</TABLE>
(1)Class C shares have been offered since February 1, 1999.
(2)Annualized.
31 PROSPECTUS - First American Large Cap Funds
Class A, Class B, and Class C Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
LARGE CAP VALUE FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS A SHARES 2000 1999 1998 1997 1996
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 23.12 $ 22.39 $ 28.74 $ 22.59 $ 19.57
-------- -------- -------- -------- --------
Investment Operations:
Net Investment Income 0.17 0.19 0.29 0.33 0.36
Net Gains (Losses) on Investments
(both realized and unrealized) 0.22 4.44 (2.59) 7.90 4.07
-------- -------- -------- -------- --------
Total From Investment Operations 0.39 4.63 (2.30) 8.23 4.43
-------- -------- -------- -------- --------
Less Distributions:
Dividends (from net investment income) (0.17) (0.20) (0.29) (0.32) (0.36)
Distributions (from capital gains) (2.75) (3.70) (3.76) (1.76) (1.05)
-------- -------- -------- -------- --------
Total Distributions (2.92) (3.90) (4.05) (2.08) (1.41)
-------- -------- -------- -------- --------
Net Asset Value, End of Period $ 20.59 $ 23.12 $ 22.39 $ 28.74 $ 22.59
======== ======== ======== ======== ========
Total Return 0.92% 21.93% (8.77)% 38.82% 23.90%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $138,146 $177,251 $170,529 $ 50,381 $ 22,965
Ratio of Expenses to Average Net Assets 1.05% 1.05% 1.05% 1.05% 1.05%
Ratio of Net Income (Loss) to Average Net Assets (0.45)% 0.82% 1.21% 1.14% 1.64%
Ratio of Expenses to Average Net Assets (excluding waivers) 1.13% 1.15% 1.13% 1.14% 1.13%
Ratio of Net Income (Loss) to Average Net Assets
(excluding waivers) (0.53)% 0.72% 1.13% 1.05% 1.56%
Portfolio Turnover Rate 68% 61% 74% 57% 40%
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS B SHARES 2000 1999 1998 1997 1996
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 22.87 $ 22.21 $ 28.55 $ 22.50 $ 19.49
-------- -------- -------- -------- --------
Investment Operations:
Net Investment Income 0.05 0.07 0.13 0.18 0.22
Net Gains (Losses) on Investments
(both realized and unrealized) 0.18 4.36 (2.58) 7.81 4.06
-------- -------- -------- -------- --------
Total From Investment Operations 0.23 4.43 (2.45) 7.99 4.28
-------- -------- -------- -------- --------
Less Distributions:
Dividends (from net investment income) (0.05) (0.07) (0.13) (0.18) (0.22)
Distributions (from capital gains) (2.75) (3.70) (3.76) (1.76) (1.05)
-------- -------- -------- -------- --------
Total Distributions (2.80) (3.77) (3.89) (1.94) (1.27)
-------- -------- -------- -------- --------
Net Asset Value, End of Period $ 20.30 $ 22.87 $ 22.21 $ 28.55 $ 22.50
======== ======== ======== ======== ========
Total Return 0.17% 21.07% (9.37)% 37.71% 23.08%
RATIO/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 49,662 $ 61,711 $ 56,259 $ 53,420 $ 23,316
Ratio of Expenses to Average Net Assets 1.80% 1.80% 1.80% 1.80% 1.80%
Ratio of Net Income (Loss) to Average Net Assets (1.20)% 0.07% 0.41% 0.39% 0.89%
Ratio of Expenses to Average Net Assets (excluding waivers) 1.88% 1.90% 1.88% 1.89% 1.88%
Ratio of Net Income (Loss) to Average Net Assets
(excluding waivers) (1.28)% (0.03)% 0.33% 0.30% 0.81%
Portfolio Turnover Rate 68% 61% 74% 57% 40%
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
32 PROSPECTUS - First American Large Cap Funds
Class A, Class B, and Class C Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
LARGE CAP VALUE FUND (CONTINUED)
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS C SHARES 2000 1999(1)
----------------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 23.09 $ 22.79
------- --------
Investment Operations:
Net Investment Income 0.06 0.08
Net Gains (Losses) on Investments
(both realized and unrealized) 0.17 0.30
------- --------
Total From Investment Operations 0.23 0.38
------- --------
Less Distributions:
Dividends (from net investment income) (0.06) (0.08)
Distributions (from capital gains) (2.75) --
------- --------
Total Distributions (2.81) (0.08)
------- --------
Net Asset Value, End of Period $ 20.51 $ 23.09
======= ========
Total Return 0.17% 1.65%
RATIO/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 6,551 $ 1,398
Ratio of Expenses to Average Net Assets 1.80% 1.80%(2)
Ratio of Net Income (Loss) to Average Net Assets (1.20)% 0.00%(2)
Ratios of Expenses to Average Net Assets (excluding waivers) 1.88% 1.90%(2)
Ratio of Net Loss to Average Net Assets (excluding waivers) (1.28)% (0.10)%(2)
Portfolio Turnover Rate 68% 61%
----------------------------------------------------------------------------------------------
</TABLE>
(1)Class C shares have been offered since February 1, 1999.
(2)Annualized.
33 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, and on the First
American funds' Internet Web site.
--------------------------------------------------------------------------------
FIRST AMERICAN FUNDS WEB SITE
Information about the First American funds may be viewed on the funds' Internet
Web site at http://www.firstamericanfunds.com.
--------------------------------------------------------------------------------
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 of this information, after paying a duplicating fee,
by electronic request at the following email address: [email protected], or by
writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. For
more information, call 1-202-942-8090.
Information about the funds is also available on the Internet. Text-only
versions of fund documents can be viewed online or downloaded from the EDGAR
Database on the SEC's Internet site at http://www.sec.gov.
FIRST AMERICAN FUNDS P.O. Box 1330, Minneapolis, MN 55440-1330
First American Asset Management, a division of U.S. Bank National Association,
serves as the investment advisor to the First American Funds.
First American Funds are distributed by SEI Investments Distribution Co. which
is located in Oaks, PA 19456 and is not an affiliate of U.S. Bank.
12/2000 PROLRGR-00
SEC file number: 811-05309
[LOGO] FIRST AMERICAN FUNDS(R)
THE POWER OF DISCIPLINED INVESTING(R)
<PAGE>
DECEMBER 30, 2000
ASSET CLASSES
(*) EQUITY FUNDS
* FUNDS OF FUNDS
* BOND FUNDS
* TAX FREE FUNDS
* MONEY MARKET FUNDS
PROSPECTUS
FIRST AMERICAN INVESTMENT FUNDS, INC.
FIRST AMERICAN
LARGE CAP
FUNDS
CLASS Y SHARES
BALANCED FUND
EQUITY INCOME FUND
EQUITY INDEX FUND
LARGE CAP GROWTH FUND
LARGE CAP VALUE FUND
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.
[LOGO] FIRST AMERICAN FUNDS(R)
THE POWER OF DISCIPLINED INVESTING(R)
<PAGE>
Table of
CONTENTS
FUND SUMMARIES
--------------------------------------------------------------------------------
Balanced Fund 3
--------------------------------------------------------------------------------
Equity Income Fund 6
--------------------------------------------------------------------------------
Equity Index Fund 8
--------------------------------------------------------------------------------
Large Cap Growth Fund 10
--------------------------------------------------------------------------------
Large Cap Value Fund 12
--------------------------------------------------------------------------------
POLICIES & SERVICES
--------------------------------------------------------------------------------
Buying and Selling Shares 14
--------------------------------------------------------------------------------
Managing Your Investment 15
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
Management 16
--------------------------------------------------------------------------------
More About The Funds 17
--------------------------------------------------------------------------------
Financial Highlights 19
--------------------------------------------------------------------------------
FOR MORE INFORMATION Back Cover
--------------------------------------------------------------------------------
<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.
1 PROSPECTUS - First American Large Cap Funds
Class Y Shares
<PAGE>
THIS PAGE WAS INTENTIONALLY LEFT BLANK.
2
<PAGE>
Fund Summaries
BALANCED FUND
--------------------------------------------------------------------------------
OBJECTIVE
Balanced Fund's objective is to maximize total return (capital appreciation
plus income).
--------------------------------------------------------------------------------
MAIN INVESTMENT STRATEGIES
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 will utilize separate value and growth strategies to select
securities for the fund. Although no limits will be placed on the fund's equity
holdings invested in the value strategy versus the growth strategy, the advisor
expects that, over the long term, the fund will be invested in an equal mix of
value and growth securities.
In implementing the value strategy, the advisor will select securities that it
believes:
* are undervalued relative to other securities in the same industry or market.
* exhibit good or improving fundamentals.
* exhibit an identifiable catalyst that could close the gap between market
value and fair value over the next one to two years.
In implementing the growth strategy, the advisor will select securities that
exhibit the potential for superior growth based on factors such as:
* above average growth in revenue and earnings.
* strong competitive position.
* strong management.
* sound financial condition.
Up to 25% of the equity portion of the fund may be invested in securities of
foreign issuers that 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: U.S. government securities
(securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities) including zero coupon bonds; mortgage- and asset-backed
securities; and 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.
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 effective maturity for its
portfolio securities of 15 years or less and an average effective duration of
three to eight years. The fund's weighted average effective maturity and
average effective duration are measures of how the fund may react to interest
rate changes.
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, growth 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 "More About
The Funds -- Investment Strategies".
INCOME RISK. The fund's income could decline due to falling market interest
rates.
3 PROSPECTUS - First American Large Cap Funds
Class Y Shares
<PAGE>
Fund Summaries
BALANCED FUND CONTINUED
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
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
benchmarks are unmanaged and have no expenses.
Both the chart and the table assume that all distributions have been
reinvested.
4 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(1)
[BAR CHART]
26.77% 18.12% 17.33% 10.72% 3.42%
-------------------------------------------------------------------
1995 1996 1997 1998 1999
Best Quarter: Quarter ending June 30, 1997 10.22%
Worst Quarter: Quarter ending September 30, 1998 (5.78)%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99 Date One Year Five Years Inception
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balanced Fund 2/4/94 3.42% 15.00% 12.48%
-------------------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index(2) 21.04% 28.55% 24.17%
-------------------------------------------------------------------------------------------
Lehman Aggregate Bond Index(3) (0.83)% 7.73% 6.13%
-------------------------------------------------------------------------------------------
Lehman Gov't/Credit Bond Index(4) (2.15)% 7.60% 5.96%
-------------------------------------------------------------------------------------------
</TABLE>
(1)Total return for the period from 1/1/00 through 9/30/00 was 2.98%.
(2)An unmanaged index of large capitalization stocks. The since inception
performance for the index is calculated from 2/28/94.
(3)An unmanaged index composed of the Lehman Government/Credit Bond Index, the
Lehman Mortgage Backed Securities Index and the Lehman Asset Backed
Securities Index. The Lehman Government/Credit 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 Mortgage Backed Securities Index is comprised of the mortgage-backed
pass through securities of Ginnie Mae, Fannie Mae and Freddie Mac. The Lehman
Asset Backed Index is comprised of debt securities rated investment grade or
higher that are backed by credit card, auto and home equity loans. The since
inception performance of the index is calculated from 2/28/94. Previously,
the fund used the Lehman Government/Credit Bond Index as a benchmark. Going
forward, the fund will use the Lehman Aggregate Bond Index as a comparison,
because its composition better matches the fund's investment strategies.
(4)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 (see fn.2), and investment grade
corporate debt securities. The since inception performance for the index is
calculated from 2/28/94.
--------------------------------------------------------------------------------
FEES AND EXPENSES
The fund does not impose any sales charges (loads) or other fees when you buy,
sell or exchange shares. However, when you hold shares of the fund you
indirectly pay a portion of the fund's operating expenses. These expenses are
deducted from fund assets. The figures below are based on expenses during the
fiscal year ended September 30, 2000.(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 0.22%
TOTAL 0.92%
----------------------------------------------------
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 2000,
were:
Waiver of Fund Expenses (0.12)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 0.80%
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 $ 94
3 years $ 293
5 years $ 509
10 years $1,131
5 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:
* the ability to pay above average dividends.
* the ability to finance expected growth.
* 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.
--------------------------------------------------------------------------------
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
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
benchmarks are unmanaged and have 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
EQUITY INCOME FUND CONTINUED
--------------------------------------------------------------------------------
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR(1)
[BAR CHART]
23.00% 20.28% 27.72% 16.22% 4.21%
--------------------------------------------------------------------------------
1995 1996 1997 1998 1999
Best Quarter: Quarter ending June 30, 1997 11.99%
Worst Quarter: Quarter ending September 30, 1999 (8.59)%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99 Date One Year Five Years Inception
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Equity Income Fund 8/2/94 4.21% 18.01% 16.67%
--------------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index(2) 21.04% 28.55% 25.95%
--------------------------------------------------------------------------------------
Lehman Gov't/Credit Bond Index(3) (2.15)% 7.60% 6.88%
--------------------------------------------------------------------------------------
</TABLE>
(1)Total return for the period from 1/1/00 through 9/30/00 was 5.66%.
(2)An unmanaged index of large capitalization stocks. The since inception
performance of the index is calculated from 8/31/94.
(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 index is calculated from 8/31/94.
--------------------------------------------------------------------------------
FEES AND EXPENSES
The fund does not impose any sales charges (loads) or other fees when you buy,
sell or exchange shares. However, when you hold shares of the fund you
indirectly pay a portion of the fund's operating expenses. These expenses are
deducted from fund assets. The figures below are based on expenses during the
fiscal year ended September 30, 2000.(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 0.19%
TOTAL 0.89%
--------------------------------------------------------------------------------
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 2000,
were:
Waiver of Fund Expenses (0.14)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 0.75%
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 $ 91
3 years $ 284
5 years $ 493
10 years $1,096
7 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 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.
--------------------------------------------------------------------------------
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, 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
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.
8 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(1)
[BAR CHART]
36.97% 22.44% 32.84% 28.56% 20.41%
--------------------------------------------------------------------------------
1995 1996 1997 1998 1999
Best Quarter: Quarter ending December 31, 1998 21.39%
Worst Quarter: Quarter ending September 30, 1998 (9.91)%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99 Date One Year Five Years Inception
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Equity Index Fund 2/4/94 20.41% 28.09% 23.34%
-------------------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index(2) 21.04% 28.55% 24.17%
-------------------------------------------------------------------------------------------
</TABLE>
(1)Total return for the period from 1/1/00 through 9/30/00 was (1.88)%.
(2)An unmanaged index of large capitalization stocks. The since inception
performance of the index is calculated from 2/28/94.
--------------------------------------------------------------------------------
FEES AND EXPENSES
The fund does not impose any sales charges (loads) or other fees when you buy,
sell or exchange shares. However, when you hold shares of the fund you
indirectly pay a portion of the fund's operating expenses. These expenses are
deducted from fund assets. The figures below are based on expenses during the
fiscal year ended September 30, 2000.(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 0.19%
TOTAL 0.89%
--------------------------------------------------------------------------------
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 2000,
were:
Waiver of Fund Expenses (0.54)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 0.35%
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 $ 91
3 years $ 284
5 years $ 493
10 years $1,096
9 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:
* above average growth in revenue and earnings.
* strong competitive position.
* strong management.
* 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.
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.
10 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(1)
[BAR CHART]
32.78% 23.23% 21.61% 24.05% 38.04%
--------------------------------------------------------------------------------
1995 1996 1997 1998 1999
Best Quarter: Quarter ending December 31, 1999 22.71%
Worst Quarter: Quarter ending September 30, 1998 (14.09)%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99 Date One Year Five Years Inception
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Large Cap Growth Fund 8/2/94 38.04% 27.79% 26.38%
---------------------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index(2) 21.04% 28.55% 25.95%
---------------------------------------------------------------------------------------------
</TABLE>
(1)Total return for the period from 1/1/00 through 9/30/00 was 2.79%.
(2)An unmanaged index of large capitalization stocks. The since inception
performance of the index is calculated from 8/31/94.
--------------------------------------------------------------------------------
FEES AND EXPENSES
The fund does not impose any sales charges (loads) or other fees when you buy,
sell or exchange shares. However, when you hold shares of the fund you
indirectly pay a portion of the fund's operating expenses. These expenses are
deducted from fund assets. The figures below are based on expenses during the
fiscal year ended September 30, 2000.(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 0.19%
TOTAL 0.89%
--------------------------------------------------------------------------------
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 2000,
were:
Waiver of Fund Expenses (0.09)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 0.80%
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 $ 91
3 years $ 284
5 years $ 493
10 years $1,096
11 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:
* are undervalued relative to other securities in the same industry or market.
* exhibit good or improving fundamentals.
* 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.
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.
12 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(1)
[BAR CHART]
32.23% 29.47% 22.80% 9.99% 8.20%
--------------------------------------------------------------------------------
1995 1996 1997 1998 1999
Best Quarter: Quarter ending December 31, 1998 16.64%
Worst Quarter: Quarter ending September 30, 1998 (13.85)%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99 Date One Year Five Years Inception
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Large Cap Value Fund 2/4/94 8.20% 20.13% 17.17%
-------------------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index(2) 21.04% 28.55% 24.17%
-------------------------------------------------------------------------------------------
</TABLE>
(1)Total return for the period from 1/1/00 through 9/30/00 was (1.98)%.
(2)An unmanaged index of large capitalization stocks. The since inception
performance of the index is calculated from 2/28/94.
--------------------------------------------------------------------------------
FEES AND EXPENSES
The fund does not impose any sales charges (loads) or other fees when you buy,
sell or exchange shares. However, when you hold shares of the fund you
indirectly pay a portion of the fund's operating expenses. These expenses are
deducted from fund assets. The figures below are based on expenses during the
fiscal year ended September 30, 2000.(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 0.18%
TOTAL 0.88%
--------------------------------------------------------------------------------
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 2000,
were:
Waiver of Fund Expenses (0.08)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 0.80%
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
13 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 investment professional 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.
To minimize the effect of large redemption requests, each fund reserves the
right to fulfill these redemption requests by distributing readily marketable
securities in the fund's portfolio, rather than paying you in cash. See
"Policies & Services -- Managing Your Investment, Redemption In-Kind."
--------------------------------------------------------------------------------
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 are 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.
14 PROSPECTUS - First American Large Cap Funds
Class Y Shares
<PAGE>
Policies & Services
MANAGING YOUR INVESTMENT
--------------------------------------------------------------------------------
REDEMPTION IN-KIND
Generally, proceeds from redemption requests will be paid in cash. However, to
minimize the effect of large redemption requests on a fund and its remaining
shareholders, each fund reserves the right to pay part or all of the proceeds
from a redemption request in a proportionate share of readily marketable
securities in the fund instead of cash. In selecting securities for a
redemption in-kind, the advisor will consider the best interests of the fund
and the remaining fund shareholders, and will value these securities in
accordance with the pricing methods employed to calculate the fund's net asset
value per share. If you receive redemption proceeds in-kind, you should expect
to incur transaction costs upon disposition of the securities received in the
redemption.
--------------------------------------------------------------------------------
STAYING INFORMED
SHAREHOLDER REPORTS. Shareholder reports are mailed twice a year, in November
and May. They include financial statements and performance information, and on
an annual basis, a message from your portfolio managers and 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 Investor Services at 1-800-637-2548.
STATEMENTS AND CONFIRMATIONS. Statements summarizing activity in your account
are mailed 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 contacting your financial institution. 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.
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.
If in redemption of his or her shares a shareholder receives a distribution of
readily marketable securities instead of cash, the shareholder will be treated
as receiving an amount equal to the fair market value of the securities at the
time of the distribution for purposes of determining capital gain or loss on
the redemption, and will also acquire a basis in the shares for federal income
tax purposes equal to their fair market value.
The exchange of one class of shares for another class of shares in the same
fund will not be taxable.
15 PROSPECTUS - First American Large Cap Funds
Class Y Shares
<PAGE>
Additional Information
MANAGEMENT
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 September 30, 2000, it had more than $77 billion in assets under
management, including investment company assets of more than $33 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 the fiscal year ended September 30, 2000, 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 0.58%
EQUITY INCOME FUND 0.56%
EQUITY INDEX FUND 0.16%
LARGE CAP GROWTH FUND 0.61%
LARGE CAP VALUE FUND 0.59%
--------------------------------------------------------------------------------
DIRECT CORRESPONDENCE TO:
First American Funds
P.O. Box 1330
Minneapolis, Minnesota 55440-1330
INVESTMENT ADVISOR
First American Asset Management
601 Second Avenue South
Minneapolis, Minnesota 55402
DISTRIBUTOR
SEI Investments Distribution Co.
Oaks, Pennsylvania 19456
PENDING ACQUISITION
On October 4, 2000, U.S. Bancorp, the parent company of the funds' investment
advisor, announced that it had entered into an agreement to be acquired by
Firstar Corporation. It is anticipated that this acquisition will be completed
in the first quarter of 2001, subject to regulatory approval, the approval of
U.S. Bancorp shareholders and the satisfaction of customary closing conditions.
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 all open-end funds in the First American family of
funds. These services include general administrative and accounting services,
transfer agency, and dividend disbursing services, and shareholder services.
U.S. Bank receives total 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. These fees are allocated among the funds in the First
American family of funds on the basis of their relative net asset values. The
funds also pay U.S. Bank fees based upon the number of funds and accounts
maintained. In addition, U.S. Bank is reimbursed for its out-of-pocket expenses
incurred while providing administration services to the funds.
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 these transactions.
SHAREHOLDER SERVICING FEES. To the extent that fund shares are held through U.S.
Bank or its broker-dealer affiliates, U.S. Bancorp Investments, Inc. and U.S.
Bancorp Piper Jaffray Inc. those entities may receive shareholder servicing fees
from the funds' distributor.
PORTFOLIO MANAGEMENT
Each fund's investments are managed by a team of persons associated with First
American Asset Management.
16 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.
EFFECTIVE MATURITY. Balanced Fund normally attempts to maintain a weighted
average effective maturity for the debt securities in its portfolio of 15 years
or less. Effective maturity differs from actual stated or final maturity, which
may be substantially longer. In calculating effective maturity, the advisor
estimates the effect of expected principal payments and call provisions on
securities held in the portfolio. Effective maturity provides the advisor with
a better estimate of interest rate risk under normal market conditions, but may
underestimate interest rate risk in an environment of adverse (rising) interest
rates.
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 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.
17 PROSPECTUS - First American Large Cap Funds
Class Y Shares
<PAGE>
Additional Information
MORE ABOUT THE FUNDS CONTINUED
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.
--------------------------------------------------------------------------------
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 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.
18 PROSPECTUS - First American Large Cap Funds
Class Y Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
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. 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 the
fund, assuming you reinvested all of your dividends and distributions.
The information for the fiscal years ended September 30, 2000 and September 30,
1999 has been derived from the financial statements 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 other auditors.
BALANCED FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 13.50 $ 14.01 $ 15.43 $ 13.15 $ 12.13
-------- -------- -------- -------- --------
Investment Operations:
Net Investment Income 0.39 0.41 0.44 0.42 0.42
Net Gains (Losses) on Investments
(both realized and unrealized) 0.23 1.08 (0.30) 2.86 1.43
-------- -------- -------- -------- --------
Total From Investment Operations 0.62 1.49 0.14 3.28 1.85
-------- -------- -------- -------- --------
Less Distributions:
Dividends (from net investment income) (0.39) (0.41) (0.44) (0.42) (0.42)
Distributions (from capital gains) (1.25) (1.59) (1.12) (0.58) (0.41)
-------- -------- -------- -------- --------
Total Distributions (1.64) (2.00) (1.56) (1.00) (0.83)
-------- -------- -------- -------- --------
Net Asset Value, End of Period $ 12.48 $ 13.50 $ 14.01 $ 15.43 $ 13.15
======== ======== ======== ======== ========
Total Return 4.67% 11.07% 1.03% 26.17% 15.89%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $240,430 $350,229 $455,426 $418,087 $332,786
Ratio of Expenses to Average Net Assets 0.80% 0.80% 0.80% 0.80% 0.80%
Ratio of Net Income to Average Net Assets 3.11% 2.93% 3.01% 2.99% 3.31%
Ratio of Expenses to Average Net Assets (excluding waivers) 0.92% 0.91% 0.90% 0.88% 0.89%
Ratio of Net Income to Average Net Assets (excluding waivers) 2.99% 2.82% 2.91% 2.91% 3.22%
Portfolio Turnover Rate 65% 77% 103% 84% 73%
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
19 PROSPECTUS - First American Large Cap Funds
Class Y Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
EQUITY INCOME FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 16.00 $ 15.74 $ 15.70 $ 12.66 $ 11.24
-------- -------- -------- -------- --------
Investment Operations:
Net Investment Income 0.32 0.40 0.46 0.43 0.42
Net Gains (Losses) on Investments
(both realized and unrealized) 1.47 1.17 0.88 3.40 1.43
-------- -------- -------- -------- --------
Total From Investment Operations 1.79 1.57 1.34 3.83 1.85
-------- -------- -------- -------- --------
Less Distributions:
Dividends (from net investment income) (0.32) (0.41) (0.45) (0.44) (0.42)
Distributions (from capital gains) (1.10) (0.90) (0.85) (0.35) (0.01)
-------- -------- -------- -------- --------
Total Distributions (1.42) (1.31) (1.30) (0.79) (0.43)
-------- -------- -------- -------- --------
Net Asset Value, End of Period $ 16.37 $ 16.00 $ 15.74 $ 15.70 $ 12.66
======== ======== ======== ======== ========
Total Return 11.46% 10.10% 8.85% 31.45% 16.79%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $275,436 $350,775 $359,588 $369,919 $ 64,590
Ratio of Expenses to Average Net Assets 0.75% 0.75% 0.75% 0.75% 0.75%
Ratio of Net Income to Average Net Assets 1.99% 2.38% 2.81% 3.12% 3.50%
Ratio of Expenses to Average Net Assets (excluding waivers) 0.89% 0.88% 0.87% 0.92% 0.95%
Ratio of Net Income to Average Net Assets (excluding waivers) 1.85% 2.25% 2.69% 2.95% 3.30%
Portfolio Turnover Rate 36% 35% 14% 39% 23%
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
EQUITY INDEX FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 25.51 $ 20.60 $ 20.74 $ 15.47 $ 13.34
---------- ---------- ---------- ---------- ---------
Investment Operations:
Net Investment Income 0.23 0.28 0.29 0.29 0.31
Net Gains (Losses) on Investments
(both realized and unrealized) 2.91 5.35 1.40 5.70 2.31
---------- ---------- ---------- ---------- ---------
Total From Investment Operations 3.14 5.63 1.69 5.99 2.62
---------- ---------- ---------- ---------- ---------
Less Distributions:
Dividends (from net investment income) (0.23) (0.28) (0.29) (0.29) (0.31)
Distributions (from capital gains) (0.68) (0.44) (1.54) (0.43) (0.18)
---------- ---------- ---------- ---------- ---------
Total Distributions (0.91) (0.72) (1.83) (0.72) (0.49)
---------- ---------- ---------- ---------- ---------
Net Asset Value, End of Period $ 27.74 $ 25.51 $ 20.60 $ 20.74 $ 15.47
========== ========== ========== ========== =========
Total Return 12.38% 27.61% 8.82% 39.85% 19.98%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $1,400,086 $1,206,072 $ 996,528 $ 557,258 $ 348,539
Ratio of Expenses to Average Net Assets 0.35% 0.35% 0.35% 0.35% 0.35%
Ratio of Net Income to Average Net Assets 0.87% 1.11% 1.36% 1.62% 2.14%
Ratio of Expenses to Average Net Assets (excluding waivers) 0.89% 0.89% 0.88% 0.88% 0.90%
Ratio of Net Income to Average Net Assets (excluding waivers) 0.33% 0.57% 0.83% 1.09% 1.59%
Portfolio Turnover Rate 16% 7% 14% 8% 10%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
20 PROSPECTUS - First American Large Cap Funds
Class Y Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
LARGE CAP GROWTH FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 19.84 $ 16.30 $ 17.64 $ 13.66 $ 11.78
---------- ---------- ---------- ---------- ---------
Investment Operations:
Net Investment Income (Loss) (0.04) 0.02 0.13 0.12 0.18
Net Gains (Losses) on Investments
(both realized and unrealized) 4.91 5.46 0.02 4.26 1.88
---------- ---------- ---------- ---------- ---------
Total From Investment Operations 4.87 5.48 0.15 4.38 2.06
---------- ---------- ---------- ---------- ---------
Less Distributions:
Dividends (from net investment income) -- (0.06) (0.13) (0.13) (0.18)
Distributions (from capital gains) (2.98) (1.88) (1.36) (0.27) --
---------- ---------- ---------- ---------- ---------
Total Distributions (2.98) (1.94) (1.49) (0.40) (0.18)
---------- ---------- ---------- ---------- ---------
Net Asset Value, End of Period $ 21.73 $ 19.84 $ 16.30 $ 17.64 $ 13.66
========== ========== ========== ========== =========
Total Return 26.13% 36.36% 1.07% 32.75% 17.58%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $1,112,122 $ 854,819 $ 680,143 $ 681,151 $ 225,900
Ratio of Expenses to Average Net Assets 0.80% 0.80% 0.80% 0.80% 0.79%
Ratio of Net Income (Loss) to Average Net Assets (0.20)% 0.20% 0.82% 0.77% 1.39%
Ratio of Expenses to Average Net Assets (excluding waivers) 0.89% 0.89% 0.86% 0.89% 0.92%
Ratio of Net Income (Loss) to Average Net Assets
(excluding waivers) (0.29)% 0.11% 0.76% 0.68% 1.26%
Portfolio Turnover Rate 47% 57% 38% 34% 21%
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
LARGE CAP VALUE FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 23.17 $ 22.42 $ 28.75 $ 22.60 $ 19.56
---------- ---------- ---------- ---------- ----------
Investment Operations:
Net Investment Income 0.23 0.25 0.35 0.39 0.42
Net Gains (Losses) on Investments
(both realized and unrealized) 0.21 4.46 (2.57) 7.90 4.09
---------- ---------- ---------- ---------- ----------
Total From Investment Operations 0.44 4.71 (2.22) 8.29 4.51
---------- ---------- ---------- ---------- ----------
Less Distributions:
Dividends (from net investment income) (0.22) (0.26) (0.35) (0.38) (0.42)
Distributions (from capital gains) (2.75) (3.70) (3.76) (1.76) (1.05)
---------- ---------- ---------- ---------- ----------
Total Distributions (2.97) (3.96) (4.11) (2.14) (1.47)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period $ 20.64 $ 23.17 $ 22.42 $ 28.75 $ 22.60
========== ========== ========== ========== ==========
Total Return 1.17% 22.28% (8.47)% 39.13% 24.32%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $1,186,787 $1,343,207 $1,253,845 $1,095,262 $ 471,206
Ratio of Expenses to Average Net Assets 0.80% 0.80% 0.80% 0.80% 0.80%
Ratio of Net Income (Loss) to Average Net Assets (0.20)% 1.07% 1.40% 1.39% 1.90%
Ratio of Expenses to Average Net Assets (excluding waivers) 0.88% 0.90% 0.88% 0.89% 0.88%
Ratio of Net Income (Loss) to Average Net Assets (excluding
waivers) (0.28)% 0.97% 1.32% 1.30% 1.82%
Portfolio Turnover Rate 68% 61% 74% 57% 40%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
21 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 of this information, after paying a duplicating fee,
by electronic request at the following email address: [email protected], or by
writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. For
more information, call 1-202-942-8090.
Information about the funds is also available on the Internet. Text-only
versions of fund documents can be viewed online or downloaded from the EDGAR
Database on the SEC's Internet site at http://www.sec.gov.
FIRST AMERICAN FUNDS P.O. Box 1330, Minneapolis, MN 55440-1330
First American Asset Management, a division of U.S. Bank National Association,
serves as the investment advisor to the First American Funds.
First American Funds are distributed by SEI Investments Distribution Co. which
is located in Oaks, PA 19456 and is not an affiliate of U.S. Bank.
12/2000 PROLRGY-00
SEC file number: 811-05309
[LOGO] FIRST AMERICAN FUNDS
THE POWER OF DISCIPLINED INVESTING(R)
<PAGE>
DECEMBER 30, 2000
ASSET CLASSES
(*) EQUITY FUNDS
* FUNDS OF FUNDS
* BOND FUNDS
* TAX FREE FUNDS
* MONEY MARKET FUNDS
PROSPECTUS
FIRST AMERICAN INVESTMENT FUNDS, INC.
FIRST AMERICAN
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
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.
[LOGO] FIRST AMERICAN FUNDS(R)
THE POWER OF DISCIPLINED INVESTING(R)
<PAGE>
Table of
CONTENTS
FUND SUMMARIES
--------------------------------------------------------------------------------
Mid Cap Growth Fund 2
--------------------------------------------------------------------------------
Mid Cap Value Fund 4
--------------------------------------------------------------------------------
Small Cap Growth Fund 6
--------------------------------------------------------------------------------
Small Cap Value Fund 8
--------------------------------------------------------------------------------
POLICIES & SERVICES
--------------------------------------------------------------------------------
Buying Shares 10
--------------------------------------------------------------------------------
Selling Shares 14
--------------------------------------------------------------------------------
Managing Your Investment 15
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
Management 17
--------------------------------------------------------------------------------
More About The Funds 18
--------------------------------------------------------------------------------
Financial Highlights 20
--------------------------------------------------------------------------------
FOR MORE INFORMATION Back Cover
--------------------------------------------------------------------------------
<PAGE>
Fund Summaries
INTRODUCTION
This section of the prospectus describes the objectives of the First American
Mid Cap and 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.
1 PROSPECTUS - First American Mid Cap 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 $316 million to $37.9 billion.
The advisor will select companies that it believes exhibit the potential for
superior growth based on factors such as:
* above average growth in revenue and earnings.
* strong competitive position.
* strong management.
* sound financial condition.
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.
--------------------------------------------------------------------------------
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 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.
RISKS OF INITIAL PUBLIC OFFERINGS (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.
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 were, 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. 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.
2 PROSPECTUS - First American Mid Cap and Small Cap Funds
Class A, Class B, and Class C Shares
<PAGE>
Fund Summaries
MID CAP GROWTH FUND CONTINUED
--------------------------------------------------------------------------------
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR(1),(2),(3)
<TABLE>
<CAPTION>
<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% 54.59%
--------------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996 1997 1998 1999
</TABLE>
Best Quarter: Quarter ending December 31, 1999 47.75%
Worst Quarter: Quarter ending September 30, 1998 (19.34)%
<TABLE>
<CAPTION>
Since Since
AVERAGE ANNUAL TOTAL RETURNS Inception Inception Inception
AS OF 12/31/99(2,3) Date One Year Five Years (Class A) (Class B)
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Mid Cap Growth Fund (Class A) 4/23/90 46.50% 25.51% 20.26% N/A
Mid Cap Growth Fund (Class B) 8/7/98 48.41% N/A N/A 39.15%
Russell Midcap Index(4) 18.23% 21.86% 17.52% 34.92%
</TABLE>
(1)Total return for the period from 1/1/00 through 9/30/00 was 19.42%.
(2)Mid Cap Growth Fund's 1999 returns were higher due in part to its strategy
of investing in IPOs in a period favorable for IPO investing. Of course, such
favorable returns involve accepting the risk of volatility, and there is no
assurance that the fund's future investment in IPOs will have the same effect
on performance as it did in 1999.
(3)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.
(4)An unmanaged index comprised of the 800 smallest securities in the Russell
1000 Index, which represent approximately 24% 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.
--------------------------------------------------------------------------------
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,
2000.(1)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER FEES CLASS A CLASS B CLASS 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 MAINTENANCE FEE(4) ONLY CHARGED TO ACCOUNTS WITH BALANCES BELOW $500 $ 25 $ 25 $ 25
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 0.22% 0.22% 0.22%
TOTAL 1.17% 1.92% 1.92%
-------------------------------------------------------------------------------------------------------------
(1)Actual expenses for the fiscal year were lower than those shown because of
voluntary fee waivers by the fund's advisor. The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 2000,
were:
Waiver of Fund Expenses (0.02)% (0.02)% (0.02)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 1.15% 1.90% 1.90%
</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."
(4)The fund reserves the right to charge your account an annual maintenance fee
of $25 if your balance falls below $500 as a result of selling or exchanging
shares. See "Policies & Services -- Selling Shares, Accounts with Low
Balances."
--------------------------------------------------------------------------------
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 redemption assuming no redemption assuming redemption assuming no redemption
CLASS A at end of each period at end of each period at end of each period at end of each period
--------- ----------------------- ------------------------ ----------------------- -----------------------
<S> <C> <C> <C> <C> <C>
1 year $ 638 $ 695 $ 195 $ 393 $ 293
3 years $ 877 $1,003 $ 603 $ 697 $ 697
5 years $1,135 $1,237 $1,037 $1,126 $1,126
10 years $1,871 $2,048 $2,048 $2,321 $2,321
</TABLE>
3 PROSPECTUS - First American Mid Cap 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 $316 million to $37.9 billion.
In selecting stocks, the fund's advisor invests in securities it believes:
* are undervalued relative to other securities in the same industry or market.
* exhibit good or improving fundamentals.
* 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.
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 were, 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. 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.
4 PROSPECTUS - First American Mid Cap 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(1)
[BAR CHART]
<TABLE>
<CAPTION>
<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% -6.29%
------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
</TABLE>
Best Quarter: Quarter ending June 30, 1997 17.97%
Worst Quarter: Quarter ending September 30, 1998 (30.84)%
<TABLE>
<CAPTION>
Since
AVERAGE ANNUAL TOTAL RETURNS Inception Ten Years Inception
AS OF 12/31/99 Date One Year Five Years (Class A) (Class B)
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Mid Cap Value Fund (Class A) 12/22/87 (11.23)% 8.67% 9.77% N/A
----------------------------------------------------------------------------------------------------
Mid Cap Value Fund (Class B) 8/15/94 (11.62)% 8.80% N/A 8.33%
----------------------------------------------------------------------------------------------------
Russell Midcap Index(2) 18.23% 21.86% 15.92% 19.25%
----------------------------------------------------------------------------------------------------
</TABLE>
(1)Total return for the period from 1/1/00 through 9/30/00 was 12.74%.
(2)An unmanaged index comprised of the 800 smallest securities in the Russell
1000 Index, which represent approximately 24% of the total market
capitalization of the investable U.S. equity market. The since inception
performance of the index for Class B shares 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,
2000.(1)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER FEES CLASS A CLASS B CLASS 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 MAINTENANCE FEE(4)
ONLY CHARGED TO ACCOUNTS WITH BALANCES BELOW $500 $ 25 $ 25 $ 25
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 0.24% 0.24% 0.24%
TOTAL 1.19% 1.94% 1.94%
-----------------------------------------------------------------------------------------------------------
(1)Actual expenses for the fiscal year were lower than those shown because of
voluntary fee waivers by the fund's advisor. The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 2000,
were:
Waiver of Fund Expenses (0.04)% (0.04)% (0.04)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 1.15% 1.90% 1.90%
</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."
(4)The fund reserves the right to charge your account an annual maintenance fee
of $25 if your balance falls below $500 as a result of selling or exchanging
shares.
See "Policies & Services -- Selling Shares, Accounts with Low Balances."
--------------------------------------------------------------------------------
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 redemption assuming no redemption assuming redemption assuming no redemption
CLASS A at end of each period at end of each period at end of each period at end of each period
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 year $ 640 $ 697 $ 197 $ 395 $ 295
3 years $ 883 $1,009 $ 609 $ 703 $ 703
5 years $1,145 $1,247 $1,047 $1,137 $1,137
10 years $1,892 $2,070 $2,070 $2,342 $2,342
</TABLE>
5 PROSPECTUS - First American Mid Cap 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 $25 million to $4.7 billion.
The advisor will select companies that it believes exhibit the potential for
superior growth based on factors such as:
* above average growth in revenue and earnings.
* strong competitive position.
* strong management.
* sound financial condition.
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.
--------------------------------------------------------------------------------
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 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.
RISKS OF INITIAL PUBLIC OFFERINGS (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.
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 were, 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. 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 Mid Cap and Small Cap Funds
Class A, Class B, and Class C Shares
<PAGE>
Fund Summaries
SMALL CAP GROWTH FUND CONTINUED
--------------------------------------------------------------------------------
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR(1),(2),(3)
[BAR CHART]
<TABLE>
<CAPTION>
<S> <C> <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% 66.76%
------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
</TABLE>
Best Quarter: Quarter ending December 31, 1999 51.34%
Worst Quarter: Quarter ending September 30, 1998 (22.14)%
<TABLE>
<CAPTION>
Since
AVERAGE ANNUAL TOTAL RETURNS Inception Ten Years Inception
AS OF 12/31/99(2),(3) Date One Year Five Years (Class A) (Class B)
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Small Cap Growth Fund (Class A) 3/16/87 58.04% 24.18% 17.43% N/A
--------------------------------------------------------------------------------------------------
Small Cap Growth Fund (Class B) 7/31/98 60.39% N/A N/A 46.51%
--------------------------------------------------------------------------------------------------
Russell 2000 Index(4) 21.26% 16.69% 13.40% 15.43%
--------------------------------------------------------------------------------------------------
</TABLE>
(1)Total return for the period from 1/1/00 through 9/30/00 was 7.09%.
(2)Small Cap Growth Fund's 1999 returns were higher due in part to its strategy
of investing in IPOs in a period favorable for IPO investing. Of course, such
favorable returns involve accepting the risk of volatility, and there is no
assurance that the fund's future investment in IPOs will have the same effect
on performance as it did in 1999.
(3)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. 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.
(4)An unmanaged index comprised of the smallest 2000 companies in the Russell
3000 Index. The Russell 3000 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.
--------------------------------------------------------------------------------
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,
2000.(1)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER FEES CLASS A CLASS B CLASS 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 MAINTENANCE FEE(4)
ONLY CHARGED TO ACCOUNTS WITH BALANCES BELOW $500 $ 25 $ 25 $ 25
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 0.19% 0.19% 0.19%
TOTAL 1.14% 1.89% 1.89%
----------------------------------------------------------------------------------------------------------
</TABLE>
(1)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."
(4)The fund reserves the right to charge your account an annual maintenance fee
of $25 if your balance falls below $500 as a result of selling or exchanging
shares.
See "Policies & Services -- Selling Shares, Accounts with Low Balances."
--------------------------------------------------------------------------------
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 redemption assuming no redemption assuming redemption assuming no redemption
CLASS A at end of each period at end of each period at end of each period at end of 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>
7 PROSPECTUS - First American Mid Cap 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 $25 million to $4.7 billion.
In selecting stocks, the fund's advisor invests in securities it believes:
* are undervalued relative to other securities in the same industry or market.
* exhibit good or improving fundamentals.
* 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.
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 were, 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. 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.
8 PROSPECTUS - First American Mid Cap 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),(2)
[BAR CHART]
<TABLE>
<CAPTION>
<S> <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% 5.93%
-----------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
</TABLE>
Best Quarter: Quarter ending March 31, 1991 33.49%
Worst Quarter: Quarter ending September 30, 1998 (23.21)%
<TABLE>
<CAPTION>
Ten Since
AVERAGE ANNUAL TOTAL RETURNS Inception Years Inception
AS OF 12/31/99(2) Date One Year Five Years (Class A) (Class B)
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Small Cap Value Fund (Class A) 1/1/88 0.35% 14.29% 15.39% N/A
------------------------------------------------------------------------------------------------
Small Cap Value Fund (Class B) 11/24/97 0.10% N/A N/A (4.52)%
------------------------------------------------------------------------------------------------
Russell 2000 Index(3) 21.26% 16.69% 13.40% 9.25%
------------------------------------------------------------------------------------------------
</TABLE>
(1)Total return for the period from 1/1/00 through 9/30/00 was 15.55%.
(2)Performance prior to 8/1/94 is that of Small Company Value Trust Fund, a
predecessor collective trust fund. On 8/1/94, substantially all of the assets
of Small Company Value Trust Fund were transferred into Qualivest Small
Companies Value Fund, a mutual fund registered under the Investment Company
Act of 1940. On 11/21/97, First American Small Cap Value Fund became the
successor by merger to Qualivest Small Companies Value Fund. The objectives,
policies, and guidelines of the predecessor funds were, in all material
respects, identical to those of Small Cap Value Fund. Performance prior to
11/21/97 is adjusted to reflect Small Cap Value Fund's Class A share fees and
expenses, before any fee waivers. Small Company Value 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.
(3)An unmanaged index comprised of the smallest 2000 companies in the Russell
3000 Index. The Russell 3000 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.
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,
2000.(1)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER FEES CLASS A CLASS B CLASS 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 MAINTENANCE FEE(4)
ONLY CHARGED TO ACCOUNTS WITH BALANCES BELOW $500 $ 25 $ 25 $ 25
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 0.21% 0.02% 0.21%
TOTAL 1.16% 1.90% 1.91%
----------------------------------------------------------------------------------------------------------
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 2000,
were:
Waiver of Fund Expenses 0.02% 0.02% 0.03%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 1.14% 1.88% 1.88%
</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."
(4)The fund reserves the right to charge your account an annual maintenance fee
of $25 if your balance falls below $500 as a result of selling or exchanging
shares.
See "Policies & Services -- Selling Shares, Accounts with Low Balances."
--------------------------------------------------------------------------------
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 redemption assuming no redemption assuming redemption assuming no redemption
CLASS A at end of each period at end of each period at end of each period at end of each period
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 year $ 637 $ 693 $ 193 $ 392 $ 292
3 years $ 874 $ 997 $ 597 $ 694 $ 694
5 years $1,130 $1,226 $1,026 $1,121 $1,121
10 years $1,860 $2,029 $2,029 $2,310 $2,310
</TABLE>
9 PROSPECTUS - First American Mid Cap 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:
* a front-end sales charge, described below.
* 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:
* orders for Class B shares for $250,000 or more will be treated as orders for
Class A shares.
* orders for Class C shares for $1 million or more will be treated as orders
for Class A shares.
* orders for Class B or Class C shares by an investor eligible to purchase
Class A shares without a front-end sales charge 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, Class B shares do have:
* higher annual expenses than Class A shares. See "Fund Summaries -- Fees and
Expenses."
* a back-end sales charge, called a "contingent deferred sales charge," if you
redeem your shares within six years of purchase.
* 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:
* a 1% contingent deferred sales charge if you redeem your shares within 18
months of purchase.
* higher annual expenses than Class A shares. See "Fund Summaries -- Fees and
Expenses."
* 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 0.75% is a distribution fee.
The funds' distributor uses the shareholder servicing fee to compensate
investment professionals, participating institutions and "one-stop" mutual fund
networks (institutions) for providing ongoing services to shareholder accounts.
These institutions receive shareholder servicing 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 net asset value sales of Class A
shares on which the institution receives a commission, the institution does not
begin to receive its shareholder servicing 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 funds' distributor retains the Class B share 0.75% annual
distribution fee in order to finance the payment of sales commissions to
institutions which sell Class B shares. See "Buying Shares -- Class B Shares."
The advisor or the distributor may pay additional fees to institutions out of
their own assets in exchange for sales and/or administrative services performed
on behalf of the institution's customers.
10 PROSPECTUS - First American Mid Cap and Small Cap Funds
Class A, Class B, and Class C Shares
<PAGE>
Policies & Services
BUYING SHARES CONTINUED
--------------------------------------------------------------------------------
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 for Class A shares 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
investment professional 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%
REDUCING YOUR SALES CHARGE. As shown in the preceding tables, larger purchases
of Class A shares reduce the percentage ales 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. That is, you will receive credit for either the original purchase
price or the current net asset value of the other Class A shares you hold at the
time of your purchase, whichever is greater. For example, let's say you're
making a $10,000 investment and you already own other First American fund Class
A shares that you purchased for $25,000, but are not valued at $45,000. Since
the current net asset value of your shares is greater than their purchase price,
you will receive credit for their current value and your sales charge will be
based on a total purchase amount of $55,000. To receive a reduced sales charge,
you must notify the fund of your prior purchases. This must be done at the time
of purchase, either directly with the fund in writing or by notifying your
investment professional or financial institution.
PURCHASES BY RELATED ACCOUNTS. Concurrent and prior purchases of Class A shares
of any First American fund 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 of purchases by any related
accounts. This must be done at the time of purchase, either directly with the
funds in writing or by notifying your investment professional 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 investment professional 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 investment professional 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:
* redemptions following the death or disability (as defined in the Internal
Revenue Code) of a shareholder.
* 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.
* 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 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
11 PROSPECTUS - First American Mid Cap and Small Cap Funds
Class A, Class B, and Class C Shares
<PAGE>
Policies & Services
BUYING SHARES CONTINUED
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 4.35%
of the amount invested to investment professionals 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 and any related shares acquired by reinvesting your
dividend or capital gain distributions 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, 2001, they will convert
to Class A shares on June 1, 2009.
The CDSC will be waived for:
* redemptions following the death or disability (as defined in the Internal
Revenue Code) of a shareholder.
* 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 701/2.
* 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 investment professional
or participating institution.
Additionally, the advisor may pay its affiliated broker-dealer, U.S. Bancorp
Piper Jaffray Inc., an additional commission of up to 3% of your purchase
price. 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
net asset value 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 investment professional 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 investment professional 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 investment
professional 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 investment professional or financial institution
for more information.
If you are paying by wire, you may purchase shares by calling Investor Services
at 1-800-637-2548 before the close of regular trading on the New York Stock
Exchange (usually 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, account number and fund name)
You cannot purchase shares by wire on days when federally chartered banks are
closed.
12 PROSPECTUS - First American Mid Cap and Small Cap Funds
Class A, Class B, and Class C Shares
<PAGE>
Policies & Services
BUYING SHARES CONTINUED
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:
* all purchases must be made in U.S. dollars.
* third-party checks, credit cards, credit card checks, and cash are not
accepted.
* 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:
* by having $100 or more ($25 for a retirement plan or a Uniform Gifts to
Minors Act/Uniform Transfers to Minors Act account) automatically withdrawn
from your bank account on a periodic basis and invested in fund shares.
* 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
investment professional or financial institution or by calling Investor
Services at 1-800-637-2548.
13 PROSPECTUS - First American Mid Cap 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 net asset value calculated after your order is accepted by the fund,
less any applicable contingent deferred sales charge. Be sure to read the
section "Buying Shares" for a description of contingent deferred sales charges.
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 three days,
but in no event more than seven days, after your request is received in proper
form.
To minimize the effect of large redemption requests, each fund reserves the
right to fulfill such redemption requests by distributing readily marketable
securities in the Fund's portfolio, rather than paying you in cash. See
"Policies & Services -- Managing Your Investment, Redemption In-Kind."
BY PHONE. If you purchased shares through an investment professional or
financial institution, simply call them to sell your shares. In many cases,
your redemption will be effective that day if received by your investment
professional 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 investment professional or financial institution time to process your
request and transmit it to the fund. Contact your investment professional or
financial institution directly for more information.
If you did not purchase shares through an investment professional or financial
institution, you may sell your shares by calling Investor Services at
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 fund) or sent to you by check. The funds reserve the right to limit
telephone exchanges to $50,000 per day.
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 15 calendar days
from the date of purchase.
BY MAIL. To sell shares by mail, send a written request to your investment
professional or financial institution, or to the funds 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:
* name of the fund.
* account number.
* dollar amount or number of shares redeemed.
* name on the account.
* signatures of all registered account owners.
Signatures on a written request must be guaranteed if:
* you would like the proceeds from the sale to be paid to anyone other than to
the shareholder of record.
* you would like the check mailed to an address other than the address on the
funds' records.
* 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 unless
another form of payment is requested.
--------------------------------------------------------------------------------
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 investment professional 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 of a First American fund, 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 fund directly in writing or notify your
investment professional or financial institution.
ACCOUNTS WITH LOW BALANCES
Except for retirement plans and Uniform Gifts to Minors Act/Uniform Transfers to
Minors Act accounts, if your account balance falls below $500 as a result of
selling or exchanging shares, the fund reserves the right to either:
* deduct a $25 annual account maintenance fee, or
* close your account and send you the proceeds, less any applicable contingent
deferred sales charge.
Before taking any action, however, the fund will send you written notice of
the action it intends to take and give you 30 days to re-establish a minimum
account balance of $500.
14 PROSPECTUS - First American Mid Cap 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. If both funds have identical shareholder registrations, you may
exchange shares by calling your investment professional, your financial
institution, or by calling the funds directly. To request an exchange through
the funds, call Investor Services at 1-800-637-2548. Your instructions must be
received before 3 p.m. Central time, or by the time specified by your
investment professional 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.
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.
--------------------------------------------------------------------------------
REDEMPTION IN-KIND
Generally, proceeds from redemption requests will be paid in cash. However, to
minimize the effect of large redemption requests on a fund and its remaining
shareholders, each fund reserves the right to pay part or all of the proceeds
from a redemption request in a proportionate share of readily marketable
securities in the fund instead of in cash. In selecting securities for a
redemption in-kind, the advisor will consider the best interests of the fund
and the remaining fund shareholders, and will value these securities in
accordance with the pricing methods employed to calculate the fund's net asset
value per share. If you receive redemption proceeds in-kind, you should expect
to incur transaction costs upon the disposition of the securities received in
the redemption.
15 PROSPECTUS - First American Mid Cap and Small Cap Funds
Class A, Class B, and Class C Shares
<PAGE>
Policies & Services
MANAGING YOUR INVESTMENT CONTINUED
--------------------------------------------------------------------------------
STAYING INFORMED
Shareholder Reports. Shareholder reports are mailed twice a year, in November
and May. They include financial statements and performance information, and on
an annual basis, a message from your portfolio managers and 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 Investor Services at 1-800-637-2548.
Statements and Confirmations. Statements summarizing activity in your account
are mailed 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, your investment
professional or your financial institution. 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.
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.
If in redemption of his or her shares a shareholder receives a distribution of
readily marketable securities instead of cash, the shareholder will be treated
as receiving an amount equal to the fair market value of the securities at the
time of the distribution for purposes of determining capital gain or loss on
the redemption, and will also acquire a basis in the shares for federal income
tax purposes equal to their fair market value.
The exchange of one class of shares for another class of shares in the same
fund will not be taxable.
16 PROSPECTUS - First American Mid Cap and Small Cap Funds
Class A, Class B, and Class C Shares
<PAGE>
Additional Information
MANAGEMENT
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 September 30, 2000, it had more than $77 billion in assets under
management, including investment company assets of more than $33 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 the fiscal year ended September 30, 2000, 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
--------------------------------------------------------------------------------
MID CAP GROWTH FUND 0.68%
MID CAP VALUE FUND 0.66%
SMALL CAP GROWTH FUND 0.70%
SMALL CAP VALUE FUND 0.68%
-------------------------------------------------------------------------------
DIRECT CORRESPONDENCE TO:
First American Funds
P.O. Box 1330
Minneapolis, Minnesota 55440-1330
INVESTMENT ADVISOR
First American Asset Management
601 Second Avenue South
Minneapolis, Minnesota 55402
DISTRIBUTOR
SEI Investments Distribution Co.
Oaks, Pennsylvania 19456
PENDING ACQUISITION
On October 4, 2000, U.S. Bancorp, the parent company of the funds' investment
advisor, announced that it had entered into an agreement to be acquired by
Firstar Corporation. It is anticipate4d that this acquisition will be completed
in the first quarter of 2001, subject to regulatory approval, the approval of
U.S. Bancorp shareholders and the satisfaction of customary closing conditions.
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 all open-end funds in the First American family of
funds. These services include general administrative and accounting services,
transfer agency and dividend disbursing services, and shareholder services.
U.S. Bank receives 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. These fees are allocated among the funds in the First American
family of funds on the basis of their relative net asset values. The funds also
pay U.S. Bank fees based upon the number of funds and accounts maintained. In
addition, U.S. Bank is reimbursed for its out-of-pocket expenses incurred while
providing administrative services to the funds.
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 these transactions.
SHAREHOLDER SERVICING FEES. To the extent that fund shares are held through U.S.
Bank or its broker-dealer affiliates, U.S. Bancorp Investments, Inc. and U.S.
Bancorp Piper Jaffray Inc., those entities may receive shareholder servicing
fees from the funds' distributor.
PORTFOLIO MANAGEMENT
Each fund's investments are managed by a team of persons associated with First
American Asset Management.
17 PROSPECTUS - First American Mid Cap 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%. For the
fiscal years ended September 30, 1998 through September 30, 2000, Mid Cap Value
Fund had portfolio turnover rates in excess of 100%. For the fiscal year ended
September 30, 2000, Mid Cap Growth Fund and Small Cap Growth Fund each had
portfolio turnover rates in excess of 200%. 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.
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.
18 PROSPECTUS - First American Mid Cap and Small Cap Funds
Class A, Class B, and Class C Shares
<PAGE>
Additional Information
MORE ABOUT THE FUNDS CONTINUED
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 INITIAL PUBLIC OFFERINGS (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.
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.
19 PROSPECTUS - First American Mid Cap and Small Cap Funds
Class A, Class B, and Class C Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
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 the
fund, excluding sales charges and assuming you reinvested all of your dividends
and distributions.
The information for the fiscal years ended September 30, 2000 and September 30,
1999, has been derived from the financial statements 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 other auditors.
MID CAP GROWTH FUND(1)
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS A SHARES 2000 1999 1998 1997 1996
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 12.87 $ 11.80 $ 15.25 $ 13.86 $ 12.97
-------- -------- -------- -------- --------
Investment Operations:
Net Investment Loss (0.12) (0.07) (0.09) (0.08) (0.05)
Net Gains (Losses) on Investments
(both realized and unrealized) 8.80 3.40 (1.80) 2.72 2.18
-------- -------- -------- -------- --------
Total From Investment Operations 8.68 3.33 (1.89) 2.64 2.13
-------- -------- -------- -------- --------
Less Distributions:
Dividends (from net investment income) -- -- -- -- --
Distributions (from capital gains) (2.67) (2.26) (1.56) (1.25) (1.24)
-------- -------- -------- -------- --------
Total Distributions (2.67) (2.26) (1.56) (1.25) (1.24)
-------- -------- -------- -------- --------
Net Asset Value, End of Period $ 18.88 $ 12.87 $ 11.80 $ 15.25 $ 13.86
======== ======== ======== ======== ========
Total Return 76.44% 31.69% (13.05)% 21.04% 17.84%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $264,570 $165,072 $188,763 $274,799 $303,769
Ratio of Expenses to Average Net Assets 1.15% 1.14% 1.18% 1.23% 1.18%
Ratio of Net Loss to Average Net Assets (0.70)% (0.48)% (0.60)% (0.55)% (0.41)%
Ratio of Expenses to Average Net Assets (excluding waivers) 1.17% 1.19% 1.34% 1.39% 1.37%
Ratio of Net Loss to Average Net Assets (excluding waivers) (0.72)% (0.53)% (0.76)% (0.71)% (0.60)%
Portfolio Turnover Rate 217% 94% 39% 51% 44%
-------------------------------------------------------------------------------------------------------------------------------
</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. The financial
highlights for Mid Cap Growth Fund include the historical financial
highlights of Piper Emerging Growth Fund.
20 PROSPECTUS - First American Mid Cap and Small Cap Funds
Class A, Class B, and Class C Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
MID CAP GROWTH FUND(1) (CONTINUED)
<TABLE>
<CAPTION>
Period from Fiscal year ended
Fiscal year ended September 30, October 1, 1997 to September 30,
CLASS B SHARES 2000 1999 1998(2) April 28, 1998(3) 1997(4)
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $12.75 $11.78 $13.86 $15.20 $12.54
------ ------ ------ ------ ------
Investment Operations:
Net Investment Loss (0.16) (0.10) (0.01) (0.09) (0.10)
Net Gains (Losses) on Investments
(both realized and unrealized) 8.59 3.33 (2.07) 1.02 2.76
------ ------ ------ ------ ------
Total From Investment Operations 8.43 3.23 (2.08) 0.93 2.66
------ ------ ------ ------ ------
Less Distributions:
Dividends (from net investment income) -- -- -- -- --
Distributions (from capital gains) (2.67) (2.26) -- (1.56) --
------ ------ ------ ------ ------
Total Distributions (2.67) (2.26) -- (1.56) --
------ ------ ------ ------ ------
Net Asset Value, End of Period $18.51 $12.75 $11.78 $14.57 $15.20
====== ====== ====== ====== ======
Total Return 75.14% 30.66% (15.01)% 7.77% 21.21%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $4,812 $ 360 $ 17 $ -- $1,028
Ratio of Expenses to Average Net Assets 1.90% 1.89% 1.87%(5) 1.85%(5) 1.85%(5)
Ratio of Net Loss to Average Net Assets (1.45)% (1.26)% (1.12)%(5) (1.33)%(5) (1.16)%(5)
Ratio of Expenses to Average Net Assets (excluding
waivers) 1.92% 1.98% 1.87%(5) 1.85%(5) 1.85%(5)
Ratio of Net Loss to Average Net Assets (excluding
waivers) (1.47)% (1.35)% (1.12)%(5) (1.33)%(5) (1.16)%(5)
Portfolio Turnover Rate 217% 94% 39% 29% 51%
------------------------------------------------------------------------------------------------------------------------
</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. The financial
highlights for Mid Cap Growth Fund include the historical financial
highlights of Piper Emerging Growth Fund.
(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.
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS C SHARES 2000 1999(1)
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $12.80 $12.43
------ ------
Investment Operations:
Net Investment Loss (0.14) (0.06)
Net Gains (Losses) on Investments
(both realized and unrealized) 8.62 0.43
------ ------
Total From Investment Operations 8.48 0.37
------ ------
Less Distributions:
Dividends (from net investment income) -- --
Distributions (from capital gains) (2.67) --
------ ------
Total Distributions (2.67) --
------ ------
Net Asset Value, End of Period $18.61 $12.80
====== ======
Total Return 75.10% 3.06%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $5,971 $ 466
Ratio of Expenses to Average Net Assets 1.90% 1.89%(2)
Ratio of Net Income (Loss) to Average Net Assets (1.45)% 1.27%(2)
Ratios of Expenses to Average Net Assets (excluding waivers) 1.92% 1.98%(2)
Ratio of Net Income (Loss) to Average Net Assets (excluding waivers) (1.47)% 1.18%(2)
Portfolio Turnover Rate 217% 94%
--------------------------------------------------------------------------------------------------------
</TABLE>
(1)Class C shares have been offered since February 1, 1999.
(2)Annualized.
21 PROSPECTUS - First American Mid Cap and Small Cap Funds
Class A, Class B, and Class C Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
MID CAP VALUE FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS A SHARES 2000 1999 1998 1997 1996
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 12.95 $ 15.04 $ 24.19 $ 20.41 $ 17.89
-------- -------- -------- -------- --------
Investment Operations:
Net Investment Income 0.08 0.10 0.07 0.11 0.20
Net Gains (Losses) on Investments
(both realized and unrealized) 1.67 1.26 (6.41) 6.98 3.94
-------- -------- -------- -------- --------
Total From Investment Operations 1.75 1.36 (6.34) 7.09 4.14
-------- -------- -------- -------- --------
Less Distributions:
Dividends (from net investment income) (0.08) (0.10) (0.07) (0.11) (0.20)
Distributions (from capital gains) -- (3.35) (2.74) (3.20) (1.42)
-------- -------- -------- -------- --------
Total Distributions (0.08) (3.45) (2.81) (3.31) (1.62)
-------- -------- -------- -------- --------
Net Asset Value, End of Period $ 14.62 $ 12.95 $ 15.04 $ 24.19 $ 20.41
======== ======== ======== ======== ========
Total Return 13.58% 8.03% (28.83)% 39.93% 25.23%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 13,568 $ 20,148 $ 29,261 $ 35,207 $ 17,987
Ratio of Expenses to Average Net Assets 1.15% 1.15% 1.14% 1.14% 1.13%
Ratio of Net Income to Average Net Assets 0.53% 0.63% 0.43% 0.58% 1.06%
Ratio of Expenses to Average Net Assets (excluding waivers) 1.19% 1.18% 1.14% 1.15% 1.13%
Ratio of Net Income to Average Net Assets (excluding waivers) 0.49% 0.60% 0.43% 0.57% 1.06%
Portfolio Turnover Rate 141% 121% 135% 82% 143%
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS B SHARES 2000 1999 1998 1997 1996
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 12.67 $ 14.80 $ 23.96 $ 20.31 $ 17.83
------- ------- --------- ------- -------
Investment Operations:
Net Investment Income (Loss) 0.02 0.04 (0.01) 0.02 0.09
Net Gains (Losses) on Investments
(both realized and unrealized) 1.61 1.22 (6.41) 6.85 3.91
------- ------- --------- ------- -------
Total From Investment Operations 1.63 1.26 (6.42) 6.87 4.00
------- ------- --------- ------- -------
Less Distributions:
Dividends (from net investment income) (0.02) (0.04) -- (0.02) (0.10)
Distributions (from capital gains) -- (3.35) (2.74) (3.20) (1.42)
------- ------- --------- ------- -------
Total Distributions (0.02) (3.39) (2.74) (3.22) (1.52)
------- ------- --------- ------- -------
Net Asset Value, End of Period $ 14.28 $ 12.67 $ 14.80 $ 23.96 $ 20.31
======= ======= ========= ======= =======
Total Return 12.85% 7.38% (29.40)% 38.81% 24.35%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $12,495 $19,072 $ 31,276 $36,649 $12,847
Ratio of Expenses to Average Net Assets 1.90% 1.90% 1.89% 1.90% 1.88%
Ratio of Net Income (Loss) to Average Net Assets (0.22)% (0.13)% (0.31)% (0.18)% 0.25%
Ratio of Expenses to Average Net Assets (excluding waivers) 1.94% 1.93% 1.89% 1.90% 1.88%
Ratio of Net Income (Loss) to Average Net Assets (excluding waivers) (0.26)% (0.16)% (0.31)% (0.18)% 0.25%
Portfolio Turnover Rate 141% 121% 135% 82% 143%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
22 PROSPECTUS - First American Mid Cap and Small Cap Funds
Class A, Class B, and Class C Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
MID CAP VALUE FUND (CONTINUED)
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS C SHARES 2000 1999(1)
-------------------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 12.92 $ 13.69
--------- ---------
Investment Operations:
Net Investment Income 0.02 0.06
Net Gains (Losses) on Investments
(both realized and unrealized) 1.63 (0.78)
--------- ---------
Total From Investment Operations 1.65 (0.72)
--------- ---------
Less Distributions:
Dividends (from net investment income) (0.02) (0.05)
--------- ---------
Total Distributions (0.02) (0.05)
--------- ---------
Net Asset Value, End of Period $ 14.55 $ 12.92
========= =========
Total Return 12.81% (5.25)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 1,430 $ 164
Ratio of Expenses to Average Net Assets 1.90% 1.90%(2)
Ratio of Net Income (Loss) to Average Net Assets (0.15)% 0.29%(2)
Ratios of Expenses to Average Net Assets (excluding waivers) 1.93% 1.93%(2)
Ratio of Net Income (Loss) to Average Net Assets (excluding waivers) (0.18)% 0.26%(2)
Portfolio Turnover Rate 141% 121%
--------------------------------------------------------------------------------------------------
</TABLE>
(1)Class C shares have been offered since February 1, 1999.
(2)Annualized.
23 PROSPECTUS - First American Mid Cap and Small Cap Funds
Class A, Class B, and Class C Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
SMALL CAP GROWTH FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS A SHARES(1) 2000 1999 1998 1997(3) 1996(2)
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 16.77 $ 11.90 $ 17.41 $ 17.11 $ 17.68
-------- -------- -------- -------- --------
Investment Operations:
Net Investment Income (Loss) (0.12) (0.06) (0.09) (0.16) 0.06
Net Gains (Losses) on Investments
(both realized and unrealized) 9.89 4.95 (2.67) 5.66 0.87
-------- -------- -------- -------- --------
Total From Investment Operations 9.77 4.89 (2.76) 5.50 0.93
-------- -------- -------- -------- --------
Less Distributions:
Dividends (from net investment income) -- -- -- (0.04) (0.07)
Distributions (from capital gains) (2.07) (0.02) (2.64) (5.16) (1.43)
Tax Return of Capital -- -- (0.11) -- --
-------- -------- -------- -------- --------
Total Distributions (2.07) (0.02) (2.75) (5.20) (1.50)
-------- -------- -------- -------- --------
Net Asset Value, End of Period $ 24.47 $ 16.77 $ 11.90 $ 17.41 $ 17.11
======== ======== ======== ======== ========
Total Return 62.07% 41.11% (18.66)% 45.66% 5.38%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 57,148 $ 32,203 $ 28,252 $ 35,647 $ 30,968
Ratio of Expenses to Average Net Assets 1.14% 1.14% 1.29% 1.34% 1.32%
Ratio of Net Income (Loss) to Average Net Assets (0.57)% (0.39)% (0.61)% (0.75)% 0.20%
Ratio of Expenses to Average Net Assets (excluding waivers) 1.14% 1.15% 1.43% 1.98% 1.79%
Ratio of Net Loss to Average Net Assets (excluding waivers) (0.57)% (0.40)% (0.75)% (1.39)% (0.27)%
Portfolio Turnover Rate 230% 110% 92% 109% 125%
------------------------------------------------------------------------------------------------------------------------------
</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. However, Piper
Small Company Growth Fund is the financial reporting survivor. Therefore, the
financial highlights for Small Cap Growth Fund prior to 7/31/98 represent the
financial highlights of Piper Small Company Growth Fund, adjusted to reflect
the conversion ratios utilized for the merger.
(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.
24 PROSPECTUS - First American Mid Cap and Small Cap Funds
Class A, Class B, and Class C Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
SMALL CAP GROWTH FUND (CONTINUED)
<TABLE>
<CAPTION>
Fiscal year
Period from ended
Fiscal year ended September 30, October 1, 1997 to September 30,
CLASS B SHARES(1) 2000 1999 1998(4) April 28, 1998(3) 1997(2)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 16.07 $ 11.50 $ 13.74 $ 9.54 $ 7.24
--------- --------- --------- --------- --------
Investment Operations:
Net Investment Loss (0.23) (0.14) (0.02) (0.09) (0.03)
Net Gains (Losses) on Investments
(both realized and unrealized) 9.40 4.73 (2.22) 0.42 2.33
--------- --------- --------- --------- --------
Total From Investment Operations 9.17 4.59 (2.24) 0.33 2.30
--------- --------- --------- --------- --------
Less Distributions:
Dividends (from net investment income) -- -- -- -- --
Distributions (from capital gains) (2.07) (0.02) -- (0.15) --
Tax Return of Capital -- -- -- (0.01) --
--------- --------- --------- --------- --------
Total Distributions (2.07) (0.02) -- (0.16) --
--------- --------- --------- --------- --------
Net Asset Value, End of Period $ 23.17 $ 16.07 $ 11.50 $ 9.71 $ 9.54
========= ========= ========= ========= ========
Total Return 60.95% 39.92% (16.30)% 3.61% 31.77%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 8,440 $ 2,217 $ 1,104 $ -- $ 480
Ratio of Expenses to Average Net Assets 1.89% 1.90% 1.90%(5) 2.03%(5) 1.98%(5)
Ratio of Net Loss to Average Net Assets (1.30)% (1.16)% (1.20)%(5) (1.30)%(5) (1.49)%(5)
Ratio of Expenses to Average Net Assets (excluding waivers) 1.89% 1.91% 1.90%(5) 2.40%(5) 2.15%(5)
Ratio of Net Loss to Average Net Assets (excluding waivers) (1.30)% (1.17)% (1.20)%(5) (1.67)%(5) (1.66)%(5)
Portfolio Turnover Rate 230% 110% 92% 56% 109%
------------------------------------------------------------------------------------------------------------------------------------
</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. However, Piper
Small Company Growth Fund is the financial reporting survivor. Therefore, the
financial highlights for Small Cap Growth Fund prior to 7/31/98 represent the
financial highlights of Piper Small Company Growth Fund, adjusted to reflect
the conversion ratios utilized for the merger.
(2)Class B shares of Piper Small Company Growth Fund were offered beginning
February 18, 1997.
(3)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.
(4)Class B shares of Small Cap Growth Fund have been offered since July 31,
1998.
(5)Annualized.
25 PROSPECTUS - First American Mid Cap and Small Cap Funds
Class A, Class B, and Class C Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
SMALL CAP GROWTH FUND (CONTINUED)
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS C SHARES 2000 1999(1)
----------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 16.68 $ 15.48
------- -------
Investment Operations:
Net Investment Loss (0.13) (0.08)
Net Gains (Losses) on Investments
(both realized and unrealized) 9.69 1.28
------- -------
Total From Investment Operations 9.56 1.20
------- -------
Less Distributions:
Dividends (from net investment income) -- --
Distributions (from capital gains) (2.07) --
------- -------
Total Distributions (2.07) --
------- -------
Net Asset Value, End of Period $ 24.17 $ 16.68
======= =======
Total Return 61.06% 7.75%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 8,205 $ 309
Ratio of Expenses to Average Net Assets 1.89% 1.90%(2)
Ratio of Net Loss to Average Net Assets (1.28)% (1.18)%(2)
Ratios of Expenses to Average Net Assets (excluding waivers) 1.89% 1.91%(2)
Ratio of Net Loss to Average Net Assets (excluding waivers) (1.28)% (1.19)%(2)
Portfolio Turnover Rate 230% 110%
----------------------------------------------------------------------------------------
</TABLE>
(1)Class C shares have been offered since February 1, 1999.
(2)Annualized.
26 PROSPECTUS - First American Mid Cap and Small Cap Funds
Class A, Class B, and Class C Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
SMALL CAP VALUE FUND
<TABLE>
<CAPTION>
Four months
ended
Fiscal year ended September 30, November 30, Fiscal year ended July 31,
CLASS A SHARES(1) 2000 1999 1998(2) 1997 1997 1996
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 13.94 $ 13.58 $ 18.20 $ 17.86 $ 13.95 $ 13.23
------- ------- ------- ------- ------- -------
Investment Operations:
Net Investment Income (Loss) (0.01) 0.01 0.04 (0.03) 0.01 0.04
Net Gains (Losses) on Investments
(both realized and unrealized) 3.23 1.47 (3.38) 0.37 5.43 1.83
------- ------- ------- ------- ------- -------
Total From Investment Operations 3.22 1.48 (3.34) 0.34 5.44 1.87
------- ------- ------- ------- ------- -------
Less Distributions:
Dividends (from net investment income) -- (0.01) (0.01) -- (0.01) (0.04)
Distributions (from capital gains) (0.07) (1.11) (1.27) -- (1.52) (1.11)
------- ------- ------- ------- ------- -------
Total Distributions (0.07) (1.12) (1.28) -- (1.53) (1.15)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period $ 17.09 $ 13.94 $ 13.58 $ 18.20 $ 17.86 $ 13.95
======= ======= ======= ======= ======= =======
Total Return 23.19% 11.12% (19.48)% 1.90% 41.71% 14.93%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $35,858 $11,567 $13,551 $19,194 $22,429 $10,247
Ratio of Expenses to Average Net Assets 1.14% 1.14% 1.13%(3) 1.37%(3) 1.31% 1.33%
Ratio of Net Income (Loss) to Average Net Assets (0.13)% (0.17)% 0.15%(3) (0.38)%(3) 0.01% 0.14%
Ratio of Expenses to Average Net Assets (excluding
waivers) 1.16% 1.14% 1.13%(3) 1.37%(3) 1.31% 1.33%
Ratio of Net Income (Loss) to Average Net Assets
(excluding waivers) (0.15)% (0.17)% 0.15%(3) (0.38)%(3) 0.01% 0.14%
Portfolio Turnover Rate 73% 44% 21% 3% 29% 34%
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Fiscal year ended
Fiscal year ended September 30, November 30,
CLASS B SHARES 2000 1999 1998(2) 1997(4)
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 13.77 $ 13.53 $ 18.23 $ 18.22
---------- --------- ---------- ---------
Investment Operations:
Net Investment Income (0.09) 0.02 0.01 --
Net Gains (Losses) on Investments
(both realized and unrealized) 3.15 1.33 (3.43) 0.01
---------- --------- ---------- ---------
Total From Investment Operations 3.06 1.35 (3.42) 0.01
---------- --------- ---------- ---------
Less Distributions:
Dividends (from net investment income) -- -- (0.01) --
Distributions (from capital gains) (0.07) (1.11) (1.27) --
---------- --------- ---------- ---------
Total Distributions (0.07) (1.11) (1.28) --
---------- --------- ---------- ---------
Net Asset Value, End of Period $ 16.76 $ 13.77 $ 13.53 $ 18.23
========== ========= ========== =========
Total Return 22.31% 10.16% (19.91)% 0.05%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 13,646 $ 1,005 $ 618 $ 1
Ratio of Expenses to Average Net Assets 1.88% 1.89% 1.88%(3) 1.90%(3)
Ratio of Net Loss to Average Net Assets (0.89)% (0.93)% (0.53)%(3) (1.53)%(3)
Ratio of Expenses to Average Net Assets (excluding waivers 1.90% 1.89% 1.88%(3) 1.90%(3)
Ratio of Net Loss to Average Net Assets (excluding waivers) (0.91)% (0.93)% (0.53)%(3) (1.53)%(3)
Portfolio Turnover Rate 73% 44% 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)Ten month period from December 1, 1997 to September 30, 1998.
(3)Annualized.
(4)Class B shares have been offered since November 24, 1997.
27 PROSPECTUS - First American Mid Cap and Small Cap Funds
Class A, Class B, and Class C Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
SMALL CAP VALUE FUND (CONTINUED)
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS C SHARES 2000 1999(1)
---------------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 13.87 $ 13.48
------- -------
Investment Operations:
Net Investment Income (0.06) 0.01
Net Gains (Losses) on Investments
(both realized and unrealized) 3.14 0.38
------- -------
Total From Investment Operations 3.08 0.39
------- -------
Less Distributions:
Dividends (from net investment income) -- --
Distributions (from capital gains) (0.07) --
------- --------
Total Distributions (0.07) --
------- --------
Net Asset Value, End of Period $ 16.88 $ 13.87
======= ========
Total Return 22.29% 2.89%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 1,099 $ 116
Ratio of Expenses to Average Net Assets 1.88% 1.89%(2)
Ratio of Net Loss to Average Net Assets (0.84)% (1.04)(2)
Ratios of Expenses to Average Net Assets (excluding waivers) 1.91% 1.89%(2)
Ratio of Net Loss to Average Net Assets (excluding waivers) (0.87)% (1.04)%(2)
Portfolio Turnover Rate 73% 44%
----------------------------------------------------------------------------------------------
</TABLE>
(1)Class C shares have been offered since February 1, 1999.
(2)Annualized.
28 PROSPECTUS - First American Mid Cap 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, and on the First
American funds' Internet Web site.
--------------------------------------------------------------------------------
FIRST AMERICAN FUNDS WEB SITE
Information about the First American funds may be viewed on the fund's Internet
Web site at http://www.firstamericanfunds.com.
--------------------------------------------------------------------------------
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 of this information, after paying a duplicating fee,
by electronic request at the following email address: [email protected], or by
writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. For
more information, call 1-202-942-8090.
Information about the funds is also available on the Internet. Text-only
versions of fund documents can be viewed online or downloaded from the EDGAR
Database on the SEC's Internet site at http://www.sec.gov.
FIRST AMERICAN FUNDS P.O. Box 1330, Minneapolis, MN 55440-1330
First American Asset Management, a division of U.S. Bank National Association,
serves as the investment advisor to the First American Funds.
First American Funds are distributed by SEI Investments Distribution Co. which
is located in Oaks, PA 19456 and is not an affiliate of U.S. Bank.
12/2000 PROMIDSMR-00
SEC file number: 811-05309
[LOGO] FIRST AMERICAN FUNDS(R)
THE POWER OF DISCIPLINED INVESTING(R)
<PAGE>
DECEMBER 30, 2000
ASSET CLASSES
(*) EQUITY FUNDS
* FUNDS OF FUNDS
* BOND FUNDS
* TAX FREE FUNDS
* MONEY MARKET FUNDS
PROSPECTUS
FIRST AMERICAN INVESTMENT FUNDS, INC.
FIRST AMERICAN
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
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.
[LOGO] FIRST AMERICAN FUNDS(R)
THE POWER OF DISCIPLINED INVESTING(R)
<PAGE>
Table of
CONTENTS
FUND SUMMARIES
--------------------------------------------------------------------------------
Mid Cap Growth Fund 2
--------------------------------------------------------------------------------
Mid Cap Value Fund 4
--------------------------------------------------------------------------------
Small Cap Growth Fund 6
--------------------------------------------------------------------------------
Small Cap Value Fund 8
--------------------------------------------------------------------------------
POLICIES & SERVICES
--------------------------------------------------------------------------------
Buying and Selling Shares 10
--------------------------------------------------------------------------------
Managing Your Investment 11
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
Management 12
--------------------------------------------------------------------------------
More About The Funds 13
--------------------------------------------------------------------------------
Financial Highlights 15
--------------------------------------------------------------------------------
FOR MORE INFORMATION Back Cover
--------------------------------------------------------------------------------
<PAGE>
Fund Summaries
INTRODUCTION
This section of the prospectus describes the objectives of the First American
Mid Cap and 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.
1 PROSPECTUS - First American Mid Cap 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 $316 million to $37.9 billion.
The advisor will select companies that it believes exhibit the potential for
superior growth based on factors such as:
* above average growth in revenue and earnings.
* strong competitive position.
* strong management.
* sound financial condition.
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.
--------------------------------------------------------------------------------
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 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.
RISKS OF INITIAL PUBLIC OFFERINGS (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.
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.
2 PROSPECTUS - First American Mid Cap 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),(2),(3)
[BAR CHART]
10.84% 55.02%
-------------------
1998 1999
Best Quarter: Quarter ending December 31, 1999 47.87%
Worst Quarter: Quarter ending September 30, 1998 (19.31)%
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99(2),(3) Date One Year Inception
--------------------------------------------------------------------------------
Mid Cap Growth Fund 2/18/97 55.02% 29.01%
--------------------------------------------------------------------------------
Russell Midcap Index(4) 18.23% 18.59%
--------------------------------------------------------------------------------
(1)Total return for the period from 1/1/00 through 9/30/00 was 19.63%.
(2)Mid Cap Growth Fund's 1999 returns were higher due in part to its strategy of
investing in IPOs in a period favorable for IPO investing. Of course, such
favorable returns involve accepting the risk of volatility, and there is no
assurance that the fund's future investment in IPOs will have the same effect
on performance as it did in 1999.
(3)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.
(4)An unmanaged index comprised of the 800 smallest securities in the Russell
1000 Index, which represent approximately 24% of the total market
capitalization of the investable U.S. equity market. The since inception
performance of the index is calculated from 2/28/97.
--------------------------------------------------------------------------------
FEES AND EXPENSES
The fund does not impose any sales charges (loads) or other fees when you buy,
sell or exchange shares. However, when you hold shares of the fund you
indirectly pay a portion of the fund's operating expenses. These expenses are
deducted from fund assets. The figures below are based on expenses during the
fiscal year ended September 30, 2000.(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 0.22%
TOTAL 0.92%
--------------------------------------------------------------------------------
(1)Actual expenses for the fiscal year were lower than those shown because of
voluntary fee waivers by the fund's advisor. The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 2000,
were:
Waiver of Fund Expenses (0.02)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 0.90%
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 $ 94
3 years $ 293
5 years $ 509
10 years $1,131
3 PROSPECTUS - First American Mid Cap 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 $316 million to $37.9 billion.
In selecting stocks, the fund's advisor invests in securities it believes:
* are undervalued relative to other securities in the same industry or market.
* exhibit good or improving fundamentals.
* 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.
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.
4 PROSPECTUS - First American Mid Cap 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(1)
[BAR CHART]
20.30% 32.34% 24.53% -12.96% -6.00%
-----------------------------------------------
1995 1996 1997 1998 1999
Best Quarter: Quarter ending June 30, 1997 17.97%
Worst Quarter: Quarter ending September 30, 1998 (30.80)%
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99 Date One Year Five Years Inception
--------------------------------------------------------------------------------
Mid Cap Value Fund 2/4/94 (6.00)% 10.16% 9.01%
--------------------------------------------------------------------------------
Russell Midcap Index(2) 18.23% 21.86% 17.76%
--------------------------------------------------------------------------------
(1)Total return for the period from 1/1/00 through 9/30/00 was 13.02%.
(2)An unmanaged index comprised of the 800 smallest securities in the Russell
1000 Index, which represent approximately 24% of the total market
capitalization of the investable U.S. equity market. The since inception
performance of the index is calculated from 2/28/94.
--------------------------------------------------------------------------------
FEES AND EXPENSES
The fund does not impose any sales charges (loads) or other fees when you buy,
sell or exchange shares. However, when you hold shares of the fund you
indirectly pay a portion of the fund's operating expenses. These expenses are
deducted from fund assets. The figures below are based on expenses during the
fiscal year ended September 30, 2000.(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 0.20%
TOTAL 0.94%
--------------------------------------------------------------------------------
(1)Actual expenses for the fiscal year were lower than those shown because of
voluntary fee waivers by the fund's advisor. The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 2000,
were:
Waiver of Fund Expenses (0.04)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 0.90%
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 $ 96
3 years $ 300
5 years $ 520
10 years $1,155
5 PROSPECTUS - First American Mid Cap 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
$25 million to $4.7 billion.
The advisor will select companies that it believes exhibit the potential for
superior growth based on factors such as:
* above average growth in revenue and earnings.
* strong competitive position.
* strong management.
* sound financial condition.
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.
--------------------------------------------------------------------------------
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 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.
RISKS OF INITIAL PUBLIC OFFERINGS (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.
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 presented.
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 Mid Cap 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(1),(2)
[BAR CHART]
67.21%
-------------
1999
Best Quarter: Quarter ending December 31, 1999 51.50%
Worst Quarter: Quarter ending September 30, 1998 (22.14)%
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99(2) Date One Year Inception
--------------------------------------------------------------------------------
Small Cap Growth Fund 7/31/98 67.21% 51.08%
--------------------------------------------------------------------------------
Russell 2000 Index(3) 21.26% 15.43%
--------------------------------------------------------------------------------
(1)Total return for the period from 1/1/00 through 9/30/00 was 7.32%.
(2)Small Cap Growth Fund's 1999 returns were higher due in part to its strategy
of investing in IPOs in a period favorable for IPO investing. Of course, such
favorable returns involve accepting the risk of volatility, and there is no
assurance that the fund's future investment in IPOs will have the same effect
on performance as it did in 1999.
(3)An unmanaged index comprised of the smallest 2000 companies in the Russell
3000 Index. The Russell 3000 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.
--------------------------------------------------------------------------------
FEES AND EXPENSES
The fund does not impose any sales charges (loads) or other fees when you buy,
sell or exchange shares. However, when you hold shares of the fund you
indirectly pay a portion of the fund's operating expenses. These expenses are
deducted from fund assets. The figures below are based on expenses during the
fiscal year ended September 30, 2000.(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 0.19%
TOTAL 0.89%
--------------------------------------------------------------------------------
(1)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
7 PROSPECTUS - First American Mid Cap 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
$25 million to $4.7 billion.
In selecting stocks, the fund's advisor invests in securities it believes:
* are undervalued relative to other securities in the same industry or market.
* exhibit good or improving fundamentals.
* 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.
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.
8 PROSPECTUS - First American Mid Cap 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),(2)
[BAR CHART]
-13.26% 61.17% 26.81% 22.80% 0.01% 47.33% 20.36% 20.37% -8.26% 6.24%
-------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Best Quarter: Quarter ending March 31, 1991 33.25%
Worst Quarter: Quarter ending September 30, 1998 (23.17)%
AVERAGE ANNUAL TOTAL RETURNS Inception
AS OF 12/31/99(2) Date One Year Five Years Ten Years
--------------------------------------------------------------------------------
Small Cap Value Fund 1/1/88 6.24% 15.78% 16.31%
--------------------------------------------------------------------------------
Russell 2000 Index(3) 21.26% 16.69% 13.40%
--------------------------------------------------------------------------------
(1)Total return for the period from 1/1/00 through 9/30/00 was 15.76%.
(2)Performance prior to 8/1/94 is that of Small Company Value Trust Fund, a
predecessor collective trust fund. On 8/1/94, substantially all of the assets
of Small Company Value Trust Fund were transferred into Qualivest Small
Companies Value Fund, a mutual fund registered under the Investment Company
Act of 1940. On 11/21/97, First American Small Cap Value Fund became the
successor by merger to Qualivest Small Companies Value Fund. The objectives,
policies, and guidelines of the predecessor funds were, in all material
respects, identical to those of Small Cap Value Fund. Performance prior to
11/21/97 is adjusted to reflect Small Cap Value Fund's Class Y share fees and
expenses, before any fee waivers. Small Company Value 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.
(3)An unmanaged index comprised of the smallest 2000 companies in the Russell
3000 Index. The Russell 3000 Index is composed of 3000 large U.S. companies
representing approximately 98% of the investable U.S. equity market.
--------------------------------------------------------------------------------
FEES AND EXPENSES
The fund does not impose any sales charges (loads) or other fees when you buy,
sell r exchange shares. However, when you hold shares of the fund you indirectly
pay a portion of the fund's operating expenses. These expenses are deducted from
fund assets. The figures below are based on expenses during the fiscal year
ended September 30, 2000.(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 0.21%
TOTAL 0.91%
--------------------------------------------------------------------------------
(1)Actual expenses for the fiscal year were lower than those shown because of
voluntary fee waivers by the fund's advisor. The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 2000,
were:
Waiver of Fund Expenses (0.02)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 0.89%
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 $ 93
3 years $ 290
5 years $ 504
10 years $1,120
9 PROSPECTUS - First American Mid Cap 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 investment professional 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.
To minimize the effect of large redemption requests, each fund reserves the
right to fulfill such redemption requests by distributing readily marketable
securities in the fund's portfolio, rather than paying you in cash. See
"Policies & Services -- Managing Your Investment, Redemption In-Kind."
--------------------------------------------------------------------------------
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 are 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.
10 PROSPECTUS - First American Mid Cap and Small Cap Funds
Class Y Shares
<PAGE>
Policies & Services
MANAGING YOUR INVESTMENT
--------------------------------------------------------------------------------
REDEMPTION IN-KIND
Generally, proceeds from redemption requests will be paid in cash. However, to
minimize the effect of large redemption requests on a fund and its remaining
shareholders, each fund reserves the right to pay part or all of the proceeds
from a redemption request in a proportionate share of readily marketable
securities in the fund instead of cash. In selecting securities for a redemption
in-kind, the advisor will consider the best interests of the fund and the
remaining fund shareholders, and will value these securities in accordance with
the pricing methods employed to calculate the fund's net asset value per share.
If you receive redemption proceeds in-kind, you should expect to incur
transaction costs upon disposition of the securities received in the redemption.
--------------------------------------------------------------------------------
STAYING INFORMED
SHAREHOLDER REPORTS. Shareholder reports are mailed twice a year, in November
and May. They include financial statements and performance information, and on
an annual basis, a message from your portfolio managers and 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 Investor Services at 1-800-637-2548.
STATEMENTS AND CONFIRMATIONS. Statements summarizing activity in your account
are mailed 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 contacting your financial institution. 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.
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.
If in redemption of his or her shares a shareholder receives a distribution of
readily marketable securities instead of cash, the shareholder will be treated
as receiving an amount equal to the fair market value of the securities at the
time of the distribution for purposes of determining capital gain or loss on the
redemption, and will also acquire a basis in the shares for federal income tax
purposes equal to their fair market value.
The exchange of one class of shares for another class of shares in the same fund
will not be taxable.
11 PROSPECTUS - First American Mid Cap and Small Cap Funds
Class Y Shares
<PAGE>
Additional Information
MANAGEMENT
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 September 30, 2000, it had more than $77 billion in assets under
management, including investment company assets of more than $33 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 the fiscal year ended September 30, 2000, 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
--------------------------------------------------------------------------------
MID CAP GROWTH FUND 0.68%
MID CAP VALUE FUND 0.66%
SMALL CAP GROWTH FUND 0.70%
SMALL CAP VALUE FUND 0.68%
--------------------------------------------------------------------------------
DIRECT CORRESPONDENCE TO:
First American Funds
P.O. Box 1330
Minneapolis, Minnesota 55440-1330
INVESTMENT ADVISOR
First American Asset Management
601 Second Avenue South
Minneapolis, Minnesota 55402
DISTRIBUTOR
SEI Investments Distribution Co.
Oaks, Pennsylvania 19456
PENDING ACQUISITION
On October 4, 2000, U.S. Bancorp, the parent company of the funds' investment
advisor, announced that it had entered into an agreement to be acquired by
Firstar Corporation. It is anticipated that this acquisition will be completed
in the first quarter of 2001, subject to regulatory approval, the approval of
U.S. Bancorp shareholders and the satisfaction of customary closing conditions.
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 all open-end funds in the First American family of
funds. These services include general administrative and accounting services,
transfer agency and dividend disbursing services, and shareholder services. U.S.
Bank receives total 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. These fees are allocated among the funds in the First American family
of funds on the basis of their relative net asset values. The funds also pay
U.S. Bank fees based upon the number of funds and accounts maintained. In
addition, U.S. Bank is reimbursed for its out-of-pocket expenses incurred while
providing administrative services to the funds.
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 these transactions.
SHAREHOLDER SERVICING FEES. To the extent that fund shares are held through U.S.
Bank or its broker-dealer affiliates, U.S. Bancorp Investments, Inc. and U.S.
Bancorp Piper Jaffray Inc., those entities may receive shareholder servicing
fees from the funds' distributor.
PORTFOLIO MANAGEMENT
Each fund's investments are managed by a team of persons associated with First
American Asset Management.
12 PROSPECTUS - First American Mid Cap 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%. For the
fiscal years ended September 30, 1998 through September 30, 2000, Mid Cap Value
Fund had portfolio turnover rates in excess of 100%. For the fiscal year ended
September 30, 2000, Mid Cap Growth Fund and Small Cap Growth Fund each had
portfolio turnover rates in excess of 200%. 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.
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.
13 PROSPECTUS - First American Mid Cap and Small Cap Funds
Class Y Shares
<PAGE>
Additional Information
MORE ABOUT THE FUNDS CONTINUED
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 INITIAL PUBLIC OFFERINGS (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.
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.
14 PROSPECTUS - First American Mid Cap and Small Cap Funds
Class Y Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
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 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 the fund, assuming you reinvested all of
your dividends and distributions.
The information for the fiscal years ended September 30, 2000 and September 30,
1999, has been derived from the financial statements 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 other auditors.
MID CAP GROWTH FUND(1)
<TABLE>
<CAPTION>
Fiscal year ended September 30,
2000 1999 1998 1997(2)
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 12.99 $ 11.87 $ 15.29 $ 12.54
-------- -------- -------- --------
Investment Operations:
Net Investment Loss (0.08) (0.03) (0.04) (0.01)
Net Gains (Losses) on Investments
(both realized and unrealized) 8.90 3.41 (1.82) 2.76
-------- -------- -------- --------
Total From Investment Operations 8.82 3.38 (1.86) 2.75
-------- -------- -------- --------
Less Distributions:
Dividends (from net investment income) -- -- -- --
Distributions (from capital gains) (2.67) (2.26) (1.56) --
-------- -------- -------- --------
Total Distributions (2.67) (2.26) (1.56) --
-------- -------- -------- --------
Net Asset Value, End of Period $ 19.14 $ 12.99 $ 11.87 $ 15.29
======== ======== ======== ========
Total Return 76.88% 31.97% (12.79)% 21.93%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $361,567 $211,527 $ 73,356 $ 59,393
Ratio of Expenses to Average Net Assets 0.90% 0.89% 0.87% 0.87%(3)
Ratio of Net Loss to Average Net Assets (0.46)% (0.25)% (0.27)% (0.16)%(3)
Ratio of Expenses to Average Net Assets (excluding waivers) 0.92% 0.96% 0.87% 0.87%(3)
Ratio of Net Loss to Average Net Assets (excluding waivers) (0.48)% (0.32)% (0.27)% (0.16)%(3)
Portfolio Turnover Rate 217% 94% 39% 51%
-------------------------------------------------------------------------------------------------------------------
</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. The financial
highlights for Mid Cap Growth Fund include the historical financial
highlights of Piper Emerging Growth Fund.
(2)Class Y shares of Piper Emerging Growth Fund were offered beginning February
18, 1997.
(3)Annualized.
15 PROSPECTUS - First American Mid Cap and Small Cap Funds
Class Y Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
MID CAP VALUE FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
2000 1999 1998 1997 1996
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 12.99 $ 15.05 $ 24.21 $ 20.43 $ 17.89
-------- -------- -------- -------- --------
Investment Operations:
Net Investment Income 0.11 0.12 0.14 0.16 0.25
Net Gains (Losses) on Investments
(both realized and unrealized) 1.69 1.30 (6.43) 6.98 3.95
-------- -------- -------- -------- --------
Total From Investment Operations 1.80 1.42 (6.29) 7.14 4.20
-------- -------- -------- -------- --------
Less Distributions:
Dividends (from net investment income) (0.11) (0.13) (0.13) (0.16) (0.24)
Distributions (from capital gains) -- (3.35) (2.74) (3.20) (1.42)
-------- -------- -------- -------- --------
Total Distributions (0.11) (3.48) (2.87) (3.36) (1.66)
-------- -------- -------- -------- --------
Net Asset Value, End of Period $ 14.68 $ 12.99 $ 15.05 $ 24.21 $ 20.43
======== ======== ======== ======== ========
Total Return 13.94% 8.47% (28.65)% 40.25% 25.61%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $275,128 $304,492 $418,041 $509,308 $247,828
Ratio of Expenses to Average Net Assets 0.90% 0.90% 0.89% 0.89% 0.88%
Ratio of Net Income to Average Net Assets 0.79% 0.89% 0.69% 0.82% 1.35%
Ratio of Expenses to Average Net Assets (excluding waivers) 0.94% 0.93% 0.89% 0.90% 0.88%
Ratio of Net Income to Average Net Assets
(excluding waivers) 0.75% 0.86% 0.69% 0.81% 1.35%
Portfolio Turnover Rate 141% 121% 135% 82% 143%
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
SMALL CAP GROWTH FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
2000 1999 1998(1)
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 16.92 $ 11.98 $ 14.29
-------- -------- --------
Investment Operations:
Net Investment Loss (0.06) (0.02) --
Net Gains (Losses) on Investments
(both realized and unrealized) 10.00 4.98 (2.31)
-------- -------- --------
Total From Investment Operations 9.94 4.96 (2.31)
-------- -------- --------
Less Distributions:
Dividends (from net investment income) -- -- --
Distributions (from capital gains) (2.07) (0.02) --
-------- -------- --------
Total Distributions (2.07) (0.02) --
-------- -------- --------
Net Asset Value, End of Period $ 24.79 $ 16.92 $ 11.98
======== ======== ========
Total Return 62.58% 41.42% (16.17)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $478,975 $248,679 $113,874
Ratio of Expenses to Average Net Assets 0.89% 0.90% 0.90%(2)
Ratio of Net Loss to Average Net Assets (0.30)% (0.16)% (0.20)%(2)
Ratio of Expenses to Average Net Assets (excluding waivers) 0.89% 0.91% 0.90%(2)
Ratio of Net Loss to Average Net Assets (excluding waivers) (0.30)% (0.17)% (0.20)%(2)
Portfolio Turnover Rate 230% 110% 92%
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Class Y shares have been offered since July 31, 1998.
(2)Annualized.
16 PROSPECTUS - First American Mid Cap and Small Cap Funds
Class Y Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
SMALL CAP VALUE FUND(1)
<TABLE>
<CAPTION>
Four months
ended
Fiscal year ended September 30, November 30, Fiscal year ended July 31,
2000 1999 1998(3) 1997 1997 1996
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 13.98 $ 13.60 $ 18.23 $ 17.87 $ 13.96 $ 13.26
-------- -------- -------- -------- -------- --------
Investment Operations:
Net Investment Income (Loss) 0.02 0.01 0.06 (0.01) 0.04 0.06
Net Gains (Losses) on Investments
(both realized and unrealized) 3.26 1.50 (3.38) 0.37 5.43 1.81
-------- -------- -------- -------- -------- --------
Total From Investment Operations 3.28 1.51 (3.32) 0.36 5.47 1.87
-------- -------- -------- -------- -------- --------
Less Distributions:
Dividends (from net investment income) -- (0.02) (0.04) -- (0.04) (0.06)
Distributions (from capital gains) (0.07) (1.11) (1.27) -- (1.52) (1.11)
-------- -------- -------- -------- -------- --------
Total Distributions (0.07) (1.13) (1.31) -- (1.56) (1.17)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period $ 17.19 $ 13.98 $ 13.60 $ 18.23 $ 17.87 $ 13.96
======== ======== ======== ======== ======== ========
Total Return 23.56% 11.36% (19.31)% 2.01% 41.96% 14.94%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $431,906 $319,752 $367,035 $461,046 $449,988 $297,793
Ratio of Expenses to Average Net Assets 0.89% 0.89% 0.88%(2) 1.06%(2) 1.06% 1.08%
Ratio of Net Income (Loss) to Average Net Assets 0.11% 0.08% 0.40%(2) (0.06)%(2) 0.25% 0.41%
Ratio of Expenses to Average Net Assets (excluding
waivers) 0.91% 0.89% 0.88%(2) 1.06%(2) 1.06% 1.08%
Ratio of Net Income (Loss) to Average Net Assets
(excluding waivers) 0.09% 0.08% 0.40%(2) (0.06)%(2) 0.25% 0.41%
Portfolio Turnover Rate 73% 44% 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.
(3)Ten month period for December 1, 1997 to September 30, 1998.
17 PROSPECTUS - First American Mid Cap 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 of this information, after paying a duplicating fee,
by electronic request at the following email address: [email protected], or by
writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. For
more information, call 1-202-942-8090.
Information about the funds is also available on the Internet. Text-only
versions of fund documents can be viewed online or downloaded from the EDGAR
Database on the SEC's Internet site at http://www.sec.gov.
FIRST AMERICAN FUNDS P.O. Box 1330, Minneapolis, MN 55440-1330
First American Asset Management, a division of U.S. Bank National Association,
serves as the investment advisor to the First American Funds.
First American Funds are distributed by SEI Investments Distribution Co. which
is located in Oaks, PA 19456 and is not an affiliate of U.S. Bank.
12/2000 PROMIDSMY-00
SEC file number: 811-05309
[LOGO] FIRST AMERICAN FUNDS(R)
THE POWER OF DISCIPLINED INVESTING(R)
<PAGE>
DECEMBER 30, 2000
ASSET CLASSES
(*) EQUITY FUNDS
* FUNDS OF FUNDS
* BOND FUNDS
* TAX FREE FUNDS
* MONEY MARKET FUNDS
PROSPECTUS
FIRST AMERICAN INVESTMENT FUNDS, INC.
FIRST AMERICAN
INTERNATIONAL
FUNDS
CLASS A, CLASS B,
AND CLASS C SHARES
EMERGING MARKETS FUND
INTERNATIONAL FUND
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.
[LOGO] FIRST AMERICAN FUNDS(R)
THE POWER OF DISCIPLINED INVESTING(R)
<PAGE>
Table of
CONTENTS
FUND SUMMARIES
--------------------------------------------------------------------------------
Emerging Markets Fund 2
--------------------------------------------------------------------------------
International Fund 5
--------------------------------------------------------------------------------
POLICIES & SERVICES
--------------------------------------------------------------------------------
Buying Shares 8
--------------------------------------------------------------------------------
Selling Shares 12
--------------------------------------------------------------------------------
Managing Your Investment 13
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
Management 15
--------------------------------------------------------------------------------
More About The Funds 16
--------------------------------------------------------------------------------
Financial Highlights 18
--------------------------------------------------------------------------------
FOR MORE INFORMATION Back Cover
--------------------------------------------------------------------------------
<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.
1 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 of emerging markets issuers.
Normally, the fund will invest in securities of issuers from 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:
* those that have an emerging stock market (as defined by the International
Financial Corporation).
* those with low- to middle-income economies (according to the World Bank).
* those listed in World Bank publications as "developing."
A company is considered to be an emerging markets issuer if any of the following
apply:
* its securities are principally traded in an emerging market (including Hong
Kong and Singapore).
* it derives at least 50% of its total revenue from goods produced, sales made
or services performed in emerging markets countries (including Hong Kong and
Singapore).
* it maintains 50% or more of its assets in one or more emerging markets
countries (including Hong Kong and Singapore).
* it is organized under the laws of, or has a principal office in, an emerging
markets country (including Hong Kong and Singapore).
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.
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
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 were, 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. 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.
2 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),(2)
[BAR CHART]
-18.10% -21.77% 29.31% -1.27% -30.08% 60.16%
----------------------------------------------------------
1994 1995 1996 1997 1998 1999
Best Quarter: Quarter ending December 31, 1999 49.04%
Worst Quarter: Quarter ending March 31, 1995 (30.83)%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Inception Since Inception Since Inception
AS OF 12/31/99(2) Date One Year Five Years (Class A) (Class B)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Emerging Markets Fund (Class A) 11/9/93 51.73% 1.17% (0.67)% N/A
-----------------------------------------------------------------------------------------------------------
Emerging Markets Fund (Class B) 8/7/98 54.24% N/A N/A 22.30%
Morgan Stanley Capital International
-----------------------------------------------------------------------------------------------------------
Emerging Markets Free Index(3) 66.41% 2.00% 2.94% 73.70%
-----------------------------------------------------------------------------------------------------------
</TABLE>
(1)Total return for the period from 1/1/00 through 9/30/00 was (15.76)%.
(2)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.
(3)An unmanaged index of securities from emerging markets that are open to
foreign investors. 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.
3 PROSPECTUS - First American International Funds
Class A, Class B, and Class C Shares
<PAGE>
Fund Summaries
EMERGING MARKETS FUND CONTINUED
--------------------------------------------------------------------------------
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,
2000.(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 MAINTENANCE FEE(4)
ONLY CHARGED TO ACCOUNTS WITH BALANCES BELOW $500 $ 25 $ 25 $ 25
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 0.39% 0.41% 0.39%
TOTAL 1.89% 2.66% 2.64%
--------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 2000,
were:
<TABLE>
<S> <C> <C> <C>
Waiver of Fund Expenses (0.19)% (0.21)% (0.19)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 1.70% 2.45% 2.45%
</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."
(4)The fund reserves the right to charge your account an annual maintenance fee
of $25 if your balance falls below $500 as a result of selling or exchanging
shares. See "Policies & Services -- Selling Shares, Accounts with Low
Balances."
--------------------------------------------------------------------------------
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 redemption assuming no redemption assuming redemption assuming no redemption
CLASS A at end of each period at end of each period at end of each period at end of each period
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 year $ 707 $ 769 $ 269 $ 464 $ 364
3 years $1,088 $1,226 $ 826 $ 912 $ 912
5 years $1,493 $1,610 $1,410 $1,486 $1,486
10 years $2,620 $2,807 $2,807 $3,044 $3,044
</TABLE>
4 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:
* that are domiciled in countries other than the United States, or
* 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.
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
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 were, 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. 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 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)
[BAR CHART]
9.08% 7.84% 16.63% 25.86% 83.18%
----------------------------------------------
1995 1996 1997 1998 1999
Best Quarter: Quarter ending December 31, 1999 61.51%
Worst Quarter: Quarter ending September 30, 1998 (14.10)%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Inception Since Inception Since Inception
AS OF 12/31/99 Date One Year Five Years (Class A) (Class B)
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
International Fund (Class A) 4/7/94 73.61% 24.56% 19.59% N/A
-------------------------------------------------------------------------------------------------------------
International Fund (Class B) 8/15/94 76.62% 24.74% N/A 20.61%
-------------------------------------------------------------------------------------------------------------
Morgan Stanley Capital International
Europe, Australasia, Far East Index(2) 26.96% 12.83% 11.23% 11.10%
-------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Total return for the period from 1/1/00 through 9/30/00 was (22.83)%.
(2)An unmanaged index including approximately 1,100 companies representing the
stock markets of 20 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.
6 PROSPECTUS - First American International Funds
Class A, Class B, and Class C Shares
<PAGE>
Fund Summaries
INTERNATIONAL FUND CONTINUED
--------------------------------------------------------------------------------
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,
2000.(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 MAINTENANCE FEE(4)
ONLY CHARGED TO ACCOUNTS WITH BALANCES BELOW $500 $ 25 $ 25 $ 25
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 0.26% 0.26% 0.26%
TOTAL 1.76% 2.51% 2.51%
-------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 2000,
were:
<TABLE>
<S> <C> <C> <C>
Waiver of Fund Expenses (0.16)% (0.16)% (0.16)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 1.60% 2.35% 2.35%
</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."
(4)The fund reserves the right to charge your account an annual maintenance fee
of $25 if your balance falls below $500 as a result of selling or exchanging
shares. See "Policies & Services -- Selling Shares, Accounts with Low
Balances."
--------------------------------------------------------------------------------
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 redemption assuming no redemption assuming redemption assuming no redemption
CLASS A at end of each period at end of each period at end of each period at end of each period
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 year $ 694 $ 754 $ 254 $ 452 $ 352
3 years $1,050 $1,182 $ 782 $ 874 $ 874
5 years $1,429 $1,535 $1,335 $1,422 $1,422
10 years $2,489 $2,662 $2,662 $2,917 $2,917
</TABLE>
7 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:
* a front-end sales charge, described below.
* 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:
* orders for Class B shares for $250,000 or more will be treated as orders for
Class A shares.
* orders for Class C shares for $1 million or more will be treated as orders
for Class A shares.
* orders for Class B or Class C shares by an investor eligible to purchase
Class A shares without a front-end sales charge 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, Class B shares do have:
* higher annual expenses than Class A shares. See "Fund Summaries -- Fees and
Expenses."
* a back-end sales charge, called a "contingent deferred sales charge," if you
redeem your shares within six years of purchase.
* 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:
* a 1% contingent deferred sales charge if you redeem your shares within 18
months of purchase.
* higher annual expenses than Class A shares. See "Fund Summaries -- Fees and
Expenses."
* 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 0.75% is a distribution fee.
The funds' distributor uses the shareholder servicing fee to compensate
investment professionals, participating institutions and "one-stop" mutual fund
networks (institutions) for providing ongoing services to shareholder accounts.
These institutions receive shareholder servicing 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 net asset value sales of Class A shares on which
the institution receives a commission, the institution does not begin to receive
its shareholder servicing 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 funds'
distributor retains the Class B share 0.75% annual distribution fee in order to
finance the payment of sales commissions to institutions which sell Class B
shares. See "Buying Shares -- Class B Shares." The advisor or the distributor
may pay additional fees to institutions out of their own assets in exchange for
sales and/or administrative services performed on behalf of the institution's
customers.
8 PROSPECTUS - First American International Funds
Class A, Class B, and Class C Shares
<PAGE>
Policies & Services
BUYING SHARES CONTINUED
--------------------------------------------------------------------------------
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 for Class A shares 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
investment professional 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%
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. That is, you will receive credit for either the original purchase
price or the current net asset value of the other Class A shares you hold at the
time of your purchase, whichever is greater. For example, let's say you're
making a $10,000 investment and you already own other First American fund Class
A shares that you purchased for $25,000, but are now valued at $45,000. Since
the current net asset value of your shares is greater than their purchase price,
you will receive credit for their current value and your sales charge will be
based on a total purchase amount of $55,000. To receive a reduced sales charge,
you must notify the fund of your prior purchases. This must be done at the time
of purchase, either directly with the fund in writing or by notifying your
investment professional or financial institution.
PURCHASES BY RELATED ACCOUNTS. Concurrent and prior purchases of Class A shares
of any First American fund 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 of purchases by any related
accounts. This must be done at the time of purchase, either directly with the
funds in writing or by notifying your investment professional 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 investment professional 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 investment professional 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:
* redemptions following the death or disability (as defined in the Internal
Revenue Code) of a shareholder.
* 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.
* 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.
9 PROSPECTUS - First American International Funds
Class A, Class B, and Class C Shares
<PAGE>
Policies & Services
BUYING SHARES CONTINUED
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 4.35%
of the amount invested to investment professionals 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 and any related shares acquired by reinvesting your dividend
or capital gain distributions 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, 2001, they will convert to Class A
shares on June 1, 2009.
The CDSC will be waived for:
* redemptions following the death or disability (as defined in the Internal
Revenue Code) of a shareholder.
* 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 701/2.
* 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 investment professional or
participating institution. Additionally, the advisor may pay its affiliated
broker-dealer, U.S. Bancorp Piper Jaffray Inc., an additional commission of up
to 3% of your purchase price. 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 net
asset value 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 investment professional 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 investment professional 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 investment professional 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 investment professional or financial institution for more information.
If you are paying by wire, you may purchase shares by calling Investor Services
at 1-800-637-2548 before the close of regular trading on the New York Stock
Exchange (usually 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, account number and fund name)
You cannot purchase shares by wire on days when federally chartered banks are
closed.
10 PROSPECTUS - First American International Funds
Class A, Class B, and Class C Shares
<PAGE>
Policies & Services
BUYING SHARES CONTINUED
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:
* all purchases must be made in U.S. dollars.
* third-party checks, credit cards, credit card checks, and cash are not
accepted.
* 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:
* by having $100 or more ($25 for a retirement plan or a Uniform Gifts to
Minors Act/Uniform Transfers to Minors Act account) automatically withdrawn
from your bank account on a periodic basis and invested in fund shares.
* 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
investment professional or financial institution or by calling Investor Services
at 1-800-637-2548.
11 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 net asset value calculated after your order is accepted by the fund,
less any applicable contingent deferred sales charge. Be sure to read the
section "Buying Shares" for a description of contingent deferred sales charges.
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 three days,
but in no event more than seven days, after your request is received in proper
form.
To minimize the effect of large redemption requests, each fund reserves the
right to fulfill these redemption requests by distributing readily marketable
securities in the fund's portfolio, rather than paying you in cash. See
"Policies & Services -- Managing Your Investment, Redemption In-Kind."
BY PHONE. If you purchased shares through an investment professional or
financial institution, simply call them to sell your shares. In many cases, your
redemption will be effective that day if received by your investment
professional 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
investment professional or financial institution time to process your request
and transmit it to the fund. Contact your investment professional or financial
institution directly for more information.
If you did not purchase shares through an investment professional or financial
institution, you may sell your shares by calling Investor Services at
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 fund) or sent to you by check. The funds reserve the right
to limit telephone exchanges to $50,000 per day.
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 15 calendar days
from the date of purchase.
BY MAIL. To sell shares by mail, send a written request to your investment
professional or financial institution, or to the funds 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:
* name of the fund.
* account number.
* dollar amount or number of shares redeemed.
* name on the account.
* signatures of all registered account owners.
Signatures on a written request must be guaranteed if:
* you would like the proceeds from the sale to be paid to anyone other than to
the shareholder of record.
* you would like the check mailed to an address other than the address on the
funds' records.
* 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 unless
another form of payment is requested.
--------------------------------------------------------------------------------
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 investment professional 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 of a First American fund, 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 fund directly in writing or notify your
investment professional or financial institution.
--------------------------------------------------------------------------------
ACCOUNTS WITH LOW BALANCES
Except for retirement plans and Uniform Gifts to Minors Act/Uniform Transfers
to Minors Act accounts, if your account balance falls below $500 as a result
of selling or exchanging shares, the fund reserves the right to either:
* deduct a $25 annual account maintenance fee, or
* close your account and send you the proceeds, less any applicable
contingent deferred sales charge.
Before taking any action, however, the fund will send you written notice of
the action it intends to take and give you 30 days to re-establish a minimum
account balance of $500.
12 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. If both funds have identical shareholder registration, you may
exchange shares by calling your investment professional, your financial
institution, or by calling the funds directly. To request an exchange through
the funds, call Investor Services at 1-800-637-2548. Your instructions must be
received before 3 p.m. Central time, or by the time specified by your investment
professional 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.
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.
--------------------------------------------------------------------------------
REDEMPTION IN-KIND
Generally, proceeds from redemption requests will be paid in cash. However, to
minimize the effect of large redemption requests on a fund and its remaining
shareholders, each fund reserves the right to pay part or all of the proceeds
from a redemption request in a proportionate share of readily marketable
securities in the fund instead of in cash. In selecting securities for a
redemption in-kind, the advisor will consider the best interests of the fund and
the remaining fund shareholders, and will value these securities in accordance
with the pricing methods employed to calculate the fund's net asset value per
share. If you receive redemption proceeds in-kind, you should expect to incur
transaction costs upon the disposition of the securities received in the
redemption.
13 PROSPECTUS - First American International Funds
Class A, Class B, and Class C Shares
<PAGE>
Policies & Services
MANAGING YOUR INVESTMENT CONTINUED
--------------------------------------------------------------------------------
STAYING INFORMED
SHAREHOLDER REPORTS. Shareholder reports are mailed twice a year, in November
and May. They include financial statements and performance information, and on
an annual basis, a message from your portfolio managers and 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 Investor Services at 1-800-637-2548.
STATEMENTS AND CONFIRMATIONS. Statements summarizing activity in your account
are mailed 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
annually. 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, your investment
professional or your financial institution. 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.
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.
If in redemption of his or her shares a shareholder receives a distribution of
readily marketable securities instead of cash, the shareholder will be treated
as receiving an amount equal to the fair market value of the securities at the
time of the distribution for purposes of determining capital gain or loss on the
redemption, and will also acquire a basis in the shares for federal income tax
purposes equal to their fair market value.
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.
14 PROSPECTUS - First American International Funds
Class A, Class B, and Class C Shares
<PAGE>
Additional Information
MANAGEMENT
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 September 30, 2000, it had more than $77 billion in assets under
management, including investment company assets of more than $33 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 the fiscal year ended September 30, 2000, 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 1.06%
INTERNATIONAL FUND 1.09%
--------------------------------------------------------------------------------
DIRECT CORRESPONDENCE TO:
First American Funds
P.O. Box 1330
Minneapolis, Minnesota 55440-1330
INVESTMENT ADVISOR
First American Asset Management
601 Second Avenue South
Minneapolis, Minnesota 55402
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 September 30, 2000,
the sub-advisor managed a total of approximately $10.2 billion in investments.
DISTRIBUTOR
SEI Investments Distribution Co.
Oaks, Pennsylvania 19456
PENDING ACQUISITION
On October 4, 2000, U.S. Bancorp, the parent company of the funds' investment
advisor, announced that it had entered into an agreement to be acquired by
Firstar Corporation. It is anticipated that this acquisition will be completed
in the first quarter of 2001, subject to regulatory approval, the approval of
U.S. Bancorp shareholders and the satisfaction of customary closing conditions.
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 all open-end funds in the First American family of
funds. These services include general administrative and accounting services,
transfer agency and dividend disbursing services, and shareholder services. U.S.
Bank receives total 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. These fees are allocated among the funds in the First American family
of funds on the basis of their relative net asset values. The funds also pay
U.S. Bank fees based upon the number of funds and accounts maintained. In
addition, U.S. Bank is reimbursed for its out-of-pocket expenses incurred while
providing administrative services to the funds.
SECURITIES LENDING SERVICES. In connection with its lending of portfolio
securities, International Fund pays administrative and custodial fees to U.S.
Bank which are equal to 40% of the fund's 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 these transactions.
SHAREHOLDER SERVICING FEES. To the extent that fund shares are held through U.S.
Bank or its broker-dealer affiliates, U.S. Bancorp Investments, Inc. and U.S.
Bancorp Piper Jaffray Inc., those entities may receive shareholder servicing
fees from the funds' distributor.
PORTFOLIO MANAGEMENT
Each fund's investments are managed by a team of persons associated with Marvin
& Palmer.
15 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. Fund managers may trade securities frequently, resulting,
from time to time in an annual portfolio turnover rate of over 100%. With the
exception of Emerging Markets Fund for the fiscal year ended September 30, 1998,
the Funds have each had portfolio turnover rates near or in excess of 100% for
the last five fiscal years. 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.
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.
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 investment professionals 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 investment professionals 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.
16 PROSPECTUS - First American International Funds
Class A, Class B, and Class C Shares
<PAGE>
Additional Information
MORE ABOUT THE FUNDS CONTINUED
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. Each fund is actively managed and its performance
therefore will reflect in part the sub-advisor's ability to make investment
decisions which are suited to achieving the funds' investment objectives. Due to
their active management, the funds could underperform other mutual funds with
similar investment objectives.
RISKS OF SECURITIES LENDING. When International 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
fund enters into loan arrangements only with institutions which the fund's
advisor has determined are creditworthy under guidelines established by the
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.
17 PROSPECTUS - First American International Funds
Class A, Class B, and Class C Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
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 the fund,
excluding sales charges and assuming you reinvested all of your dividends and
distributions.
The information for the fiscal years ended September 30, 2000 and September 30,
1999, has been derived from the financial statements 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 other auditors.
EMERGING MARKETS FUND(1)
<TABLE>
<CAPTION>
Fiscal year ended
Fiscal year ended September 30, June 30,
CLASS A SHARES 2000 1999(2) 1998 1997 1996(3) 1996
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 6.77 $ 5.61 $ 10.96 $ 8.85 $ 8.84 $ 7.20
------- ------- ------- ------- ------- -------
Investment Operations:
Net Investment Income (Loss) (0.06) (0.04) (0.15) 0.02 0.01 0.01
Net Gains (Losses) on Investments
(both realized and unrealized) 1.79 1.20 (5.18) 2.10 -- 1.63
------- ------- ------- ------- ------- -------
Total From Investment Operations 1.73 1.16 (5.33) 2.12 0.01 1.64
------- ------- ------- ------- ------- -------
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 $ 8.50 $ 6.77 $ 5.61 $ 10.96 $ 8.85 $ 8.84
======= ======= ======= ======= ======= =======
Total Return 25.55% 20.68% (48.91)% 23.91% 0.11% 22.78%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 4,338 $ 4,551 $ 5,384 $16,998 $13,772 $13,936
Ratio of Expenses to Average Net Assets 1.70% 1.70% 1.96% 2.00% 2.00%(4) 2.00%
Ratio of Net Income (Loss) to Average Net Assets (0.70)% (0.54)% (1.09)% 0.17% 0.26%(4) 0.26%
Ratio of Expenses to Average Net Assets (excluding waivers) 1.89% 2.02% 3.43% 3.34% 4.09%(4) 3.54%
Ratio of Net Loss to Average Net Assets (excluding waivers) (0.89)% (0.86)% (2.56)% (1.17)% (1.83)%(4) (1.28)%
Portfolio Turnover Rate 149% 138% 48% 105% 0% 140%
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)On 8/7/98, the Emerging Markets Fund became the successor by merger to the
Piper Emerging Markets Growth Fund, a series of Piper Global Funds Inc. Prior
to the merger, the First American fund had no assets or liabilities. In
connection with the merger, the fund's sub-advisor changed from Edinburgh
Fund Managers plc to Marvin & Palmer Associates, Inc.
(2)Per share data for 1999 is calculated using the average shares outstanding
method.
(3)For the three month period from July 1, 1996 to September 30, 1996.
(4)Annualized.
18 PROSPECTUS - First American International Funds
Class A, Class B, and Class C Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
EMERGING MARKETS FUND(1) (CONTINUED)
<TABLE>
<CAPTION>
Period from
October 1, 1997 Fiscal year ended
Fiscal year ended September 30, to April 28, September 30,
CLASS B SHARES 2000 1999(2) 1998(3) 1998(4) 1997(5)
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 6.72 $ 5.60 $ 7.27 $10.86 $10.13
------ ------ ------ ------ ------
Investment Operations:
Net Investment Loss (0.11) (0.08) -- (0.08) --
Net Gains (Losses) on Investments
(both realized and unrealized) 1.76 1.20 (1.67) (1.07) 0.73
------ ------ ------ ------ ------
Total From Investment Operations 1.65 1.12 (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 $ 8.37 $ 6.72 $ 5.60 $ 9.69 $10.86
====== ====== ====== ====== ======
Total Return 24.55% 20.00% (22.97)% (10.59)% 7.21%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 107 $ 13 $ 1 $ -- $ 310
Ratio of Expenses to Average Net Assets 2.45% 2.45% 2.46%(6) 2.76%(6) 2.64%(6)
Ratio of Net Income (Loss) to Average Net Assets (1.21)% (1.19)% (0.43)%(6) (2.24)%(6) 0.03%(6)
Ratio of Expenses to Average Net Assets (excluding waivers) 2.66% 2.72% 4.30%(6) 4.12%(6) 3.39%(6)
Ratio of Net Loss to Average Net Assets (excluding waivers) (1.42)% (1.46)% (2.27)%(6) (3.60)%(6) (0.72)%(6)
Portfolio Turnover Rate 149% 138% 48% 34% 105%
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)On 8/7/98, the Emerging Markets Fund became the successor by merger to the
Piper Emerging Markets Growth Fund, a series of Piper Global Funds Inc. Prior
to the merger, the First American fund had no assets or liabilities. In
connection with the merger, the fund's sub-advisor changed from Edinburgh
Fund Managers plc to Marvin & Palmer Associates, Inc.
(2)Per share data for 1999 is calculated using the average shares outstanding
method.
(3)Class B shares of Emerging Markets Fund have been offered since August 7,
1998.
(4)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.
(5)Class B shares of Piper Emerging Markets Growth Fund were offered beginning
February 18, 1997.
(6)Annualized.
19 PROSPECTUS - First American International Funds
Class A, Class B, and Class C Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
EMERGING MARKETS FUND (CONTINUED)
<TABLE>
<CAPTION>
Fiscal year ended
September 30,
CLASS C SHARES 2000(1)
----------------------------------------------------------------------------------------
<S> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 9.96
------
Investment Operations:
Net Investment Income (Loss) (0.06)
Net Gains (Losses) on Investments
(both realized and unrealized) (1.44)
------
Total From Investment Operations (1.50)
------
Less Distributions:
Dividends (from net investment income) --
Distributions (from capital gains) --
------
Total Distributions --
------
Net Asset Value, End of Period $ 8.46
======
Total Return (15.06)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 4
Ratio of Expenses to Average Net Assets 2.45%
Ratio of Net Loss to Average Net Assets (0.99)%
Ratio of Expenses to Average Net Assets (excluding waivers) 2.64%
Ratio of Net Loss to Average Net Assets (excluding waivers) (1.18)%
Portfolio Turnover Rate 149%
-----------------------------------------------------------------------------------
</TABLE>
(1)Class C shares have been offered since February 1, 2000.
20 PROSPECTUS - First American International Funds
Class A, Class B, and Class C Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
INTERNATIONAL FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS A SHARES 2000 1999(1) 1998 1997 1996
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 15.64 $ 12.55 $ 13.18 $ 10.28 $ 10.28
------- ------- ------- ------- -------
Investment Operations:
Net Investment Income (Loss) (0.12) (0.10) 0.06 0.01 (0.02)
Net Gains (Losses) on Investments
(both realized and unrealized) 3.95 3.97 0.02 3.04 0.20
------- ------- ------- ------- -------
Total From Investment Operations 3.83 3.87 0.08 3.05 0.18
------- ------- ------- ------- -------
Less Distributions:
Dividends (from net investment income) -- (0.06)(2) (0.46)(2) (0.15)(2) (0.18)(2)
Distributions (from capital gains) (0.95) (0.72) (0.25) -- --
------- ------- ------- ------- -------
Total Distributions (0.95) (0.78) (0.71) (0.15) (0.18)
------- ------- ------- ------- -------
Net Asset Value, End of Period $ 18.52 $ 15.64 $ 12.55 $ 13.18 $ 10.28
======= ======= ======= ======= =======
Total Return 24.63% 32.16% 1.11% 30.03% 1.84%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $90,223 $48,154 $40,204 $ 8,003 $ 1,964
Ratio of Expenses to Average Net Assets 1.60% 1.60% 1.69% 1.92% 1.97%
Ratio of Net Income (Loss) to Average Net Assets (0.57)% (0.71)% 0.13% (0.09)% (0.28)%
Ratio of Expenses to Average Net Assets (excluding waivers) 1.76% 1.76% 1.81% 1.92% 1.97%
Ratio of Net Income (Loss) to Average Net Assets
(excluding waivers) (0.73)% (0.87)% 0.01% (0.09)% (0.28)%
Portfolio Turnover Rate 152% 150% 102% 96% 100%
-------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Fiscal year ended September 30,
CLASS B SHARES 2000 1999(1) 1998 1997 1996
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 15.21 $ 12.27 $ 12.97 $ 10.14 $ 10.20
------- ------- ------- ------- -------
Investment Operations:
Net Investment Loss (0.26) (0.20) (0.07) (0.08) (0.07)
Net Gains (Losses) on Investments
(both realized and unrealized) 3.85 3.86 0.03 3.01 0.17
------- ------- ------- ------- -------
Total From Investment Operations 3.59 3.66 (0.04) 2.93 0.10
------- ------- ------- ------- -------
Less Distributions:
Dividends (from net investment income) -- -- (0.41)(2) (0.10)(2) (0.16)(2)
Distributions (from capital gains) (0.95) (0.72) (0.25) -- --
------- ------- ------- ------- -------
Total Distributions (0.95) (0.72) (0.66) (0.10) (0.16)
------- ------- ------- ------- -------
Net Asset Value, End of Period $ 17.85 $ 15.21 $ 12.27 $ 12.97 $ 10.14
======= ======= ======= ======= =======
Total Return 23.71% 31.06% 0.13% 29.13% 1.02%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $13,500 $ 4,338 $ 2,892 $ 2,188 $ 1,175
Ratio of Expenses to Average Net Assets 2.35% 2.35% 2.44% 2.67% 2.72%
Ratio of Net Loss to Average Net Assets (1.26)% (1.46)% (0.64)% (0.94)% (0.96)%
Ratio of Expenses to Average Net Assets (excluding waivers) 2.51% 2.51% 2.56% 2.67% 2.72%
Ratio of Net Loss to Average Net Assets (excluding waivers) (1.42)% (1.62)% (0.76)% (0.94)% (0.96)%
Portfolio Turnover Rate 152% 150% 102% 96% 100%
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Per share data for 1999 is calculated using the average shares outstanding
method.
(2)Includes a distribution or partial distribution in excess of net investment
income due to the tax treatment of foreign currency related transactions.
21 PROSPECTUS - First American International Funds
Class A, Class B, and Class C Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
INTERNATIONAL FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS C SHARES 2000 1999(1),(2)
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 15.57 $ 14.32
------- -------
Investment Operations:
Net Investment Income (0.23) (0.12)
Net Gains (Losses) on Investments
(both realized and unrealized) 3.91 1.37
------- -------
Total From Investment Operations 3.68 1.25
------- -------
Less Distributions:
Dividends (from net investment income) -- --
Distributions (from capital gains) (0.95) --
------- -------
Total Distributions (0.95) --
------- -------
Net Asset Value, End of Period $ 18.30 $ 15.57
======= =======
Total Return 23.74% 8.73%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $22,451 $ 1,009
Ratio of Expenses to Average Net Assets 2.35% 2.35%(3)
Ratio of Net Loss to Average Net Assets (1.15)% (1.22)%(3)
Ratio of Expenses to Average Net Assets (excluding waivers) 2.51% 2.53%(3)
Ratio of Net Loss to Average Net Assets (excluding waivers) (1.31)% (1.40)%(3)
Portfolio Turnover Rate 152% 150%
---------------------------------------------------------------------------------------------------------
</TABLE>
(1)Class C shares have been offered since February 1, 1999.
(2)Per share data for 1999 is calculated using the average shares outstanding
method.
(3)Annualized.
22 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, annual and semiannual reports, and on the First American
funds' Internet Web site.
--------------------------------------------------------------------------------
FIRST AMERICAN FUNDS WEB SITE
Information about the First American funds may be viewed on the funds' Internet
Web site at http://www.firstamericanfunds.com.
--------------------------------------------------------------------------------
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 of this information, after paying a duplicating fee,
by electronic request at the following email address: [email protected], or by
writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. For
more information, call 1-202-942-8090.
Information about the funds is also available on the Internet. Text-only
versions of fund documents can be viewed online or downloaded from the EDGAR
Database on the SEC's Internet site at http://www.sec.gov.
FIRST AMERICAN FUNDS P.O. Box 1330, Minneapolis, MN 55448-1330
First American Asset Management, a division of U.S. Bank National Association,
serves as the investment advisor to the First American Funds.
First American Funds are distributed by SEI Investments Distribution Co. which
is located in Oaks, PA 19456 and is not an affiliate of U.S. Bank.
12/2000 PROINTLR-00
SEC file number: 811-05309
[LOGO] FIRST AMERICAN FUNDS(R)
THE POWER OF DISCIPLINED INVESTING(R)
<PAGE>
DECEMBER 30, 2000
ASSET CLASSES
(*) EQUITY FUNDS
* FUNDS OF FUNDS
* BOND FUNDS
* TAX FREE FUNDS
* MONEY MARKET FUNDS
PROSPECTUS
FIRST AMERICAN INVESTMENT FUNDS, INC.
FIRST AMERICAN
INTERNATIONAL
FUNDS
CLASS Y SHARES
EMERGING MARKETS FUND
INTERNATIONAL FUND
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.
[LOGO] FIRST AMERICAN FUNDS(R)
THE POWER OF DISCIPLINED INVESTING(R)
<PAGE>
Table of
CONTENTS
FUND SUMMARIES
--------------------------------------------------------------------------------
Emerging Markets Fund 2
--------------------------------------------------------------------------------
International Fund 4
--------------------------------------------------------------------------------
POLICIES & SERVICES
--------------------------------------------------------------------------------
Buying and Selling Shares 6
--------------------------------------------------------------------------------
Managing Your Investment 7
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
Management 8
--------------------------------------------------------------------------------
More About The Funds 9
--------------------------------------------------------------------------------
Financial Highlights 11
--------------------------------------------------------------------------------
FOR MORE INFORMATION Back Cover
--------------------------------------------------------------------------------
<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.
1 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 of emerging markets issuers.
Normally, the fund will invest in securities of issuers from 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:
* those that have an emerging stock market (as defined by the International
Financial Corporation).
* those with low- to middle-income economies (according to the World Bank).
* those listed in World Bank publications as "developing."
A company is considered to be an emerging markets issuer if any of the
following apply:
* its securities are principally traded in an emerging market (including Hong
Kong and Singapore).
* it derives at least 50% of its total revenue from goods produced, sales made
or services performed in emerging markets countries (including Hong Kong and
Singapore).
* it maintains 50% or more of its assets in one or more emerging markets
countries (including Hong Kong and Singapore).
* it is organized under the laws of, or has a principal office in, an emerging
markets country (including Hong Kong and Singapore).
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.
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
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 presented.
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.
2 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(1)
[BAR CHART]
60.70%
------------
1999
Best Quarter: Quarter ending December 31, 1999 49.12%
Worst Quarter: Quarter ending September 30, 1999 (10.41)%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99 Date One Year Inception
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Emerging Markets Fund 8/7/98 60.70% 26.83%
----------------------------------------------------------------------------------------------------
Morgan Stanley Capital International Emerging Markets Free Index(2) 66.41% 73.70%
----------------------------------------------------------------------------------------------------
</TABLE>
(1)Total return for the period from 1/1/00 through 9/30/00 was (15.58)%.
(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 8/31/98.
--------------------------------------------------------------------------------
FEES AND EXPENSES
The fund does not impose any sales charges (loads) or other fees when you buy,
sell or exchange shares. However, when you hold shares of the fund you
indirectly pay a portion of the fund's operating expenses. These expenses are
deducted from fund assets. The figures below are based on expenses during the
fiscal year ended September 30, 2000.(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 0.39%
TOTAL 1.64%
--------------------------------------------------------------------------------
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 2000,
were:
Waiver of Fund Expenses (0.19)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 1.45%
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 $ 167
3 years $ 517
5 years $ 892
10 years $1,944
3 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:
* that are domiciled in countries other than the United States, or
* 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.
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
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.
4 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)
[BAR CHART]
9.36% 8.13% 16.79% 26.11% 83.40%
-------------------------------------------
1995 1996 1997 1998 1999
Best Quarter: Quarter ending December 31, 1999 61.60%
Worst Quarter: Quarter ending September 30, 1998 (14.16)%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99 Date One Year Five Years Inception
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
International Fund 4/4/94 83.40% 26.14% 20.84%
-----------------------------------------------------------------------------------------------------------
Morgan Stanley Capital International Europe, Australasia,
Far East Index(2) 26.96% 12.83% 11.23%
-----------------------------------------------------------------------------------------------------------
</TABLE>
(1)Total return for the period from 1/1/00 through 9/30/00 was (22.68)%.
(2)An unmanaged index including approximately 1,100 companies representing the
stock markets of 20 European countries, Australia, New Zealand, Japan, Hong
Kong and Singapore. The since inception performance of the index is
calculated from 4/30/94.
--------------------------------------------------------------------------------
FEES AND EXPENSES
The fund does not impose any sales charges (loads) or other fees when you buy,
sell or exchange shares. However, when you hold shares of the fund you
indirectly pay a portion of the fund's operating expenses. These expenses are
deducted from fund assets. The figures below are based on expenses during the
fiscal year ended September 30, 2000.(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 0.26%
TOTAL 1.51%
--------------------------------------------------------------------------------
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 2000,
were:
Waiver of Fund Expenses (0.16)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 1.35%
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 $ 154
3 years $ 477
5 years $ 824
10 years $1,802
5 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 investment professional 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.
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.
To minimize the effect of large redemption requests, each fund reserves the
right to fulfill these redemption requests by distributing readily marketable
securities in the fund's portfolio, rather than paying you in cash. See
"Policies & Services -- Managing Your Investment, Redempthion In-Kind."
--------------------------------------------------------------------------------
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 are 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.
6 PROSPECTUS - First American International Funds
Class Y Shares
<PAGE>
Policies & Services
MANAGING YOUR INVESTMENT
--------------------------------------------------------------------------------
REDEMPTION IN-KIND
Generally, proceeds from redemption requests will be paid in cash. However, to
minimize the effect of large redemption requests on a fund and its remaining
shareholders, each fund reserves the right to pay part or all of the proceeds
from a redemption request in a proportionate share of readily marketable
securities in the fund instead of cash. In selecting securities for a redemption
in-kind, the advisor will consider the best interests of the fund and the
remaining fund shareholders, and will value these securities in accordance with
the pricing methods employed to calculate the fund's net asset value per share.
If you receive redemption proceeds in-kind, you should expect to incur
transaction costs upon disposition of the securities received in the redemption.
--------------------------------------------------------------------------------
STAYING INFORMED
SHAREHOLDER REPORTS. Shareholder reports are mailed twice a year, in November
and May. They include financial statements and performance information, and on
an annual basis, a message from your portfolio managers and 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 Investor Services at 1-800-637-2548.
STATEMENTS AND CONFIRMATIONS. Statements summarizing activity in your account
are mailed 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
annually. 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 contacting your financial institution. 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.
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.
If in redemption of his or her shares a shareholder receives a distribution of
readily marketable securities instead of cash, the shareholder will be treated
as receiving an amount equal to the fair market value of the securities at the
time of the distribution for purposes of determining capital gain or loss on the
redemption, and will also acquire a basis in the shares for federal income tax
purposes equal to their fair market value.
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.
7 PROSPECTUS - First American International Funds
Class Y Shares
<PAGE>
Additional Information
MANAGEMENT
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 September 30, 2000, it had more than $77 billion in assets under
management, including investment company assets of more than $33 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 the fiscal year ended September 30, 2000, 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 1.06%
INTERNATIONAL FUND 1.09%
--------------------------------------------------------------------------------
DIRECT CORRESPONDENCE TO:
First American Funds
P.O. Box 1330
Minneapolis, Minnesota 55440-1330
INVESTMENT ADVISOR
First American Asset Management
601 Second Avenue South
Minneapolis, Minnesota 55402
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 September 30, 2000,
the sub-advisor managed a total of approximately $10.2 billion in investments.
DISTRIBUTOR
SEI Investments Distribution Co.
Oaks, Pennsylvania 19456
PENDING ACQUISITION
On October 4, 2000, U.S. Bancorp, the parent company of the funds' investment
advisor, announced that it had entered into an agreement to be acquired by
Firstar Corporation. It is anticipated that this acquisition will be completed
in the first quarter of 2001, subject to regulatory approval, the approval of
U.S. Bancorp shareholders and the satisfaction of customary closing conditions.
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.
ADMINISTRATIVE SERVICES. U.S. Bank provides or compensates others to provide
administrative services to all open-end funds in the First American family of
funds. These services include general administrative and accounting services,
transfer agency and dividend disbursing services, and shareholder services. U.S.
Bank receives total 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. These fees are allocated among the funds in the First American family
of funds on the basis of their relative net asset values. The funds also pay
U.S. Bank fees based upon the number of funds and accounts maintained. In
addition, U.S. Bank is reimbursed for its out-of-pocket expenses incurred while
providing administrative services to the funds.
SECURITIES LENDING SERVICES. In connection with lending its portfolio
securities, International Fund pays administrative and custodial fees to U.S.
Bank which are equal to 40% of the fund's 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 these transactions.
SHAREHOLDER SERVICING FEES. To the extent that fund shares are held through U.S.
Bank or its broker-dealer affiliates, U.S. Bancorp Investments, Inc. and U.S.
Bancorp Piper Jaffray Inc., those entities may receive shareholder servicing
fees from the funds' distributor.
PORTFOLIO MANAGEMENT
Each fund's investments are managed by a team of persons associated with Marvin
& Palmer.
8 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. Fund managers may trade securities frequently, resulting,
from time to time in an annual portfolio turnover rate of over 100%. With the
exception of Emerging Markets Fund for the fiscal year ended September 30, 1998,
the Funds have each had portfolio turnover rates near or in excess of 100% for
the last five fiscal years. 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.
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.
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 investment professionals 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 investment professionals 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.
9 PROSPECTUS - First American International Funds
Class Y Shares
<PAGE>
Additional Information
MORE ABOUT THE FUNDS CONTINUED
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. Each fund is actively managed and its performance
therefore will reflect in part the sub-advisor's ability to make investment
decisions which are suited to achieving the funds' investment objectives. Due to
their active management, the funds could underperform other mutual funds with
similar investment objectives.
RISKS OF SECURITIES LENDING. When International 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 fund's
advisor has determined are creditworthy under guidelines established by the
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.
10 PROSPECTUS - First American International Funds
Class Y Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
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 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 the fund, assuming you reinvested all of
your dividends and distributions.
The information for the fiscal years ended September 30, 2000 and September 30,
1999, has been derived from the financial statements 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 other auditors.
EMERGING MARKETS FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
2000 1999(3) 1998(1)
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 6.80 $ 5.62 $ 7.27
------- ------- -------
Investment Operations:
Net Investment Income (Loss) (0.04) (0.02) 0.01
Net Gains (Losses) on Investments
(both realized and unrealized) 1.79 1.20 (1.66)
------- ------- -------
Total From Investment Operations 1.75 1.18 (1.65)
------- ------- -------
Less Distributions:
Dividends (from net investment income) -- -- --
Distributions (from capital gains) -- -- --
------- ------- -------
Total Distributions -- -- --
------- ------- -------
Net Asset Value, End of Period $ 8.55 $ 6.80 $ 5.62
======= ======= =======
Total Return 25.74% 21.00% (22.70)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $55,753 $40,255 $ 7,444
Ratio of Expenses to Average Net Assets 1.45% 1.45% 1.46%(2)
Ratio of Net Income (Loss) to Average Net Assets (0.42)% (0.35)% 0.83%(2)
Ratio of Expenses to Average Net Assets (excluding waivers) 1.64% 1.73% 3.30%(2)
Ratio of Net Loss to Average Net Assets (excluding waivers) (0.61)% (0.63) (1.01)%(2)
Portfolio Turnover Rate 149% 138% 48%
-----------------------------------------------------------------------------------------------
</TABLE>
(1)Class Y shares have been offered since August 7, 1998.
(2)Annualized.
(3)Per share data for 1999 is calculated using the average shares outstanding
method.
11 PROSPECTUS - First American International Funds
Class Y Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
INTERNATIONAL FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
2000 1999(1) 1998 1997 1996
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 15.65 $ 12.55 $ 13.23 $ 10.31 $ 10.30
-------- -------- -------- -------- --------
Investment Operations:
Net Investment Income (Loss) (0.08) (0.06) 0.07 0.03 (0.01)
Net Gains (Losses) on Investments
(both realized and unrealized) 3.96 3.95 0.01 3.06 0.22
-------- -------- -------- -------- --------
Total From Investment Operations 3.88 3.89 0.08 3.09 0.21
-------- -------- -------- -------- --------
Less Distributions:
Dividends (from net investment income) -- (0.07)(2) (0.51)(2) (0.17)(2) (0.20)(2)
Distributions (from capital gains) (0.95) (0.72) (0.25) -- --
-------- -------- -------- -------- --------
Total Distributions (0.95) (0.79) (0.76) (0.17) (0.20)
-------- -------- -------- -------- --------
Net Asset Value, End of Period $ 18.58 $ 15.65 $ 12.55 $ 13.23 $ 10.31
======== ======== ======== ======== ========
Total Return 24.95% 32.40% 1.15% 30.38% 2.11%
RATIO/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $675,604 $504,081 $357,475 $217,414 $135,238
Ratio of Expenses to Average Net Assets 1.35% 1.35% 1.44 1.67% 1.72%
Ratio of Net Income (Loss) to Average Net Assets (0.38)% (0.44)% 0.42 0.06% (0.06)%
Ratio of Expenses to Average Net Assets (excluding waivers) 1.51% 1.51% 1.56 1.67% 1.72%
Ratio of Net Income (Loss) to Average Net Assets
(excluding waivers) (0.54)% (0.60)% 0.30 0.06% (0.06)%
Portfolio Turnover Rate 152% 150% 102% 96% 100%
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Per share data for 1999 is calculated using the average shares outstanding
method.
(2)Includes a distribution or partial distribution in excess of net investment
income due to the tax treatment of foreign currency related transactions.
12 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 of this information, after paying a duplicating fee,
by electronic request at the following email address: [email protected], or by
writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. For
more information, call 1-202-942-8090.
Information about the funds is also available on the Internet. Text-only
versions of fund documents can be viewed online or downloaded from the EDGAR
Database on the SEC's Internet site at http://www.sec.gov.
FIRST AMERICAN FUNDS P.O. Box 1300, Minneapolis, MN 55440-1300
First American Asset Management, a division of U.S. Bank National Association,
serves as the investment advisor to the First American Funds.
First American Funds are distributed by SEI Investments Distribution Co. which
is located in Oaks, PA 19456 and is not an affiliate of U.S. Bank.
12/2000 PROINTLY-00
SEC file number: 811-05309
[LOGO] FIRST AMERICAN FUNDS(R)
THE POWER OF DISCIPLINED INVESTING(R)
<PAGE>
DECEMBER 30, 2000
ASSET CLASSES
(*) EQUITY FUNDS
* FUNDS OF FUNDS
* BOND FUNDS
* TAX FREE FUNDS
* MONEY MARKET FUNDS
PROSPECTUS
FIRST AMERICAN INVESTMENT FUNDS, INC.
FIRST AMERICAN
SECTOR
FUNDS
CLASS A, CLASS B,
AND CLASS C SHARES
HEALTH SCIENCES FUND
REAL ESTATE SECURITIES FUND
TECHNOLOGY FUND
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.
[LOGO] FIRST AMERICAN FUNDS(R)
THE POWER OF DISCIPLINED INVESTING(R)
<PAGE>
Table of
CONTENTS
FUND SUMMARIES
--------------------------------------------------------------------------------
Health Sciences Fund 3
--------------------------------------------------------------------------------
Real Estate Securities Fund 6
--------------------------------------------------------------------------------
Technology Fund 8
--------------------------------------------------------------------------------
POLICIES & SERVICES
--------------------------------------------------------------------------------
Buying Shares 11
--------------------------------------------------------------------------------
Selling Shares 15
--------------------------------------------------------------------------------
Managing Your Investment 16
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
Management 18
--------------------------------------------------------------------------------
More About The Funds 19
--------------------------------------------------------------------------------
Financial Highlights 21
--------------------------------------------------------------------------------
FOR MORE INFORMATION Back Cover
--------------------------------------------------------------------------------
<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.
1 PROSPECTUS - First American Sector Funds
Class A, Class B, and Class C Shares
<PAGE>
THIS PAGE WAS INTENTIONALLY LEFT BLANK.
2
<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:
* pharmaceuticals.
* health care services and administration.
* diagnostics.
* medical equipment and supplies.
* medical technology.
* 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.
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.
--------------------------------------------------------------------------------
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 REAL ESTATE INVESTMENT TRUSTS (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.
RISKS OF INITIAL PUBLIC OFFERINGS (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.
3 PROSPECTUS - First American Sector Funds
Class A, Class B, and Class C Shares
<PAGE>
Fund Summaries
HEALTH SCIENCES FUND CONTINUED
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 were, 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 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.
4 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(1)
[BAR CHART]
16.14% -6.94% -1.32%
--------------------------------------------------------------------------------
1997 1998 1999
Best Quarter: Quarter ending December 31, 1998 17.93%
Worst Quarter: Quarter ending September 30, 1998 (22.34)%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Inception Since Inception Since Inception
AS OF 12/31/99 Date One Year (Class A) (Class B)
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Health Sciences Fund (Class A) 1/31/96 (6.52)% 0.15% N/A
-------------------------------------------------------------------------------------------------
Health Sciences Fund (Class B) 1/31/96 (6.70)% N/A 0.17%
-------------------------------------------------------------------------------------------------
S & P Health Care Composite Index(2) (8.15)% 21.96% 21.96%
-------------------------------------------------------------------------------------------------
</TABLE>
(1)Total return for the period from 1/1/00 through 9/30/00 was 47.57%.
(2)An unmanaged index comprised of health care stocks in the S & P 500 (an
unmanaged index of large capitalization stocks). The since inception
performance of the index is calculated from 1/31/96.
--------------------------------------------------------------------------------
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,
2000.(1)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SHAREHOLDER FEES CLASS A CLASS B CLASS 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 MAINTENANCE FEE(4)
ONLY CHARGED TO ACCOUNTS WITH BALANCES BELOW $500 $ 25 $ 25 $ 25
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 0.51% 0.51% 0.51%
TOTAL 1.46% 2.21% 2.21%
-------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 2000,
were:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Waiver of Fund Expenses (0.29)% (0.29)% (0.29)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 1.17% 1.92% 1.92%
</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."
(4)The fund reserves the right to charge your account an annual maintenance fee
of $25 if your balance falls below $500 as a result of selling or exchanging
shares. See "Policies & Services -- Selling Shares, Accounts with Low
Balances."
--------------------------------------------------------------------------------
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 redemption assuming no redemption assuming redemption assuming no redemption
CLASS A at end of each period at end of each period at end of each period at end of each period
--------- ----------------------- ------------------------ ----------------------- -----------------------
<S> <C> <C> <C> <C> <C>
1 year $ 666 $ 724 $ 224 $ 422 $ 322
3 years $ 962 $1,091 $ 691 $ 784 $ 784
5 years $1,281 $1,385 $1,185 $1,273 $1,273
10 years $2,180 $2,352 $2,352 $2,619 $2,619
</TABLE>
5 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:
* 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.
* mortgage REITs, which invest the majority of their assets in real estate
mortgage loans and derive their income primarily from interest payments.
* 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:
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.
RISKS OF REAL ESTATE INVESTMENT TRUSTS (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 were, 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 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
REAL ESTATE SECURITIES FUND CONTINUED
--------------------------------------------------------------------------------
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR(1)
[BAR CHART]
30.63% 19.21% -16.16% -3.91%
--------------------------------------------------------------------------------
1996 1997 1998 1999
Best Quarter: Quarter ending December 31, 1996 16.59%
Worst Quarter: Quarter ending September 30, 1998 (9.78)%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Inception Since Inception Since Inception
AS OF 12/31/99 Date One Year (Class A) (Class B)
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Real Estate Securities Fund (Class A) 9/29/95 (8.99)% 5.48% N/A
-------------------------------------------------------------------------------------------------
Real Estate Securities Fund (Class B) 9/29/95 (9.08)% N/A 5.57%
-------------------------------------------------------------------------------------------------
Morgan Stanley REIT Index(2) (4.55)% 7.58% 7.02%
-------------------------------------------------------------------------------------------------
</TABLE>
(1)Total return for the period from 1/1/00 through 9/30/00 was 27.54%.
(2)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.
--------------------------------------------------------------------------------
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,
2000.(1)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SHAREHOLDER FEES CLASS A CLASS B CLASS 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 MAINTENANCE FEE(4)
ONLY CHARGED TO ACCOUNTS WITH BALANCES BELOW $500 $ 25 $ 25 $ 25
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 0.29% 0.29% 0.29%
TOTAL 1.24% 1.99% 1.99%
--------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 2000,
were:
<TABLE>
<S> <C> <C> <C>
Waiver of Fund Expenses (0.19)% (0.19)% (0.19)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 1.05% 1.80% 1.80%
</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."
(4)The fund reserves the right to charge your account an annual maintenance fee
of $25 if your balance falls below $500 as a result of selling or exchanging
shares. See "Polices & Services -- Selling Shares, Accounts with Low
Balances."
--------------------------------------------------------------------------------
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 redemption assuming no redemption assuming redemption assuming no redemption
CLASS A at end of each period at end of each period at end of each period at end of each period
--------- ----------------------- ------------------------ ----------------------- -----------------------
<S> <C> <C> <C> <C> <C>
1 year $ 645 $ 702 $ 202 $ 400 $ 300
3 years $ 898 $1,024 $ 624 $ 718 $ 718
5 years $1,170 $1,273 $1,073 $1,162 $1,162
10 years $1,946 $2,123 $2,123 $2,394 $2,394
</TABLE>
7 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:
* inexpensive computing power, such as personal computers.
* improved methods of communications, such as satellite transmission.
* 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.
--------------------------------------------------------------------------------
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 INITIAL PUBLIC OFFERINGS (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.
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.
8 PROSPECTUS - First American Sector Funds
Class A, Class B, and Class C Shares
<PAGE>
Fund Summaries
TECHNOLOGY FUND CONTINUED
--------------------------------------------------------------------------------
FUND PERFORMANCE
Illustrations below 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 were, 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 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.
--------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR(1),(2)
[BAR CHART]
40.93% 22.12% 6.91% 32.47% 191.79%
--------------------------------------------------------------------------------
1995 1996 1997 1998 1999
Best Quarter: Quarter ending December 31, 1999 80.60%
Worst Quarter: Quarter ending September 30, 1998 (18.20)%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
AS OF 12/31/99(2) Inception Since Inception Since Inception
Date One Year Five Years (Class A) (Class B)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Technology Fund (Class A) 4/4/94 176.52% 46.46% 45.04% N/A
------------------------------------------------------------------------------------------------------------
Technology Fund (Class B) 8/15/94 184.69% 46.87% N/A 49.45%
------------------------------------------------------------------------------------------------------------
S & P Technology Composite Index(3) 75.21% 50.76% 47.34% 47.88%
------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Total return for the period from 1/1/00 to 9/30/00 was (0.27)%.
(2)Technology Fund's 1999 returns were primarily achieved buying IPOs and
technology related stocks in a period favorable for these investments. Of
course, such favorable returns involve accepting the risk of volatility, and
there is no assurance that the fund's future investment in IPOs and
technology stocks will have the same effect on performance as it did in 1999.
(3)An unmanaged index comprised of technology stocks in the S & P 500 (an
unmanaged index of large capitalization stocks). 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.
9 PROSPECTUS - First American Sector Funds
Class A, Class B, and Class C Shares
<PAGE>
Fund Summaries
TECHNOLOGY FUND CONTINUED
--------------------------------------------------------------------------------
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,
2000.(1)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SHAREHOLDER FEES CLASS A CLASS B CLASS 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 MAINTENANCE FEE(4)
ONLY CHARGED TO ACCOUNTS WITH BALANCES BELOW $500
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 0.20% 0.20% 0.20%
TOTAL 1.15% 1.90% 1.90%
------------------------------------------------------------------------------------------------------------
</TABLE>
(1)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."
(4)The fund reserves the right to charge your account an annual maintenance fee
of $25 if your balance falls below $500 as a result of selling or exchanging
shares.
See "Policies & Services -- Selling Shares, Accounts with Low Balances."
--------------------------------------------------------------------------------
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 redemption assuming no redemption assuming redemption assuming no redemption
CLASS A at end of each period at end of each period at end of each period at end of 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>
10 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:
* a front-end sales charge, described below.
* 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:
* orders for Class B shares for $250,000 or more will be treated as orders for
Class A shares.
* orders for Class C shares for $1 million or more will be treated as orders
for Class A shares.
* orders for Class B or Class C shares by an investor eligible to purchase
Class A shares without a front-end sales charge 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, Class B shares do have:
* higher annual expenses than Class A shares. See "Fund Summaries -- Fees and
Expenses."
* a back-end sales charge, called a "contingent deferred sales charge," if you
redeem your shares within six years of purchase.
* 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:
* a 1% contingent deferred sales charge if you redeem your shares within 18
months of purchase.
* higher annual expenses than Class A shares. See "Fund Summaries -- Fees and
Expenses."
* 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 0.75% is a distribution fee.
The funds' distributor uses the shareholder servicing fee to compensate
investment professionals, participating institutions, and "one-stop" mutual fund
networks (institutions) for providing ongoing services to shareholder accounts.
These institutions receive shareholder servicing 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 net asset value sales of Class A shares on which
the institution receives a commission, the institution does not begin to receive
its shareholder servicing 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 funds'
distributor retains the Class B share 0.75% annual distribution fee in order to
finance the payment of sales commissions to institutions which sell Class B
shares. See "Buying Shares -- Class B shares." The advisor or the distributor
may pay additional fees to institutions out of their own assets in exchange for
sales and/or administrative services performed on behalf of the institution's
customers.
11 PROSPECTUS - First American Sector Funds
Class A, Class B, and Class C Shares
<PAGE>
Policies & Services
BUYING SHARES CONTINUED
--------------------------------------------------------------------------------
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 for Class A shares 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
investment professional 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%
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. That is, you will receive credit for either the original purchase
price or the current net asset value of the other Class A shares you hold at the
time of your purchase, whichever is greater. For example, let's say you're
making a $10,000 investment and you already own other First American fund Class
A shares that you purchased for $25,000, but are now valued at $45,000. Since
the current net asset value of your shares is greater than their purchase price,
you will receive credit for their current value and your sales charge will be
based on a total purchase amount of $55,000. To receive a reduced sales charge,
you must notify the fund of your prior purchases. This must be done at the time
of purchase, either directly with the fund in writing or by notifying your
investment professional or financial institution.
PURCHASES BY RELATED ACCOUNTS. Concurrent and prior purchases of Class A shares
of any First American fund 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 of purchases by any related
accounts. This must be done at the time of purchase, either directly with the
funds in writing or by notifying your investment professional 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 investment professional 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 investment professional 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:
* redemptions following the death or disability (as defined in the Internal
Revenue Code) of a shareholder.
* 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 701/2.
* 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 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
12 PROSPECTUS - First American Sector Funds
Class A, Class B, and Class C Shares
<PAGE>
Policies & Services
BUYING SHARES CONTINUED
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 4.35%
of the amount invested to investment professionals 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 and any related shares acquired by reinvesting your dividend
or capital gain distributions 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, 2001, they will convert to Class A
shares on June 1, 2009.
The CDSC will be waived for:
* redemptions following the death or disability (as defined in the Internal
Revenue Code) of a shareholder.
* 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 701/2.
* 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 investment professional or
participating institution. Additionally, the advisor may pay its affiliated
broker-dealer, U.S. Bancorp Piper Jaffray Inc., an additional commission of up
to 3% of your purchase price. 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 net
asset value 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 investment professional 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 investment professional 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 investment professional 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 investment professional or financial institution for more information.
If you are paying by wire, you may purchase shares by calling Investor Services
at 1-800-637-2548 before the close of regular trading on the New York Stock
Exchange (usually 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, account number and fund name)
You cannot purchase shares by wire on days when federally chartered banks are
closed.
13 PROSPECTUS - First American Sector Funds
Class A, Class B, and Class C Shares
<PAGE>
Policies & Services
BUYING SHARES CONTINUED
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:
* all purchases must be made in U.S. dollars.
* third party checks, credit cards, credit card checks, and cash are not
accepted.
* 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:
* by having $100 or more ($25 for a retirement plan or a Uniform Gifts to
Minors Act/Uniform Transfers to Minors Act account) automatically withdrawn
from your bank account on a periodic basis and invested in fund shares.
* 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
investment professional or financial institution or by calling Investor Services
at 1-800-637-2548.
14 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 net asset value calculated after your order is accepted by the fund
less any applicable contingent deferred sales charge. Be sure to read the
section "Buying Shares" for a description of contingent deferred sales charges.
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 three days,
but in no event more than seven days, after your request is received in proper
form.
To minimize the effect of large redemption requests, each fund reserves the
right to fulfill these redemption requests by distributing readily marketable
securities in the fund's portfolio, rather than paying you in cash. See
"Policies & Services -- Managing Your Investment, Redemption In-Kind."
BY PHONE. If you purchased shares through an investment professional or
financial institution, simply call them to sell your shares. In many cases, your
redemption will be effective that day if received by your investment
professional 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
investment professional or financial institution time to process your request
and transmit it to the fund. Contact your investment professional or financial
institution directly for more information.
If you did not purchase shares through an investment professional or financial
institution, you may sell your shares by calling Investor Services at
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 fund) or sent to you by check. The funds reserve the right to limit
telephone exchanges to $50,000 per day.
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 15 calendar days
from the date of purchase.
BY MAIL. To sell shares by mail, send a written request to your investment
professional or financial institution, or to the fund 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:
* name of the fund.
* account number.
* dollar amount or number of shares redeemed.
* name on the account.
* signatures of all registered account owner.
Signatures on a written request must be guaranteed if:
* you would like the proceeds from the sale to be paid to anyone other than to
the shareholder of record.
* you would like the check mailed to an address other than the address on the
funds' records.
* 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 unless
another form of payment is requested.
--------------------------------------------------------------------------------
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 investment professional 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 of a First American fund, you may reinvest 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 fund directly in writing or notify your
investment professional or financial institution.
--------------------------------------------------------------------------------
ACCOUNTS WITH LOW BALANCES
Except for retirement plans and Uniform Gifts to Minors Act/Uniform Transfers to
Minors Act accounts, if your account balance falls below $500 as a result of
selling or exchanging shares, the fund reserves the right to either:
* deduct a $25 annual account maintenance fee, or
* close your account and send you the proceeds, less any applicable contingent
deferred sales charge.
Before taking any action, however, the fund will send you written notice of the
action it intends to take and give you 30 days to re-establish a minimum account
balance of $500.
15 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 investment professional, your
financial institution, or the funds direct, provided that both funds have
identical shareholder registrations. To request an exchange through the funds,
call Investor Services at 1-800-637-2548. Your instructions must be received
before 3 p.m. Central time, or by the time specified by your investment
professional 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.
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.
--------------------------------------------------------------------------------
REDEMPTION IN-KIND
Generally, proceeds from redemption requests will be paid in cash. However, to
minimize the effect of large redemption requests on a fund and its remaining
shareholders, each fund reserves the right to pay part or all of the proceeds
from a redemption request in a proportionate share of readily marketable
securities in the fund instead of in cash. In selecting securities for a
redemption in-kind, the advisor will consider the best interests of the fund and
the remaining fund shareholders, and will value these securities in accordance
with the pricing methods employed to calculate the fund's net asset value per
share. If you receive redemption proceeds in-kind, you should expect to incur
transaction costs upon the disposition of the securities received in the
redemption.
16 PROSPECTUS - First American Sector Funds
Class A, Class B, and Class C 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 and performance information, and on
an annual basis, a message from your portfolio managers and 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 Investor Services at 1-800-637-2548.
STATEMENTS AND CONFIRMATIONS. Statements summarizing activity in your account
are mailed 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, your investment
professional or your financial institution. 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.
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.
If in redemption of his or her shares a shareholder receives a distribution of
readily marketable securities instead of cash, the shareholder will be treated
as receiving an amount equal to the fair market value of the securities at the
time of the distribution for purposes of determining capital gain or loss on the
redemption, and will also acquire a basis in the shares for federal income tax
purposes equal to their fair market value.
The exchange of one class of shares for another class of shares in the same fund
will not be taxable.
17 PROSPECTUS - First American Sector Funds
Class A, Class B, and Class C Shares
<PAGE>
Additional Information
MANAGEMENT
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 September 30, 2000, it had more than $77 billion in assets under
management, including investment company assets of more than $33 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 the fiscal year ended September 30, 2000, 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 0.41%
REAL ESTATE SECURITIES FUND 0.51%
TECHNOLOGY FUND 0.70%
--------------------------------------------------------------------------------
DIRECT CORRESPONDENCE TO:
First American Funds
P.O. Box 1330
Minneapolis, Minnesota 55440-1330
INVESTMENT ADVISOR
First American Asset Management
601 Second Avenue South
Minneapolis, Minnesota 55402
DISTRIBUTOR
SEI Investments Distribution Co.
Oaks, Pennsylvania 19456
PENDING ACQUISITION
On October 4, 2000, U.S. Bancorp, the parent company of the funds' investment
advisor, announced that it had entered into an agreement to be acquired by
Firstar Corporation. It is anticipated that this acquisition will be completed
in the first quarter of 2001, subject to regulatory approval, the approval of
U.S. Bancorp shareholders and the satisfaction of customary closing conditions.
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 all open-end funds in the First American family of
funds. These services include general administrative and accounting services,
transfer agency and dividend disbursing services, and shareholder services. U.S.
Bank receives total 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. These fees are allocated among the funds in the First American family
of funds on the basis of their relative net asset values. The funds also pay
U.S. Bank fees based upon the number of funds and accounts maintained. In
addition, U.S. Bank is reimbursed for its out-of-pocket expenses incurred while
providing administrative services.
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 these transactions.
SHAREHOLDER SERVICING FEES. To the extent that fund shares are held through
U.S. Bank on its broker-dealer affiliates, U.S. Bancorp Investments, Inc. and
U.S. Bancorp Piper Jaffray Inc., those entities may receive shareholder
servicing fees from the funds' distributor.
PORTFOLIO MANAGEMENT
Each fund's investments are managed by a team of persons associated with First
American Asset Management.
18 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, resulting,
from time to time, in an annual portfolio turnover rate of over 100%. For the
fiscal years ended September 30, 1996 through September 30, 2000, Technology
Fund had portfolio turnover rates in excess of 100%. For the fiscal year ended
September 30, 2000, Health Sciences Fund had a portfolio turnover rate in excess
of 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.
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.
19 PROSPECTUS - First American Sector Funds
Class A, Class B, and Class C Shares
<PAGE>
Additional Information
MORE ABOUT THE FUNDS CONTINUED
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 INITIAL PUBLIC OFFERINGS (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 REAL ESTATE INVESTMENT TRUSTS (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.
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.
20 PROSPECTUS - First American Sector Funds
Class A, Class B, and Class C Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
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 the fund,
excluding sales charges and assuming you reinvested all of your dividends and
distributions.
The information for the fiscal years ended September 30, 2000 and September 30,
1999, has been derived from the financial statements 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 other auditors.
HEALTH SCIENCES FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS A SHARES 2000 1999 1998 1997 1996(1)
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 8.24 $ 7.82 $ 12.05 $ 9.86 $ 10.00
------- ------- ------- ------- -------
Investment Operations:
Net Investment Income (Loss) (0.02) 0.01 0.01 (0.01) 0.01
Net Gains (Losses) on Investments
(both realized and unrealized) 5.12 0.46 (2.78) 2.30 (0.14)
------- ------- ------- ------- -------
Total From Investment Operations 5.10 0.47 (2.77) 2.29 (0.13)
------- ------- ------- ------- -------
Less Distributions:
Dividends (from net investment income) -- (0.01) -- -- (0.01)
Distributions (from capital gains) -- (0.04) (1.46) (0.10) --
------- ------- ------- ------- -------
Total Distributions -- (0.05) (1.46) (0.10) (0.01)
------- ------- ------- ------- -------
Net Asset Value, End of Period $ 13.34 $ 8.24 $ 7.82 $ 12.05 $ 9.86
======= ======= ======= ======= =======
Total Return 61.89% 6.08% (25.24)% 23.60% (1.32)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 6,645 $ 1,383 $ 2,017 $ 849 $ 629
Ratio of Expenses to Average Net Assets 1.17% 1.16% 1.15% 1.15% 1.15%(2)
Ratio of Net Income (Loss) to Average Net Assets (0.27)% 0.11% 0.04% (0.20)% 0.18%(2)
Ratio of Expenses to Average Net Assets (excluding waivers) 1.46% 1.30% 1.20% 1.29% 2.12%(2)
Ratio of Net Loss to Average Net Assets (excluding waivers) (0.56)% (0.03)% (0.01)% (0.34)% (0.79)%(2)
Portfolio Turnover Rate 104% 53% 45% 54% 19%
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Class A shares have been offered since January 31, 1996.
(2)Annualized.
21 PROSPECTUS - First American Sector Funds
Class A, Class B, and Class C Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
HEALTH SCIENCES FUND (CONTINUED)
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS B SHARES 2000 1999 1998 1997 1996(1)
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 8.02 $ 7.65 $ 11.90 $ 9.81 $ 10.00
------- ------- -------- ------- -------
Investment Operations:
Net Investment Income (Loss) (0.08) 0.01 (0.02) (0.01) (0.02)
Net Gains (Losses) on Investments
(both realized and unrealized) 4.95 0.40 (2.77) 2.20 (0.16)
------- ------- -------- ------- -------
Total From Investment Operations 4.87 0.41 (2.79) 2.19 (0.18)
------- ------- -------- ------- -------
Less Distributions:
Dividends (from net investment income) -- -- -- -- (0.01)
Distributions (from capital gains) -- (0.04) (1.46) (0.10) --
------- ------- -------- ------- -------
Total Distributions -- (0.04) (1.46) (0.10) (0.01)
------- ------- -------- ------- -------
Net Asset Value, End of Period $ 12.89 $ 8.02 $ 7.65 $ 11.90 $ 9.81
======= ======= ======== ======= =======
Total Return 60.72% 5.37% (25.80)% 22.69% (1.86)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 4,221 $ 1,029 $ 645 $ 516 $ 281
Ratio of Expenses to Average Net Assets 1.92% 1.92% 1.90% 1.90% 1.90%(2)
Ratio of Net Loss to Average Net Assets (1.02)% (0.64)% (0.73)% (0.94)% (0.61)%(2)
Ratio of Expenses to Average Net Assets (excluding waivers) 2.21% 2.05% 1.95% 2.04% 2.87%(2)
Ratio of Net Loss to Average Net Assets (excluding waivers) (1.31)% (0.77)% (0.78)% (1.08)% (1.58)%(2)
Portfolio Turnover Rate 104% 53% 45% 54% 19%
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Class B shares have been offered since January 31, 1996.
(2)Annualized.
Fiscal year ended
September 30,
CLASS C SHARES 2000(1)
--------------------------------------------------------------------------------
PER SHARE DATA
Net Asset Value, Beginning of Period $ 9.76
--------
Investment Operations:
Net Investment Income (Loss) (0.03)
Net Gains (Losses) on Investments
(both realized and unrealized) 3.56
--------
Total From Investment Operations 3.53
--------
Less Distributions:
Dividends (from net investment income) --
Distributions (from capital gains) --
--------
Total Distributions --
--------
Net Asset Value, End of Period $ 13.29
========
Total Return 36.17%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 4,347
Ratio of Expenses to Average Net Assets 1.92%(2)
Ratio of Net Loss to Average Net Assets (1.02)%(2)
Ratio of Expenses to Average Net Assets (excluding waivers) 2.21%(2)
Ratio of Net Loss to Average Net Assets (excluding waivers) (1.31)%(2)
Portfolio Turnover Rate 104%
--------------------------------------------------------------------------------
(1)Class C shares have been offered since February 1, 2000.
(2)Annualized.
22 PROSPECTUS - First American Sector Funds
Class A, Class B, and Class C Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
REAL ESTATE SECURITIES FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS A SHARES 2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 10.78 $ 12.17 $ 14.97 $ 11.52 $ 10.38
------- ------- ------- ------- -------
Investment Operations:
Net Investment Income 0.74 0.65 0.63 0.72 0.52
Net Gains (Losses) on Investments
(both realized and unrealized) 2.00 (1.36) (2.40) 3.42 1.30
------- ------- ------- ------- -------
Total From Investment Operations 2.74 (0.71) (1.77) 4.14 1.82
------- ------- ------- ------- -------
Less Distributions:
Dividends (from net investment income) (0.79) (0.67) (0.70)(1) (0.65) ( 0.51)
Distributions (from capital gains) -- -- (0.33) (0.03) --
Tax Return of Capital (0.02) (0.01) -- (0.01) ( 0.17)
------- ------- ------- ------- -------
Total Distributions (0.81) (0.68) (1.03) (0.69) ( 0.68)
------- ------- ------- ------- -------
Net Asset Value, End of Period $ 12.71 $ 10.78 $ 12.17 $ 14.97 $ 11.52
======= ======= ======= ======= =======
Total Return 26.68% (5.89)% (12.42)% 36.77% 18.17%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 2,035 $ 1,518 $ 2,027 $ 2,105 $ 226
Ratio of Expenses to Average Net Assets 1.05% 1.05% 1.05% 1.05% 1.05%
Ratio of Net Income to Average Net Assets 6.59% 5.52% 4.71% 4.46% 4.36%
Ratio of Expenses to Average Net Assets (excluding waivers) 1.24% 1.18% 1.18% 1.30% 1.76%
Ratio of Net Income to Average Net Assets (excluding waivers) 6.40% 5.39% 4.58% 4.21% 3.65%
Portfolio Turnover Rate 45% 21% 36% 14% 8%
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Includes distributions in excess of net investment income.
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS B SHARES 2000 1999 1998 1997 1996
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 10.69 $ 12.08 $ 14.86 $ 11.46 $ 10.37
------- ------- ------- ------- -------
Investment Operations:
Net Investment Income 0.64 0.55 0.52 0.63 0.44
Net Gains (Losses) on Investments
(both realized and unrealized) 2.00 ( 1.34) (2.37) 3.38 1.27
------- ------- ------- ------- -------
Total From Investment Operations 2.64 0.79 (1.85) 4.01 1.71
------- ------- ------- ------- -------
Less Distributions:
Dividends (from net investment income) (0.69) ( 0.57) (0.60)(1) (0.57) (0.45)
Distributions (from capital gains) -- -- (0.33) (0.03) --
Tax Return of Capital (0.03) ( 0.03) -- (0.01) (0.17)
------- ------- ------- ------- -------
Total Distributions (0.72) ( 0.60) (0.93) (0.61) (0.62)
------- ------- ------- ------- -------
Net Asset Value, End of Period $ 12.61 $ 10.69 $ 12.08 $ 14.86 $ 11.46
======= ======= ======= ======= =======
Total Return 25.81% 6.68)% (13.04)% 35.77% 17.00%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 1,874 $ 2,192 $ 3,026 $ 3,318 $ 263
Ratio of Expenses to Average Net Assets 1.80% 1.80% 1.80% 1.80% 1.80%
Ratio of Net Income to Average Net Assets 5.79% 4.75% 3.98% 3.61% 4.29%
Ratio of Expenses to Average Net Assets (excluding waivers) 1.99% 1.93% 1.93% 2.00% 2.51%
Ratio of Net Income to Average Net Assets (excluding waivers) 5.60% 4.62% 3.85% 3.41% 3.58%
Portfolio Turnover Rate 45% 21% 36% 14% 8%
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Includes distributions in excess of net investment income.
23 PROSPECTUS - First American Sector Funds
Class A, Class B, and Class C Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
REAL ESTATE SECURITIES FUND (CONTINUED)
Fiscal year ended
September 30,
CLASS C SHARES 2000(1)
--------------------------------------------------------------------------------
PER SHARE DATA
Net Asset Value, Beginning of Period $ 10.61
-------
Investment Operations:
Net Investment Income 0.50
Net Gains (Losses) on Investments
(both realized and unrealized) 2.14
-------
Total From Investment Operations 2.64
-------
Less Distributions:
Dividends (from net investment income) (0.57)
Distributions (from capital gains) --
Tax Return of Capital --
-------
Total Distributions (0.57)
-------
Net Asset Value, End of Period $ 12.68
=======
Total Return 25.56%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 164
Ratio of Expenses to Average Net Assets 1.80%(2)
Ratio of Net Income to Average Net Assets 5.79%(2)
Ratio of Expenses to Average Net Assets (excluding waivers) 1.99%(2)
Ratio of Net Income to Average Net Assets (excluding waivers) 5.60%(2)
Portfolio Turnover Rate 45%
--------------------------------------------------------------------------------
(1)Class C shares have been offered since February 1, 2000.
(2)Annualized.
24 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 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 34.22 $ 15.60 $ 20.20 $ 19.25 $ 18.24
-------- -------- -------- -------- --------
Investment Operations:
Net Investment Loss (0.35) (0.18) (0.13) (0.11) (0.05)
Net Gains (Losses) on Investments
(both realized and unrealized) 24.87 19.55 (3.26) 3.12 2.95
-------- -------- -------- -------- --------
Total From Investment Operations 24.52 19.37 (3.39) 3.01 2.90
-------- -------- -------- -------- --------
Less Distributions:
Dividends (from net investment income) -- -- -- -- --
Distributions (from capital gains) (11.06) (0.75) (1.21) (2.06) (1.89)
-------- -------- -------- -------- --------
Total Distributions (11.06) (0.75) (1.21) (2.06) (1.89)
-------- -------- -------- -------- --------
Net Asset Value, End of Period $ 47.68 $ 34.22 $ 15.60 $ 20.20 $ 19.25
======== ======== ======== ======== ========
Total Return 80.11% 128.71% (16.69)% 17.71% 18.60%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $155,533 $ 21,491 $ 7,703 $ 5,564 $ 4,799
Ratio of Expenses to Average Net Assets 1.15% 1.15% 1.15% 1.15% 1.15%
Ratio of Net Loss to Average Net Assets (0.93)% (0.80)% (0.60)% (0.59)% (0.85)%
Ratio of Expenses to Average Net Assets (excluding waivers) 1.15% 1.16% 1.15% 1.17% 1.26%
Ratio of Net Loss to Average Net Assets (excluding waivers) (0.93)% (0.81)% (0.60)% (0.61)% (0.96)%
Portfolio Turnover Rate 195% 184% 124% 150% 119%
------------------------------------------------------------------------------------------------------------------------------
Fiscal year ended September 30,
CLASS B SHARES 2000 1999 1998 1997 1996
----------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
Net Asset Value, Beginning of Period $ 32.59 $ 14.99 $ 19.58 $ 18.85 $ 18.02
-------- -------- -------- ------- --------
Investment Operations:
Net Investment Loss (0.35) (0.34) (0.24) (0.20) (0.14)
Net Gains (Losses) on Investments
(both realized and unrealized) 23.22 18.69 (3.14) 2.99 2.86
-------- -------- -------- ------- --------
Total From Investment Operations 22.87 18.35 (3.38) 2.79 2.72
-------- -------- -------- ------- --------
Less Distributions:
Dividends (from net investment income) -- -- -- -- --
Distributions (from capital gains) (11.06) (0.75) (1.21) (2.06) (1.89)
-------- -------- -------- ------- --------
Total Distributions (11.06) (0.75) (1.21) (2.06) (1.89)
-------- -------- -------- ------- --------
Net Asset Value, End of Period $ 44.40 $ 32.59 $ 14.99 $ 19.58 $ 18.85
======== ======== ======== ======= ========
Total Return 78.77% 127.09% (17.21)% 16.82% 17.75%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 97,003 $ 20,866 $ 7,499 $ 8,463 $ 4,881
Ratio of Expenses to Average Net Assets 1.90% 1.90% 1.90% 1.90% 1.90%
Ratio of Net Loss to Average Net Assets (1.68)% (1.56)% (1.38)% (1.41)% (1.60)%
Ratio of Expenses to Average Net Assets (excluding waivers) 1.90% 1.91% 1.90% 1.92% 2.01%
Ratio of Net Loss to Average Net Assets (excluding waivers) (1.68)% (1.57)% (1.38)% (1.43)% (1.71)%
Portfolio Turnover Rate 195% 184% 124% 150% 119%
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
25 PROSPECTUS - First American Sector Funds
Class A, Class B, and Class C Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
TECHNOLOGY FUND (CONTINUED)
Fiscal year ended
September 30,
CLASS C SHARES 2000(1)
--------------------------------------------------------------------------------
PER SHARE DATA
Net Asset Value, Beginning of Period $ 50.30
--------
Investment Operations:
Net Investment Loss (0.35)
Net Gains (Losses) on Investments
(both realized and unrealized) (2.46)
--------
Total From Investment Operations (2.81)
--------
Less Distributions:
Dividends (from net investment income) --
Distributions (from capital gains) --
--------
Total Distributions --
--------
Net Asset Value, End of Period $ 47.49
========
Total Return (5.59)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $33,605
Ratio of Expenses to Average Net Assets 1.90%(2)
Ratio of Net Loss to Average Net Assets (1.67)%(2)
Ratio of Expenses to Average Net Assets (excluding waivers) 1.88%(2)
Ratio of Net Loss to Average Net Assets (excluding waivers) (1.65)%(2)
Portfolio Turnover Rate 195%
--------------------------------------------------------------------------------
(1)Class C shares have been offered since February 1, 2000.
(2)Annualized.
26 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, and on the First
American funds' Internet Web site.
--------------------------------------------------------------------------------
FIRST AMERICAN FUNDS WEB SITE
Information about the First American funds may
be viewed on the funds' Internet Web site at http://www.firstamericanfunds.com.
--------------------------------------------------------------------------------
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 of this information, after paying a duplicating fee,
by electronic request at the following email address: [email protected], or by
writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. For
more information, call 1-202-942-8090.
Information about the funds is also available on the Internet. Text-only
versions of fund documents can be viewed online or downloaded from the EDGAR
Database on the SEC's Internet site at http://www.sec.gov.
FIRST AMERICAN FUNDS P.O. Box 1330, Minneapolis, MN 55440-1330
First American Asset Management, a division of U.S. Bank National Association,
serves as the investment advisor to the First American Funds.
First American Funds are distributed by SEI Investments Distribution Co. which
is located in Oaks, PA 19456 and is not an affiliate of U.S. Bank.
12/2000 PROSECTR-00
SEC file number: 811-05309
[LOGO] FIRST AMERICAN FUNDS
THE POWER OF DISCIPLINED INVESTING
<PAGE>
DECEMBER 30, 2000
ASSET CLASSES
(*) EQUITY FUNDS
* FUNDS OF FUNDS
* BOND FUNDS
* TAX FREE FUNDS
* MONEY MARKET FUNDS
PROSPECTUS
FIRST AMERICAN INVESTMENT FUNDS, INC.
FIRST AMERICAN
SECTOR
FUNDS
CLASS Y SHARES
HEALTH SCIENCES FUND
REAL ESTATE SECURITIES FUND
TECHNOLOGY FUND
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.
[LOGO] FIRST AMERICAN FUNDS(R)
THE POWER OF DISCIPLINED INVESTING(R)
<PAGE>
Table of
CONTENTS
FUND SUMMARIES
--------------------------------------------------------------------------------
Health Sciences Fund 3
--------------------------------------------------------------------------------
Real Estate Securities Fund 6
--------------------------------------------------------------------------------
Technology Fund 8
--------------------------------------------------------------------------------
POLICIES & SERVICES
--------------------------------------------------------------------------------
Buying and Selling Shares 11
--------------------------------------------------------------------------------
Managing Your Investment 12
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
Management 13
--------------------------------------------------------------------------------
More About The Funds 14
--------------------------------------------------------------------------------
Financial Highlights 16
--------------------------------------------------------------------------------
FOR MORE INFORMATION Back Cover
--------------------------------------------------------------------------------
<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.
1 PROSPECTUS - First American Sector Funds
Class Y Shares
<PAGE>
THIS PAGE WAS INTENTIONALLY LEFT BLANK.
2 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:
* pharmaceuticals.
* health care services and administration.
* diagnostics.
* medical equipment and supplies.
* medical technology.
* 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.
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.
--------------------------------------------------------------------------------
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 REAL ESTATE INVESTMENT TRUSTS (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.
RISKS OF INITIAL PUBLIC OFFERINGS (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.
3 PROSPECTUS - First American Sector Funds
Class Y Shares
<PAGE>
Fund Summaries
HEALTH SCIENCES FUND CONTINUED
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.
4 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(1)
[BAR CHART]
16.50% -6.87% -0.82%
----------------------------
1997 1998 1999
Best Quarter: Quarter ending December 31, 1998 17.99%
Worst Quarter: Quarter ending September 30, 1998 (22.38)%
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99 Date One Year Inception
--------------------------------------------------------------------------------
Health Sciences Fund 1/31/96 (0.82)% 1.82%
--------------------------------------------------------------------------------
S & P Health Care Composite Index(2) (8.15)% 21.96%
--------------------------------------------------------------------------------
(1)Total return for the period from 1/1/00 through 9/30/00 was 47.65%.
(2)An unmanaged index comprised of health care stocks in the S & P 500 (an
unmanaged index of large capitalization stocks). The since inception
performance of the index is calculated from 1/31/96.
--------------------------------------------------------------------------------
FEES AND EXPENSES
The fund does not impose any sales charges (loads) or other fees when you buy,
sell or exchange shares. However, when you hold shares of the fund you
indirectly pay a portion of the fund's operating expenses. These expenses are
deducted from fund assets. The figures below are based on expenses during the
fiscal year ended September 30, 2000.(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 0.51%
TOTAL 1.21%
--------------------------------------------------------------------------------
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 2000,
were:
Waiver of Fund Expenses (0.29)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 0.92%
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 $ 123
3 years $ 384
5 years $ 665
10 years $1,466
5 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:
* 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.
* mortgage REITs, which invest the majority of their assets in real estate
mortgage loans and derive their income primarily from interest payments.
* 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:
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.
RISKS OF REAL ESTATE INVESTMENT TRUSTS (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.
6 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(1)
[BAR CHART]
31.00% 19.60% -15.98% -3.65%
--------------------------------------
1996 1997 1998 1999
Best Quarter: Quarter ending December 31, 1996 16.61%
Worst Quarter: Quarter ending September 30, 1998 (9.71)%
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99 Date One Year Inception
--------------------------------------------------------------------------------
Real Estate Securities Fund 6/30/95 (3.65)% 7.91%
--------------------------------------------------------------------------------
Morgan Stanley REIT Index(2) (4.55)% 7.58%
--------------------------------------------------------------------------------
(1)Total return for the period from 1/1/00 through 9/30/00 was 27.72%.
(2)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.
--------------------------------------------------------------------------------
FEES AND EXPENSES
The fund does not impose any sales charges (loads) or other fees when you buy,
sell or exchange shares. However, when you hold shares of the fund you
indirectly pay a portion of the fund's operating expenses. These expenses are
deducted from fund assets. The figures below are based on expenses during the
fiscal year ended September 30, 2000.(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 0.29%
TOTAL 0.99%
--------------------------------------------------------------------------------
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 2000,
were:
Waiver of Fund Expenses (0.19)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 0.80%
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 $ 101
3 years $ 315
5 years $ 547
10 years $1,213
7 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:
* inexpensive computing power, such as personal computers.
* improved methods of communications, such as satellite transmission.
* 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.
--------------------------------------------------------------------------------
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 INITIAL PUBLIC OFFERINGS (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.
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.
8 PROSPECTUS - First American Sector Funds
Class Y Shares
<PAGE>
Fund Summaries
TECHNOLOGY FUND CONTINUED
--------------------------------------------------------------------------------
FUND PERFORMANCE
Illustrations below 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.
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR(1),(2)
[BAR CHART]
41.02% 22.43% 7.31% 32.70% 192.59%
----------------------------------------------
1995 1996 1997 1998 1999
Best Quarter: Quarter ending December 31, 1999 80.67%
Worst Quarter: Quarter ending September 30, 1998 (18.20)%
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99(2) Date One Year Five Years Inception
--------------------------------------------------------------------------------
Technology Fund 4/4/94 192.59% 48.38% 46.69%
--------------------------------------------------------------------------------
S & P Technology Composite Index(3) 75.21% 50.76% 47.34%
--------------------------------------------------------------------------------
(1)Total return for the period from 1/1/00 through 9/30/00 was 0.02%.
(2)Technology Fund's 1999 returns were primarily achieved buying IPOs and
technology related stocks in a period favorable for these investments. Of
course, such favorable returns involve accepting the risk of volatility, and
there is no assurance that the fund's future investment in IPOs and
technology stocks will have the same effect on performance as it did in 1999.
(3)An unmanaged index comprised of technology stocks in the S & P 500 (an
unmanaged index of large capitalization stocks). The since inception
performance of the index is calculated from 4/30/94.
9 PROSPECTUS - First American Sector Funds
Class Y Shares
<PAGE>
Fund Summaries
TECHNOLOGY FUND CONTINUED
--------------------------------------------------------------------------------
FEES AND EXPENSES
The fund does not impose any sales charges (loads) or other fees when you buy,
sell or exchange shares. However, when you hold shares of the fund you
indirectly pay a portion of the fund's operating expenses. These expenses are
deducted from fund assets. The figures below are based on expenses during the
fiscal year ended September 30, 2000.(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 0.20%
TOTAL 0.90%
--------------------------------------------------------------------------------
(1)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
10 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 investment professional 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.
To minimize the effect of large redemption requests, each fund reserves the
right to fulfill these redemption requests by distributing readily marketable
securities in the fund's portfolio, rather than paying you in cash. See
"Policies & Services -- Managing Your Investment, Redemption In-Kind."
--------------------------------------------------------------------------------
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 are 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.
11 PROSPECTUS - First American Sector Funds
Class Y Shares
<PAGE>
Policies & Services
MANAGING YOUR INVESTMENT
--------------------------------------------------------------------------------
REDEMPTION IN-KIND
Generally, proceeds from redemption requests will be paid in cash. However, to
minimize the effect of large redemption requests on a fund and its remaining
shareholders, each fund reserves the right to pay part or all of the proceeds
from a redemption request in a proportionate share of readily marketable
securities in the fund instead of cash. In selecting securities for a redemption
in-kind, the advisor will consider the best interests of the fund and the
remaining fund shareholders, and will value these securities in accordance with
the pricing methods employed to calculate the fund's net asset value per share.
If you receive redemption proceeds in-kind, you should expect to incur
transaction costs upon disposition of the securities received in the redemption.
--------------------------------------------------------------------------------
STAYING INFORMED
Shareholder Reports. Shareholder reports are mailed twice a year, in November
and May. They include financial statements and performance information, and on
an annual basis, a message from your portfolio managers and 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 Investor Services at 1-800-637-2548.
STATEMENTS AND CONFIRMATIONS. Statements summarizing activity in your account
are mailed 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 contacting your financial institution. 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.
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.
If in redemption of his or her shares a shareholder receives a distribution of
readily marketable securities instead of cash, the shareholder will be treated
as receiving an amount equal to the fair market value of the securities at the
time of the distribution for purposes of determining capital gain or loss on the
redemption, and will also acquire a basis in the shares for federal income tax
purposes equal to their fair market value.
The exchange of one class of shares for another class of shares in the same fund
will not be taxable.
12 PROSPECTUS - First American Sector Funds
Class Y Shares
<PAGE>
Additional Information
MANAGEMENT
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 September 30, 2000, it had more than $77 billion in assets under
management, including investment company assets of more than $33 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 the fiscal year ended September 30, 2000, 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 0.41%
REAL ESTATE SECURITIES FUND 0.51%
TECHNOLOGY FUND 0.70%
--------------------------------------------------------------------------------
DIRECT CORRESPONDENCE TO:
First American Funds
P.O. Box 1330
Minneapolis, Minnesota 55440-1330
INVESTMENT ADVISOR
First American Asset Management
601 Second Avenue South
Minneapolis, Minnesota 55402
DISTRIBUTOR
SEI Investments Distribution Co.
Oaks, Pennsylvania 19456
PENDING ACQUISITION
On October 4, 2000, U.S. Bancorp, the parent company of the funds' investment
advisor, announced that it had entered into an agreement to be acquired by
Firstar Corporation. It is anticipated that this acquisition will be completed
in the first quarter of 2001, subject to regulatory approval, the approval of
U.S. Bancorp shareholders and the satisfaction of customary closing conditions.
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 all open-end funds in the First American family of
funds. These services include general administrative and accounting services,
transfer agency and dividend disbursing services, and shareholder services. U.S.
Bank receives total 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. These fees are allocated among the funds in the First American family
of funds on the basis of their relative net asset values. The funds also pay
U.S. Bank fees based upon the number of funds and accounts maintained. In
addition, U.S. Bank is reimbursed for its out-of-pocket expenses incurred while
providing administrative services to the funds.
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 these transactions.
SHAREHOLDER SERVICING FEES. To the extent that fund shares are held through U.S.
Bank or its broker-dealer affiliates, U.S. Bancorp Investments, Inc. and U.S.
Bancorp Piper Jaffray Inc., those entities may receive shareholding servicing
fees from the funds' distributor.
PORTFOLIO MANAGEMENT
Each fund's investments are managed by a team of persons associated with First
American Asset Management.
13 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, resulting,
from time to time, in an annual portfolio turnover rate of over 100%. For the
fiscal years ended September 30, 1996 through September 30, 2000, Technology
Fund had portfolio turnover rates in excess of 100%. For the fiscal year ended
September 30, 2000, Health Sciences Fund had a portfolio turnover rate in excess
of 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.
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.
14 PROSPECTUS - First American Sector Funds
Class Y Shares
<PAGE>
Additional Information
MORE ABOUT THE FUNDS CONTINUED
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 INITIAL PUBLIC OFFERINGS (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 REAL ESTATE INVESTMENT TRUSTS (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.
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.
15 PROSPECTUS - First American Sector Funds
Class Y Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
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 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 the fund, assuming you reinvested all of
your dividends and distributions.
The information for the fiscal years ended September 30, 2000 and September 30,
1999, has been derived from the financial statements 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 other auditors.
HEALTH SCIENCES FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
2000 1999 1998 1997 1996(1)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 8.28 $ 7.84 $ 12.08 $ 9.87 $ 10.00
------- ------- ------- ------- -------
Investment Operations:
Net Investment Income (Loss) -- 0.04 0.03 (0.01) 0.03
Net Gains (Losses) on Investments
(both realized and unrealized) 5.14 0.48 (2.78) 2.33 (0.15)
------- ------- ------- ------- -------
Total From Investment Operations 5.14 0.52 (2.75) 2.32 (0.12)
------- ------- ------- ------- -------
Less Distributions:
Dividends (from net investment income) -- (0.04) (0.03) (0.01) (0.01)
Distributions (from capital gains) -- (0.04) (1.46) (0.10) --
------- ------- ------- ------- -------
Total Distributions -- (0.08) (1.49) (0.11) (0.01)
------- ------- ------- ------- -------
Net Asset Value, End of Period $ 13.42 $ 8.28 $ 7.84 $ 12.08 $ 9.87
======= ======= ======= ======= =======
Total Return 62.10% 6.59% (25.10)% 23.89% (1.20)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $19,175 $12,192 $21,977 $41,243 $12,485
Ratio of Expenses to Average Net Assets 0.92% 0.90% 0.90% 0.90% 0.90%(2)
Ratio of Net Income (Loss) to Average Net Assets (0.02)% 0.38% 0.27% 0.06% 0.43%(2)
Ratio of Expenses to Average Net Assets (excluding waivers) 1.21% 1.05% 0.95% 1.04% 1.87%(2)
Ratio of Net Income (Loss) to Average Net Assets (excluding waivers) (0.31)% 0.23% 0.22% (0.08)% (0.54)%(2)
Portfolio Turnover Rate 104% 53% 45% 54% 19%
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Class Y shares have been offered since January 31, 1996.
(2)Annualized.
16 PROSPECTUS - First American Sector Funds
Class Y Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
REAL ESTATE SECURITIES FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
2000 1999 1998 1997 1996
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 10.80 $ 12.19 $ 14.99 $ 11.53 $ 10.37
-------- -------- -------- -------- --------
Investment Operations:
Net Investment Income 0.77 0.68 0.67 0.74 0.57
Net Gains (Losses) on Investments
(both realized and unrealized) 2.00 (1.35) (2.40) 3.43 1.29
-------- -------- -------- -------- --------
Total From Investment Operations 2.77 (0.67) (1.73) 4.17 1.86
-------- -------- -------- -------- --------
Less Distributions:
Dividends (from net investment income) (0.81) (0.69) (0.74)1 (0.67) (0.53)
Distributions (from capital gains) -- -- (0.33) (0.03) --
Tax Return of Capital (0.03) (0.03) -- (0.01) (0.17)
-------- -------- -------- -------- --------
Total Distributions (0.84) (0.72) (1.07) (0.71) (0.70)
-------- -------- -------- -------- --------
Net Asset Value, End of Period $ 12.73 $ 10.80 $ 12.19 $ 14.99 $ 11.53
======== ======== ======== ======== ========
Total Return 26.95% (5.64)% (12.18)% 37.07% 18.53%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 56,347 $ 51,181 $ 58,275 $ 40,501 $ 17,895
Ratio of Expenses to Average Net Assets 0.80% 0.80% 0.80% 0.80% 0.80%
Ratio of Net Income to Average Net Assets 6.79% 5.78% 5.06% 4.57% 5.13%
Ratio of Expenses to Average Net Assets (excluding waivers) 0.99% 0.93% 0.93% 1.05% 1.51%
Ratio of Net Income to Average Net Assets (excluding waivers) 6.60% 5.65% 4.93% 4.32% 4.42%
Portfolio Turnover Rate 45% 21% 36% 14% 8%
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Includes distributions in excess of net investment income.
TECHNOLOGY FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
2000 1999 1998 1997 1996
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 34.64 $ 15.73 $ 20.29 $ 19.29 $ 18.24
-------- -------- -------- -------- --------
Investment Operations:
Net Investment Loss (0.34) (0.13) (0.08) (0.06) (0.04)
Net Gains (Losses) on Investments
(both realized and unrealized) 25.36 19.79 (3.27) 3.12 2.98
-------- -------- -------- -------- --------
Total From Investment Operations 25.02 19.66 (3.35) 3.06 2.94
-------- -------- -------- -------- --------
Less Distributions:
Dividends (from net investment income) -- -- -- -- --
Distributions (from capital gains) (11.06) (0.75) (1.21) (2.06) (1.89)
-------- -------- -------- -------- --------
Total Distributions (11.06) (0.75) (1.21) (2.06) (1.89)
-------- -------- -------- -------- --------
Net Asset Value, End of Period $ 48.60 $ 34.64 $ 15.73 $ 20.29 $ 19.29
======== ======== ======== ======== ========
Total Return 80.71% 129.52% (16.41)% 17.95% 18.85%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $436,938 $214,620 $100,985 $148,659 $ 64,602
Ratio of Expenses to Average Net Assets 0.90% 0.90% 0.90% 0.90% 0.90%
Ratio of Net Loss to Average Net Assets (0.67)% (0.53)% (0.38)% (0.41)% (0.60)%
Ratio of Expenses to Average Net Assets (excluding waivers) 0.90% 0.91% 0.90% 0.92% 1.01%
Ratio of Net Loss to Average Net Assets (excluding waivers) (0.67)% (0.54)% (0.38)% (0.43)% (0.71)%
Portfolio Turnover Rate 195% 184% 124% 150% 119%
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
17 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 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 of this information, after paying a duplicating fee,
by electronic request at the following email address: [email protected], or by
writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. For
more information, call 1-202-942-8090.
Information about the funds is also available on the Internet. Text-only
versions of fund documents can be viewed online or downloaded from the EDGAR
Database on the SEC's Internet site at http://www.sec.gov.
FIRST AMERICAN FUNDS P.O. Box 1330, Minneapolis, MN 55440-1330
First American Asset Management, a division of U.S. Bank National Association,
serves as the investment advisor to the First American Funds.
First American Funds are distributed by SEI Investments Distribution Co. which
is located in Oaks, PA 19456 and is not an affiliate of U.S. Bank.
12/2000 PROSECTY-00
SEC file number: 811-05309
[LOGO] FIRST AMERICAN FUNDS(R)
THE POWER OF DISCIPLINED INVESTING(R)
<PAGE>
DECEMBER 30, 2000
ASSET CLASSES
* EQUITY FUNDS
* FUNDS OF FUNDS
(*) BOND FUNDS
* TAX FREE FUNDS
* MONEY MARKET FUNDS
PROSPECTUS
FIRST AMERICAN INVESTMENT FUNDS, INC.
FIRST AMERICAN
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
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.
[LOGO] FIRST AMERICAN FUNDS(R)
THE POWER OF DISCIPLINED INVESTING(R)
<PAGE>
Table of
CONTENTS
FUND SUMMARIES
--------------------------------------------------------------------------------
Corporate Bond Fund 2
--------------------------------------------------------------------------------
Fixed Income Fund 4
--------------------------------------------------------------------------------
Intermediate Term Income Fund 6
--------------------------------------------------------------------------------
Limited Term Income Fund 8
--------------------------------------------------------------------------------
Strategic Income Fund 10
--------------------------------------------------------------------------------
POLICIES & SERVICES
--------------------------------------------------------------------------------
Buying Shares 13
--------------------------------------------------------------------------------
Selling Shares 17
--------------------------------------------------------------------------------
Managing Your Investment 18
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
Management 20
--------------------------------------------------------------------------------
More About The Funds 22
--------------------------------------------------------------------------------
Financial Highlights 25
--------------------------------------------------------------------------------
FOR MORE INFORMATION Back Cover
--------------------------------------------------------------------------------
<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.
1 PROSPECTUS - First American Bond Funds
Class A, Class B, and Class C Shares
<PAGE>
Fund Summaries
CORPORATE BOND FUND
--------------------------------------------------------------------------------
OBJECTIVE
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 (at
least 65% of its total assets) in corporate debt obligations. The fund will also
invest in a combination of:
* U.S. dollar-denominated debt obligations of foreign issuers.
* securities issued or guaranteed by the U.S. government or its agencies and
instrumentalities.
* mortgage- and asset-backed securities.
Fund managers employ a bottom up approach to investing. They devote more
resources to evaluating individual securities rather than assessing
macro-economic trends. Securities are selected using fundamental credit research
to identify relative value in the market. Positions are sold in anticipation of
credit deterioration or when a security is priced expensively relative to other
comparable investments.
The fund invests primarily in securities rated investment grade at the time of
purchase or in unrated securities of comparable quality. However, up to 35% of
the fund's securities may be rated lower than investment grade at the time of
purchase or unrated and of comparable quality (securities commonly referred to
as "junk bonds"). The fund will not invest in securities rated lower than B at
the time of purchase or in unrated securities of equivalent quality. Unrated
securities will not exceed 25% of the fund's assets. Quality determinations
regarding these securities will be made by the fund's advisor.
The fund may invest up to 25% of its total assets in foreign debt securities
payable in U.S. dollars.
Under normal market conditions the fund attempts to maintain a weighted average
effective maturity for its portfolio securities of 15 years or less and an
average effective duration of four to nine years. The fund's weighted average
effective maturity and average effective duration are measures of how the fund
may react to interest rate changes.
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 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."
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 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. 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.
--------------------------------------------------------------------------------
FUND PERFORMANCE
Because Corporate Bond Fund shares have not been offered for a full calendar
year, no performance information is presented for these shares.
2 PROSPECTUS - First American Bond Funds
Class A, Class B, and Class C Shares
<PAGE>
Fund Summaries
CORPORATE BOND FUND CONTINUED
--------------------------------------------------------------------------------
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,
2000.(1)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES CLASS A CLASS B CLASS 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 OF REDEMPTION PROCEEDS, WHICHEVER IS LESS 0.00%(3) 5.00% 1.00%
ANNUAL MAINTENANCE FEE(4)
ONLY CHARGED TO ACCOUNTS WITH BALANCES BELOW $500 $ 25 $ 25 $ 25
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 0.29% 0.29% 0.29%
TOTAL 1.24% 1.99% 1.99%
--------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 2000,
were:
<TABLE>
<S> <C> <C> <C>
Waiver of Fund Expenses (0.52)% (0.51)% (0.51)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 0.72% 1.48% 1.48%
</TABLE>
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 0.75%, 1.50% AND 1.50%, 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."
(4)The fund reserves the right to charge your account an annual maintenance fee
of $25 if your balance falls below $500 as a result of selling or exchanging
shares.
See "Policies & Services -- Selling Shares, Accounts with Low Balances."
--------------------------------------------------------------------------------
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 redemption assuming no redemption assuming redemption assuming no redemption
CLASS A at end of each period at end of each period at end of each period at end of each period
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 year $ 546 $ 702 $ 202 $ 400 $ 300
3 years $ 802 $1,024 $ 624 $ 718 $ 718
5 years $1,077 $1,273 $1,073 $1,162 $1,162
10 years $1,861 $2,123 $2,123 $2,394 $2,394
</TABLE>
3 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:
* U.S. government securities, (securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities), including zero coupon
securities.
* mortgage- and asset-backed securities.
* 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. If the rating of a security is reduced or the credit quality of an
unrated security declines after purchase, the fund is not required to sell the
security, but may consider doing so. 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
effective maturity for its portfolio securities of 15 years or less and an
average effective duration of three to eight years. The fund's weighted average
effective maturity and average effective duration are measures of how the fund
may react to interest rate changes.
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."
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.
--------------------------------------------------------------------------------
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 were, 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. 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.
4 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(1)
[BAR CHART]
<TABLE>
<CAPTION>
<S> <C> <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% -3.00%
------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
</TABLE>
Best Quarter: Quarter ending June 30, 1995 6.06%
Worst Quarter: Quarter ending March 31, 1994 (2.04)%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Inception Ten Years Since Inception
AS OF 12/31/99 Date One Year Five Years (Class A) (Class B)
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fixed Income Fund (Class A) 12/22/87 (7.09)% 5.75% 6.38% N/A
--------------------------------------------------------------------------------------------------
Fixed Income Fund (Class B) 8/15/94 (8.39)% 5.54% N/A 5.15%
--------------------------------------------------------------------------------------------------
Lehman Aggregate Bond Index(2) (0.83)% 7.73% 7.70% 8.27%
--------------------------------------------------------------------------------------------------
</TABLE>
(1)Total return for the period from 1/1/00 through 9/30/00 was 7.01%.
(2)An unmanaged index composed of the Lehman Government/Credit Bond Index, the
Lehman Mortgage Backed Securities Index and the Lehman Asset Backed
Securities Index. The Lehman Government/Credit 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 Mortgage Backed Securities Index is comprised of the mortgage-backed
pass-through securities of Ginnie Mae, Fannie Mae, and Freddie Mac. The
Lehman Asset-Backed Index is comprised of debt securities rated investment
grade or higher that are backed by credit card, auto and home equity loans.
The since inception performance of the index for Class B shares 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,
2000.(1)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES CLASS A CLASS B CLASS C
--------------------------------------------------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD) IMPOSED ON PURCHASES
AS A % OF OFFERING PRICE 4.25%(2) 0.00% 1.00%
MAXIMUM DEFERRED SALES CHARGE (LOAD)
AS A % OF ORIGINAL PURCHASE PRICE OF REDEMPTION PROCEEDS, WHICHEVER IS LESS 0.00%(3) 5.00% 1.00%
ANNUAL MAINTENANCE FEE(4)
ONLY CHARGED TO ACCOUNTS WITH BALANCES BELOW $500 $ 25 $ 25 $ 25
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 0.19% 0.19% 0.19%
TOTAL 1.14% 1.89% 1.89%
-------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 2000,
were:
<TABLE>
<S> <C> <C> <C>
Waiver of Fund Expenses (0.19)% (0.19)% (0.19)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 0.95% 1.70% 1.70%
</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
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."
(4)The fund reserves the right to charge your account an annual maintenance fee
of $25 if your balance falls below $500 as a result of selling or exchanging
shares.
See "Policies & Services -- Selling Shares, Accounts with Low Balances."
--------------------------------------------------------------------------------
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 redemption assuming no redemption assuming redemption assuming no redemption
CLASS A at end of each period at end of each period at end of each period at end of each period
--------- ----------------------- ------------------------ ----------------------- -----------------------
<S> <C> <C> <C> <C> <C>
1 year $ 536 $ 692 $ 192 $ 390 $ 290
3 years $ 772 $ 994 $ 594 $ 688 $ 688
5 years $1,026 $1,221 $1,021 $1,111 $1,111
10 years $1,752 $2,016 $2,016 $2,289 $2,289
</TABLE>
5 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:
* U.S. government securities, (securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities), including zero coupon
securities.
* mortgage- and asset-backed securities.
* 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. If the rating of a security is reduced or discontinued after purchase,
the fund is not required to sell the security, but may consider doing so. 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
effective maturity for its portfolio securities of two to seven years and an
average effective duration of two to six years. The fund's weighted average
effective maturity and effective duration are measures of how the fund may react
to interest rate changes.
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."
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 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 were,
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 Bond Funds
Class A, Class B, and Class C Shares
<PAGE>
Fund Summaries
INTERMEDIATE TERM INCOME FUND CONTINUED
--------------------------------------------------------------------------------
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR(1)
[BAR CHART]
6.86% -1.35% 14.62% 4.22% 7.11% 8.36% -0.62%
--------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998 1999
Best Quarter: Quarter ending June 30, 1995 4.71%
Worst Quarter: Quarter ending March 31, 1994 (1.29)%
<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 Term Income Fund (Class A) 12/14/92 (3.09)% 6.08% 5.12%
-------------------------------------------------------------------------------------------------
Lehman Intermediate Gov't/Credit Bond Index(2) 0.39% 7.09% 5.99%
-------------------------------------------------------------------------------------------------
</TABLE>
(1)Total return for the period from 1/1/00 through 9/30/00 was 5.91%
(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, 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
operating expenses indirectly since they are deducted from fund assets. The
figures below are based on expenses during the fiscal year ended September 30,
2000.(1)
--------------------------------------------------------------------------------
SHAREHOLDER FEES CLASS A
--------------------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD)
AS A % OF OFFERING PRICE 2.50%(2)
ANNUAL MAINTENANCE FEE(3)
ONLY CHARGED TO ACCOUNTS WITH BALANCES BELOW $500 $ 25
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
--------------------------------------------------------------------------------
Management Fees 0.70%
Distribution and Service (12b-1) Fees 0.25%
Other Expenses 0.06%
TOTAL 1.01%
--------------------------------------------------------------------------------
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 2000,
were:
Waiver of Fund Expenses (0.16)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 0.85%
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."
(3)The fund reserves the right to charge your account an annual maintenance fee
of $25 if your balance falls below $500 as a result of selling or exchanging
shares.
See "Policies & Services -- Selling Shares, Accounts with Low Balances."
--------------------------------------------------------------------------------
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 $ 350
3 years $ 564
5 years $ 794
10 years $1,455
7 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:
* mortgage- and asset-backed securities.
* corporate debt obligations.
* U.S. government securities, which are securities issued or guaranteed by the
U.S. government or its agencies or instrumentalities.
* 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. If the rating of a security is reduced or discontinued after purchase,
the fund is not required to sell the security, but may consider doing so. 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
effective maturity and an average effective duration for its portfolio
securities of one to three years. The fund's weighted average effective maturity
and effective duration are measures of how the fund may react to interest rate
changes.
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 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."
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.
--------------------------------------------------------------------------------
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 were,
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.
8 PROSPECTUS - First American Bond Funds
Class A, Class B, and Class C Shares
<PAGE>
Fund Summaries
LIMITED TERM INCOME FUND CONTINUED
--------------------------------------------------------------------------------
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR(1)
[BAR GRAPH]
4.14% 1.79% 8.23% 5.60% 5.93% 6.08% 3.34%
--------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998 1999
Best Quarter: Quarter ending June 30, 1995 2.47%
Worst Quarter: Quarter ending March 31, 1994 0.03%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99 Date One Year Five Years Inception
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Limited Term Income Fund (Class A) 12/14/92 0.72% 5.29% 4.61%
-------------------------------------------------------------------------------------------
Lehman MF 1-3 Year Gov't/Credit Index(2) 3.15% 6.55% 5.53%
-------------------------------------------------------------------------------------------
</TABLE>
(1)Total return for the period from 1/1/00 through 9/30/00 was 5.42%.
(2)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.
--------------------------------------------------------------------------------
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 are based on expenses during the fiscal year ended September 30,
2000.(1)
--------------------------------------------------------------------------------
SHAREHOLDER FEES CLASS A
--------------------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD)
AS A % OF OFFERING PRICE 2.50%(2)
ANNUAL MAINTENANCE FEE(3)
ONLY CHARGED TO ACCOUNTS WITH BALANCES BELOW $500 $ 25
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
--------------------------------------------------------------------------------
Management Fees 0.70%
Distribution and Service (12b-1) Fees 0.25%
Other Expenses 0.18%
TOTAL 1.13%
--------------------------------------------------------------------------------
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 2000,
were:
Waiver of Fund Expenses (0.53)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 0.60%
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."
(3)The fund reserves the right to charge your account an annual maintenance fee
of $25 if your balance falls below $500 as a result of selling or exchanging
shares.
See "Policies & Services -- Selling Shares, Accounts with Low Balances."
--------------------------------------------------------------------------------
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 $ 362
3 years $ 600
5 years $ 857
10 years $1,590
9 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:
* 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.
* high-yield (non-investment grade) debt obligations issued by domestic
issuers.
* 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 (which means that the fund may invest in lower-rated securities, or
unrated securities of comparable quality, commonly referred to as "junk bonds").
In addition, there is no limitation on the average maturity or average effective
duration of securities held by the fund.
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."
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. 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.
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.
10 PROSPECTUS - First American Bond Funds
Class A, Class B, and Class C Shares
<PAGE>
Fund Summaries
STRATEGIC INCOME FUND CONTINUED
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."
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 presented. 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 were, 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.
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.
11 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(1)
[BAR CHART]
3.19%
--------------------------------------------------------------------------------
1999
Best Quarter: Quarter ending December 31, 1999 2.88%
Worst Quarter: Quarter ending June 30, 1999 (0.63)%
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99 Date One Year Inception
--------------------------------------------------------------------------------
Strategic Income Fund (Class A) 7/24/98 (1.23)% (1.55)%
--------------------------------------------------------------------------------
Strategic Income Fund (Class B) 7/24/98 (2.34)% (2.44)%
--------------------------------------------------------------------------------
Lehman Aggregate Bond Index(2) (0.83)% 2.45%
--------------------------------------------------------------------------------
(1)Total return for the period from 1/1/00 through 9/30/00 was 2.60%.
(2)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 are based on expenses during the fiscal year ended September 30,
2000.(1)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
----------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES CLASS A CLASS B CLASS 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 MAINTENANCE FEE(4)
ONLY CHARGED TO ACCOUNTS WITH BALANCES BELOW $500 $ 25 $ 25 $ 25
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 0.22% 0.21% 0.21%
TOTAL 1.17% 1.91% 1.91%
----------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 2000,
were:
<TABLE>
<S> <C> <C> <C>
Waiver of Fund Expenses (0.02)% (0.01)% (0.01)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 1.15% 1.90% 1.90%
</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."
(4)The fund reserves the right to charge your account an annual maintenance fee
of $25 if your balance falls below $500 as a result of selling or exchanging
shares.
See "Policies & Services -- Selling Shares, Accounts with Low Balances."
--------------------------------------------------------------------------------
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 redemption assuming no redemption assuming redemption assuming no redemption
CLASS A at end of each period at end of each period at end of each period at end of each period
--------- ----------------------- ------------------------ ----------------------- -----------------------
<S> <C> <C> <C> <C> <C>
1 year $ 539 $ 694 $ 194 $ 392 $ 292
3 years $ 781 $1,000 $ 600 $ 694 $ 694
5 years $1,041 $1,232 $1,032 $1,121 $1,121
10 years $1,785 $2,040 $2,040 $2,310 $2,310
</TABLE>
12 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:
* a front-end sales charge, described below.
* 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:
* orders for Class B shares for $250,000 or more will be treated as orders for
Class A shares.
* orders for Class C shares for $1 million or more will be treated as orders
for Class A shares.
* orders for Class B or Class C shares by an investor eligible to purchase
Class A shares without a front-end sales charge 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, Class B shares do have:
* higher annual expenses than Class A shares. See "Fund Summaries -- Fees and
Expenses."
* a back-end sales charge, called a "contingent deferred sales charge," if you
redeem your shares within six years of purchase.
* 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:
* a 1% contingent deferred sales charge if you redeem your shares within 18
months of purchase.
* higher annual expenses than Class A shares. See "Fund Summaries -- Fees and
Expenses."
* 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 0.75% is a distribution fee.
The funds' distributor uses the shareholder servicing fee to compensate
investment professionals, participating institutions and "one-stop" mutual fund
networks (institutions) for providing ongoing services to shareholder accounts.
These institutions receive shareholder servicing 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 net asset value sales of Class A shares on which
the institution receives a commission, the institution does not begin to receive
its shareholder servicing 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 funds'
distributor retains the Class B share 0.75% annual distribution fee in order to
finance the payment of sales commissions to institutions which sell Class B
shares. See "Buying Shares -- Class B Shares." The advisor or the distributor
may pay additional fees to institutions out of their own assets 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. Fee waivers may be discontinued at any time.
13 PROSPECTUS - First American Bond Funds
Class A, Class B, and Class C Shares
<PAGE>
Policies & Services
BUYING SHARES CONTINUED
--------------------------------------------------------------------------------
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.
CLASS A SHARES. Your purchase price for Class A shares 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
investment professional or participating institution.
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
------------------------------------------------------------------------
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%
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. That is, you will receive credit for either the original purchase
price or the current net asset value of the other Class A shares you hold at the
time of your purchase, whichever is greater. For example, let's say you're
making a $10,000 investment and you already own other First American fund Class
A shares that you purchased for $25,000, but are now valued at $45,000. Since
the current net asset value of your shares is greater than their purchase price,
you will receive credit for their current value and your sales charge will be
based on a total purchase amount of $55,000. To receive a reduced sales charge,
you must notify the fund of your prior purchases. This must be done at the time
of purchase, either directly with the fund in writing or by notifying your
investment professional or financial institution.
PURCHASES BY RELATED ACCOUNTS. Concurrent and prior purchases of Class A shares
of any First American fund 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 fund of purchases by any related
accounts. This must be done at the time of purchase, either directly with the
funds in writing or by notifying your investment professional 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.
14 PROSPECTUS - First American Bond Funds
Class A, Class B, and Class C Shares
<PAGE>
Policies & Services
BUYING SHARES CONTINUED
FOR INVESTMENTS OF OVER $1 MILLION
There is no initial sales charge on Class A share purchases of $1 million or
more. However, your investment professional 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 investment professional 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:
* redemptions following the death or disability (as defined in the the Internal
Revenue Code) of a shareholder.
* 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.
* 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 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 4.35%
of the amount invested to investment professionals 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 and any related shares acquired by reinvesting your dividend
or capital gain distributions 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, 2001, they will convert to Class A
shares on June 1, 2009.
The CDSC will be waived for:
* redemptions following the death or disability (as defined in the Internal
Revenue Code) of a shareholder.
* 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.
* 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 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 investment professional or
participating institution. Additionally, the advisor may pay its affiliated
broker-dealer, U.S. Bancorp Piper Jaffray Inc., an additional commission of up
to 3% of your purchase price. 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.
15 PROSPECTUS - First American Bond Funds
Class A, Class B, and Class C Shares
<PAGE>
Policies & Services
BUYING SHARES CONTINUED
--------------------------------------------------------------------------------
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 investment professional 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 investment professional 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 investment professional 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 investment professional or financial institution for more information.
If you are paying by wire, you may purchase shares by calling Investor Services
at 1-800-637-2548 before the close of regular trading on the New York Stock
Exchange (usually 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, ACCOUNT NUMBER 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:
* all purchases must be made in U.S. dollars.
* third-party checks, credit cards, credit card checks and cash are not
accepted.
* 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:
* by having $100 or more ($25 for a retirement plan or a Uniform Gifts to
Minors Act/Uniform Transfers to Minors Act account) automatically withdrawn
from your bank account on a periodic basis and invested in fund shares.
* 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
investment professional or financial institution or by calling Investor Services
at 1-800-637-2548.
16 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. Be sure to read the section "Buying
Shares" for a description of contingent deferred sales charges. 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 three days,
but in no event more than seven days, after your request is received in proper
form.
To minimize the effect of large redemption requests, each fund reserves the
right to fulfill these redemption requests by distributing readily marketable
securities in the fund's portfolio, rather than paying you in cash. See
"Policies & Services -- Managing Your Investment, Redemption In-Kind."
BY PHONE. If you purchased shares through an investment professional or
financial institution, simply call them to sell your shares. In many cases, your
redemption will be effective that day if received by your investment
professional 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
investment professional or financial institution time to process your request
and transmit it to the fund. Contact your investment professional or financial
institution directly for more information.
If you did not purchase shares through an investment professional or financial
institution, you may sell your shares by calling Investor Services at
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 fund) or sent to you by check. The funds reserve the right to limit
telephone exchanges to $50,000 per day.
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 15 calendar days
from the date of purchase.
BY MAIL. To sell shares by mail, send a written request to your investment
professional or financial institution, or to the fund 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:
* name of the fund.
* account number.
* dollar amount or number of shares redeemed.
* name on the account.
* signatures of all registered account owners.
Signatures on a written request must be guaranteed if:
* you would like the proceeds from the sale to be paid to anyone other than to
the shareholder of record.
* you would like the check mailed to an address other than the address on the
funds' records.
* 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 unless
another form of payment is requested.
--------------------------------------------------------------------------------
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 investment professional 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 of a First American Fund, 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 fund directly in writing or notify your
investment professional or financial institution.
--------------------------------------------------------------------------------
ACCOUNTS WITH LOW BALANCES
Except for retirement plans and Uniform Gifts to Minors Act/Uniform Transfers to
Minors Act accounts, if your account balance falls below $500 as a result of
selling or exchanging shares, the fund reserves the right to either:
* deduct a $25 annual account maintenance fee, or
* close your account and send you the proceeds, less any applicable
contingent deferred sales charge.
Before taking any action, however, the fund will send you written notice of the
action it intends to take and give you 30 days to re-establish a minimum account
balance of $500.
17 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. If both funds have identical shareholder registrations, you may
exchange shares by calling your investment professional, your financial
institution, or by calling the funds directly. To request an exchange through
the funds, call Investor Services at 1-800-637-2548. Your instructions must be
received before 3 p.m. Central time, or by the time specified by your investment
professional 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.
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.
--------------------------------------------------------------------------------
REDEMPTION IN-KIND
Generally, proceeds from redemption requests will be paid in cash. However, to
minimize the effect of large redemption requests on a fund and its remaining
shareholders, each fund reserves the right to pay part or all of the proceeds
from a redemption request in a proportionate share of readily marketable
securities in the fund instead of in cash. In selecting securities for a
redemption in-kind, the advisor will consider the best interests of the fund and
the remaining fund shareholders, and will value these securities in accordance
with the pricing methods employed to calculate the fund's net asset value per
share. If you receive redemption proceeds in-kind, you should expect to incur
transaction costs upon the disposition of the securities received in the
redemption.
18 PROSPECTUS - First American Bond Funds
Class A, Class B, and Class C Shares
<PAGE>
Policies & Services
MANAGING YOUR INVESTMENT CONTINUED
--------------------------------------------------------------------------------
STAYING INFORMED
SHAREHOLDER REPORTS. Shareholder reports are mailed twice a year, in November
and May. They include financial statements and performance information, and on
an annual basis, a message from your portfolio managers and 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 Investor Services at 1-800-637-2548.
STATEMENTS AND CONFIRMATIONS. Statements summarizing activity in your account
are mailed 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, your investment
professional or your financial institution. 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.
--------------------------------------------------------------------------------
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.
If in redemption of his or her shares a shareholder receives a distribution of
readily marketable securities instead of cash, the shareholder will be treated
as receiving an amount equal to the fair market value of the securities at the
time of the distribution for purposes of determining capital gain or loss on the
redemption, and will also acquire a basis in the shares for federal income tax
purposes equal to their fair market value.
The exchange of one class of shares for another class of shares in the same fund
will not be taxable.
19 PROSPECTUS - First American Bond Funds
Class A, Class B, and Class C Shares
<PAGE>
Additional Information
MANAGEMENT
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 September 30, 2000, it had more than $77 billion in assets under
management, including investment company assets of more than $33 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 the fiscal year ended September 30, 2000, 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 0.19%
FIXED INCOME FUND 0.51%
INTERMEDIATE TERM INCOME FUND 0.53%
LIMITED TERM INCOME FUND 0.23%
STRATEGIC INCOME FUND 0.69%
--------------------------------------------------------------------------------
DIRECT CORRESPONDENCE TO:
FIRST AMERICAN FUNDS
P.O. BOX 1330
MINNEAPOLIS, MINNESOTA 55440-1330
INVESTMENT ADVISOR
FIRST AMERICAN ASSET MANAGEMENT
601 SECOND AVENUE SOUTH
MINNEAPOLIS, MINNESOTA 55402
SUB-ADVISOR
FEDERATED GLOBAL INVESTMENT MANAGEMENT CORP.
175 WATER STREET
NEW YORK, NEW YORK 10038-4964
Federated Global Investment Management Corp., a subsidiary of Federated
Investors, is sub-advisor to the Strategic Income Fund. The sub-advisor has
been retained by the fund's investment advisor and is paid a portion of the
advisory fee. The sub-advisor and other subsidiaries of Federated Investors
serve as investment advisors to a number of investment companies and private
accounts. As of September 30, 2000, Federated Investors, Inc. managed
approximately $125 billion in assets.
DISTRIBUTOR
SEI INVESTMENTS DISTRIBUTION CO.
OAKS, PENNSYLVANIA 19456
PENDING ACQUISITION
On October 4, 2000, U.S. Bancorp, the parent company of the funds' investment
advisor, announced that it had entered into an agreement to be acquired by
Firstar Corporation. It is anticipated that this acquisition will be completed
in the first quarter of 2001, subject to regulatory approval, the approval of
U.S. Bancorp shareholders and the satisfaction of customary closing conditions.
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 all open-end funds in the First American Family of
funds. These services include general administrative and accounting services,
transfer agency and dividend disbursing services, and shareholder services. U.S.
Bank receives total 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. These fees are allocated among the funds in the First American family
of funds on the basis of their relative net asset values. The funds also pay
U.S. Bank fees based upon the number of funds and accounts maintained. In
addition, U.S. Bank is reimbursed for its out-of-pocket expenses incurred while
providing administrative services to the funds.
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 Investment, Inc. and U.S. Bancorp Piper Jaffray Inc.,
which will earn commissions on these transactions.
SHAREHOLDER SERVICING FEES. To the extent that fund shares are held through U.S.
Bank or its broker-dealer affiliates, U.S. Bancorp Investments, Inc. and U.S.
Bancorp Piper Jaffray Inc., those entities may receive shareholder servicing
fees from the funds' distributor.
20 PROSPECTUS - First American Bond Funds
Class A, Class B, and Class C Shares
<PAGE>
Additional Information
MANAGEMENT CONTINUED
PORTFOLIO MANAGEMENT
Except for Strategic Income Fund, each fund's investments are managed by a team
of persons associated with First American Asset Management. In the case of
Strategic Income Fund, First American Asset Management manages the fund's
investments in U.S. government obligations, investment grade and high-yield
domestic debt obligations, and U.S. dollar-denominated foreign corporate debt
obligations. A team of persons associated with Federated Global Investment
Management Corp. manages Strategic Income Fund's investments in investment grade
and high-yield foreign government and foreign corporate debt obligations.
21 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 "Fund Summaries" 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.
EFFECTIVE MATURITY. Effective maturity differs from actual stated or final
maturity, which may be substantially longer. In calculating effective maturity,
the advisor estimates the effect of expected principal payments and call
provisions on securities held in the portfolio. Effective maturity provides the
advisor with a better estimate of interest rate risk under normal market
conditions, but may underestimate in least rate risk in an environment of
adverse (rising) interest rates.
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. Fund managers may trade securities frequently, resulting,
from time to time, in an annual portfolio turnover rate of over 100%. For the
fiscal year ended September 30, 2000, Corporate Bond Fund and Limited Term
Income Fund had portfolio turnover rates in excess of 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.
22 PROSPECTUS - First American Bond Funds
Class A, Class B, and Class C Shares
<PAGE>
Additional Information
MORE ABOUT THE FUNDS CONTINUED
--------------------------------------------------------------------------------
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.
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.
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
23 PROSPECTUS - First American Bond Funds
Class A, Class B, and Class C Shares
<PAGE>
Additional Information
MORE ABOUT THE FUNDS CONTINUED
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.
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 funds' 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.
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 investment professionals 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 investment professionals 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 and political systems that
are generally less diverse, mature and stable 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.
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.
24 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 Corporate Bond Fund, Fixed
Income Fund and Strategic Income 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 the fund,
excluding sales charges and assuming you reinvested all of your dividends and
distributions.
The information for the fiscal years ended September 30, 2000, and September 30,
1999, has been derived from the financial statements 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 other auditors.
CORPORATE BOND FUND
Fiscal year ended
September 30,
CLASS A SHARES 2000(1)
-------------------------------------------------------------------------------
PER SHARE DATA
Net Asset Value, Beginning of Period $ 10.00
-------
Investment Operations:
Net Investment Income 0.48
Net Gains (Losses) on Investments
(both realized and unrealized) 0.02
-------
Total From Investment Operations 0.50
-------
Less Distributions:
Dividends (from net investment income) (0.47)
Distributions (from capital gains) --
-------
Total Distributions (0.47)
-------
Net Asset Value, End of Period $10.03
=======
Total Return 5.17%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 771
Ratio of Expenses to Average Net Assets 0.72%(2)
Ratio of Net Income to Average Net Assets 7.52%(2)
Ratio of Expenses to Average Net Assets (excluding waivers) 1.24%(2)
Ratio of Net Income to Average Net Assets (excluding waivers) 7.00%(2)
Portfolio Turnover Rate 124%
-------------------------------------------------------------------------------
(1)Class A shares have been offered since February 1, 2000.
(2)Annualized.
25 PROSPECTUS - First American Bond Funds
Class A, Class B, and Class C Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
CORPORATE BOND FUND (CONTINUED)
Fiscal year ended
September 30,
CLASS B SHARES 2000(1)
-------------------------------------------------------------------------------
PER SHARE DATA
Net Asset Value, Beginning of Period $ 10.00
-------
Investment Operations:
Net Investment Income 0.45
Net Gains (Losses) on Investments
(both realized and unrealized) 0.01
-------
Total From Investment Operations 0.46
-------
Less Distributions:
Dividends (from net investment income) (0.44)
Distributions (from capital gains) --
-------
Total Distributions (0.44)
-------
Net Asset Value, End of Period $ 10.02
=======
Total Return 4.70%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 103
Ratio of Expenses to Average Net Assets 1.48%(2)
Ratio of Net Income to Average Net Assets 6.86%(2)
Ratio of Expenses to Average Net Assets (excluding waivers) 1.99%(2)
Ratio of Net Income to Average Net Assets (excluding waivers) 6.35%(2)
Portfolio Turnover Rate 124%
-------------------------------------------------------------------------------
(1)Class B shares have been offered since February 1, 2000.
(2)Annualized.
Fiscal year ended
September 30,
CLASS C SHARES 2000(1)
--------------------------------------------------------------------------------
PER SHARE DATA
Net Asset Value, Beginning of Period $ 10.00
-------
Investment Operations:
Net Investment Income 0.45
Net Gains (Losses) on Investments
(both realized and unrealized) (0.01)
-------
Total From Investment Operations 0.44
-------
Less Distributions:
Dividends (from net investment income) (0.43)
Distributions (from capital gains) --
-------
Total Distributions (0.43)
-------
Net Asset Value, End of Period $ 10.01
=======
Total Return 4.54%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 143
Ratio of Expenses to Average Net Assets 1.48%(2)
Ratio of Net Income to Average Net Assets 6.79%(2)
Ratio of Expenses to Average Net Assets (excluding waivers) 1.99%(2)
Ratio of Net Income to Average Net Assets (excluding waivers) 6.28%(2)
Portfolio Turnover Rate 124%
-------------------------------------------------------------------------------
(1)Class C shares have been offered since February 1, 2000.
(2)Annualized.
26 PROSPECTUS - First American Bond Funds
Class A, Class B, and Class C Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
FIXED INCOME FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS A SHARES 2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 10.65 $ 11.69 $ 10.97 $ 10.77 $ 10.98
-------- -------- -------- -------- --------
Investment Operations:
Net Investment Income 0.61 0.59 0.57 0.59 0.61
Net Gains (Losses) on Investments
(both realized and unrealized) 0.04 (0.89) 0.73 0.27 (0.11)
-------- -------- -------- -------- ---------
Total From Investment Operations 0.65 (0.30) 1.30 0.86 0.50
-------- -------- -------- -------- ---------
Less Distributions:
Dividends (from net investment income) (0.61) (0.59) (0.57) (0.59) (0.61)
Distributions (from capital gains) -- (0.15) (0.01) (0.07) (0.10)
-------- -------- -------- -------- --------
Total Distributions (0.61) (0.74) (0.58) (0.66) (0.71)
-------- -------- -------- -------- --------
Net Asset Value, End of Period $ 10.69 $ 10.65 $ 11.69 $ 10.97 $ 10.77
======== ======== ======== ======== ========
Total Return 6.33% (2.67)% 12.29% 8.26% 4.64%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $110,490 $137,133 $205,237 $ 8,535 $ 8,332
Ratio of Expenses to Average Net Assets 0.95% 0.95% 0.95% 0.95% 0.95%
Ratio of Net Income to Average Net Assets 5.76% 5.29% 5.10% 5.44% 5.55%
Ratio of Expenses to Average Net Assets (excluding waivers) 1.14% 1.14% 1.11% 1.13% 1.12%
Ratio of Net Income to Average Net Assets (excluding waivers) 5.57% 5.10% 4.94% 5.26% 5.38%
Portfolio Turnover Rate 54% 90% 147% 130% 108%
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS B SHARES 2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 10.58 $ 11.63 $ 10.91 $ 10.72 $ 10.94
-------- -------- -------- -------- --------
Investment Operations:
Net Investment Income 0.53 0.51 0.49 0.51 0.52
Net Gains (Losses) on Investments
(both realized and unrealized) 0.05 (0.90) 0.73 0.26 (0.11)
-------- -------- -------- -------- --------
Total From Investment Operations 0.58 (0.39) 1.22 0.77 0.41
-------- -------- -------- -------- --------
Less Distributions:
Dividends (from net investment income) (0.53) (0.51) (0.49) (0.51) (0.53)
Distributions (from capital gains) -- (0.15) (0.01) (0.07) (0.10)
-------- -------- -------- -------- --------
Total Distributions (0.53) (0.66) (0.50) (0.58) (0.63)
-------- -------- -------- -------- --------
Net Asset Value, End of Period $ 10.63 $ 10.58 $ 11.63 $ 10.91 $ 10.72
======== ======== ======== ======== ========
Total Return 5.70% (3.48)% 11.54% 7.40% 3.93%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 11,550 $ 14,639 $ 17,242 $ 15,253 $ 16,092
Ratio of Expenses to Average Net Assets 1.70% 1.70% 1.70% 1.70% 1.70%
Ratio of Net Income to Average Net Assets 5.02% 4.53% 4.35% 4.68% 4.81%
Ratio of Expenses to Average Net Assets (excluding waivers) 1.89% 1.89% 1.86% 1.88% 1.87%
Ratio of Net Income to Average Net Assets (excluding waivers) 4.83% 4.34% 4.19% 4.50% 4.64%
Portfolio Turnover Rate 54% 90% 147% 130% 108%
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
27 PROSPECTUS - First American Bond Funds
Class A, Class B, and Class C Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
FIXED INCOME FUND (CONTINUED)
Fiscal year ended September 30,
CLASS C SHARES 2000 1999(1)
--------------------------------------------------------------------------------
PER SHARE DATA
Net Asset Value, Beginning of Period $10.64 $11.33
------ ------
Investment Operations:
Net Investment Income 0.52 0.38
Net Gains (Losses) on Investments
(both realized and unrealized) 0.04 (0.69)
------ ------
Total From Investment Operations 0.56 (0.31)
------ ------
Less Distributions:
Dividends (from net investment income) (0.54) (0.38)
Distributions (from capital gains) -- --
------ ------
Total Distributions (0.54) (0.38)
------ ------
Net Asset Value, End of Period $10.66 $10.64
====== ======
Total Return 5.50% 2.75%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 566 $ 719
Ratio of Expenses to Average Net Assets 1.70% 1.35%(2)
Ratio of Net Income to Average Net Assets 5.02% 5.09%(2)
Ratio of Expenses to Average Net Assets (excluding waivers) 1.89% 1.89%(2)
Ratio of Net Income to Average Net Assets (excluding waivers) 4.83% 4.55%(2)
Portfolio Turnover Rate 54% 90%
--------------------------------------------------------------------------------
(1)Class C shares have been offered since February 1, 1999.
(2)Annualized.
28 PROSPECTUS - First American Bond Funds
Class A, Class B, and Class C Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
INTERMEDIATE TERM INCOME FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS A SHARES 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 9.80 $ 10.45 $ 10.00 $ 9.93 $ 9.94
------- ------- ------- ------- -------
Investment Operations:
Net Investment Income 0.54 0.51 0.53 0.55 0.55
Net Gains (Losses) on Investments
(both realized and unrealized) -- (0.54) 0.47 0.15 --
------- ------- ------- ------- -------
Total From Investment Operations 0.54 (0.03) 1.00 0.70 0.55
------- ------- ------- ------- -------
Less Distributions:
Dividends (from net investment income) (0.55) (0.50) (0.53) ( 0.56) (0.55)
Distributions (from capital gains) -- (0.12) (0.02) ( 0.07) (0.01)
------- ------- ------- ------- -------
Total Distributions (0.55) (0.62) (0.55) ( 0.63) (0.56)
------- ------- ------- ------- -------
Net Asset Value, End of Period $ 9.79 $ 9.80 $ 10.45 $ 10.00 $ 9.93
======= ======== ======= ======= ========
Total Return 5.69% (0.20)% 10.35% 7.19% 5.63%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $29,645 $ 34,365 $49,130 $ 2,484 $ 2,213
Ratio of Expenses to Average Net Assets 0.85% 0.85% 0.70% 0.70% 0.70%
Ratio of Net Income to Average Net Assets 5.21% 5.01% 5.22% 5.51% 5.43%
Ratio of Expenses to Average Net Assets (excluding waivers) 1.01% 1.12% 1.11% 1.17% 1.13%
Ratio of Net Income to Average Net Assets (excluding waivers) 5.05% 4.74% 4.81% 5.04% 5.00%
Portfolio Turnover Rate 83% 65% 166% 165% 161%
------------------------------------------------------------------------------------------------------------------------
</TABLE>
LIMITED TERM INCOME FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS A SHARES 2000 1999 1998 1997 1996
--------------------------------------------------------------- ----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 9.86 $ 10.04 $ 9.94 $ 9.91 $ 9.92
------- ------- ------- ------- -------
Investment Operations:
Net Investment Income 0.58 0.52 0.53 0.56 0.58
Net Gains (Losses) on Investments
(both realized and unrealized) 0.02 (0.18) 0.10 0.03 (0.01)
------- ------- ------- ------- -------
Total From Investment Operations 0.60 0.34 0.63 0.59 0.57
------- ------- ------- ------- -------
Less Distributions:
Dividends (from net investment income) (0.55) (0.52) (0.53) (0.56) (0.58)
------- ------- ------- ------- -------
Total Distributions (0.55) (0.52) (0.53) (0.56) (0.58)
------- ------- ------- ------- -------
Net Asset Value, End of Period $ 9.91 $ 9.86 $ 10.04 $ 9.94 $ 9.91
======= ======= ======= ======= =======
Total Return 6.30% 3.43% 6.55% 6.09% 5.93%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $80,992 $ 5,318 $ 5,036 $ 7,152 $ 7,627
Ratio of Expenses to Average Net Assets 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of Net Income to Average Net Assets 6.12% 5.16% 5.33% 5.61% 5.80%
Ratio of Expenses to Average Net Assets (excluding waivers) 1.13% 1.12% 1.12% 1.15% 1.09%
Ratio of Net Income to Average Net Assets (excluding waivers) 5.59% 4.64% 4.81% 5.06% 5.31%
Portfolio Turnover Rate 127% 65% 112% 147% 61%
------------------------------------------------------------------------------------------------------------------------
</TABLE>
29 PROSPECTUS - First American Bond Funds
Class A, Class B, and Class C Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS A SHARES 2000 1999(3) 1998(1)
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 9.09 $ 9.27 $ 10.00
------- ------- -------
Investment Operations:
Net Investment Income 0.64 0.78 0.13
Net Gains (Losses) on Investments
(both realized and unrealized) (0.15) (0.25) (0.75)
-------- ------- -------
Total From Investment Operations 0.49 0.53 (0.62)
-------- ------- -------
Less Distributions:
Dividends (from net investment income) (0.67) (0.71) (0.11)
------- ------- -------
Total Distributions (0.67) (0.71) (0.11)
------- ------- -------
Net Asset Value, End of Period $ 8.91 $ 9.09 $ 9.27
======= ======= =======
Total Return 5.56% 5.73% (6.17)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $21,737 $27,768 $40,270
Ratio of Expenses to Average Net Assets 1.15% 1.15% 1.15%(2)
Ratio of Net Income to Average Net Assets 7.08% 8.30% 8.19%(2)
Ratios of Expenses to Average Net Assets (excluding waivers) 1.17% 1.21% 1.30%(2)
Ratio of Net Income to Average Net Assets (excluding waivers) 7.06% 8.24% 8.04%(2)
Portfolio Turnover Rate 90% 40% 61%
------------------------------------------------------------------------------------------------------
</TABLE>
(1)Class A shares have been offered since July 24, 1998.
(2)Annualized.
(3)Per share data for 1999 is calculated using the average shares outstanding
method.
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS B SHARES 2000 1999(3) 1998(1)
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 9.07 $ 9.27 $ 10.00
------- ------- -------
Investment Operations:
Net Investment Income 0.56 0.71 0.09
Net Gains (Losses) on Investments
(both realized and unrealized) (0.14) (0.26) (0.71)
------- ------- -------
Total From Investment Operations 0.42 0.45 (0.62)
------- ------- -------
Less Distributions:
Dividends (from net investment income) (0.60) (0.65) (0.11)
------- ------- -------
Total Distributions (0.60) (0.65) (0.11)
------- ------- -------
Net Asset Value, End of Period $ 8.89 $ 9.07 $ 9.27
======= ======= =======
Total Return 4.83% 4.90% (6.19)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 1,401 $ 788 $ 114
Ratio of Expenses to Average Net Assets 1.90% 1.90% 1.90%(2)
Ratio of Net Income to Average Net Assets 6.20% 7.56% 7.44%(2)
Ratio of Expenses to Average Net Assets (excluding waivers) 1.91% 1.96% 2.05%(2)
Ratio of Net Income to Average Net Assets (excluding waivers) 6.19% 7.50% 7.29%(2)
Portfolio Turnover Rate 90% 40% 61%
------------------------------------------------------------------------------------------------------
</TABLE>
(1)Class B shares have been offered since July 24, 1998.
(2)Annualized.
(3)Per share data for 1999 is calculated using the average shares outstanding
method.
30 PROSPECTUS - First American Bond Funds
Class A, Class B, and Class C Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
STRATEGIC INCOME FUND (CONTINUED)
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS C SHARES 2000 1999(1),(3)
--------------------------------------------------------------- ---------- -----------
<S> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 9.08 $ 9.57
------- -------
Investment Operations:
Net Investment Income 0.59 0.45
Net Gains (Losses) on Investments
(both realized and unrealized) (0.14) (0.47)
------- -------
Total From Investment Operations 0.45 (0.02)
------- -------
Less Distributions:
Dividends (from net investment income) (0.63) (0.47)
------- -------
Total Distributions (0.63) (0.47)
------- -------
Net Asset Value, End of Period $ 8.90 $ 9.08
======= ========
Total Return 5.16% (0.28)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 1,241 $ 1,058
Ratio of Expenses to Average Net Assets 1.65% 1.55%(2)
Ratio of Net Income to Average Net Assets 6.46% 7.34%(2)
Ratios of Expenses to Average Net Assets (excluding waivers) 1.73% 1.90%(2)
Ratio of Net Income to Average Net Assets (excluding waivers) 6.38% 6.99%(2)
Portfolio Turnover Rate 90% 40%
------------------------------------------------------------------------------------------
</TABLE>
(1)Class C shares have been offered since February 1, 1999.
(2)Annualized.
(3)Per share data for 1999 is calculated using the average shares outstanding
method.
31 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, and on the First
American funds' Internet Web site.
--------------------------------------------------------------------------------
FIRST AMERICAN FUNDS WEB SITE
Information about the First American funds may be viewed on the funds' Internet
Web site at http://www.firstamericanfunds.com.
--------------------------------------------------------------------------------
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 of this information, after paying a duplicating fee,
by electronic request at the following email address: [email protected], or by
writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. For
more information, call 1-202-942-8090.
Information about the funds is also available on the Internet. Text-only
versions of fund documents can be viewed online or downloaded from the EDGAR
Database on the SEC's Internet site at http://www.sec.gov.
FIRST AMERICAN FUNDS P.O. Box 1330, Minneapolis, MN 55440-1330
First American Asset Management, a division of U.S. Bank National Association,
serves as the investment advisor to the First American Funds.
First American Funds are distributed by SEI Investments Distribution Co. which
is located in Oaks, PA 19456 and is not an affiliate of U.S. Bank.
12/2000 PROBONDR-00
SEC file number: 811-05309
[LOGO] FIRST AMERICAN FUNDS
THE POWER OF DISCIPLINED INVESTING
<PAGE>
DECEMBER 30, 2000
ASSET CLASSES
* EQUITY FUNDS
* FUNDS OF FUNDS
(*) BOND FUNDS
* TAX FREE FUNDS
* MONEY MARKET FUNDS
PROSPECTUS
FIRST AMERICAN INVESTMENT FUNDS, INC.
FIRST AMERICAN
BOND
FUNDS
CLASS Y SHARES
CORPORATE BOND FUND
FIXED INCOME FUND
INTERMEDIATE TERM INCOME FUND
LIMITED TERM INCOME FUND
STRATEGIC INCOME FUND
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.
[LOGO] FIRST AMERICAN FUNDS(R)
THE POWER OF DISCIPLINED INVESTING(R)
<PAGE>
Table of
CONTENTS
FUND SUMMARIES
--------------------------------------------------------------------------------
Corporate Bond Fund 2
--------------------------------------------------------------------------------
Fixed Income Fund 4
--------------------------------------------------------------------------------
Intermediate Term Income Fund 6
--------------------------------------------------------------------------------
Limited Term Income Fund 8
--------------------------------------------------------------------------------
Strategic Income Fund 10
--------------------------------------------------------------------------------
POLICIES & SERVICES
--------------------------------------------------------------------------------
Buying and Selling Shares 13
--------------------------------------------------------------------------------
Managing Your Investment 14
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
Management 15
--------------------------------------------------------------------------------
More About The Funds 16
--------------------------------------------------------------------------------
Financial Highlights 19
--------------------------------------------------------------------------------
FOR MORE INFORMATION Back Cover
--------------------------------------------------------------------------------
<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.
1 PROSPECTUS - First American Bond Funds
Class Y Shares
<PAGE>
Fund Summaries
CORPORATE BOND FUND
--------------------------------------------------------------------------------
OBJECTIVE
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 (at
least 65% of its total assets) in corporate debt obligations. The fund will also
invest in a combination of:
* U.S. dollar-denominated debt obligations of foreign issuers.
* securities issued or guaranteed by the U.S. government or its agencies and
instrumentalities.
* mortgage- and asset-backed securities.
Fund managers employ a bottom up approach to investing. They devote more
resources to evaluating individual securities rather than assessing
macro-economic trends. Securities are selected using fundamental credit research
to identify relative value in the market. Positions are sold in anticipation of
credit deterioration or when a security is priced expensively relative to other
comparable investments.
The fund invests primarily in securities rated investment grade at the time of
purchase or in unrated securities of comparable quality. However, up to 35% of
the fund's securities may be rated lower than investment grade at the time of
purchase or unrated and of comparable quality (securities commonly referred to
as "junk bonds"). The fund will not invest in securities rated lower than B at
the time of purchase or in unrated securities of equivalent quality. Unrated
securities will not exceed 25% of the fund's total assets. Quality
determinations regarding these securities will be made by the fund's advisor.
The fund may invest up to 25% of its total assets in foreign debt securities
payable in U.S. dollars.
Under normal market conditions the fund attempts to maintain a weighted average
effective maturity for its portfolio securities of 15 years or less and an
average effective duration of four to nine years. The fund's weighted average
effective maturity and average effective duration are measures of how the fund
may react to interest rate changes.
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 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."
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 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. 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.
--------------------------------------------------------------------------------
FUND PERFORMANCE
Because Corporate Bond Fund shares have not been offered for a full calendar
year no performance information is presented for these shares.
2 PROSPECTUS - First American Bond Funds
Class Y Shares
<PAGE>
Fund Summaries
CORPORATE BOND FUND CONTINUED
--------------------------------------------------------------------------------
FEES AND EXPENSES
The fund does not impose any sales charges (loads) or other fees when you buy,
sell or exchange shares. However, when you hold shares of the fund you
indirectly pay a portion of the fund's operating expenses. These expenses are
deducted from fund assets. The figures below are based on expenses during the
fiscal year ended September 30, 2000.(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 0.29%
TOTAL 0.99%
--------------------------------------------------------------------------------
(1) Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 2000,
were:
Waiver of Fund Expenses (0.51)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 0.48%
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 0.50%. 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 $ 101
3 years $ 315
5 years $ 547
10 years $1,213
3 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:
* U.S. government securities, (securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities), including zero coupon
securities.
* mortgage- and asset-backed securities.
* 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. If the rating of a security is reduced or the credit quality of an
unrated security declines after purchase, the fund is not required to sell the
security, but may consider doing so. 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
effective maturity for its portfolio securities of 15 years or less and an
average effective duration of three to eight years. The fund's weighted average
effective maturity and average effective duration are measures of how the fund
may react to interest rate changes.
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."
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.
--------------------------------------------------------------------------------
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.
4 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(1)
17.29% 3.46% 8.85% 8.93% -2.76%
--------------------------------------------------------------------------------
1995 1996 1997 1998 1999
Best Quarter: Quarter ending June 30, 1995 6.13%
Worst Quarter: Quarter ending March 31, 1996 (1.63)%
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99 Date One Year Five Years Inception
--------------------------------------------------------------------------------
Fixed Income Fund 2/4/94 (2.76)% 6.95% 5.33%
--------------------------------------------------------------------------------
Lehman Aggregate Bond Index(2) (0.83)% 7.73% 6.13%
--------------------------------------------------------------------------------
(1) Total return for the period from 1/1/00 through 9/30/00 was 7.11%.
(2) An unmanaged index composed of the Lehman Government/Credit Bond Index, the
Lehman Mortgage Backed Securities Index and the Lehman Asset Backed
Securities Index. The Lehman Government/Credit 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 Mortgage Backed Securities Index is comprised of the mortgage-backed
pass-through securities of Ginnie Mae, Fannie Mae, and Freddie Mac. The
Lehman Asset-Backed Index is comprised of debt securities rated investment
grade or higher that are backed by credit card, auto and home equity loans.
The since inception performance of the index is calculated from 2/28/94.
--------------------------------------------------------------------------------
FEES AND EXPENSES
The fund does not impose any sales charges (loads) or other fees when you buy,
sell or exchange shares. However, when you hold shares of the fund you
indirectly pay a portion of the fund's operating expenses. These expenses are
deducted from fund assets. The figures below are based on expenses during the
fiscal year ended September 30, 2000.(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 0.19%
TOTAL 0.89%
--------------------------------------------------------------------------------
(1) Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 2000,
were:
Waiver of Fund Expenses (0.19)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 0.70%
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 $ 91
3 years $ 284
5 years $ 493
10 years $1,096
5 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:
* U.S. government securities, (securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities), including zero coupon
securities.
* mortgage- and asset-backed securities.
* 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. If the rating of a security is reduced or discontinued after purchase,
the fund is not required to sell the security, but may consider doing so. 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
effective maturity for its portfolio securities of two to seven years and an
average effective duration of two to six years. The fund's weighted average
effective maturity and effective duration are measures of how the fund may react
to interest rate changes.
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."
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.
--------------------------------------------------------------------------------
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 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(1)
14.62% 4.22% 7.01% 8.20% -0.48%
--------------------------------------------------------------------------------
1995 1996 1997 1998 1999
Best Quarter: Quarter ending June 30, 1995 4.71%
Worst Quarter: Quarter ending March 31, 1999 (0.60)%
<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 Term Income Fund 2/4/94 (0.48)% 6.60% 5.76%
Lehman Intermediate Gov't/Credit Bond Index(2) 0.39% 7.09% 5.77%
</TABLE>
(1) Total return for the period from 1/1/00 through 9/30/00 was 6.15%.
(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, in each case with maturities
from one to 10 years. The since inception performance of the index is
calculated from 2/28/94.
--------------------------------------------------------------------------------
FEES AND EXPENSES
The fund does not impose any sales charges (loads) or other fees when you buy,
sell or exchange shares. However, when you hold shares of the fund you
indirectly pay a portion of the fund's operating expenses. These expenses are
deducted from fund assets. The figures below are based on expenses during the
fiscal year ended September 30, 2000.(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 0.17%
TOTAL 0.87%
--------------------------------------------------------------------------------
(1) Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 2000,
were:
Waiver of Fund Expenses (0.17)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 0.70%
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
7 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:
* mortgage- and asset-backed securities;
* corporate debt obligations.
* U.S. government securities, which are securities issued or guaranteed by the
U.S. government or its agencies or instrumentalities.
* 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. If the rating of a security is reduced or discontinued after purchase,
the fund is not required to sell the security, but may consider doing so. 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. The fund's weighted average effective maturity and effective
duration are measures of how the fund may react to interest rate changes.
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 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."
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.
--------------------------------------------------------------------------------
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.
8 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(1)
[BAR CHART]
8.23% 5.60% 5.93% 6.08% 3.34%
--------------------------------------------------------------------------------
1995 1996 1997 1998 1999
Best Quarter: Quarter ending June 30, 1995 2.47%
Worst Quarter: Quarter ending June 30, 1999 0.60%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99 Date One Year Five Years Inception
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Limited Term Income Fund 2/4/94 3.34% 5.83% 5.18%
------------------------------------------------------------------------------------------------
Lehman MF 1-3 Year Gov't/Credit Index(2) 2.96% 4.62% 5.68%
------------------------------------------------------------------------------------------------
</TABLE>
(1)Total return for the period from 1/1/00 through 9/30/00 was 5.51%.
(2)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.
--------------------------------------------------------------------------------
FEES AND EXPENSES
The fund does not impose any sales charges (loads) or other fees when you buy,
sell or exchange shares. However, when you hold shares of the fund you
indirectly pay a portion of the fund's operating expenses. These expenses are
deducted from fund assets. The figures below are based on expenses during the
fiscal year ended September 30, 2000.(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 0.28%
TOTAL 0.98%
--------------------------------------------------------------------------------
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 2000,
were:
Waiver of Fund Expenses (0.47)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) .51%
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 $ 100
3 years $ 312
5 years $ 542
10 years $1,201
9 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:
* 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.
* high-yield (non-investment grade) debt obligations issued by domestic
issuers.
* 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 (which means that the fund may invest in lower-rated securities, or
unrated securities of comparable quality, commonly referred to as "junk bonds").
In addition, there is no limitation on the average maturity or average effective
duration of securities held by the fund.
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."
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. 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.
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.
10 PROSPECTUS - First American Bond Funds
Class Y Shares
<PAGE>
Fund Summaries
STRATEGIC INCOME FUND CONTINUED
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."
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 presented.
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 Bond Funds
Class Y Shares
<PAGE>
Fund Summaries
STRATEGIC INCOME FUND CONTINUED
--------------------------------------------------------------------------------
FUND PERFORMANCE(CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR(1)
[BAR CHART]
3.32%
--------------------------------------------------------------------------------
1999
Best Quarter: Quarter ending December 31, 1999 2.95%
Worst Quarter: Quarter ending June 30, 1999 (0.56)%
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99 Date One Year Inception
--------------------------------------------------------------------------------
Strategic Income Fund 7/24/98 3.32% 1.66%
--------------------------------------------------------------------------------
Lehman Aggregate Bond Index(2) (0.83)% 0.45%
--------------------------------------------------------------------------------
(1)Total return for the period from 1/1/00 through 9/30/00 was 2.91%.
(2)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
The fund does not impose any sales charges (loads) or other fees when you buy,
sell or exchange shares. However, when you hold shares of the fund you
indirectly pay a portion of the fund's operating expenses. These expenses are
deducted from fund assets. The figures below are based on expenses during the
fiscal year ended September 30, 2000.(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 0.21%
TOTAL 0.91%
--------------------------------------------------------------------------------
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 2000,
were:
Waiver of Fund Expenses (0.01)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 0.90%
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 $ 93
3 years $ 290
5 years $ 504
10 years $1,120
12 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 investment professional 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.
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.
To minimize the effect of large redemption requests, each fund reserves the
right to fulfill these redemption requests by distributing readily marketable
securities in the fund's portfolio, rather than paying you in cash. See
"Policies & Services -- Managing Your Investment, Redemption In-Kind."
--------------------------------------------------------------------------------
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 are 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.
13 PROSPECTUS - First American Bond Funds
Class Y Shares
<PAGE>
Policies & Services
MANAGING YOUR INVESTMENT
--------------------------------------------------------------------------------
REDEMPTION IN-KIND
Generally, proceeds from redemption requests will be paid in cash. However, to
minimize the effect of large redemption requests on a fund and its remaining
shareholders, each fund reserves the right to pay part or all of the proceeds
from a redemption request in a proportionate share of readily marketable
securities in the fund instead of cash. In selecting securities for a redemption
in-kind, the advisor will consider the best interests of the fund and the
remaining fund shareholders, and will value these securities in accordance with
the pricing methods employed to calculate the fund's net asset value per share.
If you receive redemption proceeds in-kind, you should expect to incur
transaction costs upon disposition of the securities received in the redemption.
--------------------------------------------------------------------------------
STAYING INFORMED
SHAREHOLDER REPORTS. Shareholder reports are mailed twice a year, in November
and May. They include financial statements and performance information, and on
an annual basis, a message from your portfolio managers and 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 Investor Services at 1-800-637-2548.
STATEMENTS AND CONFIRMATIONS. Statements summarizing activity in your account
are mailed 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 contacting your financial institution. 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.
--------------------------------------------------------------------------------
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.
If in redemption of his or her shares a shareholder receives a distribution of
readily marketable securities instead of cash, the shareholder will be treated
as receiving an amount equal to the fair market value of the securities at the
time of the distribution for purposes of determining capital gain or loss on the
redemption, and will also acquire a basis in the shares for federal income tax
purposes equal to their fair market value.
The exchange of one class of shares for another class of shares in the same fund
will not be taxable.
14 PROSPECTUS - First American Bond Funds
Class Y Shares
<PAGE>
Additional Information
MANAGEMENT
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 September 30, 2000, it had more than $77 billion in assets under
management, including investment company assets of more than $33 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 the fiscal year ended September 30, 2000, 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 0.19%
FIXED INCOME FUND 0.51%
INTERMEDIATE TERM INCOME FUND 0.53%
LIMITED TERM INCOME FUND 0.23%
STRATEGIC INCOME FUND 0.69%
--------------------------------------------------------------------------------
DIRECT CORRESPONDENCE TO:
FIRST AMERICAN FUNDS
P.O. BOX 1330
MINNEAPOLIS, MINNESOTA 55440-1330
INVESTMENT ADVISOR
FIRST AMERICAN ASSET MANAGEMENT
601 SECOND AVENUE SOUTH
MINNEAPOLIS, MINNESOTA 55402
SUB-ADVISOR
FEDERATED GLOBAL INVESTMENT MANAGEMENT CORP.
175 WATER STREET
NEW YORK, NEW YORK 10038-4964
Federated Global Investment Management Corp., a subsidiary of Federated
Investors, is sub-advisor to the Strategic Income Fund. The sub-advisor has
been retained by the fund's investment advisor and is paid a portion of the
advisory fee. The sub-advisor and other subsidiaries of Federated Investors
serve as investment advisors to a number of investment companies and private
accounts. As of September 30, 2000, Federated Investors, Inc., managed
approximately $125 billion in assets.
DISTRIBUTOR
SEI INVESTMENTS DISTRIBUTION CO.
OAKS, PENNSYLVANIA 19456
PENDING ACQUISITION
On October 4, 2000, U.S. Bancorp, the parent company of the funds' investment
advisor, announced that it had entered into an agreement to be acquired by
Firstar Corporation. It is anticipated that this acquisition will be completed
in the first quarter of 2001, subject to regulatory approval, the approval of
U.S. Bancorp shareholders and the satisfaction of customary closing conditions.
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 all open-end funds in the First American family of
funds. These services include general administrative and accounting services,
transfer agency and dividend disbursing services, and shareholder services. U.S.
Bank receives total 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. These fees are allocated among the funds in the First American family
of funds on the basis of their relative net asset values. The funds pay U.S.
Bank fees based upon the number of funds and accounts maintained. In addition,
U.S. Bank is reimbursed for its out of pocket expenses incurred while providing
administrative services to the funds.
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 these transactions.
SHAREHOLDER SERVICING FEES. To the extent that fund shares are held through
U.S. Bank or its broker-dealer affiliates, U.S. Bancorp Investments, Inc. and
U.S. Bancorp Piper Jaffray Inc., those entities may receive shareholder
servicing fees from the funds' distributor.
PORTFOLIO MANAGEMENT
Except for Strategic Income Fund, each fund's investments are managed by a team
of persons associated with First American Asset Management. In the case of
Strategic Income Fund First American Asset Management manages the fund's
investments in U.S. government obligations, investment grade and high-yield
domestic debt obligations, and U.S. dollar-denominated foreign corporate debt
obligations. A team of persons associated with Federated Global Investment
Management Corp. manages Strategic Income Fund's investments in investment grade
and high yield foreign government and foreign corporate debt obligations.
15 PROSPECTUS - First American Bond Funds
Class Y Shares
<PAGE>
Additional Information
MORE ABOUT THE FUNDS
--------------------------------------------------------------------------------
OBJECTIVES
The funds' objectives, which are described in "Fund Summaries," 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.
EFFECTIVE MATURITY. Effective maturity differs from actual stated or final
maturity, which may be substantially longer. In calculating effective maturity,
the advisor estimates the effect of expected principal payments and call
provisions on securities held in the portfolio. Effective maturity provides the
advisor with a better estimate of interest rate risk under normal market
conditions, but may underestimate interest rate risk in an environment of
adverse (rising) interest rates.
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. Fund managers may trade securities frequently, resulting,
from time to time, in an annual portfolio turnover rate of over 100%. For the
fiscal year ended September 30, 2000, Corporate Bond Fund and Limited Term
Income Fund had portfolio turnover rates in excess of 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.
16 PROSPECTUS - First American Bond Funds
Class Y Shares
<PAGE>
Additional Information
MORE ABOUT THE FUNDS CONTINUED
--------------------------------------------------------------------------------
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.
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.
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
17 PROSPECTUS - First American Bond Funds
Class Y Shares
<PAGE>
Additional Information
MORE ABOUT THE FUNDS CONTINUED
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.
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.
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 investment professionals 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 investment professionals 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 and political systems that
are generally less diverse, mature and stable 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.
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.
18 PROSPECTUS - First American Bond Funds
Class Y Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
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 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 the fund, assuming you reinvested all of
your dividends and distributions.
The information for the fiscal years ended September 30, 2000, and September 30,
1999, has been derived from the financial statements 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 other auditors.
CORPORATE BOND FUND
Fiscal year ended
September 30,
2000(1)
-----------------
PER SHARE DATA
Net Asset Value, Beginning of Period $ 10.00
-------
Investment Operations:
Net Investment Income 0.49
Net Gains (Losses) on Investments
(both realized and unrealized) 0.02
-------
Total From Investment Operations 0.51
-------
Less Distributions:
Dividends (from net investment income) (0.48)
Distributions (from capital gains) --
-------
Total Distributions (0.48)
-------
Net Asset Value, End of Period $ 10.03
=======
Total Return 5.32%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $89,990
Ratio of Expenses to Average Net Assets 0.48%
Ratio of Net Income to Average Net Assets 7.75%
Ratio of Expenses to Average Net Assets (excluding waivers) 0.99%
Ratio of Net Income to Average Net Assets (excluding waivers) 7.24%
Portfolio Turnover Rate 124%
--------------------------------------------------------------------------------
(1)Class Y shares have been offered since February 1, 2000.
19 PROSPECTUS - First American Bond Funds
Class Y Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
FIXED INCOME FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 10.65 $ 11.69 $ 10.96 $ 10.76 $ 10.97
---------- ---------- ---------- ---------- ----------
Investment Operations:
Net Investment Income 0.63 0.61 0.60 0.62 0.63
Net Gains (Losses) on Investments
(both realized and unrealized) 0.04 (0.89) 0.74 0.27 (0.11)
---------- ---------- ---------- ---------- ----------
Total From Investment Operations 0.67 (0.28) 1.34 0.89 0.52
---------- ---------- ---------- ---------- -----------
Less Distributions:
Dividends (from net investment income) (0.63) (0.61) (0.60) (0.62) (0.63)
Distributions (from capital gains) -- (0.15) (0.01) (0.07) (0.10)
---------- ---------- ---------- ---------- ----------
Total Distributions (0.63) (0.76) (0.61) (0.69) (0.73)
---------- ---------- ---------- ---------- -----------
Net Asset Value, End of Period $ 10.69 $ 10.65 $ 11.69 $ 10.96 $ 10.76
========== ========== ========== ========== ==========
Total Return 6.59% (2.44)% 12.66% 8.54% 4.90%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $1,299,941 $1,239,900 $1,210,661 $ 705,719 $ 391,211
Ratio of Expenses to Average Net Assets 0.70% 0.70% 0.70% 0.70% 0.70%
Ratio of Net Income to Average Net Assets 6.03% 5.57% 5.35% 5.71% 5.81%
Ratio of Expenses to Average Net Assets (excluding waivers) 0.89% 0.89% 0.86% 0.88% 0.87%
Ratio of Net Income to Average Net Assets (excluding waivers) 5.84% 5.38% 5.19% 5.53% 5.64%
Portfolio Turnover Rate 54% 90% 147% 130% 108%
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
INTERMEDIATE TERM INCOME FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 9.77 $ 10.42 $ 9.98 $ 9.93 $ 9.94
---------- ---------- ---------- ---------- ---------
Investment Operations:
Net Investment Income 0.56 0.52 0.53 0.55 0.55
Net Gains (Losses) on Investments
(both realized and unrealized) -- (0.53) 0.46 0.13 --
---------- ---------- ---------- --------- ---------
Total From Investment Operations 0.56 (0.01) 0.99 0.68 0.55
---------- ---------- ---------- --------- ---------
Less Distributions:
Dividends (from net investment income) (0.56) (0.52) (0.53) (0.56) (0.55)
Distributions (from capital gains) -- (0.12) (0.02) (0.07) (0.01)
---------- ---------- ---------- --------- ----------
Total Distributions (0.56) (0.64) (0.55) (0.63) (0.56)
---------- ---------- ---------- --------- ----------
Net Asset Value, End of Period $ 9.77 $ 9.77 $ 10.42 $ 9.98 $ 9.93
========== ========== ========== ========= ==========
Total Return 5.97% (0.06)% 10.27% 6.98% 5.63%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 381,719 $ 348,864 $ 430,672 $ 324,250 $98,702
Ratio of Expenses to Average Net Assets 0.70% 0.70% 0.70% 0.70% 0.70%
Ratio of Net Income to Average Net Assets 5.85% 5.17% 5.24% 5.51% 5.45%
Ratio of Expenses to Average Net Assets (excluding waivers) 0.87% 0.87% 0.86% 0.92% 0.88%
Ratio of Net Income to Average Net Assets (excluding waivers) 5.68% 5.00% 5.08% 5.29% 5.27%
Portfolio Turnover Rate 83% 65% 166% 165% 161%
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
20 PROSPECTUS - First American Bond Funds
Class Y Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
LIMITED TERM INCOME FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
2000 1999 1998 1997 1996
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 9.87 $ 10.04 $ 9.94 $ 9.91 $ 9.92
--------- --------- --------- --------- ---------
Investment Operations:
Net Investment Income 0.59 0.52 0.53 0.56 0.58
Net Gains (Losses) on Investments
(both realized and unrealized) 0.01 (0.17) 0.10 0.03 (0.01)
--------- --------- --------- --------- ---------
Total From Investment Operations 0.60 0.35 0.63 0.59 0.57
--------- --------- --------- --------- ---------
Less Distributions:
Dividends (from net investment income) (0.56) (0.52) (0.53) (0.56) (0.58)
--------- --------- --------- --------- ---------
Total Distributions (0.56) (0.52) (0.53) (0.56) (0.58)
--------- --------- --------- --------- ---------
Net Asset Value, End of Period $ 9.91 $ 9.87 $ 10.04 $ 9.94 $ 9.91
========= ========= ========= ========= =========
Total Return 6.29% 3.53% 6.55% 6.09% 5.93%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 92,092 $ 119,522 $ 173,136 $ 184,368 $ 93,588
Ratio of Expenses to Average Net Assets 0.51% 0.60% 0.60% 0.60% 0.60%
Ratio of Net Income to Average Net Assets 5.94% 5.15% 5.33% 5.60% 5.80%
Ratio of Expenses to Average Net Assets (excluding waivers) 0.98% 0.87% 0.87% 0.90% 0.84%
Ratio of Net Income to Average Net Assets (excluding waivers) 5.47% 4.88% 5.06% 5.30% 5.56%
Portfolio Turnover Rate 95% 65% 112% 147% 61%
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
2000 1999(3) 1998(1)
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 9.09 $ 9.27 $ 10.00
-------- -------- --------
Investment Operations:
Net Investment Income 0.66 0.80 0.14
Net Gains (Losses) on Investments
(both realized and unrealized) (0.14) (0.25) (0.75)
-------- -------- --------
Total From Investment Operations 0.52 0.55 (0.61)
-------- -------- --------
Less Distributions:
Dividends (from net investment income) (0.69) (0.73) (0.12)
-------- -------- --------
Total Distributions (0.69) (0.73) (0.12)
-------- -------- --------
Net Asset Value, End of Period $ 8.92 $ 9.09 $ 9.27
======== ======== ========
Total Return 5.94% 5.96% (6.13)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $237,730 $184,666 $ 54,491
Ratio of Expenses to Average Net Assets 0.90% 0.90% 0.90%(2)
Ratio of Net Income to Average Net Assets 7.26% 8.56% 8.44%(2)
Ratios of Expenses to Average Net Assets (excluding waivers) 0.91% 0.93% 1.05%(2)
Ratio of Net Income to Average Net Assets (excluding waivers) 7.25% 8.53% 8.29%(2)
Portfolio Turnover Rate 90% 40% 61%
-----------------------------------------------------------------------------------------------------------
</TABLE>
(1)Class Y shares have been offered since July 24, 1998.
(2)Annualized.
(3)Per share data for 1999 was calculated using the average shares outstanding
method.
21 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 of this information, after paying a duplicating fee,
by electronic request at the following email address: [email protected], or by
writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. For
more information, call 1-202-942-8090.
Information about the funds is also available on the Internet. Text-only
versions of fund documents can be viewed online or downloaded from the EDGAR
Database on the SEC's Internet site at http://www.sec.gov.
FIRST AMERICAN FUNDS P.O. Box 1330, Minneapolis, MN 55440-1330
First American Asset Management, a division of U.S. Bank National Association,
serves as the investment advisor to the First American Funds.
First American Funds are distributed by SEI Investments Distribution Co. which
is located in Oaks, PA 19456 and is not an affiliate of U.S. Bank.
12/2000 PROBONDY-00
SEC file number: 811-05309
[LOGO] FIRST AMERICAN FUNDS
THE POWER OF DISCIPLINED INVESTING
<PAGE>
DECEMBER 30, 2000
ASSET CLASSES
* EQUITY FUNDS
* FUNDS OF FUNDS
* BOND FUNDS
(*) TAX FREE FUNDS
* MONEY MARKET FUNDS
PROSPECTUS
FIRST AMERICAN INVESTMENT FUNDS, INC.
FIRST AMERICAN
INTERMEDIATE
TAX FREE
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
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.
[LOGO] FIRST AMERICAN FUNDS(R)
THE POWER OF DISCIPLINED INVESTING(R)
<PAGE>
Table of
CONTENTS
FUND SUMMARIES
--------------------------------------------------------------------------------
California Intermediate Tax Free Fund 2
--------------------------------------------------------------------------------
Colorado Intermediate Tax Free Fund 4
--------------------------------------------------------------------------------
Intermediate Tax Free Fund 6
--------------------------------------------------------------------------------
Minnesota Intermediate Tax Free Fund 8
--------------------------------------------------------------------------------
Oregon Intermediate Tax Free Fund 10
--------------------------------------------------------------------------------
POLICIES & SERVICES
--------------------------------------------------------------------------------
Buying Shares 12
--------------------------------------------------------------------------------
Selling Shares 14
--------------------------------------------------------------------------------
Managing Your Investment 15
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
Management 17
--------------------------------------------------------------------------------
More About The Funds 18
--------------------------------------------------------------------------------
Financial Highlights 20
--------------------------------------------------------------------------------
FOR MORE INFORMATION Back Cover
--------------------------------------------------------------------------------
<PAGE>
Fund Summaries
INTRODUCTION
This section of the prospectus describes the objectives of the First American
Intermediate Tax Free 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.
1 PROSPECTUS - First American Intermediate Tax Free 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 total 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:
* "general obligation" bonds, which are backed by the full faith, credit and
taxing power of the issuer.
* "revenue" bonds, which are payable only from the revenues generated by a
specific project or from another specific revenue source.
* participation interests in municipal leases.
* zero coupon municipal securities, which pay no cash income to their holders
until they mature.
* 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. If the rating of a security is reduced or discontinued
after purchase, the fund is not required to sell the security, but may consider
doing so. 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 three 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:
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. For additional explanation about inverse floating rate
securities, see "More About The Funds -- Risks."
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.
--------------------------------------------------------------------------------
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 were,
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.
2 PROSPECTUS - First American Intermediate Tax Free 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),(2)
[BAR CHART]
5.82% -0.90%
--------------------------------------------------------------------------------
1998 1999
Best Quarter: Quarter ending September 30, 1998 3.77%
Worst Quarter: Quarter ending June 30, 1999 (1.86)%
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99(2) Date One Year Inception
--------------------------------------------------------------------------------
California Intermediate Tax Free Fund 8/8/97 (3.36)% 2.11%
--------------------------------------------------------------------------------
Lehman 7-Year Municipal Bond Index(3) (0.14)% 3.98%
--------------------------------------------------------------------------------
(1)Total return for the period from 1/1/00 through 9/30/00 was 6.42%.
(2)The fund has previously presented the performance history of an unregistered
predecessor common trust fund for periods prior to the fund's registration
under the Investment Company Act of 1940 on 8/8/97. The fund has determined
that, going forward, it will present performance information only for periods
subsequent to the fund's registration.
(3)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 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,
2000.(1)
--------------------------------------------------------------------------------
SHAREHOLDER FEES CLASS A
--------------------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD)
AS A % OF OFFERING PRICE 2.50%(2)
ANNUAL MAINTENANCE FEE(3)
ONLY CHARGED TO ACCOUNTS WITH BALANCES BELOW $500 $ 25
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
--------------------------------------------------------------------------------
Management Fees 0.70%
Distribution and Service (12b-1) Fees 0.25%
Other Expenses 0.23%
TOTAL 1.18%
--------------------------------------------------------------------------------
(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. The net
expenses the fund actually paid after waivers for the fiscal year ended
September 30, 2000, were:
Waiver of Fund Expenses (0.48)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 0.70%
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."
(3)The fund reserves the right to charge your account an annual maintenance fee
of $25 if your balance falls below $500 as a result of selling or exchanging
shares. See "Policies & Services -- Selling Shares, Accounts with Low
Balances."
--------------------------------------------------------------------------------
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 $ 367
3 years $ 615
5 years $ 883
10 years $1,646
3 PROSPECTUS - First American Intermediate Tax Free 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 total 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:
* "general obligation" bonds, which are backed by the full faith, credit and
taxing power of the issuer.
* "revenue" bonds, which are payable only from the revenues generated by a
specific project or from another specific revenue source.
* participation interests in municipal leases.
* zero coupon municipal securities, which pay no cash income to their holders
until they mature.
* 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. If the rating of a security is reduced or discontinued
after purchase, the fund is not required to sell the security, but may consider
doing so. 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 three 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:
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. For additional explanation about inverse floating rate securities, see
"More About The Funds -- Risks."
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.
--------------------------------------------------------------------------------
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 were,
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.
4 PROSPECTUS - First American Intermediate Tax Free 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(1)
[BAR CHART]
12.33% 3.86% 7.07% 5.44% -1.58%
--------------------------------------------------------------------------------
1995 1996 1997 1998 1999
Best Quarter: Quarter ending March 31, 1995 5.18%
Worst Quarter: Quarter ending June 30, 1999 (1.85)%
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99 Date One Year Five Years Inception
--------------------------------------------------------------------------------
Colorado Intermediate Tax Free Fund 4/4/94 (4.08)% 4.78% 4.66%
--------------------------------------------------------------------------------
Lehman 7-Year Municipal Bond Index(2) (0.14)% 6.36% 5.65%
--------------------------------------------------------------------------------
(1)Total return for the period from 1/1/00 through 9/30/00 was 4.97%.
(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 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,
2000.(1)
--------------------------------------------------------------------------------
SHAREHOLDER FEES CLASS A
--------------------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD)
AS A % OF OFFERING PRICE 2.50%(2)
ANNUAL MAINTENANCE FEE(3)
ONLY CHARGED TO ACCOUNTS WITH BALANCES BELOW $500 $ 25
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
--------------------------------------------------------------------------------
Management Fees 0.70%
Distribution and Service (12b-1) Fees 0.25%
Other Expenses 0.30%
TOTAL 1.25%
--------------------------------------------------------------------------------
(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. The net
expenses the fund actually paid after waivers for the fiscal year ended
September 30, 2000, were:
Waiver of Fund Expenses (0.55)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 0.70%
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."
(3)The fund reserves the right to charge your account an annual maintenance fee
of $25 if your balance falls below $500 as a result of selling or exchanging
shares. See "Policies & Services -- Selling Shares, Accounts with Low
Balances."
--------------------------------------------------------------------------------
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 $ 374
3 years $ 637
5 years $ 919
10 years $1,724
5 PROSPECTUS - First American Intermediate Tax Free 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 total 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:
* "general obligation" bonds, which are backed by the full faith, credit and
taxing power of the issuer.
* "revenue" bonds, which are payable only from the revenues generated by a
specific project or from another specific revenue source.
* participation interests in municipal leases.
* zero coupon municipal securities, which pay no cash income to their holders
until they mature.
* 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. If the rating of a security is reduced or discontinued
after purchase, the fund is not required to sell the security, but may consider
doing so. 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 three 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:
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. For additional explanation about inverse floating rate securities, see
"More About The Funds -- Risks."
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. Sales charges are not reflected in the chart; if they were,
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 Funds
Class A Shares
<PAGE>
Fund Summaries
INTERMEDIATE TAX FREE FUND CONTINUED
--------------------------------------------------------------------------------
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR
[BAR CHART]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5.54% 8.44% 6.49% 8.20% -2.95% 12.89% 3.72% 6.79% 5.38% -1.46%
------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
</TABLE>
Best Quarter: Quarter ending March 31, 1995 5.10%
Worst Quarter: Quarter ending March 31, 1994 (4.10)%
AVERAGE ANNUAL TOTAL RETURNS Inception
AS OF 12/31/99 Date One Year Five Years Ten Years
--------------------------------------------------------------------------------
Intermediate Tax Free Fund 12/22/87 (3.93)% 4.83% 4.94%
--------------------------------------------------------------------------------
Lehman 7-Year Municipal Bond Index(2) (0.14)% 6.36% 6.60%
--------------------------------------------------------------------------------
(1)Total return for the period from 1/1/00 through 9/30/00 was 5.40%.
(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,
2000.(1)
--------------------------------------------------------------------------------
SHAREHOLDER FEES CLASS A
--------------------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD)
AS A % OF OFFERING PRICE 2.50%(2)
ANNUAL MAINTENANCE FEE(3)
ONLY CHARGED TO ACCOUNTS WITH BALANCES BELOW $500 $ 25
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
--------------------------------------------------------------------------------
Management Fees 0.70%
Distribution and Service (12b-1) Fees 0.25%
Other Expenses 0.17%
TOTAL 1.12%
--------------------------------------------------------------------------------
(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. The net
expenses the fund actually paid after waivers for the fiscal year ended
September 30, 2000, were:
Waiver of Fund Expenses (0.42)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 0.70%
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."
(3)The fund reserves the right to charge your account an annual maintenance fee
of $25 if your balance falls below $500 as a result of selling or exchanging
shares. See "Policies & Services -- Selling Shares, Accounts with Low
Balances."
--------------------------------------------------------------------------------
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
7 PROSPECTUS - First American Intermediate Tax Free 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 total 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:
* "general obligation" bonds, which are backed by the full faith, credit and
taxing power of the issuer.
* "revenue" bonds, which are payable only from the revenues generated by a
specific project or from another specific revenue source.
* participation interests in municipal leases.
* zero coupon municipal securities, which pay no cash income to their holders
until they mature.
* 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. If the rating of a security is reduced or discontinued
after purchase, the fund is not required to sell the security, but may consider
doing so. 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 three 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:
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. For additional explanation about inverse floating rate
securities, see "More About The Funds -- Risks."
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.
--------------------------------------------------------------------------------
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 were,
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.
8 PROSPECTUS - First American Intermediate Tax Free 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(1)
[BAR CHART]
12.67% 3.82% 6.74% 5.34% -1.26%
--------------------------------------------------------------------------------
1995 1996 1997 1998 1999
Best Quarter: Quarter ending March 31, 1995 5.30%
Worst Quarter: Quarter ending June 30, 1999 (1.62)%
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99 Date One Year Five Years Inception
--------------------------------------------------------------------------------
Minnesota Intermediate Tax Free Fund 2/25/94 (3.72)% 4.84% 3.64%
--------------------------------------------------------------------------------
Lehman 7-Year Municipal Bond Index(2) (0.14)% 6.36% 5.13%
--------------------------------------------------------------------------------
(1)Total return for the period from 1/1/00 through 9/30/00 was 5.14%.
(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 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,
2000.(1)
--------------------------------------------------------------------------------
SHAREHOLDER FEES CLASS A
--------------------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD)
AS A % OF OFFERING PRICE 2.50%(2)
ANNUAL MAINTENANCE FEE(3)
ONLY CHARGED TO ACCOUNTS WITH BALANCES BELOW $500 $ 25
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
--------------------------------------------------------------------------------
Management Fees 0.70%
Distribution and Service (12b-1) Fees 0.25%
Other Expenses 0.17%
TOTAL 1.12%
--------------------------------------------------------------------------------
(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. The net
expenses the fund actually paid after waivers for the fiscal year ended
September 30, 2000, were:
Waiver of Fund Expenses (0.42)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 0.70%
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."
(3)The fund reserves the right to charge your account an annual maintenance fee
of $25 if your balance falls below $500 as a result of selling or exchanging
shares. See "Policies & Services -- Selling Shares, Accounts with Low
Balances."
--------------------------------------------------------------------------------
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
9 PROSPECTUS - First American Intermediate Tax Free 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 total assets in municipal securities that pay interest that is
exempt from federal and Oregon state 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:
* "general obligation" bonds, which are backed by the full faith, credit and
taxing power of the issuer.
* "revenue" bonds, which are payable only from the revenues generated by a
specific project or from another specific revenue source.
* participation interests in municipal leases.
* zero coupon municipal securities, which pay no cash income to their holders
until they mature.
* 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. If the rating of a security is reduced or discontinued
after purchase, the fund is not required to sell the security, but may consider
doing so. 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 three 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:
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. For additional explanation about inverse floating rate
securities, see "More About The Funds -- Risks."
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.
--------------------------------------------------------------------------------
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 were,
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. Information for Class A shares is
not presented because those shares have not been offered for a full calendar
year. 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.
10 PROSPECTUS - First American Intermediate Tax Free 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),(2)
[BAR CHART]
<TABLE>
<CAPTION>
<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% -1.50%
-----------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
</TABLE>
Best Quarter: Quarter ending December 31, 1990 4.49%
Worst Quarter: Quarter ending March 31, 1994 (3.41)%
AVERAGE ANNUAL TOTAL RETURNS
AS OF 12/31/99(2) One Year Five Years Ten Years
--------------------------------------------------------------------------------
Oregon Intermediate Tax Free Fund (Class Y)(3) (3.97)% 4.48% 5.29%
--------------------------------------------------------------------------------
Lehman 7-Year Municipal Bond Index(4) (0.14)% 6.36% 6.60%
--------------------------------------------------------------------------------
(1)Total return for the period from 1/1/00 through 9/30/00 was 2.48%.
(2)Performance prior to 8/8/97 is that of Oregon Municipal Bond Trust Fund, a
predecessor common trust fund. On 8/8/97, substantially all of the assets of
Oregon Municipal Bond Trust Fund were transferred into Oregon Intermediate
Tax Free Fund. The objectives, policies, and guidelines of the two funds
were, in all material respects, identical. Oregon Municipal Bond Trust Fund's
performance is adjusted to reflect Oregon Intermediate Tax Free Fund's Class
Y share fees and expenses, before any fee waivers. Oregon Municipal Bond
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.
(3)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.
(4)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 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,
2000.(1)
--------------------------------------------------------------------------------
SHAREHOLDER FEES CLASS A
--------------------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD)
AS A % OF OFFERING PRICE 2.50%(2)
ANNUAL MAINTENANCE FEE(3)
ONLY CHARGED TO ACCOUNTS WITH BALANCES BELOW $500 $ 25
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
--------------------------------------------------------------------------------
Management Fees 0.70%
Distribution and Service (12b-1) Fees 0.25%
Other Expenses 0.18%
TOTAL 1.13%
--------------------------------------------------------------------------------
(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. The net
expenses the fund actually paid after waivers for the fiscal year ended
September 30, 2000, were:
Waiver of Fund Expenses (0.43)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 0.70%
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."
(3)The fund reserves the right to charge your account an annual maintenance fee
of $25 if your balance falls below $500 as a result of selling or exchanging
shares. See "Policies & Services -- Selling Shares, Accounts with Low
Balances."
--------------------------------------------------------------------------------
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 $ 362
3 years $ 600
5 years $ 857
10 years $1,590
11 PROSPECTUS - First American Intermediate Tax Free 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
investment professionals, participating institutions and "one-stop" mutual fund
networks (institutions) for providing ongoing services to shareholder accounts.
These institutions receive shareholder servicing 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 advisor or the distributor may pay additional fees to
institutions out of their own assets 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. Fee waivers
may be discontinued at any time.
--------------------------------------------------------------------------------
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 investment professional or participating
institution.
Maximum
Sales Charge 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. That is, you will receive credit for either the original purchase
price or the current net asset value of the other Class A shares you hold at the
time of your purchase, whichever is greater. For example, let's say you're
making a $10,000 investment and you already own other First American fund Class
A shares that you purchased for $25,000, but are now valued at $45,000. Since
the current net asset value of your shares is greater than their purchase price,
you will receive credit for their current value and your sales charge will be
based on a total purchase amount of $55,000. To receive a reduced sales charge,
you must notify the fund of your prior purchases. This must be done at the time
of purchase, either directly with the fund in writing or by notifying your
investment professional or financial institution.
PURCHASES BY RELATED ACCOUNTS. Concurrent and prior purchases of Class A shares
of any First American Fund 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 fund of purchases by any related accounts. This must
be done at the time of purchase, either directly with the fund in writing or by
notifying your investment professional 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.
12 PROSPECTUS - First American Intermediate Tax Free Funds
Class A Shares
<PAGE>
Policies & Services
BUYING SHARES CONTINUED
--------------------------------------------------------------------------------
FOR INVESTMENTS OF OVER $1 MILLION
There is no initial sales charge on Class A share purchases of $1 million or
more. However, your investment professional 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 investment professional 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:
* redemptions following the death or disability (as defined in the Internal
Revenue Code) of a shareholder.
* 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.
* 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.
--------------------------------------------------------------------------------
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 investment professional 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 investment professional 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 investment professional 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 investment professional or financial institution for more information.
If you are paying by wire, you may purchase shares by calling Investor Services
at 1-800-637-2548 before the close of regular trading on the New York Stock
Exchange (usually 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, ACCOUNT NUMBER 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:
* all purchases must be made in U.S. dollars.
* third-party checks, credit cards, credit card checks and cash are not
accepted.
* 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:
* by having $100 or more ($25 for a retirement plan or a Uniform Gifts to
Minors Act/Uniform Transfers to Minors Act account) automatically withdrawn
from your bank account on a periodic basis and invested in fund shares.
* 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
investment professional or financial institution or by calling Investor Services
at 1-800-637-2548.
13 PROSPECTUS - First American Intermediate Tax Free 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. Be sure to read the section "Buying
Shares" for a description of contingent deferred sales charges. 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 three days,
but in no event more than seven days, after your request is received in proper
form.
To minimize the effect of large redemption requests, each fund reserves the
right to fulfill these redemption requests by distributing readily marketable
securities in the fund's portfolio, rather than paying you in cash. See
"Policies & Services -- Managing Your Investment, Redemption In-Kind."
BY PHONE. If you purchased shares through an investment professional or
financial institution, simply call them to sell your shares. In many cases, your
redemption will be effective that day if received by your investment
professional 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
investment professional or financial institution time to process your request
and transmit it to the fund. Contact your investment professional or financial
institution directly for more information.
If you did not purchase shares through an investment professional or financial
institution, you may sell your shares by calling Investor Services at
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
the fund) or sent to you by check. The funds reserve the right to to limit
telephone exchanges to $50,000 per day.
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 15 calendar days
from the date of purchase.
BY MAIL. To sell shares by mail, send a written request to your investment
professional or financial institution, or to the fund 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:
* name of the fund.
* account number.
* dollar amount or number of shares redeemed.
* name on the account.
* signatures of all registered account owners.
Signatures on a written request must be guaranteed if:
* you would like the proceeds from the sale to be paid to anyone other than to
the shareholder of record.
* you would like the check mailed to an address other than the address on the
funds' records.
* 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 unless
another form of payment is requested.
--------------------------------------------------------------------------------
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 investment professional 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 of a First American fund, 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 fund directly in writing or notify your
investment professional or financial institution.
--------------------------------------------------------------------------------
ACCOUNTS WITH LOW BALANCES
Except for retirement plans and Uniform Gifts to Minors Act/Uniform Transfers
to Minors Act accounts, if your account balance falls below $500 as a result
of selling or exchanging shares, the fund reserves the right to either:
* deduct a $25 annual account maintenance fee, or
* close your account and send you the proceeds, less any applicable
contingent deferred sales charge.
Before taking any action, however, the fund will send you written notice of
the action it intends to take and give you 30 days to re-establish a minimum
account balance of $500.
14 PROSPECTUS - First American Intermediate Tax Free 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. If both funds have identical shareholder registration, you may
exchange shares by calling your investment professional, your financial
institution, or by calling the funds directly. To request an exchange through
the funds, call Investor Services at 1-800-637-2548. Your instructions must be
received before 3 p.m. Central time, or by the time specified by your investment
professional 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.
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.
--------------------------------------------------------------------------------
REDEMPTION IN-KIND
Generally, proceeds from redemption requests will be paid in cash. However, to
minimize the effect of large redemption requests on a fund and its remaining
shareholders, each fund reserves the right to pay part or all of the proceeds
from a redemption request in a proportionate share of readily marketable
securities in the fund instead of in cash. In selecting securities for a
redemption in-kind, the advisor will consider the best interests of the fund and
the remaining fund shareholders, and will value these securities in accordance
with the pricing methods employed to calculate the fund's net asset value per
share. If you receive redemption proceeds in-kind, you should expect to incur
transaction costs upon the disposition of the securities received in the
redemption.
--------------------------------------------------------------------------------
STAYING INFORMED
SHAREHOLDER REPORTS. Shareholder reports are mailed twice a year, in November
and May. They include financial statements and performance information, and, on
an annual basis, a message from your portfolio managers and 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 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 the fund, your investment
professional or your financial institution. 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.
15 PROSPECTUS - First American Intermediate Tax Free Funds
Class A Shares
<PAGE>
Policies & Services
MANAGING YOUR INVESTMENT CONTINUED
--------------------------------------------------------------------------------
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 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.
If in redemption of his or her shares a shareholder receives a distribution of
readily marketable securities instead of cash, the shareholder will be treated
as receiving an amount equal to the fair market value of the securities at the
time of the distribution for purposes of determining capital gain or loss on the
redemption, and will also acquire a basis in the shares for federal income tax
purposes equal to their fair market value.
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.
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.
16 PROSPECTUS - First American Intermediate Tax Free Funds
Class A Shares
<PAGE>
Additional Information
MANAGEMENT
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 September 30, 2000, it had more than $77 billion in assets under
management, including investment company assets of more than $33 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 the fiscal year ended September 30, 2000, 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 0.47%
COLORADO INTERMEDIATE TAX FREE FUND 0.40%
INTERMEDIATE TAX FREE FUND 0.53%
MINNESOTA INTERMEDIATE TAX FREE FUND 0.53%
OREGON INTERMEDIATE TAX FREE FUND 0.52%
--------------------------------------------------------------------------------
DIRECT CORRESPONDENCE TO:
FIRST AMERICAN FUNDS
P.O. BOX 1330
MINNEAPOLIS, MINNESOTA 55440-1330
INVESTMENT ADVISOR
FIRST AMERICAN ASSET MANAGEMENT
601 SECOND AVENUE SOUTH
MINNEAPOLIS, MINNESOTA 55402
DISTRIBUTOR
SEI INVESTMENTS DISTRIBUTION CO.
OAKS, PENNSYLVANIA 19456
PENDING ACQUISITION
On October 4, 2000, U.S. Bancorp, the parent company of the funds' investment
advisor, announced that it had entered into an agreement to be acquired by
Firstar Corporation. It is anticipated that this acquisition will be completed
in the first quarter of 2001, subject to regulatory approval, the approval of
U.S. Bancorp shareholders and the satisfaction of customary closing conditions.
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 all open-end funds in the First American family of
funds. These services include general administrative and accounting services,
transfer agency and dividend disbursing services, and shareholder services. U.S.
Bank receives total 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. These fees are allocated among the funds in the First American family
of funds on the basis of their relative net asset values. The funds also pay
U.S. Bank fees based upon the number of funds and accounts maintained. In
addition, U.S. Bank is reimbursed for its out-of-pocket expenses incurred while
providing administrative services to the funds.
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 fund's 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 these transactions.
SHAREHOLDER SERVICING FEES. To the extent that fund shares are held through U.S.
Bank or its broker-dealer affiliates, U.S. Bancorp Investments, Inc. and U.S.
Bancorp Piper Jaffray Inc., those entities may receive shareholder servicing
fees from the funds' distributor.
PORTFOLIO MANAGEMENT
Each fund's investments are managed by a team of persons associated with First
American Asset Management.
17 PROSPECTUS - First American Intermediate Tax Free 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 municipal securities such as "general obligation" bonds,
"revenue" bonds, and participation interests in municipal leases. General
obligation bonds are backed by the full faith, credit and taxing power of the
issuer. Revenue bonds are payable only from the revenues generated by a specific
project or from another specific revenue source. 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 obligations
bonds or revenue bonds. See "Risks -- Risks of Municipal Lease Obligations."
The municipal securities in which the funds invest may include refunded bonds
and zero coupon 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. Zero coupon bonds are issued at
substantial discounts from their value at maturity and pay no cash income to
their holders until they mature. When held to maturity, their entire return
comes from the difference between their purchase price and their maturity value.
Up to 10% of each fund's total assets may be invested in inverse floating rate
municipal securities. The values of these securities, as well as zero coupon
bonds, may be highly volatile as interest rates rise or fall. See "Interest Rate
Risk" and "Risks of Inverse Floating Rate Securities."
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."
18 PROSPECTUS - First American Intermediate Tax Free Funds
Class A Shares
<PAGE>
Additional Information
MORE ABOUT THE FUNDS CONTINUED
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.
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.
19 PROSPECTUS - First American Intermediate Tax Free Funds
Class A Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
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 the fund, excluding sales charges and
assuming you reinvested all of your dividends and distributions.
The information for the fiscal years ended September 30, 2000 and September 30,
1999, has been derived from the financial statements 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 other auditors.
CALIFORNIA INTERMEDIATE TAX FREE FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
2000 1999 1998 1997(1)
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 9.89 $ 10.37 $ 10.04 $ 10.00
------- ------- ------- -------
Investment Operations:
Net Investment Income 0.43 0.42 0.43 0.06
Net Gains (Losses) on Investments
(both realized and unrealized) 0.13 (0.46) 0.33 0.04
------- ------- ------- -------
Total From Investment Operations 0.56 (0.04) 0.76 0.10
------- ------- ------- -------
Less Distributions:
Dividends (from net investment income) (0.43) (0.41) (0.43) (0.06)
Distributions (from capital gains) -- (0.03) -- --
------- ------- ------- -------
Total Distributions (0.43) (0.44) (0.43) (0.06)
------- ------- ------- -------
Net Asset Value, End of Period $ 10.02 $ 9.89 $ 10.37 $ 10.04
======= ======= ======= =======
Total Return 5.84% (0.40)% 7.80% 1.02%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 2,344 $ 2,042 $ 82 $ 1
Ratio of Expenses to Average Net Assets 0.70% 0.70% 0.70% 0.69%(2)
Ratio of Net Investment Income to Average Net Assets 4.35% 4.19% 4.22% 4.48%(2)
Ratio of Expenses to Average Net Assets (excluding waivers) 1.18% 1.17% 1.21% 1.36%(2)
Ratio of Net Investment Income to Average Net Assets
(excluding waivers) 3.87% 3.72% 3.71% 3.81%(2)
Portfolio Turnover Rate 23% 9% 22% 3%
----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Class A shares have been offered since August 8, 1997.
(2)Annualized.
20 PROSPECTUS - First American Intermediate Tax Free Funds
Class A Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
COLORADO INTERMEDIATE TAX FREE FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
2000 1999 1998 1997 1996
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 10.32 $ 10.89 $ 10.61 $ 10.42 $ 10.51
------- ------- ------- ------- -------
Investment Operations:
Net Investment Income 0.48 0.46 0.47 0.48 0.49
Net Gains (Losses) on Investments
(both realized and unrealized) (0.04) (0.55) 0.30 0.24 (0.04)
------- ------- ------- ------- -------
Total From Investment Operations 0.44 (0.09) 0.77 0.72 0.45
------- ------- ------- ------- -------
Less Distributions:
Dividends (from net investment income) (0.48) (0.46) (0.47) (0.48) (0.49)
Distributions (from capital gains) -- (0.02) (0.02) (0.05) (0.05)
------- ------- ------- ------- -------
Total Distributions (0.48) (0.48) (0.49) (0.53) (0.54)
------- ------- ------- ------- -------
Net Asset Value, End of Period $ 10.28 $ 10.32 $ 10.89 $ 10.61 $ 10.42
======= ======== ======= ======= =======
Total Return 4.40% (0.88)% 7.43% 7.11% 4.39%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 3,485 $ 4,733 $ 4,301 $ 4,187 $ 2,861
Ratio of Expenses to Average Net Assets 0.70% 0.70% 0.70% 0.70% 0.70%
Ratio of Net Investment Income to Average Net Assets 4.66% 4.32% 4.43% 4.55% 4.69%
Ratio of Expenses to Average Net Assets (excluding waivers) 1.25% 1.15% 1.17% 1.16% 1.18%
Ratio of Net Investment Income to Average Net Assets (excluding waivers) 4.11% 3.87% 3.96% 4.09% 4.21%
Portfolio Turnover Rate 42% 33% 19% 11% 20%
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
INTERMEDIATE TAX FREE FUND FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 10.45 $ 11.05 $ 10.84 $ 10.66 $ 10.72
------- ------- ------- ------- -------
Investment Operations:
Net Investment Income 0.48 0.46 0.47 0.47 0.46
Net Gains (Losses) on Investments
(both realized and unrealized) 0.04 (0.55) 0.27 0.24 0.01
------- ------- ------- ------- -------
Total From Investment Operations 0.52 (0.09) 0.74 0.71 0.47
------- ------- ------- ------- -------
Less Distributions:
Dividends (from net investment income) (0.49) (0.46) (0.47) ( 0.47) ( 0.46)
Distributions (from capital gains) -- (0.05) (0.06) ( 0.06) ( 0.07)
------- ------- ------- -------- --------
Total Distributions (0.49) (0.51) (0.53) ( 0.53) ( 0.53)
------- ------- ------- -------- --------
Net Asset Value, End of Period $ 10.48 $ 10.45 $ 11.05 $ 10.84 $ 10.66
======= ======= ======= ======== ========
Total Return 5.10% (0.78)% 7.04% 6.84% 4.45%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 8,994 $10,713 $ 9,196 $ 3,849 $ 2,618
Ratio of Expenses to Average Net Assets 0.70% 0.70% 0.70% 0.67% 0.66%
Ratio of Net Investment Income to Average Net Assets 4.61% 4.31% 4.31% 4.41% 4.35%
Ratio of Expenses to Average Net Assets (excluding waivers) 1.12% 1.12% 1.11% 1.18% 1.17%
Ratio of Net Investment Income to Average Net Assets (excluding waivers) 4.19% 3.89% 3.90% 3.90% 3.84%
Portfolio Turnover Rate 29% 23% 27% 66% 53%
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
21 PROSPECTUS - First American Intermediate Tax Free Funds
Class A Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
MINNESOTA INTERMEDIATE TAX FREE FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
2000 1999 1998 1997 1996
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 9.79 $ 10.29 $ 10.09 $ 9.91 $ 9.92
------- ------- ------- ------- -------
Investment Operations:
Net Investment Income 0.45 0.43 0.43 0.44 0.45
Net Gains (Losses) on Investments
(both realized and unrealized) 0.02 (0.47) 0.24 0.21 0.02
------- ------- ------- ------- -------
Total From Investment Operations 0.47 (0.04) 0.67 0.65 0.47
------- ------- ------- ------- -------
Less Distributions:
Dividends (from net investment income) (0.45) (0.43) (0.43) (0.44) (0.45)
Distributions (from capital gains) (0.01) (0.03) (0.04) (0.03) (0.03)
------- ------- ------- ------- -------
Total Distributions (0.46) (0.46) (0.47) (0.47) (0.48)
------- ------- ------- ------- -------
Net Asset Value, End of Period $ 9.80 $ 9.79 $ 10.29 $ 10.09 $ 9.91
======= ======== ======= ======= =======
Total Return 4.94% (0.43)% 6.80% 6.72% 4.80%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $12,469 $14,629 $10,330 $ 7,453 $ 3,916
Ratio of Expenses to Average Net Assets 0.70% 0.70% 0.70% 0.70% 0.70%
Ratio of Net Investment Income to Average Net Assets 4.59% 4.30% 4.30% 4.49% 4.52%
Ratio of Expenses to Average Net Assets (excluding waivers) 1.12% 1.12% 1.11% 1.15% 1.18%
Ratio of Net Investment Income to Average Net Assets (excluding waivers) 4.17% 3.88% 3.89% 4.04% 4.04%
Portfolio Turnover Rate 18% 12% 24% 20% 19%
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
OREGON INTERMEDIATE TAX FREE FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
2000 1999(1)
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 9.72 $ 10.23
------- -------
Investment Operations:
Net Investment Income 0.43 0.29
Net Gains (Losses) on Investments
(both realized and unrealized) 0.02 (0.51)
------- -------
Total From Investment Operations 0.45 (0.22)
------- -------
Less Distributions:
Dividends (from net investment income) (0.43) (0.29)
Distributions (from capital gains) -- --
------- -------
Total Distributions (0.43) (0.29)
Net Asset Value, End of Period $ 9.74 $ 9.72
======= =======
Total Return 4.79% (2.22)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 3,303 $2,005
Ratio of Expenses to Average Net Assets 0.70% 0.70%(2)
Ratio of Net Investment Income to Average Net Assets 4.47% 4.37%(2)
Ratio of Expenses to Average Net Assets (excluding waivers) 1.13% 1.12%(2)
Ratio of Net Investment Income to Average Net Assets (excluding waivers) 4.04% 3.95%(2)
Portfolio Turnover Rate 18% 13%
-----------------------------------------------------------------------------------------------------
</TABLE>
(1)Class A Shares have been offered since February 1, 1999.
(2)Annualized.
22 PROSPECTUS - First American Intermediate Tax Free 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, and on the First
American funds' Internet Web site.
--------------------------------------------------------------------------------
FIRST AMERICAN FUNDS WEB SITE
Information about the First American funds may be viewed on the funds' Internet
Web site at http://www.firstamericanfunds.com.
--------------------------------------------------------------------------------
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 of this information, after paying a duplicating fee,
by electronic request at the following email address: [email protected], or by
writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. For
more information, call 1-202-942-8090.
Information about the funds is also available on the Internet. Text-only
versions of fund documents can be viewed online or downloaded from the EDGAR
Database on the SEC's Internet site at http://www.sec.gov.
FIRST AMERICAN FUNDS P.O. Box 1330, Minneapolis, MN 55440-1330
First American Asset Management, a division of U.S. Bank National Association,
serves as the investment advisor to the First American Funds.
First American Funds are distributed by SEI Investments Distribution Co. which
is located in Oaks, PA 19456 and is not an affiliate of U.S. Bank.
12/2000 PROINTTXR-00
SEC file number: 811-05309
[LOGO] FIRST AMERICAN FUNDS
THE POWER OF DISCIPLINED INVESTING
<PAGE>
DECEMBER 30, 2000
ASSET CLASSES
* EQUITY FUNDS
* FUNDS OF FUNDS
* BOND FUNDS
(*) TAX FREE FUNDS
* MONEY MARKET FUNDS
PROSPECTUS
FIRST AMERICAN INVESTMENT FUNDS, INC.
FIRST AMERICAN
INTERMEDIATE
TAX FREE
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
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.
[LOGO] FIRST AMERICAN FUNDS(R)
THE POWER OF DISCIPLINED INVESTING(R)
<PAGE>
Table of
CONTENTS
FUND SUMMARIES
--------------------------------------------------------------------------------
California Intermediate Tax Free Fund 2
--------------------------------------------------------------------------------
Colorado Intermediate Tax Free Fund 4
--------------------------------------------------------------------------------
Intermediate Tax Free Fund 6
--------------------------------------------------------------------------------
Minnesota Intermediate Tax Free Fund 8
--------------------------------------------------------------------------------
Oregon Intermediate Tax Free Fund 10
--------------------------------------------------------------------------------
POLICIES & SERVICES
--------------------------------------------------------------------------------
Buying and Selling Shares 12
--------------------------------------------------------------------------------
Managing Your Investment 13
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
Management 15
--------------------------------------------------------------------------------
More About The Funds 16
--------------------------------------------------------------------------------
Financial Highlights 18
--------------------------------------------------------------------------------
FOR MORE INFORMATION Back Cover
--------------------------------------------------------------------------------
<PAGE>
Fund Summaries
INTRODUCTION
This section of the prospectus describes the objectives of the First American
Intermediate Tax Free 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.
1 PROSPECTUS - First American Intermediate Tax Free 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 total 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:
* "general obligation" bonds, which are backed by the full faith, credit and
taxing power of the issuer.
* "revenue" bonds, which are payable only from the revenues generated by a
specific project or from another specific revenue source.
* participation interests in municipal leases.
* zero coupon municipal securities, which pay no cash income to their holders
until they mature.
* 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. If the rating of a security is reduced or discontinued
after purchase, the fund is not required to sell the security, but may consider
doing so. 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 three 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:
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. For additional explanation about inverse floating rate
securities, see "More About The Funds -- Risks."
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.
--------------------------------------------------------------------------------
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.
2 PROSPECTUS - First American Intermediate Tax Free 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),(2)
[BAR CHART]
5.93% -0.80%
--------------------------------------------------------------------------------
1998 1999
Best Quarter: Quarter ending September 30, 1998 3.67%
Worst Quarter: Quarter ending June 30, 1999 (1.76)%
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99(2) Date One Year Inception
--------------------------------------------------------------------------------
California Intermediate Tax Free Fund 8/8/97 (0.80)% 3.25%
--------------------------------------------------------------------------------
Lehman 7-Year Municipal Bond Index(3) (0.14)% 3.98%
--------------------------------------------------------------------------------
(1)Total return for the period from 1/1/00 through 9/30/00 was 6.52%.
(2)The fund has previously presented the performance history of an unregistered
predecessor common trust fund for periods prior to the fund's registration
under the Investment Company Act of 1940 on 8/8/97. The fund has determined
that, going forward, it will present performance information only for periods
subsequent to the fund's registration.
(3)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 8/31/97.
--------------------------------------------------------------------------------
FEES AND EXPENSES
The fund does not impose any sales charges (loads) or other fees when you buy,
sell or exchange shares. However, when you hold shares of the fund you
indirectly pay a portion of the fund's operating expenses. These expenses are
deducted from fund assets. The figures below are based on expenses during the
fiscal year ended September 30, 2000.(1)
--------------------------------------------------------------------------------
SHAREHOLDER FEES
--------------------------------------------------------------------------------
MAXIMUM DEFERRED 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 0.23%
TOTAL 0.93%
--------------------------------------------------------------------------------
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 2000,
were:
Waiver of Fund Expenses (0.23)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 0.70%
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 $ 95
3 years $ 296
5 years $ 515
10 years $1,143
3 PROSPECTUS - First American Intermediate Tax Free 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 total 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:
* "general obligations" bonds, which are backed by the full faith, credit and
taxing power of the issuer.
* "revenue" bonds, which are payable only from the revenues generated by a
specific project or from another specific revenue source.
* participation interests in municipal leases.
* zero coupon municipal securities, which pay no cash income to their holders
until they mature.
* 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. If the rating of a security is reduced or discontinued
after purchase, the fund is not required to sell the security, but may consider
doing so. 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 three 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:
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. For additional explanation about inverse floating rate
securities, see "More About The Funds -- Risks."
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.
--------------------------------------------------------------------------------
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.
4 PROSPECTUS - First American Intermediate Tax Free 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(1)
[BAR CHART]
12.33% 3.86% 7.07% 5.25% -1.59%
--------------------------------------------------------------------------------
1995 1996 1997 1998 1999
Best Quarter: Quarter ending March 31, 1995 5.18%
Worst Quarter: Quarter ending June 30, 1999 (1.86)%
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99 Date One Year Five Years Inception
--------------------------------------------------------------------------------
Colorado Intermediate Tax Free Fund 4/4/94 (1.59)% 5.29% 5.09%
--------------------------------------------------------------------------------
Lehman 7-Year Municipal Bond Index(2) (0.14)% 6.36% 5.65%
--------------------------------------------------------------------------------
(1)Total return for the period from 1/1/00 through 9/30/00 was 4.98%.
(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 4/30/94.
--------------------------------------------------------------------------------
FEES AND EXPENSES
The fund does not impose any sales charges (loads) or other fees when you buy,
sell or exchange shares. However, when you hold shares of the fund you
indirectly pay a portion of the fund's operating expenses. These expenses are
deducted from fund assets. The figures below are based on expenses during the
fiscal year ended September 30, 2000.(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 0.30%
TOTAL 1.00%
--------------------------------------------------------------------------------
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 2000,
were:
Waiver of Fund Expenses (0.30)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 0.70%
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 $ 102
3 years $ 318
5 years $ 552
10 years $1,225
5 PROSPECTUS - First American Intermediate Tax Free 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 total 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:
* "general obligation" bonds, which are backed by the full faith, credit and
taxing power of the issuer.
* "revenue" bonds, which are payable only from the revenues generated by a
specific project or from another specific revenue source.
* participation interests in municipal leases.
* zero coupon municipal securities, which pay no cash income to their holders
until they mature.
* 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. If the rating of a security is reduced or discontinued
after purchase, the fund is not required to sell the security, but may consider
doing so. 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 three 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:
INTEREST RATE RISK. Debt securities typically decrease in value with 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. For additional explanation about inverse floating rate
securities, see "More About The Funds -- Risks."
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.
6 PROSPECTUS - First American Intermediate Tax Free Funds
Class Y Shares
<PAGE>
Fund Summaries
INTERMEDIATE TAX FREE FUND CONTINUED
--------------------------------------------------------------------------------
FUND PERFORMANCE(CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR(1)
[BAR CHART]
12.79% 3.72% 6.80% 5.39% -1.46%
--------------------------------------------------------------------------------
1995 1996 1997 1998 1999
Best Quarter: Quarter ending March 31, 1995 5.00%
Worst Quarter: Quarter ending June 30, 1999 (1.92)%
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99 Date One Year Five Years Inception
--------------------------------------------------------------------------------
Intermediate Tax Free Fund 2/4/94 (1.46)% 5.35% 3.87%
--------------------------------------------------------------------------------
Lehman 7-Year Municipal Bond Index(2) (0.14)% 6.36% 5.13%
--------------------------------------------------------------------------------
(1)Total return for the period from 1/1/00 through 9/30/00 was 5.31%.
(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 2/28/94.
--------------------------------------------------------------------------------
FEES AND EXPENSES
The fund does not impose any sales charges (loads) or other fees when you buy,
sell or exchange shares. However, when you hold shares of the fund you
indirectly pay a portion of the fund's operating expenses. These expenses are
deducted from fund assets. The figures below are based on expenses during the
fiscal year ended September 30, 2000.(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 0.17%
TOTAL 0.87%
--------------------------------------------------------------------------------
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 2000, were:
Waiver of Fund Expenses (0.17)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 0.70%
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
7 PROSPECTUS - First American Intermediate Tax Free 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 total 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:
* "general obligations" bonds, which are backed by the full faith, credit and
taxing power of the issuer.
* "revenue" bonds, which are payable only from the revenues generated by a
specific project or from another specific revenue source.
* participation interests in municipal leases.
* zero coupon municipal securities, which pay no cash income to their holders
until they mature.
* 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 diversifications.
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. If the rating of a security is reduced or discontinued
after purchase, the fund is not required to sell the security, but may consider
doing so. 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 three 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:
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. For additional explanation about inverse floating rate
securities, see "More About The Funds -- Risks."
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.
--------------------------------------------------------------------------------
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.
8 PROSPECTUS - First American Intermediate Tax Free 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(1)
[BAR CHART]
12.66% 3.51% 6.65% 5.25% -1.27%
--------------------------------------------------------------------------------
1995 1996 1997 1998 1999
Best Quarter: Quarter ending March 31, 1995 5.19%
Worst Quarter: Quarter ending June 30, 1999 (1.62)%
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99 Date One Year Five Years Inception
--------------------------------------------------------------------------------
Minnesota Intermediate Tax Free Fund 2/25/94 (1.27)% 5.26% 4.03%
--------------------------------------------------------------------------------
Lehman 7-Year Municipal Bond Index(2) (0.14)% 6.36% 5.13%
--------------------------------------------------------------------------------
(1)Total return for the period from 1/1/00 through 9/30/00 was 5.27%.
(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 2/28/94.
--------------------------------------------------------------------------------
FEES AND EXPENSES
The fund does not impose any sales charges (loads) or other fees when you buy,
sell or exchange shares. However, when you hold shares of the fund you
indirectly pay a portion of the fund's operating expenses. These expenses are
deducted from fund assets. The figures below are based on expenses during the
fiscal year ended September 30, 2000.(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 0.17%
TOTAL 0.87%
--------------------------------------------------------------------------------
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 2000,
were:
Waiver of Fund Expenses (0.17)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 0.70%
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
9 PROSPECTUS - First American Intermediate Tax Free 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 total assets in municipal securities that pay interest that is
exempt from federal and Oregon state 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:
* "general obligations" bonds, which are backed by the full faith, credit and
taxing power of the issuer.
* "revenue" bonds, which are payable only from the revenues generated by a
specific project or from another specific revenue source.
* participation interests in municipal leases.
* zero coupon municipal securities, which pay no cash income to their holders
until they mature.
* 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. If the rating of a security is reduced or discontinued
after purchase, the fund is not required to sell the security, but may consider
doing so. 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 three 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:
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. For additional explanation about inverse floating rate
securities, see "More About The Funds -- Risks."
INCOME RISK. The fund's income could decline due to falling marketing 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 obligations 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.
--------------------------------------------------------------------------------
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.
10 PROSPECTUS - First American Intermediate Tax Free 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),(2)
[BAR CHART]
<TABLE>
<CAPTION>
<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% -1.50%
------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
</TABLE>
Best Quarter: Quarter ending December 31, 1990 4.49%
Worst Quarter: Quarter ending March 31, 1994 (3.41)%
AVERAGE ANNUAL TOTAL RETURNS
AS OF 12/31/99(2) One Year Five Year Ten Year
--------------------------------------------------------------------------------
Oregon Intermediate Tax Free Fund (1.50)% 5.01% 5.56%
--------------------------------------------------------------------------------
Lehman 7-Year Municipal Bond Index(3) (0.14)% 6.36% 6.60%
--------------------------------------------------------------------------------
(1)Total return for the period from 1/1/00 through 9/30/00 was 5.11%.
(2)Performance prior to 8/8/97 is that of Oregon Municipal Bond Trust Fund, a
predecessor common trust fund. On 8/8/97, substantially all of the assets of
Oregon Municipal Bond Trust Fund were transferred into Oregon Intermediate
Tax Free Fund. The objectives, policies, and guidelines of the two funds
were, in all material respects, identical. Oregon Municipal Bond Trust Fund's
performance is adjusted to reflect Oregon Intermediate Tax Free Fund's Class
Y share fees and expenses, before any fee waivers. Oregon Municipal Bond
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.
(3)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 8/31/97.
--------------------------------------------------------------------------------
FEES AND EXPENSES
The fund does not impose any sales charges (loads) or other fees when you buy,
sell or exchange shares. However, when you hold shares of the fund you
indirectly pay a portion of the fund's operating expenses. These expenses are
deducted from fund assets. The figures below are based on expenses during the
fiscal year ended September 30, 2000.(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 0.18%
TOTAL 0.88%
--------------------------------------------------------------------------------
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 2000,
were:
Waiver of Fund Expenses (0.18)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 0.70%
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 $ 90
3 years $ 281
5 years $ 488
10 years $1,084
11 PROSPECTUS - First American Intermediate Tax Free 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 investment professional 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.
To minimize the effect of large redemption requests, each fund reserves the
right to fulfill these redemption requests by distributing readily marketable
securities in the fund's portfolio, rather than paying you in cash. See
"Policies & Services -- Managing Your Investment, Redemption In-Kind."
--------------------------------------------------------------------------------
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 are 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.
12 PROSPECTUS - First American Intermediate Tax Free Funds
Class Y Shares
<PAGE>
Policies & Services
MANAGING YOUR INVESTMENT
--------------------------------------------------------------------------------
REDEMPTION IN-KIND
Generally, proceeds from redemption requests will be paid in cash. However, to
minimize the effect of large redemption requests on a fund and its remaining
shareholders, each fund reserves the right to pay part or all of the proceeds
from a redemption request in a proportionate share of readily marketable
securities in the fund instead of cash. In selecting securities for a redemption
in-kind, the advisor will consider the best interests of the fund and the
remaining fund shareholders, and will value these securities in accordance with
the pricing methods employed to calculate the fund's net asset value per share.
If you receive redemption proceeds in-kind, you should expect to incur
transaction costs upon disposition of the securities received in the redemption.
--------------------------------------------------------------------------------
STAYING INFORMED
SHAREHOLDER REPORTS. Shareholder reports are mailed twice a year, in November
and May. They include financial statements and performance information, and on
an annual basis, a message from your portfolio managers and 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 Investor Services at 1-800-637-2548.
STATEMENTS AND CONFIRMATIONS. Statements summarizing activity in your account
are mailed 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 contacting your financial institution. 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.
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. Distribu-tions of a fund's net 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.
If in redemption of his or her shares a shareholder receives a distribution of
readily marketable securities instead of cash, the shareholder will be treated
as receiving an amount equal to the fair market value of the securities at the
time of the distribution for purposes of determining capital gain or loss on the
redemption, and will also acquire a basis in the shares for federal income tax
purposes equal to their fair market value.
The exchange of one class of shares for another class of shares in the same fund
will not be taxable.
13 PROSPECTUS - First American Intermediate Tax Free Funds
Class Y Shares
<PAGE>
Policies & Services
MANAGING YOUR INVESTMENT
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.
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.
14 PROSPECTUS - First American Intermediate Tax Free Funds
Class Y Shares
<PAGE>
Additional Information
MANAGEMENT
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 September 30, 2000, it had more than $77 billion in assets under
management, including investment company assets of more than $33 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 the fiscal year ended September 30, 2000, 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 0.47%
COLORADO INTERMEDIATE TAX FREE FUND 0.40%
INTERMEDIATE TAX FREE FUND 0.53%
MINNESOTA INTERMEDIATE TAX FREE FUND 0.53%
OREGON INTERMEDIATE TAX FREE FUND 0.52%
--------------------------------------------------------------------------------
DIRECT CORRESPONDENCE TO:
FIRST AMERICAN FUNDS
P.O. BOX 1330
MINNEAPOLIS, MINNESOTA 55440-1330
INVESTMENT ADVISOR
FIRST AMERICAN ASSET MANAGEMENT
601 SECOND AVENUE SOUTH
MINNEAPOLIS, MINNESOTA 55402
DISTRIBUTOR
SEI INVESTMENTS DISTRIBUTION CO.
OAKS, PENNSYLVANIA 19456
PENDING ACQUISITION
On October 4, 2000, U.S. Bancorp, the parent company of the funds' investment
advisor, announced that it had entered into an agreement to be acquired by
Firstar Corporation. It is anticipated that this acquisition will be completed
in the first quarter of 2001, subject to regulatory approval, the approval of
U.S. Bancorp shareholders and the satisfaction of customary closing conditions.
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 all open-end funds in the First American family of
funds. These services include general administrative and accounting services,
transfer agency and dividend disbursing services, and shareholder services. U.S.
Bank receives total 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. These fees are allocated among the funds in the First American family
of funds on the basis of relative net asset value. The funds also pay U.S. Bank
fees based upon the number of funds and accounts maintained. In addition, U.S.
Bank is reimbursed for its out-of-pocket expenses incurred while providing
administrative services to the funds.
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 these transactions.
SHAREHOLDER SERVICING FEES. To the extent that fund shares are held through U.S.
Bank or its broker-dealer affiliates, U.S. Bancorp Investments, Inc. and U.S.
Bancorp Piper Jaffray Inc., those entities may receive shareholder servicing
fees from the funds' distributor.
PORTFOLIO MANAGEMENT
Each fund's investments are managed by a team of persons associated with First
American Asset Management.
15 PROSPECTUS - First American Intermediate Tax Free 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 municipal securities such as "general obligation" bonds,
"revenue" bonds, and participation interests in municipal leases. General
obligation bonds are backed by the full faith, credit and taxing power of the
issuer. Revenue bonds are payable only from the revenues generated by a specific
project or from another specific revenue source. 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 obligations
bonds or revenue bonds. See "Risks -- Risks of Municipal Lease Obligations."
The municipal securities in which the funds invest may include refunded bonds
and zero coupon 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. Zero coupon bonds are issued at
substantial discounts from their value at maturity and pay no cash income to
their holders until they mature. When held to maturity, their entire return
comes from the difference between their purchase price and their maturity value.
Up to 10% of each fund's total assets may be invested in inverse floating rate
municipal securities. The values of these securities, as well as zero coupon
bonds, may be highly volatile as interest rates rise or fall. See "Interest Rate
Risk" and "Risks of Inverse Floating Rate Securities."
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."
16 PROSPECTUS - First American Intermediate Tax Free Funds
Class Y Shares
<PAGE>
Additional Information
MORE ABOUT THE FUNDS CONTINUED
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.
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.
17 PROSPECTUS - First American Intermediate Tax Free Funds
Class Y Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
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 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 the fund, assuming you reinvested all of
your dividends and distributions.
The information for the fiscal years ended September 30, 2000 and September 30,
1999, has been derived from the financial statements 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 other auditors.
CALIFORNIA INTERMEDIATE TAX FREE FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
2000 1999 1998 1997(1)
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 9.89 $ 10.36 $ 10.03 $ 10.00
------- ------- ------- -------
Investment Operations:
Net Investment Income 0.43 0.42 0.43 0.06
Net Gains (Losses) on Investments
(both realized and unrealized) 0.15 (0.45) 0.33 0.03
------- ------- ------- -------
Total From Investment Operations 0.58 (0.03) 0.76 0.09
------- ------- ------- -------
Less Distributions:
Dividends (from net investment income) (0.43) (0.41) (0.43) (0.06)
Distributions (from capital gains) -- (0.03) -- --
------- ------- ------- -------
Total Distributions (0.43) (0.44) (0.43) (0.06)
------- ------- ------- -------
Net Asset Value, End of Period $ 10.04 $ 9.89 $ 10.36 $ 10.03
======= ======= ======= =======
Total Return 6.05% (0.30)% 7.80% 0.92%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $43,262 $41,469 $37,275 $ 33,287
Ratio of Expenses to Average Net Assets 0.70% 0.70% 0.70% 0.69%(2)
Ratio of Net Investment Income to Average Net Assets 4.36% 4.11% 4.27% 4.14%(2)
Ratio of Expenses to Average Net Assets (excluding waivers) 0.93% 0.92% 0.96% 1.11%(2)
Ratio of Net Investment Income to Average Net Assets (excluding waivers) 4.13% 3.89% 4.01% 3.72%(2)
Portfolio Turnover Rate 23% 9% 22% 3%
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Class Y shares have been offered since August 8, 1997.
(2)Annualized.
18 PROSPECTUS - First American Intermediate Tax Free Funds
Class Y Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
COLORADO INTERMEDIATE TAX FREE FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 10.29 $ 10.88 $ 10.61 $ 10.42 $ 10.51
------- ------- ------- ------- -------
Investment Operations:
Net Investment Income 0.48 0.46 0.47 0.48 0.49
Net Gains (Losses) on Investments
(both realized and unrealized) (0.03) (0.57) 0.29 0.24 (0.04)
------- ------- ------- ------- -------
Total From Investment Operations 0.45 (0.11) 0.76 0.72 0.45
------- ------- ------- ------- -------
Less Distributions:
Dividends (from net investment income) (0.48) (0.46) (0.47) (0.48) (0.49)
Distributions (from capital gains) -- (0.02) (0.02) (0.05) (0.05)
------- ------- ------- ------- -------
Total Distributions (0.48) (0.48) (0.49) (0.53) (0.54)
------- ------- ------- ------- -------
Net Asset Value, End of Period $ 10.26 $ 10.29 $ 10.88 $ 10.61 $ 10.42
======= ======= ======= ======= =======
Total Return 4.51% (1.07)% 7.33% 7.11% 4.39%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $52,885 $57,236 $59,631 $54,378 $48,927
Ratio of Expenses to Average Net Assets 0.70% 0.70% 0.70% 0.70% 0.70%
Ratio of Net Investment Income to Average Net Assets 4.66% 4.31% 4.43% 4.55% 4.69%
Ratio of Expenses to Average Net Assets (excluding waivers) 1.00% 0.90% 0.92% 0.91% 0.93%
Ratio of Net Investment Income to Average Net Assets (excluding waivers) 4.36% 4.11% 4.21% 4.34% 4.46%
Portfolio Turnover Rate 42% 33% 19% 11% 20%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
INTERMEDIATE TAX FREE FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 10.43 $ 11.03 $ 10.82 $ 10.65 $ 10.72
-------- -------- -------- -------- --------
Investment Operations:
Net Investment Income 0.48 0.46 0.47 0.47 0.46
Net Gains (Losses) on Investments
(both realized and unrealized) 0.04 (0.55) 0.27 0.23 --
-------- -------- -------- -------- --------
Total From Investment Operations 0.52 (0.09) 0.74 0.70 0.46
-------- -------- -------- -------- --------
Less Distributions:
Dividends (from net Investment Income) (0.49) (0.46) (0.47) (0.47) (0.46)
Distributions (from capital gains) -- (0.05) (0.06) (0.06) (0.07)
-------- -------- -------- --------- --------
Total Distributions (0.49) (0.51) (0.53) (0.53) (0.53)
-------- -------- -------- --------- --------
Net Asset Value, End of Period $ 10.46 $ 10.43 $ 11.03 $ 10.82 $ 10.65
======== ======== ======== ======== ========
Total Return 5.11% (0.79)% 7.05% 6.75% 4.35%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $375,279 $442,464 $460,714 $431,000 $ 66,994
Ratio of Expenses to Average Net Assets 0.70% 0.70% 0.70% 0.67% 0.66%
Ratio of Net Investment Income to Average Net Assets 4.62% 4.31% 4.32% 4.40% 4.35%
Ratio of Expenses to Average Net Assets (excluding waivers) 0.87% 0.87% 0.86% 0.93% 0.92%
Ratio of Net Investment Income to Average Net Assets (excluding waivers 4.45% 4.14% 4.16% 4.14% 4.09%
Portfolio Turnover Rate 29% 23% 27% 66% 53%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
19 PROSPECTUS - First American Intermediate Tax Free Funds
Class Y Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
MINNESOTA INTERMEDIATE TAX FREE FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
2000 1999 1998 1997 1996
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 9.76 $ 10.26 $ 10.06 $ 9.91 $ 9.92
-------- -------- -------- -------- -------
Investment Operations:
Net Investment Income 0.45 0.43 0.43 0.44 0.45
Net Gains (Losses) on Investments
(both realized and unrealized) 0.01 (0.47) 0.24 0.18 0.02
-------- -------- -------- -------- -------
Total From Investment Operations 0.46 (0.04) 0.67 0.62 0.47
-------- -------- -------- -------- -------
Less Distributions:
Dividends (from net investment income) (0.45) (0.43) (0.43) (0.44) (0.45)
Distributions (from capital gains) (0.01) (0.03) (0.04) (0.03) (0.03)
-------- -------- -------- -------- -------
Total Distributions (0.46) (0.46) (0.47) (0.47) (0.48)
-------- -------- -------- -------- -------
Net Asset Value, End of Period $ 9.76 $ 9.76 $ 10.26 $ 10.06 $ 9.91
======== ======== ======== ======== =======
Total Return 5.04% (0.44)% 6.82% 6.42% 4.80%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $244,353 $279,776 $317,598 $297,122 $93,394
Ratio of Expenses to Average Net Assets 0.70% 0.70% 0.70% 0.70% 0.70%
Ratio of Net Income to Average Net Assets 4.59% 4.28% 4.30% 4.47% 4.53%
Ratio of Expenses to Average Net Assets (excluding waivers) 0.87% 0.87% 0.86% 0.90% 0.93%
Ratio of Net Income to Average Net Assets (excluding waivers) 4.42% 4.11% 4.14% 4.27% 4.30%
Portfolio Turnover Rate 18% 12% 24% 20% 19%
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
OREGON INTERMEDIATE TAX FREE FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
2000 1999 1998 1997(1)
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 9.72 $ 10.24 $ 10.05 $ 10.00
-------- -------- -------- --------
Income From Investment Operations:
Net Investment Income 0.43 0.43 0.45 0.07
Net Gains (Losses) on Investments (both realized and unrealized) 0.02 (0.49) 0.21 0.05
-------- -------- -------- --------
Total From Investment Operations 0.45 (0.06) 0.66 0.12
-------- -------- -------- --------
Less Distributions:
Dividends (from net investment income) (0.43) (0.43) (0.45) (0.07)
Distributions (from capital gains) -- (0.03) (0.02) --
-------- -------- -------- --------
Total Distributions (0.43) (0.46) (0.47) (0.07)
-------- -------- -------- --------
Net Asset Value, End of Period $ 9.74 $ 9.72 $ 10.24 $ 10.05
======== ======== ======== ========
Total Return 4.78% (0.66)% 6.66% 1.17%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $160,124 $178,411 $187,383 $182,069
Ratio of Expenses to Average Net Assets 0.70% 0.70% 0.70% 0.70%(2)
Ratio of Net Investment Income to Average Net Assets 4.47% 4.30% 4.43% 4.55%(2)
Ratio of Expenses to Average Net Assets (excluding waivers) 0.88% 0.87% 0.87% 1.09%(2)
Ratio of Net Investment Income to Average Net Assets (excluding waivers) 4.29% 4.13% 4.26% 4.16%(2)
Portfolio Turnover Rate 18% 13% 20% 4%
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Class Y shares have been offered since August 8, 1997.
(2)Annualized.
20 PROSPECTUS - First American Intermediate Tax Free 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 of this information, after paying a duplicating fee,
by electronic request at the following email address: [email protected], or by
writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. For
more information, call 1-202-942-8090.
Information about the funds is also available on the Internet. Text-only
versions of fund documents can be viewed online or downloaded from the EDGAR
Database on the SEC's Internet site at http://www.sec.gov.
FIRST AMERICAN FUNDS P.O. Box 1330, Minneapolis, MN 55440-1330
First American Asset Management, a division of U.S. Bank National Association,
serves as the investment advisor to the First American Funds.
First American Funds are distributed by SEI Investments Distribution Co. which
is located in Oaks, PA 19456 and is not an affiliate of U.S. Bank.
12/2000 PROINTTXY-00
SEC file number: 811-05309
[LOGO] FIRST AMERICAN FUNDS(R)
THE POWER OF DISCIPLINED INVESTING(R)
<PAGE>
DECEMBER 30, 2000
ASSET CLASSES
* EQUITY FUNDS
* FUNDS OF FUNDS
* BOND FUNDS
(*) TAX FREE FUNDS
* MONEY MARKET FUNDS
PROSPECTUS
FIRST AMERICAN INVESTMENT FUNDS, INC.
FIRST AMERICAN
TAX FREE
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
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.
[LOGO] FIRST AMERICAN FUNDS(R)
THE POWER OF DISCIPLINED INVESTING(R)
<PAGE>
Table of
CONTENTS
FUND SUMMARIES
--------------------------------------------------------------------------------
Arizona Tax Free Fund 2
--------------------------------------------------------------------------------
California Tax Free Fund 4
--------------------------------------------------------------------------------
Colorado Tax Free Fund 6
--------------------------------------------------------------------------------
Minnesota Tax Free Fund 8
--------------------------------------------------------------------------------
Tax Free Fund 10
--------------------------------------------------------------------------------
POLICIES & SERVICES
--------------------------------------------------------------------------------
Buying Shares 12
--------------------------------------------------------------------------------
Selling Shares 15
--------------------------------------------------------------------------------
Managing Your Investment 16
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
Management 18
--------------------------------------------------------------------------------
More About The Funds 19
--------------------------------------------------------------------------------
Financial Highlights 21
--------------------------------------------------------------------------------
FOR MORE INFORMATION Back Cover
--------------------------------------------------------------------------------
<PAGE>
Fund Summaries
INTRODUCTION
This section of the prospectus describes the objectives of the First American
Tax Free 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.
1 PROSPECTUS - First American Tax Free 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 total 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:
* "general obligation" bonds, which are backed by the full faith, credit and
taxing power of the issuer.
* "revenue" bonds, which are payable only from the revenues generated by a
specific project or from another specific revenue source.
* participation interests in municipal leases.
* zero coupon municipal securities, which pay no cash income to their holders
until they mature.
* 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, duration,
maturity, yield, 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. If the rating of a security is reduced or discontinued
after purchase, the fund is not required to sell the security, but may consider
doing so. 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.
--------------------------------------------------------------------------------
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. For additional explanation about inverse floating rate securities, see
"More About The Funds -- Risks."
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.
--------------------------------------------------------------------------------
FUND PERFORMANCE
Because Arizona Tax Free Fund shares have not been offered for a full calendar
year, no performance information is presented for these shares.
2 PROSPECTUS - First American Tax Free Funds
Class A and Class C Shares
<PAGE>
Fund Summaries
ARIZONA TAX FREE FUND CONTINUED
--------------------------------------------------------------------------------
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 period ended September 30,
2000.(1)
<TABLE>
<CAPTION>
<S> <C> <C>
---------------------------------------------------------------------------------------------------
SHAREHOLDER FEES CLASS A CLASS C
---------------------------------------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD)
AS A % OF OFFERING 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 MAINTENANCE FEE(4)
ONLY CHARGED TO ACCOUNTS WITH BALANCES BELOW $500 $ 25 $ 25
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 0.85% 1.02%
TOTAL 1.80% 2.72%
---------------------------------------------------------------------------------------------------
</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. The net
expenses the fund actually paid after waivers for the fiscal year ended
September 30, 2000, were:
<TABLE>
<S> <C> <C>
Waiver of Fund Expenses (1.55)% (2.07)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 0.25% 0.65%
</TABLE>
THE ADVISOR AND DISTRIBUTOR INTEND TO WAIVE FEES DURING THE CURRENT FISCAL YEAR
SO THAT TOTAL FUND OPERATING EXPENSES DO NOT EXCEED 0.55% AND 0.95%,
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."
(4) The fund reserves the right to charge your account an annual maintenance fee
of $25 if your balance falls below $500 as a result of selling or exchanging
shares. See "Policies & Services -- Selling Shares, Accounts with Low
Balances."
--------------------------------------------------------------------------------
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 C CLASS C
assuming redemption assuming no redemption
CLASS A at end of each period at end of each period
--------------------------------------------------------------------------------
<S> <C> <C> <C>
1 year $ 428 $ 472 $ 372
3 years $ 802 $ 936 $ 936
5 years $1,200 $1,525 $1,525
10 years $2,313 $3,121 $3,121
</TABLE>
3 PROSPECTUS - First American Tax Free 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 total 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:
* "general obligation" bonds, which are backed by the full faith, credit and
taxing power of the issuer.
* "revenue" bonds, which are payable only from the revenues generated by a
specific project or from another specific revenue source.
* participation interests in municipal leases.
* zero coupon municipal securities, which pay no cash income to their holders
until they mature.
* 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, duration,
maturity, yield, 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. If the rating of a security is reduced or discontinued
after purchase, the fund is not required to sell the security, but may consider
doing so. 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.
--------------------------------------------------------------------------------
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. For additional explanation about inverse floating rate securities, see
"More About The Funds -- Risks."
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.
--------------------------------------------------------------------------------
FUND PERFORMANCE
Because California Tax Free Fund shares have not been offered for a full
calendar year, no performance information is presented for these shares.
4 PROSPECTUS - First American Tax Free Funds
Class A and Class C Shares
<PAGE>
Fund Summaries
CALIFORNIA TAX FREE FUND CONTINUED
--------------------------------------------------------------------------------
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 period ended September 30,
2000.(1)
<TABLE>
<CAPTION>
<S> <C> <C>
---------------------------------------------------------------------------------------------------
SHAREHOLDER FEES CLASS A CLASS 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 MAINTENANCE FEE(4)
ONLY CHARGED TO ACCOUNTS WITH BALANCES BELOW $500 $ 25 $ 25
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 0.90% 0.55%
TOTAL 1.85% 2.25%
--------------------------------------------------------------------------------------------------
</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. The net
expenses the fund actually paid after waivers for the fiscal year ended
September 30, 2000, were:
<TABLE>
<S> <C> <C>
Waiver of Fund Expenses (1.60)% (1.60)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 0.25% 0.65%
</TABLE>
THE ADVISOR AND DISTRIBUTOR INTEND TO WAIVE FEES DURING THE CURRENT FISCAL YEAR
SO THAT TOTAL FUND OPERATING EXPENSES DO NOT EXCEED 0.55% AND 0.95%,
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."
(4) The fund reserves the right to charge your account an annual maintenance fee
of $25 if your balance falls below $500 as a result of selling or exchanging
shares. See "Policies & Services -- Selling Shares, Accounts with Low
Balances."
--------------------------------------------------------------------------------
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 redemption assuming no redemption
CLASS A at end of each period at end of each period
----------------------------------------------------------------------------
1 year $ 433 $ 426 $ 326
3 years $ 817 $ 796 $ 796
5 years $1,226 $1,293 $1,293
10 years $2,365 $2,659 $2,659
5 PROSPECTUS - First American Tax Free 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 total 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:
* "general obligation" bonds, which are backed by the full faith, credit and
taxing power of the issuer.
* "revenue" bonds, which are payable only from the revenues generated by a
specific project or from another specific revenue source.
* participation interests in municipal leases.
* zero coupon municipal securities, which pay no cash income to their holders
until they mature.
* 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, duration,
maturity, yield, 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. If the rating of a security is reduced or discontinued
after purchase, the fund is not required to sell the security, but may consider
doing so. 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.
--------------------------------------------------------------------------------
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. For additional explanation about inverse floating rate securities, see
"More About The Funds -- Risks."
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.
--------------------------------------------------------------------------------
FUND PERFORMANCE
Because Colorado Tax Free Fund shares have not been offered for a full calendar
year, no performance information is presented for these shares.
6 PROSPECTUS - First American Tax Free Funds
Class A and Class C Shares
<PAGE>
Fund Summaries
COLORADO TAX FREE FUND CONTINUED
--------------------------------------------------------------------------------
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 period ended September 30,
2000.(1)
<TABLE>
<CAPTION>
<S> <C> <C>
--------------------------------------------------------------------------------------------------
SHAREHOLDER FEES CLASS A CLASS 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 MAINTENANCE FEE(4)
ONLY CHARGED TO ACCOUNTS WITH BALANCES BELOW $500 $ 25 $ 25
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 0.85% 0.88%
TOTAL 1.80% 2.58%
--------------------------------------------------------------------------------------------------
</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. The net
expenses the fund actually paid after waivers for the fiscal year ended
September 30, 2000, were:
<TABLE>
<S> <C> <C>
Waiver of Fund Expenses (1.55)% (1.93)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 0.25% 0.65%
</TABLE>
THE ADVISOR AND DISTRIBUTOR INTEND TO WAIVE FEES DURING THE CURRENT FISCAL YEAR
SO THAT TOTAL FUND OPERATING EXPENSES DO NOT EXCEED 0.55% AND 0.95%,
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."
(4) The fund reserves the right to charge your account an annual maintenance fee
of $25 if your balance falls below $500 as a result of selling or exchanging
shares. See "Policies & Services -- Selling Shares, Accounts with Low
Balances."
--------------------------------------------------------------------------------
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 C CLASS C
assuming redemption assuming no redemption
CLASS A at end of each period at end of each period
----------------------------------------------------------------------------
<S> <C> <C> <C>
1 year $ 428 $ 459 $ 359
3 years $ 802 $ 894 $ 894
5 years $1,200 $1,457 $1,457
10 years $2,313 $2,986 $2,986
</TABLE>
7 PROSPECTUS - First American Tax Free 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 total 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:
* "general obligation" bonds, which are backed by the full faith, credit and
taxing power of the issuer.
* "revenue" bonds, which are payable only from the revenues generated by a
specific project or from another specific revenue source.
* participation interests in municipal leases.
* zero coupon municipal securities, which pay no cash income to their holders
until they mature.
* 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, duration,
maturity, yield, 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. If the rating of a security is reduced or discontinued
after purchase, the fund is not required to sell the security, but may consider
doing so. 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.
--------------------------------------------------------------------------------
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. For additional explanation about inverse floating
securities, see "More About The Funds -- Risks."
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.
--------------------------------------------------------------------------------
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 C shares will be lower due to their
higher expenses. Sales charges are not reflected in the chart; if they were,
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. 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.
8 PROSPECTUS - First American Tax Free 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),(2)
<TABLE>
<CAPTION>
<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% -2.92%
------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
</TABLE>
Best Quarter: Quarter ending March 31, 1995 7.83%
Worst Quarter: Quarter ending March 31, 1994 (4.94)%
AVERAGE ANNUAL TOTAL RETURNS Inception
AS OF 12/31/99(2) Date One Year Five Years Ten Years
--------------------------------------------------------------------------------
Minnesota Tax Free Fund (Class A) 7/11/88 (5.34)% 6.07% 6.15%
--------------------------------------------------------------------------------
Lehman Municipal Bond Index(3) (2.07)% 6.91% 6.90%
--------------------------------------------------------------------------------
(1) Total return for the period from 1/1/00 through 9/30/00 was 5.72%.
(2) 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.
(3) 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,
2000.(1)
<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 MAINTENANCE FEE(4)
ONLY CHARGED TO ACCOUNTS WITH BALANCES BELOW $500 $ 25 $ 25
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 0.22% 0.07%
TOTAL 1.17% 1.77%
-------------------------------------------------------------------------------------------------
</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. The net
expenses the fund actually paid after waivers for the fiscal year ended
September 30, 2000, were:
<TABLE>
<S> <C> <C>
Waiver of Fund Expenses (0.22)% (0.42)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 0.95% 1.35%
</TABLE>
THE ADVISOR AND DISTRIBUTOR INTEND 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."
(4) The fund reserves the right to charge your account an annual maintenance fee
of $25 if your balance falls below $500 as a result of selling or exchanging
shares. See "Policies & Services -- Selling Shares, Accounts with Low
Balances."
--------------------------------------------------------------------------------
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 redemption assuming no redemption
CLASS A at end of each period at end of each period
----------------------------------------------------------------------------
1 year $ 366 $ 378 $ 278
3 years $ 612 $ 652 $ 652
5 years $ 878 $1,050 $1,050
10 years $1,635 $2,163 $2,163
9 PROSPECTUS - First American Tax Free 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 total
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:
* "general obligation" bonds, which are backed by the full faith, credit and
taxing power of the issuer.
* "revenue" bonds, which are payable only from the revenues generated by a
specific project or from another specific revenue source.
* participation interests in municipal leases.
* zero coupon municipal securities, which pay no cash income to their holders
until they mature.
* 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, duration,
maturity, yield, 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. If the rating of a security is reduced or discontinued
after purchase, the fund is not required to sell the security, but may consider
doing so. 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.
--------------------------------------------------------------------------------
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. For additional explanation about inverse floating rate
securities, see "More About The Funds -- Risks."
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, 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 C shares will be lower due to their
higher expenses. Sales charges are not reflected in the chart; if they were,
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. 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 Tax Free 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),(2)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
7.24% 12.03% 8.58% 14.55% -8.46% 18.54% 3.45% 9.04% 6.02% -4.83%
------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
</TABLE>
Best Quarter: Quarter ending March 31, 1995 7.99%
Worst Quarter: Quarter ending March 31, 1994 (7.65)%
AVERAGE ANNUAL TOTAL RETURNS Inception
AS OF 12/31/99(2) Date One Year Five Years Ten Years
--------------------------------------------------------------------------------
Tax Free Fund (Class A) 7/11/88 (7.21)% 5.65% 6.05%
--------------------------------------------------------------------------------
Lehman Municipal Bond Index(3) (2.07)% 6.91% 6.90%
--------------------------------------------------------------------------------
(1) Total return for the period from 1/1/00 through 9/30/00 was 6.50%.
(2) 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.
(3) 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,
2000.(1)
<TABLE>
<CAPTION>
<S> <C> <C>
SHAREHOLDER FEES CLASS A CLASS 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 MAINTENANCE FEE(4)
ONLY CHARGED TO ACCOUNTS WITH BALANCES BELOW $500 $ 25 $ 25
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 0.24% 0.09%
TOTAL 1.19% 1.79%
----------------------------------------------------------------------------------------------------
</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. The net
expenses the fund actually paid after waivers for the fiscal year ended
September 30, 2000, were:
<TABLE>
<S> <C> <C>
Waiver of Fund Expenses (0.24)% (0.44)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 0.95% 1.35%
</TABLE>
THE ADVISOR AND DISTRIBUTOR INTEND 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."
(4)The fund reserves the right to charge your account an annual maintenance fee
of $25 if your balance falls below $500 as a result of selling or exchanging
shares. See "Policies & Services -- Selling Shares, Accounts with Low
Balances."
--------------------------------------------------------------------------------
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 redemption assuming no redemption
CLASS A at end of each period at end of each period
----------------------------------------------------------------------------
1 year $ 368 $ 380 $ 280
3 years $ 618 $ 658 $ 658
5 years $ 888 $1,060 $1,060
10 years $1,657 $2,184 $2,184
11 PROSPECTUS - First American Tax Free 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:
* a front-end sales charge, described below.
* 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:
* orders for Class C shares for $1 million or more will be treated as orders
for Class A shares.
* orders for Class C shares by an investor eligible to purchase Class A shares
without a front-end sales charge 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:
* a 1% contingent deferred sales charge if you redeem your shares within 18
months of purchase.
* higher annual expenses than Class A shares. See "Fund Summaries -- Fees and
Expenses."
* 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 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 equal to 0.25% of average daily net assets is a
shareholder servicing fee and 0.75% is a distribution fee.
The funds' distributor uses the shareholder servicing fee to compensate
investment professionals, participating institutions and "one-stop" mutual fund
networks (institutions) for providing ongoing services to shareholder accounts.
These institutions receive shareholder servicing fees equal to 0.25% of a fund's
Class A share average daily net assets and 0.15% of a fund's 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
shareholder servicing 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 advisor or
the distributor may pay additional fees to institutions out of their own assets
in exchange for sales and/or administrative services performed on behalf of the
institution's customers.
The advisor and distributor are currently waiving 0.10% of the shareholder
servicing fee and 0.25% of the distribution fee for Class C shares. Fee waivers
may be discontinued at any time.
12 PROSPECTUS - First American Tax Free Funds
Class A and Class C Shares
<PAGE>
Policies & Services
BUYING SHARES CONTINUED
--------------------------------------------------------------------------------
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 for Class A shares 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
investment professional 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. That is, you will receive credit for either the original purchase
price or the current net asset value of the other Class A shares you hold at the
time of your purchase, whichever is greater. For example, let's say you're
making a $10,000 investment and you already own other First American fund Class
A shares that you purchased for $25,000, but are now valued at $45,000. Since
the current net asset value of your shares is greater than their purchase price,
you will receive credit for their current value and your sales charge will be
based on a total purchase amount of $55,000. To receive a reduced sales charge,
you must notify the fund of your prior purchases. This must be done at the time
of purchase, either directly with the fund in writing or by notifying your
investment professional or financial institution.
PURCHASES BY RELATED ACCOUNTS. Concurrent and prior purchases of Class A shares
of any First American fund 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 fund of purchases by any related accounts. This must
be done at the time of purchase, either directly with the funds in writing or by
notifying your investment professional 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 investment professional 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 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:
* redemptions following the death or disability (as defined in the Internal
Revenue Code) of a shareholder.
* 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.
* 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
13 PROSPECTUS - First American Tax Free Funds
Class A and Class C Shares
<PAGE>
Policies & Services
BUYING SHARES CONTINUED
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 investment professional or
participating institution. Additionally, the advisor may pay its affiliated
broker-dealer, U.S. Bancorp Piper Jaffray Inc., an additional commission of up
to 3% of your purchase price. The distributor receives any CDSC imposed when you
sell your Class C shares.
The CDSC for Class C shares will be waived for:
* redemptions following the death or disability (as defined in the Internal
Revenue Code) of a shareholder.
* 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 701/2.
* 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 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 net
asset value 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 investment professional 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 investment professional 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 investment professional 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 investment professional or financial institution for more information.
If you are paying by wire, you may purchase shares by calling Investor Services
at 1-800-637-2548 before the close of regular trading on the New York Stock
Exchange (usually 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, ACCOUNT NUMBER 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:
* all purchases must be made in U.S. dollars.
* third-party checks, credit cards, credit card checks and cash are not
accepted.
* 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:
* by having $100 or more ($25 for a retirement plan or a Uniform Gifts to
Minors Act/Uniform Transfers to Minors Act account) automatically withdrawn
from your bank account on a periodic basis and invested in fund shares.
* 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
investment professional or financial institution or by calling Investor Services
at 1-800-637-2548.
14 PROSPECTUS - First American Tax Free 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. Be sure to read the section "Buying
Shares" for a description of contingent deferred sales charges. 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 three days,
but in no event more than seven days, after your request is received in proper
form.
To minimize the effect of large redemption requests, each fund reserves the
right to fulfill these redemption requests by distributing readily marketable
securities in the fund's portfolio, rather than paying you in cash. See
"Policies & Services -- Managing Your Investment, Redemption In-Kind."
BY PHONE. If you purchased shares through an investment professional or a
financial institution, simply call them to sell your shares. In many cases, your
redemption will be effective that day if received by your investment
professional 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
investment professional or financial institution time to process your request
and transmit it to the fund. Contact your investment professional or financial
institution directly for more information.
If you did not purchase shares through an investment professional or a financial
institution, you may sell your shares by calling Investor Services at
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 fund) or sent to you by check. The funds reserve the right to limit
telephone exchanges to $50,000 per day.
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 15 calendar days
from the date of purchase.
BY MAIL. To sell shares by mail, send a written request to your investment
professional or financial institution, or to the fund 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:
* name of the fund.
* account number.
* dollar amount or number of shares redeemed.
* name on the account.
* signatures of all registered account owners.
Signatures on a written request must be guaranteed if:
* you would like the proceeds from the sale to be paid to anyone other than to
the shareholder of record.
* you would like the check mailed to an address other than the address on the
funds' records.
* 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 unless
another form of payment is requested.
--------------------------------------------------------------------------------
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 investment professional 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 of a First American fund, 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 fund directly in writing or notify your
investment professional or financial institution.
--------------------------------------------------------------------------------
ACCOUNTS WITH LOW BALANCES
Except for retirement plans and Uniform Gifts to Minors Act/Uniform Transfers
to Minors Act accounts, if your account balance falls below $500 as a result
of selling or exchanging shares, the fund reserves the right to either:
* deduct a $25 annual account maintenance fee, or
* close your account and send you the proceeds, less any applicable
contingent deferred sales charge.
Before taking any action, however, the fund will send you written notice of
the action it intends to take and give you 30 days to re-establish a minimum
account balance of $500.
15 PROSPECTUS - First American Tax Free 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. If both funds have identical shareholder registrations, you may
exchange shares by calling your investment professional, your financial
institution, or by calling the funds directly. To request an exchange through
the funds, call Investor Services at 1-800-637-2548. Your instructions must be
received before 3 p.m. Central time, or by the time specified by your investment
professional 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.
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.
--------------------------------------------------------------------------------
REDEMPTION IN-KIND
Generally, proceeds from redemption requests will be paid in cash. However, to
minimize the effect of large redemption requests on a fund and its remaining
shareholders, each fund reserves the right to pay part or all of the proceeds
from a redemption request in a proportionate share of readily marketable
securities in the fund instead of in cash. In selecting securities for a
redemption in-kind, the advisor will consider the best interests of the fund and
the remaining fund shareholders, and will value these securities in accordance
with the pricing methods employed to calculate the fund's net asset value per
share. If you receive redemption proceeds in-kind, you should expect to incur
transaction costs upon the disposition of the securities received in the
redemption.
--------------------------------------------------------------------------------
STAYING INFORMED
Shareholder Reports. Shareholder reports are mailed twice a year, in November
and May. They include financial statements and performance information, and on
an annual basis, a message from your portfolio managers and 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 Investor Services at 1-800-637-2548.
Statements and Confirmations. Statements summarizing activity in your account
are mailed 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, your investment
professional or with your financial institution. 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.
16 PROSPECTUS - First American Tax Free Funds
Class A and Class C Shares
<PAGE>
Policies & Services
MANAGING YOUR INVESTMENT CONTINUED
--------------------------------------------------------------------------------
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. 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 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.
If in redemption of his or her shares a shareholder receives a distribution of
readily marketable securities instead of cash, the shareholder will be treated
as receiving an amount equal to the fair market value of the securities at the
time of the distribution for purposes of determining capital gain or loss on the
redemption, and will also acquire a basis in the shares for federal income tax
purposes equal to their fair market value.
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.
17 PROSPECTUS - First American Tax Free Funds
Class A and Class C Shares
<PAGE>
Additional Information
MANAGEMENT
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 September 30, 2000, it had more than $77 billion in assets under
management, including investment company assets of more than $33 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 the fiscal year ended September 30, 2000, 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 0.00%
CALIFORNIA TAX FREE FUND 0.00%
COLORADO TAX FREE FUND 0.00%
MINNESOTA TAX FREE FUND 0.47%
TAX FREE FUND 0.45%
--------------------------------------------------------------------------------
DIRECT CORRESPONDENCE TO:
First American Funds
P.O. Box 1330
Minneapolis, Minnesota 55440-1330
INVESTMENT ADVISOR
First American Asset Management
601 Second Avenue South
Minneapolis, Minnesota 55402
DISTRIBUTOR
SEI Investments Distribution Co.
Oaks, Pennsylvania 19456
PENDING ACQUISITION
On October 4, 2000, U.S. Bancorp, the parent company of the funds' investment
advisor, announced that it had entered into an agreement to be acquired by
Firstar Corporation. It is anticipated that this acquisition will be completed
in the first quarter of 2001, subject to regulatory approval, the approval of
U.S. Bancorp shareholders and the satisfaction of customary closing conditions.
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 all open-end funds in the First American family of
funds. These services include general administrative and accounting services,
transfer agency and dividend disbursing services, and shareholder services. U.S.
Bank receives total 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. These fees are allocated among the funds in the First American family
of funds on the basis of their relative net asset values. The funds also pay
U.S. Bank fees based upon the number of funds and accounts maintained. In
addition, U.S. Bank is reimbursed for its out-of-pocket expenses incurred while
providing administrative services to the funds.
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 these transactions.
SHAREHOLDER SERVICING FEES. To the extent that fund shares are held through U.S.
Bank or its broker-dealer affiliates, U.S. Bancorp Investments, Inc. and U.S.
Bancorp Piper Jaffray Inc., those entities may receive shareholder servicing
fees from the funds' distributor.
PORTFOLIO MANAGEMENT
Each fund's investments are managed by a team of persons associated with First
American Asset Management.
18 PROSPECTUS - First American Tax Free 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 municipal securities such as "general obligation" bonds,
"revenue" bonds, and participation interests in municipal leases. General
obligation bonds are backed by the full faith, credit and taxing power of the
issuer. Revenue bonds are payable only from the revenues generated by a specific
project or from another specific revenue source. 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 obligations
bonds or revenue bonds. See "Risks -- Risks of Municipal Lease Obligations."
The municipal securities in which the funds invest may include refunded bonds
and zero coupon 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. Zero coupon bonds are issued at
substantial discounts from their value at maturity and pay no cash income to
their holders until they mature. When held to maturity, their entire return
comes from the difference between their purchase price and their maturity value.
Up to 10% of each fund's total assets may be invested in inverse floating rate
municipal securities. The values of these securities, as well as zero coupon
bonds, may be highly volatile as interest rates rise or fall. See "Interest Rate
Risk" and "Risks of Inverse Floating Rate Securities."
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."
19 PROSPECTUS - First American Tax Free Funds
Class A and Class C Shares
<PAGE>
Additional Information
MORE ABOUT THE FUNDS CONTINUED
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.
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.
20 PROSPECTUS - First American Tax Free 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 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 the fund,
excluding sales charges and assuming you reinvested all of your dividends and
distributions.
The information for the fiscal years ended September 30, 2000 and September 30,
1999, has been derived from the financial statements 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 other auditors.
ARIZONA TAX FREE FUND
<TABLE>
<CAPTION>
Fiscal year ended
September 30,
CLASS A SHARES 2000(1)
-----------------------------------------------------------------------------------------------
<S> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 10.00
---------
Investment Operations:
Net Investment Income 0.36
Net Gains (Losses) on Investments
(both realized and unrealized) 0.45
---------
Total From Investment Operations 0.81
---------
Less Distributions:
Dividends (from net investment income) (0.36)
Distributions (from capital gains) --
---------
Total Distributions (0.36)
---------
Net Asset Value, End of Period $ 10.45
=========
Total Return 8.21%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 9,668
Ratio of Expenses to Average Net Assets 0.25%(2)
Ratio of Net Investment Income to Average Net Assets 5.31%(2)
Ratio of Expenses to Average Net Assets (excluding waivers) 1.80%(2)
Ratio of Net Investment Income to Average Net Assets (excluding waivers) 3.76%(2)
Portfolio Turnover Rate 27%
-----------------------------------------------------------------------------------------------
</TABLE>
(1) Class A shares have been offered since February 1, 2000.
(2) Annualized.
21 PROSPECTUS - First American Tax Free Funds
Class A and Class C Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
ARIZONA TAX FREE FUND (CONTINUED)
<TABLE>
<CAPTION>
Fiscal year ended
September 30,
CLASS C SHARES 2000(1)
------------------------------------------------------------------------------------------
<S> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $10.00
------
Investment Operations:
Net Investment Income 0.34
Net Gains (Losses) on Investments
(both realized and unrealized) 0.44
------
Total From Investment Operations 0.78
------
Less Distributions:
Dividends (from net investment income) (0.34)
Distributions (from capital gains) --
------
Total Distributions (0.34)
------
Net Asset Value, End of Period $10.44
======
Total Return 7.88%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 22
Ratio of Expenses to Average Net Assets 0.65%(2)
Ratio of Net Investment Income to Average Net Assets 4.95%(2)
Ratio of Expenses to Average Net Assets (excluding waivers) 2.72%(2)
Ratio of Net Investment Income to Average Net Assets (excluding waivers) 2.88%(2)
Portfolio Turnover Rate 27%
------------------------------------------------------------------------------------------
</TABLE>
(1) Class C shares have been offered since February 1, 2000.
(2) Annualized.
22 PROSPECTUS - First American Tax Free Funds
Class A and Class C Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
CALIFORNIA TAX FREE FUND
<TABLE>
<CAPTION>
Fiscal year ended
September 30,
CLASS A SHARES 2000(1)
---------------------------------------------------------------------------------------------
<S> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 10.00
---------
Investment Operations:
Net Investment Income 0.35
Net Gains (Losses) on Investments
(both realized and unrealized) 0.66
---------
Total From Investment Operations 1.01
---------
Less Distributions:
Dividends (from net investment income) (0.35)
Distributions (from capital gains) --
---------
Total Distributions (0.35)
---------
Net Asset Value, End of Period $ 10.66
=========
Total Return 10.23%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 6,029
Ratio of Expenses to Average Net Assets 0.25%(2)
Ratio of Net Investment Income to Average Net Assets 5.20%(2)
Ratio of Expenses to Average Net Assets (excluding waivers) 1.85%(2)
Ratio of Net Investment Income to Average Net Assets (excluding waivers) 3.60%(2)
Portfolio Turnover Rate 12%
---------------------------------------------------------------------------------------------
</TABLE>
(1) Class A shares have been offered since February 1, 2000.
(2) Annualized.
<TABLE>
<CAPTION>
Fiscal year ended
September 30,
CLASS C SHARES 2000(1)
--------------------------------------------------------------------------------------------
<S> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $10.00
------
Investment Operations:
Net Investment Income 0.32
Net Gains (Losses) on Investments
(both realized and unrealized) 0.66
------
Total From Investment Operations 0.98
------
Less Distributions:
Dividends (from net investment income) (0.32)
Distributions (from capital gains) --
------
Total Distributions (0.32)
------
Net Asset Value, End of Period $10.66
======
Total Return 9.95%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 34
Ratio of Expenses to Average Net Assets 0.65%(2)
Ratio of Net Investment Income to Average Net Assets 5.12%(2)
Ratio of Expenses to Average Net Assets (excluding waivers) 2.25%(2)
Ratio of Net Investment Income to Average Net Assets (excluding waivers) 3.52%(2)
Portfolio Turnover Rate 12%
--------------------------------------------------------------------------------------------
</TABLE>
(1) Class C shares have been offered since February 1, 2000.
(2) Annualized.
23 PROSPECTUS - First American Tax Free Funds
Class A and Class C Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
COLORADO TAX FREE FUND
<TABLE>
<CAPTION>
Fiscal year ended
September 30,
CLASS A SHARES 2000(1)
---------------------------------------------------------------------------------------------
<S> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 10.00
---------
Investment Operations:
Net Investment Income 0.35
Net Gains (Losses) on Investments
(both realized and unrealized) 0.42
---------
Total From Investment Operations 0.77
---------
Less Distributions:
Dividends (from net investment income) (0.35)
Distributions (from capital gains) --
---------
Total Distributions (0.35)
---------
Net Asset Value, End of Period $ 10.42
=========
Total Return 7.80%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 8,068
Ratio of Expenses to Average Net Assets 0.25%(2)
Ratio of Net Investment Income to Average Net Assets 5.28%(2)
Ratio of Expenses to Average Net Assets (excluding waivers) 1.80%(2)
Ratio of Net Investment Income to Average Net Assets (excluding waivers) 3.73%(2)
Portfolio Turnover Rate 36%
---------------------------------------------------------------------------------------------
</TABLE>
(1) Class A shares have been offered since February 1, 2000.
(2) Annualized.
<TABLE>
<CAPTION>
Fiscal year ended
September 30,
CLASS C SHARES 2000(1)
-------------------------------------------------------------------------------------------
<S> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 10.00
-------
Investment Operations:
Net Investment Income 0.34
Net Gains (Losses) on Investments
(both realized and unrealized) 0.41
-------
Total From Investment Operations 0.75
-------
Less Distributions:
Dividends (from net investment income) (0.34)
Distributions (from capital gains) --
-------
Total Distributions (0.34)
-------
Net Asset Value, End of Period $ 10.41
=======
Total Return 7.52%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 156
Ratio of Expenses to Average Net Assets 0.65%(2)
Ratio of Net Investment Income to Average Net Assets 4.92%(2)
Ratio of Expenses to Average Net Assets (excluding waivers) 2.58%(2)
Ratio of Net Investment Income to Average Net Assets (excluding waivers) 2.99%(2)
Portfolio Turnover Rate 36%
-------------------------------------------------------------------------------------------
</TABLE>
(1) Class C shares have been offered since February 1, 2000.
(2) Annualized.
24 PROSPECTUS - First American Tax Free Funds
Class A and Class C Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
MINNESOTA TAX FREE FUND(1)
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS A SHARES 2000 1999 1998 1997 1996
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 10.70 $ 11.46 $ 11.15 $ 10.89 $ 10.81
-------- -------- -------- -------- --------
Investment Operations:
Net Investment Income 0.55 0.55 0.57 0.57 0.59
Net Gains (Losses) on Investments
(both realized and unrealized) (0.06) (0.69) 0.36 0.31 0.07
-------- -------- -------- -------- --------
Total From Investment Operations 0.49 (0.14) 0.93 0.88 0.66
-------- -------- -------- -------- --------
Less Distributions:
Dividends (from net investment income) (0.55) (0.56) (0.56) (0.57) (0.58)
Distributions (from capital gains) -- (0.06) (0.06) (0.05) --
-------- -------- -------- -------- --------
Total Distributions (0.55) (0.62) (0.62) (0.62) (0.58)
-------- -------- -------- -------- --------
Net Asset Value, End of Period $ 10.64 $ 10.70 $ 11.46 $ 11.15 $ 10.89
======== ======== ======== ======== ========
Total Return 4.75% (1.31)% 8.58% 8.32% 6.24%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 93,995 $108,116 $118,937 $125,659 $125,677
Ratio of Expenses to Average Net Assets 0.95% 0.95% 0.95% 0.95% 0.90%
Ratio of Net Investment Income to Average Net Assets 5.22% 4.98% 5.05% 5.17% 5.38%
Ratio of Expenses to Average Net Assets (excluding waivers) 1.17% 1.17% 1.01% 1.01% 0.99%
Ratio of Net Investment Income to Average Net Assets
(excluding waivers) 5.00% 4.76% 4.99% 5.11% 5.29%
Portfolio Turnover Rate 34% 15% 16% 17% 35%
----------------------------------------------------------------------------------------------------------------------------------
</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.
<TABLE>
<CAPTION>
Fiscal year ended
September 30,
CLASS C SHARES 2000 1999(1)
------------------------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 10.69 $ 11.38
--------- ---------
Investment Operations:
Net Investment Income 0.53 0.37
Net Gains (Losses) on Investments
(both realized and unrealized) (0.09) (0.71)
--------- ---------
Total From Investment Operations 0.44 (0.34)
--------- ---------
Less Distributions:
Dividends (from net investment income) (0.51) (0.35)
Distributions (from capital gains) -- --
--------- ---------
Total Distributions (0.51) (0.35)
--------- ---------
Net Asset Value, End of Period $ 10.62 $ 10.69
========= =========
Total Return 4.25% (3.03)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 2,037 $ 1,682
Ratio of Expenses to Average Net Assets 1.35% 1.35%(2)
Ratio of Net Investment Income to Average Net Assets 4.83% 4.70%(2)
Ratio of Expenses to Average Net Assets (excluding waivers) 1.77% 1.87%(2)
Ratio of Net Investment Income to Average Net Assets (excluding waivers) 4.41% 4.18%(2)
Portfolio Turnover Rate 34% 15%
-------------------------------------------------------------------------------------------------------
</TABLE>
(1) Class C shares have been offered since February 1, 1999.
(2) Annualized.
25 PROSPECTUS - First American Tax Free Funds
Class A and Class C Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
TAX FREE FUND(1)
<TABLE>
<CAPTION>
Fiscal year ended September 30,
CLASS A SHARES 2000 1999 1998 1997 1996
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 10.54 $ 11.53 $ 11.21 $ 10.81 $ 10.69
-------- -------- -------- -------- --------
Income From Investment Operations:
Net Investment Income 0.53 0.55 0.55 0.54 0.56
Net Gains or Losses on Investments
(both realized and unrealized) (0.05) (0.86) 0.36 0.42 0.12
-------- -------- -------- -------- --------
Total From Investment Operations 0.48 (0.31) 0.91 0.96 0.68
-------- -------- -------- -------- --------
Less Distributions:
Dividends (from net investment income) (0.53) (0.55) (0.54) (0.54) (0.56)
Distributions (from capital gains) -- (0.13) (0.05) (0.02) --
-------- -------- -------- -------- --------
Total Distributions (0.53) (0.68) (0.59) (0.56) (0.56)
-------- -------- -------- -------- --------
Net Asset Value, End of Period $ 10.49 10.54 $ 11.53 $ 11.21 $ 10.81
======== ======== ======== ======== ========
Total Return 4.75% (2.81)% 8.41% 9.09% 6.42%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 27,061 $ 32,893 $ 40,351 $ 49,638 $ 45,935
Ratio of Expenses to Average Net Assets 0.95% 1.00% 1.10% 1.11% 1.03%
Ratio of Net Investment Income to Average Net Assets 5.18% 4.97% 4.84% 4.91% 5.15%
Ratio of Expenses to Average Net Assets (excluding waivers) 1.19% 1.23% 1.16% 1.17% 1.13%
Ratio of Net Investment Income to Average Net Assets
(excluding waivers) 4.94% 4.74% 4.78% 4.85% 5.05%
Portfolio Turnover Rate 15% 21% 7% 28% 43%
---------------------------------------------------------------------------------------------------------------------------------
</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.
<TABLE>
<CAPTION>
Fiscal year ended
September 30,
CLASS C SHARES 2000 1999(1)
---------------------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 10.52 $ 11.34
------- -------
Investment Operations
Net Investment Income 0.50 0.35
Net Gains (Losses) on Investments
(both realized and unrealized) (0.07) (0.82)
------- -------
Total From Investment Operations 0.43 (0.47)
------- -------
Less Distributions:
Dividends (from net investment income) (0.49) (0.35)
Distributions (from capital gains) -- --
------- -------
Total Distributions (0.49) (0.35)
------- -------
Net Asset Value, End of Period $ 10.46 $ 10.52
======= =======
Total Return 4.26% (4.23)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 139 $ 110
Ratio of Expenses to Average Net Assets 1.35% 1.35%(2)
Ratio of Net Investment Income to Average Net Assets 4.80% 4.54%(2)
Ratio of Expenses to Average Net Assets (excluding waivers) 1.79% 1.93%(2)
Ratio of Net Investment Income to Average Net Assets (excluding waivers) 4.36% 3.96%(2)
Portfolio Turnover Rate 15% 21%
---------------------------------------------------------------------------------------------------
</TABLE>
(1) Class C shares have been offered since February 1, 1999.
(2) Annualized.
26 PROSPECTUS - First American Tax Free 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, and on the First
American funds' Internet Web site.
--------------------------------------------------------------------------------
FIRST AMERICAN FUNDS WEB SITE
Information about the First American funds may be viewed on the funds' Internet
Web site at http://www.firstamericanfunds.com.
--------------------------------------------------------------------------------
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 of this information, after paying a duplicating fee,
by electronic request at the following email address: [email protected], or by
writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. For
more information, call 1-202-942-8090.
Information about the funds is also available on the Internet. Text-only
versions of fund documents can be viewed online or downloaded from the EDGAR
Database on the SEC's Internet site at http://www.sec.gov.
FIRST AMERICAN FUNDS P.O. Box 1330, Minneapolis, MN 55440-1330
First American Asset Management, a division of U.S. Bank National Association,
serves as the investment advisor to the First American Funds.
First American Funds are distributed by SEI Investments Distribution Co. which
is located in Oaks, PA 19456 and is not an affiliate of U.S. Bank.
12/2000 PROTXFRR-00
SEC file number: 811-05309
[LOGO] FIRST AMERICAN FUNDS(R)
THE POWER OF DISCIPLINED INVESTING(R)
<PAGE>
DECEMBER 30, 2000
ASSET CLASSES
* EQUITY FUNDS
* FUNDS OF FUNDS
* BOND FUNDS
(*) TAX FREE FUNDS
* MONEY MARKET FUNDS
PROSPECTUS
FIRST AMERICAN INVESTMENT FUNDS, INC.
FIRST AMERICAN
TAX FREE
FUNDS
CLASS Y SHARES
ARIZONA TAX FREE FUND
CALIFORNIA TAX FREE FUND
COLORADO TAX FREE FUND
MINNESOTA TAX FREE FUND
TAX FREE FUND
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.
[LOGO] FIRST AMERICAN FUNDS(R)
THE POWER OF DISCIPLINED INVESTING(R)
<PAGE>
Table of
CONTENTS
FUND SUMMARIES
--------------------------------------------------------------------------------
Arizona Tax Free Fund 2
--------------------------------------------------------------------------------
California Tax Free Fund 4
--------------------------------------------------------------------------------
Colorado Tax Free Fund 6
--------------------------------------------------------------------------------
Minnesota Tax Free Fund 8
--------------------------------------------------------------------------------
Tax Free Fund 10
--------------------------------------------------------------------------------
POLICIES & SERVICES
--------------------------------------------------------------------------------
Buying and Selling Shares 12
--------------------------------------------------------------------------------
Managing Your Investment 13
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
Management 15
--------------------------------------------------------------------------------
More About The Funds 16
--------------------------------------------------------------------------------
Financial Highlights 18
--------------------------------------------------------------------------------
FOR MORE INFORMATION Back Cover
--------------------------------------------------------------------------------
<PAGE>
Fund Summaries
INTRODUCTION
This section of the prospectus describes the objectives of the First American
Tax Free 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.
1 PROSPECTUS - First American Tax Free 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 total 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:
* "general obligation" bonds, which are backed by the full faith, credit and
taxing power of the issuer.
* "revenue" bonds, which are payable only from the revenues generated by a
specific project or from another specific revenue source.
* participation interests in municipal leases.
* zero coupon municipal securities, which pay no cash income to their holders
until they mature.
* 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, duration,
maturity, yield, 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. If the rating of a security is reduced or discontinued
after purchase, the fund is not required to sell the security, but may consider
doing so. 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.
--------------------------------------------------------------------------------
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. For additional explanation about inverse floating rate securities, see
"More About The Funds -- Risks."
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.
--------------------------------------------------------------------------------
FUND PERFORMANCE
Because Arizona Tax Free Fund shares have not been offered for a full calendar
year, no performance information is presented for these shares.
2 PROSPECTUS - First American Tax Free Funds
Class Y Shares
<PAGE>
Fund Summaries
ARIZONA TAX FREE FUND CONTINUED
--------------------------------------------------------------------------------
FEES AND EXPENSES
The fund does not impose any sales charges (loads) or other fees when you buy,
sell or exchange shares. However, when you hold shares of the fund you
indirectly pay a portion of the fund's operating expenses. These expenses are
deducted from fund assets. The figures below show expenses during the fiscal
year ended September 30, 2000.(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 0.83%
TOTAL 1.53%
--------------------------------------------------------------------------------
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 2000,
were:
Waiver of Fund Expenses (1.53)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 0.00%
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 0.30%. 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 $ 156
3 years $ 483
5 years $ 834
10 years $1,824
3 PROSPECTUS - First American Tax Free 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 total 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:
* "general obligation" bonds, which are backed by the full faith, credit and
taxing power of the issuer.
* "revenue" bonds, which are payable only from the revenues generated by a
specific project or from another specific revenue source.
* participation interests in municipal leases.
* zero coupon municipal securities, which pay no cash income to their holders
until they mature.
* 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, duration,
maturity, yield, 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. If the rating of a security is reduced or discontinued
after purchase, the fund is not required to sell the security, but may consider
doing so. 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.
--------------------------------------------------------------------------------
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. For additional explanation about inverse floating rate securities, see
"More About The Funds -- Risks."
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.
--------------------------------------------------------------------------------
FUND PERFORMANCE
Because California Tax Free Fund shares have not been offered for a full
calendar year, no performance information is presented for these shares.
4 PROSPECTUS - First American Tax Free Funds
Class Y Shares
<PAGE>
Fund Summaries
CALIFORNIA TAX FREE FUND CONTINUED
--------------------------------------------------------------------------------
FEES AND EXPENSES
The fund does not impose any sales charges (loads) or other fees when you buy,
sell or exchange shares. However, when you hold shares of the fund you
indirectly pay a portion of the fund's operating expenses. These expenses are
deducted from fund assets. The figures below show expenses during the fiscal
year ended September 30, 2000.(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 0.89%
TOTAL 1.59%
--------------------------------------------------------------------------------
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 2000,
were:
Waiver of Fund Expenses (1.59)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 0.00%
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 0.30%. 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 $ 162
3 years $ 502
5 years $ 866
10 years $1,889
5 PROSPECTUS - First American Tax Free 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 total 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:
* "general obligation" bonds, which are backed by the full faith, credit and
taxing power of the issuer.
* "revenue" bonds, which are payable only from the revenues generated by a
specific project or from another specific revenue source.
* participation interests in municipal leases.
* zero coupon municipal securities, which pay no cash income to their holders
until they mature.
* 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, duration,
maturity, yield, 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. If the rating of a security is reduced or discontinued
after purchase, the fund is not required to sell the security, but may consider
doing so. 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.
--------------------------------------------------------------------------------
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. For additional explanation about inverse floating rate securities, see
"More About The Funds -- Risks."
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.
--------------------------------------------------------------------------------
FUND PERFORMANCE
Because Colorado Tax Free Fund shares have not been offered for a full calendar
year, no performance information is presented for these shares.
6 PROSPECTUS - First American Tax Free Funds
Class Y Shares
<PAGE>
Fund Summaries
COLORADO TAX FREE FUND CONTINUED
--------------------------------------------------------------------------------
FEES AND EXPENSES
The fund does not impose any sales charges (loads) or other fees when you buy,
sell or exchange shares. However, when you hold shares of the fund you
indirectly pay a portion of the fund's operating expenses. These expenses are
deducted from fund assets. The figures below show expenses during the fiscal
year ended September 30, 2000.(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 0.83%
TOTAL 1.53%
--------------------------------------------------------------------------------
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 2000,
were:
Waiver of Fund Expenses (1.53)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 0.00%
THE ADVISOR INTENDS TO WAIVE FEES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 0.30%. 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 $ 156
3 years $ 483
5 years $ 834
10 years $1,824
7 PROSPECTUS - First American Tax Free 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 total 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:
* "general obligation" bonds, which are backed by the full faith, credit and
taxing power of the issuer.
* "revenue" bonds, which are payable only from the revenues generated by a
specific project or from another specific revenue source.
* participation interests in municipal leases.
* zero coupon municipal securities, which pay no cash income to their holders
until they mature.
* 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, duration,
maturity, yield, 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. If the rating of a security is reduced or discontinued
after purchase, the fund is not required to sell the security, but may consider
doing so. 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.
--------------------------------------------------------------------------------
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. For additional explanation about inverse floating rate
securities, see "More About The Funds -- Risks."
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.
--------------------------------------------------------------------------------
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.
8 PROSPECTUS - First American Tax Free 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),(2)
[BAR CHART]
6.55% -2.60%
----------------------
1998 1999
Best Quarter: Quarter ending September 30, 1998 3.02%
Worst Quarter: Quarter ending June 30, 1999 (1.57)%
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99(2) Date One Year Inception
--------------------------------------------------------------------------------
Minnesota Tax Free Fund 8/1/97 (2.60)% 3.04%
--------------------------------------------------------------------------------
Lehman Municipal Bond Index(3) (2.07)% 3.51%
--------------------------------------------------------------------------------
(1)Total return for the period from 1/1/00 through 9/30/00 was 5.92%.
(2)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.
(3)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
The fund does not impose any sales charges (loads) or other fees when you buy,
sell or exchange shares. However, when you hold shares of the fund you
indirectly pay a portion of the fund's operating expenses. These expenses are
deducted from fund assets. The figures below show expenses during the fiscal
year ended September 30, 2000.(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 0.23%
TOTAL 0.93%
--------------------------------------------------------------------------------
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 2000,
were:
Waiver of Fund Expenses (0.23)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 0.70%
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 $ 95
3 years $ 296
5 years $ 515
10 years $1,143
9 PROSPECTUS - First American Tax Free 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 total
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:
* "general obligation" bonds, which are backed by the full faith, credit and
taxing power of the issuer.
* "revenue" bonds, which are payable only from the revenues generated by a
specific project or from another specific revenue source.
* participation interests in municipal leases.
* zero coupon municipal securities, which pay no cash income to their holders
until they mature.
* 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, duration,
maturity, yield, 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. If the rating of a security is reduced or discontinued
after purchase, the fund is not required to sell the security, but may consider
doing so. 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.
--------------------------------------------------------------------------------
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. For additional explanation about inverse floating rate
securities, see "More About The Funds -- Risks."
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, 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 presented.
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.
10 PROSPECTUS - First American Tax Free Funds
Class Y Shares
<PAGE>
Fund Summaries
TAX FREE FUND CONTINUED
--------------------------------------------------------------------------------
FUND PERFORMANCE (CONTINUED)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR(1)
[BAR CHART]
-4.51%
-------------
1999
Best Quarter: Quarter ending March 31, 1999 0.51%
Worst Quarter: Quarter ending June 30, 1999 (2.11)%
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99 Date One Year Inception
--------------------------------------------------------------------------------
Tax Free Fund 8/3/98 (4.51)% (0.99)%
--------------------------------------------------------------------------------
Lehman Municipal Bond Index(2) (2.07)% (0.19)%
--------------------------------------------------------------------------------
(1)Total return for the period from 1/1/00 through 9/30/00 was 6.58%.
(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 8/31/98.
--------------------------------------------------------------------------------
FEES AND EXPENSES
The fund does not impose any sales charges (loads) or other fees when you buy,
sell or exchange shares. However, when you hold shares of the fund you
indirectly pay a portion of the fund's operating expenses. These expenses are
deducted from fund assets. The figures below show expenses during the fiscal
year ended September 30, 2000.(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 0.25%
TOTAL 0.95%
--------------------------------------------------------------------------------
(1)Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers by the advisor. The net expenses the fund
actually paid after waivers for the fiscal year ended September 30, 2000,
were:
Waiver of Fund Expenses (0.25)%
TOTAL ACTUAL ANNUAL OPERATING EXPENSES (AFTER WAIVERS) 0.70%
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 $ 97
3 years $ 303
5 years $ 525
10 years $1,166
11 PROSPECTUS - First American Tax Free 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 investment professional 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.
To minimize the effect of large redemption requests, each fund reserves the
right to fulfill these redemption requests by distributing readily marketable
securities in the fund's portfolio, rather than paying you in cash. See
"Policies & Services -- Managing Your Investment Redemption In-Kind."
--------------------------------------------------------------------------------
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 are 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.
12 PROSPECTUS - First American Tax Free Funds
Class Y Shares
<PAGE>
Policies & Services
MANAGING YOUR INVESTMENT
--------------------------------------------------------------------------------
REDEMPTION IN-KIND
Generally, proceeds from redemption requests will be paid in cash. However, to
minimize the effect of large redemption requests on a fund and its remaining
shareholders, each fund reserves the right to pay part or all of the proceeds
from a redemption request in a proportionate share of readily marketable
securities in the fund instead of cash. In selecting securities for a redemption
in-kind, the advisor will consider the best interests of the fund and the
remaining fund shareholders, and will value these securities in accordance with
the pricing methods employed to calculate the fund's net asset value per share.
If you receive redemption proceeds in-kind, you should expect to incur
transaction costs upon disposition of the securities received in the redemption.
--------------------------------------------------------------------------------
STAYING INFORMED
SHAREHOLDER REPORTS. Shareholder reports are mailed twice a year, in November
and May. They include financial statements and performance information and on an
annual basis, a message from your portfolio managers and 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 Investor Services at 1-800-637-2548.
STATEMENTS AND CONFIRMATIONS. Statements summarizing activity in your account
are mailed 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 contacting your financial institution. 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.
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. 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 net
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.
If in redemption of his or her shares a shareholder receives a distribution of
readily marketable securities instead of cash, the shareholder will be treated
as receiving an amount equal to the fair market value of the securities at the
time of the distribution for purposes of determining capital gain or loss on the
redemption, and will also acquire a basis in the shares for federal income tax
purposes equal to their fair market value.
The exchange of one class of shares for another class of shares in the same fund
will not be taxable.
13 PROSPECTUS - First American Tax Free Funds
Class Y Shares
<PAGE>
Policies & Services
MANAGING YOUR INVESTMENT CONTINUED
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.
14 PROSPECTUS - First American Tax Free Funds
Class Y Shares
<PAGE>
Additional Information
MANAGEMENT
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 September 30, 2000, it had more than $77 billion in assets under
management, including investment company assets of more than $33 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 the fiscal year ended September 30, 2000, 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 0.00%
CALIFORNIA TAX FREE FUND 0.00%
COLORADO TAX FREE FUND 0.00%
MINNESOTA TAX FREE FUND 0.47%
TAX FREE FUND 0.45%
--------------------------------------------------------------------------------
DIRECT CORRESPONDENCE TO:
First American Funds
P.O. Box 1330
Minneapolis, Minnesota 55440-1330
INVESTMENT ADVISOR
First American Asset Management
601 Second Avenue South
Minneapolis, Minnesota 55402
DISTRIBUTOR
SEI Investments Distribution Co.
Oaks, Pennsylvania 19456
PENDING ACQUISITION
On October 4, 2000, U.S. Bancorp, the parent company of the funds' investment
advisor, announced that it had entered into an agreement to be acquired by
Firstar Corporation. It is anticipated that this acquisition will be completed
in the first quarter of 2001, subject to regulatory approval, the approval of
U.S. Bancorp shareholders and the satisfaction of customary closing conditions.
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 all open-end funds in the First American family of
funds. These services include general administrative and accounting services,
transfer agency and dividend disbursing services, and shareholder services. U.S.
Bank receives total 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. These fees are allocated among the funds in the First American family
of funds on the basis of their relative net asset values. The funds also pay
U.S. Bank fees based upon the number of funds and accounts maintained. In
addition, U.S. Bank is reimbursed for its out-of-pocket expenses incurred while
providing administrative services to the funds.
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 these transactions.
SHAREHOLDER SERVICING FEES. To the extent that fund shares are held through
U.S. Bank or its broker-dealer affiliates, U.S. Bancorp Investments, Inc. and
U.S. Bancorp Piper Jaffray Inc., those entities may receive shareholder
servicing fees from the funds' distributor.
PORTFOLIO MANAGEMENT
Each fund's investments are managed by a team of persons associated with First
American Asset Management.
15 PROSPECTUS - First American Tax Free 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 municipal securities such as "general obligation" bonds,
"revenue" bonds, and participation interests in municipal leases. General
obligation bonds are backed by the full faith, credit and taxing power of the
issuer. Revenue bonds are payable only from the revenues generated by a specific
project or from another specific revenue source. 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 obligations
bonds or revenue bonds. See "Risks -- Risks of Municipal Lease Obligations."
The municipal securities in which the funds invest may include refunded bonds
and zero coupon 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. Zero coupon bonds are issued at
substantial discounts from their value at maturity and pay no cash income to
their holders until they mature. When held to maturity, their entire return
comes from the difference between their purchase price and their maturity value.
Up to 10% of each fund's total assets may be invested in inverse floating rate
municipal securities. The values of these securities, as well as zero coupon
bonds, may be highly volatile as interest rates rise or fall. See "Interest Rate
Risk" and "Risks of Inverse Floating Rate Securities."
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 "Fund Summaries."
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."
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.
16 PROSPECTUS - First American Tax Free Funds
Class Y Shares
<PAGE>
Additional Information
MORE ABOUT THE FUNDS CONTINUED
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.
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.
17 PROSPECTUS - First American Tax Free Funds
Class Y Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
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 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 the fund, assuming you reinvested all of
your dividends and distributions.
The information for the fiscal years ended September 30, 2000 and September 30,
1999, has been derived from the financial statements 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 other auditors.
ARIZONA TAX FREE FUND
<TABLE>
<CAPTION>
Fiscal year ended
September 30,
2000(1)
-----------------------------------------------------------------------------------------
<S> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $10.00
------
Investment Operations:
Net Investment Income 0.37
Net Gains (Losses) on Investments
(both realized and unrealized) 0.45
------
Total From Investment Operations 0.82
------
Less Distributions:
Dividends (from net investment income) (0.37)
Distributions (from capital gains) --
------
Total Distributions (0.37)
------
Net Asset Value, End of Period $10.45
======
Total Return 8.36%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $2,670
Ratio of Expenses to Average Net Assets 0.00%(2)
Ratio of Net Investment Income to Average Net Assets 5.53%(2)
Ratio of Expenses to Average Net Assets (excluding waivers) 1.53%(2)
Ratio of Net Investment Income to Average Net Assets (excluding waivers) 4.00%(2)
Portfolio Turnover Rate 27%
-----------------------------------------------------------------------------------------
</TABLE>
(1)Class Y shares have been offered since February 1, 2000.
(2)Annualized.
18 PROSPECTUS - First American Tax Free Funds
Class Y Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
CALIFORNIA TAX FREE FUND
<TABLE>
<CAPTION>
Fiscal year ended
September 30,
2000(1)
-----------------------------------------------------------------------------------------
<S> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $10.00
------
Investment Operations:
Net Investment Income 0.37
Net Gains (Losses) on Investments
(both realized and unrealized) 0.65
------
Total From Investment Operations 1.02
------
Less Distributions:
Dividends (from net investment income) (0.36)
Distributions (from capital gains) --
------
Total Distributions (0.36)
------
Net Asset Value, End of Period $10.66
======
Total Return 10.38%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $4,766
Ratio of Expenses to Average Net Assets 0.00%(2)
Ratio of Net Investment Income to Average Net Assets 5.42%(2)
Ratio of Expenses to Average Net Assets (excluding waivers) 1.59%(2)
Ratio of Net Investment Income to Average Net Assets (excluding waivers) 3.83%(2)
Portfolio Turnover Rate 12%
-----------------------------------------------------------------------------------------
</TABLE>
(1)Class Y shares have been offered since February 1, 2000.
(2)Annualized.
COLORADO TAX FREE FUND
<TABLE>
<CAPTION>
Fiscal year ended
September 30,
2000(1)
-----------------------------------------------------------------------------------------
<S> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $10.00
------
Investment Operations:
Net Investment Income 0.37
Net Gains (Losses) on Investments
(both realized and unrealized) 0.42
------
Total From Investment Operations 0.79
------
Less Distributions:
Dividends (from net investment income) (0.36)
Distributions (from capital gains) --
------
Total Distributions (0.36)
------
Net Asset Value, End of Period $10.43
======
Total Return 8.05%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $2,430
Ratio of Expenses to Average Net Assets 0.00%(2)
Ratio of Net Investment Income to Average Net Assets 5.47%(2)
Ratio of Expenses to Average Net Assets (excluding waivers) 1.53%(2)
Ratio of Net Investment Income to Average Net Assets (excluding waivers) 3.94%(2)
Portfolio Turnover Rate 36%
-----------------------------------------------------------------------------------------
</TABLE>
(1)Class Y shares have been offered since February 1, 2000.
(2)Annualized.
19 PROSPECTUS - First American Tax Free Funds
Class Y Shares
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS CONTINUED
MINNESOTA TAX FREE FUND(1)
<TABLE>
<CAPTION>
Fiscal year ended September 30,
2000 1999 1998 1997(2)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 10.69 $ 11.45 $ 11.14 $ 11.16
------- ------- ------- -------
Investment Operations:
Net Investment Income 0.58 0.58 0.60 0.10
Net Gains (Losses) on Investments
(both realized and unrealized) (0.07) (0.69) 0.36 (0.02)
------- ------- ------- -------
Total From Investment Operations 0.51 (0.11) 0.96 0.08
------- ------- ------- -------
Less Distributions:
Dividends (from net investment income) (0.57) (0.59) (0.59) (0.10)
Distributions (from capital gains) -- (0.06) (0.06) --
------- ------- ------- -------
Total Distributions (0.57) (0.65) (0.65) (0.10)
------- ------- ------- -------
Net Asset Value, End of Period $ 10.63 $ 10.69 $ 11.45 $ 11.14
======= ======= ======= =======
Total Return 5.00% (1.07)% 8.83% 0.72%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $40,860 $17,356 $ 8,155 $ 9,010
Ratio of Expenses to Average Net Assets 0.70% 0.70% 0.78% 0.75%(3)
Ratio of Net Investment Income to Average Net Assets 5.49% 5.26% 5.79% 5.73%(3)
Ratio of Expenses to Average Net Assets (excluding waivers) 0.93% 0.87% 0.82% 0.75%(3)
Ratio of Net Investment Income to Average Net Assets
(excluding waivers) 5.26% 5.09% 5.75% 5.73%(3)
Portfolio Turnover Rate 34% 15% 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.
TAX FREE FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
2000 1999 1998(1)
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 10.54 $ 11.54 $ 11.31
------- ------- -------
Income From Investment Operations:
Net Investment Income 0.56 0.57 0.10
Net Gains or Losses on Investments
(both realized and unrealized) (0.06) (0.86) 0.22
------- ------- -------
Total From Investment Operations 0.50 (0.29) 0.32
------- ------- -------
Less Distributions:
Dividends (from net investment income) (0.55) (0.58) (0.09)
Distributions (from capital gains) -- (0.13) --
------- ------- -------
Total Distributions (0.55) (0.71) (0.09)
------- ------- -------
Net Asset Value, End of Period $ 10.49 $ 10.54 $ 11.54
======= ======= =======
Total Return 5.00% (2.66)% 2.83%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $62,530 $18,864 $ 355
Ratio of Expenses to Average Net Assets 0.70% 0.71% 0.85%(2)
Ratio of Net Investment Income to Average Net Assets 5.47% 5.26% 5.61%(2)
Ratio of Expenses to Average Net Assets (excluding waivers) 0.95% 1.01% 0.91%(2)
Ratio of Net Investment Income to Average Net Assets (excluding waivers) 5.22% 4.96% 5.55%(2)
Portfolio Turnover Rate 15% 21% 7%
----------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Class Y shares have been offered since July 31, 1998.
(2)Annualized.
20 PROSPECTUS - First American Tax Free 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 of this information, after paying a duplicating fee,
by electronic request at the following email address: [email protected], or by
writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. For
more information, call 1-202-942-8090.
Information about the funds is also available on the Internet. Text-only
versions of fund documents can be viewed online or downloaded from the EDGAR
Database on the SEC's Internet site at http://www.sec.gov.
FIRST AMERICAN FUNDS P.O. Box 1330, Minneapolis, MN 55440-1330
First American Asset Management, a division of U.S. Bank National Association,
serves as the investment advisor to the First American Funds.
First American Funds are distributed by SEI Investments Distribution Co. which
is located in Oaks, PA 19456 and is not an affiliate of U.S. Bank.
12/2000 PROTXFRY-00
SEC file number: 811-05309
[LOGO] FIRST AMERICAN FUNDS(R)
THE POWER OF DISCIPLINED INVESTING(R)
<PAGE>
FIRST AMERICAN INVESTMENT FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION
DATED DECEMBER 30, 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
HEALTH SCIENCES FUND MINNESOTA INTERMEDIATE TAX FREE FUND
REAL ESTATE SECURITIES FUND MINNESOTA TAX FREE FUND
TECHNOLOGY FUND OREGON INTERMEDIATE TAX FREE 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 December 30, 2000. The
financial statements included as part of the Funds' Annual Report to
shareholders for the fiscal year ended September 30, 2000 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.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GENERAL INFORMATION .................................................................................... 1
ADDITIONAL INFORMATION CONCERNING FUND INVESTMENTS ..................................................... 2
Short-Term Investments ........................................................................ 2
U.S. Government Securities .................................................................... 3
Repurchase Agreements ......................................................................... 3
When-Issued and Delayed Delivery Transactions ................................................. 4
Lending of Portfolio Securities ............................................................... 4
Options Transactions .......................................................................... 5
Futures and Options on Futures ................................................................ 7
Fixed Income Securities -- Equity Funds ....................................................... 8
Foreign Securities ............................................................................ 8
Foreign Currency Transactions ................................................................. 10
Mortgage-Backed Securities .................................................................... 11
Real Estate Investment Trust ("REIT") Securities .............................................. 14
Asset-Backed Securities ....................................................................... 14
Municipal Bonds and Other Municipal Obligations ............................................... 15
Temporary Taxable Investments ................................................................. 16
Inverse Floating Rate Municipal Obligations ................................................... 16
Zero Coupon Securities ........................................................................ 17
Adjustable Rate Mortgage Securities ........................................................... 17
Interest Rate Transactions .................................................................... 17
Guaranteed Investment Contracts ............................................................... 17
Debt Obligations - Rated Less Than Investment Grade ........................................... 17
Debt Obligations -- Strategic Income Fund ..................................................... 18
Floating Rate Debt Obligations ................................................................ 18
Fixed Rate Corporate Debt Obligations ......................................................... 18
Payment-In-Kind Debentures and Delayed Interest Securities .................................... 19
Preferred Stock ............................................................................... 19
Participation Interests ....................................................................... 19
Closed-End Investment Companies ............................................................... 19
U.S. Treasury Inflation-Protection Securities ................................................. 20
Special Factors Affecting Arizona Tax Free Fund ............................................... 20
Special Factors Affecting California Intermediate Tax Free Fund and California Tax Free Fund .. 21
Special Factors Affecting Colorado Intermediate Tax Free Fund and Colorado Tax Free Fund ...... 24
Special Factors Affecting Minnesota Intermediate Tax Free Fund and Minnesota Tax Free Fund .... 27
Special Factors Affecting Oregon Intermediate Tax Free Fund ................................... 28
CFTC Information .............................................................................. 31
INVESTMENT RESTRICTIONS ................................................................................ 32
PORTFOLIO TURNOVER ..................................................................................... 34
DIRECTORS AND EXECUTIVE OFFICERS ....................................................................... 34
Directors ..................................................................................... 34
Executive Officers ............................................................................ 35
Compensation .................................................................................. 36
CODE OF ETHICS ......................................................................................... 37
INVESTMENT ADVISORY AND OTHER SERVICES ................................................................. 37
Investment Advisory Agreement ................................................................. 37
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Sub-Advisory Agreement For Emerging Markets Fund,
International Fund and Strategic Income Fund ......................................... 38
Administration Agreement ...................................................................... 39
Distributor And Distribution Plans ............................................................ 40
Custodian; Counsel; Auditors .................................................................. 44
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE ..................................................... 45
CAPITAL STOCK .......................................................................................... 47
NET ASSET VALUE AND PUBLIC OFFERING PRICE .............................................................. 67
FUND PERFORMANCE ....................................................................................... 70
TAXATION ............................................................................................... 79
REDUCING SALES CHARGES ................................................................................. 81
Class A Sales Charge .......................................................................... 81
Sales of Class A Shares at Net Asset Value .................................................... 81
ADDITIONAL INFORMATION ABOUT SELLING SHARES ............................................................ 82
By Telephone .................................................................................. 82
By Mail ....................................................................................... 83
Redemptions Before Purchase Instruments Clear ................................................. 83
RATINGS ................................................................................................ 83
Ratings of Corporate Debt Obligations and Municipal Bonds ..................................... 84
Ratings of Preferred Stock .................................................................... 85
Ratings of Municipal Notes .................................................................... 86
Ratings of Commercial Paper ................................................................... 86
FINANCIAL STATEMENTS ................................................................................... 87
</TABLE>
ii
<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
29 series at December 30, 2000. 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, Health Sciences Fund, Real Estate Securities Fund and
Technology 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), Health Sciences Fund, Real Estate Securities Fund
and Technology Fund, are diversified investment companies. The Tax Free Funds
(other than Tax Free Fund and Intermediate Tax Free Fund), Health Sciences Fund,
Real Estate Securities Fund and Technology 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 twelve 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., Minnesota
Municipal Term Trust Inc.-II, and Mentor Income Fund, Inc.), 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 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 or of a certain credit quality is not required to sell a
security if its rating is reduced or its credit quality declines 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, Strategic Income Fund
and, to the extent it can invest in convertible debt securities, Equity 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. and Moody's Investors Service, Inc. 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; 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 (including the Tax Free Funds, which may purchase tax-exempt 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:
* direct obligations of the U.S. Treasury, such as U.S. Treasury
bills, notes, and bonds;
* 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;
* notes, bonds, and discount notes of U.S. government agencies or
instrumentalities which receive or have access to federal funding;
and
* 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) 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. 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.
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
4
<PAGE>
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.
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.
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.
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),
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), 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 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
5
<PAGE>
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 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.
6
<PAGE>
FUTURES AND OPTIONS ON FUTURES
Balanced Fund, Equity Index Fund, International Fund, Emerging Markets
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 and Equity 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 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.
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 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.
7
<PAGE>
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 and
International 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.
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.
8
<PAGE>
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. Investments in
securities of issuers in emerging market countries may be subject to potentially
higher risks than investments in developed countries. These risks include (i)
less social, political and economic stability; (ii) the small current size of
the markets for such securities and the currently low or nonexistent volume of
trading, which may result in a lack of liquidity and in greater price
volatility; (iii) certain national policies which may restrict the Fund's
investment opportunities, including restrictions on investment in issuers or
industries deemed sensitive to national interests; (iv) foreign taxation; (v)
the absence of developed structures governing private or foreign investment or
allowing for judicial redress for injury to private property; (vi) the limited
development and recent emergence, in certain countries, of a capital market
structure or market-oriented economy; and (vii) the possibility that recent
favorable economic developments in certain countries may be slowed or reversed
by unanticipated political or social events in such countries.
Despite the dissolution of the Soviet Union, the Communist Party may
continue to exercise a significant role in certain (particularly Eastern
European) countries. To the extent of the Communist Party's influence,
investments in such countries will involve risks of nationalization,
expropriation and confiscatory taxation. The communist governments of a number
of such countries expropriated large amounts of private property in the past, in
many cases without adequate compensation, and there can be no assurance that
such expropriation will not occur in the future. In the event of such
expropriation, a Fund could lose a substantial portion of any investments it has
made in the affected countries. Further, no accounting standards exist in many
developing countries. Finally, even though certain currencies may be convertible
into U.S. dollars, the conversion rates may be artificial to the actual market
values and may be adverse to Fund shareholders.
Certain countries, which do not have market economies, are
characterized by an absence of developed legal structures governing private and
foreign investments and private property. Certain countries require governmental
approval prior to investments by foreign persons, or limit the amount of
investment by foreign persons in a particular company, or limit the investment
of foreign persons to only a specific class of securities of a company that may
have less advantageous terms than securities of the company available for
purchase by nationals.
Authoritarian governments in certain countries may require that a
governmental or quasi-governmental authority act as custodian of a Fund's assets
invested in such country. To the extent such governmental or quasi-governmental
authorities do not satisfy the requirements of the 1940 Act to act as foreign
custodians of the Fund's cash and securities, the Fund's investment in such
countries may be limited or may be required to be effected through
intermediaries. The risk of loss through governmental confiscation may be
increased in such countries.
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 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.
9
<PAGE>
Certain American Depositary Receipts and European Depositary Receipts,
typically those denominated as unsponsored, require the holders thereof to bear
most of the costs of the facilities while issuers of sponsored facilities
normally pay more of the costs thereof. The depository of an unsponsored
facility frequently is under no obligation to distribute shareholder
communications received from the issuer of the deposited securities or to pass
through the voting rights to facility holders in respect to the deposited
securities, whereas the depository of a sponsored facility typically distributes
shareholder communications and passes through voting rights.
FOREIGN SECURITIES EXCHANGES. 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 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 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 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
10
<PAGE>
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, Balanced Fund and the Bond Funds 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 corporate instrumentality of the United States
within the Department of Housing and Urban Development. The
11
<PAGE>
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 commercial fixed rate, 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 which are
12
<PAGE>
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:
* In a sequential-pay CMO structure, one class is entitled to receive
all principal payments and prepayments on the underlying mortgage
loans (and interest on unpaid principal) until the principal of the
class is repaid in full, while the remaining classes receive only
interest; when the first class is repaid in full, a second class
becomes entitled to receive all principal payments and prepayments
on the underlying mortgage loans until the class is repaid in full,
and so forth.
* A planned amortization class ("PAC") of CMOs is entitled to receive
principal on a stated schedule to the extent that it is available
from the underlying mortgage loans, thus providing a greater (but
not absolute) degree of certainty as to the schedule upon which
principal will be repaid.
* An accrual class of CMOs provides for interest to accrue and be
added to principal (but not be paid currently) until specified
payments have been made on prior classes, at which time the
principal of the accrual class (including the accrued interest which
was added to principal) and interest thereon begins to be paid from
payments on the underlying mortgage loans.
* As discussed above with respect to Agency Pass-Through Certificates,
an interest-only class of CMOs entitles the holder to receive all of
the interest and none of the principal on the underlying mortgage
loans, while a principal-only class of CMOs entitles the holder to
receive all of the principal payments and prepayments and none of
the interest on the underlying mortgage loans.
* A floating rate class of CMOs entitles the holder to receive
interest at a rate which changes in the same direction and magnitude
as changes in a specified index rate. An inverse floating rate class
of CMOs entitles the holder to receive interest at a rate which
changes in the opposite direction from, and in the same magnitude as
or in a multiple of, changes in a specified index rate. Floating
rate and inverse floating rate classes also may be subject to "caps"
and "floors" on adjustments to the interest rates which they bear.
* A subordinated class of CMOs is subordinated in right of payment to
one or more other classes. Such a subordinated class provides some
or all of the credit support for the classes that are senior to it
by absorbing losses on the underlying mortgage loans before the
senior classes absorb any losses. A subordinated class which is
subordinated to one or more classes but senior to one or more other
classes is sometimes referred to as a "mezzanine" class. A
subordinated class generally carries a lower rating than the classes
that are senior to it, but may still carry an investment grade
rating.
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.
13
<PAGE>
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.
REAL ESTATE INVESTMENT TRUST ("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 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
14
<PAGE>
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 ("ETM") 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 ETM 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.
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
15
<PAGE>
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.
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.
16
<PAGE>
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 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 and non-investment grade. Debt obligations rated BB, B or CCC
by Standard & Poor's or Ba, B or Caa by Moody's are considered to be
17
<PAGE>
less than "investment grade" and are sometimes referred to as "junk bonds."
Corporate Bond Fund may invest in non-investment grade bonds rated at least B by
Standard & Poor's or Moody's or which have been assigned an equivalent rating by
another nationally recognized statistical rating organization, or in unrated
securities determined to be of comparable quality by the Advisor. There are no
minimum rating requirements for investments by Strategic Income Fund (which
means that the Fund may invest in bonds in default). From time to time, the
Fund's portfolio may consist primarily of non-investment grade debt obligations.
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.
Yields on non-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 non-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 non-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
non-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 non-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 non-investment grade 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 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 DEBT OBLIGATIONS
The Bond Funds and Balanced Fund expect to invest in floating rate debt
obligations issued, assumed, or guaranteed by corporations, trusts,
partnerships, governmental agencies or creators, or other such special purpose
entities, 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 DEBT OBLIGATIONS
The Bond Funds and Balanced Fund will invest in fixed rate debt
obligations issued, assumed, or guaranteed by corporations, trusts,
partnerships, governmental agencies or creators, or other such special purpose
entities. Fixed
18
<PAGE>
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 (except Strategic Income Fund and Corporate
Bond Fund) 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 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 common
or preferred shares 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
19
<PAGE>
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.
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. This
information is derived from sources that are generally available to investors
and is based in part on information obtained from the State of 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. The rate of growth in Arizona should
continue to slow as it has over the last several years. The State should
continue to do well, however, because of a combination of factors, including low
commercial real estate vacancy rates, continued growth in the U.S. economy and a
recovery in Asia. While the Arizona economy cannot be viewed as a monolith, it
seems to be fairly well balanced.
20
<PAGE>
Retail sales, after rising by more than 8% in 1999, should be up by
about 6% in 2000. Population growth is expected to slow from nearly 2.9% in 1999
to about 2.7% in 2000. Personal income, after growing at about 7% in 1999,
should grow at about 6% in 2000. Housing, which is expected to have decreased
only modestly is 1999, should decrease by 10% to 15% in 2000.
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. 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.
Fiscal year ("FY") 1999 General Fund revenues, which exceeded
projections by $99 million, reflected the continued strength of the economy.
Looking forward, the expectations regarding General Fund revenues for Fiscal
Year 2000 and 2001 have been upwardly revised. Revenue growth has been increased
overall by $272 million, or less than 2%, over the three-year forecast period,
after accounting for all trigger items.
The FY 2000 and FY 2001 budget contained a number of provisions that
would "trigger" fiscal events if revenues exceeded expectations. Those events
included a number of different tax reductions, plus additional funding for
education. The $99 million in unexpected FY 1999 revenues triggered a number of
those events. Based on the revised forecast, it is anticipated that the
remaining triggers will occur at the close of FY 2000.
Overall, the "big three" revenue sources - individual income tax, sales
and use tax, and corporate income tax - are expected to continue their strong
but slowing growth for the remainder of the biennium. Since the adoption of the
original biennial budget, the sales and use category has been increased by $141
million. This includes adjustments of $20 million, $71 million and $68 million
for, respectively, FY's 1999, 2000 and 2001. This category has shown very strong
recent growth, especially this late in the economic cycle. FY 1999 closed with
year-over-year growth of 8.84%, and the forecast for the remainder of the
biennium anticipates slowing but good growth of 8.26% in FY 2000 and 5.84% for
FY 2001. Year-to-date growth through the end of November is 9.1% over the prior
year.
INDIVIDUAL INCOME TAXES. Individual income taxes have realized
substantial growth during the last several years of the economic cycle, with the
performance being driven by Wall Street and the overall strength of the economy.
As part of the budget addendum submitted by the Governor, individual income tax
has been increased by $30 million over what the original budget had anticipated
for the three-year forecast. That includes $2 million for FY 1999 and FY 2000,
and $30 million for FY 2001. The biennium addendum is based on a slowing rate of
growth for this category. The impact of slowing job growth and uncertain
expectations regarding Wall Street call to question whether continued
double-digit growth can be maintained. Through the first five months of the
fiscal year, withholding growth has been about 6%, versus FY 1999 growth of over
10%.
CORPORATE INCOME TAX. With the additional variable of a significant
rate reduction, from 8% to 7%, that resulted from triggered fiscal events, the
State has indicated that forecasting this category will prove difficult. FY 1999
closed the books with $545 million, or a 3.28% gain over the prior year. The
revised revenue projection holds collections relatively constant at the FY 1999
level and adjusts solely for the anticipated negative impact of the tax rate
reduction, for a change of $5 million and ($37 million) for FY 2000 and FY 2001,
respectively.
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
21
<PAGE>
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. Since 1994, California's
economy has been performing strongly after suffering a recession between
1990-1993. On the strength of a $1.2 trillion gross state product in 1999,
California became the sixth largest economy in the world (surpassing Italy which
had a gross national product of $1.14 trillion in 1999).
Although fuel and other energy prices have risen sharply in recent
months, the State does not believe this will have a major impact on the economy,
as the California and national economies are much more energy-efficient than
during the energy crises of the 1970s and 1980s. Still, some dampening effect
may occur.
Weak export, evident since the Asian recession which developed in 1998,
may persist, but 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 last year's demand to fix Y2K
problems, the continued explosive growth of the Internet, and financial sector
needs related to the new Euro currency. The strength in construction activity
will continue to boost prospects for related manufacturing industries. Although
California economic growth will slow from the pace of 1997 - 1999, gains in
employment and income should continue to outpace the nation.
POPULATION AND LABOR FORCE. California's population grew by 542,000
people in 1999 to a total of 34.03 million. 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
1999, the total civilian labor force was 16,586,000 with 15,722,000 individuals
employed and 5.2%, unemployed. In comparison, the unemployment rate for the
United States during the same time was 4.2%.
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
August 21, 2000, the PMIA held approximately $29.91 billion of State moneys, and
$12.31 billion of moneys invested for 2,811 local governmental entities through
the Local Agency
22
<PAGE>
Investment Fund ("LAIF"). The total assets of the PMIA as of August 21, 2000
were $41.2 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 August 21, 2000 was 199 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
June 30, 2000, the General Fund had no outstanding loans from the SFEU, General
Fund special accounts or other special funds.
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 475 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. The 2000 Budget
Act (below) provides significant assistance to local government, including $200
million set aside for one-time discretionary funding to local governments,
$121.3 million to support local front-line law enforcement (sheriffs'
departments, jail construction and operation, district attorneys), $75 million
for technology funding for local law enforcement, $400 million for deferred
maintenance of local streets, and hundreds of millions of dollars in assistance
in the areas of mental health, social services, environmental protection, and
public safety.
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
23
<PAGE>
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.
LITIGATION GENERALLY. The State is a party to numerous legal
proceedings, many of which normally occur in governmental operations. In 1998,
the State signed a settlement with the four major cigarette manufacturers. The
State agreed to drop its lawsuit and not to sue in the future. Tobacco
manufacturers agreed to billions of dollars in payments and restrictions in
marketing activities. Under the settlement, the companies agreed to pay
California governments approximately $25 billion over a period of 25 years.
PRIOR FISCAL YEARS' FINANCIAL RESULTS. Following a severe recession
beginning in 1990, the State's condition improved markedly during the fiscal
years starting in 1995-1996, due to a combination of better than expected
revenues, slowdown in growth of social welfare programs, and continued spending
restraint based on actions taken in earlier years. The State's cash position
also improved, and no external deficit borrowing occurred over the end of the
last five fiscal years. The economy grew strongly during the fiscal years
beginning in 1995-1996, and as a result, the General Fund took in substantially
greater tax revenues (around $2.2 billion in 1995-1996, $1.6 billion in
1996-1997, $2.4 billion in 1997-1998, $1.7 billion in 1998-1999, and $8.2
billion in 1999-2000) than were initially planned when the budgets were enacted.
2000 BUDGET ACT. The 2000 Budget Act was signed by the Governor on June
30, 2000, the second consecutive year the State's Budget was enacted on time.
The spending plan assumes General Fund revenues and transfer of $73.9 billion,
an increase of 3.8 % above the estimates for 1999-2000. The 2000 Budget Act
appropriates $78.8 billion from the General Fund, an increase of 17.3 % over
1999-2000, and reflects the use of $5.5 billion from the Special Fund for
Economic Uncertainties in order not to place undue pressure on future budget
years. About $7.0 billion of the increased spending in 2000-01 will be for
one-time expenditures and investments. Some of the major features of the 2000
Budget Act included an increase in funding for higher education; an increase in
funding to the General Fund for health and human services; and an increase in
money devoted to capital outlay (transportation improvements and new funding for
housing programs).
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 $21.0 billion aggregate principal amount of general
obligation bonds outstanding, and $14.4 billion authorized and unissued, as of
September 1, 2000. Outstanding lease revenue bonds totaled $6.7 billion as of
September 1, 2000.
The General Obligation Bond Law permits the state to issue as variable
rate indebtedness, up to 20 % of the aggregate amount of long - term general
obligation bonds outstanding. As of September 1, 2000, there was no variable
rate indebtedness outstanding; however, the state plans to issue such
indebtedness in the future.
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,
each Fund 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.
24
<PAGE>
Throughout the 1990s, Colorado's population growth (2.3% per year) was
faster than the national average (0.9% per year). The State's in-migration
peaked at 77,000 in 1993. As the decade advanced, population growth slowed in
Colorado, primarily due to lower rates of in-migration. In 1999, it is estimated
that there were approximately 54,000 in-migrants to Colorado, following almost
62,000 in 1998. The State expects in-migration in 2000 to further slow to close
to 53,000 new residents and taper off to approximately 48,000 by 2005. The
slower rate of in-migration will cause population growth to moderate. Population
is expected to increase 2.3% in 2000 and slow to a 1.8% rate by 2005.
At the national level, the economy has shown initial signs of slowing.
But, through the first half of 2000, the Colorado economy continued to perform
at a healthy pace. Employment growth is strong, the unemployment rate is low,
and retail sales are robust. However, the strong growth in construction
witnessed during the 1990s has tempered and inflation is beginning to pick up in
Colorado.
The forecast for the Colorado economy calls for growth remaining
healthy but tapering off from the pace witnessed during the 1990s. Employment
growth remains strong but will slow from the average 3.8% rate that occurred
during the past decade. Construction, one of the mainstays of the Colorado
economic boom, is forecast to slow in 2000 and beyond. Meanwhile, the
Denver-Boulder inflation rate is forecast to jump to 3.6% in 2000 from a low
2.9% rate in 1999 and then move toward 3.0% in 2002 and 2003. Retail sales,
while remaining relatively strong, will show slower growth in the next five
years.
AN OVERVIEW OF RECENT COLORADO ECONOMIC EVENTS. Recent economic
indicators show some signs of strong growth as well as a few signs of a slowing
economy. Employment and retail sales remain strong, while inflation and
construction show preliminary signs of economic slowing. Through July 2000,
nonfarm employment grew 3.6% compared with the same period in 1999. Moreover,
the state's unemployment rate averaged 2.6% through July. Retail trade sales are
growing at an exceptional pace this year. Through June 2000, retail trade sales
are up 12.9% compared with the first six months of 1999. However, price
pressures are beginning to creep into Colorado's economy. In the first six
months of 2000, the Denver-Boulder inflation rate was up 3.8%, the highest it
has been since 1995. Furthermore, the construction sector is down this year from
the high levels of 1999. The construction industry is being propped up in 2000
by infrastructure building and strong multi-family construction. Multi-family
construction permits increased 54.8% through July 2000 compared with
year-to-date July 1999, although single-family home permits and the value of
nonresidential construction are both down through July 2000 compared with the
same period in 1999.
Colorado's strong economic expansion began in 1992 in tandem with the
national expansion, and has been stronger than national economic activity.
During the 1990s, growth in Colorado's economy has been faster than the national
average. Indeed, Colorado ranks second in the nation behind Utah for economic
growth from 1990 to 1999 for the following economic indicators: growth in
population, gross state product, per capita income, personal income, and wages
and salaries and the unemployment rate. These same economic indicators rank
Colorado number one in the nation for growth between 1998 and 1999. Colorado's
per capita income growth was the strongest in the nation in the 1990s,
increasing almost 100%. Personal income grew at an annual rate of 7.8% from 1990
through 1999. Moreover, between 1990 and 1998, Colorado posted the fourth
highest gross state product ("GSP") growth in the nation, with GSP growth
averaging 7.4% per year. In addition, Colorado ranked fifth in the nation
between 1990 and 1999 for job growth, increasing at an annual rate of 3.8%.
The Colorado economy is one of the best it has been in a generation.
Two factors have combined to create the economic prosperity: long-term
employment growth and relatively low inflation. These two factors combine to
produce a reasonably high standard of living in Colorado and well-balanced,
sustainable growth. Employment growth has averaged 3.8% per year throughout the
1990s, similar to Colorado's long-term growth path that existed prior to the
1980s. Thus far in 2000, Colorado's employment growth remains strong. While the
growth in jobs is important to Colorado's economy, the changing composition of
the labor market has been instrumental in creating sustainable economic growth.
Colorado has experienced an influx of jobs that require more skill and more
education than the typical service job created during previous economic
expansions.
Low inflationary pressure throughout the late 1990s has also been
instrumental to this economic expansion. Even with the tight employment
situation, little wage inflation has been experienced until recently. The
Denver-
25
<PAGE>
Boulder inflation rate was 2.9% in 1999 and 2.4% in 1998. However,
through the first six months of 2000, the inflation rate increased 3.8%. The
majority of the recent increase results from a 34% increase in fuel prices in
Colorado.
Colorado has experienced strong wage growth in the past few years,
mainly resulting from the change in the composition of the labor market rather
than higher raises. The infusion of advanced technology jobs -- many that are
high-wage positions -- has led to the higher wage growth for the State. The
average wage growth per worker was 6.9% during 1999 after adjusting for
inflation, the strongest average wage growth since the 1970s. In addition,
Colorado ranked fifth in the nation for per capita income in 1999 at $31,500.
The strong wage and income growth witnessed during the 1990s bolstered
the amount of discretionary income for Colorado consumers. Through June 2000,
retail sales increased 12.9%. Colorado consumers have had more money to spend
due to both increased wages and increased wealth from the stock market.
In addition, the construction industry has been important in
promulgating the economic expansion. Both nonresidential and residential
construction reached record levels in the late 1990s. Over $1.5 billion of
"mega" nonresidential construction projects were completed during the decade,
boosting Colorado's construction sector. These projects include the Denver
International Airport, Coors Field, and the Downtown Public Library, among
others.
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 ("FY") 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.
The FY 1999-00 Taxpayer's Bill of Rights ("TABOR") surplus that will be
refunded in FY 2000-01 reached $941.1 million, a 38.5 % increase from the FY
1998-99 TABOR surplus. This TABOR surplus is expected to reach $1,023.7 million
in FY 2001-02, in spite of enactment of $550 million in permanent tax relief. In
total, from FY 2000-01 through FY 2005-06 the State is expected to exceed its
TABOR limit by $8.0 billion. This means an average refund of $250 per adult and
$500 for a married couple. With the permanent tax relief and TABOR refund
mechanisms combined, an individual will receive on average $502 in annual tax
relief while a married couple will receive on average $1,004.
In FY 2000-01, the General Fund reserve is forecast to be $621.1
million, which is $408.1 million above the statutory 4% reserve requirement. By
2005-06, the fiscal year-end General Fund reserve will be $578.5 million and the
excess General Fund reserve will be $293.3 million. The monies in excess of the
General Fund reserve are typically used for capital expenditures and permanent
tax relief.
Colorado taxes have been permanently reduced by roughly one-half
billion dollars annually. The combined effect of tax relief measures passed in
both the 1999 and 2000 legislative sessions is $550 million in FY 2001-02, the
first full-year that all measures will be in effect. In the 2000 session, taxes
were permanently reduced by $254 million, following tax relief totaling almost
$300 million during the 1999 session.
Growth in General Fund revenues increased 8.8% in FY 1999-00, after
increasing 7.3% in FY 1998-99. Despite the significant tax relief passed in 1999
and 2000, General Fund revenues continue to increase. However, we anticipate
General Fund revenue growth will slow in FY 2000-01 and FY 2001-02 once the full
impact of the tax relief is felt. This section of the forecast first discusses
the surplus due to spending limits imposed by the TABOR -- Article X, Section 20
of the Colorado state constitution. It also describes tax cuts enacted in 1999
and 2000 and presents an overview of the General Fund reserves and revenues.
Over the past few years, Colorado's economic expansion has contributed
to strong growth in General Fund revenues. Colorado's General Fund revenue
growth averaged 9.3% per year during the 1990s and was 8.8% in FY 1999-00. This
strong growth occurred even though we have permanently lowered taxes by $550
million on an annual basis. Even given these tax cuts, Colorado's TABOR surplus
is expected to range from $1.1 billion to $1.8 billion in
26
<PAGE>
the next six years. The TABOR provision of the constitution limits the state's
revenue growth to the sum of inflation and population growth from the previous
calendar year.
The significant anticipated TABOR surplus resulted in the enactment of
several permanent tax cuts during the last two years. In total, taxes were
permanently reduced by $550 million in FY 2001-02. The vast majority (86%) of
the tax relief was from lower income and sales tax rates. The income tax rate
has been lowered twice and now stands at 4.63%, compared with 5.0% in 1998.
Meanwhile, on January 1, 2001, the sales tax rate will be lowered from 3.0% to
2.9%.
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. The summary is
based primarily upon one or more publicly available offering statements relating
to debt offerings of the State of Minnesota and releases issued by the Minnesota
Department of Finance. 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 agricultural employment. The rate of non-farm
employment growth in Minnesota exceeded the rate of national growth, however, in
the period of 1990 to 1996, and since 1996 Minnesota and U.S. employment have
expanded at about the same rate. 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.
The Minnesota Department of Finance November 2000 Forecast has projected, under
current laws, that the State will complete the June 30, 2001 biennium with an
unrestricted balance of $924 million, plus a $350 million cash flow account
balance, plus a $622 million budget reserve. Total General Fund revenues for the
biennium are projected to be $24.7 billion, and total General Fund expenditures
and transfers for the biennium are projected to be $24.6 billion. In 1999
legislation was adopted governing the treatment of projected balances in the
November Forecast of even-numbered year prior to the end of the biennium. The
law requires that the Commissioner of Finance designate a surplus that exceeds
one-half of one percent of general fund biennial revenues as available for a tax
rebate. The forecast of a budget surplus in the November 2000 economic forecast
exceeds that threshold. The law requires the governor to present a plan to the
2001 legislature to rebate the designated amount, with payments to begin no
later than August 15, 2001. The 2001 legislature is required to enact, modify,
or reject the governor's plan for the rebate by April 15, 2001.
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
27
<PAGE>
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 Bonds that are held by the Fund 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 Minnesota Municipal Bonds that are held by
the Fund. 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.
A CHANGED OREGON ECONOMY. In the past decade, Oregon resumed the steady
economic and population growth that has characterized its history. But today the
economy is much different--the State overall is less reliant on forest products
or any single industry. Oregon's historically high rural incomes have declined
markedly with the reduction of logging and the closure of many mills. These
economic shifts have created the need for job replacement, retraining and
economic diversification for smaller, rural communities and those that are
distressed. These shifts also present more urban areas with growth management
and labor-scarcity challenges.
Fifty years ago, the State's manufacturing sector was highly
concentrated in lumber and wood products and food processing. Since then, it has
diversified into industries such as electronic equipment, transportation
equipment, metals, printing and plastics. Outside of manufacturing, the State
has added many jobs in other export-oriented industries such as professional
services, software development and tourism. This increase in economic diversity
should help stabilize the state's economy.
Forest products, agriculture and fisheries each have experienced
serious problems in the past few years. Both forest products and fisheries
industries have reduced harvests. More recently, farms and forest products
businesses are seeing reduced export demand for their products and stiff
competition from foreign producers. Many of the local economies of Oregon's
rural areas are concentrated in these natural resource industries, and the
citizens of these areas face difficult challenges to maintaining their
employment, adequate income and quality of life.
Oregon's high technology boom has occurred largely within the
Willamette Valley, especially around Portland, Eugene, Corvallis and Salem.
These cities and their surrounding areas have experienced substantial employment
and population growth in the past five years. Other high-growth areas include
counties in Central Oregon, northern Morrow and western Umatilla counties and
Jackson County. Residents in these rapidly-growing areas are confronted with
challenges meeting public infrastructure needs such as sewer and water systems
and transportation. Lack of affordable housing means current or potential
employees in lower-wage jobs may have problems finding a place to live.
Businesses in these areas may have difficulty finding enough employees with
sufficient skills and providing timely deliveries of products. They may be
unable to expand their facilities despite their market success.
THE ECONOMIC OUTLOOK. Oregon's growth rate has slowed. The economic
forecast projects further slowing before it takes a swing upward again.
Fortunately, Oregon continues to enjoy several comparative economic advantages
over other states and has several opportunities for future economic improvement.
28
<PAGE>
Weakness in Asia's economies is having a major impact on Oregon's
exporters of agricultural and forest products. Employment in the state's large
high technology sector has declined somewhat, a major change from its recent
rapid growth. Although these may be short-lived problems, some analysts feel the
Asian weakness may become more severe and last several years. At the same time,
housing and other costs have risen sharply in Portland and many other parts of
the state, eliminating much of Oregon's business cost advantage of the 1980s and
early 1990s. Higher costs are expected to slow employment growth as well as
create a variety of challenges for Oregonians. These conditions instill a sense
of uncertainty about the future.
Oregon has a comparative advantage in forest products, agriculture,
high technology manufacturing and trade with Asia. As Asian countries resolve
their financial difficulties and return to economic health, Oregon companies
will be able to realize the full advantage of Oregon's unique strengths. While
looking forward to this improvement, the department is working to help Oregon
companies take advantage of international trade opportunities not only in Asia,
but also in Latin America, Europe and other regions. The State has major
opportunities for further development of several 21st century industries,
including aerospace, bioscience, creative and professional services, and
software development. Oregon has increased its national share in these
industries. This has helped diversify the state's economy and raise awareness
that these industries can be successful in Oregon. Higher land and labor costs
now evident in many parts of Oregon increase the importance of improving the
state's more sustainable business advantages: a highly skilled workforce,
positive business climate, attractive communities and healthy environment. Other
parts of Oregon continue to enjoy land and labor cost advantages. The department
is helping these areas benefit from their advantages so they can establish the
economic momentum enjoyed by urban areas in the State. Such cost advantages
cannot be maintained indefinitely, however, and developing sustainable business
advantages is also a priority in these areas.
GENERAL ECONOMIC CONDITIONS. Oregon's September 2000 forecast issued by
the Department of Administrative Services predicts that the State's economy is
still feeling the effects of the Asian recessions. Employment growth in the
second quarter of 2000 declined for a 0.6% annual rate. A number of factors
appear to be impacting the economy. The Asian financial crisis that impacted
manufacturing has worked its way into the non-manufacturing sectors. A very mild
winter has thrown off seasonal adjustment figures. In addition, interest rate
hikes by the Federal Reserve are finally slowing business and consumer spending.
Nevertheless, State economic projections reveal underlying economic strength
from rising incomes, and consumer confidence should keep the economy out of
recession.
Job growth will be positive, but not above a 2% annual rate until 2003.
Manufacturing employment declined by 600 jobs, a 1.1% drop from the first
quarter. The growth is still marginally positive at 0.4%. Non-manufacturing
employment also declined, shedding 1,900 jobs for a 0.5% drop from the first
quarter. This sector's job growth is up 1.8%. Overall, employment growth is
projected to be 1.8% in 2000 and 1.7% in 2001. Manufacturing is projected to
rebound from its decline in 1999. It should grow 0.8% in 2000, followed by 0.7%
in 2001. Non-manufacturing is forecasted to grow 1.9% in both 2000 and 2001.
Lumber and wood product jobs are forecasted to decline by 0.5% in 2000 and 0.1%
in 2001. Alternatively, semi-conductors are showing renewed strength. The high
technology sector should grow 0.7% in 2000 and 2.2% in 2001. The construction
sector should have a job growth rate of 1.9% in 2000, followed by 0.5% in 2001.
Trade is projected to pick up from its 1999 level, adding jobs at a
1.3% and 1.8% rate in 2000 and 2001, respectively. Finance, insurance, and real
estate will feel the impact of rising interest rates. Job growth for this sector
is projected to fall 0.6% in 2000, before likely returning to a 0.3% growth in
2001. Per-capita income in Oregon will be $28,700 in 2000, growing to $30,000 in
2001. As a percent of the U.S., per capita income in Oregon is 95.2% in both
2000 and 2001. Population growth is expected to pick up moderately along with
the economy. Oregon's population is expected to grow 1.1% in 2000 and 1.2% in
2001.
DEMOGRAPHIC FORECAST. Oregon's population will increase from 3.3
million in 1999, to 3.6 million in 2007, a 9.2% increase. Population changes
within age groups will reflect the historical shifts in births and migration
flows. During this period, the fastest growth will occur in the 45-64 and 18-24
age groups, the result of baby-boomers and their children entering these age
groups. The 25-44 year age group will decline and the 5-17 age group will
increase slightly. The elderly population as a whole will increase by 8.7%. The
number of young elderly in the 65-74 age group has been declining. This trend
will reverse only after the year 2002. On the other hand, the number of oldest
elderly (85 and
29
<PAGE>
older), has been growing very rapidly. This group will continue to grow at a
very high rate, increasing 33.8% between 1999 and 2007.
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 FORECAST 1999-2001 BIENNIUM. The September 2000 forecast of
General Fund revenue equals $10,229 million for the 1999-2001 biennium. This is
an increase of $79.5 million above the June forecast. It now exceeds the Close
of Session ("COS") forecast by $317.7 million. Projections for the 1999-2001
ending balance are $431.1 million. Both corporate and non-corporate General Fund
revenues are now expected to exceed the 1999-2001 COS forecast by more than 2%.
The forecast of all non-corporate General Fund revenues exceeds the COS by 2.9%,
or $283.3 million over the biennium. This means that a surplus personal income
tax kicker refund is projected to be paid out during late 2001 on tax year 2000
personal income tax liability. The forecast of corporate income tax revenue for
1999-2001 is now 4.3%, or $34.5 million, above the COS forecast. As a result, a
surplus corporate kicker credit is forecast for the 2001 tax year.
REVENUE FORECAST 2001-2003 BIENNIUM. General Fund revenues are
projected to total $10,991.8 million for the 2001-03 biennium. This is an
increase of 7.5% over the 1999-2001 biennium. Personal income tax revenues will
total $9,507.8 million, 9.5% above the 1999-2001 biennium. Corporate income tax
revenues will be 7.8% higher, totaling $898.4 million for the biennium. Other
General Fund revenue sources are expected to decrease by 17.5% to $585.5
million. Projections for total General Fund resources for the biennium are at
$11,422.8, an increase of $97.4 million from the June 2000 forecast.
LOTTERY FORECAST. The forecast for Lottery game revenues has improved
from prior forecasts. Total transfer to the Economic Development Fund will
remain at the COS level of $580.4 million for the 1999-2001 biennium. Lottery
will retain gaming revenues above COS forecasts for new video terminals. An
increase in other resources in the Economic Development Fund makes the ending
balance $6.2 million. The forecast for lottery transfers for the 2001-03
biennium is increased. Total resources for the biennium are now expected to
total $596.7 million
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
30
<PAGE>
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. 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 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.
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
31
<PAGE>
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
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-
32
<PAGE>
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, Minnesota Tax Free Fund and Tax Free Fund) may
invest in mortgage-backed securities.
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.
The Board of Directors has adopted guidelines and procedures under
which the Funds' investment advisor is to determine whether the following types
of securities which may be held by certain Funds are "liquid" and to report to
the Board concerning its determinations: (i) securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933; (ii) commercial paper
issued in reliance on the "private placement" exemption from registration under
Section 4(2) of the Securities Act of 1933, whether or not it is eligible for
resale pursuant to Rule 144A; (iii) interest-only and principal-only, inverse
floaters and inverse interest-only securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; and (iv) municipal leases and
securities that represent interests in municipal leases.
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.
33
<PAGE>
PORTFOLIO TURNOVER
Mid Cap Growth Fund, Small Cap Growth Fund, Health Sciences Fund,
Limited Term Income Fund and Strategic Income Fund have each experienced recent
significant increases in their rates of portfolio turnover.
* Mid Cap Growth Fund's portfolio turnover rate increased from 94% to
217%, respectively, for the fiscal years ended September 30, 1999
and September 30, 2000, and Small Cap Growth Fund's portfolio
turnover rate increased from 110% to 230%, respectively, for the
fiscal years ended September 30, 1999 and September 30, 2000. For
both Funds, this variation is attributable primarily to the Funds'
participation in the initial public offering market and the general
volatility of mid cap and small cap stocks over the past year. These
factors have led to increased buying and selling opportunities for
the Funds.
* Health Sciences Fund's portfolio turnover rate increased from 53% to
104%, respectively, for the fiscal years ended September 30, 1999
and September 30, 2000. This variation is attributable primarily to
the Fund's restructuring of its portfolio holdings, moving away from
a focus on small cap biotech securities to a strategy of maintaining
a more broad based health care portfolio.
* Limited Term Income Fund portfolio turnover rate increased from 65%
to 127%, respectively, for the fiscal years ended September 30, 1999
and September 30, 2000. This variation is attributable primarily to
the merger of the Adjustable Rate Mortgage Securities Fund into
Limited Term Income Fund, which was approved by shareholders on
February 25, 2000. Following the merger, Limited Term Income Fund
sold positions formerly held by Adjustable Rate Mortgage Securities
Fund that were not part of the Fund's general investment strategy.
Additionally, the corporate bond market has been generally volatile
over the last year leading the Fund to move away from larger
positions in deteriorating securities, to defensive positions in
higher quality securities.
* Strategic Income Fund portfolio turnover rate increased from 40% to
90%, respectively, for the fiscal years ended September 30, 1999 and
September 30, 2000. This variation is primarily attributable to
increased transactions in each of the three main strategies
(categories) of the Fund. In the investment grade domestic debt
obligations category, the corporate bond market has been generally
volatile over the last year leading the Fund to move away from
larger positions in deteriorating securities, to defensive positions
in higher quality securities. In the high yield debt category, the
Advisor restructured the portfolio holdings eliminating several
smaller positions. In the international category, the Sub-Adviser
restructured the portfolio holdings generally moving from European
government positions into Emerging Market bonds.
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. The Board of Directors is generally responsible for the overall
operation and management of FAIF. 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, 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: 58.
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: 54.
34
<PAGE>
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: 53.
Leonard W. Kedrowski, 16 Dellwood Avenue, Dellwood, Minnesota 55110;
Director of FAF and FAIF since November 1993, of FASF since July 1996, and of
FAIP since August 1999; Owner of Executive Management Consulting, Inc., a
management consulting firm; Chief Executive Officer of Creative Promotions
International LLC, promotional award programs and products; 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: 59.
* 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; 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; Executive Vice President of U.S. Bancorp since January 1999;
Chairman Minnesota - U.S. Bancorp since 2000. Age 59.
* 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 U.S. Bancorp (fka First Bank System, Inc.) and
subsidiaries from 1957 to January 31, 1997, most recently as Vice President,
U.S. Bank National Association (fka First Bank National Association). Age: 66.
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: 60.
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, and of FAIP's Board since 1999; 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: 56.
EXECUTIVE OFFICERS
Thomas Plumb, First American Asset Management, 22 South 9th Street,
16th floor , Minneapolis, Minnesota 55402; President of FAIF, FAF, FASF, and
FAIP since March 11, 2000; Chief Executive Officer of First American Asset
Management since 1999; Executive Vice President of First American Asset
Management from 1997-1999; Senior Vice President of First American Asset
Management from 1992-1997. Age: 41.
Paul A. Dow, First American Asset Management, 601 Second Avenue South,
Minneapolis, Minnesota 55402, Vice President Investments of FAIF, FAF, FASF and
FAIP since March 11, 2000; Chief Investment Officer and President of First
American Asset Management since 1999; Senior Vice President of First American
Asset Management from 1998-1999; Chief Executive Officer of Piper Jaffray from
1997-1998; Chief Investment Officer of Piper Jaffray from 1989-1997. Age : 49.
Peter O. Torvik, First American Asset Management, 601 Second Avenue
South, Minneapolis, Minnesota 55402, Vice President Marketing of FAIF, FAF, FASF
and FAIP since September 20, 2000; Executive Vice President of First American
Asset Management; President and partner of DPG Group, a Florida-based
partnership engaged in affinity marketing from 1995 -2000. Age: 46.
Jeffery M. Wilson, First American Asset Management, 601 Second Avenue
South, Minneapolis, Minnesota 55402; Vice President Administration of FAIF, FAF,
FASF and FAIP since March 11, 2000; Senior Vice President of First American
Asset Management. Age: 44.
35
<PAGE>
Robert H. Nelson, First American Asset Management, 601 Second Avenue
South, Minneapolis, Minnesota 55402; Treasurer of FAIF, FAF, FASF and FAIP since
March 11, 2000; Senior Vice President of First American Asset Management since
1998; Senior Vice President of Piper Capital Management Inc. from 1994-1998.
Age: 37.
Christopher J. Smith, First American Asset Management, 601 Second
Avenue South, Minneapolis, Minnesota 55402; Secretary of FAIF, FAF, FASF and
FAIP since March 11, 2000; Executive Vice President of First American Asset
Management since 1998; General Counsel of Investment Advisors Inc. from
1991-1998. Age: 38.
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: 49.
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: 47.
Alaina Metz, BYSIS Fund Services, 3435 Stelzer Road, Suite 1000,
Columbus, Ohio 43219; Assistant Secretary for FAIF, FAF, FASF and FAIP since
March 11, 2000; Chief Administrative Officer of BYSIS Fund Services. Age: 33.
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, James D. Alt and
Kathleen L. Prudhomme, assistant secretaries 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, FAIP and FACEF collectively (column 5) during the fiscal year
ended September 30, 2000. No executive officer or affiliated person of FAIF
received any 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
COMPENSATION RETIREMENT BENEFITS UPON FROM REGISTRANT AND
FROM REGISTRANT * BENEFITS ACCRUED RETIREMENT FUND COMPLEX PAID
AS PART OF FUND TO DIRECTORS**
EXPENSES
<S> <C> <C> <C> <C>
Robert J. Dayton, Director $ 20,094 -0- -0- $ 57,200
Roger A. Gibson, Director 23,055 -0- -0- 54,800
Andrew M. Hunter III, Director 27,504 -0- -0- 56,000
Leonard W. Kedrowski, Director 24,542 -0- -0- 58,400
Robert L. Spies, Director 29,324 -0- -0- 59,600
John M. Murphy, Jr., Director -0- -0- -0- -0-
Joseph D. Strauss, Director 24,923 -0- -0- 65,600
Virginia L. Stringer, Director 26,172 -0- -0- 74,500
</TABLE>
--------------------------------------------
36
<PAGE>
* Included in the Aggregate Compensation under column 2 are amounts deferred by
the directors pursuant to the Deferred Compensation plan discussed below.
Pursuant to this plan, compensation was deferred for the following directors:
Roger A. Gibson, $11,015; Andrew M. Hunter III, $22,673; Leonard W. Kedrowski,
$11,659; Robert L. Spies, $24,283; and Joseph D. Strauss, $5,436.
** Deferred compensation is included in the Total Compensation under column 5
for the following directors: Roger A. Gibson, $20,525; Andrew M. Hunter III,
$42,250; Leonard W. Kedrowski, $21,725; Robert L. Spies, $45,250; and Joseph D.
Strauss, $10,130.
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 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.
CODE OF ETHICS
First American Investment Funds, Inc., First American Asset Management,
a division of U.S. Bank National Association, Marvin & Palmer Associates, Inc.,
Federated Global Investment Management Corp., and SEI Investments Distribution
Co. have each adopted a Code of Ethics pursuant to Rule 17j-1 of the 1940 Act.
Each of these Codes of Ethics permits personnel to invest in securities for
their own accounts, including securities that may be purchased or held by the
Funds. These Codes of Ethics are on public file with, and are available from,
the Securities and Exchange Commission.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISORY AGREEMENT
U.S. Bank National Association (the "Advisor"), 601 Second Avenue
South, Minneapolis, Minnesota 55402, 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 55402, 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, 2000, USB and its consolidated subsidiaries
had consolidated assets of more than $86 billion, consolidated deposits of more
than $51 billion and shareholders' equity of more than $8 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 Emerging Markets Fund and 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
37
<PAGE>
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 following table sets forth total advisory fees before waivers and
after waivers for each of the Funds for the fiscal years ended September 30,
1998, September 30, 1999 and September 30, 2000:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1999 SEPTEMBER 30, 2000
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 $ 4,180,744 $3,605,822 $ 3,912,094 $3,306,136 $ 2,877,051 $2,369,880
Equity Income Fund 2,807,799 2,340,742 2,834,648 2,308,494 2,354,420 1,874,263
Equity Index Fund 6,944,675 1,728,802 10,005,115 2,309,440 11,687,402 2,720,425
Large Cap Growth Fund 5,350,388 4,849,232 6,862,041 6,000,262 8,886,280 7,813,499
Large Cap Value Fund 10,557,867 9,380,815 11,515,418 9,940,990 10,257,162 8,700,104
Mid Cap Growth Fund 2,121,828(1) 2,100,572(1) 2,483,590 2,244,808 3,912,054 3,780,104
Mid Cap Value Fund 4,518,491 4,499,104 2,891,610 2,750,842 2,068,403 1,950,974
Small Cap Growth Fund(2) 398,861 273,024 1,575,724 1,546,633 3,333,951 3,333,468
Small Cap Value Fund 2,861,342(3) 2,795,846(3) 2,549,308 2,528,873 2,857,406 2,768,459
Emerging Markets Fund 123,423(1) -- 429,305 330,597 787,463 668,908
International Fund 4,152,050 3,761,297 5,835,906 5,069,247 10,550,225 9,228,599
Health Sciences Fund 263,071 243,244 131,449 103,060 146,307 85,262
Real Estate Securities Fund 448,259 368,112 445,053 364,865 376,470 275,661
Technology Fund 1,023,293 1,017,496 1,253,307 1,228,286 4,307,127 4,301,127
Corporate Bond Fund(4) * * * * 297,420 89,400
Fixed Income Fund 7,919,082 6,074,019 9,864,222 7,188,015 9,724,384 7,109,545
Intermediate Term Income Fund 3,051,944 2,336,617 3,020,433 2,290,886 2,860,300 2,152,691
Limited Term Income Fund 1,318,172 802,647 1,046,735 637,281 1,132,777 335,843
Strategic Income Fund 121,401 96,427 1,142,576 1,086,065 1,706,086 1,673,605
Arizona Tax Free Fund(4) * * * * 40,166 --
California Intermediate Tax Free Fund 243,857 152,957 287,232 198,408 305,743 205,673
California Tax Free Fund(4) * * * * 37,816 --
Colorado Intermediate Tax Free Fund 421,494 289,302 447,143 321,469 413,509 232,673
Colorado Tax Free Fund(4) * * * * 38,773 --
Intermediate Tax Free Fund 3,150,791 2,427,240 3,296,007 2,509,362 2,831,496 2,149,546
Minnesota Intermediate Tax Free Fund 2,203,876 1,687,229 2,219,324 1,681,218 1,884,664 1,415,791
Minnesota Tax Free Fund 687,617(1) 639,522(1) 906,461 626,135 926,645 624,518
Oregon Intermediate Tax Free Fund 1,271,276 949,861 1,324,741 1,004,343 1,215,544 905,584
Tax Free Fund 240,188(1) 210,860(1) 321,075 215,158 509,539 328,821
</TABLE>
----------------------------------------------
* Fund was not in operation during this fiscal year.
(1) Includes advisory fees paid to Piper Capital Management Inc.
(2) 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. Small Cap Growth Fund is the financial reporting
survivor.
(3) For the ten month period from December 1, 1997 to September 30, 1998.
(4) Commenced operations on February 1, 2000.
SUB-ADVISORY AGREEMENTS 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, United States,
and emerging markets equity portfolios principally for institutional accounts.
As of September 30, 2000, Marvin & Palmer managed a total of approximately $10.2
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
38
<PAGE>
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, Inc. ("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
advisor under the Investment Adviser's Act of 1940. As of September 30, 2000,
Federated Global, and such other subsidiaries of Federated rendered investment
advice regarding over $125 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 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.
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 fees which
are calculated daily and paid monthly, equal to each Fund's pro rata share of an
amount 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. (For the
purposes of this Agreement, the First American fund family includes all series
of FAF, FASF, FAIF, and FAIP.) In addition, the Funds pay U.S. Bank annual fees
of $18,500 per CUSIP, shareholder account fees of $15 per account, closed
account fees of $3.50 per account, and Individual Retirement Account fees of $15
per account.
39
<PAGE>
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'
Distributor. See "- Distributor and Distribution Plans" below. The Funds paid to
SEI Investment Management a fee equal to (i) 0.070% of each Fund's average daily
net assets until aggregate net assets of all Funds exceeded $8 billion and (ii)
0.055% 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,
1998, September 30, 1999 and September 30, 2000:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPT. 30, 1998 SEPT. 30, 1999 SEPT. 30, 2000
<S> <C> <C> <C>
Balanced Fund $ 657,769 $ 608,557 $ 447,064
Equity Income Fund 442,245 441,096 366,080
Equity Index Fund 1,091,829 1,556,165 1,815,695
Large Cap Growth Fund 842,335 1,067,331 1,380,471
Large Cap Value Fund 1,660,665 1,791,165 1,593,660
Mid Cap Growth Fund 210,497(1) 386,256 607,344
Mid Cap Value Fund 711,009 450,594 321,389
Small Cap Growth Fund(2) 61,021 245,043 518,615
Small Cap Value Fund 449,312 396,552 443,111
Emerging Markets Fund 42,593(1) 48,097 68,505
International Fund 366,970 504,997 917,182
Health Sciences Fund 41,425 20,450 22,782
Real Estate Securities Fund 70,555 69,228 58,485
Technology Fund 161,074 195,024 662,991
Corporate Bond Fund(3) * * 46,333
Fixed Income Fund 1,245,286 1,534,330 1,510,277
Intermediate Term Income Fund 480,270 469,836 444,405
Limited Term Income Fund 207,448 162,836 175,466
Strategic Income Fund 18,848 178,298 264,860
Arizona Tax Free Fund(3) * * 6,257
California Intermediate Tax Free Fund 38,445 44,676 47,517
California Tax Free Fund(3) * * 5,891
Colorado Intermediate Tax Free Fund 66,315 69,551 64,249
Colorado Tax Free Fund(3) * * 6,039
Intermediate Tax Free Fund 496,225 512,689 439,959
Minnesota Intermediate Tax Free Fund 346,914 344,973 294,726
Minnesota Tax Free Fund 106,844(1) 140,995 143,964
Oregon Intermediate Tax Free Fund 200,197 206,058 188,630
Tax Free Fund 40,574(1) 49,938 79,146
</TABLE>
-----------------------------------------------
* Fund was not in operation during this fiscal year.
(1) 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 Inc. - II, Piper Institutional
Funds Inc. and Piper Global Funds Inc.
(2) 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. Small Cap Growth Fund is the financial reporting
survivor.
(3) Commenced operations on February 1, 2000.
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
40
<PAGE>
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 Class A Shares pay to the Distributor a shareholder servicing fee
at an annual rate of 0.25% of the average daily net assets of the Class A
Shares. The 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 each fund for that month.
The Class B Shares pay to the Distributor a shareholder servicing fee
at the annual rate of 0.25% of the average daily net assets of the Class B
Shares. The fee may be used by the Distributor to provide compensation for
shareholder servicing activities with respect to the Class B Shares beginning
one year after purchase. The Class B Shares also pay to the Distributor a
distribution fee at the annual rate of 0.75% of the average daily net assets of
the Class B Shares. The distribution fee is intended to compensate the
distributor for advancing a commission to institutions purchasing Class B
Shares.
The Class C Shares pay to the Distributor a shareholder servicing fee
at the annual rate of 0.25% of the average daily net assets of the Class C
Shares. The fee may be used by the Distributor to provide compensation for
shareholder servicing activities with respect to the Class C Shares. This fee is
calculated and paid each month based on average daily net assets of the Class C
Shares. The Class C Shares also pay to the Distributor a distribution fee at the
annual rate of 0.75% of the average daily net assets of the Class C Shares. The
Distributor may use the distribution fee to provide compensation to institutions
through which shareholders hold their shares beginning one year after purchase.
The Distributor receives no compensation for distribution of the Class
Y 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, 1998 SEPTEMBER 30, 1999 SEPTEMBER 30, 2000
<S> <C> <C> <C>
Balanced Fund $1,388,236 $ 917,441 $ 530,088
Equity Income Fund 298,410 340,653 214,922
Equity Index Fund 1,940,988 3,181,754 2,543,808
Large Cap Growth Fund 232,067 297,655 1,129,446
Large Cap Value Fund 1,359,139 618,524 564,986
Mid Cap Growth Fund -- 23,734 260,048
Mid Cap Value Fund 1,110,165 343,008 147,698
</TABLE>
41
<PAGE>
<TABLE>
<S> <C> <C> <C>
Small Cap Growth Fund(1) 51,922 59,024 388,839
Small Cap Value Fund 120,770 65,337 195,887
Emerging Markets Fund -- 872 5,559
International Fund 66,662 137,685 1,146,836
Health Sciences Fund 30,570 23,080 157,910
Real Estate Securities Fund 162,439 68,564 30,775
Technology Fund 130,824 281,667 6,088,104
Corporate Bond Fund(2) -- -- 12,137
Fixed Income Fund 235,845 440,550 274,713
Intermediate Term Income Fund 1,344 5,046 40,575
Limited Term Income Fund 759 3,541 12,675
Strategic Income Fund -- 43,472 37,674
Arizona Tax Free Fund(2) -- -- 389
California Intermediate Tax Free Fund 27 7,172 10,506
California Tax Free Fund(2) -- -- 14,561
Colorado Intermediate Tax Free Fund 19,530 3,429 4,880
Colorado Tax Free Fund(2) -- -- 14,333
Intermediate Tax Free Fund 44,172 50,529 8,250
Minnesota Intermediate Tax Free Fund 27,430 19,630 7,601
Minnesota Tax Free Fund -- 49,395 47,023
Oregon Intermediate Tax Free Fund -- 4,724 3,405
Tax Free Fund -- 6,867 6,067
</TABLE>
(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. Small Cap Growth Fund is the financial reporting
survivor.
(2) Commenced operations on February 1, 2000.
<TABLE>
<CAPTION>
UNDERWRITING COMMISSIONS
RETAINED BY THE UNDERWRITER
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1999 SEPTEMBER 30, 2000
<S> <C> <C> <C>
Balanced Fund $ 64,621 $ 8,417 $ 3,051
Equity Income Fund 18,985 6,101 2,497
Equity Index Fund 101,556 21,564 12,393
Large Cap Growth Fund 10,315 14,761 9,423
Large Cap Value Fund 52,979 24,770 10,876
Mid Cap Growth Fund -- 5,342 4,146
Mid Cap Value Fund 88,234 6,219 2,193
Small Cap Growth Fund(1) 3,092 3,390 3,533
Small Cap Value Fund 13,051 5,983 3,029
Emerging Markets Fund -- -- 467
International Fund 6,734 -- 6,261
Health Sciences Fund 1,572 283 155
Real Estate Securities Fund 1,613 957 399
Technology Fund $ 2,825 $ 2,695 $ 4,567
Corporate Bond Fund(2) -- -- 475
Fixed Income Fund 8,577 21,217 10,307
Intermediate Term Income Fund 150 6,496 3,033
Limited Term Income Fund 73 2,251 1,201
Strategic Income Fund -- 2 1,808
Arizona Tax Free Fund(2) -- -- 64
California Intermediate Tax Free Fund 3 618 324
California Tax Free Fund(2) -- -- 60
Colorado Intermediate Tax Free Fund 2,330 962 438
Colorado Tax Free Fund\(2) -- -- 62
Intermediate Tax Free Fund 4,859 7,089 3,002
Minnesota Intermediate Tax Free Fund 4,094 4,773 1,998
Minnesota Tax Free Fund -- 1,955 982
Oregon Intermediate Tax Free Fund -- 2,857 1,287
Tax Free Fund -- 691 540
</TABLE>
(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. Small Cap Growth Fund is the financial reporting
survivor.
(2) Commenced operations on February 1, 2000.
42
<PAGE>
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>
Balanced Fund $ 297,927 $ 232,161 -- --
Equity Income Fund 165,930 48,992 -- --
Equity Index Fund 2,094,109 449,699 -- --
Large Cap Growth Fund 1,044,340 85,106 -- --
Large Cap Value Fund 361,055 203,931 -- --
Mid Cap Growth Fund 255,090 4,958 -- --
Mid Cap Value Fund 60,446 87,252 -- --
Small Cap Growth Fund 378,378 10,461 -- --
Small Cap Value Fund 93,186 102,701 -- --
Emerging Markets Fund 5,419 140 -- --
International Fund 1,117,783 29,053 -- --
Health Sciences Fund 153,457 4,453 -- --
Real Estate Securities Fund 11,944 18,831 -- --
Technology Fund 5,737,576 350,528 -- --
Corporate Bond Fund 11,929 208 -- --
Fixed Income Fund 184,087 90,626 -- --
Intermediate Term Income Fund 40,575 -- -- --
Limited Term Income Fund 6,860 5,815 -- --
Strategic Income Fund 32,390 5,284 -- --
Arizona Tax Free Fund 389 -- -- --
California Intermediate Tax Free Fund 10,506 -- -- --
California Tax Free Fund 14,542 19 -- --
Colorado Intermediate Tax Free Fund 4,880 -- -- --
Colorado Tax Free Fund 14,333 -- -- --
Intermediate Tax Free Fund 8,250 -- -- --
Minnesota Intermediate Tax Free Fund 7,601 -- -- --
Minnesota Tax Free Fund 43,310 3,713 -- --
Oregon Intermediate Tax Free Fund 3,405 -- -- --
Tax Free Fund 6,038 29 -- --
</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 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,
1998, September 30, 1999 and September 30, 2000 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, 1998 SEPTEMBER 30, 1999 SEPTEMBER 30, 2000
RULE 12b-1 FEES RULE 12b-1 FEES RULE 12b-1 FEES
CLASS A CLASS B CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balanced Fund $ 122,168 $ 570,281 $ 193,856 $ 629,466 $ 3,636 $ 152,893 $ 544,713 $ 14,467
Equity Income Fund 25,185 78,673 38,215 106,918 5,448 49,563 107,612 23,251
</TABLE>
43
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Index Fund 90,541 352,463 216,796 765,724 58,857 329,995 1,182,240 282,765
Large Cap Growth Fund 101,527 108,747 399,312 157,837 2,166 497,601 304,917 43,582
Large Cap Value Fund 218,512 613,014 471,235 642,319 3,830 393,041 558,644 25,710
Mid Cap Growth Fund 802,902(4) 7,188 469,354 2,012 1,281 597,113 22,497 21,742
Mid Cap Value Fund 99,294 416,365 67,755 271,088 428 36,468 137,614 6,653
Small Cap Growth Fund(1) 108,828 6,449 80,549 17,028 1,036 128,633 59,209 23,206
Small Cap Value Fund 37,953 1,991 31,105 8,807 346 60,647 84,665 4,579
Emerging Markets Fund 50,048(4) -- 12,993 2 60 12,685 622 25
International Fund 33,622 26,250 111,865 35,592 3,417 208,201 100,906 75,609
Health Sciences Fund 5,499 6,575 3,065 7,476 * 8,920 24,587 7,204
Real Estate Securities Fund 5,618 34,621 4,640 28,059 * 3,786 17,681 118
Technology Fund 24,444 85,332 31,222 133,633 * 275,943 750,675 105,623
Corporate Bond Fund(2) * * * * * 965 211 539
Fixed Income Fund 88,855 160,408 403,885 165,060 1,424 299,104 127,407 5,522
Intermediate Term Income Fund -- * 60,926 * * 47,462 * *
Limited Term Income Fund -- * -- * * 79,070 * *
Strategic Income Fund 21,319 58 91,594 3,984 1,618 52,656 11,361 8,203
Arizona Tax Free Fund(2) * * * * * 11,675 * 52
California Intermediate Tax Free Fund -- * -- * * -- * *
California Tax Free Fund(2) * * * * * 7,348 * 8
Colorado Intermediate Tax Free Fund -- * -- * * -- * *
Colorado Tax Free Fund(2) * * * * * 10,741 * 243
Intermediate Tax Free Fund -- * -- * * -- * *
Minnesota Intermediate Tax Free Fund -- * -- * * -- * *
Minnesota Tax Free Fund 282,169(3) * 289,760 * 4,527 238,852 * 10,044
Oregon Intermediate Tax Free Fund * * -- * * -- * *
Tax Free Fund 105,088(3) * 93,850 * 204 73,003 * 643
</TABLE>
---------------------------------------------
* Fund or class was not in operation during this fiscal year.
(1) Small Cap Growth Fund is the financial reporting survivor of Piper
Small Company Growth Fund. Total distribution fees for the fiscal year
ended September 30, 1997 paid by Piper Small Company Growth Fund were
$101,905.
(2) Commenced operations February 1, 2000.
(3) 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 Inc. - II, 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. 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 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 years ended September 30,
1999 and September 30, 2000.
44
<PAGE>
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 as of 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 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 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 the 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
45
<PAGE>
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 may
receive a benefit, for which a dollar value is not available, 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 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, 1998, September
30, 1999 and September 30, 2000:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPT. 30, 1998 SEPT. 30, 1999 SEPT. 30, 2000
<S> <C> <C> <C>
Balanced Fund $ 564,182 $ 560,619 $ 458,667
Equity Income Fund 111,956 315,203 393,204
Equity Index Fund 194,935 173,116 223,952
Large Cap Growth Fund 580,279 1,057,964 841,441
Large Cap Value Fund 2,567,632 2,605,857 2,592,112
Mid Cap Growth Fund 276,054(1) 415,391 1,279,373
Micro Cap Value Fund 127,010 186,139 63,071
Small Cap Growth Fund(2) 49,672 174,400 993,808
Small Cap Value Fund 239,609(3) 628,439 609,670
Emerging Markets Fund 74,024(1) 343,748 613,829
International Fund 467,074 3,029,581 5,721,583
</TABLE>
46
<PAGE>
<TABLE>
<S> <C> <C> <C>
Health Sciences Fund 29,340 31,919 32,418
Real Estate Securities Fund 138,009 73,017 148,732
Technology Fund 157,398 153,043 280,498
Corporate Bond Fund(4) * * 10,260
Fixed Income Fund -- -- 71,329
Intermediate Term Income Fund -- -- 45,450
Limited Term Income Fund -- -- 10,793
Strategic Income Fund -- 5,174 11,794
Arizona Tax Free Fund(4) * * --
California Intermediate Tax Free Fund -- -- --
California Tax Free Fund(4) * * --
Colorado Intermediate Tax Free Fund -- -- 3,667
Colorado Tax Free Fund(4) * * --
Intermediate Tax Free Fund -- 8,125 30,208
Minnesota Intermediate Tax Free Fund -- 3,000 1,500
Minnesota Tax Free Fund -- 11,683 14,130
Oregon Intermediate Tax Free Fund -- -- --
Tax Free Fund -- 22,669 21,008
</TABLE>
-------------------------------------------------
* Fund was not in operation during this fiscal year.
(1) Includes brokerage commissions paid by the Fund's predecessor arising
from a merger transaction between certain FAIF Funds and Piper Funds
Inc., Piper Funds Inc. - II, Piper Institutional Funds Inc. and Piper
Global Funds Inc.
(2) Small Cap Growth Fund is the financial reporting survivor of Piper
Small Company 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.
(3) For the ten month period from December 1, 1997 to September 30, 1998.
(4) Commenced operations February 1, 2000.
At September 30, 2000, Balanced Fund held equity securities of Chase
Manhattan in the amount of $2,540,313, equity securities of Morgan Stanley in
the amount of $1,984,194, and mortgage-backed securities of Merrill Lynch in the
amount of $6,004,099; Equity Income Fund held equity securities of J.P. Morgan
in the amount of $3,777,230; Equity Index Fund held equity securities of Chase
Manhattan in the amount of $7,955,935, equity securities of J.P. Morgan in the
amount of $2,755,646, equity securities of Merrill Lynch in the amount of
$6,858,852, equity securities of Morgan Stanley in the amount of $13,521,229,
and equity securities of Paine Webber in the amount of $1,314,676; Large Cap
Growth Fund held equity securities of Morgan Stanley in the amount of
$16,723,919; Large Cap Value Fund held equity securities of Chase Manhattan in
the amount of $32,516,000 and equity securities of Morgan Stanley in the amount
of $12,243,481; Corporate Bond Fund held mortgage-backed securities of Morgan
Stanley in the amount of $973,891; Fixed Income Fund held corporate obligations
of Goldman Sachs in the amount $14,193,750, mortgage-backed securities of J.P.
Morgan in the amount of $10,378,682, mortgage-backed securities of Merrill Lynch
in the amount of $21,350,154, and mortgage-backed securities of Morgan Stanley
in the amount of $10,745,385; Intermediate Term Income Fund held mortgage-backed
securities of Merrill Lynch in the amount of $6,004,099, mortgage-backed
securities of Morgan Stanley in the amount of $5,263,046, and corporate
obligations of Salomon Smith Barney in the amount of $1,988,840; Limited Term
Income Fund held asset-backed securities of Chase Manhattan in the amount of
$2,558,259, corporate obligations of Goldman Sachs in the amount of $1,472,570,
corporate obligations of Merrill Lynch in the amount of $688,856, corporate
obligations of Morgan Stanley in the amount of $2,017,280, and mortgage-backed
securities of Merrill Lynch in the amount of $4,853,782; and Strategic Income
Fund held corporate obligations of Merrill Lynch in the amount of $910,580 and
mortgage-backed securities of Morgan Stanley in the amount of $1,947,783, all of
which are deemed to be "regular brokers or dealers" of the Funds.
CAPITAL STOCK
Each share of a Fund's $.0001 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
47
<PAGE>
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 Bylaws, 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 10% or more of the
outstanding shares of FAIF.
As of November 13, 2000, the directors of FAIF owned shares of FASF,
FAF and FAIF with an aggregate net asset value of approximately $9 million. As
of December 1, 2000, the directors and officers of FAIF as a group owned less
than one percent of each Fund's outstanding shares. As of December 1, 2000, 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
Balanced A Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of it's Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 38.72%
Balanced B Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of it's Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 24.63%
Balanced C Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of it's Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 52.30%
Donald Lufkin Jenrette
Securities Corporation
P.O. Box 2052
Jersey City, NJ 07303-2052 6.86%
US Bancorp Investments Inc.
FBO 175113201
100 South Fifth Street Suite 1400
Minneapolis, MN 55402-1217 5.09%
US Bancorp Investments Inc.
FBO 337900071
100 South Fifth Street Suite 1400
Minneapolis, MN 55402-1217 6.02%
Var & Co
P.O. Box 64482
St. Paul, MN 55164-0482 13.52%
US Bank National Association Cust
Daily Valued Retirement Programs
Attn: Reconciliation SPFT0401 180 East 5th St.
St. Paul, MN 55101-2667 83.36%
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING SHARES CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
EQUITY INCOME FUND
Equity Income A Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 25.20%
Equity Income B Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 33.26%
Equity Income C Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 87.47%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 66.38%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 21.18%
US Bank National Association Cust
Daily Valued Retirement Programs
Attn: Reconciliation SPFT0401
180 East 5th St.
St. Paul, MN 55101-2667 5.54%
EQUITY INDEX FUND
Equity Index A Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 31.77%
Equity Index B Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 24.55%
Equity Index C Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 39.28%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 7.79%
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING SHARES CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 16.76%
US Bank National Association Cust
Daily Valued Retirement Programs
Attn: Reconciliation SPFT0401
180 East 5th St.
St. Paul, MN 55101-2667 22.85%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 15.71%
Metlife Defind Contribution Group
AS Agent For First TR Natl Assoc. TR
FBO UTD Healthcare Corp 401k SP
2 Montgomery ST #3
Jersey City NJ 07302-3802 15.49%
US Bank TR
US Bancorp Cap
U/A 01-01-1984
180 5th St E STE SPEN0502
Saint Paul, MN 55101-1606 15.16%
LARGE CAP GROWTH
Large Cap Growth A Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 25.20%
Large Cap Growth B Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 34.28%
Large Cap Growth C Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 88.82%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 42.66%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 7.98%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 30.66%
US Bank National Association Cust
Daily Valued Retirement Programs
Attn: Reconciliation SPFT0401
180 East 5th St.
St. Paul, MN 55101-2667 8.30%
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING SHARES CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
LARGE CAP VALUE
Large Cap Value A Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 55.59%
State Street Bank & Trust Co
As Trustee for AMD RSP Profit
Sharing Plan
Defined Contribution Services SPG
P.O. Box 351
Boston, MA 02101-0351 7.40%
Large Cap Value B Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 28.52%
Large Cap Value C Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 90.53%
US Bank National Association Cust
Daily Valued Retirement Programs
Attn: Reconciliation SPFT0401
180 East 5th St.
St. Paul, MN 55101-2667 24.02%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 23.25%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 8.86%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 25.11%
US Bank TR
US Bancorp CAP
U/A 01-01-1984
180 5th St. E STE SPEN0502
Saint Paul, MN 55101-2667 10.55%
MID CAP GROWTH
Mid Cap Growth A Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 79.85%
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING SHARES CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
Mid Cap Growth B Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 41.55%
Mid Cap Growth C Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave s.
Minneapolis, MN 55402-4303 75.65%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 17.87%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 9.43%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 41.34%
US Bank National Association Cust
Daily Valued Retirement Programs
Attn: Reconciliation SPFT0401
180 East 5th Street
St. Paul, MN 55101-2667 13.41%
US Bank TR
US Bancorp CAP
U/A 01-01-1984
180 5th St. E STE SPEN0502
Saint Paul, MN 55101-2667 8.28%
MID CAP VALUE
Mid Cap Value A Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 18.11%
Charles Schwab & Co Inc
Special Custody Account
For the Benefit of Customers
Attn: Mutual Funds
101 Montgomery St
San Francisco, CA 94104-4122 6.05%
Mid Cap Value B Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 25.82%
Mid Cap Value C Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 85.34%
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING SHARES CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
Donaldson Lufkin Jenrette
Securities Corp Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052 7.84%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 17.09%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 5.85%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 40.68%
US Bank National Association Cust
Daily Valued Retirement Programs
Attn: Reconciliation SPFT0401
180 East 5th Street
St. Paul, MN 55101-2667 13.81%
US Bank TR
US Bancorp CAP
U/A 01-01-1984
180 5th St. E STE SPEN0502
Saint Paul, MN 55101-2667 13.80%
SMALL CAP GROWTH
Small Cap Growth A Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 68.76%
Small Cap Growth B Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 35.15%
Small Cap Growth C Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 82.63%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 32.06%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 12.59%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 37.26%
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING SHARES CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
US Bank National Association Cust
Daily Valued Retirement Programs
Attn: Reconciliation SPFT0401
180 East 5th St.
St. Paul, MN 55101-2667 8.63%
US Bank TR
US Bancorp CAP
U/A 01-01-1984
180 5th St. E STE SPEN0502
Saint Paul, MN 55101-2667 6.04%
SMALL CAP VALUE
Small Cap Value A Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 16.26%
UMB Bank NA
Anderson Corporation 401k
C/o JP Morgan /American Century
Retirement Plan Services
P.O. Box 419784
Kansas City, MO 64141-6784 23.21%
Small Cap Value B Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 27.09%
Small Cap Value C Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 81.59%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 18.68%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 20.65%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 22.69%
US Bank National Association Cust
Daily Valued Retirement Programs
Attn: Reconciliation SPFT0401
180 East 5th St.
St. Paul, MN 55101-2667 13.50%
US Bank TR
US Bancorp CAP
U/A 01-01-1984
180 5th St. E STE SPEN0502
Saint Paul, MN 55101-2667 18.97%
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING SHARES CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
EMERGING MARKETS
Emerging Markets A Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 73.16%
Emerging Markets B Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 9.99%
SSB Cust
FBO Wayne Juhl S/D IRA
14749 Co Rd 104 10001 44
Greenbush, MN 56726 8.67%
Bear Stearns Securities Corp
FBO 748-52940-16
1 Metrotech Center North
Brooklyn, NY 11201-3870 49.24%
Emerging Markets C Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 86.66%
U.S. Bank Natl Assc Cust
Roth Contribution IRA 1/1/2000
FBO Joe Strick Jr
421 Bonnie Ln
Combined Lcks Wi 54113-1002 6.92%
First American Strategy Aggressive
Growth Fund
US Bank National Assn
Attn: Trust Mutual Funds SPFT0912
P.O. Box 64010
Saint Paul, MN 55164-0010 7.59%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 17.86%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 6.23%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 60.39%
INTERNATIONAL FUND
International A Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 58.32%
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING SHARES CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
International B Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 52.65%
International C Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 85.40%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 21.07%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 16.51%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 37.16%
US Bank National Association Cust
Daily Valued Retirement Programs
Attn: Reconciliation SPFT0401
180 East 5th St.
St. Paul, MN 55101-2667 9.27%
US Bank Tr
US Bancorp CAP
U/A 01-01-1984
180 5th St. E STE SPEN0502
Saint Paul, MN 55101-2667 8.88%
HEALTH SCIENCES FUND
Health Science A Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 58.56%
Health Science B Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 39.80%
Health Science C Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 87.60%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 28.74%
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING SHARES CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 7.61%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 56.67%
US Bank National Association Cust
Daily Valued Retirement Programs
Attn: Reconciliation SPFT0401
180 East 5th St.
St. Paul, MN 55101-2667 6.95%
REAL ESTATE SECURITIES FUND
Real Estate A Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 39.66%
Charles Schwab & Co Inc
Special Custody Account
For the Benefit of its Customer
Attn: Mutual Funds
101 Montgomery St
San Francisco, CA 94104-4122 10.63%
Real Estate B Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 31.33%
NFSC FEBO #a7T-179108
Dennis Baker Craig Springs TTE
Springs & Sons Electrical
Contractors Inc PSP U/A 9/1/89
2129 W. Mountain View Rd
Phoenix, AZ 85021-1814 5.33%
Bear Stearns Securities Corp
FBO 183-70593-18
1 Metrotech Center North
Brooklyn, NY 11201-3870 7.97%
Real Estate C Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 99.28%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 53.47%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 39.64%
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING SHARES CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
TECHNOLOGY FUND
Technology A Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 33.24%
Charles Schwab & Co Inc
Special Custody Account
For the Benefit of its Customer
Attn: Mutual Funds
101 Montgomery St
San Francisco, CA 94104-4122 7.21%
Technology B Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 27.85%
Technology C Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 72.81%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 41.54%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 12.14%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 17.01%
US Bank National Association Cust
Daily Valued Retirement Programs
Attn: Reconciliation SPFT0401
180 East 5th St.
St. Paul, MN 55101-2667 27.49%
CORPORATE BOND FUND
Corporate A Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 54.82%
U.S. Bancorp Investments Inc
FBO 180835681
100 South Fifth St Suite 1400
Minneapolis, MN 55402-1217 5.73%
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING SHARES CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
Corporate Bond B Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 23.20%
U.S. Bancorp Investments Inc
FBO 180835681
100 South Fifth St Suite 1400
Minneapolis, MN 55402-1217 5.23%
U.S. Bancorp Investments Inc
FBO 180835681
100 South Fifth St Suite 1400
Minneapolis, MN 55402-1217 17.34%
U.S. Bancorp Investments Inc
FBO 180835681
100 South Fifth St Suite 1400
Minneapolis, MN 55402-1217 7.34%
U.S. Bancorp Investments Inc
FBO 180835681
100 South Fifth St Suite 1400
Minneapolis, MN 55402-1217 8.44%
U.S. Bancorp Investments Inc
FBO 180835681
100 South Fifth St Suite 1400
Minneapolis, MN 55402-1217 18.47%
U.S. Bancorp Investments Inc
FBO 180835681
100 South Fifth St Suite 1400
Minneapolis, MN 55402-1217 8.81%
Corporate Bond C Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 73.73%
Wexford Clearing Services Corp
FBO Virginia H. Kauffman
Steven Kauffman & Roy
Kauffman CO-TTEES Phillip
Kauffman
Rev Tr UA DTD 12/29/83
Arlington, VA 22205 11.19%
Wexford Clearing Services Corp
FBO Virginia H. Kauffman
Steven Kauffman & Roy
Kauffman CO-TTEES Phillip
Kauffman
MRTL Shr Tr #2 UA DTD 12/29/83
Arlington, VA 22205 5.08%
Ethel Boldvan
Darleen Peterson JTWROS
212 W Caledonia St
Caledonia MN 55921-1003 7.99%
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING SHARES CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 35.07%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 60.38%
FIXED INCOME
Fixed Income A Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 41.88%
Fixed Income B Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 26.48%
Fixed Income C Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 59.93%
Donaldson Lufkin Jenrette
Securities Corp Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052 5.24%
U S Bancorp Investments Inc.
FBO 190591791
100 South Fifth Street Suite 1400
Minneapolis, MN 55402-1217 11.83%
NFSC FEBO # BCC-362786
Alice L Peterson
1033 Gershwin Ave North Apt 131
Oakdale, MN 55128-6147 9.96%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 48.93%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 5.34%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 23.34%
US Bank National Association Cust
Daily Valued Retirement Programs
Attn: Reconciliation SPFT0401
180 East 5th St.
St. Paul, MN 55101-2667 6.45%
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING SHARES CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
INTERMEDIATE TERM INCOME
Intermediate Term A Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 65.31%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 41.22%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 27.79%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 20.29%
US Bank National Association Cust
Daily Valued Retirement Programs
Attn: Reconciliation SPFT0401
180 East 5th St.
St. Paul, MN 55101-2667 9.68%
LIMITED TERM INCOME
Limited Term A Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 22.64%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 47.88%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 15.31%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 18.33%
US Bank National Association Cust
Daily Valued Retirement Programs
Attn: Reconciliation SPFT0401
180 East 5th St.
St. Paul, MN 55101-2667 15.48%
STRATEGIC INCOME FUND
Strategic Income A Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 26.28%
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING SHARES CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
Attn: Mutual Funds Dept
Fiserv Securities Inc
FAO 46404106
One Commerce Square
2005 Market St Suite 1200
Philadelphia, PA 19103-7008 5.48%
Strategic B Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 63.73%
U.S. Bancorp Investments Inc
FBO 352628231
100 s 5th ST STE 1400
Minneapolis, MN 55402-1217 13.12%
Strategic Income C Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 51.06%
Donaldson Lufkin Jenrette
Securities Corp Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052 8.67%
First American Strategy Growth and Income Fund
US Bank National Assn
Attn: Mutual Funds Department
PO Box 64010
Saint Paul, MN 55164-0010 9.15%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 46.61%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 33.74%
ARIZONA TAX FREE FUND
Arizona Tax Free A Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 96.53%
Arizona Tax Free C Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 94.18%
SEI Financial Services
Attn: Rob Silvestri
One Freedom Valley Dr
Oaks, PA 19456 5.45%
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING SHARES CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 68.79%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 31.21%
CALIFORNIA INTERMEDIATE TAX FREE
U.S. Bancorp Investments Inc
FBO 118602021
100 s 5th ST STE 1400
Minneapolis, MN 55402-1217 24.06%
U.S. Bancorp Investments Inc
FBO 118666051
100 s 5th ST STE 1400
Minneapolis, MN 55402-1217 24.11%
U.S. Bancorp Investments Inc
FBO 180845331
100 s 5th ST STE 1400
Minneapolis, MN 55402-1217 18.52%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 78.64%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 21.36%
CALIFORNIA TAX FREE FUND
California Tax Free A Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 65.47%
California Tax Free C Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 97.46%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 77.65%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 22.35%
COLORADO INTERMEDIATE TAX FREE
Colo Inter RX/FR A Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 23.40%
</TABLE>
63
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING SHARES CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
Alpine Trust & Asset Management
Marilyn C Simons RVOC TR
A/C #70400003
225 N 5th St.
Grand Junction, CO 81501-2611 8.65%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 9.05%
Norwest Bank Colorado NA
TTE FBO M.w. Millar Revocable
TR # 1210255701
1740 Broadway St
MAC-c7300-077
Denver, CO 80274-0001 5.57%
Norwest Investment Services Inc
FBO 11230927
Northstar Building East - 9th floor
608 Second Ave South
Minneapolis, MN 55402-1916 6.61%
U. S. Bancorp Investments Inc
FBO 180642381
100 South Fifth St Suite 1400
Minneapolis, MN 55402-1217 9.85%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 37.54%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 55.64%
SMICO and Co
C/o The Smith County State Bank
P.O. Box 307
Smith Center, KS 66967-0307 5.41%
COLORADO TAX FREE FUND
Colorado Tax Free A Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 79.68%
Colorado Tax Free C Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 99.39%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 78.76%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 19.25%
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING SHARES CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
INTERMEDIATE TERM TAX-FREE
Inter TX/FR A Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 16.31%
Carl S Thomas
8633 Trianon Ln
Las Vegas, NV 89128-4875 9.40%
Attn: Mutual Funds
FISERV Securities Inc
FAO 46404074
One Commerce Square
2005 Market St. Suite 1200
Philadelphia, PA 19103-7008 9.32%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 72.16%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 6.15%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 21.41%
MINNESOTA TAX FREE
MN TX/FR A Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 82.68%
Minnesota Tax Free C Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 34.46%
Donaldson Lufkin Jenrette
Securities Corp Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052 8.93%
LPL Financial Services
A/c 6021-2149
9785 Towne Centre Drive
San Diego, Ca 92121-1968 11.32%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 77.32%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 6.68%
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING SHARES CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
MN TX/FR Y Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402 11.84%
MINNESOTA INTERMEDIATE TAX FREE
MN Int TX/FR A Omnibus Account
USBANCORP Piper Jaffray for the
Exclusive Benefit of its Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 45.38%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 85.47%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 12.08%
OREGON INTERMEDIATE TAX FREE
Dorothy L Hart
1605 Oak St.
La Grande, OR 97850-1521 6.92%
Florence L Hart
1310 Walnut St.
La Grande, OR 97850-1435 6.92%
Bank of Cascades
TTEES for Mary S Defremery
1125 NW Bond St
Bend, OR 97701-1925 16.76%
Verb & Co
4380 SW Macadam Ste 450
Portland, OR 97201-6407 11.22%
Rede & Co
4380 SW Macadam Ave Ste 450
Portland, OR 97201-6407 30.37%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 51.89%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 5.77%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 41.70%
TAX FREE
Tax Free A Omnibus Account
US BANCORP Piper Jaffray for the
Exclusive Benefit of It's Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 84.70%
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING SHARES CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
Tax Free C Omnibus Account
US BANCORP Piper Jaffray for the
Exclusive Benefit of It's Customers
Attn: TA Services MPFP1922
601 2nd Ave S.
Minneapolis, MN 55402-4303 66.76%
Charlotte Ann Schwarz &
Robert E Schaffler JTWROS
RR 3 Box 26
Le Sueur, MN 56058-9407 6.37%
Robert E. Schaffler &
Ronald F. Schaffler JTWROS
1028 Shady Oak Dr
North Mankato, MN 56003-3435 5.86%
Vera E. Meixner
2799 W. Highway 14
Owatonna, MN 55060-4848 20.97%
Var & Co
P.O. Box 64482
St Paul, MN 55164-0482 82.01%
Var & Co
P.O. Box 64482
</TABLE>
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 and Class
C Shares as of September 30, 2000 was as set forth below. Please note that the
public offering prices of Class B and Class Y Shares are the same as net asset
value since no sales charges are imposed on the purchase of such shares.
PUBLIC OFFERING PRICE
CLASS A CLASS C
Balanced Fund $13.14 $12.56
Equity Income Fund 17.19 16.44
Equity Index Fund 29.29 27.94
Large Cap Growth Fund 22.74 21.52
Large Cap Value Fund 21.73 20.72
Mid Cap Growth Fund 19.93 18.80
Mid Cap Value Fund 15.43 14.70
Small Cap Growth Fund 25.83 24.41
Small Cap Value Fund 18.04 17.05
Emerging Markets Fund 8.97 8.55
International Fund 19.55 18.48
Health Sciences Fund 14.08 13.42
Real Estate Securities Fund 13.41 12.81
Technology Fund 50.32 47.97
Corporate Bond Fund 10.48 10.11
Fixed Income Fund 11.16 10.77
Intermediate Term Income Fund 10.04 *
Limited Term Income Fund 10.16 *
Strategic Income Fund 9.31 8.99
Arizona Tax Free Fund 10.72 10.55
California Intermediate Tax Free Fund 10.28 *
California Tax Free Fund 10.93 10.77
Colorado Intermediate Tax Free Fund 10.54 *
67
<PAGE>
Colorado Tax Free Fund 10.69 10.52
Intermediate Tax Free Fund 10.75 *
Minnesota Intermediate Tax Free Fund 10.05 *
Minnesota Tax Free Fund 10.91 10.73
Oregon Intermediate Tax Free Fund 9.99 *
Tax Free Fund 10.76 10.57
* Class C shares not offered.
The net asset value of each Fund's shares is determined on each day
during which the New York Stock Exchange (the "NYSE") is open for business. The
NYSE is not open for business on the following holidays (or on the nearest
Monday or Friday if the holiday falls on a weekend): New Year's Day, 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 held by 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, 2000, the net asset values per share for each class of
shares of the Funds were calculated as follows.
<TABLE>
<CAPTION>
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
NET ASSET
NET ASSETS SHARES VALUE PER SHARE
(IN DOLLARS) OUTSTANDING (IN DOLLARS)
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
<S> <C> <C> <C>
BALANCED FUND
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class A 54,605,032 4,387,144 12.45
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class B 49,457,150 3,997,193 12.37
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class C 1,499,194 120,616 12.43
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class Y 240,429,210 19,268,068 12.48
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
EQUITY INCOME FUND
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class A 20,607,069 1,264,710 16.29
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class B 10,365,628 638,372 16.24
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class C 2,510,782 154,259 16.28
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class Y 275,436,337 16,823,372 16.37
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
EQUITY INDEX FUND
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class A 134,180,031 4,835,354 27.75
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class B 121,091,992 4,405,356 27.49
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class C 34,810,837 1,258,658 27.66
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class Y 1,400,086,092 50,475,118 27.74
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
LARGE CAP GROWTH FUND
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class A 208,556,371 9,675,725 21.55
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class B 36,271,463 1,732,837 20.93
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class C 17,538,301 823,587 21.30
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class Y 1,112,121,496 51,189,710 21.73
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
LARGE CAP VALUE FUND
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class A 138,145,592 6,710,140 20.59
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class B 49,662,470 2,447,008 20.30
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class C 6,550,966 319,421 20.51
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class Y 1,186,787,069 57,499,447 20.64
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
MID CAP GROWTH FUND
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class A 264,569,957 14,016,600 18.88
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class B 4,812,007 259,922 18.51
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class C 5,971,225 320,972 18.61
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class Y 361,566,353 18,893,657 19.14
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
MID CAP VALUE FUND
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class A 13,568,526 927,820 14.62
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class B 12,494,808 874,869 14.28
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
NET ASSET
NET ASSETS SHARES VALUE PER SHARE
(IN DOLLARS) OUTSTANDING (IN DOLLARS)
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
<S> <C> <C> <C>
Class C 1,430,194 98,292 14.55
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class Y 275,127,535 18,740,422 14.68
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
SMALL CAP GROWTH FUND
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class A 57,148,106 2,335,549 24.47
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class B 8,439,546 364,296 23.17
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class C 8,205,511 339,484 24.17
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class Y 478,974,759 19,317,945 27.49
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
SMALL CAP VALUE FUND
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class A 35,857,369 2,098,133 17.09
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class B 13,645,886 814,129 16.76
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class C 1,098,549 65,063 16.88
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class Y 431,905,056 25,124,762 17.19
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
EMERGING MARKETS FUND
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class A 4,337,885 510,439 8.50
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class B 107,298 12,826 8.37
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class C 4,298 508 8.46
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class Y 55,752,962 6,517,081 8.55
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
INTERNATIONAL FUND
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class A 90,223,397 4,870,299 18.52
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class B 13,500,005 756,344 17.85
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class C 22,451,167 1,226,981 18.30
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class Y 675,603,637 36,367,490 18.58
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
HEALTH SCIENCES FUND
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class A 6,644,772 498,109 13.34
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class B 4,220,704 327,343 12.89
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class C 4,437,022 327,070 13.29
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class Y 19,175,297 1,428,522 13.42
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
REAL ESTATE SECURITIES FUND
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class A 2,035,048 160,123 12.71
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class B 1,873,840 148,657 12.61
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class C 164,133 12,942 12.68
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class Y 56,346,823 4,425,103 12.73
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
TECHNOLOGY FUND
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class A 155,532,859 3,262,179 47.68
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class B 97,002,675 2,184,910 44.40
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class C 33,604,316 707,551 47.79
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class Y 436,937,708 8,991,185 48.60
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
CORPORATE BOND FUND
----------------------------------------------------- -- ----------------- -- ----------------- -- ----------------- --
Class A 770,668 76,851 10.03
----------------------------------------------------- -- ----------------- -- ----------------- -- ----------------- --
Class B 103,390 10,320 10.02
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class C 143,454 14,327 10.01
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class Y 89,989,764 8,976,197 10.03
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
FIXED INCOME FUND
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class A 110,490,475 10,335,459 10.69
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class B 11,549,374 1,086,415 10.63
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class C 565,856 59,077 10.66
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class Y 1,299,880,638 121,639,240 10.69
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
INTERMEDIATE TERM INCOME FUND
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class A 29,644,768 3,027,459 9.79
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class Y 381,719,201 39,070,794 9.77
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
LIMITED TERM INCOME FUND
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class A 80,992,280 8,172,083 9.91
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
</TABLE>
69
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
NET ASSET
NET ASSETS SHARES VALUE PER SHARE
(IN DOLLARS) OUTSTANDING (IN DOLLARS)
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
<S> <C> <C> <C>
Class Y 92,092,104 9,290,577 9.91
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
STRATEGIC INCOME FUND
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class A 21,737,288 2,437,921 8391
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class B 1,401,332 157,639 8.89
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class C 1,241,056 139,472 8.90
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class Y 237,730,412 26,652,785 8.92
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
ARIZONA TAX FREE FUND
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class A 9,667,937 924,823 10.45
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class C 21,780 2,085 10.44
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class Y 2,670,781 255,496 10.45
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
CALIFORNIA INTERMEDIATE TAX FREE FUND
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class A 2,344,407 233,869 10.02
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class Y 43,262,083 4,309,887 10.04
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
CALIFORNIA TAX FREE FUND
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class A 6,029,518 565,771 10.66
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class C 33,614 3,155 10.66
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class Y 4,765,658 447,171 10.66
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
COLORADO INTERMEDIATE TAX FREE FUND
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class A 3.485,112 338,890 10.28
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class Y 52,884,822 5,155,617 10.26
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
COLORADO TAX FREE FUND
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class A 8,068,120 774,579 10.42
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class C 155,737 14,954 10.41
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class Y 2,430,326 232,931 10.43
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
INTERMEDIATE TAX FREE FUND
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class A 8,993,898 858,261 10.48
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class Y 375,278,932 35,861,737 10.46
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
MINNESOTA INTERMEDIATE TAX FREE FUND
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class A 12,468,638 1,272,863 9.80
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class Y 244,353,658 25,030,639 9.76
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
MINNESOTA TAX FREE FUND
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class A 93,994,797 8,833,481 10.64
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class C 2,037,144 191,773 10.62
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class Y 40,859,888 3,844,460 10.63
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
OREGON INTERMEDIATE TAX FREE FUND
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class A 3,302,531 339,095 9.74
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class Y 160,124,823 16,438,351 9.74
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
TAX FREE FUND
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class A 27,060,395 2,580,111 10.49
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class C 138,976 13,287 10.46
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
Class Y 62,530,333 5,959,378 10.49
------------------------------------------------------ -- ----------------- -- ----------------- -- ----------------- --
</TABLE>
FUND PERFORMANCE
LINKED PERFORMANCE. Advertisements and other sales literature for the
Funds' Class Y shares may include linked performance where there is a
performance history of less than five years. That is, in situations where a
Fund's Class A shares have an inception date reflecting a performance history
longer than five years, but that same Fund's Class Y shares have an inception
date reflecting a shorter performance history, the Fund may advertise Class Y
share performance "linked" to the Class A share inception date. This performance
presentation will be adjusted to reflect
70
<PAGE>
Class Y share fees and expenses, and the Fund will always (additionally) provide
performance based on the Fund's actual Class Y share inception date. Fund
prospectuses and annual report(s) will continue to reflect share class
performance from actual inception dates.
PERFORMANCE PRESENTATION. 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, 2000
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.
71
<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 132.48 120.36 11.42 10.66 4.50 (1.01) 11.14 9.95 -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class B 94.16 94.16 11.43 11.43 3.59 (1.03) 10.30 10.03 -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class C 3.44 2.39 2.05 1.43 3.65 1.66 -- -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class Y 106.27 -- 11.65 -- 4.67 -- 11.42 -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Equity Income
Fund
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class A** 159.29 145.77 13.01 12.24 11.11 5.29 15.07 13.84 -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class B 129.84 129.84 14.54 14.54 10.35 5.35 14.31 14.08 -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class C 7.07 5.99 4.20 3.56 10.41 8.31 -- -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class Y 143.59 -- 13.26 -- 11.46 -- 15.45 -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Equity Index
Fund
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class A 271.81 252.42 18.34 17.53 12.11 6.24 20.93 19.63 -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class B 220.30 220.30 20.91 20.91 11.25 6.25 20.04 19.85 -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class C 12.16 11.03 7.15 6.49 11.32 9.19 -- -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class Y 238.82 -- 18.56 -- 12.38 -- 21.23 -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Large Cap
Growth Fund
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class A** 226.63 209.60 16.41 15.61 25.80 19.22 21.80 20.50 -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class B 245.47 245.47 22.41 22.41 24.84 19.84 20.88 20.69 -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class C 32.43 31.09 18.40 17.68 24.89 22.63 -- -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class Y 265.41 -- 16.58 -- 26.13 -- 22.10 -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Large Cap
Value Fund
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class A 402.29 376.10 13.20 13.02 0.92 (4.37) 14.06 12.84 15.19 14.57
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class B 130.37 130.37 14.58 14.58 0.17 (4.27) 13.25 13.00 -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class C 1.82 0.80 1.09 0.48 0.17 (1.71) -- -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class Y 149.95 -- 13.64 -- 1.17 -- 14.39 -- 15.38 --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Mid Cap Growth
Fund
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class A 654.54 614.53 21.34 20.71 76.44 61.23 23.57 22.25 24.24 23.57
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class B 94.50 90.50 36.25 34.94 75.14 70.14 -- -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class C 80.45 78.58 42.61 41.72 75.10 72.34 -- -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class Y 148.20 -- 12.44 -- 13.94 -- 9.21 -- 13.48 --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Mid Cap Value
Fund
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class A 338.17 315.33 12.29 11.82 13.58 7.60 8.88 7.71 13.28 12.67
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class B 73.48 73.48 9.40 9.40 12.85 7.85 8.11 7.87 -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class C 6.89 5.81 4.09 3.45 12.81 10.69 -- -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class Y 88.10 -- 12.44 -- 13.94 -- 9.21 -- 13.48 --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Small Cap
Growth Fund (1)
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class A 507.36 475.70 14.24 13.79 62.07 53.56 23.35 22.03 19.96 19.32
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class B 88.49 84.49 33.93 32.61 60.95 55.95 -- -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class C 73.55 71.77 39.31 38.45 61.06 58.44 -- -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class Y 92.75 -- 14.28 -- 62.58 -- 23.47 -- 20.03 --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Small Cap Value
Fund
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class A 145.67 132.86 15.68 14.68 23.19 16.74 10.89 9.70 -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class B 7.97 4.29 2.73 1.48 22.31 17.31 -- -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class C 25.83 24.54 14.82 14.11 22.29 20.07 -- -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class Y 149.04 -- 15.94 -- 23.56 -- 11.30 -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
</TABLE>
72
<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>
Emerging Markets
Fund
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class A (14.73) (19.18) (2.28) (3.04) 25.55 18.88 3.16 2.06 -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class B 15.13 11.13 6.77 5.03 24.55 19.55 -- -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class C (15.06) (16.75) (15.06) (16.75) -- -- -- -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class Y 17.74 -- (2.18) -- 25.88 -- 3.30 -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
International
Fund
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class A 127.18 115.31 13.48 12.55 24.63 18.03 17.14 15.88 -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class B 111.16 111.16 12.96 12.96 23.71 18.71 16.19 15.97 -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class C 34.54 33.24 19.53 18.84 23.74 21.48 -- -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class Y 129.43 -- 13.64 -- 24.95 -- 17.37 -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Health Sciences
Fund
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class A 56.59 48.43 10.11 8.85 61.89 53.33 -- -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class B 51.41 49.41 9.32 9.01 60.85 55.85 -- -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class C 36.17 33.79 36317 33.79 -- -- -- -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class Y 58.40 -- 10.38 -- 62.10 -- -- -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Real Estate
Securities Fund
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class A 68.75 59.95 11.04 9.86 56.68 20.00 11.03 9.85 -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class B 62.19 60.19 10.17 9.89 25.81 20.81 10.16 9.88 -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class C 25.56 23.27 25.56 23.27 -- -- -- -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class Y 79.80 -- 11.84 -- 26.95 -- 11.32 -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Technology Fund
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class A 791.08 744.63 40.03 38.88 80.11 70.64 36.80 35.33 -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class B 762.66 762.66 42.11 42.11 78.77 73.77 35.83 35.71 -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class C (5.57) (7.46) (5.57) (7.46) -- -- -- -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class Y 803.93 -- 40.34 -- 80.71 -- 37.19 -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Corporate Bond
Fund
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class A 5.17 0.74 5.17 0.74 -- -- -- -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class B 4.70 (0.30) 4.70 (0.30) -- -- -- -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class C 4.54 2.51 4.54 2.51 -- -- -- -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class Y 5.21 -- 5.21 -- -- -- -- -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Fixed Income
Fund
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class A 150.68 140.12 7.47 7.11 6.33 1.83 5.65 4.73 7.23 6.77
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class B 40.69 40.69 5.73 5.73 5.70 0.70 4.90 4.58 -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class C 2.69 1.70 1.61 1.02 5.60 3.52 -- -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class Y 45.55 -- 7.58 -- 6.49 -- 5.91 -- 7.37 --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Intermediate Term
Income
Fund
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class A 54.53 50.61 5.74 5.39 5.69 3.07 5.68 5.15 -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class Y 43.67 -- 5.76 -- 5.97 -- 5.70 -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Limited Term
Income Fund
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class A 48.57 44.81 5.21 4.86 6.30 3.67 5.65 5.13 -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class Y 42.15 -- 5.22 -- 6.29 -- 5.67 -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
</TABLE>
73
<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>
Strategic Income
Fund
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class A 4.73 0.31 2.13 0.14 5.56 1.11 -- -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class B 3.16 (0.40) 1.43 (0.18) 4.83 (0.07) -- -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class C 4.86 3.78 2.89 2.25 5.16 3.14 -- -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class Y 5.38 -- 2.42 -- 5.94 -- -- -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Arizona Tax Free
Fund
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class A 8.21 5.47 8.21 5.47 -- -- -- -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class C 7.88 5.81 7.88 5.81 -- -- -- -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class Y 8.36 -- 8.36 -- -- -- -- -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
California
Intermediate Tax
Free Funds
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class A 14.79 11.88 4.48 3.63 5.84 3.26 -- -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class Y 15.02 -- 4.55 -- 6.05 -- -- -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
California Tax Free
Fund
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class A 10.23 7.43 10.23 7.43 -- -- -- -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class C 9.84 7.76 9.84 7.76 -- -- -- -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class Y 10.38 -- 10.38 -- -- -- -- -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Colorado
Intermediate
Tax Free Fund
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class A 39.90 36.35 5.30 4.89 4.40 1.83 4.45 3.92 -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class Y 39.66 -- 5.28 -- 4.51 -- 4.41 -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Colorado Tax Free
Fund
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class A 7.70 4.97 7.70 4.97 -- -- -- -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class C 7.52 5.45 7.52 5.45 -- -- -- -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class Y 8.05 -- 8.05 -- -- -- -- -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Intermediate Tax
Free Fund
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class A 98.85 93.81 5.54 5.33 5.10 2.45 4.49 3.97 5.49 5.22
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class Y 31.79 -- 5.53 -- 5.11 -- 4.46 -- 5.47 --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Minnesota
Intermediate Tax
Free Fund
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class A 32.96 29.59 4.41 4.01 4.84 2.23 4.51 3.99 -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class Y 32.62 -- 4.37 -- 4.85 -- 4.46 -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Minnesota Tax
Free Fund
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class A 121.51 115.90 6.72 6.50 4.75 2.17 5.25 4.71 6.81 6.54
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class C 1.09 0.12 0.65 0.07 4.25 2.20 -- -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class Y 13.86 -- 6.78 -- 5.00 -- 5.39 -- 6.88 --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Oregon Intermediate
Tax Free Fund
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class A 2.46 (0.08) 1.47 (0.05) 4.79 2.16 -- -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class Y 12.32 -- 3.76 -- 4.78 -- -- -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Tax Free Fund
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class A 120.66 115.07 6.69 6.46 4.75 2.14 5.08 4.56 6.73 6.46
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class C (0.14) (1.10) (0.09) (0.67) 4.26 2.19 -- -- -- --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Class Y 5.10 -- 6.73 -- 5.00 -- 5.19 -- 6.78 --
-------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
</TABLE>
74
<PAGE>
-----------------------
* 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 (Class A and Y), August 1, 1994; Class B,
November 24, 1997; Class C, February 1, 1999; 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; 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; Corporate Bond
Fund, Class A, Class B, Class C and Class Y, February 1, 2000; 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.
** 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 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.
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.
Based upon the 30-day period ended September 30, 2000, the yields for
the Class A, Class B, Class C and Class Y Shares of the Funds were as set forth
below.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS Y CLASS C
<S> <C> <C> <C> <C>
Balanced Fund 2.67% 2.08% 3.07% 2.06%
Equity Income Fund 1.39 0.74 1.71 0.73
Equity Index Fund 0.55 -- 0.83 --
Large Cap Growth Fund -- -- -- --
Large Cap Value Fund 0.93 0.25 1.23 0.19
Mid Cap Growth Fund -- -- -- --
Mid Cap Value Fund 0.63 -- 0.90 --
Small Cap Growth Fund -- -- -- --
</TABLE>
75
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Small Cap Value Fund -- -- 0.18 --
Emerging Markets Fund -- -- -- --
International Fund -- -- -- -
Health Sciences Fund -- -- -- --
Real Estate Securities Fund 5.53 4.96 5.89 6.36
Technology Fund -- -- -- --
Fixed Income Fund 5.67 5.35 6.35 4.35
Intermediate Term Income Fund 5.91 * 6.22 *
Corporate Bond Fund 7.67 7.25 8.27 7.19
Limited Term Income Fund 6.53 * 6.88 *
Strategic Income Fund 8.00 7.63 8.62 7.79
Arizona Tax Free Fund 5.32 * 5.72 4.97
California Intermediate Tax Free Fund 3.79 * 3.89 *
California Tax Free Fund 4.94 * 5.32 4.65
Colorado Intermediate Tax Free Fund 4.21 * 4.31 *
Colorado Tax Free Fund 5.24 * 5.63 4.86
Intermediate Tax Free Fund 4.30 * 4.41 *
Minnesota Intermediate Tax Free Fund 4.10 * 4.21 *
Minnesota Tax Free Fund 4.64 * 5.02 4.34
Oregon Intermediate Tax Free Fund 4.15 * 4.26 *
Tax Free Fund 4.93 * 5.31 4.61
</TABLE>
------------------------
* Not in operation during the fiscal year ended September 30, 2000.
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 2001. 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%, 34.2%,
39.0% and 42.4% combined federal/Colorado rates assume that the investor is
subject to a 4.63% Colorado income tax rate and a marginal federal income tax
rate of 28%, 31%, 36% and 39.6%, respectively. The 33.7%, 36.4%, 41.0%, and
44.3% combined federal/Minnesota rates assume that the investor is subject to an
7.85% 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 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.
TAX-EQUIVALENT YIELDS
<TABLE>
<CAPTION>
FEDERAL TAX BRACKETS COMBINED FEDERAL AND COMBINED FEDERAL AND
ARIZONA TAX BRACKETS CALIFORNIA TAX BRACKETS
Tax-Free 28% 31% 36% 39.6% 31.6% 34.5% 39.2% 42.7% 34.7% 37.4% 42.0% 45.2%
Yields
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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>
76
<PAGE>
<TABLE>
<CAPTION>
COMBINED FEDERAL AND COMBINED FEDERAL AND COMBINED FEDERAL AND
COLORADO TAX BRACKETS MINNESOTA TAX BRACKETS OREGON TAX BRACKETS
Tax-Free 31.4% 34.2% 39.0% 42.4% 33.7% 36.4% 41.0% 44.3% 34.5% 37.2% 41.8% 45.0%
Yields
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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 6.9 6.0 6.3 6.8 7.2 6.11 6.37 6.87 7.27
4.5 .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 7.5 7.9 8.5 9.0 7.63 7.96 8.59 9.09
5.5 8.0 8.4 9.0 9.5 8.3 8.6 9.3 9.9 8.40 8.76 9.45 10.00
6.0 8.7 9.1 9.8 10.4 9.0 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,
42.4% for Colorado, 44.3% 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, 2000, computed as described above, were as follows:
CLASS A CLASS C CLASS Y
Arizona Tax Free Fund 9.29 8.67 9.98
California Intermediate Tax Free Fund 6.92 * 7.10
California Tax Free Fund 9.01 8.49 9.71
Colorado Intermediate Tax Free Fund 7.31 * 7.48
Colorado Tax Free Fund 9.10 8.44 9.77
Intermediate Tax Free Fund 7.12 * 7.30
Minnesota Intermediate Tax Free Fund 7.36 * 7.56
Minnesota Tax Free Fund 8.33 7.79 9.01
Oregon Intermediate Tax Free Fund 7.55 * 7.75
Tax Free Fund 8.16 7.63 8.79
-------------------------------
* Not in operation during the fiscal year ended September 30, 2000.
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, 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, 2000, 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 2.73 2.16 2.12 3.12
Equity Income Fund 1.62 1.09 1.09 1.93
Equity Index Fund 0.57 0.05 0.05 0.84
Large Cap Growth Fund -- -- -- --
Large Cap Value Fund 0.79 0.27 0.31 1.09
77
<PAGE>
Mid Cap Growth Fund -- -- -- --
Mid Cap Value Fund 0.51 0.12 0.15 0.74
Small Cap Growth Fund -- -- -- --
Small Cap Value Fund -- -- -- 0.01
Emerging Markets Fund -- -- -- --
International Fund -- -- -- --
Health Sciences Fund -- -- -- 0.01
Real Estate Securities Fund 6.02 5.69 4.47 6.57
Technology Fund -- -- -- --
Corporate Bond Fund 4.49 4.35 4.26 4.83
Fixed Income Fund 5.43 4398 5.03 5.90
Intermediate Term Income Fund 5.43 * * 5.72
Limited Term Income Fund 5.43 * * 5.65
Strategic Income Fund 7.17 6.79 7.04 7.74
Arizona Tax Free Fund 3.35 * 3.19 3.57
California Intermediate Tax Free Fund 4.19 * * 4.29
California Tax Free Fund 3.18 * 2.98 3.40
Colorado Intermediate Tax Free Fund 4.54 * * 4.66
Colorado Tax Free Fund 3.26 * 3.15 3.48
Intermediate Tax Free Fund 4.51 * * 4.64
Minnesota Intermediate Tax Free Fund 4.45 * * 4.59
Minnesota Tax Free Fund 5.02 * 4.73 5.39
Oregon Intermediate Tax Free Fund 4.29 * * 4.40
Tax Free Fund 4.92 * 4.63 5.28
--------------------------------
* Not in operation during the fiscal year ended September 30, 2000.
ANNUALIZED CURRENT DISTRIBUTION RATES. The Funds' annualized current
distribution rates are computed by dividing a Fund's income dividends for a
specified month (or three-month period, in the case of an Equity Fund) by the
number of days in that month (or three-month period, in the case of an Equity
Fund) and multiplying by 365, and dividing the resulting figure by the maximum
offering price on the last day of the specified period. The annualized current
distribution rates for the one or three-month period (as appropriate) ended
September 30, 2000, for the Funds were as set forth below.
CLASS A CLASS B CLASS C CLASS Y
Balanced Fund 2.47 1.90 1.94 2.85
Equity Income Fund 0.43 -- -- 0.69
Equity Index Fund 0.55 -- -- 0.83
Large Cap Growth Fund -- -- -- --
Large Cap Value Fund 0.64 -- 0.06 0.92
Mid Cap Growth Fund -- -- -- --
Mid Cap Value Fund 0.99 0.37 0.38 1.28
Small Cap Growth Fund -- -- -- --
Small Cap Value Fund -- -- -- --
Emerging Markets Fund -- -- -- --
International Fund -- -- -- --
Health Sciences Fund -- -- -- --
Real Estate Securities Fund 5.31 4.85 5.39 5.84
Technology Fund -- -- -- --
Corporate Bond Fund 6.93 6.54 6.52 7.48
Fixed Income Fund 5.47 5.02 4.99 5.95
Intermediate Term Income Fund 5.59 * * 5.90
Limited Term Income Fund 6.12 * * 6.42
Strategic Income Fund 7.50 7.17 7.38 8.07
Arizona Tax Free Fund 7.50 7.17 7.38 8.07
78
<PAGE>
California Intermediate Tax Free Fund 4.91 * 4.62 5.28
California Tax Free Fund 4.72 * 4.39 5.07
Colorado Intermediate Tax Free Fund 4.78 * * 4.91
Colorado Tax Free Fund 4.82 * 4.60 5.18
Intermediate Tax Free Fund 4.58 * * 4.70
Minnesota Intermediate Tax Free Fund 4.54 * * 4.67
Minnesota Tax Free Fund 5.05 * 4.79 5.42
Oregon Intermediate Tax Free Fund 4.32 * * 4.44
Tax Free Fund 5.01 * 4.71 5.38
-------------------------------
* Not in operation during the fiscal year ended September 30, 2000.
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.
CLASS A CLASS C CLASS Y
Arizona Tax Free Fund 8.57 8.06 9.21
California Intermediate Tax Free Fund 7.88 * 8.07
California Tax Free Fund 8.61 8.01 9.25
Colorado Intermediate Tax Free Fund 8.30 * 8.52
Colorado Tax Free Fund 8.37 7.99 8.99
Intermediate Tax Free Fund 7.58 * 7.78
Minnesota Intermediate Tax Free Fund 8.15 * 8.38
Minnesota Tax Free Fund 9.07 8.60 9.73
Oregon Intermediate Tax Free Fund 7.85 * 8.07
Tax Free Fund 8.29 7.80 8.91
---------------------------
* Not in operation during the fiscal year ended September 30, 2000.
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 stripped 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.
79
<PAGE>
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.
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 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.
80
<PAGE>
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 trusts for Minnesota income tax purposes if a
court determines that Minnesota's exemption of such interest unlawfully
discriminates against interstate commerce because interest on obligations of
governmental issuers located in other states is so included. This provision
applies to taxable years that begin during or after the calendar year in which
any such court decision becomes final, irrespective of the date on which the
obligations were issued. Minnesota 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 provision.
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 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.
For each Fund, the sales charge discount will be determined by adding
(i) the purchase price (including sales charge) of the Fund shares that are
being purchased, plus (ii) the purchase price of the Class A shares of any other
First American fund (other than a money market fund) that you are concurrently
purchasing, plus (iii) the higher of the current net asset value or the original
purchase price of Class A shares of the Fund or any other First American fund
(other than a money market fund) that your already own. In order for an investor
to receive the sales charge reduction on Class A Shares, the Fund 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, in the aggregate,
at least $50,000 of Class A shares in the Funds and other First American funds
(other than money market 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 Funds' maximum sales charge rate of
the total amount intended to be purchased in escrow (in shares) 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 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
81
<PAGE>
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(k), 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.
Class A Shares may also be purchased without a sales charge by 401(k),
403(b) and 457 plans, and Profit sharing and Pension plans, which have 200 or
more eligible participants. Your representative must notify the Fund if your
retirement/deferred compensation plan is eligible for the sales load waiver. A
contingent deferred sales charge of 1.00% will be imposed if all 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 of the Funds (except Equity Index Fund) equal to 1.00%
of the first $3 million, 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.
In addition, Class A Shares may be purchased without a sales charge by
bundled retirement plans and Simple IRA plans sponsored by U.S. Bank and sold by
an affiliate, and SEP IRA plans sold by an affiliate.
If Class A Shares of a Fund have been redeemed, the shareholder has a
one-time right, within 180 days, to reinvest the redemption proceeds in Class A
Shares of any First American fund at the next-determined net asset value without
any sales charge. The Fund 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 as of the close of regular trading on
the New York Stock Exchange (usually 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. The
Funds may limit telephone redemption requests to $50,000 per day.
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 Administrator 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 Administrator and the Funds will
82
<PAGE>
each employ reasonable procedures to confirm that instructions communicated are
genuine. These procedures may include taping of telephone conversations. To
ensure authenticity of redemption or exchange instructions received by
telephone, the Administrator examines each shareholder request by verifying the
account number and/or tax identification number at the time such request is
made. The Administrator subsequently sends confirmation of both exchange sales
and exchange purchases to the shareholder for verification. If reasonable
procedures are not employed, the Administrator 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 Administrator, 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. Unless another form of payment is requested, a check for
redemption proceeds normally is mailed within three days, but in no event more
than seven days, after receipt of a proper written redemption request.
Shareholders requesting a redemption of $50,000 or more, a redemption
of any amount to be sent to an address other than that on record with the Fund,
or a redemption payable other than to the shareholder of record, must have
signatures on written redemption requests guaranteed by:
* a trust company or commercial bank the deposits of which are
insured by the Bank Insurance Fund, which is administered by
the Federal Deposit Insurance Corporation ("FDIC");
* a member firm of the New York, American, Boston, Midwest, or
Pacific Stock Exchanges or of the National Association of
Securities Dealers;
* a savings bank or savings and loan association the deposits of
which are insured by the Savings Association;
* 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 Administrator 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 Administrator 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 Administrator is reasonably certain that the purchase
payment has cleared, which could take up to fifteen 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
83
<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 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.
84
<PAGE>
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 he 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, (2) designate securities which can be bought for
possible upgrading in quality, and (3) 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 issues rated "AAA."
A: An issue rated "A" is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more susceptible
to the adverse effects of changes in circumstances and economic
conditions.
BBB: An issue rated "BBB" is regarded as backed by an adequate capacity
to pay the preferred stock obligations. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to make
payments for a preferred stock in this category than for issues in the
category.
MOODY'S. 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.
85
<PAGE>
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.
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.
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.
86
<PAGE>
PRIME-2: Strong capacity for repayment.
PRIME-3: Acceptable capacity for repayment.
None of the Funds will purchase Prime-3 commercial paper.
FINANCIAL STATEMENTS
The financial statements of FAIF included in its annual report to
shareholders dated September 30, 2000 are incorporated herein by reference.
87
<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, Filed on April 15,
1998 (File Nos. 33-16905, 811-05309)).
(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, Filed on
May 15, 1995 (File Nos. 33-16905, 811-05309)).
* (d)(2) Amendment No. 11 to Investment Advisory Agreement.
* (d)(3) Supplement to Advisory Agreement Relating to International
Fund dated December 31, 1993.
* (d)(4) Supplement to Advisory Agreement Relating to Emerging Markets
Fund dated July 23, 1998.
* (d)(5) Supplement to Advisory Agreement Relating to Strategic Income
Fund dated July 24, 1998.
(d)(6) 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,
Filed on May 15, 1995 (File Nos. 33-16905, 811-05309)).
(d)(7) 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,
Filed on July 31, 1998 (File Nos. 33-16905, 811-05309)).
(d)(8) 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, Filed on July
31, 1998 (File Nos. 33-16905, 811-05309)).
(d)(9) Amendment No. 1 to Sub-Advisory Agreement dated December 31,
1997 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, Filed on February 2, 1998 (File Nos.
33-16905, 811-05309)).
<PAGE>
(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, Filed on May 15, 1995
(File Nos. 33-16905, 811-05309)).
* (e)(2) Amendment No. 1 to the Distribution Agreement dated October
16, 1998.
(e)(3) 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, Filed on
May 15, 1995 (File Nos. 33-16905, 811-05309)).
(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, Filed on February 1, 1999 (File Nos.
33-16905, 811-05309)).
* (e)(4) Form of Dealer Agreement.
* (f) Deferred Compensation Plan for Directors Trust Agreement dated
January 1, 2000.
(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 (File Nos.
33-16905, 811-05309)).
(g)(2) Supplement dated March 15, 1994, to Custodian Agreement dated
September 20, 1993 (File Nos. 33-16905, 811-05309).
(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, Filed on
July 31, 1998 (File Nos. 33-16905, 811-05309)).
* (g)(4) Compensation Agreement dated February 25, 2000, 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, Filed on December 2, 1998 (File Nos.
33-16905, 811-05309)).
(g)(6) Further Supplement to Custodian Agreement dated December 8,
1999 (Incorporated by reference to Exhibit (g)(6) to
Post-Effective Amendment No. 44, Filed on January 28, 2000
(File Nos. 33-16905, 811-05309)).
<PAGE>
(h)(1) Administration Agreement dated January 1, 2000, by and between
U.S. Bank National Association and First American Investment
Funds, Inc. (Incorporated by reference to Exhibit (h)(1)) to
Post-Effective Amendment No. 44, Filed on January 28, 2000
(File Nos. 33-16905, 811-05309)).
(i)(2) Opinion and Consent of Dorsey & Whitney (Incorporated by
reference to Exhibit (10)(a) to Post-Effective Amendment No.
15 (File Nos. 33-16905, 811-05309)).
(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, Filed on July 24, 1998 (File
Nos. 33-16905, 811-05309)).
(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, Filed on July 31,
1998 (File Nos. 33-16905, 811-05309)).
(i)(5) Opinion and Consent of Dorsey & Whitney, LLP with respect to
Arizona Tax Free Fund (II), California Tax Free Fund (JJ),
Colorado Tax Free Fund (KK) and Corporate Bond Fund (LL)
(Incorporated by reference to Exhibit (I)(5) to Post-Effective
Amendment No. 44, Filed on January 28, 2000 (File Nos.
33-16905, 811-05309)).
(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, Filed on May 15, 1995 (File
Nos. 33-16905, 811-05309)).
* (j)(2) Consent of Ernst & Young LLP.
(j)(3) Consent of KPMG Peat Marwick LLP (Incorporated by reference to
Exhibit (j)(3) to Post-Effective Amendment No. 44 on January
28, 2000 (File No. 33-16905, 811-0530).
(k) Not applicable.
(l) Not applicable.
* (m)(1) Distribution Plan [Class A], Retail Class.
(m)(2) Distribution Plan [Class B] Contingent Deferred Sales Change
Class. (Incorporated by reference to Exhibit 15(b) to
Post-Effective Amendment No. 21, Filed on May 15, 1995 (File
Nos. 33-16905, 811-05309)).
(m)(3) Service Plan [Class B] (Incorporated by reference to Exhibit
(15)(c) to Post-Effective Amendment No. 21, Filed on May 15,
1995 (File Nos. 33-16905, 811-05309)).
<PAGE>
(m)(4) Distribution Plan [Class C] Level-Load Class (Incorporated by
reference to Exhibit (m)(4) to Post-Effective Amendment No.
42, Filed on February 1, 1999 (File Nos. 33-16905,
811-05309)).
(m)(5) Service Plan [Class C] (Incorporated by reference to Exhibit
(m)(5) to Post-Effective Amendment No. 42, Filed on February
1, 1999 (File Nos. 33-16905, 811-05309)).
(n)(1) Multiple Class Plan Pursuant to Rule 18f-3, dated June 14,
1995, as amended September 1999.
(o) Reserved.
* (p)(1) First American Funds Code of Ethics.
* (p)(2) First American Asset Management Code of Ethics.
* (p)(3) Marvin & Palmer Associates, Inc. Code of Ethics.
* (p)(4) Federated Investors, Inc. Code of Ethics.
* (p)(5) SEI Investments Company Code of Ethics.
* Filed herewith
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).
<PAGE>
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 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 September 30, 2000.
<TABLE>
<CAPTION>
OTHER POSITIONS AND OFFICES
NAME POSITIONS AND OFFICES WITH U.S. BANK AND PRINCIPAL BUSINESS ADDRESS
---- ------------------------------------ ------------------------------
<S> <C> <C>
John F. Grundhofer Chairman and Chairman and
Chief Executive Officer Chief Executive Officer of
U.S. Bancorp(1)
Philip G. Heasley Director, President and Chief Operating President and Chief Operating
Officer Officer of U.S. Bancorp(1)
Andrew J. Cecere Director and Vice Chairman of U.S. Bank Chief Financial Officer of
U.S. Bancorp
Commercial Services(1)
Andrew S. Duff Vice Chairman of U.S. Bank Wealth Management and Capital
Markets(2)
Daniel J. Frate Vice Chairman of U.S. Bank President of Payment Systems(1)
J. Robert Hoffmann Director, Executive Vice President Executive Vice President
and Chief Credit Officer and Chief Credit Officer of
U.S. Bancorp(1)
<PAGE>
Peter G. Michielutti Executive Vice President of U.S. Bank Information Services(3)
Lee R. Mitau Director, Executive Vice President - Executive Vice President -
Corporate Development, Corporate Development,
General Counsel and Secretary General Counsel and Secretary
of U.S. Bancorp(1)
Daniel M. Quinn Vice Chairman of U.S. Bank Commercial Banking(4)
Peter E. Raskind Director and Vice Chairman of U.S. Bank Branch and Telephone Banking(1)
Daniel C. Rohr Vice Chairman of U.S. Bank Corporate Banking(1)
Robert H. Sayre Executive Vice President Executive Vice President of
Human Resources U.S. Bancorp
Human Resources(1)
Daniel W. Yohannes Vice Chairman of U.S. Bank Consumer Banking(5)
</TABLE>
---------------------------
(1) 601 Second Avenue South, Minneapolis, MN 55402
(2) 800 Nicollet Mall, Minneapolis, MN 55402
(3) 2751 Shepard Road, St. Paul, MN 55116
(4) 918 17th Street, Denver, CO 80202
(5) 950 17th Street, Denver, CO 80202
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 Daily Income Trust, SEI Liquid Asset
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, 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., CNI Charter Funds,
The Armada Advantage Funds, Amerindo Funds Inc., Huntington VA Funds, Friends
Ivory Funds, iShares Inc., SEI Insurance Products Trust, iShares Trust, Pitcairn
Funds, and First Omaha Funds, Inc. pursuant to distribution agreements dated
July 15, 1982, November 29, 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, July 16, 1993,
December 27, 1994, January 27, 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, April 1, 1999, May 1, 1999, July 13, 1999,
October 15, 1999,
<PAGE>
December 16, 1999, January 28, 2000, March 29, 2000, April 25, 2000, August 1,
2000 and October 1, 2000, 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.
POSITIONS AND OFFICES POSITIONS AND OFFICES
NAME WITH THE UNDERWRITER WITH REGISTRANT
---- -------------------- ---------------
Alfred P. West, Jr. Director, Chairman --
of the Board of Directors
Richard B. Lieb Director, Executive Vice President --
Carmen V. Romeo Director --
Mark J. Held President & Chief Operating Officer --
Dennis J. McGonigle Executive Vice President --
Robert M. Silvestri Chief Financial Officer & Treasurer --
Todd Cipperman Senior Vice President --
& General Counsel
Leo J. Dolan, Jr. Senior Vice President --
Carl A. Guarino Senior Vice President --
Jack May Senior Vice President --
Hartland J. McKeown Senior Vice President --
Kevin P. Robins Senior Vice President --
Patrick K. Walsh Senior Vice President --
Wayne M. Withrow Senior Vice President --
Robert Aller Vice President --
John D. Anderson Vice President & Managing Director --
Timothy D. Barto Vice President & Assistant Secretary --
Robert Crudup Vice President & Managing Director --
Richard A. Deak Vice President & Assistant Secretary --
Scott W. Dellorfano Vice President & Managing Director --
Barbara Doyne Vice President --
Jeff Drennen Vice President --
Scott C. Fanatico Vice President & Managing Director --
Vic Galef Vice President & Managing Director --
Steven A. Gardner Vice President & Managing Director --
Lydia A. Gavalis Vice President & Assistant Secretary --
Greg Gettinger Vice President & Assistant Secretary --
Kathy Heilig Vice President --
Jeff Jacobs Vice President --
Samuel King Vice President --
John Kirk Vice President & Managing Director --
Kim Kirk Vice President & Managing Director --
John Krzeminski Vice President & Managing Director --
Alan H. Lauder Vice President --
<PAGE>
Paul Lonergan Vice President & Managing Director --
Ellen Marquis Vice President --
Christine M. McCullough Vice President & Assistant Secretary --
Carolyn McLaurin Vice President & Managing Director --
Mark Nagle Vice President --
Joanne Nelson Vice President --
Cynthia M. Parrish Vice President & Secretary --
Rob Redican Vice President --
Maria Rinehart Vice President --
Steve Smith Vice President --
Daniel Spaventa Vice President --
Kathryn L. Stanton Vice President --
Lori L. White Vice President & Assistant Secretary --
William E. Zitelli, Jr. Vice President & Assistant Secretary --
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.
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(b) of the Securities Act of 1933, as amended, and has duly caused
this Post-Effective Amendment to its Registration Statement Nos. 33-16905 and
811-05309 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Minneapolis, State of Minnesota, on the 28th day of
December, 2000.
FIRST AMERICAN INVESTMENT FUNDS, INC.
ATTEST: /s/ Jeffery M. Wilson By: /s/ Christopher J. Smith
-------------------------------- --------------------------------
Jeffery M. Wilson Christopher J. Smith
Senior Vice President Secretary
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.
<PAGE>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Jeffery M. Wilson Senior Vice President **
----------------------------
Jeffery M. Wilson
* 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/ Christopher J. Smith
--------------------------
Christopher J. Smith
Attorney-in-Fact
** December 28, 2000
