PROSPECTUS
FIRST AMERICAN MUTUAL FUNDS
LIMITED TERM TAX FREE INCOME FUND
680 EAST SWEDESFORD ROAD, WAYNE, PENNSYLVANIA 19087
The shares of the First American Limited Term Tax Free 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 dividend income that is
exempt from federal regular income tax 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
<TABLE>
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Topic Page
<S> <C>
Fees and Expenses 3
Financial Highlights 5
General Information 6
Investment Information 6
First American Mutual Funds 11
Information
Administration of the Fund 13
Net Asset Value 15
Investing in the Fund 15
Exchange Privilege 19
Redeeming Shares 20
Shareholder Information 22
Effect of Banking Laws 22
Tax Information 23
Performance Information 24
</TABLE>
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 DIVIDENDS NONE
(AS A PERCENTAGE OF OFFERING PRICE)
DEFERRED SALES LOAD (AS A PERCENTAGE OF ORIGINAL NONE
PURCHASE PRICE 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) (0.46%)
12b-1 Fees(2) 0.00%
Total Other Expenses 1.06%
TOTAL FUND OPERATING EXPENSES(3) 0.60%
</TABLE>
(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 0.81% 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 1.76% 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 FUND."
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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
</TABLE>
Absent fee waivers, the dollar amounts for the 1, 3, 5 and 10 year periods
above would be $38, $74, $114 and $223.
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.
LIMITED TERM TAX FREE INCOME FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
YEAR ENDED
NOVEMBER 30,
1993*
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
Income from investment operations
Net investment income 0.18
Net realized and unrealized gain on investments 0.02
Total from investment operations 0.20
Less Distributions
Dividends to shareholders from net investment (0.17)
income
NET ASSET VALUE, END OF PERIOD $ 10.03
Total Return** 2.02%
Ratios to average net assets
Expenses .81%(a)
Net investment income 2.30%(a)
Expense waiver/reimbursement(b) .95%(a)
Supplemental Data
Net assets, end of period (000 omitted) $19,330
Portfolio turnover rate 22%
* Reflects operations for the period from February 19, 1993 (date of initial
public investment) to November 30, 1993.
** 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
limited-term municipal securities. In most cases, a minimum initial
investment of $1,000 is required. See "Investing in the Fund -- 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 dividend income that is
exempt from federal regular income tax 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 seeks to achieve its objective by investing, under normal market
conditions, at least 80% of its net assets in municipal obligations, the
interest on which is, in the opinion of bond counsel to the issuer, exempt
from federal income tax. No more than 20% of the securities owned by the
Fund will generate income that is an item of tax preference for purposes
of the federal alternative minimum tax. See "Tax Information."
The Fund may purchase obligations which are rated (without regard to
insurance) no lower than Baa by Moody's Investors Service, Inc.
("Moody's") or BBB by Standard & Poor's Corporation ("Standard & Poor's")
or which carry an equivalent rating from another nationally recognized
statistical rating organization. Such rated bonds are investment grade;
however, to the extent that the portfolio is invested in bonds rated Baa
by Moody's or BBB by Standard & Poor's or which carry an equivalent rating
from another nationally recognized statistical rating organization, there
may be somewhat greater risk of default, since such bonds have speculative
characteristics. At times the Fund's portfolio may include unrated
securities which the Adviser deems to be of a quality comparable to such
Moody's or Standard & Poor's ratings; provided, however, that such unrated
securities may not in the aggregate exceed 10% of the Fund's assets. The
Fund also may invest in municipal notes rated in the highest rating
category by a nationally recognized statistical rating organization, such
as MIG/VMIG 1 by Moody's or SP-1 by Standard & Poor's. A description of
Moody's and Standard & Poor's quality ratings is set forth in the
Statement of Additional Information.
The Fund's portfolio securities will be of a "limited term" in that they
will have an average effective weighted maturity of six months to two
years. Such obligations normally produce lower yields than
intermediate-term (3 to 10 years) or long-term (15 years or longer)
obligations while assuming less market volatility than might be
experienced with intermediate or long-term bonds. In considering average
effective maturity, recognition will be given to those characteristics of
specific bonds, including being subject to call before maturity and being
subject to certain types of sinking fund provisions, to determine the
maturity characteristic.
The value of tax-exempt obligations owned by the Funds may be adversely
affected by local political and economic conditions and developments.
Adverse conditions in an industry significant to a local economy could
have a correspondingly adverse effect on the financial conditions of local
issuers. Other factors that could affect tax-exempt obligations include a
change in the local, state or national economy, demographic factors,
ecological or environmental concerns, statutory limitations on the
issuer's ability to increase taxes and other developments generally
affecting the revenues of issuers (for example, legislation or court
decisions reducing state aid to local governments or mandating additional
services).
While the Fund's assets will ordinarily be invested in municipal
obligations (including notes for temporary defensive or liquidity
purposes), on occasion the Fund may temporarily hold short-term
securities, other than municipal obligations, the income from which is
taxable. These temporary holdings are solely for the purpose of managing
exceptional in-flows and out-flows of cash or for temporary defensive
purposes to preserve existing portfolio values. Under normal
circumstances, the Fund may not invest more than 20% of its assets in
investments other than municipal obligations. However, in periods of
adverse markets when a temporary defensive position to protect capital is
deemed advisable and practicable, the Fund may have more than 20% of its
assets in temporary taxable investments or cash. Temporary taxable
investments will be made exclusively in the following types of obligations
maturing within 13 months from the date of purchase: (1) obligations of
the U.S. Government, its agencies or instrumentalities; (2) commercial
paper rated not less than Prime-1 by Moody's or A-1 by Standard & Poor's
or which carries an equivalent rating from another nationally recognized
statistical rating organization; (3) other short-term debt securities
issued or guaranteed by corporations having outstanding debt rated not
less than Baa by Moody's or BBB by Standard & Poor's or which have an
equivalent rating from another nationally recognized statistical rating
organization; (4) certificates of deposit of domestic commercial banks
subject to regulation by the U.S. Government, or any of its agencies or
instrumentalities, with assets of $500 million or more based on the most
recent published reports; or (5) repurchase agreements with domestic banks
or securities dealers involving any of the securities which the Fund is
permitted to hold. See "Investment Techniques and Risk Factors -- About
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 may also temporarily invest up to 10% of its net assets in shares
of investment companies which invest primarily in short-term municipal
obligations (having maturities not exceeding 13 months). Such investments
are also subject to the advisory fee. Income from such investments is
normally exempt from federal income tax.
The Fund may also invest in participations in municipal lease obligations.
Participation interests in municipal leases are undivided interests in a
portion of an obligation in the form of a lease or installment purchase
issued by a state or local government to acquire equipment or facilities.
Municipal leases frequently have special risks not normally associated
with general obligation bonds or revenue bonds. Leases and installment
purchase or conditional sale contracts (which normally provide for title
to the leased asset to pass eventually to the governmental issuer) have
evolved as a means for governmental issuers to acquire property and
equipment without meeting the constitutional and statutory requirements
for the issuance of debt. The debt-issuance limitations are deemed to be
inapplicable because of the inclusion in many leases or 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 such purpose by the appropriate legislative body
on a yearly or other periodic basis. Although the obligations will be
secured by the leased equipment or facilities, the disposition of the
property in the event of non-appropriation or foreclosure might, in some
cases, prove difficult. In light of these concerns, the Fund has adopted
and follows procedures for determining whether municipal lease securities
purchased by the Fund are liquid and for monitoring the liquidity of
municipal lease securities held in the Fund's portfolio. The procedures
require that a number of factors be used in evaluating the liquidity of a
municipal lease security, including the frequency of trades and quotes for
the security, the number of dealers willing to purchase or sell the
security and the number of other potential purchasers, the willingness of
dealers to undertake to make a market in the security, the nature of the
marketplace in which the security trades, and other factors which the
Adviser may deem relevant. As described below under "Investment Techniques
and Risk Factors -- Illiquid Securities," the Fund is subject to
limitations on the percentage of illiquid securities it can hold.
The Fund may also invest up to 15% of its total assets in inverse floating
rate obligations and interest-only and principal-only securities. The
interest rate on an inverse floating rate instrument ("inverse floater")
resets in the opposite direction from the market rate of interest to which
the inverse floater is indexed. 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. Interest-only and
principal-only securities represent the right to receive only the interest
payments or only the principal payments on one or more underlying debt
obligations. Where the underlying debt obligations can be prepaid at the
option of the obligor, such securities may be more interest-rate sensitive
than other securities. In such case, a decrease in market interest rates
may cause an increase in the rate at which the underlying obligations are
prepaid, thus reducing the return on the related interest-only securities
and increasing the return on the related principal-only securities.
Substantial prepayments on the underlying obligations thus can, in some
cases, prevent a holder of the related interest-only securities from
recovering its original investment in full.
The Fund is subject to certain other investment restrictions, including
restrictions that the Fund will not make an investment of (a) 25% or more
of the value of its total assets (i) in obligations of issuers located in
the same state or (ii) in issuers whose payments are dependent upon
revenues from the same type of activity, other than pollution control
revenue bonds, and (b) more than 10% of the value of its total assets in
shares of investment companies which primarily invest in short-term
municipal obligations. The Fund's investment restrictions are set forth in
the Statement of Additional Information.
Although investments in interest-bearing securities generally are made for
the purpose of receiving a stable stream of income, the prices of such
securities are inversely related to changes in interest rates and,
therefore, are subject to the risk of market price fluctuations. The
values of fixed income securities also may be affected by changes in the
credit rating or financial condition of the issuing entities, general
conditions of the municipal bond market, and size of the particular
offering. In addition, longer-term investments tend to experience greater
price volatility than shorter-term investments.
The two general classifications of municipal bonds are "general
obligation" bonds and "revenue" bonds. General obligation bonds are
secured by the issuer's pledge of its faith, credit and taxing power for
the payment of principal and interest. They are usually paid from general
revenues of the issuing governmental entity. Revenue bonds are usually
payable only out of a specific revenue source rather than from general
revenues and 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 the company using or operating the
facilities. The most common type of these obligations are industrial
revenue bonds and pollution control revenue bonds. Industrial revenue
bonds are issued by governmental entities to provide financing aid to
community facilities such as hospitals, hotels, business or residential
complexes, convention halls or sport complexes. Pollution control revenue
bonds are issued to provide funding of air, water and solids pollution
control systems for privately operated industrial or commercial
facilities. Occasionally, the funds for payment of such obligations come
solely from revenue generated by operation of the facility. Absent a
guarantee by the issuing governmental entity, revenue bonds for private
facilities do not represent a pledge of credit, general revenues or taxing
powers of the issuing governmental entity and the private company
operating the facility is the sole source of payment of the obligation.
This type of revenue bond frequently provides a higher rate of return than
other municipal obligations but entails greater risk than an obligation
which is 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. See "Tax Information." However, the Adviser does not
believe that these limitations will impair the Fund's ability to purchase
or sell bonds in accordance with its objectives and policies. In the
future, legislation may be introduced in Congress which may further
restrict or eliminate the income tax exemption for interest on debt
obligations in which the Fund may invest.
In order to reduce risk, the Fund may invest in exchange-traded options on
interest rate futures contracts and indices. See "Investment Techniques
and Risk Factors -- About Option Transactions."
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 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 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.
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 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
securities issued and/or guaranteed by the U.S. government, its
agencies or instrumentalities, 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, over-the-counter options, 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.
Richard W. Stanley is the portfolio manager for the Limited Term Tax Free
Income Fund. Dick is currently the portfolio manager for First American's
Municipal Bond Fund, Minnesota Insured Intermediate Tax Free Fund, and
Colorado Intermediate Tax Free Fund. Dick entered the investment business
via investment sales with Smith Barney & Co. in 1958. He then moved to
Heritage Investment Advisors as head of fixed income investment in 1973.
He joined FBNA in early 1986 as Vice President and Manager of Fixed Income
Investment/Personal Trust. Dick oversees the management of $800 million in
common trust funds (seven common trust funds, of which five are municipal
funds). Dick earned an MBA from Cornell University in 1958 and received
his Chartered Financial Analyst certification in 1977.
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 customers. 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 February 19,
1993 (date of initial public investment) to November 30, 1993, Federated
earned administration fees of $38,493, of which $37,233 was voluntarily
waived. For the period from December 1, 1993 to April 30, 1994, Federated
earned $20,685.
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 FUND
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 distributor
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:
Sales Charge Sales Charge
as as
Percentage of Percentage of Maximum Amount of
Offering Net Asset Sales Charge Reallowed
Price Value to Participating
Institutions
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%
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 fraudulent 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 ("ACH"), 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 685,536
shares (36.37%) and 1,121,602 shares (59.51%) 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.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal securities. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on certain "private activity" bonds issued
after August 7, 1986, may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for
corporations. The Fund may purchase all types of municipal bonds, including
private activity bonds.
The alternative minimum tax applies when it exceeds the regular tax for the
taxable year. Alternative minimum taxable income is equal to the regular
taxable income of the taxpayer increased by certain "tax preference" items
not included in regular taxable income and reduced by only a portion of the
deductions allowed in the calculation of the regular tax.
Shareholders should consult with their tax adviser to determine whether they
are subject to the alternative minimum tax or the corporate alternative
minimum tax and, if so, the tax treatment of dividends paid by the Fund.
Dividends of the Fund representing net interest income earned on some
temporary investments and any realized net short-term gains are taxed as
ordinary income. Distributions representing net long-term capital gains
realized by the Fund, if any, will be taxable as long-term capital gains
regardless of the length of time shareholders have held their shares.
These tax consequences apply whether dividends are received in cash or as
additional shares. Information on the tax status of dividends and
distributions is provided annually.
OTHER STATE AND LOCAL TAXES
Distributions representing net interest received on tax-exempt municipal
securities are not necessarily free from income taxes of any state or local
taxing authority. State laws differ on this issue and shareholders are urged
to consult their own tax adviser regarding the status of their accounts under
state and local tax laws.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its total return, yield, and tax-
equivalent 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 tax-equivalent yield of the Fund is calculated
similarly to the yield, but is adjusted to reflect the taxable yield that the
Fund would have had to earn to equal its actual yield, assuming a specific
tax rate. The yield and the tax-equivalent yield do 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, yield, and
tax- equivalent 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 1423 (7/94) RI
FIRST AMERICAN
PROSPECTUS
LIMITED TERM TAX FREE INCOME
FIRST AMERICAN FUNDS
JULY 5, 1994
