PROSPECTUS
FIRST AMERICAN MUTUAL FUNDS
MANAGED INCOME FUND
680 EAST SWEDESFORD ROAD, WAYNE, PENNSYLVANIA 19087
The shares of the Managed Income Fund (the "Fund") offered by this prospectus
represent interests in a professionally managed, diversified portfolio of
First American Mutual Funds (the "Trust"), an open-end, management investment
company (a mutual fund).
The investment objective of the Fund is to provide current income while
attempting to provide a high degree of principal stability.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, INCLUDING FIRST BANK NATIONAL ASSOCIATION AND ANY OF
ITS AFFILIATES, NOR ARE THEY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. AN INVESTMENT IN
THE FUND INVOLVES INVESTMENT RISK INCLUDING THE POSSIBLE LOSS OF PRINCIPAL,
DUE TO FLUCTUATIONS IN THE FUND'S NET ASSET VALUE.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated July 5,
1994 with the Securities and Exchange Commission. The information contained
in the Statement of Additional Information is incorporated by reference into
this prospectus. You may request a copy of the Statement of Additional
Information free of charge, obtain other information, or make inquiries about
the Fund by calling (800) 637-2548, or by writing SEI Financial Management
Corporation, 680 East Swedesford Road, Wayne, Pennsylvania 19087.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated July 5, 1994
TABLE OF CONTENTS
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Topic Page
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Fees and Expenses 3
Financial Highlights 5
General Information 6
Investment Information 6
First American Mutual Funds 14
Information
Administration of the Fund 16
Net Asset Value 17
Investing in the Fund 17
Exchange Privilege 22
Redeeming Share 23
Shareholder Information 25
Effect of Banking Laws 25
Tax Information 26
Performance Information 26
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FEES AND EXPENSES
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SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases 2.00%
(as a percentage of offering price)
Maximum Sales Load Imposed on Reinvested None
Dividends (as a percentage of offering price)
Deferred Sales Load (as a percentage of original purchase price None
or
redemption proceeds, as applicable)
Redemption Fee (as a percentage of amount redeemed, if None
applicable)
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES*
(As a percentage of average net assets)
Management Fee (after waiver)(1) 0.22%
12b-1 Fees(2) 0.00%
Total Other Expenses 0.38%
TOTAL FUND OPERATING EXPENSES(3) 0.60%
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(1) The estimated management fee has been reduced to reflect the anticipated
voluntary waiver by the investment adviser. The adviser can terminate this
voluntary waiver at any time at its sole discretion. The maximum management
fee is 0.70% absent the anticipated voluntary waiver by the adviser.
(2) As of the date of this prospectus, the Fund is not paying or accruing
12b-1 fees. The Fund will not accrue or pay 12b-1 fees until a separate class
of shares has been created for certain institutional investors. The Fund can
pay up to 0.25% as a 12b-1 fee to the distributor.
(3) The Annual Fund Operating Expenses were 0.65% for the period ending
November 30, 1993. The Annual Fund Operating Expenses in the table above are
based on estimated annualized expenses expected during the fiscal period
ending September 30, 1994 (the Fund's new fiscal year end). Total Annual Fund
Operating Expenses are estimated to be 1.08% absent the anticipated voluntary
waiver described above in note (1).
* Expenses in this table are estimated based on average annualized expenses
expected to be incurred during the fiscal period ending September 30, 1994.
During the course of this period, expenses may be more or less than the
average amount shown.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS
AND EXPENSES, SEE "FIRST AMERICAN MUTUAL FUNDS INFORMATION" AND "INVESTING IN
THE FUNDS."
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Example 1 year 3 years 5 years 10 years
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You would pay the following expenses on a $1,000 $26 $39 $53 $94
investment assuming (1) 5% annual return; (2)
redemption at the end of each time period; and (3)
payment of the maximum sales load of 2.00%. The Fund
charges no redemption fees
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Absent fee waivers, the dollar amounts for the 1, 3, 5 and 10 year periods
above would be $31, $54, $78 and $149.
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED ANNUALIZED DATA FOR THE FISCAL PERIOD ENDING
SEPTEMBER 30, 1994.
MANAGED INCOME FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
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YEAR ENDED
NOVEMBER 30,
1993*
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NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
Income from investment operations
Net investment income 0.61
Net realized and unrealized loss on investments (0.23)
Total from investment operations 0.38
Less Distributions
Dividends to shareholders from net investment (0.60)
income
NET ASSET VALUE, END OF PERIOD $ 9.78
Total return** 3.88%
Ratios to average net assets
Expenses 0.65%(a)
Net investment income 6.69%(a)
Expense waiver/reimbursement (b) 42% (a)
Supplemental Data
Net assets, end of period (000 omitted) $73,748
Portfolio turnover rate 39%
</TABLE>
* Reflects operations for the period from December 18, 1992 (date of initial
public investment) to November 30, 1993. For the period from the start of
business, November 17, 1992 to December 18, 1992, net investment income
aggregating $0.03 per share ($273) was distributed to Federated
Administrative Services.
** Based on net asset value, which does not reflect the sales load or
redemption fee, if applicable.
(a) Computed on an annualized basis.
(b) This expense decrease is reflected in both the expense and net investment
income ratios shown above.
Further information about the Fund's performance is contained in the Fund's
annual report dated November 30, 1993, which can be obtained free of charge.
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a
Declaration of Trust dated August 3, 1992. The Declaration of Trust permits
the Trust to offer separate series of shares of beneficial interest
representing interests in separate portfolios of securities. The shares in
any one portfolio may be offered in separate classes.
The Fund is designed primarily for retail and trust customers of First Bank
National Association and its affiliates as a convenient means of
participating in a professionally managed, diversified portfolio of debt
instruments. In most cases, a minimum initial investment of $1,000 is
required. See "Minimum Investment Required."
Fund shares are sold at net asset value plus an applicable sales charge and
are redeemed at net asset value.
INVESTMENT INFORMATION
OBJECTIVE.
The investment objective of the Fund is to provide current income while
attempting to provide a high degree of principal stability. This
investment objective cannot be changed without the approval of the Fund's
shareholders. While there is no assurance that the Fund will achieve its
investment objective, it endeavors to do so by following the investment
policies described in this prospectus.
INVESTMENT POLICIES.
The Fund invests in a portfolio of investment grade securities, at least
65% of which will normally consist of U.S. Government obligations and
corporate debt obligations and mortgage related securities rated in one of
the four highest categories by a nationally recognized statistical rating
organization referred to below. A description of the ratings categories is
contained in the Statement of Additional Information. The Fund's portfolio
securities will have a weighted average maturity of six months to two
years.
The permitted investments include notes, bonds, and discount notes of U.S.
Government agencies or instrumentalities; domestic issues of corporate
debt obligations having floating or fixed rates of interest and rated Aaa,
Aa, A, or Baa by Moody's Investor Services, Inc. ("Moody's"); AAA, AA, A,
or BBB by Standard & Poor's Corporation ("Standard & Poor's"), or AAA, AA,
A, or BBB by Fitch Investors Service, Inc. ("Fitch"), or which are of
comparable quality in the judgment of the Adviser; other investments
including mortgage-related securities rated in one of the four highest
categories by a nationally recognized statistical rating organization
listed above or which are of comparable quality in the judgment of the
Adviser; rated commercial paper which matures in 270 days or less so long
as at least two ratings of such paper are high quality ratings by
nationally recognized statistical rating organizations (such ratings would
include: Prime-1 or Prime-2 by Moody's, A-1 or A-2 by Standard & Poor's,
or F-1 or F-2 by Fitch); time and savings deposits, deposit notes and
bankers acceptances (including certificates of deposit) in commercial or
savings banks whose accounts are insured by the Bank Insurance Fund or the
Savings Association Insurance Fund, both of which are administered by the
Federal Deposit Insurance Corporation ("FDIC"), including certificates of
deposit issued by and other time deposits in foreign branches of FDIC
insured banks or which have at least $100,000,000 in capital; and
repurchase agreements. If any security invested in by the Fund loses its
rating or has its rating reduced after the Fund has purchased it, the Fund
is not required to sell or otherwise dispose of the security, but may
consider doing so.
The Fund invests in mortgage-related securities as described below.
The Fund may invest in obligations representing an undivided interest in a
pool of residential mortgages or collateralized by a pool of residential
mortgages, which obligations are issued or guaranteed by the U.S.
Government or one of its agencies or instrumentalities (such as Government
National Mortgage Association ("GNMA") and the Federal National Mortgage
Association ("FNMA"). The Fund may also invest in collateralized mortgage
obligations ("CMOs") and Adjustable Rate Mortgage Securities ("ARMS") that
meet the investment criteria set forth below. CMOs are bonds issues by
single purpose stand-alone finance subsidiaries or trusts of financial
institutions, government agencies, investment bankers or companies related
to the construction industry. ARMS are pass-through mortgage securities
representing interests in adjustable rather than fixed interest rate
mortgages. The Fund will invest only in CMOs which are rated in the
highest rating category by Moody's, Standard & Poor's or Fitch and are
either (i) collateralized by pools of mortgages in which each mortgage is
guaranteed as to payment of principal and interest either (a) by an agency
or instrumentality of the U.S. Government or (b) by the issuer, with the
guaranty collateralized by U.S. Government securities, or (ii) securities
in which the proceeds of the issuance are invested in mortgage securities
and the payment of the principal and interest is supported by the credit
of an agency of instrumentality of the U.S. Government. The ARMS in which
the Fund may invest are insured by GNMA, FNMA and the Federal Home Loan
Mortgage Corporation, and are actively traded. See "Investment Techniques
and Risk Factors -- About Mortgage-Related Securities" for a discussion of
the risks associated with investment in mortgage-related securities.
The Fund may also invest in asset-backed securities, which include
securities secured by company receivables, truck and auto loans, leases,
home equity loans and credit card receivables. Such securities are
generally issued as pass-through certificates which represent undivided
interests in the underlying pools of assets. For a discussion of risks
associated with investing in asset-backed securities, see "Investment
Techniques and Risk Factors -- About Asset-Backed Securities."
In addition, the Fund may invest up to 15% of its total assets in
interest-only, principal-only and inverse floating rate securities. For
information concerning interest-only and principal-only securities and
inverse floating rate securities and the risks associated therewith, see
"Investment Techniques and Risk Factors -- About Mortgage-Related
Securities" and "About Inverse Floating Rate Securities" in this
prospectus and the Statement of Additional Information.
The Fund may only invest in bank instruments either issued by an
institution having capital, surplus and undivided profits over $100
million or insured by the Bank Insurance Fund or the Savings Association
Insurance Fund. Bank instruments may include Eurodollar Certificates of
Deposit issued by foreign branches of U.S. or foreign banks; Eurodollar
Time Deposits, which are U.S. dollar-denominated deposits in foreign
branches of U.S. or foreign banks, and Yankee Certificates of Deposit,
which are U.S. dollar-denominated certificates of deposit issued by U.S.
branches of foreign banks and held in the United States. Investments in
foreign securities may entail certain risks not associated with
investments in securities of U.S. issuers. See "Investment Techniques and
Risk Factors -- About Investing in Foreign Securities" for a discussion of
these risks.
In order to reduce risk, the Fund may invest in exchange traded options on
interest rate indices and write covered call options on interest rate
indices. See "Investment Techniques and Risk Factors -- About Options
Transactions."
The Fund may invest up to 15% of its total assets in foreign securities
payable in United States dollars, and in debt securities which are
convertible into or exchangeable or which carry warrants or rights to
purchase common stock or other equity interests. See "Investment
Techniques and Risk Factors -- About Investing in Foreign Securities" for
a description of certain risks which purchasing foreign securities may
involve.
The Fund may also for defensive purposes invest temporarily in cash and
cash items during times of unusual market conditions to maintain
liquidity.
The Fund may also purchase investment-type insurance products such as
Guaranteed Investment Contracts ("GlCs"). 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. GlCs may have fixed or
variable interest rates. Generally, a GIC allows a purchaser to buy an
annuity with the moneys accumulated under the contract (however, the Fund
does not anticipate purchasing any such annuities). 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. Generally, GlCs
are not assignable or transferable without the permission of the issuing
insurance companies. For this reason, an active secondary market in GlCs
does not currently exist nor is an active secondary market expected to
develop. Furthermore, GlCs generally can be redeemed before maturity only
at a substantial discount or penalty. Therefore, GlCs are usually
considered to be illiquid investments. Accordingly, if the purchase of
such a product would result in the total amount invested in such products
and all other illiquid securities exceeding 15% of the Fund's net assets,
the purchase shall not be made. Such products shall be obligations only of
insurance companies with a policyholder's rating of A or better by A.M.
Best Company. A description of these ratings is contained in the Statement
of Additional Information.
INVESTMENT TECHNIQUES AND RISK FACTORS
About Option Transactions. The Fund may purchase put and call options on
financial (interest rate) futures contracts traded on commodity exchanges,
and interest rate indices (if and when traded on options exchanges), solely
as a hedge against adverse changes resulting from market conditions in the
values of securities held in the Fund's portfolio or which it intends to
purchase and where the transactions are deemed appropriate to the reduction
of risks inherent in the Fund's portfolio or contemplated investments. The
Fund may purchase put options as a hedge against declines in the market value
of its portfolio in declining markets, and call options as a hedge against
increases in the purchase prices of securities in rising markets.
The Fund will not invest more than 5% of the value of its total respective
assets in purchased options, provided that options which are "in the money"
at the time of purchase may be excluded from such 5% investment limitation. A
call option is "in the money" if the exercise price is lower than the current
market price, and a put option is "in the money" if the exercise price is
higher than the current market price.
The Fund's loss exposure in purchasing an option is limited to the sum of the
premium paid (purchase price of the option) and the commission or other
transaction expenses associated with acquiring the option. The Fund's loss
exposure in writing a call option is limited to the cash difference between
the closing level of the index upon which the option is based on the day of
exercise and the exercise price of the option. Additional information with
respect to options, is set forth in the Statement of Additional Information.
About Repurchase Agreements. A repurchase agreement involves the purchase by
the Fund of securities with the condition that after a stated period of time
(normally only one or two days) 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. In the event the original seller defaults on its obligation to
repurchase, as a result of its bankruptcy or otherwise, the Fund will seek to
sell the collateral, which action could involve costs or delays. In such
case, the Fund's ability to dispose of the collateral to recover such
investment may be restricted or delayed. While collateral (which may consist
of any fixed income security which is an eligible investment for the Fund
executing the repurchase agreement) will at all times be maintained in an
amount equal to the repurchase price under the agreement (including accrued
interest due thereunder), to the extent proceeds from the sale of collateral
were less than the repurchase price, the Fund would suffer a loss. In no
event may the Fund invest in repurchase agreements (other than gestation
repurchase agreements) maturing more than seven days from the date of
acquisition. The Adviser will monitor creditworthiness of the firms with
which the Fund enters into repurchase agreements.
About Portfolio Transactions. Portfolio transactions in the over-the-counter
market will be effected with market makers or issuers, unless better overall
price and execution are available through a brokerage transaction. It is
anticipated that most of the portfolio transactions involving debt securities
will be executed on a principal basis. Also, with respect to the placement of
portfolio transactions with securities firms, subject to the overall policy
to seek to place portfolio transactions as efficiently as possible and at the
best price, research services and placement of orders by securities firms for
the Fund's shares may be taken into account as a factor in placing portfolio
transactions for the Fund. Additional information relating to portfolio
transactions and brokerage is set forth in the Statement of Additional
Information.
ABOUT LENDING OF PORTFOLIO SECURITIES.
In order to generate additional income, the Fund may lend portfolio
securities on a short-term or long-term basis, or both, representing up to
one-third of the value of its total assets to broker/dealers, banks, or
other institutional borrowers of securities. The Fund will only enter into
loan arrangements with broker/dealers, banks, or other institutions which
the Adviser has determined are creditworthy under guidelines established
by the Trustees. In these loan arrangements, the Fund will receive
collateral in the form of cash or United States Government securities
equal to at least 100% of the value of the securities loaned. 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. The
Fund will pay a portion of the income earned on the lending transaction to
the placing broker and may pay administrative and custodial fees in
connection with these loans.
ABOUT WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS.
The Fund may purchase securities on a when-issued or delayed delivery
basis. These transactions are arrangements in which the Fund purchases
securities with payment and delivery scheduled for a future time. In
when-issued and delayed delivery transactions, the Fund relies on the
seller to complete the transaction. The seller's failure to deliver the
securities may cause the Fund to miss a price or yield considered to be
advantageous.
ABOUT INVESTING IN FOREIGN SECURITIES.
The Fund may invest in foreign securities. There may be certain risks
connected with investing in foreign securities. These include risks of
adverse political and economic developments (including possible
governmental seizure or nationalization of assets), the possible
imposition of exchange controls or other governmental restrictions, less
uniformity in accounting and reporting requirements, the possibility that
there will be less information on such securities and their issuers
available to the public, the difficulty of obtaining or enforcing court
judgments abroad, restrictions on foreign investments in other
jurisdictions, difficulties in effecting the repatriation of capital
invested abroad, and difficulties in transaction settlements and the
effect of delay on shareholder equity. Foreign securities may be subject
to foreign taxes, which reduce yield, and may be less marketable than
comparable United States securities. Different risks may also exist for
Eurodollar Certificates of Deposit, Eurodollar Time Deposits and Yankee
Certificates of Deposit because the banks issuing these instruments, or
their domestic or foreign branches, are not necessarily subject to the
same regulatory requirements that apply to domestic banks, such as reserve
requirements, loan limitations, examinations, accounting, auditing,
recordkeeping and the public availability of information. The value of the
Fund's investments denominated in foreign currencies will depend on the
relative strengths of those currencies and the United States dollar, and
the Fund may be affected favorably or unfavorably by changes in the
exchange rates or exchange control regulations between foreign currencies
and the United States dollar. Changes in foreign currency exchange rates
also may affect the value of dividends and interest earned, gains and
losses realized on the sale of securities and net investment income and
gains, if any, to be distributed to shareholders by the Fund.
ABOUT ASSET-BACKED SECURITIES.
The Fund may invest in asset backed securities, which include securities
secured by company receivables, truck and auto loans, leases, home equity
loans and credit card receivables. Such securities are generally issued as
pass-through certificates, which represent undivided fractional interests
in the underlying pools of assets. Such securities also may be debt
instruments, which are known as collateralized obligations and are
generally issued as the debt of a special purpose entity, such as a trust,
organized solely for the purpose of owning such assets and issuing such
debt. The Fund may invest in other asset-backed securities that may be
created in the future if the Adviser determines that they are suitable.
Non-mortgage asset-backed securities are not issued or guaranteed by the
U.S. Government or its agencies or instrumentalities; however, the payment
of principal and interest on such obligations may be guaranteed up to
certain amounts and for a certain time period by a letter of credit issued
by a financial institution (such as a bank or insurance company)
unaffiliated with the issuer of such securities. These issues are traded
on the over-the-counter market and typically have a short-intermediate
maturity structure depending on the paydown characteristics of the
underlying financial assets which are passed through to the security
holder. The purchase of non-mortgage asset-backed securities raises risk
considerations peculiar to the financing of the instruments underlying
such securities. For example, there is a risk of prepayment by the issuer
and due to the manner in which the issuing organizations may perfect their
interests in their respective obligations, there is a risk that another
party could acquire an interest in the obligations superior to that of the
holders of the asset-backed securities. Also, in most states the security
interest in a motor vehicle must be noted on the certificate of title to
perfect a security interest against competing claims of other parties. Due
to the large numbers of vehicles involved, however, the certificate of
title to each vehicle financed, pursuant to the obligations underlying the
asset-backed, usually is not amended to reflect the assignment of the
seller's security interest for the benefit of the holders of the
asset-backed securities. Therefore, there is the possibility that
recoveries on repossessed collateral may not, in some cases, be available
to support payments on those securities. In addition, various state and
Federal laws give the motor vehicle owner the right to assert against the
holder of the owner's obligation certain defenses such owner would have
against the seller of the motor vehicle. The assertion of such defenses
could reduce payments on the related asset-backed securities. Insofar as
credit card receivables are concerned, credit card holders are entitled to
the protection of a number of state and Federal consumer credit laws, many
of which give such holders the right to set off certain amounts against
balances owned on the credit card, thereby reducing the amounts paid on
such receivables. In addition, unlike most other asset-backed securities,
credit card receivables are unsecured obligations of the card holder.
The development of non-mortgage asset-backed securities is at an early
stage compared to mortgage backed securities. While the market for
asset-backed securities is becoming increasingly liquid, the market for
non-mortgage asset-backed securities is not as well developed as that for
mortgage-backed securities guaranteed by government agencies or
instrumentalities. The Adviser intends to limit its purchases of
non-mortgage asset-backed securities to securities that are readily
marketable at the time of purchase.
ABOUT FIXED INCOME SECURITIES.
The Fund is expected to invest in fixed income securities. Fixed income
securities are subject to market risk and, in the case of securities not
issued or guaranteed by the U.S. Government, to credit risk. Changes in
market interest rates or declines in an issuer's credit quality may cause
the value of such fixed income securities to decrease.
ABOUT MORTGAGE-RELATED SECURITIES.
Some of the United States Government securities in which the Fund may
invest will represent an undivided interest in a pool of residential
mortgages or may be collateralized by a pool of residential mortgages
("mortgage-related securities"). Mortgage-related securities have yield
and maturity characteristics corresponding to the underlying mortgages.
Distributions to holders of mortgaged-related securities include both
interest and principal payments. Principal payments represent the
amortization of the principal of the underlying mortgages and any
prepayments of principal due to prepayment, refinancing, or foreclosure of
the underlying mortgages. Although maturities of the underlying mortgage
loans may range up to 30 years, amortization and prepayments substantially
shorten the effective maturities of mortgage-related securities. Due to
these features, mortgage-related securities are less effective as a means
of "locking in" attractive long-term interest rates than fixed-income
securities which pay only a stated amount of interest until maturity, when
the entire principal amount is returned. This is caused by the need to
reinvest at lower interest rates both distributions of principal generally
and significant prepayments which become more likely as mortgage interest
rates decline. Since comparatively high interest rates cannot be
effectively "locked in," mortgage-related securities may have less
potential for capital appreciation during periods of declining interest
rates than other non-callable fixed-income government securities of
comparable stated maturities. However, mortgage-related securities may
experience less pronounced declines in value during periods of rising
interest rates.
In addition, some of the CMOs purchased by the Fund may represent an
interest solely in the principal repayments or solely in the interest
payments on mortgage-related securities (stripped mortgage-backed
securities or "SMBSs"). Due to the possibility of prepayments on the
underlying mortgages, SMBSs may be more interest-rate sensitive than other
securities purchased by the Fund. If prevailing interest rates fall below
the level at which SMBSs were issued, there may be substantial prepayments
on the underlying mortgages, leading to the relatively early prepayments
of principal-only SMBSs and a reduction in the amount of payments made to
holders of interest-only SMBSs. It is possible that the Fund might not
recover its original investment on interest-only SMBSs if there are
substantial prepayments on the underlying mortgages. Therefore,
interest-only SMBSs generally increase in value as interest rates rise and
decrease in value as interest rates fall, counter to changes in value
experienced by most fixed income securities. The Fund's Adviser intends to
use this characteristic of interest-only SMBSs to reduce the effects of
interest rate changes on the value of the Fund's portfolio, while
continuing to pursue current income.
The credit characteristics of mortgage-related securities also differ in a
number of respects from those of traditional debt securities. The credit
quality of most mortgage-related securities depends primarily upon the
credit quality of the assets underlying such securities, how well the
entity issuing the securities is insulated from the credit risk of the
originator or any other affiliated entities, and the amount and quality of
any credit enhancement to such securities.
The Fund may invest in participation interests ("Participation Interests")
in pools of original mortgage loans which have been submitted to a U.S.
Government agency or instrumentality (such as the Government National
Mortgage Association ("GNMA"), the Federal National Mortgage Association
("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC")) for
pooling and securitization. The Fund will invest in Participation
Interests only through repurchase agreements ("Gestation Repurchase
Agreements"), and only if said Participation Interests are deemed to be of
comparable quality to securities that possess a rating in the highest
rating category in the case of a single-rated security or that possess at
least two ratings in the highest rating category in the case of multiple
rated securities, as determined in accordance with procedures established
by the Board of Trustees of the Fund.
In a Gestation Repurchase Agreement, original mortgage loans are presented
by the owner to a U.S. Government agency (GNMA, FNMA or FHLMC) for
securitization. The loans are delivered to a third party custodian who
reviews them. If the loans are deemed acceptable for securitization based
on agency standards and the custodian's own review procedures, the
custodian, on behalf of the owner, delivers Participation Interests in the
loans. In the case of the Fund, these Participation Interests are
purchased by the Fund through repurchase agreement transactions known as
Gestation Repurchase Agreements. The Fund purchases the Participation
Interests subject to an obligation of the seller to repurchase, and of the
Fund to resell, the Participation Interest at a fixed price (the
"Repurchase Price") in 1 to 30 days after its purchase. The Fund or a
sub-custodian will have custody of Participation Interests acquired by the
Fund under a Gestation Repurchase Agreement.
Gestation Repurchase Agreements may provide a higher yield than
conventional repurchase agreements, and, in the case of longer maturities
(30 days), may provide the Fund with a greater yield advantage. Should the
issuer of the Participation Interests become bankrupt, the Fund would take
delivery of the underlying original mortgage loans. These loans will have
already been sold in the forward market prior to being assigned as
collateral to the Participation Interests. Therefore the Fund would hold
them for 30 days or less prior to making delivery to another institutional
investor. The Fund might realize a loss due to delays in such delivery or
if the value of these loans did not equal or exceed the Repurchase Price.
The Fund may not invest more than 10% of the value of its assets in
Gestation Repurchase Agreements which are not terminable within seven
days.
Investment by the Fund in mortgage-related United States Government
securities, such as GNMA pass-through certificates, also involves certain
risks. The yield on a pass-through security is typically quoted based on
the maturity of the underlying instruments and the associated average life
assumption. Actual prepayment experience may cause the yield to differ
from the assumed average life yield. Accelerated prepayments adversely
impact yields for pass-throughs purchased at a premium; the opposite is
true for pass-throughs purchased at a discount. During periods of
declining interest rates, prepayment of mortgages underlying pass-through
certificates can be expected to accelerate. When the mortgage obligations
are prepaid, the Fund reinvests the prepaid amounts in securities, the
yields of which reflect interest rates prevailing at that time. Therefore,
the Fund's ability to maintain a portfolio of high-yielding,
mortgage-backed securities will be adversely affected to the extent that
prepayments of mortgages must be reinvested in securities which have lower
yields than the prepaid mortgages. Moreover, prepayments of mortgages
which underlie securities purchased at a premium could result in capital
losses.
ABOUT INVERSE FLOATING RATE SECURITIES.
An inverse floater may be considered to be leveraged to the extent that
its interest rate varies by a magnitude that exceeds the magnitude of the
change in the index rate of interest. The higher degree of leverage
inherent in inverse floaters is associated with greater volatility in
their market values. Accordingly, the duration of an inverse floater may
exceed its stated final maturity.
INVESTMENT LIMITATIONS
The Fund will not:
* borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a percentage
of its cash value with an agreement to buy it back on a set date) or pledge
securities except, under certain circumstances, the Fund may borrow money and
engage in reverse repurchase agreements in amounts up to one-third of the
value of its total assets and pledge up to 10% of its total assets to secure
such borrowings;
* lend any of its assets except portfolio securities up to one-third of its
total assets; or
* with respect to 75% of its total assets, invest more than 5% in securities
of any one issuer other than cash, cash items, or Government Securities, and
repurchase agreements collateralized by such securities.
The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, may be changed by the Trustees
without shareholder approval. Shareholders will be notified before any
material change in these limitations becomes effective.
The Fund will not:
* invest more than 10% of its total assets in securities subject to
restrictions on resale under the Securities Act of 1933, except for
commercial paper issued under Section 4(2) of the Securities Act of 1933 and
certain other restricted securities which meet the criteria for liquidity as
established by the Trustees;
* invest more than 15% of its net assets in illiquid securities, including
repurchase agreements providing for settlement more than seven days after
notice and certain restricted securities not determined by the Trustees to be
liquid; or
* invest more than 10% of its total assets in securities of other investment
companies.
FIRST AMERICAN MUTUAL FUNDS INFORMATION
MANAGEMENT OF THE TRUST
Board of Trustees.
The Trust is managed by a Board of Trustees. The Trustees are responsible for
managing the Trust's business affairs and for exercising all of the powers of
the Trust except those reserved for the shareholders.
INVESTMENT ADVISER.
Investment decisions for the Fund are made by First Bank National
Association, the Fund's investment adviser (the "Adviser" or ''FBNA"),
subject to direction by the Trustees. The Adviser continually conducts
investment research and supervision for the Fund and is responsible for
the selection, purchase, and sale of portfolio instruments, for which it
receives an annual fee from the Fund.
Advisory Fees.
The Fund's Adviser receives an annual investment advisory fee equal to
0.70% of the Fund's average daily net assets. The investment advisory fee
is accrued and paid daily. Prior to March 31, 1994, Boulevard Bank
National Association served as adviser to the Fund, and received an annual
investment advisory fee equal to .70% of the Fund's average daily net
assets. The Adviser has undertaken to reimburse the Fund for operating
expenses in excess of limitations established by certain states. The
Adviser may voluntarily choose to waive a portion of its fee or reimburse
other expenses of the Fund. The Adviser can terminate such waiver or
reimbursement policy at any time at its sole discretion.
Adviser's Background.
FBNA, 601 Second Avenue South, Minneapolis, Minnesota 55480, has served as
investment adviser to the funds that comprise the First American Family of
Funds since 1982. As of December 31, 1993, FBNA was managing accounts with
an aggregate value of over $6 billion.
Martin L. Jones is the portfolio manager for the Managed Income Fund.
Martin is currently the head portfolio manager for First American's Fixed
Income, Government Bond, Intermediate Term Income, Limited Term Income and
Mortgage Securities Funds. Martin heads up FBNA's Fixed Income group with
over 20 years of investment experience. Formerly with Harris Trust &
Savings Bank, Dillon, Read & Co., and Loeb Rhoades & Co., Martin received
his bachelor's degree from Texas Tech University, a master's degree from
the University of Texas, and an MBA from the University of Chicago.
DISTRIBUTION OF FUND SHARES
SEI Financial Services Company ("SFS") is the principal distributor for
shares of the Fund. It is a Pennsylvania corporation organized on July 20,
1981, and is the principal distributor for a number of investment companies.
SFS is a wholly-owned subsidiary of SEI Corporation ("SEI").
DISTRIBUTION PLAN.
Under a distribution plan (the "Plan") adopted in accordance with Rule
12b-1 promulgated under the Investment Company Act of 1940, the Fund may
pay to the distributor an amount computed at an annual rate of 0.25% of
the Fund's average daily net assets to finance any activity which is
principally intended to result in the sale of shares subject to the Plan.
The Fund will not accrue or pay any distribution expenses pursuant to the
Plan until a separate class of shares has been created for certain
institutional investors.
The distributor may, from time to time and for such periods as it deems
appropriate, voluntarily reduce its compensation under the Plan to the
extent the expenses attributable to the shares exceed an expense
limitation that the distributor may, by notice to the Trust, voluntarily
declare to be effective.
The distributor may select financial institutions such as banks,
fiduciaries, custodians for public funds, investment advisers, and
broker/dealers to provide distribution and/or administrative services as
agents for their clients or customers. Administrative services may
include, but are not limited to, the following functions: providing office
space, equipment, telephone facilities, and various clerical, supervisory,
computer, and other personnel as necessary or beneficial to establish and
maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; assisting clients in
changing dividend options, account designations, and addresses; and
providing such other services as may reasonably be requested.
The distributor will pay such financial institutions a fee based upon
shares subject to the Plan and owned by their clients or customer. The
schedules of such fees and the basis upon which such fees will be paid
will be determined from time to time by the distributor.
The Fund's plan is a compensation type plan. As such, the Fund makes no
payments to the distributor except as described above. Therefore, the Fund
does not pay for unreimbursed expenses of the distributor, including
amounts expended by the distributor in excess of amounts received by it
from the Fund, interest, carrying or other financing charges in connection
with excess amounts expended, or the distributor's overhead expenses.
However, the distributor may be able to recover such amounts or may earn a
profit from future payments made by the Fund under the Plan.
The Glass-Steagall Act prohibits a depository institution (such as a
commercial bank or a savings and loan association) from being an
underwriter or distributor of most securities. In the event the
Glass-Steagall Act is deemed to prohibit depository institutions from
acting in the administrative capacities described above or should Congress
relax current restrictions on depository institutions, the Trustees will
consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to
act as underwriters or distributors of securities may differ from
interpretations given to the Glass-Steagall Act and, therefore, banks and
financial institutions may be required to register as dealers pursuant to
state laws.
ADMINISTRATIVE ARRANGEMENTS.
The distributor may select brokers and dealers to provide distribution and
administrative services. The distributor may also select administrators
(including depository institutions such as commercial banks and savings
and loan associations) to provide administrative services. These
administrative services include distributing prospectuses and other
information, providing accounting assistance, and communicating or
facilitating purchases and redemptions of the Fund's shares.
Brokers, dealers, and administrators will receive fees from the
distributor based upon shares of the Fund owned by their clients or
customers. The fees are calculated as a percentage of the average
aggregate net assets in shareholder accounts of such clients or customers
during the period for which the brokers, dealers, and administrators
provide services. Any fees paid for these services by the distributor will
be reimbursed by the Adviser and not the Fund. Payments made here would be
in addition to any payments that may be made under the Plan.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES.
SEI Financial Management Corporation ("SFM"), which is a wholly-owned
subsidiary of SEI, provides the Trust with the administrative personnel
and services necessary to operate the Fund. Such services include
shareholder servicing and certain legal and accounting services. SFM
provides these services at an annual rate of .20% of each Fund's average
daily net assets.
The administrative fee received during any fiscal year shall aggregate at
least $50,000 with respect to the Fund. SFM may choose voluntarily to
reimburse a portion of its fee at any time.
Prior to May 1, 1994, Federated Administrative Services ("Federated")
served as administrator to the Trust. For the period from November 17,
1992 (date of initial public investment) to November 30, 1993, Federated
earned administrative fees of $84,957, of which $40,782 was voluntarily
waived. For the period from December 1, 1993 to April 30, 1994, Federated
earned administrative fees of $43,965.
CUSTODIAN.
First Trust National Association (the "Custodian"), St. Paul, Minnesota,
is custodian for the securities and cash of the Fund. The Custodian is a
subsidiary of First Bank System, Inc., which also controls the Adviser.
TRANSFER AGENT.
Supervised Service Company, Kansas City, Missouri, is transfer agent for
the shares of the Fund and dividend disbursing agent for the Fund.
LEGAL COUNSEL.
Legal counsel for the Fund is provided by Dorsey & Whitney, Minneapolis,
Minnesota.
INDEPENDENT ACCOUNTANTS.
The independent accountants for the Fund are KPMG Peat Marwick,
Minneapolis, Minnesota.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the Adviser looks for prompt execution of the order at
a favorable price. In working with dealers, the Adviser will generally
utilize those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. In selecting among firms believed to meet these criteria, the
Adviser may give consideration to those firms which have sold or are selling
shares of the Fund and other funds distributed by SFS. The Adviser makes
decisions on portfolio transactions and selects brokers and dealers subject
to review by the Trustees.
EXPENSES OF THE FUND
The Fund pays all of its own expenses and its allocable share of Trust
expenses. The expenses borne by the Fund include, but are not limited to, the
cost of: organizing the Trust and continuing its existence; Trustees' fees;
investment advisory and administrative services; printing prospectuses and
other Fund documents for shareholders; registering the Trust, the Fund, and
shares of the Fund with federal and state securities authorities; taxes and
commissions; issuing, purchasing, repurchasing, and redeeming shares; fees
for custodians, transfer agents, dividend disbursing agents, shareholder
servicing agents, and registrars; printing, mailing, auditing, accounting,
and legal expenses; reports to shareholders and governmental agencies;
meetings of Trustees and shareholders and proxy solicitations therefor;
insurance premiums; and such non-recurring and extraordinary items as may
arise. However, the Adviser may voluntarily assume some expenses and has, in
addition, undertaken to reimburse the Fund, up to the amount of the advisory
fee, the amount by which operating expenses exceed limitations imposed by
certain states.
NET ASSET VALUE
The Fund's net asset value per share fluctuates. It is determined by dividing
the sum of the value of all securities and other assets of the Fund, less
liabilities of the Fund, by the number of Fund shares outstanding.
INVESTING IN THE FUNDS
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open for
business. Shares of the Fund may be purchased through a financial institution
which has a sales agreement with the Distributor, or directly from the
Distributor. The Fund reserves the right to reject any purchase request.
THROUGH A FINANCIAL INSTITUTION.
An investor may call their financial institution (such as FBS Investment
Services, Inc.) to place an order. Orders placed through a financial
institution are considered received when the Fund is notified of the
purchase order. Purchase orders must be received by the financial
institution by 2:00 p.m. (Central time) or as otherwise specified by the
Institution to be assured same day processing and purchase orders must be
transmitted to and received by the Fund by 3:00 P.M. (Central time) in
order for shares to be purchased at that day's price. It is the financial
institution's responsibility to transmit orders promptly.
DIRECTLY FROM THE TRANSFER AGENT.
An investor may place an order to purchase shares of the Fund directly
from the Transfer Agent. To do so:
* complete and sign the new account form;
* enclose a check made payable to (Fund name); and
* Mail both to Supervised Service Company, P.O. Box 419382, Kansas City,
Missouri 64141-6382.
Texas residents must purchase shares of the Fund through the Director at
1-800-637-2548.
Orders by mail are considered received after payment by check is converted by
First Bank National Association into federal funds. This is generally the
next business day after First Bank National Association receives the check.
To purchase shares of the Fund by wire, call (800) 637-2548. All information
needed will be taken over the telephone, and the order is considered received
when First Bank National Association receives payment by wire. Federal funds
should be wired as follows: First Bank National Association, Minneapolis,
Minnesota; ABA Number 091000022; For Credit to: Supervised Service Company,
Account Number 6023458026; For Further Credit To: (Investor Name and Fund
Name). Shares cannot be purchased by Federal Reserve wire on days on which
the New York Stock Exchange is closed and on federal holidays restricting
wire transfers.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund is $1,000, unless the investment
is in a retirement plan, in which case the minimum initial investment is
$250. Subsequent investments may be in any amounts of $100 or more. The Fund
reserves the right to waive the initial minimum investment for employees of
FBNA and its affiliates from time to time.
WHAT SHARES COST
Fund shares are sold at their net asset value next determined after an order
is received, plus a sales charge as follows:
<TABLE>
<CAPTION>
Sales Charge
Sales Charge as
as Percentage of Maximum Amount of
Percentage of Net Asset Sales Charge Reallowed
Offering Price Value to Participating Institutions
<S> <C> <C> <C>
Less than $50,000 2.00% 2.04% 1.80%
$50,000 but less than 1.50% 1.52% 1.35%
$100,000
$100,000 but less than 1.00% 1.01% 0.90%
$250,000
$250,000 but less than 0.75% 0.76% 0.68%
$500,000
$500,000 but less than 0.50% 0.50% 0.45%
$1,000,000
$1,000,000 and over 0.00% 0.00% 0.00%
</TABLE>
The net asset value is determined at 3:00 p.m. (Central time), Monday
through Friday, except on: (i) days on which there are not sufficient
changes in the value of the Fund's portfolio securities that its net
asset value might be materially affected; (ii) days during which no
shares are tendered for redemption and no orders to purchase shares
are received; or (iii) the following holidays: New Year's Day,
Presidents' Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. In addition, the net asset value
will not be calculated on Good Friday.
SALES AT NET ASSET VALUE.
Purchases of the Fund's shares by the Adviser or any of its affiliates, or
any of their or the Trust's officers, directors, employees, retirees,
sales representatives, members of their immediate (parent, child, spouse,
sibling, step or adopted relationships, as well as UTMA accounts naming
qualifying persons) families, accounts managed by a qualified investment
manager, any qualified retirement plans, or any trust, pension, or
profit-sharing or other benefit plan for, or any business entity owned or
controlled by, such persons may be made at net asset value without a sales
charge.
In addition, purchases of shares of the Fund that are funded by the
proceeds from the redemption (within 60 days of the purchase of Fund
shares) of shares of any unrelated open-end investment company that
charges a sales load may be made at net asset value, provided such
redemption was not subject to any deferred sales or redemption charges. To
make such a purchase at net asset value, the investor or the investor's
broker must, at the time of purchase, submit a written request to the
Transfer Agent that the purchase be processed at net asset value pursuant
to this privilege, accompanied by a photocopy of the confirmation (or
similar evidence) showing the redemption from the unrelated fund. The
redemption of the shares of the non-related fund is, for federal income
tax purposes, a sale upon which a gain or loss may be realized.
SALES CHARGE REALLOWANCE.
For sales of shares of the Fund, any authorized broker/dealer will
normally receive up to 90% of the applicable sales charge. Any portion of
the sales charge which is not paid to broker/dealers will be retained by
the distributor. However, the distributor, in its sole discretion, may
uniformly offer to pay to all dealers selling shares of the Fund
additional amounts, all or a portion of which may be paid from the sales
charge it normally retains or from any other source available to it. Such
additional payments, if accepted by the dealer, may be in the form of cash
or promotional incentives and will be predicated upon the amount of shares
of the Fund or other funds of the Trust sold by the dealer. Whenever more
than 90% of a sales charge is paid to a dealer, that dealer may be deemed
to be an underwriter as defined in the Securities Act of 1933.
The sales charge for shares sold other than through registered
broker/dealers will be retained by the distributor. The distributor may
pay fees to banks out of the sales charge in exchange for sales and/or
administrative services performed on behalf of the banks' customers in
connection with the initiation of customer accounts and purchases of Fund
shares.
REDUCING THE SALES CHARGE
The sales charge can be reduced on the purchase of Fund shares through:
* quantity discounts and accumulated purchases;
* signing a 13-month letter of intent;
* using the reinvestment privilege; or
* concurrent purchases.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES.
As shown in the table above, larger purchases reduce the sales charge
paid. The Fund will combine purchases made on the same day by the
investor, his spouse, and his 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.
If an additional purchase of Fund shares is made, the Fund will consider
the previous purchase still invested in the Fund. For example, if a
shareholder already owns shares having a current value at the public
offering price of $49,000 and he purchases $1,000 more at the current
public offering price, the sales charge on the additional purchase
according to the schedule now in effect would be 1.50%, not 2.00%.
The sales charge discount applies to the total current market value of the
Fund, plus the current market value of any other mutual funds having a
sales charge and distributed as part of the First American Family of
Funds. An investor who is considering purchasing shares in another such
mutual fund should obtain a prospectus of the fund to be acquired and
should read such prospectus carefully.
To receive the sales charge reduction, the Transfer Agent must be notified
by the shareholder in writing or by his financial institution at the time
the purchase is made that Fund shares are already owned or that purchases
are being combined. The Fund will reduce the sales charge after it
confirms the purchases.
LETTER OF INTENT.
If a shareholder intends to purchase at least $50,000 of shares in the
funds in the Trust or in the First American Family that have a sales
charge over the next 13 months, the sales charge may be reduced by signing
a letter of intent to that effect. This letter includes a provision for a
sales charge adjustment depending on the amount actually purchased within
the 13-month period and a provision for the custodian to hold up to 2.0%
(or such higher or lower applicable amount) of the total amount intended
to be purchased in escrow (in shares) until such purchase is completed.
The amount held in escrow will be applied to the shareholder's account at
the end of the 13-month period, unless the amount specified in the letter
of intent is not purchased. In this event, an appropriate number of
escrowed shares may be redeemed at the then-current redemption price
(which could be less than the purchase price for such shares) in order to
realize the difference in the sales charge.
This letter of intent will not obligate the shareholder to purchase
shares, but if he 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.
REINVESTMENT PRIVILEGE.
If shares in the Fund have been redeemed, the shareholder has a one-time
right, within 30 days, to reinvest all or a part of the redemption
proceeds at the next-determined net asset value without any sales charge.
The Transfer Agent must be notified by the shareholder in writing or by
his financial institution of the reinvestment in order to eliminate a
sales charge. If the shareholder redeems his shares in the Fund, there may
be tax consequences. Shareholders contemplating such transactions should
consult their own tax adviser.
CONCURRENT PURCHASES.
For purposes of qualifying for a sales charge reduction, a shareholder has
the privilege of combining concurrent purchases of two or more funds in
the Trust or in the First American Family, the purchase price of which
includes a sales charge. For example, if a shareholder concurrently
invested $30,000 in one of the other funds in the Trust or in the First
American Family with a sales charge and $20,000 in this Fund, the sales
charge would be reduced.
To receive this sales charge reduction, the Transfer Agent must be
notified by the shareholder in writing or by his financial institution at
the time the concurrent purchases are made. The Fund will reduce the sales
charge after it confirms the purchases.
EXCHANGING SECURITIES FOR FUND SHARES
Investors may exchange certain securities or a combination of certain
securities and cash for Fund shares. The Fund reserves the right to determine
the acceptability of securities to be exchanged. On the day securities are
accepted by the Fund, they are valued in the same manner as the Fund values
its assets. Investors wishing to exchange securities should first contact the
Transfer Agent.
SYSTEMATIC INVESTMENT PROGRAM
Once an account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account
and invested in Fund shares at the net asset value next determined after an
order is received, plus the applicable sales charge. A shareholder may apply
for participation in this program through their financial institution or call
(800) 637-2548.
RETIREMENT PLANS
Shares of the Fund can be purchased as an investment for retirement plans or
for Individual Retirement Accounts. For further details, including prototype
retirement plans, contact your financial institution and consult a tax
adviser.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, the Transfer Agent maintains a share account
for each shareholder of record. Share certificates are not issued by the
Fund.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly statements are sent to report transactions and dividends
paid during the month.
DIVIDENDS AND CAPITAL GAINS
Dividends are declared and paid monthly. Capital gains realized by the Fund,
if any, will be distributed at least once every 12 months. Dividends and
capital gains will be automatically reinvested in additional shares of the
Fund on payment dates at the ex-dividend date's net asset value without a
sales charge, unless cash payments are requested by writing to the Fund.
Dividends and capital gains can also be reinvested in shares of any other
fund in the Trust or in the First American Family.
EXCHANGE PRIVILEGE
Shareholders may exchange shares of the Fund for shares of the other funds in
the Trust or in the First American Family with the same or lower sales load.
Shares of funds with a sales charge may be exchanged at net asset value for
shares of other funds with an equal sales charge or no sales charge. Shares
of funds with a sales charge may be exchanged for shares of funds with a
higher sales charge at net asset value, plus the additional sales charge.
Shares of funds with no sales charge, whether acquired by direct purchase,
reinvestment of dividends on such shares, or otherwise, may be exchanged for
shares of funds with a sales charge at net asset value, plus the applicable
sales charge.
When an exchange is made from a fund with a sales charge to a fund with no
sales charge, the shares exchanged and additional shares which have been
purchased by reinvesting dividends or capital gains on such shares retain the
character of the exchanged shares for purposes of exercising further exchange
privileges; thus, an exchange of such shares for shares of a fund with a
sales charge would be at net asset value.
Prior to any exchange, the shareholder must receive a copy of the current
prospectus of the fund into which an exchange is to be effected.
The exchange privilege is available to shareholders residing in any state in
which the fund shares being acquired may legally be sold. Upon receipt of
proper instructions and all necessary supporting documents, shares submitted
for exchange will be redeemed at the next-determined net asset value for the
applicable fund. Written exchange instructions may require a signature
guarantee. Exercise of this privilege is treated as a sale for federal income
tax purposes and, depending on the circumstances, a short or long-term
capital gain or loss may be realized.
The exchange privilege may be terminated at any time. Shareholders will be
notified of the termination of the exchange privilege.
BY TELEPHONE.
Instructions for exchanges between funds which are part of the Trust or
the First American Family may be given by telephone to the Transfer Agent.
Shares may be exchanged by telephone only between fund accounts having
identical shareholder registrations.
Any shares held in certificate form cannot be exchanged by telephone but
must be forwarded to the Transfer Agent and deposited to the shareholder's
mutual fund account before being exchanged. An authorization form
permitting the Fund to accept telephone exchanges must first be
completed..
Telephone exchange instructions must be received before 3:00 p.m. (Central
time) for shares to be exchanged the same day. The telephone exchange
privilege may be modified or terminated at any time. Shareholders will be
notified of such modification or termination. Shareholders may have
difficulty in making exchanges by telephone through brokers and other
financial institutions during times of drastic economic or market changes.
If a shareholder cannot contact brokers and other financial institutions
by telephone, it is recommended that an exchange request be made in
writing and sent by overnight mail to Supervised Service Company, 811 Main
Street, Kansas City, Missouri 64105.
REDEEMING SHARES
Shares are redeemed at their net asset value next determined after the
Transfer Agent receives the redemption request. Redemptions will be made on
days on which the Fund computes its net asset value. Redemption requests
cannot be executed on days on which the New York Stock Exchange or the
Federal Reserve Wire System is closed. Requests for redemption can be made by
telephone or by mail.
THROUGH A FINANCIAL INSTITUTION
A shareholder may redeem shares of the Fund by calling their financial
institution to request the redemption. Shares will be redeemed at the net
asset value next determined after the Fund receives the redemption request
from the financial institution. Redemption requests must be received by the
financial institution by 2:00 P.M. (Central time) or as otherwise 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 Fund by 3:00 P.M. Central time in order for shares to be redeemed at that
day's net asset value.
In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If such a case should occur,
another method of redemption should be considered.
Neither the Transfer Agent nor the Fund will be responsible for the
authenticity of redemption instructions received by telephone if it
reasonably believes those instructions to be genuine. The Fund and its
Transfer Agent will each employ reasonable procedures to confirm that
telephone instructions are genuine, and may be liable for losses resulting
from unauthorized or fradulent telephone instructions if it does not employ
these procedures. Such procedures may include taping of telephone
conversations.
DIRECTLY FROM THE FUND
By Telephone.
Shareholders who have not purchased shares through a financial institution
may redeem their shares of a Fund by telephoning (800) 637-2548. The proceeds
will be 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
longer than seven days after the request. The minimum amount for a wire
transfer is $1,000. If at any time the Fund shall determine it necessary to
terminate or modify this method of redemption, shareholders would be promptly
notified.
BY MAIL.
Any shareholder may redeem Fund shares by sending a written request to the
Transfer Agent, shareholder servicing agent, or financial institution. The
written request should include the shareholder's name, the Fund name, the
account number, and the share or dollar amount requested, 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.
RECEIVING PAYMENT.
Normally, a check for the proceeds is mailed within one business day, but
in no event more than seven days, after receipt of a proper written
redemption request.
SIGNATURES.
Shareholders requesting a redemption of $5,000 or more, a redemption of
any amount to be sent to an address other than 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 whose deposits are insured by the
Bank Insurance Fund, which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
* a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange or of the National Association of Securities Dealers;
* a savings bank or savings and loan association whose deposits are
insured by the Savings Association Insurance Fund, which is administered
by the FDIC; or
* any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and the Transfer Agent have adopted standards for accepting
signature guarantees from the above institutions. The Fund may elect in
the future to limit eligible signature guarantors to institutions that are
members of a signature guarantee program. The Fund and the Transfer Agent
reserve the right to amend these standards at any time without notice.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When shares of the Fund are purchased by check, or through the Automated
Clearing House, the proceeds from the redemption of those shares are not
available, and the shares may not be exchanged, until the Transfer Agent is
reasonably certain that the purchase check has cleared, which could take up
to 10 calendar days.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount may
take advantage of the Systematic Withdrawal Program. Under this program, Fund
shares are redeemed to provide for periodic withdrawal payments in an amount
directed by the shareholder. Depending upon the amount of the withdrawal
payments and the amount of dividends paid and capital gains distributions
with respect to Fund shares, and the fluctuation of the Fund's net asset
value, redemptions may reduce, and eventually deplete, the shareholder's
investment in the Fund. For this reason, payments under this program should
not be considered as yield or income on the shareholder's investment in the
Fund. To be eligible to participate in this program, a shareholder must have
an account value of at least $5,000. A shareholder may obtain more
information about this program by calling his financial institution. Due to
the fact that shares are sold with a sales charge, it is not advisable for
shareholders to be purchasing shares while participating in this program.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account, except retirement plans, and pay the proceeds
to the shareholder if the account balance falls below the required minimum
value of $500 due to shareholder redemptions.
Before shares are redeemed to close an account, the shareholder is notified
in writing and allowed 60 days to purchase additional shares to meet the
minimum requirement.
SHAREHOLDER INFORMATION
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections
and other matters submitted to shareholders of the Fund for vote. All shares
of each fund in the Trust have equal voting rights, except that in matters
affecting only a particular fund, only shareholders of that fund are entitled
to vote. As a Massachusetts business trust, the Trust is not required to hold
annual shareholder meetings. Shareholder approval will be sought only for
certain changes in the Trust's or Fund's operation and for the election of
Trustees under certain circumstances. As of January 6, 1994, First National
Bank of Des Plaines (a subsidiary of Boulevard Bancorp, Inc.) acting in
various capacities for numerous accounts, was the owner of record of
4,979,783 shares (67.52%) of the Fund, and therefore, may, for certain
purposes, be deemed to control the Fund, and be able to affect the outcome of
certain matters presented for a vote of shareholders.
Trustees may be removed by a two-thirds vote of a number of the Trustees or
by a two-thirds vote of a number of the shareholders at a special meeting. A
special meeting of the shareholders for this purpose shall be called by the
Trustees upon the written request of shareholders owning at least 10% of all
shares of the Trust entitled to vote.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust. To
protect shareholders, the Trust has filed legal documents with Massachusetts
that expressly disclaim the liability of shareholders for such acts or
obligations of the Trust. These documents require notice of this disclaimer
to be given in each agreement, obligation, or instrument the Trust or its
Trustees enter into or sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act
or obligation of the Trust. Therefore, financial loss resulting from
liability as a shareholder will occur only if the Trust cannot meet its
obligations to indemnify shareholders and pay judgments against them from its
assets.
EFFECT OF BANKING LAWS
The Glass-Steagall Act and other banking laws and regulations presently
prohibit a bank holding company registered under the Bank Holding Company Act
of 1956 or any bank or non-bank affiliate thereof from sponsoring,
organizing, controlling, or distributing the shares of a registered, open-end
investment company continuously engaged in the issuance of its shares, and
prohibit banks generally from issuing, underwriting, selling, or distributing
securities in general. However, such banking laws and regulations do not
prohibit such a holding company or bank or non-bank affiliate from acting as
investment adviser, transfer agent, or custodian to such an investment
company or from purchasing shares of such a company as agent for and upon the
order of their customer. The Fund's Adviser, FBNA, is subject to such banking
laws and regulations.
FBNA believes, after consultation with counsel, that its performance of the
investment advisory services for the Fund, as contemplated by the advisory
agreement with the Trust, is not prohibited by the Glass-Steagall Act as it
has been interpreted by the courts and federal banking agencies or by other
banking laws and regulations applicable to national banks. Changes in either
federal or state statutes and regulations relating to the permissible
activities of banks and their subsidiaries or affiliates, as well as further
judicial or administrative decisions or interpretations of present or future
statutes and regulations, could prevent FBNA from continuing to perform all
or a part of the above services for its customers and/or the Fund. In such
event, changes in the operation of the Fund may occur, including the possible
alteration or termination of any automatic or other Fund share investment and
redemption services that are being provided by FBNA, and the Trustees would
consider alternative investment advisers and other means of continuing
available investment services. It is not expected that existing Fund
shareholders would suffer any adverse financial consequences (if another
adviser with equivalent abilities to FBNA is found) as a result of any of
these occurrences.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund expects to pay no federal income tax because it intends to meet
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment
afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other funds, if any, will not be combined for tax purposes with those
realized by the Fund.
Unless otherwise exempt, shareholders are required to pay federal income tax
on any dividends and other distributions received. This applies whether
dividends and distributions are received in cash or as additional shares.
Shareholders are urged to consult their own tax adviser regarding the status
of their accounts under federal, state, and local tax laws.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its total return and yield.
Total return represents the change, over a specified period of time, in the
value of an investment in the Fund after reinvesting all income and capital
gains distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of the Fund is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the
Fund over a thirty-day period by the maximum offering price per share of the
Fund on the last day of the period. This number is then annualized using
semi-annual compounding. The yield does not necessarily reflect income
actually earned by the Fund and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.
The performance information reflects the effect of the maximum sales load
which, if reduced or excluded, would increase the total return and yield.
From time to time, the Fund may advertise its performance using certain
financial publications and/or compare its performance to certain indices.
First American Mutual Funds
680 East Swedesford Road
Wayne, Pennsylvania 19087
Investment Adviser
FIRST BANK NATIONAL ASSOCIATION
601 Second Avenue South
Minneapolis, Minnesota 55480
Custodian
FIRST TRUST NATIONAL ASSOCIATION
180 East Fifth Street
St. Paul, Minnesota 55101
Administrator
SEI FINANCIAL MANAGEMENT
CORPORATION
680 East Swedesford Road
Wayne, Pennsylvania 19087
Transfer Agent
SUPERVISED SERVICE COMPANY
811 Main Street
Kansas City, Missouri 64105
Distributor
SEI FINANCIAL SERVICES COMPANY
680 East Swedesford Road
Wayne, Pennsylvania 19087
Independent Auditors
KPMG PEAT MARWICK
90 South Seventh Street
Minneapolis, Minnesota 55402
Counsel
DORSEY & WHITNEY
220 South Sixth Street
Minneapolis, Minnesota 55402
FAMF 1424 (7/94) RI
FIRST AMERICAN
PROSPECTUS
MANAGED INCOME
FIRST AMERICAN FUNDS
JULY 5, 1994
