FIRST AMERICAN MUTUAL FUNDS
LIMITED TERM TAX FREE INCOME FUND
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectus
of the Limited Term Tax Free Income Fund (the "Fund") dated July 5, 1994.
This Statement is not a prospectus itself. To receive a copy of the
prospectus, call or write the Trust.
Statement dated July 5, 1994
FIRST BANK NATIONAL ASSOCIATION
INVESTMENT ADVISER
SEI FINANCIAL SERVICES COMPANY
DISTRIBUTOR
FAMF-1423 (5/94) RI
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
GENERAL INFORMATION ABOUT THE FUND 1
INVESTMENT OBJECTIVE AND POLICIES 1
Options Transactions 4
First American Mutual Funds Management 8
Investment Advisory Services 10
Administrative Services 11
Custodian; Transfer Agent; Counsel; Accountants 11
Portfolio Transactions and Allocation of Brokerage 11
Purchasing Shares 12
Determining Net Asset Value 13
Exchange Privilege 14
Redeeming Shares 14
Tax Status 14
Total Return 14
Yield 14
Tax-Equivalent Yield 15
Performance Comparisons 16
Ratings of Obligations and Commercial Paper 16
Financial Statements 19
</TABLE>
GENERAL INFORMATION ABOUT THE FUND
The Fund is a portfolio in First American Mutal Funds (the "Trust") formerly
named "The Boulevard Funds", which 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 and classes
of shares.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective and policies of the Fund are set forth in the
Prospectus under "Investment Information." Certain additional investment
information is set forth below.
REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements. The Fund's custodian will hold
the securities underlying any repurchase agreement or such securities will be
part of the Federal Reserve Book Entry System. The market value of the
collateral underlying the repurchase agreement will be determined on each
business day. If at any time the market value of the collateral falls below
the repurchase price of the repurchase agreement (including any accrued
interest), the Fund will promptly receive additional collateral (so the total
collateral is an amount at least equal to the repurchase price plus accrued
interest).
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities offered on a "when-issued" or "delayed
delivery" basis. When the Fund purchases securities on a when-issued basis,
it will maintain, in a segregated account with its custodian, cash, United
States Government securities or other liquid high-grade debt obligations
having an aggregate value equal to the amount of such purchase commitments
until payment is made therefor. During the current year, the Fund does not
anticipate investing more than 10% of its total assets in when-issued and
delayed delivery transactions.
MORTGAGE-RELATED SECURITIES
The Fund may invest in mortgage-backed securities, including those
representing an undivided ownership interest in a pool of mortgage loans (for
example, GNMA, FNMA and FHLMC certificates).
GNMA CERTIFICATES
Government National Mortgage Association ("GNMA") certificates ("GNMA
Certificates") are mortgage- backed securities which evidence an ownership
interest in a pool of mortgage loans. GNMA Certificates differ from bonds
in that principal is paid back monthly by the borrower over the term of
the loan rather than returned in a lump sum at maturity. GNMA Certificates
that the Government Bond, Fixed Income, Intermediate Term Income, Limited
Term Income and Mortgage Securities Funds may purchase are the "modified
pass-through" type. "Modified pass-through" GNMA Certificates entitle the
holder to receive a share of all interest and principal payments paid and
owed on the mortgage pool, net of fees paid to the "issuer" and GNMA,
regardless of whether the mortgagor actually makes the payment.
The National Housing Act authorizes GNMA to guarantee the timely payment
of principal and interest on securities backed by a pool of mortgages
insured by the Federal Housing Administration ("FHA") or the Farmers' Home
Administration or guaranteed by the Veterans Administration ("VA"). The
GNMA guarantee is backed by the full faith and credit of the United
States. GNMA is also empowered to borrow without limitation from the
United States Treasury if necessary to make any payments required under
its guarantee.
The average life of a GNMA Certificate is likely to be substantially less
than the original maturity of the mortgage pools underlying the
securities. Prepayments of principal by mortgagors and mortgage
foreclosures will usually result in the return of the greater part of
principal investment long before the maturity of the mortgages in the
pool. Foreclosures impose no risk to principal investment because of the
GNMA guarantee.
As prepayment rates of individual mortgage pools vary widely, it is not
possible to predict accurately the average life of a particular issue of
GNMA Certificates. However, statistics published by the FHA indicate that
the average life of single-family dwelling mortgages with 25- to 30-year
maturities, the type of mortgages backing the vast majority of GNMA
Certificates, is approximately 12 years. Therefore, it is customary to
treat GNMA Certificates as 30-year mortgage-backed securities which prepay
fully in the twelfth year.
The coupon rate of interest of GNMA Certificates is lower than the
interest rate paid on the VA-guaranteed or FHA-insured mortgages
underlying the GNMA Certificates by the amount of the fees paid to GNMA
and the issuer. The coupon rate by itself, however, does not indicate the
yield which will be earned on GNMA Certificates. First, GNMA Certificates
may be issued at a premium or discount, rather than at par, and, after
issuance, GNMA Certificates may trade in the secondary market at a premium
or discount. Second, interest is earned monthly, rather than semi-annually
as with traditional bonds; monthly compounding raises the effective yield
earned. Finally, the actual yield of a GNMA Certificate is influenced by
the prepayment experience of the mortgage pool underlying it. For example,
if the higher-yielding mortgages from the pool are prepaid, the yield on
the remaining pool will be reduced.
FNMA SECURITIES
The Federal National Mortgage Association ("FNMA") was established in 1938
to create a secondary market in mortgages insured by the FHA.
FNMA issues guaranteed mortgage pass-through certificates ("FNMA
Certificates"). FNMA Certificates resemble GNMA Certificates in that each
FNMA Certificate represents a pro rata share of all interest and principal
payments made and owed on the underlying pool. FNMA guarantees timely
payment of interest on FNMA Certificates and the full return of principal.
Like GNMA Certificates, FNMA Certificates are assumed to be prepaid fully
in their twelfth year.
FHLMC SECURITIES
The Federal Home Loan Mortgage Corporation ("FHLMC") was created in 1970
through enactment of Title III of the Emergency Home Finance Act of 1970.
Its purpose is to promote development of a nationwide secondary market in
conventional residential mortgages.
FHLMC issues two types of mortgage pass-through securities, mortgage
participation certificates ("PCs") and guaranteed mortgage certificates
("GMCs"). PCs resemble GNMA Certificates in that each PC represents a pro
rata share of all interest and principal payments made and owed on the
underlying pool. FHLMC guarantees timely payment of interest on PCs and
the full return of principal. Like GNMA Certificates, PCs are assumed to
be prepaid fully in their twelfth year.
GMCs also represent a pro rata interest in a pool of mortgages. However,
these instruments pay interest semi-annually and return principal once a
year in guaranteed minimum payments. The expected average life of these
securities is approximately ten years.
RESETS OF INTEREST
The interest rates paid on the Adjustable Rate Mortgage Securities
("ARMS") and Collateralized Mortgage Obligations ("CMOs") in which the
Fund invests generally are readjusted at intervals of one year or less to
an increment over some predetermined interest rate index. There are two
main categories of indices: those based on United States Treasury
securities and those derived from a calculated measure, such as a cost of
funds index or a moving average of mortgage rates. Commonly utilized
indices include the one-year and five-year constant maturity Treasury Note
rates, the three-month Treasury Bill rate, the 180-day Treasury Bill rate,
rates on longer-term Treasury securities, the National Median Cost of
Funds, the one-month or three-month London Interbank Offered Rate (LIBOR),
the prime rate of a specific bank, or commercial paper rates. Some
indices, such as the one-year constant maturity Treasury Note rate,
closely mirror changes in market interest rate levels. Others tend to lag
changes in market rate levels and tend to be somewhat less volatile.
To the extent that the adjusted interest rate on the mortgage security
reflects current market rates, the market value of an adjustable rate
mortgage security will tend to be less sensitive to interest rate changes
than a fixed rate debt security of the same stated maturity. Hence,
adjustable rate mortgage securities which use indices that lag changes in
market rates should experience greater price volatility than adjustable
rate mortgage securities that closely mirror the market. Certain residual
interest tranches of CMOs may have adjustable interest rates that deviate
significantly from prevailing market rates, even after the interest rate
is reset, and are subject to correspondingly increased price volatility.
CAPS AND FLOORS
The underlying mortgages which collateralize the ARMS and CMOs in which
the Fund invests will frequently have caps and floors which limit the
maximum amount by which the loan rate to the residential borrower may
change up or down: (1) per reset or adjustment interval, and (2) over the
life of the loan. Some residential mortgage loans restrict periodic
adjustments by limiting changes in the borrower's monthly principal and
interest payments rather than limiting interest rate changes. These
payment caps may result in negative amortization.
The value of mortgage securities in which the Fund invests may be affected
if market interest rates rise or fall faster and farther than the
allowable caps of floors on the underlying residential mortgage loans.
Additionally, even though the interest rates on the underlying residential
mortgages are adjustable, amortization and prepayments may occur, thereby
causing the effective maturities of the mortgage securities in which the
Fund invests to be shorter than the maturities stated in the underlying
mortgages.
CREDIT ENHANCEMENT
Certain of the Fund's investments may have been credit enhanced by a
guaranty, letter of credit or insurance. The Fund typically evaluates the
credit quality and ratings of credit enhanced securities based upon the
financial condition and ratings of the party providing the credit
enhancement (the "credit enhancer"), rather than the issuer. Generally,
the Fund will not treat credit enhanced securities as having been issued
by the credit enhancer for diversification purposes. However, under
certain circumstances applicable regulations may require the Fund to treat
the securities as having been issued by both the issuer and the credit
enhancer. The bankruptcy, receivership or default of the credit enhancer
will adversely affect the quality and marketability of the underlying
security.
FLOATING RATE CORPORATE DEBT OBLIGATIONS
Increasing rate securities, which currently do not make up a significant
share of the market in corporate debt securities, are generally offered at an
initial interest rate which is at or above prevailing market rates. Interest
rates are reset periodically (most commonly every 90 days) at different
levels on a predetermined scale. These levels of interest are ordinarily set
at progressively higher increments over time. Some increasing rate securities
may, by agreement, revert to a fixed rate status. These securities may also
contain features which allow the issuer the option to convert the increasing
rate of interest to a fixed rate under such terms, conditions, and
limitations as are described in each issue's prospectus.
There are tax uncertainties with respect to whether increasing rate
securities will be treated as having an original issue discount. If it is
determined that the increasing rate securities have original issue discount,
a holder will be required to include as income in each taxable year, in
addition to interest paid on the security for that year, an amount equal to
the sum of the daily portions of original issue discount for each day during
the taxable year that such holder holds the security. There may also be tax
uncertainties with respect to whether an extension of maturity on an
increasing rate note will be treated as a taxable exchange. In the event it
is determined that an extension of maturity is a taxable exchange, a holder
will recognize a taxable gain or loss, which will be a short-term capital
gain or loss if he holds the security as a capital asset, to the extent that
the value of the security with an extended maturity differs from the adjusted
basis of the security deemed exchanged therefor.
FIXED RATE DEBT OBLIGATIONS
The Fund may invest in fixed rate corporate and government debt obligations.
Fixed rate securities tend to exhibit more price volatility during times of
rising or falling interest rates than securities with floating rates of
interest. This is because floating rate securities, as described above,
behave like short-term instruments in that the rate of interest they pay is
subject to periodic adjustments based on a designated interest rate index.
Fixed rate securities pay a fixed rate of interest and are more sensitive to
fluctuating interest rates. Fixed rate securities with short-term
characteristics are not subject to the same price volatility as fixed rate
securities without such characteristics. Therefore, they behave more like
floating rate securities with respect to price volatility.
TEMPORARY TAXABLE INVESTMENTS
At various times, but on a temporary basis only, the Fund may hold cash or
invest in securities other than municipal obligations. Income from such
securities may be taxable as ordinary income. Such temporary investments may
be made in any of the following circumstances, provided that such an
investment does not cause over 20% of the value of the Fund's total assets to
be so invested: (1) when assets are allocated for settlement of purchases;
(2) when net cash inflow from sales of the Fund's shares or sales of
portfolio securities is of a size which does not allow for prompt investment
in attractively priced municipal obligations; or (3) when highly liquid
assets are needed to meet anticipated redemptions.
In addition, in periods of adverse markets when it is deemed advisable and
practicable to take a temporary defensive position to protect capital, the
Fund may have a larger portion than 20% of its assets in temporary
investments or cash. In any event, the Fund intends to limit its holdings of
temporary taxable investments or cash to meet the requirements for federal
income tax exemption on the dividends it pays from its municipal obligations
or other income exempt from federal income tax.
Although on occasion the Fund may purchase temporary investments, it is the
Fund's intention to be invested primarily in municipal obligations. Temporary
investments will be made only under the conditions specified herein. A
description of the types of permissible temporary investments is set forth in
the Prospectus.
For a description of quality ratings of the eligible temporary investments
described in the Prospectus, see "Ratings of Obligations and Commercial
Paper" in this Statement of Additional Information.
OPTIONS TRANSACTIONS
Options on interest rate futures contracts are options to buy or sell
contracts for future delivery of specified United States Government
securities. Options on interest rate indices are options which give the
holder the right to receive cash under certain circumstances. Upon exercise
of a put option, an amount of cash is received if the closing level of the
particular index upon which the option is based is less than the exercise
price of the option. In the case of exercise of a call option, a holder has a
right to receive an amount of cash if the closing level is greater than the
exercise price.
Investing in put options on futures contracts affords the Fund the
opportunity to profit from any decrease in the market value of the contract
(usually resulting from a general increase in interest rates) which is
greater than the aggregate of the exercise price to sell (put) the contract
and the premium and commission paid to purchase the option. Conversely,
investing in a call option on a futures contract affords the Fund an
opportunity to profit from any increase in the market value of the contract
(usually resulting from a general decrease in interest rates) over the
aggregate of the exercise price, premium and commission.
The use of options on interest rate futures contracts and interest rate
indices involves risk. The effective use of options strategies is dependent,
among other things, on the Adviser's ability to terminate options positions
at a time when they deem it desirable to do so. Although the Fund will enter
into an option position only if the Adviser believes that a liquid secondary
market exists for such option, there is no assurance that the Fund will be
able to effect closing transactions at any particular time or at an
acceptable price. In addition, the secondary market for an option may become
more restricted the longer the option is held by the Fund or is outstanding
generally.
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. Because
index options are settled in cash, a call option writer cannot determine the
amount of its settlement obligation in advance. Index call options written
against the Fund's portfolio will be covered by owning securities, the
anticipated price changes of which, in the opinion of the Adviser, are
expected to be similar to those of the index. The Fund, in writing such
options, is likely to be required to maintain broker's margin in the form of
securities eligible for margin in a segregated account at the Company's
custodian. To the extent that the Adviser determines that the price level
risks of the Fund's portfolio do not substantially duplicate the risks of the
index involved, the Fund will maintain eligible securities in its custodial
account equal to its liability on a current basis.
When it writes a call option on an index, the Fund will assume the obligation
to pay the cash settlement amount upon receipt of notification that the
option has been exercised. Unless the Fund has cash on hand that is
sufficient to pay the cash settlement amount, it would be required to sell
securities it owned in order to satisfy the exercise notice. Because an
exercise must be settled within hours after receiving such notice, the Fund
could be forced to borrow money temporarily from a bank, pending receipt of
cash proceeds from selling portfolio securities. In general, the Fund will
not learn whether a call option has been exercised against it until the day
following the exercise date. When the Fund has written a call option, there
is also risk that the market may decline between the time the call option is
exercised (at a price that is fixed at the closing level of the index on the
day of exercise) and the time the Fund is able to raise sufficient cash to
satisfy the exercise notice.
OPTIONS ON INTEREST RATE FUTURES CONTRACTS
The Fund may purchase put and call options on interest rate futures contracts
solely as a hedge against adverse market conditions (in other words, to
offset against a decline in prices of current portfolio holdings or an
increase in prices of securities intended to be purchased). An interest rate
futures contract creates an obligation on the part of the seller to deliver,
and an offsetting obligation on the part of the purchaser to accept delivery
of, the type of financial instrument called for in the contract in a
specified delivery month for a stated price. A majority of transactions in
interest rate futures contracts, however, do not result in the actual
delivery of the underlying instrument, but are settled through liquidation
(by entering into an offsetting transaction). Currently, such futures
contracts are based on debt securities such as long-term United States
Treasury bonds and notes, GNMA modified pass-through mortgage-backed
securities, three-month United States Treasury bills and bank certificates of
deposit.
An interest rate futures contract provides for the future sale by one party
and the purchase by the other party of a certain amount of a specific
financial instrument (debt security) at a specified price, date, time and
place. An option on an interest rate futures contract, as contrasted with the
direct investment in such a contract, gives the purchaser the right, in
return for the premium paid, to assume a position in an interest rate futures
contract at a specified exercise price at any time prior to the expiration
date of the option. Options on interest rate futures contracts are similar to
options on securities, which give the purchaser the right, in return for the
premium paid, to purchase securities. A call option gives the purchaser of
such option the right to buy, and obliges its writer to sell, a specified
underlying futures contract at a specified exercise price at any time prior
to the expiration date of the option. A purchaser of a put option has the
right to sell, and the writer has the obligation to buy, such contract at the
exercise price during the option period. Upon exercise of an option, the
delivery of the futures position by the writer of the option to the holder of
the option will be accompanied by delivery of the accumulated balance in the
writer's future margin account, which represents the amount by which the
market price of the futures contract exceeds, in the case of a call, or is
less than, in the case of a put, the exercise price of the option on the
futures contract. If an option is exercised on the last trading day prior to
the expiration date of the option, the settlement will be made entirely in
cash equal to the difference between the exercise price of the option and the
closing price of the interest rate futures contract on the expiration date.
The potential loss related to the purchase of an option on interest rate
futures contracts is limited to the premium paid for the option (plus
transaction costs). Because the value of the option is fixed at the point of
sale, there are no daily cash payments to reflect changes in the value of the
underlying contract; however, the value of the option does change daily and
that change would be reflected in the net asset value of the Fund.
The Fund will purchase put and call options on interest rate futures
contracts which are traded on a United States exchange or board of trade as a
hedge against changes in interest rates, and will enter into closing
transactions with respect to such options to terminate existing positions.
The Fund will purchase put options on interest rate futures contracts
securities if the Adviser anticipates a rise in interest rates. The purchase
of put options on interest rate futures contracts is analogous to the
purchase of put options on debt securities so as to hedge a portfolio of debt
securities against the risk of rising interest rates. Because of the inverse
relationship between the trends in interest rates and values of debt
securities, a rise in interest rates would result in a decline in the value
of debt securities held in the Fund's portfolio. Because the value of an
interest rate futures contract moves inversely in relation to changes in
interest rates, as is the case with debt securities, a put option on such a
contract becomes more valuable as interest rates rise. By purchasing put
options on interest rate futures contracts at a time when the Adviser expects
interest rates to rise, the Fund will seek to realize a profit to offset the
loss in value of its portfolio securities, without the need to sell such
securities.
The Fund will purchase call options on interest rate futures contracts if the
Adviser anticipates a decline in interest rates. The purchase of a call
option on an interest rate futures contract represents a means of obtaining
temporary exposure to market appreciation at limited risk. It is analogous to
the purchase of a call option on an individual debt security, which can be
used as a substitute for a position in the debt security itself. Depending
upon the pricing of the option compared to either the futures contract upon
which it is based or to the price of the underlying debt securities, it may
or may not be less risky than ownership of the futures contract or underlying
debt. The Fund will purchase a call option on an interest rate futures
contract to hedge against a market advance when the Fund is holding cash. The
Fund can take advantage of the anticipated rise in the value of long-term
securities without actually buying them until the market has stabilized. At
that time, the options can be liquidated and the Fund's cash can be used to
buy long-term securities.
There are several risks relating to investments in options on interest rate
futures contracts. The holder of an option on a futures contract may
terminate its position by selling or purchasing an offsetting option of the
same series. There is no assurance that such closing transactions can be
effected by the Fund. The ability to establish and close out positions on
such options will be subject to the existence of a liquid secondary market.
In addition, the Fund's purchase of put or call options will be based upon
predictions as to anticipated interest rate trends by the Adviser, which
could prove to be inaccurate. Even if the expectations of the Adviser are
correct, there may be an imperfect correlation between the change in the
value of the options and of the Fund's portfolio securities.
The Commodity Futures Trading Commission (the "CFTC"), a federal agency,
regulates trading activity on the exchanges pursuant to the Commodity
Exchange Act, as amended. The CFTC requires the registration of "commodity
pool operators," which are defined as any person engaged in a business which
is of the nature of an investment trust, syndicate or a similar form of
enterprise, and who, in connection therewith, solicits, accepts or receives
from others funds, securities or property for the purpose of trading in any
commodity for future delivery on or subject to the rules of any contract
market. The CFTC has adopted Rule 4.5, which provides an exclusion from the
definition of commodity pool operator for any registered investment company
which (i) will use commodity futures or commodity options contracts solely
for bona fide hedging purposes (provided, however, that in the alternative,
with respect to each long position in a commodity future or commodity option
contact, an investment company may meet certain other tests set forth in Rule
4.5); (ii) will not enter into commodity futures and commodity options
contracts for which the aggregate initial margin and premiums exceed 5% of
its assets; (iii) will not be marketed to the public as a commodity pool or
as a vehicle for investing in commodity interests; (iv) will disclose to its
investors the purposes of and limitations on its commodity interest trading;
and (v) will submit to special calls of the CFTC for information. Any
investment company desiring to claim this exclusion must file a notice of
eligibility with both the CFTC and the National Futures Association. The
Trust has made such notice filings.
OPTIONS ON INTEREST RATE INDICES
Options on interest rate indices are similar to options on interest rate
futures contracts except that, rather than the right to take or make delivery
of a specific financial instrument at a specified price, an option on an
interest rate gives the holder the right to receive, upon exercise of the
option, an amount of cash if the closing value of the interest rate index
upon which the option is based is greater than, in the case of a call, or
lesser than, in the case of a put, the exercise price of the option. This
amount of cash is equal to the difference between the closing price of the
index and the exercise price of the option expressed in dollars times a
specified multiple (the "multiplier"). The writer of the option is obligated,
for the premium received, to make delivery of this amount. Unlike interest
rate futures options contracts, settlements for interest rate index options
are always in cash. Gain or loss depends on price movements in the interest
rate movements with respect to specific financial instruments. As with stock
index options, the multiplier for interest rate index options determines the
total dollar value per contract of each point in the difference between the
exercise price of an option and the current value of the underlying interest
rate index. Options on different indices may have different multipliers.
Trading in options on interest rate indices is expected to begin in the near
future. The ability to establish and close out positions on such options will
be subject to the development and maintenance of a liquid secondary market.
It is not certain that any market for such options will develop. As with
other types of options, the maximum amount at risk is the premium paid for
the options (plus transaction costs).
PORTFOLIO TURNOVER
Although the Fund does not intend to invest for the purpose of seeking
short-term profits, securities in its portfolio will be sold whenever the
Fund's investment adviser believes it is appropriate to do so in light of the
Fund's investment objective, without regard to the length of time a
particular security may have been held. It is not anticipated that the
portfolio trading engaged in by the Fund will result in its annual rate of
portfolio turnover exceeding 100%. For the period from February 19, 1993
(date of initial public investment) to November 30, 1993, the Fund's
portfolio turnover rate was 22%.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as may be necessary for
clearance of purchases and sales of portfolio securities. The deposit or
payment by the Fund of initial or variation margin in connection with
futures contracts or related options transactions is not considered the
purchase of a security on margin.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money directly or through reverse repurchase agreements as a temporary,
extraordinary, or emergency measure to facilitate management of the
portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous, and then only in amounts not in excess of one-third of
the value of its total assets; provided that, while borrowings and reverse
repurchase agreements outstanding exceed 5% of the Fund's total assets,
any such borrowings will be repaid before additional investments are made.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage purposes.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may pledge assets having a
market value not exceeding the lesser of the dollar amounts borrowed or
10% of its total assets at the time of the pledge. For purposes of this
limitation, the following are not deemed to be pledges: margin deposits
for the purchase and sale of futures contracts and related options, and
segregation or collateral arrangements made in connection with options
activities or the purchase of securities on a when-issued basis.
DIVERSIFICATION OF INVESTMENTS
With respect to 75% of the Fund's total assets, the Fund will not invest
more than 5% of its total assets in any one issuer (except cash and cash
items, repurchase agreements, and securities issued and/or guaranteed by
the U.S. government, its agencies or instrumentalities). (For purposes of
this limitation, the Fund considers instruments issued by a U.S. branch of
a domestic bank having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items.") Also, the
Fund will not purchase more than 10% of any class of the outstanding
voting securities of any one issuer. For these purposes, the Fund
considers common stock and all preferred stock of an issuer each as a
single class, regardless of priorities, series, designations, or other
differences.
Under this limitation, each governmental subdivision, including states and
the District of Columbia, territories and possessions of the United States
or their political subdivisions, agencies, authorities, instrumentalities,
or similar entities, will be considered a separate issuer if its assets
and revenues are separate from those of the governmental body creating it
and the security is backed only by its own assets and revenues.
Private activity bonds backed only by the assets and revenues of a
non-governmental user are considered to be issued solely by that user. If,
in the case of a private activity bond or government-issued security, a
governmental or other entity guarantees the security, such guarantee would
be considered a separate security issued by the guarantor as well as the
other issuer, subject to limited exclusions allowed by the Investment
Company Act of 1940.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such purchase,
25% or more of its total assets would be invested in any one industry or
in industrial development bonds or other securities, the interest upon
which is paid from revenues of similar type projects.
The Fund may invest, as temporary investments, 25% or more of its total
assets in cash or cash items (including demand deposits issued by a U.S.
branch of a domestic bank or savings and loan having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment),
securities issued and/or guaranteed by the U.S. government, its agencies
or instrumentalities, or instruments secured by these money market
instruments, such as repurchase agreements.
The Fund does not intend to purchase securities that would increase the
percentage of its total assets invested in the securities of governmental
subdivisions located in any one state, territory, or U.S. possession to
25% or more. However, the Fund may invest 25% or more of its total assets
in tax-exempt project notes guaranteed by the U.S. government, regardless
of the location of the issuing municipality.
If the value of Fund assets invested in the securities of a governmental
subdivision changes because of changing values, the Fund will not be
required to make any reduction in its holdings.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts, except that the Fund may purchase and sell
futures contracts and related options.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, including limited
partnership interests in real estate, although it may invest in securities
of companies whose business involves the purchase or sale of real estate
or in securities secured by real estate or interests in real estate.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except portfolio securities up
to one-third of its total assets. This shall not prevent the Fund from
purchasing or holding corporate or government bonds, debentures, notes,
certificates of indebtedness or other debt securities of an issuer,
entering into repurchase agreements, or engaging in other transactions
which are permitted by the Fund's investment objective and policies or the
Trust's Declaration of Trust.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in connection
with the sale of securities in accordance with its investment objective,
policies, and limitations.
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.
INVESTING IN RESTRICTED SECURITIES
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.
INVESTING IN ILLIQUID SECURITIES
The Fund will not 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. To comply with certain state
restrictions, the Fund will limit these transactions to 10% of its net
assets. (If state restrictions change, this latter restriction may be
revised without shareholder approval or notification.)
INVESTING IN MINERALS
The Fund will not purchase interests in oil, gas, other mineral
exploration or development programs, or mineral leases, although it may
purchase the securities of issuers that invest in or sponsor such
programs.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will limit its investment in other investment companies to no
more than 3% of the total outstanding voting stock of any investment
company, will invest no more than 5% of its total assets in any one
investment company, or invest more than 10% of its total assets in
investment companies in general. The Fund will purchase securities of
other investment companies only in open-market transactions involving only
customary broker's commissions. However, these limitations are not
applicable if the securities are acquired in a merger, consolidation, or
acquisition of assets. It should be noted that investment companies incur
certain expenses, such as management fees, and, therefore, any investment
by a fund in shares of another investment company would be subject to such
duplicate expenses. The adviser will waive its investment advisory fee on
assets invested in securities of open-end investment companies.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES
OF THE TRUST
The Fund will not purchase or retain the securities of any issuer if the
officers and Trustees of the Trust or its investment adviser, owning
individually more than 1/2 of 1% of the issuer's securities, together own
more than 5% of the issuer's securities.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of its total assets in industrial
development bonds where the payment of principal and interest is the
responsibility of companies, including their predecessors, with less than
three years of operating history.
ARBITRAGE TRANSACTIONS
The Fund will not enter into transactions for the purpose of engaging in
arbitrage.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value of total or net assets will
not result in a violation of such restriction. The Fund has no present
intention to borrow money in excess of 5% of the value of its net assets
during the coming fiscal year.
FIRST AMERICAN MUTUAL FUNDS MANAGEMENT
OFFICERS AND TRUSTEES
Officers and Trustees are listed with their addresses, principal occupations,
and present positions, including any affiliation with First Bank National
Association, SEI Financial Management Corporation, SEI Financial Services
Company, and the other Funds in the First American Family of Funds (First
American Investment Funds, Inc. ("FAIF") and First American Funds, Inc.
("FAF")).
<TABLE>
<CAPTION>
<S> <C>
NAME AND BUSINESS ADDRESS PRINCIPAL OCCUPATIONS
WELLES B. EASTMAN* TRUSTEE. DIRECTOR OF FAF SINCE JANUARY 1990 AND OF FAIF SINCE
998 SHADY LANE APRIL 1991; CHAIRMAN OF THE BOARD OF DIRECTORS OF ANNANDALE
WAYZATA, MINNESOTA 55391 STATE BANK, ANNANDALE, MINNESOTA; VICE PRESIDENT OF THE ADVISER
FROM 1968 AND VICE PRESIDENT OF THE INSTITUTIONAL TRUST GROUP
OF FIRST TRUST NATIONAL ASSOCIATION FROM 1986 UNTIL HIS
RETIREMENT IN DECEMBER 1988 FROM SUCH POSITIONS.
IRVING D. FISH TRUSTEE. DIRECTOR OF FAF SINCE 1984 AND OF FAIF SINCE APRIL
FALLON MCELLIGOTT, INC. 1991; PARTNER AND CHIEF FINANCIAL OFFICER OF FALLON MCELLIGOTT,
901 MARQUETTE, SUITE 3200 INC., A MINNEAPOLIS-BASED ADVERTISING AGENCY.
MINNEAPOLIS, MINNESOTA 55402
JOSEPH D. STRAUSS TRUSTEE. DIRECTOR OF FAF SINCE 1984 AND OF FAIF SINCE APRIL
7716 NORTH RIVERDALE ROAD 1991; CHAIRMAN OF FAF'S AND FAIF'S BOARDS SINCE 1992; PRESIDENT
BROOKLYN PARK, MINNESOTA 55444 OF FAF AND FAIF FROM JUNE 1989 TO NOVEMBER 1989; OWNER AND
PRESIDENT, STRAUSS MANAGEMENT COMPANY, SINCE 1993; OWNER AND
PRESIDENT, COMMUNITY RESOURCE PARTNERSHIPS INC., SINCE 1992;
ATTORNEY-AT-LAW.
VIRGINIA L. STRINGER TRUSTEE. DIRECTOR OF FAF SINCE APRIL 1991 AND OF FAIF SINCE
712 LINWOOD AVENUE AUGUST 1987; MANAGEMENT CONSULTANT; FORMER PRESIDENT AND
ST. PAUL, MINNESOTA 55105 DIRECTOR OF THE INVENTURE GROUP, INC., A MANAGEMENT CONSULTING
AND TRAINING COMPANY, SINCE AUGUST 1991; PRESIDENT OF SCOTT'S
CONSULTING, INC., A MANAGEMENT CONSULTING COMPANY, FROM 1989 TO
1991; PRESIDENT OF SCOTT'S, INC., A TRANSPORTATION COMPANY,
FROM 1989 TO 1990; VICE PRESIDENT OF HUMAN RESOURCES OF THE
PILLSBURY COMPANY, A FOOD MANUFACTURING COMPANY, FROM 1981 TO
1989.
GAE B. VEIT TRUSTEE. DIRECTOR OF FAIF AND FAF SINCE DECEMBER 7, 1993; OWNER
P.O. BOX 6 AND CEO OF SHINGOBEE BUILDERS, INC., A GENERAL CONTRACTOR.
LORETTO, MN 55357
CARMEN V. ROMEO TREASURER AND ASSISTANT SECRETARY OF THE TRUST BEGINNING APRIL
SEI CORPORATION 28, 1994 AND OF FAF AND FAIF BEGINNING NOVEMBER, 1992.
680 EAST SWEDESFORD ROAD DIRECTOR, EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND
WAYNE, PENNSYLVANIA 19087 TREASURER OF SEI, THE ADMINISTRATOR AND DISTRIBUTOR, SINCE
1981.
CARL A. GUARINO SENIOR VICE PRESIDENT OF THE TRUST BEGINNING APRIL 28, 1994 AND
SEI CORPORATION OF FAF AND FAIF BEGINNING NOVEMBER, 1992. SENIOR VICE PRESIDENT
680 EAST SWEDESFORD ROAD AND GENERAL COUNSEL OF SEI, THE ADMINISTRATOR AND DISTRIBUTOR
WAYNE, PENNSYLVANIA 19087 SINCE 1988. FROM 1986 TO 1988 MR. GUARINO WAS VICE PRESIDENT OF
DELAWARE MANAGEMENT COMPANY (INVESTMENT ADVISER).
KEVIN P. ROBINS VICE PRESIDENT AND ASSISTANT SECRETARY OF THE TRUST, FAIF AND
SEI CORPORATION FAF SINCE AUGUST 28, 1994. VICE PRESIDENT, ASSISTANT SECRETARY
680 EAST SWEDESFORD ROAD AND GENERAL COUNSEL OF THE ADMINISTRATOR AND THE DISTRIBUTOR.
WAYNE, PENNSYLVANIA 19087
KATHRYN STANTON VICE PRESIDENT AND ASSISTANT SECRETARY OF THE TRUST, FAIF AND
SEI CORPORATION FAF SINCE APRIL 28, 1994. VICE PRESIDENT AND ASSISTANT
680 EAST SWEDESFORD ROAD SECRETARY OF THE ADMINISTRATOR AND THE DISTRIBUTOR.
WAYNE, PENNSYLVANIA 19087
SANDRA K. ORLOW VICE PRESIDENT AND ASSISTANT SECRETARY OF THE TRUST BEGINNING
SEI CORPORATION APRIL 28, 1994 AND OF FAF AND FAIF BEGINNING NOVEMBER, 1992.
680 EAST SWEDESFORD ROAD VICE PRESIDENT AND ASSISTANT SECRETARY OF SEI, THE
WAYNE, PENNSYLVANIA 19087 ADMINISTRATOR AND DISTRIBUTOR, SINCE 1983.
JEAN YOUNG CONTROLLER OF THE TRUST, FAF AND FAIF BEGINNING JUNE 8, 1994.
SEI CORPORATION DIRECTOR OF DOMESTIC FUNDS ACCOUNTING OF THE ADMINISTRATOR
680 EAST SWEDESFORD ROAD SINCE 1993. SENIOR AUDIT MANAGER, ERNST & YOUNG PRIOR TO 1993.
WAYNE, PENNSYLVANIA 19087
DAVID LEE PRESIDENT OF THE TRUST, FAIF AND FAF SINCE APRIL 28, 1994.
SEI CORPORATION SENIOR VICE PRESIDENT AND ASSISTANT SECRETARY OF FAF AND FAIF
680 EAST SWEDESFORD ROAD BEGINNING JUNE 1, 1993. SENIOR VICE PRESIDENT OF THE
WAYNE, PENNSYLVANIA 19087 DISTRIBUTOR SINCE 1993. VICE PRESIDENT OF THE DISTRIBUTOR SINCE
1991. PRESIDENT, GW SIERRA TRUST FUNDS PRIOR TO 1991.
MICHAEL J. RADMER SECRETARY OF THE TRUST BEGINNING APRIL 28, 1994 AND OF FAF
220 SOUTH SIXTH STREET SINCE 1981 AND OF FAIF SINCE APRIL 1991; PARTNER OF DORSEY &
MINNEAPOLIS, MINNESOTA 55402 WHITNEY, A MINNEAPOLIS-BASED LAW FIRM AND GENERAL COUNSEL OF
FAF AND FAIF.
</TABLE>
*Denotes interested trustees (as that term is defined under the 1940 Act).
The First American Family of Funds (the "Funds") currently pay only to their
directors/trustees who are not paid employees of affiliates of the Funds a
fee of $8,400 per year plus $1,400 ($2,800 in the case of the Chairman) per
meeting of the Board attended and $400 per committee meeting attended and
reimburses travel expenses of directors/trustees and officers to attend Board
meetings. Legal fees and expenses are also paid to Dorsey & Whitney, the law
firm of which Michael J. Radmer is a partner.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will only be
liable for their own willful defaults. If reasonable care has been exercised
in the selection of officers, agents, employees, or investment advisers, a
Trustee shall not be liable for any neglect or wrongdoing of any such person.
However, they are not protected against any liability to which they would
otherwise be subject by reason of their willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of
their office.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUND
The Fund's investment adviser is First Bank National Association (the
"Adviser" or "FBNA"), a subsidiary of First Bank System, Inc.
The Adviser shall not be liable to the Trust, the Fund, or any shareholder of
the Fund for any losses that may be sustained in the selection, purchase,
holding, or sale of any security, or for anything done or omitted by it,
except acts or omissions involving willful misfeasance, bad faith,
negligence, or reckless disregard of the duties imposed upon it by its
contract with the Trust.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment advisory
fee as described in the prospectus. For the period from February 19, 1993
(date of initial public investment) to November 30, 1993, the former Adviser
earned advisory fees of $83,941, of which $76,691 was voluntarily waived.
STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses) exceed
2 1/2 % per year of the first $30 million of average net assets, 2% per
year of the next $70 million of average net assets, and 1 1/2 % per year
of the remaining average net assets, the Adviser will reimburse the Fund,
up to the full amount of its investment advisory fee, for the Fund's
expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this expense
limitation, the investment advisory fee paid will be reduced by the amount
of the excess, subject to an annual adjustment. If the expense limitation
is exceeded, the amount to be reimbursed by the Adviser will be limited,
in any single fiscal year, by the amount of the investment advisory fee.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
ADMINISTRATIVE SERVICES
SEI Financial Management Corporation ("SFM"), a wholly-owned subsidiary of
SEI Corporation ("SEI"), provides administrative personnel and services to
the Fund for a fee set forth in the prospectus. For the period from February
19, 1993 (date of initial public investment) to November 30, 1993, Federated
Administrative Services, the former Administrator, earned $38,493, of which
$37,233 was voluntarily waived.
John A. Staley, IV, a former officer of the Fund, holds approximately 15% of
the outstanding common stock and serves as a Director of Commercial Data
Services, Inc., a company which provides computer processing services to
Federated Administrative Services. For the fiscal year ended November 30,
1993, Federated Administrative Services paid approximately $164,324 for
services provided by Commercial Data Services, Inc.
CUSTODIAN; TRANSFER AGENT; COUNSEL; ACCOUNTANTS
The custodian of the Fund's assets is First Trust National Association (the
"Custodian"), First Trust Center, 180 East Fifth Street, St. Paul, Minnesota
55101. The Custodian is a subsidiary of FBS, which also controls the Adviser.
The Custodian takes no part in determining the investment policies of the
Fund or in deciding which securities are purchased or sold by the Fund. All
of the instruments representing the investments of the Fund and all cash is
held by the Custodian. The Custodian delivers securities against payment upon
sale and pays for securities against delivery upon purchase. The Custodian
also remits Fund assets in payment of Fund expenses, pursuant to instructions
of the Trust's officers or resolutions of the Board of Trustees.
The Custodian continues to serve so long as its appointment is approved at
least annually by the Board of Trustees including a majority of the Trustees
who are not interested persons (as defined under the 1940 Act) of the Trust.
Supervised Service Company, Kansas City, Missouri, is transfer agent for the
shares of the Fund and dividend disbursing agent for the Fund.
Dorsey & Whitney is independent General Counsel for the Funds.
KPMG Peat Marwick, 4200 Norwest Center, Minneapolis, Minnesota 55402, acts as
the Funds' independent auditors, providing audit services, including (1)
audits of the annual financial statements, (2) assistance and consultation in
connection with SEC filings, and (3) preparation or review of the annual
federal income tax returns filed on behalf of the Funds.
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE
Decisions with respect to placement of the Fund's portfolio transactions are
made by the Adviser. The Fund's policy is to seek to place portfolio
transactions with brokers or dealers who will execute transactions as
efficiently as possible and at the most favorable price. The Adviser may,
however, select a broker or dealer to effect a particular transaction without
communicating with all brokers or dealers who might be able to effect such
transaction because of the volatility of the market and the desire of the
Adviser to accept a particular price for a security because the price offered
by the broker or dealer meets guidelines for profit, yield or both. Many of
the portfolio transactions involve payment of a brokerage commission by the
Fund. In some cases, transactions are with firms who act as principal of
their own accounts and not as brokers. In effecting transactions in
over-the-counter securities, the Fund deals with market makers unless it
appears that better price and execution are available elsewhere. Generally,
the Fund will effect transactions on a principal basis; that is, with the
issuer or major dealers acting for their own account and not as brokers.
Transactions effected on a principal basis are made without the payment of
brokerage commissions but at net prices, which usually include a spread or
markup.
While the Adviser does not deem it practicable and in the Fund's best
interest to solicit competitive bids for commission rates on each
transaction, consideration will regularly be given by the Adviser to posted
commission rates as well as to other information concerning the level of
commissions charged on comparable transactions by other qualified brokers.
For the period ended November 30, 1993, the Fund paid no brokerage
commissions.
Subject to the policy of seeking favorable price and execution for the
transaction size and risk involved, in selecting brokers and dealers other
than the Distributor and determining commissions paid to them, the Adviser
may consider ability to provide supplemental performance, statistical and
other research information as well as computer hardware and software for
research purpose for consideration, analysis and evaluation by the staff of
the Adviser. In accordance with this policy, the Fund does not execute
brokerage transactions solely on the basis of the lowest commission rate
available for a particular transaction. Subject to the requirements of
favorable price and efficient execution, placement of orders by securities
firms for the purchase of shares of the Fund may be taken into account as a
factor in the allocation of portfolio transactions.
Research services that may be received by the Adviser would include advice,
both directly and in writing, as to the value of securities, the advisability
of investing in, purchasing, or selling securities, and the availability of
securities or purchasers or sellers of securities, as well as analyses and
reports concerning issues, industries, securities, economic factors and
trends, portfolio strategy, and the performance of accounts. The research
services may allow the Adviser to supplement its own investment research
activities and enable the Adviser to obtain the views and information of
individuals and research staffs of many different securities firms prior to
making investment decisions for the Fund. To the extent portfolio
transactions are effected with brokers and dealers who furnish research
services, the Adviser would receive a benefit, which is not capable of
evaluation in dollar amounts, without providing any direct monetary benefit
to the Fund from these transactions. Research services furnished by brokers
and dealers used by the Fund for portfolio transactions may be utilized by
the Adviser in connection with investment services for other accounts and,
likewise, research services provided by brokers and dealers used for
transactions of other accounts may be utilized by the Adviser in performing
services for the Fund. The Adviser determines the reasonableness of the
commissions paid in relation to its view of the value of the brokerage and
research services provided, considered in terms of the particular
transactions and its overall responsibilities with respect to all accounts as
to which it exercises investment discretion.
The Adviser has not entered into any formal or informal agreements with any
broker or dealer, and does not maintain any "formula" that must be followed
in connection with the placement of Fund portfolio transactions in exchange
for research services provided to the Adviser, except as noted below. The
Adviser may, from time to time, maintain an informal list of brokers and
dealers that will be used as a general guide in the placement of Fund
business in order to encourage certain brokers and dealers to provide the
Adviser with research services, which the Adviser anticipates will be useful
to it. Any list, if maintained, would be merely a general guide, which would
be used only after the primary criteria for the selection of brokers and
dealers (discussed above) had been met, and, accordingly, substantial
deviations from the list could occur. The Adviser would authorize the Fund to
pay an amount of commission for effecting a securities transaction in excess
of the amount of commission another broker or dealer would have charged only
if the Adviser determined in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research services
provided by such broker or dealer, viewed in terms of either that particular
transaction or the overall responsibilities of the Adviser with respect to
the Fund.
The Fund does not effect any brokerage transactions in its portfolio
securities with any broker or dealer affiliated directly or indirectly with
the Adviser or the Distributor unless such transactions, including the
frequency thereof, the receipt of commissions payable in connection
therewith, and the selection of the affiliated broker or dealer effecting
such transactions are not unfair or unreasonable to the shareholders of the
Fund, as determined by the Board of Trustees. Any transactions with an
affiliated broker or dealer must be on terms that are both at least as
favorable to the Fund as the Fund can obtain elsewhere and at least as
favorable as such affiliated broker or dealer normally gives to others.
When two or more clients of the Adviser are simultaneously engaged in the
purchase or sale of the same security, the prices and amounts are allocated
in accordance with a formula considered by the Adviser to be equitable to
each client. In some cases, this system could have a detrimental effect on
the price or volume of the security as far as each client is concerned. In
other cases, however, the ability of the clients to participate in volume
transactions will produce better executions for each client.
PURCHASING SHARES
Shares of the Fund are sold at their net asset value next determined after an
order is received, plus a sales charge as described in the prospectus, on
days the New York Stock Exchange and Federal Reserve Wire System are open for
business. The procedure for purchasing shares of the Fund is explained in the
prospectus under "Investing in the Fund."
DISTRIBUTION PLAN
With respect to the Fund, the Trust has adopted a distribution plan pursuant
to Rule 12b-1 which was promulgated by the Securities and Exchange Commission
pursuant to the Investment Company Act of 1940 (the "Plan"). The Plan
provides for payment of fees to the Distributor to finance any activity which
is principally intended to result in the sale of the Fund's shares subject to
the Plan. Such activities may include the advertising and marketing of shares
of the Fund; preparing, printing, and distributing prospectuses and sales
literature to prospective shareholders, brokers, or administrators; and
implementing and operating the Plan. Pursuant to the Plan, the Distributor
may pay fees to financial institutions, fiduciaries, custodians for public
funds, investment advisors, and brokers for distribution and administrative
services and to administrators for administrative services provided to the
Fund. The administrative services are provided by a representative who has
knowledge of the shareholder's particular circumstances and goals, and
include, but are not limited to: communicating account openings;
communicating account closings; entering purchase transactions; entering
redemption transactions; providing or arranging to provide accounting support
for all transactions; wiring funds and receiving funds for purchases and
redemptions of Fund shares; confirming and reconciling all transactions;
reviewing the activity in Fund accounts and providing training and
supervision of broker personnel; posting and reinvesting dividends to Fund
accounts or arranging for this service to be performed by the Fund's transfer
agent; and maintaining and distributing current copies of prospectuses and
shareholder reports to the beneficial owners of Fund shares and prospective
shareholders.
The Trustees expect that the adoption of the Plan will result in the sale of
a sufficient number of shares so as to allow the Fund to achieve economic
viability. It is also anticipated that an increase in the size of the Fund
will facilitate more efficient portfolio management and assist the Fund in
seeking to achieve its investment objective.
For the period from February 19, 1993 (date of initial public investment) to
November 30, 1993, no costs were incurred pursuant to this agreement.
ADMINISTRATIVE ARRANGEMENTS
The administrative services include, but are not limited to: providing office
space, equipment, telephone facilities, and various personnel, including
clerical, supervisory, and computer, as is necessary or beneficial to
establish and maintain shareholders' accounts and records; processing
purchase and redemption transactions; processing automatic investments of
client account cash balances; answering routine client inquiries regarding
the Fund; assisting clients in changing dividend options, account
designations, and addresses; and providing such other services as the Fund
may reasonably request.
For the period from February 19, 1993 (date of initial public investment) to
November 30, 1993, no fees were paid to brokers and administrators.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to invest its assets in securities as fully as
possible so that maximum interest may be earned. To this end, all payments
from shareholders must be in federal funds or be converted into federal funds
before shareholders begin to earn dividends.
EXCHANGING SECURITIES FOR FUND SHARES
Investors may exchange securities they already own for Fund shares, or they
may exchange a combination of securities and cash for Fund shares. Any
securities to be exchanged must meet the investment objective and policies of
the Fund, must have a readily ascertainable market value, must be liquid, and
must not be subject to restrictions on resale.
The Fund values such securities in the same manner as the Fund values its
assets. The basis of the exchange will depend upon the net asset value of
Fund shares on the day the securities are valued. One share of the Fund will
be issued for each equivalent amount of securities accepted.
Any interest earned on the securities prior to the exchange will be
considered in valuing the securities. All interest, dividends, subscription,
conversion, or other rights attached to the securities become the property of
the Fund, along with the securities.
TAX CONSEQUENCES
Exercise of this exchange privilege is currently treated as a sale for
federal income tax purposes. Depending upon the cost basis of the
securities exchanged for Fund shares, a gain or loss may be realized by
the investor.
DETERMINING NET ASSET VALUE
The net asset value generally changes each day. The days on which the net
asset value is calculated by the Fund are described in the prospectus.
VALUING MUNICIPAL SECURITIES
The Trustees use an independent pricing service to value municipal
securities. The independent pricing service may consider: yield; stability;
risk; quality; coupon rate; maturity; type of issue; trading characteristics;
special circumstances of a security or trading market; and any other factors
or market data it considers relevant in determining valuations for normal
institutional size trading units of debt securities and does not rely
exclusively on quoted prices.
EXCHANGE PRIVILEGE
REQUIREMENTS FOR EXCHANGING SHARES
Before the exchange, the shareholder must receive a prospectus of the fund of
the First American Family for which the exchange is being made. This
privilege is available to shareholders resident in any state in which the
fund shares being acquired may be sold. Upon receipt of proper instructions
and required supporting documents, shares submitted for exchange are
redeemed, and the proceeds are invested in shares of the other fund of the
First American Family.
REDEEMING SHARES
Shares of the Fund are redeemed at the next computed net asset value after
the Transfer Agent receives the redemption request. Redemption procedures are
explained in the prospectus under "Redeeming Shares."
REDEMPTION IN KIND
Although the Fund intends to redeem shares in cash, it reserves the right
under certain circumstances to pay the redemption price, in whole or in part,
by a distribution of securities from the Fund's portfolio.
Redemption in kind will be made in conformity with applicable rules of the
SEC, taking such securities at the same value employed in determining net
asset value and selecting the securities in a manner the Trustees determine
to be fair and equitable.
The Fund has elected to be governed by Rule 18f-1 of the Investment Company
Act of 1940 under which the Fund is obligated to redeem shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of the Fund's net
asset value during any 90-day period.
TAX STATUS
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
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. To qualify for this treatment, the Fund must,
among other requirements:
*derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
*derive less than 30% of its gross income from gains on the sale of
securities held less than three months;
*invest in securities within certain statutory limits; and
*distribute to its shareholders at least 90% of its net income earned
during the year.
TOTAL RETURN
The Fund's cumulative total return from February 19, 1993 to November 30,
1993, was (1.05%). Cumulative total return reflects the Fund's total
performance over a specific period of time. This total return assumes and is
reduced by the payment of the maximum sales load. The Funds total return is
representative of only nine months of Fund activity since the Fund's date of
initial public investment.
YIELD
The Fund's yield for the thirty-day period ended November 30, 1993, was
2.33%. The yield for the Fund is determined by dividing the net investment
income per share (as defined by the SEC) 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 value is then annualized using semi-annual compounding. This
means that the amount of income generated during the thirty-day period is
assumed to be generated each month over a twelve-month period and is
reinvested every six months. The yield does not necessarily reflect income
actually earned by the Fund because of certain adjustments required by the
SEC and, therefore, may not correlate to the dividends or other distributions
paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the
Fund, performance will be reduced for those shareholders paying those fees.
TAX-EQUIVALENT YIELD
The tax-equivalent yield for the Fund for the thirty-day period ended
November 30, 1993, was 3.24%, assuming an effective tax rate of 28%. 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 stated effective federal rate and assuming
that the income of the Fund is 100% tax-exempt.
TAX-EQUIVALENCY TABLE
The Fund may also use a tax-equivalency table in advertising and sales
literature. The interest earned by the municipal securities in the Fund's
portfolio generally remains free from federal regular income tax,* and is
often free from state and local taxes as well. As the table below indicates,
a "tax-free" investment is an attractive choice for investors, particularly
in times of narrow spreads between tax-free and taxable yields.
TAX-FREE YIELD VS. TAX-EQUIVALENT YIELD
<TABLE>
<CAPTION>
FEDERAL INCOME TAX BRACKET:
15.00% 28.00% 31.00% 36.00% 39.60%
<S> <C> <C> <C> <C> <C>
JOINT RETURN: $1-36,900 $36,901-89,150 $89,151-140,000 $140,001-250,000 OVER $250,000
SINGLE $1-22,100 $22,101-53,500 $53,501-115,000 $115,001-250,000 OVER $250,000
</TABLE>
RETURN:
TAX-EXEMPT YIELD
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT
<S> <C> <C> <C> <C> <C>
2.50% 2.94% 3.47% 3.62% 3.91% 4.14%
3.00% 3.53% 4.17% 4.35% 4.69% 4.97%
3.50% 4.12% 4.86% 5.07% 5.47% 5.79%
4.00% 4.71% 5.56% 5.80% 6.25% 6.62%
4.50% 5.29% 6.25% 6.52% 7.03% 7.45%
5.00% 5.88% 6.94% 7.25% 7.81% 8.28%
5.50% 6.47% 7.64% 7.97% 8.59% 9.11%
6.00% 7.06% 8.33% 8.70% 9.38% 9.93%
6.50% 7.65% 9.03% 9.42% 10.16% 10.76%
7.00% 8.24% 9.72% 10.14% 10.94% 11.59%
7.50% 8.82% 10.42% 10.87% 11.72% 12.42%
8.00% 9.41% 11.11% 11.59% 12.50% 13.25%
8.50% 10.00% 11.81% 12.32% 13.28% 14.07%
</TABLE>
NOTE: THE MAXIMUM MARGINAL TAX RATE FOR EACH BRACKET WAS USED IN CALCULATING
TAXABLE YIELD EQUIVALENT.
The chart above is for illustrative purposes only. It is not an indicator of
past or future performance of the Fund. The maximum marginal tax rate for
each bracket was used in calculating the taxable yield equivalent.
* Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local taxes.
PERFORMANCE COMPARISONS
The Fund's performance depends upon such variables as:
*portfolio quality;
*average portfolio maturity;
*type of instruments in which the portfolio is invested;
*changes in interest rates and market value of portfolio securities;
*changes in the Fund's expenses; and
*various other factors.
The Fund's performance fluctuates on a daily basis largely because net
earnings and offering price per share fluctuate daily. Both net earnings and
offering price per share are factors in the computation of yield and total
return. Investors may use financial publications and/or indices to obtain a
more complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors such as the composition of any
index used, prevailing market conditions, portfolio compositions of other
funds, and methods used to value portfolio securities and compute net asset
value. The financial publications and/or indices which the Fund uses in
advertising may include:
*LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories
by making comparative calculations using total return. Total return
assumes the reinvestment of all income dividends and capital gains
distributions, if any, and takes into account any change in net asset
value over a specified period of time. From time to time, the Fund will
quote its Lipper ranking in the "municipal funds" categories in
advertising and sales literature.
*MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for
two weeks. Advertisements and other sales literature for the Fund may
quote total returns which are calculated on non-standardized base
periods. These total returns represent the change, over a specified
period of time, in the value of an investment in the Fund based on
monthly reinvestment of dividends and other investments.
Advertisements may quote performance information that does not reflect the
effect of the sales load.
RATINGS OF OBLIGATIONS AND COMMERCIAL PAPER
A rating of a rating service represents that service's opinion as to the
credit quality of the rated security. However, such ratings are general and
cannot be considered absolute standards of quality or guarantees as to the
creditworthiness of an issuer. A rating is not a recommendation to purchase,
sell or hold a security, because it does not take into account market value
or suitability for a particular investor. When a security has been rated by
more than one service, each rating should be evaluated independently. Ratings
are based on current information furnished by the issuer or obtained by the
rating services from other sources which they consider reliable. Ratings may
be changed, suspended or withdrawn as a result of changes in or
unavailability of such information, or for other reasons.
RATINGS OF CORPORATE OBLIGATIONS AND MUNICIPAL BONDS
MOODY'S INVESTORS SERVICE, INC.
AAA: Securities which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large or
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
AA: Securities which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally
known as high grade securities. They are rated lower than the best
securities because margins of protection may not be as large as in Aaa
securities, or fluctuation of protective elements may be of greater
magnitude, or there may be other elements present which make the long-term
risks appear somewhat greater than in Aaa securities.
A: Securities which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to impairment
sometime in the future.
BAA: Securities which are rated Baa are considered as medium grade
obligations, being neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such securities lack outstanding
investment characteristics, and in fact have some speculative
characteristics.
Those securities in the Aa, A and Baa groups which Moody's believes
possess the strongest investment attributes are designated by the symbols
Aa-1, A-1 and Baa-1. Other Aa, A and Baa securities comprise the balance
of their respective groups. These rankings (1) designate the securities
which offer the maximum in security within their quality groups, (2)
designate securities which can be bought for possible upgrading in
quality, and (3) additionally afford the investor an opportunity to gauge
more precisely the relative attractiveness of offerings in the
marketplace.
STANDARD & POOR'S CORPORATION
AAA: Securities rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal
is extremely strong.
AA: Securities rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only to a small
degree.
A: Securities rated A have a strong capacity to pay interest and repay
principal, although they are somewhat more susceptible to adverse effects
of changes in circumstances and economic conditions than bonds in higher
rated categories.
BBB: Securities rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. Although such securities normally
exhibit adequate protection standards, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to
pay interest and repay principal for securities in this category than for
those in higher rated categories.
The ratings from AA to BBB may be modified by the addition of a plus (+)
or minus (-) sign to show relative standing within the major rating
categories.
RATINGS OF MUNICIPAL NOTES
MOODY'S INVESTORS SERVICE, INC.
Generally, Moody's ratings for state and municipal short-term obligations
are designated Moody's Investment Grade ("MIG"); however, where an issue
has a demand feature which makes the issue a variable rate demand
obligation, the applicable Moody's rating is "VMIG."
MIG 1/VMIG 1: This designation denotes the best quality. There is strong
protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2: This designation denotes high quality, with margins of
protection ample although not so large as available in the preceding
group.
MIG 3/VMIG 3: This designation denotes favorable quality, with all
security elements accounted for, but lacking the strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access
for refinancing, is likely to be less well established.
STANDARD & POOR'S CORPORATION
SP-1: Very strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics are
given a plus (+) designation.
SP-2: Satisfactory capacity to pay principal and interest.
SP-3: Speculative capacity to pay principal and interest.
The Fund will purchase only SP-1, MIG1/VMIG1 or equivalent rated municipal
notes.
RATINGS OF COMMERCIAL PAPER
MOODY'S INVESTORS SERVICE, INC.
Moody's commercial paper ratings are opinions as to the ability of the
issuers to timely repay promissory obligations not having an original
maturity in excess of nine months. Moody's makes no representation that
such obligations are exempt from registration under the Securities Act of
1933, and it does not represent that any specific instrument is a valid
obligation of a rated issuer or issued in conformity with any applicable
law. Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment capacity of rated
issuers:
PRIME-1: Superior capacity for repayment
PRIME-2: Strong capacity for repayment
PRIME-3: Acceptable capacity for repayment
STANDARD & POOR'S CORPORATION
Commercial paper ratings are graded into four categories, ranging from "A"
for the highest quality obligations to "D" for the lowest. Issues assigned
the A rating are regarded as having the greatest capacity for timely
payment. Issues in this category are further refined with the designation
1, 2 and 3 to indicate the relative degree of safety. The "A-1"
designation indicates that the degree of safety regarding timely payment
is very strong. Those issues determined to possess overwhelming safety
characteristics will be denoted with a plus (+) symbol designation.
The Fund will only purchase commercial paper rated Prime-1, A-1 or higher,
or of equivalent quality.
BOULEVARD MANAGED MUNICIPAL FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1993
<TABLE>
<CAPTION>
CREDIT
RATINGS;
SHARES OR MOODY'SOR
PRINCIPAL S&P*
AMOUNT (UNAUDITED) VALUE
<S> <C> <C> <C>
SHORT-TERM SECURITIES--6.7%
MUTUAL FUND SHARES--4.1%
$364,877 DREYFUS TAX EXEMPT CASH MANAGEMENT TRUST AAA $ 364,877
428,123 SEI TAX EXEMPT TRUST NR 428,123
TOTAL MUTUAL FUND SHARES 793,000
SHORT-TERM MUNICIPAL SECURITIES--2.6%
500,000 LOUISIANA STATE, PUBLIC AUTHORITY HOSPITAL, WEEKLY VRDN,
(MBIA INSURED) AAA 500,000
TOTAL SHORT-TERM SECURITIES
(AT AMORTIZED COST AND AT NET ASSET VALUE--NOTE 2A) 1,293,000
LONG-TERM MUNICIPAL SECURITIES--93.1%
ALASKA--2.4%
200,000 ALASKA STATE, 9.50%, CTFS PARTNERSHIP IN RENT
(SPRING CREEK CORRECTIONAL CENTER), 10/1/2000 AAA 225,626
225,000 ANCHORAGE, AK, 9.00%, ELECTRIC UTILITY REVENUE BONDS,
PRE-REF 12/1/93 AAA 229,539
TOTAL 455,165
ARIZONA--4.6%
250,000 ARIZONA STATE, 2.80%, POWER AUTHORITY BONDS
(HOOVER DAM PROJECT)/(MBIA INSURED), 10/1/94 AAA 249,932
300,000 MARICOPA COUNTY, AZ, 0.00%, SCHOOL DISTRICT NO. 41
(GILBERT) BONDS (FGIC INSURED), 7/1/94 AAA 294,366
50,000 MARICOPA COUNTY, AZ, 7.00%, SCHOOL DISTRICT NO. 80 BONDS
(FGIC INSURED), 7/1/96 AAA 51,690
50,000 MESA, AZ, 5.00%, (MEWSA ARIZONA)/(AMBAC INSURED), 7/1/94 AAA 50,592
230,000 SALT RIVER, AZ, 9.625%, AGRICULTURAL IMPACT & POWER DISTRICT
(SERIES 1983), 1/1/2023 AAA 235,934
TOTAL 882,514
CALIFORNIA--3.8%
250,000 LOS ANGELES, CA, JUDGEMENT OBLIGATION BONDS, 4.75%, (SERIES
A), 2/1/95 AA- 254,167
200,000 SAN DIEGO, CA, 3.00%, TAX ANTICIPATION NOTE, 6/30/94 SP-1+ 200,584
300,000 SAN MARCOS, CA, 0.00%, CTFS (ETM), 3/2/95 AAA 285,798
TOTAL 740,549
COLORADO--1.0%
$200,000 DENVER, COLORADO CITY & COUNTY, 7.75%, GO, 8/1/94 AA $ 206,562
CONNECTICUT--1.9%
150,000 CONNECTICUT STATE, 6.20%, LTGO, (SERIES B), 7/15/95 AA- 157,329
200,000 CONNECTICUT STATE, 7.125% LTGO, (SERIES A), 3/1/94 AA- 202,252
TOTAL 359,581
DELAWARE--1.0%
200,000 DELAWARE STATE, 5.00%, TRANSPORTATION AUTHORITY REVENUE
BONDS, 7/1/94 AA- 202,368
FLORIDA--3.7%
200,000 DADE COUNTY, FL, 3.50%, WATER SYSTEMS REVENUE BONDS (FGIC
INSURED), 6/1/94 AAA 200,614
200,000 JACKSONVILLE, FL, 5.45%, ELECTRIC AUTHORITY REVENUE BONDS,
10/1/94 AA 204,006
300,000 MIAMI BEACH, FL, 3.30% GO REFUNDING BONDS,
(FGIC INSURED), 9/1/94 AAA 301,101
TOTAL 705,721
GEORGIA--1.9%
325,000 GEORGIA MUNICIPAL ELECTRIC AUTHORITY POWER, 10.75%, REVENUE
BONDS (SERIES J), (AMBAC INSURED), PRE-REF 1/1/95 AAA 361,250
HAWAII--1.3%
250,000 HAWAII STATE, 6.125%, GO (SERIES BK), 4/1/94 AA 252,825
INDIANA--2.6%
215,000 INDIANAPOLIS, INDIANA, 4.85%, LOCAL PUBLIC IMPROVEMENT
BONDS, (SERIES A), 1/10/95 AA+ 217,962
270,000 NEW ALBANY, INDIANA, 5.20%, SEWAGE WORKS REVENUE BOND (AMBAC
INSURED), 9/1/95 AAA 278,510
TOTAL 496,472
ILLINOIS--11.3%
250,000 CHICAGO, IL, 7.80%, WATER REVENUE BONDS (CHICAGO, IL,
WATERWORKS)/(FGIC INSURED), (ETM), 11/1/94 AAA 260,955
100,000 DU PAGE WATER COMMISSION OF ILLINOIS, 5.50%, WATER REVENUE
BONDS, 5/1/94 AA- 101,076
155,000 ILLINOIS, 4.00%, EDUCATIONAL FACILITIES BONDS (COLUMBIA
COLLEGE), 12/1/94 BBB 155,170
$300,000 ILLINOIS, 9.00%, DEVELOPMENT FINANCIAL AUTHORITY REVENUE
SCHOOL DISTRICT BONDS, (PG-GENEVA SCHOOL 304
PROJECT)/(FGIC INSURED), 6/1/94 AAA $ 308,808
225,000 ILLINOIS EDUCATIONAL FACILITY AUTHORITY, 3.90%, (RFDG-ART
INSTITUTE OF CHICAGO), 3/1/95 A 226,606
300,000 ILLINOIS, 3.25% HEALTH FACILITIES AUTHORITY REVENUE BONDS
(SERIES C)/(RFDG-LUTHERAN GENERAL HEALTH), 4/1/94 A 299,541
200,000 ILLINOIS METROPOLITAN PIER & EXPOSITION AUTHORITY, 0.00%,
REVENUE BONDS (AMBAC INSURED), 12/15/94 AAA 193,296
200,000 ILLINOIS STATE, 3.25%, SALES TAX REVENUE BONDS (SERIES
S), 6/15/95 AA 200,234
200,000 ROCKFORD, IL, 4.25%, PARK DISTRICT $200,000 BONDS (SERIES
A), 1/1/95 A1 201,768
235,000 WILL COUNTY, IL, 9.00%, WILL COUNTY SCHOOL DISTRICT 122
BONDS (FGIC INSURED), 3/1/94 AAA 238,496
TOTAL 2,185,950
IOWA--2.1%
150,000 CEDAR RAPIDS, IA, 3.70%, HOSPITAL FACILITIES REVENUE BONDS
(ST. LUKE'S METHODIST HOSPITAL PROJECT)/(FGIC INSURED),
8/15/94 AAA 150,640
250,000 IOWA SCHOOL CORP., 4.10%, WT/CTFS CAPITAL BONDS, 12/30/93 SP-1 250,319
TOTAL 400,959
KENTUCKY--1.5%
250,000 KENTON COUNTY, KY, 9.30%, HOSPITAL FACILITY REVENUE BONDS,
(ST. ELIZABETH MEDICAL CENTER), PRE-REF 11/1/95 AAA 282,812
LOUISIANA--1.7%
135,000 LOUISIANA STATE, 4.20%, OFFSHORE TERM AUTHORITY DEEPWATER
PORT REVENUE BONDS, 9/1/94 A 135,797
200,000 LOUISIANA STATE, 4.60%, OFFSHORE TERM BOND (SERIES B),
(LOOP INC.), 9/1/95 A 201,898
TOTAL 337,695
MAINE--1.3%
250,000 STATE OF MAINE, 4.50%, EDUCATIONAL LOAN MARKETING CORP.
REVENUE BONDS, 2 (NATIONAL WESTMINISTER LOC), 12/1/2009 AA2 250,862
MARYLAND--1.0%
$200,000 BALTIMORE, MD, 2.85%, REVENUE BONDS (WATER PROJECT)/(MBIA
INSURED), OPTIONAL TENDER, 1/15/94 AAA $ 200,000
MASSACHUSETTS--2.3%
250,000 MASSACHUSETTS STATE, 3.60%, PORT AUTHORITY REVENUE BONDS
(SERIES A), 7/1/95 AA- 250,950
200,000 MASSACHUSETTS STATE, 4.125%, BAN (WATER RESOURCE
AUTHORITY), 10/15/95 VMIG-1 202,278
TOTAL 453,228
MINNESOTA--2.6%
250,000 ROSEMONT, MN, 5.40%, INDEPENDENT SCHOOL DISTRICT NO. 196
BONDS, 2/1/94 A 251,057
225,000 WESTERN MINNESOTA, 9.50%, MUNICIPAL POWER AGENCY SUPPLY
REVENUE BONDS (SERIES A), PRE-REF 1/1/96 AAA 256,297
TOTAL 507,354
NEBRASKA--3.1%
300,000 OMAHA, NE, 3.40%, PUBLIC POWER DISTRICT NEBRASKA ELECTRIC
REVENUE BONDS (SERIES B), 2/1/95 AA 300,810
300,000 OMAHA, NE, 3.30%, PUBLIC POWER DISTRICT NEBRASKA ELECTRIC
REVENUE BONDS (SERIES D), 2/1/95 AA 300,501
TOTAL 601,311
NEVADA--1.7%
300,000 LAS VEGAS VALLEY, NV, 9.50% WATER DISTRICT (AMBAC INSURED),
8/1/95 AAA 328,398
NEW JERSEY--1.3%
250,000 NEW JERSEY STATE, 6.55%, HIGHWAY AUTHORITY GARDEN STATE
PARKWAY GENERAL REVENUE BONDS, 1/1/94 AA- 250,833
NEW MEXICO--1.7%
300,000 ALBUQUERQUE, NM, 8.25%, GROSS RECEIPT SALES TAX REVENUE,
7/1/2014 AA 324,258
NORTH CAROLINA--1.6%
300,000 NORTH CAROLINA, 5.90%, COASTAL REGIONAL SOLID WASTE
MANAGEMENT AUTHORITY REVENUE BONDS (ETM), 6/1/94 NR 304,257
OHIO--5.0%
$200,000 COLUMBUS, OH, 4.75%, LIGHT & WATER WORKS, 9/15/94 AA+ $ 203,212
300,000 OHIO STATE, 2.70%, AIR QUALITY DEVELOPMENT AUTHORITY REVENUE
BONDS (RFDG-BUCKEYE POWER, INC. PROJECT), 8/1/94 AA- 299,598
200,000 OHIO STATE, 3.25%, BUILDING AUTHORITY (WILLIAM GREEN
BUILDING), 4/1/95 A+ 199,966
250,000 OHIO STATE, 7.20%, PUBLIC FACILITIES COMMISSION HIGHER
EDUCATION BONDS (SERIES A), 5/1/94 A+ 254,490
TOTAL 957,266
PENNSYLVANIA--1.1%
205,000 PITTSBURGH, PA, 2.75%, SCHOOL DISTRICT (SERIES B)/(FGIC
INSURED), 9/1/94 AAA 204,767
RHODE ISLAND--1.1%
200,000 STATE OF RHODE ISLAND, 6.90%, LTGO, 6/15/95 AA- 210,239
SOUTH CAROLINA--1.0%
200,000 GREENVILLE COUNTY, SC, 4.80%, UTGO, 12/1/93 AA 200,000
TENNESSEE--3.5%
225,000 CHATTANOOGA, TN, 8.70%, 4/1/97 AAA 247,953
100,000 KNOXVILLE, TN, 4.20%, WATER REVENUE BONDS, 3/1/95 AA 101,202
300,000 METROPOLITAN GOVERNMENT, TN, 9.60%, NASHVILLE & DAVIDSON
COUNTIES CONVENTION BONDS, PRE-REF 3/1/95 AAA 329,679
TOTAL 678,834
TEXAS--9.6%
200,000 HARRIS COUNTY, TX, 9.75%, FLOOD CONTROL BONDS (SERIES 1984),
PRE-REF 12/1/94 AAA 213,589
100,000 ROWLETT, TX, 10.35%, WATERWORKS SEWAGE SYSTEMS BONDS (AMBAC
INSURED), PRE-REF 3/1/94 AAA 101,899
300,000 PANHANDLE-PLAINS, TX, 3.65%, HIGHER EDUCATION AUTHORITY,
INC. STUDENT LOAN REVENUE BONDS (SERIES A), 6/1/2021,
PUTABLE 3/2/95 AAA 300,072
250,000 SAN ANTONIO, TEXAS, 8.00%, GO, 8/1/95 AA 269,551
300,000 TEXAS STATE, 4.15%, RFDG--SUPERCONDUCTING (SERIES C), GO,
4/1/95 AA 303,921
200,000 TEXAS STATE PARK, 8.00%, UTGO, PRE-REF 10/1/95 AA 216,597
$200,000 TEXAS TECH. UNIVERSITY REVENUE BONDS, 3.35%,
(TEXAS TECH. HEALTH SCIENCE CENTER), 2/15/95 AA $ 200,462
100,000 TYLER, TX, 8.40%, INDEPENDENT SCHOOL DISTRICT BONDS,
2/15/97, PRE-REF 2/15/95 AAA 106,403
150,000 WYLIE, TX, 8.50%, UTGO INDEPENDENT SCHOOL DISTRICT
BONDS, 2/15/94 AAA 151,728
TOTAL 1,864,222
UTAH--1.7%
300,000 INTERMOUNTAIN POWER AGENCY, 9.25%, UTAH POWER BONDS (1985
SERIES A), 7/1/96 AAA 335,265
VIRGINIA--1.1%
200,000 VIRGINIA BEACH, VA, 3.35%, GO BONDS, 7/15/95 AA 201,033
WASHINGTON--6.2%
300,000 KING COUNTY, WA, 4.60%, UTGO YOUTH SERVICE CENTER, PARKS
& ARTERIAL IMPACTS BONDS (ETM), 10/1/94 AAA 304,420
300,000 SEATTLE, WA, 3.45%, MUNICIPAL LIGHT & POWER REVENUE BONDS,
5/1/95 AA 301,146
300,000 WASHINGTON STATE, 3.50%, PUBLIC POWER SUPPLY SYSTEM NUCLEAR
PROJECT NO. 3, 7/1/95 AA 300,082
300,000 WASHINGTON STATE, 3.40%, (RFDG-SERIES R-94A), 8/1/95 AA 301,488
TOTAL 1,207,136
WISCONSIN-5.4%
200,000 KENOSHA, WI, 3.80%, GO PROMISSORY NOTES (SERIES A)/ (AMBAC
INSURED), 4/1/95 AAA 201,447
175,000 KENOSHA, WI, 5.45%, GO UNIVERSITY SCHOOL DISTRICT NO. 001
PROMISSORY NOTES, 4/1/94 A1 176,569
200,000 MILWAUKEE, WI, 3.75%(SERIES B3), 6/15/95 AA+ 201,609
250,000 OSHKOSH, WI, 9.15%, GO, 5/1/94 A 256,342
200,000 SOUTH COLUMBIA, 4.80% BASIN IRRIGATION DISTRICT, 12/1/95 AA 205,761
TOTAL 1,041,728
TOTAL LONG-TERM MUNICIPAL SECURITIES
(IDENITIFED COST, $17,955,813) 17,991,414
TOTAL INVESTMENTS (IDENTIFIED COST, $19,284,414) $19,248,813+
</TABLE>
See Notes which are an integral part of the Financial Statements.
* See Notes to Portfolio of Investments on page 30 (unaudited).
+ The cost of investments for federal tax purposes amounts to $19,248,813.
The net unrealized appreciation on a federal tax basis amounts to $35,601
which is comprised of $41,327 appreciation and $5,726 depreciation at
November 30, 1993.
Note: The categories of investments are shown as a percentage of net assets
of ($19,329,829) at November 30, 1993.
The following abbreviations are used throughout this portfolio:
AMBAC--American Municipal Bond Assurance Corp.BAN--Bond Anticipation Note
CTFS--Certificates of ParticipationETM--Escrowed to Maturity FGIC--Financial
Guaranty Insurance Co. GO--General Obligation LTGO--Limited Tax General
Obligation LOC--Letter of Credit MBIA--Municipal Bond Investors Assurance
Corp.PRE-REF--Pre-Refunded RFDG--Refunding UTGO--Unlimited Tax General
Obligation VRDN--Variable Rate Demand Note WT/CTFS--Warrant Certificates
BOULEVARD MANAGED MUNICIPAL FUND
NOTES TO PORTFOLIO OF INVESTMENTS
(UNAUDITED)
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
S&P
A Standard & Poor's note rating reflects the liquidity concerns and market
access risks unique to notes.
SP-1
Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
SP-2
Satisfactory capacity to pay principal and interest.
MOODY'S
Moody's short-term ratings are designated Moody's Investment Grade (MIG or
VMIG (see below)). The purpose of the MIG or VMIG ratings is to provide
investors with a simple system by which the relative investment qualities of
short-term obligations may be evaluated.
MIG1
This designation denotes best quality. There is present strong protection by
established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG2
This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
FITCH
Fitch's short term ratings place greater emphasis on the existence of
liquidity necessary to meet the issuers obligations in a timely manner.
F-1
Strongest degree of assurance for timely payment. Those issues determined to
provide exceptionally strong credit quality are given a plus (+) designation.
F-2
Notes reflecting a degree of assurance for timely payment only slightly less
in degree than the highest category.
VARIABLE RATE DEMAND NOTES (VRDNS) AND
TENDER OPTION BONDS (TOBS) RATINGS
S&P
Standard & Poor's assigns dual ratings to all long-term debt issues that have
as part of their provisions a variable rate demand feature. The first rating
(long-term rating) addresses the likelihood of repayment of principal and
interest when due, and the second rating (short-term rating) describes the
demand characteristics. Several examples are AAA/A-1+, AA/A-1+, and A/A-1.
(The definitions for the long-term and short-term ratings are provided
below.)
MOODY'S
Short-term ratings on issues with demand features are differentiated by the
use of the VMIG symbol to reflect such characteristics as payment upon
periodic demand rather than fixed maturity rates and payment relying on
external liquidity.
In this case, two ratings are usually assigned, (for example, Aaa/VMIG-1);
the first representing an evaluation of the degree of risk associated with
scheduled principal and interest payments, and the second representing an
evaluation of the degree of risk associated with the demand feature. The VMIG
rating can be assigned a 1 or 2 designation using the same definitions
described above for the MIG rating.
FITCH
Fitch usually assigns two ratings to long-term debt issues that include
provisions for a variable rate demand feature. The long-term rating addresses
the ability of the obligor to pay debt service and the short-term rating
addresses the timely payment of the demand feature. Examples of rating
designations are as follows: AAA/F-1+, AA/F-1+, A/F-1. (The definitions for
the long-term and short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
S&P
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more
than 365 days.
A-1
This designation indicates that the degree of safety regarding timely payment
is either overwhelming or very strong. Those issues determined to possess
overwhelming safety characteristics are denoted with a plus (+) sign
designation.
A-2
Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues
designated "A-1."
MOODY'S
P-1
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations.
P-2
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations.
The following is an explanation of the Fitch ratings. These ratings are not
referenced in the Portfolio of Investments.
FITCH
F-1
Issues assigned this rating reflect a strong degree of assurance for timely
payment. Those issuers determined to possess the strongest degree of
assurance for timely payment, are denoted with a plus (+) sign designation.
F-2
Issuers carrying this rating have a satisfactory degree of assurance for
timely payment but the margin of safety is not as great as the "F-1+" and
"F-1" categories.
LONG TERM DEBT RATINGS
(INVESTMENT GRADE)
S&P
AAA
Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA
Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only a small degree.
A
Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB
Debt rated "BBB" is regarding as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest than debt
rated in higher ratings categories.
MOODY'S
Aaa
Bonds that are rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large margin and principal is
secure. While the various protective elements are likely to change, such
changes which can be foreseen are most unlikely to impair the fundamentally
strong position of such issues.
Aa
Bonds that are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
in Aaa securities.
A
Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be
present that suggest a susceptibility to impairment some time in the future.
Baa
Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well.
FITCH
AAA
Bonds that are rated AAA are of the highest credit quality. The obligor has
an exceptionally strong ability to pay debt service.
AA
Bonds that are rated AA are of very high quality. The obligor has a very
strong ability to pay debt service. Debt rated in this category may also have
a (+) or (-) sign with a rating to indicate the relative position within the
rating category.
A
Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB
Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however,
are more likely to have adverse impact on these bonds, and therefore impair
timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings.
NR indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P, Moody's, or Fitch with respect to short-term
indebtedness. However, management considers them to be of comparable quality
to securities rated in one of the two highest short-term ratings categories
by a nationally recognized statistical ratings organization.
NR(1)
The underlying issuer/obligor/guarantor has other outstanding long-term debt
rated "AAA" by Standard & Poor's, "Aaa" by Moody's or "AAA" by Fitch.
NR(2)
The underlying issuer/obligor/guarantor has other outstanding long-term debt
rated "AA" by Standard & Poor's, "Aa" by Moody's, or "AA" by Fitch.
NR(3)
The underlying issuer/obligor/guarantor has other outstanding long-term debt
rated "A" by Standard & Poor's, Moody's, or Fitch.
NR(4)
The underlying issuer/obligor/guarantor has other outstanding long-term debt
rated "BBB" by Standard & Poor's, "Baa" by Moody's, or "BBB" by Fitch.
BOULEVARD MANAGED MUNICIPAL FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1993
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
INVESTMENTS IN SECURITIES, AT VALUE (NOTE 2A) $19,284,414
(IDENTIFIED AND TAX COST: $19,248,813)
INTEREST RECEIVABLE 307,385
DEFERRED EXPENSES (NOTE 2E) 12,622
TOTAL ASSETS 19,604,421
LIABILITIES:
PAYABLE TO CUSTODIAN (NOTE 5) $200,838
PAYABLE FOR FUND SHARES REDEEMED 5,090
ACCRUED EXPENSES AND OTHER LIABILITIES 68,664
TOTAL LIABILITIES 274,592
NET ASSETS for 1,927,503 shares of beneficial interest $19,329,829
outstanding
NET ASSETS CONSIST OF:
PAID-IN CAPITAL $19,284,589
NET UNREALIZED APPRECIATION OF INVESTMENTS 35,601
ACCUMULATED NET REALIZED LOSS ON INVESTMENTS (1,667)
UNDISTRIBUTED NET INVESTMENT INCOME 11,306
TOTAL $19,329,829
NET ASSET VALUE, and Redemption Price Per Share $ 10.03
($19,329,829 / 1,927,503 shares of beneficial interest
outstanding)
Computation of Offering Price:*
Offering Price Per Share (100/97 of $10.03) $ 10.34
</TABLE>
* No sales charges were imposed on purchases of shares prior to November 30,
1993 by deposit or credit customers of Boulevard Bank or its affiliates or
spouses and children under 21 of such customers. See "What Shares Cost" in
the Prospectus.
(See Notes which are an integral part of the Financial Statements)
BOULEVARD MANAGED MUNICIPAL FUND
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1993*
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income (Note 2B) $373,308
EXPENSES
INVESTMENT ADVISORY FEE (NOTE 5) $ 83,941
ADMINISTRATIVE PERSONNEL AND SERVICES FEE (NOTE 5) 38,493
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND 11,974
EXPENSES
(NOTE 5)
CUSTODIAN EXPENSES (NOTE 5) 7,672
RECORDKEEPER FEES (NOTE 5) 44,294
LEGAL FEES 4,250
PRINTING AND POSTAGE 10,211
INSURANCE PREMIUMS 5,547
MISCELLANEOUS 5,261
TOTAL EXPENSES 211,643
DEDUCT
WAIVER OF INVESTMENT ADVISORY FEE (NOTE 5) $ 76,691
WAIVER OF ADMINISTRATIVE PERSONNEL AND SERVICE 37,233 113,924
FEES
(NOTE 5)
NET EXPENSES 97,719
NET INVESTMENT INCOME 275,589
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
NET REALIZED LOSS ON INVESTMENTS (IDENTIFIED COST (1,667)
BASIS)
NET CHANGE IN UNREALIZED APPRECIATION ON 35,601
INVESTMENTS
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 33,934
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $309,523
</TABLE>
* For the period from February 19, 1993 (date of initial public investment)
to November 30, 1993.
(See Notes which are an integral part of the Financial Statements)
BOULEVARD MANAGED MUNICIPAL FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
1993*
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS
NET INVESTMENT INCOME $ 275,589
NET REALIZED LOSS ON INVESTMENTS ($1,667 NET LOSS, AS COMPUTED FOR (1,667)
FEDERAL TAX PURPOSES) (NOTE 2C)
CHANGE IN NET UNREALIZED APPRECIATION OF INVESTMENTS 35,601
CHANGE IN NET ASSETS FROM OPERATIONS 309,523
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT INCOME (264,283)
FUND SHARE (PRICIPAL)) TRANSACTIONS (NOTE 4)
PROCEEDS FROM SALE OF SHARES 20,877,084
NET ASSET VALUE OF SHARES ISSUED TO SHAREHOLDERS ELECTING TO RECEIVE 84,226
PAYMENT OF DIVIDENDS IN FUND SHARES
COST OF SHARES REDEEMED (1,676,721)
CHANGE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 19,284,589
CHANGE IN NET ASSETS 19,329,829
NET ASSETS
BEGINNING OF PERIOD --
END OF PERIOD (INCLUDING UNDISTRIBUTED
NET INVESTMENT INCOME OF $11,306) $ 19,329,829
</TABLE>
$11,306)
*For the period from February 19, 1993 (date of initial public investment) to
November 30, 1993.
(See Notes which are an integral part to the Financial Statements)
BOULEVARD MANAGED MUNICIPAL FUND
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1993
(1)ORGANIZATION
The Boulevard Funds (the "Trust") are registered under the Investment Company
Act of 1940, as amended, as an open-end, management investment company. The
financial statements included herein present only those of the Boulevard
Managed Municipal Fund (the "Fund"). The financial statements of the other
portfolios are presented separately. The assets of each portfolio of the
Boulevard Funds are segregated and a shareholder's interest is limited to the
portfolio in which shares are held.
(2)SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
A. Investment Valuations--Municipal bonds are valued at fair market value.
An independent pricing service values the Fund's municipal bonds taking
into consideration yield, stability, risk, quality, coupon maturity,
type of issue, trading characteristics, special circumstances of a
security or trading market, and any other factors or market data it
deems relevant in determining valuations for normal institutional size
trading units of debt securities and does not rely on quoted prices. The
Trustees have determined that the fair value of debt securities
authorized to be purchased by the Fund with remaining maturities of
sixty days or less at the time of purchase shall be their amortized cost
value unless the particular circumstances of the security indicate
otherwise. Investments in other regulated investment companies are
valued at net asset value.
B. Income--Interest income is recorded on the accrual basis. Interest
income includes interest and discount earned (net of premium) on
short-term obligations, and interest earned on all other debt securities
including discount (net of premium) and original issue discount as
required by the Internal Revenue Code.
C. Federal Taxes--It is the Fund's policy to comply with the provisions of
the Internal Revenue Code applicable to investment companies and to
distribute to shareholders each year all of its taxable income,
including any net realized gain on investments. Accordingly, no
provision for federal tax is necessary.
Dividends paid by the Fund representing net interest received on
tax-exempt municipal securities are not includable by shareholders as
gross income for federal tax purposes because the Fund intends to meet
certain requirements of the Internal Revenue Code applicable to
regulated investment companies which will enable the payment of
tax-exempt interest dividends.
At November 30, 1993 the Fund, for federal tax purposes, had a capital
loss carryforward of $1,667 which will reduce the Fund's taxable income
arising from future net realized gain on investments, if any, to the
extent permitted by the Internal Revenue Code, and thus will reduce the
amount of the distributions to shareholders which would otherwise be
necessary to relieve the Fund of any liability for federal tax. Pursuant
to the Code, such capital loss carryforward will expire in 2001.
D. When-Issued and Delayed Delivery Transactions--The Fund may engage is
when-issued or delayed delivery transactions. To the extent the Fund
engages in such transactions, it will do so for the purpose of acquiring
portfolio securities consistent with its investment objective and
policies and not for the purpose of investment leverage. The Fund will
record a when-issued security and the related liability on the trade
date. Until the securities are received and paid for, the Fund will
maintain security positions such that sufficient liquid assets will be
available to make payment for the securities purchased. Securities
purchased on a when-issued or delayed delivery basis are marked to
market daily and begin earning interest on the settlement date.
E. Deferred Expenses--The costs incurred by the Fund with respect to its
initial registration, excluding the initial expense of registering the
shares, have been deferred and are being amortized using the
straight-line method over a period of five years from the Fund's
commencement date.
F. Other--Investment transactions are accounted for on the date of the
transaction.
(3)DIVIDENDS
Dividends are declared and paid monthly to all shareholders invested in the
Fund on the record date. Dividends and distributions are automatically
reinvested in additional shares of the Fund on the payment date at the
ex-dividend date net asset value without a sales charge, unless cash payments
are requested. Distributions of any net realized capital gains will be made
at least once every twelve months. Dividends to shareholders and capital gain
distributions, if any, are recorded on the ex-dividend date.
(4)SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Year Ended
November 30, 1993*
<S> <C>
Shares outstanding, beginning of period --
Shares sold 2,086,520
Shares issued to shareholders electing to receive 8,447
payments
of dividends in Fund shares
Shares redeemed (167,464)
Shares outstanding, end of period 1,927,503
</TABLE>
* The period from February 19, 1993 (date of initial public investment) to
November 30, 1993.
(5)INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Boulevard Bank National Association, the Fund's investment adviser (the
"Adviser" or "Boulevard Bank"), receives for its services an annual
investment advisory fee equal to 0.70 of 1% of the Fund's average daily net
assets. 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. For the period
ended November 30, 1993, the Adviser earned an investment advisory fee of
$83,941, of which $76,691 was voluntarily waived. Federated Administrative
Services ("FAS") provides the Fund with certain administrative personnel and
services and receives for its services an annual fee equal to .150 of 1% on
the first $250 million of average aggregate daily net assets of the Trust;
.125 of 1% on the next $250 million; .100 of 1% on the next $250 million; and
.075 of 1% on average aggregate daily net assets in excess of $750 million.
For the period ended November 30, 1993, FAS earned $38,493, of which $37,233
was voluntarily waived. The administrative fee received during any fiscal
year shall aggregate at least $50,000 with respect to the Fund. FAS may
choose voluntarily to reimburse a portion of its fee at any time.
State Street Bank and Trust Company is the custodian for the securities and
cash of the Fund. For the period ended November 30, 1993, the custodian
earned $7,672.
Federated Services Company is the transfer and dividend disbursing agent for
the Fund. It also provides certain accounting and recordkeeping services. For
the period ended November 30, 1993, Federated Services Company earned $11,974
for transfer and dividend disbursing agent fees and expenses, and $44,294 for
recordkeeping fees.
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the investment Company Act of 1940. The Fund will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of
the Fund, for fees it paid which relates to the distribution and
administration of the Fund. The Plan provided that the Fund will incur
distribution expenses up to .25
of 1% of the average daily net assets of the Fund annually to pay
commissions, maintenance fees and to compensate FSC. 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.
Certain of the Officers and Trustees of the Fund are Officers and Directors
of the above Corporations.
Organization expenses of $48,856 were borne initially by FAS. The Fund has
agreed to reimburse the Administrator for the organizational expenses
initially borne by the Administrator during the five year period following
the date the Trust's Portfolio became effective. For the period ended
November 30, 1993, $4,000 of costs were incurred pursuant to this agreement.
As of November 30, 1993, the following shareholder of record owned 5% or more
of the outstanding shares of the Fund: First National Bank of Des Plaines (a
subsidiary of Boulevard Bancorp, Inc.), Des Plaines, IL owned approximately
1,849,802 shares (95.97%).
(6)INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short-term obligations) for the
period ended November 30, 1993 were as follows:
<TABLE>
<CAPTION>
<S> <C>
Purchases $21,271,185
Sales $ 3,055,000
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of
Boulevard Managed Municipal Fund:
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments (except for the Credit Ratings by
Moody's or S&P and the Notes to Portfolio of Investments), and the related
statements of operations and of changes in net assets and the financial
highlights (included on page 2) present fairly, in all material respects, the
financial position of the Boulevard Managed Municipal Fund (one of the
portfolios of The Boulevard Funds, (hereafter referred to as the "Fund") at
November 30, 1993, the results of its operations, the changes in its net
assets and the financial highlights for the period February 19, 1993 (date of
initial public investment) through November 30, 1993, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to express
an opinion on these financial statements based on our audit. We conducted our
audit of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit, which included confirmation of securities at November 30, 1993, by
correspondence with the custodian, provides a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE
Chicago, Illinois
January 20, 1994
