As filed with the Securities and Exchange Commission on October 10, 2008
1933 Act Registration No. 033-16905
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM N-14
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No. _______ [ ] Post-Effective Amendment No. _______
(Check Appropriate Box or Boxes)
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FIRST AMERICAN INVESTMENT FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
800 NICOLLET MALL
MINNEAPOLIS, MINNESOTA 55402
(Address of Principal Executive Offices)
(612) 303-7987
(Area Code and Telephone Number)
RICHARD J. ERTEL
FAF ADVISORS, INC.
800 NICOLLET MALL, BC-MN-H04N
MINNEAPOLIS, MINNESOTA 55402-7020
(Name and Address of Agent for Service)
Copy to:
JAMES D. ALT
DORSEY & WHITNEY LLP
50 SOUTH SIXTH STREET, SUITE 1500
MINNEAPOLIS, MINNESOTA 55402
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
AS SOON AS POSSIBLE FOLLOWING THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(a)
MAY DETERMINE.
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The title of securities being registered is common stock, par value $0.0001 per
share.
No filing fee is required because of Registrant's reliance on Section 24(f) of
the Investment Company Act of 1940, as amended.
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FIRST AMERICAN INVESTMENT FUNDS, INC.
800 Nicollet Mall
Minneapolis, MN 55402
November __, 2008
Dear Shareholder:
As a shareholder of California Intermediate Tax Free Fund or Colorado
Intermediate Tax Free Fund (each an "Acquired Fund"), each a separate series of
First American Investment Funds, Inc. ("FAIF"), you are invited to vote on a
proposal to combine your Acquired Fund into another separate series of FAIF
(each an "Acquiring Fund"). Shareholders of California Intermediate Tax Free
Fund will be asked to vote on a proposal to combine their Fund into California
Tax Free Fund, and shareholders of Colorado Intermediate Tax Free Fund will be
asked to vote on a proposal to combine their Fund into Colorado Tax Free Fund.
The proposals will be voted on at a special meeting of shareholders to be held
on December 16, 2008 (the "Meeting"). I would like to ask for your vote on this
important proposal affecting your Acquired Fund, as described in the
accompanying Prospectus/Proxy Statement.
Each Acquired Fund has an investment objective that is substantially
similar to its Acquiring Fund. In each case, the Acquired Fund and the Acquiring
Fund seek to provide current income that is exempt from both federal income tax
and income tax of the state specified in the Fund's name, consistent with either
preservation of capital (in the case of the Acquired Funds) or prudent
investment risk (in the case of the Acquiring Funds). The Acquired Funds and the
Acquiring Funds attempt to meet their objectives by investing at least 80% of
net assets in municipal securities that pay interest exempt from federal income
tax and income tax of the applicable state. The Acquired Funds and the Acquiring
Funds differ, however, with respect to the average maturity of the securities
that they hold. The Acquired Funds attempt to maintain the weighted average
maturity of their portfolio securities at 3 to 10 years under normal market
conditions, whereas the Acquiring Funds attempt to maintain the weighted average
maturity of their portfolio securities at 10 to 25 years under normal market
conditions. Thus, you are being asked to vote on a proposal to combine your
Acquired Fund into an Acquiring Fund which has a portfolio with a longer
weighted average maturity.
FAF Advisors, Inc. (the "Advisor") serves as the investment advisor to the
Funds. Upon recommendation of the Advisor and after review of the Funds, the
board of directors of FAIF concluded that it is appropriate to combine each
Acquired Fund into its corresponding Acquiring Fund. The Acquired Funds and the
Acquiring Funds are all fairly small, and combining the Funds will result in
larger funds which potentially can be more efficiently managed. In addition,
combining the Funds will reduce duplicative expenses (i.e., audit fees, annual
and semi-annual reports, blue sky fees, etc.). Finally, although each of the
Acquired Funds is somewhat larger than the corresponding Acquiring Funds, the
Acquiring Funds are part of larger mutual fund categories which historically
have had larger asset flows. Thus, the Advisor and the board of directors
believe that the longer-maturity Acquiring Funds have more potential for asset
growth.
The Prospectus/Proxy Statement describes the proposed reorganization of
each Acquired Fund into its corresponding Acquiring Fund (each a
"Reorganization"). If the proposal affecting an Acquired Fund is approved by its
shareholders, all the Acquired Fund's assets will be acquired by its
corresponding Acquiring Fund in exchange solely for shares of the Acquiring Fund
and the assumption by the Acquiring Fund of all the Acquired Fund's liabilities.
Each Acquired Fund shareholder will receive shares of the corresponding
Acquiring Fund that are of the same class, and with the same total value, as
their Acquired Fund shares. The Reorganizations are intended to qualify for
federal income tax purposes as tax-free
reorganizations. As a result, it is anticipated that shareholders will not
recognize any gain or loss in connection with the Reorganizations.
THE BOARD OF DIRECTORS OF FAIF BELIEVES THAT THE REORGANIZATIONS ARE IN THE
BEST INTERESTS OF EACH ACQUIRED FUND AND ACQUIRING FUND AND THEIR SHAREHOLDERS,
AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL AFFECTING YOUR
ACQUIRED FUND.
Your vote is extremely important. You can vote quickly and easily by
toll-free telephone call, by internet or by mail by following the instructions
that appear on your proxy card, which you will receive for each Acquired Fund in
which you own shares. Whether or not you expect to be present at the Meeting,
please help us to avoid the cost of a follow-up mailing by voting as soon as
possible. If you have any questions about the proxy card, please call
1-800-677-3863.
NOTE: You may receive more than one proxy package if you hold shares in
more than one Acquired Fund or account. You must return separate proxy cards for
separate holdings. Please read the entire Prospectus/Proxy Statement carefully
before you vote.
Thank you for taking this matter seriously and participating in this
important process.
Sincerely,
/s/ Thomas S. Schreier, Jr.
----------------------------------------
Thomas S. Schreier, Jr.
President
2
IMPORTANT SHAREHOLDER INFORMATION
WITHIN THIS PACKAGE YOU WILL FIND THE FOLLOWING:
- Prospectus/Proxy Statement describing the proposed reorganization
- The current prospectus of the Acquiring Funds
- The Agreement and Plan of Reorganization, attached as Appendix A
- Voting Instructions
- Proxy card
- Business reply envelope
The board of directors of First American Investment Funds, Inc. ("FAIF")
has unanimously approved the proposed reorganizations listed below and
recommends that you vote in favor of the reorganization of your Acquired Fund.
The following questions and answers provide a brief overview of the proposals.
The board of directors also encourages you to read the full text of the enclosed
Prospectus/Proxy Statement carefully.
WHAT AM I BEING ASKED TO VOTE ON?
Shareholders of each Acquired Fund are being asked to consider and approve
the proposed reorganization of that fund into the corresponding Acquiring Fund
set forth below.
Acquired Fund Acquiring Fund
- ------------- ------------------------
California Intermediate Tax Free Fund --> California Tax Free Fund
Colorado Intermediate Tax Free Fund --> Colorado Tax Free Fund
WHY HAS THE BOARD OF DIRECTORS RECOMMENDED THAT I VOTE IN FAVOR OF THE
REORGANIZATIONS?
The board of directors believes that the reorganizations are in the best
interests of shareholders of the Acquired Funds and may provide several benefits
to shareholders. The Acquired Funds and the Acquiring Funds are all fairly
small, and combining the Funds will result in larger funds which potentially can
be more efficiently managed. In addition, combining the Funds will reduce
duplicative expenses (i.e., audit fees, annual and semi-annual reports, blue sky
fees, etc.), and shareholders may benefit from other economies of scale often
associated with larger funds. Finally, although each Acquired Fund is somewhat
larger than its corresponding Acquiring Fund, California and Colorado long-term
tax free funds represent larger asset classes than California and Colorado
intermediate-term tax free funds, respectively, and these larger asset classes
historically have had greater asset flows. Thus, the Advisor and the board of
directors believe that the longer-maturity Acquiring Funds have more potential
for asset growth.
3
HOW DO THE FUNDS' INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES
AND RISKS COMPARE?
Each Acquired Fund has an investment objective that is substantially
similar to its Acquiring Fund. In each case, the Acquired Fund and the Acquiring
Fund seek to provide current income that is exempt from both federal income tax
and income tax of the state specified in the Fund's name, consistent with either
preservation of capital (in the case of the Acquired Funds) or prudent
investment risk (in the case of the Acquiring Funds). The Acquired Funds and the
Acquiring Funds attempt to meet their objectives by investing at least 80% of
net assets in municipal securities that pay interest exempt from federal income
tax and income tax of the applicable state. The Acquired Funds and the Acquiring
Funds differ, however, with respect to the average maturity of the securities
that they hold. The Acquired Funds attempt to maintain the weighted average
maturity of their portfolio securities at 3 to 10 years under normal market
conditions, whereas the Acquiring Funds attempt to maintain the weighted average
maturity of their portfolio securities at 10 to 25 years under normal market
conditions. The Acquired Funds and Acquiring Funds are generally subject to the
same risks except that the longer-term securities in which the Acquiring Funds
invest are generally more sensitive to interest rate changes. A more detailed
comparison of the investment objective, principal investment strategies and risk
factors of each Acquired Fund and those of its corresponding Acquiring Fund
appears in the enclosed Prospectus/Proxy Statement.
WHICH CLASS OF SHARES WILL I RECEIVE IN THE REORGANIZATION?
You will receive the same class of shares in the Acquiring Fund that you
hold in the Acquired Fund.
WHAT ARE THE TAX CONSEQUENCES OF THE REORGANIZATIONS?
A reorganization, if approved by the affected Acquired Fund's shareholders,
will not be a taxable event for federal income tax purposes. You will not
realize any capital gain or loss as a result of the proposed reorganizations,
although you may receive a distribution of ordinary income and/or net capital
gains immediately before the reorganization to the extent that your Acquired
Fund has undistributed income and/or gain. Any distributions from interest
income that is not tax-exempt or from net realized capital gains will be
taxable.
WHO WILL PAY THE COSTS FOR THE REORGANIZATION?
The expenses of the reorganizations, including legal expenses, printing,
packaging, and postage, plus the cost of any supplementary solicitations, will
be borne by the Advisor.
WILL EACH FUND'S EXPENSES REMAIN THE SAME?
Each Acquired Fund has the same contractual investment advisory fees as its
corresponding Acquiring Fund. Primarily because they are smaller in size, the
total expenses of the Acquiring Funds, before expense waivers, are higher than
those of the Acquired Funds. After fee waivers and expense reimbursements by the
Advisor, however, each Acquiring Fund has lower total expenses than its
corresponding Acquired Fund. The Advisor has contractually agreed to maintain
the Acquiring Funds' total expense ratios at their current levels through at
least October 31, 2009.
WILL I HAVE THE SAME SHAREHOLDER PRIVILEGES AFTER THE REORGANIZATION?
Yes. You will continue to enjoy the same shareholder privileges as a
shareholder of an Acquiring Fund as you currently have as a shareholder of an
Acquired Fund.
4
WHEN WOULD THE REORGANIZATIONS TAKE PLACE?
The reorganization proposal will be voted on at a special meeting of
shareholders to be held on December 16, 2008. If all necessary approvals are
obtained, the reorganizations will likely take place shortly thereafter.
WHO WILL RECEIVE THE PROXY MATERIALS?
The proxy materials are being mailed to all persons and entities that held
shares of record in the Acquired Funds on November 4, 2008. Please note that in
some cases, record ownership of and/or voting authority over Fund shares may
reside with a fiduciary or other agent. In these cases, the fiduciary or other
agent may receive the proxy.
IS THERE ANYTHING I NEED TO DO TO CONVERT MY SHARES?
No. On the closing date of the reorganization, your shares in the Acquired
Fund automatically will be exchanged for shares of the same class in the
Acquiring Fund. The total value of Acquiring Fund shares that you receive in the
reorganization will be the same as the total value of Acquired Fund shares you
hold immediately before the reorganization.
CAN I REDEEM MY SHARES BEFORE THE REORGANIZATION TAKES PLACE?
Yes. You can redeem your Acquired Fund shares at any time before the
reorganization takes place. In addition, if you hold on to your Acquired Fund
shares and receive Acquiring Fund shares in the reorganization, you then can
redeem your Acquiring Fund shares. In either case, the redemption will be a
taxable transaction. Your receipt of Acquiring Fund shares in the reorganization
will not itself be a taxable transaction.
HAS THE BOARD OF DIRECTORS OF FAIF APPROVED THE PROPOSAL?
Yes. The FAIF board has approved the proposed reorganization and recommends
that you vote FOR the proposal.
WHEN SHOULD I VOTE?
We would like to receive your vote as soon as possible. You may cast your
vote:
BY PHONE: Please see the voting instructions on your proxy card. Call the
toll-free number listed and follow the recorded instructions.
BY THE INTERNET: Visit the website listed on your proxy card. Once there,
enter the control number located on your proxy card.
BY MAIL: The proxy cards must be marked with your vote and returned in the
business reply envelope included in this package. If you misplaced your
envelope, please mail your proxy card to:
The Altman Group
1200 Wall Street West
Lyndhurst, NJ 07071
Attn: Tabulation Department
Please read the full text of the enclosed Prospectus/Proxy Statement for
further information. If you have questions, please call your investment
professional or First American Funds at (800) 677-3863.
5
FIRST AMERICAN INVESTMENT FUNDS, INC.
800 Nicollet Mall
Minneapolis, MN 55402
CALIFORNIA INTERMEDIATE TAX FREE FUND
COLORADO INTERMEDIATE TAX FREE FUND
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 16, 2008
NOTICE IS HEREBY GIVEN THAT a Special Meeting of Shareholders (the
"Meeting") of California Intermediate Tax Free Fund and Colorado Intermediate
Tax Free Fund (each an "Acquired Fund"), each a separate series of First
American Investment Funds, Inc. ("FAIF"), a Maryland corporation, will be held
on December 16, 2008 at 10:00 a.m., Central time, at the offices of FAF
Advisors, Inc. (the "Advisor"), 3rd Floor - Room A, located at 800 Nicollet
Mall, Minneapolis, Minnesota 55402. The purpose of the Meeting is to consider
and act upon the following proposals and to transact any other business that
properly comes before the Meeting or any adjournments thereof. Approval of each
proposal will be determined solely by approval of the shareholders of the
Acquired Fund affected thereby. It will not be necessary for both proposals to
be approved for either one of them to be approved.
1. FOR CALIFORNIA INTERMEDIATE TAX FREE FUND SHAREHOLDERS ONLY. To approve
an Agreement and Plan of Reorganization adopted by FAIF (the
"Reorganization Plan") providing for (a) the acquisition of all the assets
of California Intermediate Tax Free Fund, a separate series of FAIF, by
California Tax Free Fund, another separate series of FAIF, in exchange
solely for shares of California Tax Free Fund, and California Tax Free
Fund's assumption of all the liabilities of California Intermediate Tax
Free Fund, followed by (b) the distribution of those California Tax Free
Fund shares to California Intermediate Tax Free Fund's shareholders in
liquidation of California Intermediate Tax Free Fund and (c) California
Intermediate Tax Free Fund's subsequent termination. A vote in favor of the
Reorganization Plan will be considered a vote in favor of an amendment to
FAIF's Amended and Restated Articles of Incorporation (the "Articles")
effecting the foregoing transactions.
2. FOR COLORADO INTERMEDIATE TAX FREE FUND SHAREHOLDERS ONLY. To approve an
Agreement and Plan of Reorganization adopted by FAIF (the "Reorganization
Plan") providing for (a) the acquisition of all the assets of Colorado
Intermediate Tax Free Fund, a separate series of FAIF, by Colorado Tax Free
Fund, another separate series of FAIF, in exchange solely for shares of
Colorado Tax Free Fund, and Colorado Tax Free Fund's assumption of all the
liabilities of Colorado Intermediate Tax Free Fund, followed by (b) the
distribution of those Colorado Tax Free Fund shares to Colorado
Intermediate Tax Free Fund's shareholders in liquidation of Colorado
Intermediate Tax Free Fund and (c) Colorado Intermediate Tax Free Fund's
subsequent termination. A vote in favor of the Reorganization Plan will be
considered a vote in favor of an amendment to FAIF's Amended and Restated
Articles of Incorporation (the "Articles") effecting the foregoing
transactions.
The Board of Directors of FAIF has fixed the close of business on November
4, 2008 as the record date for determination of shareholders of each Acquired
Fund entitled to notice of, and to vote at, the Meeting and any adjournments
thereof.
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE AND RETURN YOUR PROXY CARD(S)
PROMPTLY. EACH SHAREHOLDER IS URGED TO COMPLETE, DATE AND SIGN, AND RETURN THE
ENCLOSED PROXY CARD(S) IN THE ENVELOPE PROVIDED, EVEN IF YOU PLAN TO ATTEND THE
MEETING. ALTERNATIVELY, YOU MAY VOTE VIA THE INTERNET OR TELEPHONE, AS INDICATED
ON THE PROXY CARD. YOU MAY REVOKE
YOUR PROXY AT ANY TIME BEFORE IT IS EXERCISED BY THE SUBSEQUENT EXECUTION AND
SUBMISSION OF A REVISED PROXY, BY GIVING WRITTEN NOTICE OF REVOCATION TO FAIF AT
ANY TIME BEFORE THE PROXY IS EXERCISED OR BY VOTING IN PERSON AT THE SPECIAL
MEETING.
Dated: November __, 2008
By Order of the Board of Directors
/s/ Kathleen L. Prudhomme
----------------------------------------
Kathleen L. Prudhomme
Secretary
2
PROSPECTUS/PROXY STATEMENT
DATED NOVEMBER __, 2008
FIRST AMERICAN INVESTMENT FUNDS, INC.
800 Nicollet Mall
Minneapolis, Minnesota 55402
(800) 677-3863
CALIFORNIA INTERMEDIATE TAX FREE FUND
COLORADO INTERMEDIATE TAX FREE FUND
This Prospectus/Proxy Statement is being furnished to shareholders of
California Intermediate Tax Free Fund and Colorado Intermediate Tax Free Fund
(each an "Acquired Fund"), each a separate series of FAIF, in connection with
the solicitation of proxies by FAIF's Board of Directors (the "Board of
Directors" or the "Board") for use at the Special Meeting of Shareholders of the
Acquired Funds (the "Meeting") to be held on December 16, 2008 at 10:00 a.m.,
Central time, at the offices of FAF Advisors, Inc. (the "Advisor"), and any
adjournments thereof.
As more fully described in this Prospectus/Proxy Statement, the purpose of
the Meeting is to consider and act upon the proposed Agreement and Plan of
Reorganization (the "Reorganization Plan") pursuant to which California Tax Free
Fund and Colorado Tax Free Fund (each an "Acquiring Fund") would acquire
substantially all the assets of California Intermediate Tax Free Fund and
Colorado Intermediate Tax Free Fund, respectively, in exchange solely for shares
of the Acquiring Fund, and the assumption by the Acquiring Fund of all the
Acquired Fund's liabilities (each such exchange, together with distribution of
the shares received in the exchange, as described in the following paragraph, is
referred to in this Prospectus/Proxy Statement as a "Reorganization"). The
Acquired Funds and the Acquiring Funds are sometimes referred to herein
individually as a "Fund" and collectively as the "Funds," and the Acquired Fund
and the Acquiring Fund involved in a particular Reorganization are sometimes
referred to herein as "corresponding" Funds.
If a Reorganization is approved, shares of the Acquiring Fund involved that
Reorganization will be distributed to the shareholders of the corresponding
Acquired Fund in liquidation of the Acquired Fund, which will be terminated as a
series of FAIF. Each shareholder of an Acquired Fund will be entitled to receive
that number of full and fractional shares of the corresponding Acquiring Fund of
the same class that he or she held in the Acquired Fund, with an aggregate net
asset value equal to the aggregate net asset value of the shareholder's Acquired
Fund shares held as of the closing date of the Reorganization. These
transactions are being structured as tax-free reorganizations. See "Information
About the Reorganizations - Federal Income Tax Considerations." Shareholders
should consult their tax advisors to determine the actual impact of a
Reorganization in light of their individual tax circumstances.
A vote to approve the Reorganization Plan will be considered a vote in
favor of an amendment to the Articles effecting a Reorganization. The amendment
is attached to the form of Reorganization Plan attached as Appendix A to this
Prospectus/Proxy Statement.
The Board of Directors has approved the proposed Reorganizations. You are
being asked to approve the Reorganization Plan (insofar as it relates to your
Acquired Fund(s)) pursuant to which the Reorganizations would be accomplished.
Because shareholders of the Acquired Funds are being asked to approve
transactions that will result in their holding shares of the corresponding
Acquiring Funds, this Prospectus/Proxy Statement also serves as a Prospectus for
the Acquiring Funds.
Each Fund is a separate non-diversified series of FAIF, a Maryland
corporation that is registered as an open-end management investment company
under the Investment Company Act of 1940, as amended (the "1940 Act"). FAF
Advisors, Inc. is the investment advisor for each of the Funds. Each Acquired
Fund has an investment objective that is substantially similar to its Acquiring
Fund. In each
case, the Acquired Fund and the Acquiring Fund seek to provide current income
that is exempt from both federal income tax and income tax of the state
specified in the Fund's name, consistent with either preservation of capital (in
the case of the Acquired Funds) or prudent investment risk (in the case of the
Acquiring Funds).
This Prospectus/Proxy Statement explains concisely the information about
each Acquiring Fund that shareholders of the corresponding Acquired Fund should
know before voting on the Reorganization. Please read it carefully and keep it
for future reference. Additional information concerning the Funds and the
Reorganization is contained in the documents described below, all of which have
been filed with the Securities and Exchange Commission ("SEC"):
- Prospectus relating to the Acquiring Funds, dated October 29, 2007,
including any supplements.
- Prospectus relating to the Acquired Funds, dated October 29, 2007,
including any supplements
- Statement of Additional Information relating to the Funds, dated
October 29, 2007, including any supplements.
- Annual report relating to the Funds for the fiscal year ended June 30,
2008.
- Statement of Additional Information, dated November __, 2008, relating
to this Prospectus/Proxy Statement and the Reorganization (the
"Reorganization SAI").
The above-referenced Prospectuses, annual report, and Statements of
Additional Information are incorporated into this Prospectus/Proxy Statement by
reference, which means that the information contained in those documents is
legally considered to be part of this Prospectus/Proxy Statement.
This Prospectus/Proxy Statement is accompanied by a copy of the Acquiring
Funds' current prospectus (including any supplements). For a free copy of the
Acquired Funds' Prospectus, the Funds' Statement of Additional Information, the
Funds' annual report, or the Reorganization SAI, please call (800) 677-3863 or
write to First American Investment Funds, Inc., 800 Nicollet Mall, Minneapolis,
Minnesota 55402. You can also obtain copies of any of these documents without
charge on the EDGAR database on the SEC's Internet site at www.sec.gov. Copies
are available for a fee by electronic request at the following e-mail address:
publicinfo@sec.gov, or from the Public Reference Branch, Office of Consumer
Affairs and Information Services, Securities and Exchange Commission,
Washington, D.C. 20549.
THE SHARES OFFERED BY THIS PROSPECTUS/PROXY STATEMENT ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
2
TABLE OF CONTENTS
SUMMARY................................................................... 1
The Proposed Reorganizations........................................... 1
Comparison of Fund Expenses............................................ 2
Examples of Fund Expenses.............................................. 6
Comparison of Fund Investment Objectives and Investment Strategies..... 6
Additional Investment Strategies....................................... 9
Performance Comparison of the Funds.................................... 9
Additional Performance Information..................................... 11
Form of Organization................................................... 12
Investment Advisory Service............................................ 12
Operations of the Acquiring Funds Following the Reorganization......... 13
Federal Income Tax Consequences of the Reorganization.................. 13
PRINCIPAL RISK FACTORS.................................................... 13
ADDITIONAL INFORMATION ABOUT THE FUNDS.................................... 15
Distribution of Shares................................................. 15
Purchase and Redemption Procedures and Exchange Privileges............. 16
Dividends and Other Distributions; Taxes............................... 17
Taxes.................................................................. 17
INFORMATION ABOUT THE REORGANIZATIONS..................................... 18
Agreement and Plan of Reorganization................................... 18
Reasons for the Reorganization......................................... 19
Description of Securities to be Issued................................. 21
Federal Income Tax Considerations...................................... 21
Capitalization......................................................... 22
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE............................... 25
FINANCIAL HIGHLIGHTS...................................................... 25
VOTING INFORMATION........................................................ 25
General Information.................................................... 25
Voting Rights and Required Vote........................................ 25
Outstanding Shares..................................................... 27
Shareholder Rights..................................................... 27
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES....................... 27
ADDITIONAL INFORMATION ABOUT THE FUNDS.................................... 28
MISCELLANEOUS............................................................. 28
Legal Matters.......................................................... 28
Experts................................................................ 28
Other Business......................................................... 29
NOTICE TO BANKS, BROKER-DEALERS AND VOTING TRUSTEES AND THEIR NOMINEES.... 29
i
BOARD RECOMMENDATION...................................................... 29
APPENDIX A - AGREEMENT AND PLAN OF REORGANIZATION......................... A-1
ii
SUMMARY
The following is a summary of certain information contained elsewhere in
this Prospectus/Proxy Statement, the Funds' prospectuses (which are incorporated
herein by reference), and the Reorganization Plan (which is attached as Appendix
A hereto). This summary may not contain all of the information that is important
to you. Shareholders should read the entire Prospectus/Proxy Statement for more
complete information.
THE PROPOSED REORGANIZATIONS
The Board of Directors considered and approved the Reorganizations at a
meeting of the Board held on September 23-25, 2008. The Reorganizations would
combine each Acquired Fund into a corresponding Acquiring Fund. The
Reorganizations are proposed to be accomplished pursuant to the Reorganization
Plan, which provides for the acquisition of all the assets of each Acquired Fund
by its corresponding Acquiring Fund, in exchange solely for shares of that
Acquiring Fund and the assumption by that Acquiring Fund of all the Acquired
Fund's liabilities. Approval of each Reorganization will be determined solely by
a vote of the majority of outstanding shares of the Acquired Fund involved. It
will not be necessary for both Reorganizations to be approved for either one of
them to take place.
If a Reorganization is approved, the Acquired Fund involved therein will
cease to exist and the shareholders of the Acquired Fund will become
shareholders of the Acquiring Fund listed opposite that Acquired Fund's name in
the table below. You will receive shares of the Acquiring Fund that are of the
same class, and with the same total value, as the Acquired Fund shares you hold
as of the closing date of the Reorganization.
ACQUIRED FUND ACQUIRING FUND
- -------------------------------------- ----------------------------------------
California Intermediate Tax Free Fund California Tax Free Fund
Colorado Intermediate Tax Free Fund Colorado Tax Free Fund
Each Acquired Fund has an investment objective that is substantially
similar to its Acquiring Fund. In each case, the Acquired Fund and the Acquiring
Fund seek to provide current income that is exempt from both federal income tax
and income tax of the state specified in the Fund's name, consistent with either
preservation of capital (in the case of the Acquired Funds) or prudent
investment risk (in the case of the Acquiring Funds). The Acquired Funds and the
Acquiring Funds attempt to meet their objectives by investing at least 80% of
net assets in municipal securities that pay interest exempt from federal income
tax and income tax of the applicable state. The Acquired Funds and the Acquiring
Funds differ, however, with respect to the average maturity of the securities
which they hold. The Acquired Funds attempt to maintain the weighted average
maturity of their portfolio securities at 3 to 10 years under normal market
conditions, whereas the Acquiring Funds attempt to maintain the weighted average
maturity of their portfolio securities at 10 to 25 years under normal market
conditions. The Acquired Funds and Acquiring Funds are generally subject to the
same risks except that the longer-term securities in which the Acquiring Funds
invest are generally more sensitive to interest rate changes. For more complete
information regarding the investment objectives, principal investment strategies
and principal risk factors of each Acquired Fund compared with those of the
Acquiring Fund with which it will be combined, please refer to the "Summary -
Comparison of Fund Investment Objectives and Investment Strategies" and
"Principal Risk Factors" sections below.
The Acquired Funds and the Acquiring Funds currently offer Class A and
Class Y shares. The Acquiring Funds also offer Class C shares. The Class A and
Class Y shares of each Acquired Fund have identical characteristics to the Class
A and Class Y shares, respectively, of the corresponding Acquiring
1
Fund for which they will be exchanged. The Reorganizations will not affect your
right to purchase and redeem shares, to exchange among other First American
Funds or to receive dividends and other distributions. No sales charges will be
imposed on the issuance of each Acquiring Fund's shares as a result of the
Reorganizations. For more information about the characteristics of Class A and Y
shares of the Funds, see the "Additional Information about the Funds" below.
As described more fully below under "Information about the Reorganizations
- - Reasons for the Reorganizations," the Board of Directors, which is composed
solely of directors who are not "interested persons," as such term is defined in
the 1940 Act (the "Independent Directors"), has concluded that the
Reorganizations are in the best interests of the shareholders of Acquired Funds
and the Acquiring Funds and that the interests of existing shareholders will not
be diluted as a result of the transactions contemplated by the Reorganizations.
Therefore, the Board of Directors has approved the Reorganizations and has
submitted the Reorganization Plan for approval by each Acquired Fund's
shareholders. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR"
THE REORGANIZATION OF YOUR ACQUIRED FUND.
COMPARISON OF FUND EXPENSES
As an investor, you pay fees and expenses to buy and hold shares of a Fund.
Shareholder fees are paid directly when you buy or sell shares. You pay annual
fund operating expenses indirectly since they are deducted from Fund assets.
The following tables allows you to compare the shareholder fees and annual
fund operating expenses that you may pay for buying and holding Class A and
Class Y shares of each Acquired Fund and the corresponding Acquiring Fund. The
"Pro Forma Combined Fund" column in each table below shows you what the fees and
expenses are estimated to be assuming the Reorganizations are approved.
As shown in the tables below, the shareholder fees for each Acquired Fund
are lower than Acquiring Fund and Pro Forma Combined Fund shareholder fees.
However, shareholders will not pay any initial or deferred sales charge in
connection with the Reorganizations.
The tables below also compare the annual fund operating expenses as a
percentage of average daily net assets for each Fund for the fiscal year ended
June 30, 2008, and pro forma expenses, based on the annual fund operating
expenses for the Acquiring Fund's shares.
2
CALIFORNIA INTERMEDIATE TAX FREE FUND, CALIFORNIA TAX FREE FUND
AND UNAUDITED PRO FORMA COMBINED CALIFORNIA TAX FREE FUND
PRO FORMA
CALIFORNIA COMBINED
SHAREHOLDER FEES (fees paid INTERMEDIATE CALIFORNIA CALIFORNIA
directly from your investment) TAX FREE FUND TAX FREE FUND TAX FREE FUND
- -------------------------------------- ------------- ------------- -------------
MAXIMUM SALES CHARGE (LOAD) IMPOSED ON
PURCHASES (as a percentage of
offering price)
Class A 2.25%(1) 4.25%(1) 4.25%(1)
Class C N/A 0.00% 0.00%
Class Y None None None
MAXIMUM DEFERRED SALES CHARGE (LOAD)
(as a percentage of original
purchase price or redemption
proceeds, whichever is less)
Class A 0.00%(2) 0.00%(2) 0.00%(2)
Class C N/A 1.00% 1.00%
Class Y None None None
ANNUAL MAINTENANCE FEE (3)
only charged to accounts with
balances below $500
Class A $50 $50 $50
Class C $50 $50 $50
Class Y $50 $50 $50
(1) Certain investors may qualify for reduced sales charges. Generally, Class A
share investments will qualify for a reduced sales charge if the amount of
the purchase is from $50,000 to $999,999, and the sales charge will be
eliminated if the purchase is $1 million or more.
(2) Class A share investments of $1 million or more on which no front-end sales
charge is paid may be subject to a 1% contingent deferred sales charge if
they are sold within 18 months of purchase.
(3) Each Fund reserves the right to charge your account an annual maintenance
fee of $50 if your balance falls below $500 as a result of selling or
exchanging shares.
ANNUAL FUND OPERATING EXPENSES PRO FORMA
(expenses that are deducted from Fund CALIFORNIA COMBINED
assets) (as a percentage of average INTERMEDIATE CALIFORNIA CALIFORNIA
net assets) TAX FREE FUND TAX FREE FUND TAX FREE FUND
- -------------------------------------- ------------- ------------- -------------
MANAGEMENT FEES
Class A 0.50% 0.50% 0.50%
Class C N/A 0.50% 0.50%
Class Y 0.50% 0.50% 0.50%
DISTRIBUTION AND SERVICE (12B-1) FEES
Class A 0.25% 0.25% 0.25%
Class C N/A 0.65% 0.65%
Class Y None None None
3
ANNUAL FUND OPERATING EXPENSES PRO FORMA
(expenses that are deducted from Fund CALIFORNIA COMBINED
assets) (as a percentage of average INTERMEDIATE CALIFORNIA CALIFORNIA
net assets) TAX FREE FUND TAX FREE FUND TAX FREE FUND
- -------------------------------------- ------------- ------------- --------------
OTHER EXPENSES
Class A 0.52% 0.71% 0.48%
Class C N/A 0.70% 0.54%
Class Y 0.52% 0.70% 0.42%
ACQUIRED FUND FEES AND EXPENSES
Class A 0.00% 0.01% 0.00%
Class C N/A 0.01% 0.00%
Class Y 0.00% 0.01% 0.00%
TOTAL ANNUAL FUND OPERATING EXPENSES
Class A 1.27% 1.47% 1.23%
Class C N/A 1.86% 1.69%
Class Y 1.02% 1.21% 0.92%
LESS FEE WAIVERS
Class A (0.57)% (0.81)% (0.58)%
Class C N/A (0.70)% (0.54)%
Class Y (0.32)% (0.70)% (0.42)%
NET EXPENSES
Class A 0.70% 0.66% 0.65%
Class C N/A 1.16% 1.15%
Class Y 0.70% 0.51% 0.50%
COLORADO INTERMEDIATE TAX FREE FUND, COLORADO TAX FREE FUND
AND UNAUDITED PRO FORMA COMBINED COLORADO TAX FREE FUND
PRO FORMA
COLORADO COMBINED
SHAREHOLDER FEES (fees paid INTERMEDIATE COLORADO CALIFORNIA
directly from your investment) TAX FREE FUND TAX FREE FUND TAX FREE FUND
- -------------------------------------- ------------- ------------- --------------
MAXIMUM SALES CHARGE (LOAD) IMPOSED ON
PURCHASES (as a percentage of
offering price)
Class A 2.25%(1) 4.25%(1) 4.25%(1)
Class C N/A 0.00% 0.00%
Class Y None None None
MAXIMUM DEFERRED SALES CHARGE (LOAD)
(as a percentage of original
purchase price or redemption
proceeds, whichever is less)
Class A 0.00%(2) 0.00%(2) 0.00%(2)
Class C N/A 1.00% 1.00%
Class Y None None None
ANNUAL MAINTENANCE FEE (3)
only charged to accounts with
balances below $500
Class A $50 $50 $50
4
PRO FORMA
COLORADO COMBINED
SHAREHOLDER FEES (fees paid INTERMEDIATE COLORADO COLORADO
directly from your investment) TAX FREE FUND TAX FREE FUND TAX FREE FUND
- -------------------------------------- ------------- ------------- -------------
Class C $50 $50 $50
Class Y $50 $50 $50
(1) Certain investors may qualify for reduced sales charges. Generally, Class A
share investments will qualify for a reduced sales charge if the amount of
the purchase is from $50,000 to $999,999, and the sales charge will be
eliminated if the purchase is $1 million or more.
(2) Class A share investments of $1 million or more on which no front-end sales
charge is paid may be subject to a 1% contingent deferred sales charge if
they are sold within 18 months of purchase.
(3) Each Fund reserves the right to charge your account an annual maintenance
fee of $50 if your balance falls below $500 as a result of selling or
exchanging shares.
ANNUAL FUND OPERATING EXPENSES PRO FORMA
(expenses that are deducted from Fund COLORADO COMBINED
assets) (as a percentage of average INTERMEDIATE COLORADO COLORADO
net assets) TAX FREE FUND TAX FREE FUND TAX FREE FUND
- -------------------------------------- ------------- ------------- -------------
MANAGEMENT FEES
Class A 0.50% 0.50% 0.50%
Class C N/A 0.50% 0.50%
Class Y 0.50% 0.50% 0.50%
DISTRIBUTION AND SERVICE (12B-1) FEES
Class A 0.25% 0.25% 0.25%
Class C N/A 0.65% 0.65%
Class Y None None None
OTHER EXPENSES
Class A 0.58% 1.05% 0.60%
Class C N/A 1.05% 0.83%
Class Y 0.58% 1.05% 0.47%
ACQUIRED FUND FEES AND EXPENSES
Class A 0.00% 0.01% 0.00%
Class C N/A 0.01% 0.00%
Class Y 0.00% 0.01% 0.00%
TOTAL ANNUAL FUND OPERATING EXPENSES
Class A 1.33% 1.81% 1.35%
Class C N/A 2.21% 1.98%
Class Y 1.08% 1.56% 0.97%
LESS FEE WAIVERS
Class A (0.48)% (1.05)% (0.60)%
Class C N/A (1.05)% (0.83)%
Class Y (0.38)% (1.05)% (0.47)%
NET EXPENSES
Class A 0.85% 0.76% 0.75%
Class C N/A 1.16% 1.15%
Class Y 0.70% 0.51% 0.50%
5
EXAMPLES OF FUND EXPENSES
The examples below are intended to help you compare the cost of investing
in each Acquired Fund and corresponding Acquiring Fund, as well as the combined
fund on a pro forma basis, assuming the Reorganizations take place. It assumes
that you invest $10,000 for the time periods indicated, that your investment has
a 5% return each year, and that the Funds' operating expenses remain the same.
Although your actual costs and returns may differ, based on these assumptions
your costs would be:
CALIFORNIA INTERMEDIATE TAX FREE FUND, CALIFORNIA TAX FREE FUND
AND UNAUDITED PRO FORMA COMBINED CALIFORNIA TAX FREE FUND
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
California Intermediate Tax Free Fund
Class A $295 $564 $ 853 $1,675
Class Y $ 72 $293 $ 532 $1,219
California Tax Free Fund
Class A $490 $794 $1,120 $2,041
Class C (assuming redemption at end of period) $218 $517 $ 941 $2,123
Class C (assuming no redemption at end of period) $118 $517 $ 941 $2,123
Class Y $ 52 $315 $ 598 $1,404
Pro Forma Combined California Tax Free Fund
Class A $489 $744 $1,018 $1,801
Class C (assuming redemption at end of period) $217 $480 $ 867 $1,953
Class C (assuming no redemption at end of period) $117 $480 $ 867 $1,953
Class Y $ 51 $251 $ 468 $1,093
COLORADO INTERMEDIATE TAX FREE FUND, COLORADO TAX FREE FUND
AND UNAUDITED PRO FORMA COMBINED COLORADO TAX FREE FUND
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Colorado Intermediate Tax Free Fund
Class A $310 $591 $ 892 $1,749
Class Y $ 72 $306 $ 559 $1,283
Colorado Tax Free Fund
Class A $499 $872 $1,269 $2,378
Class C (assuming redemption at end of period) $218 $590 $1,089 $2,462
Class C (assuming no redemption at end of period) $118 $590 $1,089 $2,462
Class Y $ 52 $389 $ 750 $1,767
Pro Forma Combined Colorado Tax Free Fund
Class A $498 $778 $1,078 $1,930
Class C (assuming redemption at end of period) $217 $541 $ 991 $2,239
Class C (assuming no redemption at end of period) $117 $541 $ 991 $2,239
Class Y $ 51 $262 $ 490 $1,147
COMPARISON OF FUND INVESTMENT OBJECTIVES AND INVESTMENT STRATEGIES
The following table compares the investment objectives and principal
investment strategies of the Acquired Funds and the Acquiring Funds. Please
review the table carefully.
As described below, the investment objective of each Acquired Fund is
substantially similar to that of its corresponding Acquiring Fund. A Fund's
objective may be changed without shareholder approval. If a Fund's objective
changes, you would be notified at least 60 days in advance. Please remember,
there is no guarantee that any Fund will achieve its objective.
As more fully set forth below, the principal investment strategies of each
Acquired Fund are identical to those of its corresponding Acquiring Fund, except
with respect to the average maturity of the securities which the Funds hold. A
Fund's principal investment strategies are the strategies that the
6
Advisor believes are most likely to be important in trying to achieve the Fund's
objective. You should be aware that each Fund may also use strategies to invest
in securities that are not described in this Prospectus/Proxy Statement but that
are described in its prospectus and/or SAI.
7
ACQUIRED FUNDS ACQUIRING FUNDS
------------------------------- --------------------------------
Investment Providing current income that Providing current income that is
Objective: is exempt from both federal exempt from both federal income
income tax and from the income tax and from the income tax, of
tax, of the state specified in the state specified in the
the Acquired Fund's name, to Acquiring Fund's name, to the
the extent consistent with extent consistent with prudent
preservation of capital. investment risk.
Investment Under normal market conditions, each Acquired Fund and each
Strategies: Acquiring Fund invests at least 80% of its net assets (plus the
amount of any borrowings for investment purposes) in municipal
securities that pay interest that is exempt from federal and the
applicable state's income tax, including federal and state
alternative minimum tax. Each Fund will provide shareholders with
at least 60 days notice before changing this policy.
Each Acquired Fund and each Acquiring Fund normally may invest up
to 20% of its net assets in taxable obligations, including
obligations the interest on which is subject to federal and the
applicable state's alternative minimum tax.
Each Acquired Fund and each Acquiring Fund may invest in :
- "general obligation" bonds;
- "revenue" bonds;
- participation interests in municipal leases; and
- zero coupon municipal securities.
Each Acquired Fund and each Acquiring Fund invests mainly in
securities that, at the time of purchase, are either rated
investment grade or are unrated and determined to be of comparable
quality by the Advisor. However, each Acquired Fund and each
Acquiring Fund may invest up to 20% of its total assets in
securities that, at the time of purchase, are rated lower than
investment grade or are unrated and of comparable quality
(securities commonly referred to as "high-yield" securities or
"junk bonds"). If the rating of a security is reduced or
discontinued after purchase, the impacted Fund is not required to
sell the security, but may consider doing so.
Each Acquired Fund attempts to maintain the weighted average
maturity of its portfolio securities at 3 to 10 years under normal
market conditions. Each Acquiring Fund attempts to maintain the
weighted average maturity of its portfolio securities at 10 to 25
years under normal market conditions.
Each Acquired Fund and each Acquiring Fund may utilize futures
contracts and options on futures contracts in an attempt to manage
the effective maturity of securities in the Fund's portfolio. No
Acquired Fund or Acquiring Fund may use such instruments to gain
exposure to a security or type of security that it would be
prohibited by its investment restrictions from purchasing
directly.
8
ADDITIONAL INVESTMENT STRATEGIES
In addition to the principal investment strategies of each Fund described
above, each Fund may also engage in other types of investment practices,
including:
Temporary Investments. In an attempt to respond to adverse market,
economic, political, or other conditions, each Acquired Fund and each Acquiring
Fund may temporarily invest without limit in cash and in U.S. dollar-denominated
high-quality money market instruments and other short-term securities, including
securities which pay income that is subject to federal and state income tax.
These investments may include money market funds advised by the Funds' advisor.
Because these investments may be taxable, and may result in a lower yield than
would be available from investments with a lower quality or longer term, they
may prevent a Fund from achieving its objective.
Portfolio Turnover. Fund managers may trade securities frequently,
resulting, from time to time, in an annual portfolio turnover rate of over 100%.
Trading of securities may produce capital gains, which are taxable to
shareholders when distributed. Active trading may also increase the amount of
commissions or mark-ups to broker-dealers that the Fund pays when it buys and
sells securities. The "Financial Highlights" section below shows each Fund's
historical portfolio turnover rate.
Additional information about each Fund's investment strategies is set forth
in the Fund's prospectus and SAI. The Acquiring Funds' prospectus is enclosed
with this Prospectus/Proxy Statement. The Acquired Funds' prospectuses and the
Funds' SAI are available upon request by calling 1-800-677-3863.
PERFORMANCE COMPARISON OF THE FUNDS
The performance information below compares the performance of each Acquired
Fund to that of its corresponding Acquiring Fund. The bar charts and tables
illustrate the variability of each Fund's performance over time. Of course, past
performance (before and after taxes) is not an indication of future results.
The bar charts show how the performance of each Fund's Class A shares has
varied from year to year. The performance of Class Y shares will be higher due
to their lower expenses. Sales charges are not reflected in the chart; if they
were, returns would be lower.
The tables compare the performance for each share class of each Fund over
different time periods, before and after taxes, to that of the respective Fund's
benchmark index, which is a broad measure of market performance, and to an index
of funds with similar investment strategies. The performance information
reflects sales charges and Fund expenses; the benchmarks are unmanaged, have no
expenses, and are unavailable for investment. For Class A shares, the tables
include returns both before and after taxes. For Class Y shares, the tables only
include returns before taxes. After-tax returns for Class Y shares will vary.
After-tax returns are calculated using the historically highest individual
federal marginal income tax rates, but do not reflect the impact of state or
local taxes. Actual after-tax returns depend on your tax situation and may
differ from the returns shown below.
The bar charts and tables assume reinvestment of all dividends and other
distributions. Performance reflects fee waivers in effect. If these fee waivers
were not in place, each Fund's performance would be reduced.
9
PERFORMANCE COMPARISON: CALIFORNIA INTERMEDIATE TAX FREE FUND AND CALIFORNIA TAX
FREE FUND
CALIFORNIA INTERMEDIATE TAX FREE FUND
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR (CLASS A)(1)
(BAR CHART)
5.82% (0.90)% 9.63% 4.47% 8.36% 3.74% 3.53% 2.35% 3.92% 2.92%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Best Quarter:
Quarter ended September 30, 2002 4.74%
Worst Quarter:
Quarter ended June 30, 2004 (1.96)%
AVERAGE ANNUAL TOTAL RETURNS Inception
AS OF 12/31/07 Date One Year Five Years Ten Year
- ---------------------------- --------- -------- ---------- --------
California Intermediate Tax Free Fund
Class A (return before taxes) 8/8/97 0.56% 2.83% 4.11%
Class A (return after taxes on distributions) 0.53% 2.75% 4.05%
Class A (return after taxes on distributions and sale
of fund shares) 1.67% 2.93% 4.08%
Class Y (return before taxes) 8/8/97 3.01% 3.43% 4.46%
Lehman 7-Year Municipal Bond Index(2)
(reflects no deduction for fees, expenses, or taxes) 5.06% 3.86% 4.96%
Lipper California Intermediate Municipal Debt Funds
Category Average(3)
(reflects no deduction for sales charges or taxes) 2.65% 2.84% 4.21%
(1) Total return for the period from 1/1/08 through 9/30/08 was (1.39)%.
(2) An unmanaged index comprised of fixed-rate, investment-grade tax-exempt
bonds with remaining maturities between six and eight years.
(3) Represents funds that invest primarily in municipal debt issues with
dollar - weighted average maturities of five to ten years that are exempt
from taxation in California.
CALIFORNIA TAX FREE FUND
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR (CLASS A)(1)
(BAR CHART)
4.31% 9.33% 4.98% 4.76% 2.93% 4.44% 2.46%
2001 2002 2003 2004 2005 2006 2007
Best Quarter:
Quarter ended September 30, 2002 5.92%
Worst Quarter:
Quarter ended June 30, 2004 (2.34)%
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/07 Date One Year Five Years Inception
- ---------------------------- --------- -------- ---------- ---------
California Tax Free Fund
Class A (return before taxes) 2/1/00 (1.92)% 3.02% 5.46%
Class A (return after taxes on distributions) (1.99)% 2.92% 5.35%
Class A (return after taxes on distributions and sale
of fund shares) 0.20% 3.14% 5.29%
Class C (return before taxes) 2/1/00 1.04% 3.49% 5.63%
Class Y (return before taxes) 2/1/00 2.59% 4.16% 6.29%
Lehman Municipal Bond Index(2)
(reflects no deduction for fees, expenses, or taxes) 3.36% 4.30% 6.08%
Lipper California Municipal Debt Funds Category
Average(3)
(reflects no deduction for sales charges or taxes) 0.42% 3.61% 5.43%
(1) Total return for the period from 1/1/08 through 9/30/08 was (4.72)%.
(2) An unmanaged index comprised of fixed-rate, investment-grade tax-exempt
bonds with remaining maturities of one year or more.
(3) Represents funds that invest primarily in those securities that provide
income that is exempt from taxation in California.
10
PERFORMANCE COMPARISON: COLORADO INTERMEDIATE TAX FREE FUND AND COLORADO TAX
FREE FUND
COLORADO INTERMEDIATE TAX FREE FUND
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR (CLASS A)(1)
(BAR CHART)
5.44% (1.58)% 8.52% 5.59% 8.70% 4.09% 2.98% 1.91% 3.61% 2.93%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Best Quarter:
Quarter ended September 30, 2002 3.85%
Worst Quarter:
Quarter ended June 30, 2004 (2.16)%
AVERAGE ANNUAL TOTAL RETURNS Inception
AS OF 12/31/07 Date One Year Five Years Ten Years
- ---------------------------- --------- -------- ---------- --------
Colorado Intermediate Tax Free Fund
Class A (return before taxes) 4/4/94 0.63% 2.65% 3.94%
Class A (return after taxes on distributions) 0.55% 2.57% 3.89%
Class A (return after taxes on distributions and sale
of fund shares) 1.86% 2.82% 3.96%
Class Y (return before taxes) 4/4/94 3.09% 3.27% 4.27%
Lehman 7-Year Municipal Bond Index(2)
(reflects no deduction for fees, expenses, or taxes) 5.06% 3.86% 4.96%
Lipper Other States Intermediate Municipal Debt Funds
Category Average(3)
(reflects no deduction for sales charges or taxes) 2.93% 2.78% 3.79%
(1) Total return for the period from 1/1/08 through 9/30/08 was (1.18)%.
(2) An unmanaged index comprised of fixed-rate, investment-grade tax-exempt
bonds with remaining maturities between six and eight years.
(3) Represents funds that invest primarily in municipal debt issues with
dollar- weighted average maturities of five to ten years that are exempt
from taxation on a specified state basis.
COLORADO TAX FREE FUND
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR (CLASS A)(1)
(BAR CHART)
5.35% 10.35% 5.26% 4.27% 3.09% 4.12% 0.45%
2001 2002 2003 2004 2005 2006 2007
Best Quarter:
Quarter ended September 30, 2002 5.55%
Worst Quarter:
Quarter ended June 30, 2004 (2.28)%
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/07 Date One Year Five Years Inception
- ---------------------------- --------- -------- ---------- ---------
Colorado Tax Free Fund
Class A (return before taxes) 2/1/00 (3.81)% 2.54% 5.23%
Class A (return after taxes on distributions) (3.86)% 2.35% 5.09%
Class A (return after taxes on distributions and sale
of fund shares) (0.96)% 2.76% 5.14%
Class C (return before taxes) 2/1/00 (0.91)% 3.03% 5.39%
Class Y (return before taxes) 2/1/00 0.70% 3.68% 6.08%
Lehman Municipal Bond Index(2)
(reflects no deduction for fees, expenses, or taxes) 3.36% 4.30% 6.08%
Lipper Colorado Municipal Debt Funds Category Average(3)
(reflects no deduction for sales charges or taxes) 1.63% 3.61% 5.48%
(1) Total return for the period from 1/1/08 through 9/30/08 was (3.56)%.
(2) An unmanaged index comprised of fixed-rate, investment-grade tax-exempt
bonds with remaining maturities of one year or more.
(3) Represents funds that invest primarily in those securities that provide
income that is exempt from taxation in Colorado.
11
ADDITIONAL PERFORMANCE INFORMATION
Information concerning the factors that materially affected each Fund's
performance during the fiscal year ended June 30, 2008, is excerpted from the
Funds' annual report for such year and included in "Management's Discussion of
Fund Performance" below.
FORM OF ORGANIZATION
Each Fund is a separate non-diversified series of FAIF, a Maryland
corporation that is registered as an open-end management investment company
under the 1940 Act. FAIF was incorporated in the State of Maryland on August 20,
1987, under the name "SECURAL Mutual Funds, Inc." The Board of Directors and
shareholders, at meetings held January 10, 1991, and April 2, 1991,
respectively, approved amendments to the Articles of Incorporation providing
that the name "SECURAL Mutual Funds, Inc." be changed to "First American
Investment Funds, Inc." FAIF is organized as a series fund and currently issues
43 series, including the Funds. Each series of shares represents a separate
investment portfolio with its own investment objective and policies.
INVESTMENT ADVISORY SERVICE
Each Fund has the same investment advisor, FAF Advisors, Inc. Pursuant to
an Investment Advisory Agreement with FAIF, the Advisor manages the Funds'
business and investment activities, subject to the authority of the Board of
Directors.
The Advisor is located at 800 Nicollet Mall, Minneapolis, MN 55402. The
Advisor is a subsidiary of U.S. Bank National Association (which, in turn, is a
subsidiary of U.S. Bancorp). The Advisor provides investment management services
to individuals and institutions, including corporations, foundations, pensions
and retirement plans. As of June 30, 2008, the Advisor had more than $105
billion in assets under management, including investment company assets of more
than $91 billion.
The portfolio managers primarily responsible for the management of an
Acquired Fund are the same individuals who are primarily responsible for the
management of the corresponding Acquiring fund. Information on these individuals
is set forth below.
California Intermediate Tax Free Fund and California Tax Free Fund.
Christopher L Drahn is the primary portfolio manager for each Fund, and Michael
S. Hamilton co-manages each Fund. Mr. Drahn has served as the primary portfolio
manager for California Intermediate Tax Free Fund and Mr. Hamilton has
co-managed the Fund since August 1997. Mr. Drahn has served as the primary
portfolio manager for California Tax Free Fund since May 2005, prior to which he
had co-managed the Fund since February 2000. Mr. Hamilton has co-managed
California Tax-Free Fund since May 2005, prior to which he had served as the
primary portfolio manager for the Fund since December 2002.
Colorado Intermediate Tax Free Fund and Colorado Tax Free Fund. Christopher
L. Drahn is the primary portfolio manager for each Fund, and Michael L. Welle
co-manages each Fund. Mr. Drahn has served as the primary portfolio manager for
Colorado Intermediate Tax Free Fund since April 1994 and Mr. Welle has
co-managed the Fund since June 2007. Mr. Drahn has served as the primary
portfolio manager for Colorado Tax Free Fund since June 2007, prior to which he
had co-managed the Fund since February 2000. Mr. Well has co-managed Colorado
Tax Free Fund since June 2007.
Portfolio Manager Biographies
Christopher L. Drahn, CFA, Senior Fixed-Income Portfolio Manager, entered
the financial services industry when he joined the Advisor in 1980.
12
Michael S. Hamilton, Senior Fixed-Income Portfolio Manager, entered the
financial services industry when he joined the Advisor in 1989.
Michael L. Welle, CFA, Fixed-Income trader, Portfolio Manager, entered the
financial services industry when he joined the Advisor in 1992.
OPERATIONS OF THE ACQUIRING FUNDS FOLLOWING THE REORGANIZATION
Based on its review of each Fund's investment portfolio, the Advisor
believes that most of the assets held by each Acquired Fund will be consistent
with the corresponding Acquiring Fund's investment objective and policies and
thus can be transferred to and held by that Acquiring Fund if the Reorganization
Plan is approved for those Funds. If, however, either Acquired Fund has any
assets that the corresponding Acquiring Fund may not hold, those assets will be
sold prior to the Reorganizations. The proceeds of those sales will be held in
temporary investments or reinvested in assets that the corresponding Acquiring
Fund may hold. The possible need for an Acquired Fund to dispose of assets prior
to the Reorganizations could result in selling securities at a disadvantageous
time and could result in an Acquired Fund's realizing losses that would not
otherwise have been realized. Alternatively, these sales could result in an
Acquired Fund's realizing gains that would not otherwise have been realized, the
net proceeds of which would be included in a distribution to its shareholders
prior to the Reorganizations.
FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION
As a condition to the closing of each Reorganization, FAIF will receive an
opinion from Dorsey & Whitney LLP to the effect that the Reorganization will
qualify as a tax-free reorganization for federal income tax purposes.
Accordingly, shareholders will not recognize taxable gain or loss as a direct
result of a Reorganization. Each Acquired Fund shareholder's aggregate tax basis
in the Acquiring Fund shares it receives in a Reorganization will be the same as
the aggregate tax basis in the Acquired Fund shares the shareholder
constructively exchanges therefor, and the shareholder's holding period for
those Acquiring Fund shares will include its holding period for those Acquired
Fund shares. In addition, an Acquiring Fund's aggregate tax basis in the assets
it receives from the corresponding Acquired Fund will be the same as the
latter's aggregate tax basis therein, and the Acquiring Fund's holding period
for those assets will include that Acquired Fund's holding period therefor
immediately before the Reorganization.
If an Acquired Fund sells securities prior to the closing of a
Reorganization, it may recognize net gains or losses. Any net gains recognized
on those sales would increase the amount of any distribution that the Acquired
Fund must make to its shareholders prior to that closing. You should separately
consider any state, local and other tax consequences in consultation with your
tax advisor. See "Information about the Reorganizations - Federal Income Tax
Considerations" below for more detailed information about federal income tax
considerations.
PRINCIPAL RISK FACTORS
As indicated above, the investment objective of each Acquired Fund is
substantially similar to that of its corresponding Acquiring Fund. In addition,
all of the Funds seek to meet their objective by investing at least 80% of net
assets in municipal securities that pay interest exempt from federal income tax
and income tax of the applicable state. Therefore, the Funds are generally
subject to the same risks. However, because the Acquired Funds attempt to
maintain the weighted average maturity of their portfolio securities at 3 to 10
years under normal market conditions, whereas the Acquiring Funds attempt to
maintain the weighted average maturity of their portfolio securities at 10 to 25
years under normal market conditions, the Acquiring Funds are generally subject
to greater interest rate risk. See "Interest Rate Risk" below. Set forth below
are the principal risks of investing in the Funds. For all of the Funds, the
price and yield will change daily due to changes in interest rates and other
factors, which means you could lose money.
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ACTIVE MANAGEMENT RISK. Each Fund is actively managed and its performance
therefore will reflect in part the advisor's ability to make investment
decisions which are suited to achieving the Fund's investment objective. Due to
its active management, a Fund could underperform its benchmark or other mutual
funds with similar investment objectives.
CALL RISK. Many municipal bonds may be redeemed at the option of the issuer, or
"called," before their stated maturity date. In general, an issuer will call its
bonds if they can be refinanced by issuing new bonds which bear a lower interest
rate. The Funds are subject to the possibility that during periods of falling
interest rates, a municipal bond issuer will call its high-yielding bonds. A
Fund would then be forced to invest the unanticipated proceeds at lower interest
rates, resulting in a decline in the Fund's income.
CREDIT RISK. Each Fund is subject to the risk that the issuers of debt
securities held by the Fund will not make payments on the securities. There is
also the risk that an issuer could suffer adverse changes in financial condition
that could lower the credit quality of a security. This could lead to greater
volatility in the price of the security and in shares of the Fund. Also, a
change in the credit quality rating of a bond could affect the bond's liquidity
and make it more difficult for the Fund to sell. In adverse economic or other
circumstances, issuers of lower rated securities are more likely to have
difficulty making principal and interest payments than issuers of higher rated
securities. When a Fund purchases unrated securities, it will depend on the
advisor's analysis of credit risk without the assessment of an independent
rating organization, such as Moody's or S&P.
FUTURES RISK. The use of futures contracts exposes a Fund to additional risks
and transaction costs. Risks inherent in the use of futures contracts include:
the risk that securities prices, index prices, or interest rates will not move
in the direction that the advisor anticipates; an imperfect correlation between
the price of the futures contract and movements in the prices of the securities
being hedged; the possible absence of a liquid secondary market for any
particular instrument and possible exchange imposed price fluctuation limits,
either of which may make it difficult or impossible to close out a position when
desired; leverage risk, which is the risk that adverse price movements in a
futures contract can result in a loss substantially greater than the Fund's
initial investment in that futures contract; and the risk that the counterparty
will fail to perform its obligations, which could leave the Fund worse off than
if it had not entered into the position. If a Fund uses futures contracts and
the advisor's judgment proves incorrect, the Fund's performance could be worse
than if it had not used these instruments.
HIGH-YIELD SECURITIES RISK. Each Fund may invest in high-yield securities.
Although these securities usually offer higher yields than investment grade
securities, they also involve more risk. High-yield securities may be more
susceptible to real or perceived adverse economic conditions than investment
grade securities. In addition, the secondary trading market may be less liquid.
High-yield securities generally have more volatile prices and carry more risk to
principal than investment grade securities.
INCOME RISK. Each Fund's income could decline due to falling market interest
rates. This is because, in a falling interest rate environment, the Funds
generally will have to invest the proceeds from sales of Fund shares, as well as
the proceeds from maturing portfolio securities (or portfolio securities that
have been called, see "Call Risk" above), in lower-yielding securities.
INTEREST RATE RISK. Debt securities in the Funds will fluctuate in value with
changes in interest rates. In general, debt securities will increase in value
when interest rates fall and decrease in value when interest rates rise.
Longer-term debt securities are generally more sensitive to interest rate
changes. Thus, because the Acquiring Funds attempt to maintain the weighted
average maturity of their portfolio securities at 10 to 25 years under normal
market conditions, whereas the Acquired Funds attempt to maintain the weighted
average maturity of their portfolio securities at 3 to 10 years under normal
market conditions, the Acquiring Funds are generally subject to greater interest
rate risk. Each Fund may invest
14
in zero coupon securities, which do not pay interest on a current basis and
which may be highly volatile as interest rates rise or fall.
LIQUIDITY RISK. Each Fund is exposed to liquidity risk because of its investment
in high-yield securities. Trading opportunities are more limited for debt
securities that have received ratings below investment grade. These features may
make it more difficult to sell or buy a security at a favorable price or time.
Consequently, the Funds may have to accept a lower price to sell a security,
sell other securities to raise cash, or give up an investment opportunity, any
of which could have a negative effect on a Fund's performance. Infrequent
trading may also lead to greater price volatility.
MUNICIPAL LEASE OBLIGATIONS RISK. Each Fund may purchase participation interests
in municipal leases. These are undivided interests in a lease, installment
purchase contract, or conditional sale contract entered into by a state or local
government unit to acquire equipment or facilities. Participation interests in
municipal leases pose special risks because many leases and contracts contain
"non-appropriation" clauses that provide that the governmental issuer has no
obligation to make future payments under the lease or contract unless money is
appropriated for this purpose by the appropriate legislative body. Although
these kinds of obligations are secured by the leased equipment or facilities, it
might be difficult and time consuming to dispose of the equipment or facilities
in the event of non-appropriation, and the Fund might not recover the full
principal amount of the obligation.
NON-DIVERSIFICATION RISK. Each Fund is non-diversified. A non-diversified fund
may invest a larger portion of its assets in a fewer number of issuers than a
diversified fund. Because a relatively high percentage of each Fund's assets may
be invested in the securities of a limited number of issuers, each Fund's
portfolio may be more susceptible to any single economic, political or
regulatory occurrence than the portfolio of a diversified fund.
POLITICAL AND ECONOMIC RISKS. The values of municipal securities may be
adversely affected by local political and economic conditions and developments.
Adverse conditions in an industry significant to a local economy could have a
correspondingly adverse effect on the financial condition of local issuers.
Other factors that could affect municipal securities include a change in the
local, state, or national economy, demographic factors, ecological or
environmental concerns, statutory limitations on the issuer's ability to
increase taxes, and other developments generally affecting the revenue of
issuers (for example, legislation or court decisions reducing state aid to local
governments or mandating additional services). To the extent a Fund invests in
the securities of issuers located in a single state, it will be
disproportionately affected by political and economic conditions and
developments in that state. The value of municipal securities also may be
adversely affected by future changes in federal or state income tax laws,
including rate reductions, the imposition of a flat tax, or the loss of a
current state income tax exemption.
ADDITIONAL INFORMATION ABOUT THE FUNDS
DISTRIBUTION OF SHARES
The distribution arrangements applicable to the Class A and Class Y shares
of each Acquired Fund are identical to the distribution arrangements applicable
to the Class A and Class Y shares, respectively, of its corresponding Acquiring
Fund. Quasar Distributors, LLC (the "Distributor") serves as the distributor for
the Funds' shares pursuant to a Distribution Agreement with FAIF dated July 1,
2005 (the "Distribution Agreement"). The Distributor is a wholly owned
subsidiary of U.S. Bancorp. The Distributor receives any front-end sales charges
or contingent deferred sales charges paid in connection with the purchase or
sale of Fund shares, as disclosed above under "Summary - Comparison of Fund
Expenses," and any fees paid by the Funds pursuant to Rule 12b-1 under the 1940
Act ("Rule 12b-1").
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FAIF has adopted a Distribution Plan pursuant to Rule 12b-1 (the
"Distribution Plan") which applies to the Class A shares of the Acquired Funds
and the Acquiring Funds. Under the Distribution Plan, each Fund pays to the
Distributor a shareholder servicing fee at an annual rate of 0.25% of the
average daily net assets of the Fund's Class A shares. The Distributor uses
these fees to compensate financial intermediaries for administrative services
performed on behalf of the intermediaries' customers. These intermediaries
receive shareholder servicing fees of 0.25% of a Fund's Class A share average
daily net assets attributable to shares sold through them. The Distributor
begins to pay shareholder servicing fees to intermediaries immediately after a
shareholder purchases shares and the intermediaries continue to receive these
fees for as long as the shareholder holds the shares
The Distributor receives no sales charges or Rule 12b-1 fees for
distribution of the Class Y Shares.
In addition to the Rule 12b-1 fees paid by the Funds, the Advisor and/or
the Distributor may pay additional compensation to financial intermediaries out
of their own legitimate profits in connection with the sale or retention of Fund
shares and/or in exchange for sales and/or administrative services performed on
behalf of the intermediaries' customers. The amount of these payments may be
significant, and may create an incentive for an intermediary or its employees or
associated persons to recommend or sell shares of the Fund to an investor. These
payments are not reflected in the fees and expenses listed above under "Summary
- - Comparison of Fund Expenses" because they are not paid by the Funds.
For more complete information concerning the distribution arrangements
applicable to the Funds, including applicable fees and expenses, please see the
Acquiring Funds' prospectus, which accompanies this Proxy Statement/Prospectus,
the Acquired Funds' prospectus, and the Funds' SAI. For a copy of the Acquired
Funds' prospectus or the Funds' SAI, which are incorporated by reference herein,
call Investor Services at (800) 677-3863.
PURCHASE AND REDEMPTION PROCEDURES AND EXCHANGE PRIVILEGES
The purchase and redemption procedures for each Acquired Fund are identical
to those of the corresponding Acquiring Fund except that, as noted above under
"Summary - Comparison of Fund Expenses," Class A share front-end sales charges
are higher for the Acquiring Funds.
Shares of the Funds may be purchased or redeemed on any day when the New
York Stock Exchange is open, except that shares cannot be purchased by wire
transfer on days that federally chartered banks are closed. The purchase or
redemption price for Fund shares will be based on that day's net asset value per
share if the order is received in proper form by the Funds, or an investment
professional or financial institution authorized to accept orders on the Funds'
behalf, prior to the time the Funds calculate their net asset values. Purchases
of Class A shares are made at net asset value plus a front-end sales charge,
which is reduced for larger purchases. There is no front-end sales charge on
Class A share purchases of $1 million or more, but shareholders may be assessed
a contingent deferred sales charge ("CDSC") of 1% if they sell their shares
within 18 months. Class Y shares of the Acquired Funds and the Acquiring Funds
are sold at their net asset value per share without either a front-end sales
charge or a CDSC.
Exchange privileges for each Acquired Fund are identical to those of the
corresponding Acquiring Fund. Shares of the Funds generally may be exchanged for
the same class of shares in any other First American Fund, with certain
exceptions, including:
- Class A shares may be exchanged for Class Y shares of the same Fund or
another First American Fund if the shareholder subsequently becomes
eligible to purchase Class Y shares.
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- If a shareholder is no longer eligible to hold Class Y shares, the
shareholder may exchange those shares for Class A shares at net asset
value. Class A shares have higher expenses than Class Y shares.
Exchanges are made based on the net asset value per share of each Fund at
the time of the exchange. When Class A shares of a Fund are exchanged for Class
A shares of another First American Fund, there is no front-end sales charge.
A Fund may change or cancel its exchange policies at any time. The Funds
have the right to limit exchanges that are deemed to constitute short-term
trading.
For more complete information concerning purchase and redemption procedures
and exchange privileges, please see the Acquiring Funds' Prospectus, which
accompanies this Proxy Statement/Prospectus, the Acquired Funds' Prospectus, and
the Funds' SAI. For a copy of the Acquired Funds' Prospectus or the Funds' SAI,
which are incorporated by reference herein, call Investor Services at (800)
677-3863.
DIVIDENDS AND OTHER DISTRIBUTIONS; TAXES
The Funds' policies regarding dividends and other distributions are
identical. Dividends from each Fund's net investment income are declared daily
and paid monthly. Any capital gains are distributed at least once each year.
Dividends are reinvested in additional shares of the same Fund, unless the
shareholder requests that distributions be reinvested in another First American
Fund or paid in cash.
TAXES
Federal Taxes on Distributions. Each Fund intends to meet certain federal
tax requirements so that distributions of tax-exempt interest income may be
treated as "exempt-interest dividends." These dividends are not subject to
regular federal income tax. However, each Fund may invest up to 20% of its net
assets in municipal securities the interest on which is subject to the federal
alternative minimum tax. Any portion of exempt-interest dividends attributable
to interest on these securities may increase some shareholders' alternative
minimum tax. The Funds expect that their distributions will consist primarily of
exempt interest dividends.
Distributions paid from any interest income that is not tax-exempt and from
any net realized capital gains will be taxable whether you reinvest those
distributions or take them in cash. Distributions paid from taxable interest
income will be taxed as ordinary income and not as "qualifying dividends" that
are taxed at the same rate as long-term capital gains. Distributions of a Fund's
net long-term capital gains are taxable as long-term gains, regardless of how
long you have held your shares.
Federal Taxes on Transactions. The sale of Fund shares, or the exchange of
one Fund's shares for shares of another Fund, will be a taxable event and may
result in a capital gain or loss. The gain or loss will be considered long-term
if you have held your shares for more than one year. A gain or loss on shares
held for one year or less is considered short-term and is taxed at the same
rates as ordinary income.
If, in redeeming shares, a shareholder receives a distribution of
securities instead of cash, the shareholder will be treated as receiving an
amount equal to the fair market value of the securities at the time of the
distribution for purposes of determining capital gain or loss on the redemption,
and will also acquire a basis in the shares for federal income tax purposes
equal to their fair market value.
The exchange of one class of shares for another class of shares in the same
Fund will not be taxable.
17
State Taxes on Distributions.
California Income Taxation. California Intermediate Tax Free Fund and
California Tax Free Fund each intends to comply with certain state tax
requirements so that dividends it pays that are attributable to interest on
California municipal securities will be excluded from the California taxable
income of individuals, trusts, and estates. To meet these requirements, at least
50% of the value of a Fund's total assets must consist of obligations which pay
interest that is exempt from California personal income tax. Exempt-interest
dividends are not excluded from the California taxable income of corporations
and financial institutions. In addition, dividends derived from interest paid on
California municipal bonds (including securities treated for federal purposes as
private activity bonds) will not be subject to the alternative minimum tax that
California imposes on individuals, trusts, and estates.
Colorado Income Taxation. Dividends paid by Colorado Intermediate Tax Free
Fund and Colorado Tax Free Fund will be exempt from Colorado income taxes for
individuals, trusts, estates, and corporations to the extent that they are
derived from interest on Colorado municipal securities. In additions, dividends
derived from interest on Colorado municipal securities (including securities
treated for federal purposes as private activity bonds) will not be subject to
the alternative minimum tax that Colorado imposes on individuals, trusts, and
estates.
INFORMATION ABOUT THE REORGANIZATIONS
AGREEMENT AND PLAN OF REORGANIZATION
The terms and conditions under which the proposed Reorganizations will be
consummated are set forth in the Reorganization Plan. Significant provisions of
the Reorganization Plan are summarized below; however, this summary is qualified
in its entirety by reference to the Reorganization Plan, the form of which is
attached as Appendix A to this Prospectus/Proxy Statement.
The Reorganization Plan provides, with respect to each Reorganization, for
(a) the Acquiring Fund's acquisition, as of the close of business on the date of
the closing of the Reorganization or other time FAIF determines (the "Effective
Time"), of all the assets of the corresponding Acquired Fund in exchange solely
for Acquiring Fund shares and the Acquiring Fund's assumption of all the
Acquired Fund's liabilities and (b) the distribution of those shares, by class,
to the Acquired Fund's shareholders.
An Acquired Fund's assets to be acquired by its corresponding Acquiring
Fund include all cash, cash equivalents, securities, receivables, claims and
rights of action, rights to register shares under applicable securities laws,
books and records, deferred and prepaid expenses shown as assets on the Acquired
Fund's books, and other property the Acquired Fund owns at the Effective Time.
An Acquiring Fund will assume from its corresponding Acquired Fund all its
liabilities, debts, obligations and duties of whatever kind or nature; provided,
however, that each Acquired Fund will use its best efforts to discharge all its
known liabilities before the Effective Time.
The value of each Acquired Fund's assets to be acquired by its
corresponding Acquiring Fund and the net asset value ("NAV") per share of each
class of the Acquiring Fund shares to be exchanged for those assets will be
determined as of the close of regular trading on the New York Stock Exchange on
the date of the Reorganization closing, using the valuation procedures described
in the Funds' prospectuses and the SAI. Each Acquired Fund's net value will be
the value of its assets as so determined, less the amount of its liabilities
determined as of the close of such trading.
At, or as soon as practicable after, the Effective Time, each Acquired Fund
will distribute, by class, the Acquiring Fund shares it receives in a
Reorganization pro rata to its shareholders of record as of the Effective Time,
so that each shareholder will receive a number of full and fractional Acquiring
18
Fund shares of the same class that is equal in aggregate value to the
shareholder's Acquired Fund shares. The shares will be distributed by opening
accounts on the Acquiring Fund's books in the names of the shareholders and by
transferring to those accounts the shares previously credited to the Acquired
Fund's account on those books. Fractional Acquiring Fund shares will be rounded
to the third decimal place. Each Acquired Fund will be terminated as soon as
practicable after the share distribution.
Because Acquiring Fund shares will be issued at their NAV in exchange for
the net assets of the corresponding Acquired Fund, the aggregate value of the
Acquiring Fund shares issued to shareholders in a Reorganization will equal the
aggregate value of the Acquired Fund shares they surrender. The NAV per share of
each class of each Acquiring Fund will be unchanged by a Reorganization. Thus,
the Reorganizations will not result in dilution of any shareholder's interest.
If Class A Acquiring Fund shares are issued in a Reorganization to
shareholders that formerly held Class A Acquired Fund shares with respect to
which the front-end sales charge was waived due to a purchase of $1 million or
more, then, in determining whether a deferred sales charge is payable on the
sale of those Class A Acquiring Fund shares, the Acquiring Fund will give the
holder thereof credit for the period during which the holder held those Acquired
Fund shares.
Any transfer taxes payable on the issuance of Acquiring Fund shares in a
name other than that of the registered shareholder will be paid by the person to
whom those shares are to be issued as a condition of the transfer. Any reporting
responsibility of an Acquired Fund to a public authority will continue to be its
responsibility until it is dissolved.
The Advisor will bear the entire cost of the Reorganizations, including
professional fees and the cost of soliciting proxies for the Meeting, which
principally consists of printing and mailing expenses, and the cost of any
supplementary solicitation.
In approving the Reorganization Plan, the Board of Directors reviewed
various factors about the Funds and each Reorganization. The Board considered
the relative size of the Funds as well as the similarity of the Funds'
investment objectives and principal investment strategies. The Board evaluated
the potential economies of scale associated with larger mutual funds and
concluded that operating efficiencies may be achieved by combining the Funds.
The Board also considered the performance history of each Fund and the relative
expenses of the Funds. After such consideration, the Board concluded that each
Reorganization would be in the best interests of the Funds participating
therein.
The consummation of each Reorganization is subject to a number of
conditions set forth in the Reorganization Plan (not including consummation of
any other Reorganization), some of which may be waived by FAIF. FAIF may amend
the Reorganization Plan in any manner, except that no amendment may be made
subsequent to the Meeting that has a material adverse effect on the interests of
an Acquired Fund's shareholders. In addition, FAIF's Bylaws and Articles of
Incorporation as a mechanical matter require an amendment to FAIF's Articles of
Incorporation in order for the proposed Reorganizations to be effected.
REASONS FOR THE REORGANIZATION
The Board of Directors considered and unanimously approved each
Reorganization at an in-person meeting held on September 23-25, 2008. In
approving the Reorganizations, the Board, which is composed solely of
Independent Directors, determined that each Reorganization is in the best
interests of the participating Funds' shareholders and that the interests of
each Fund's shareholders will not be diluted as a result of the Reorganizations.
In approving the Reorganizations, the Board considered a number of factors,
including the following:
19
- The compatibility of the Funds' investment objectives and strategies:
The Board considered that each Acquired Fund has an investment
objective that is substantially similar to that of its corresponding
Acquiring Fund, and the investment strategies of each Acquired Fund
differ from those of its corresponding Acquiring Fund only with
respect to the average maturity of the securities which the Funds
hold. .
- The Funds' relative risks: The Board noted that the Acquired Funds and
Acquiring Funds are generally subject to the same risks except that
the longer-term securities in which the Acquiring Funds invest are
generally more sensitive to interest rate changes.
- The Funds' investment performance: The Board considered that the
Acquired Funds have better performance for the one-year period ended
June 30, 2008, reflecting a more favorable interest rate environment
for shorter-maturity funds, but the Acquiring Funds have comparable or
better performance for the three- and five-year periods ended June 30,
2008.
- The Funds' relative sizes: The Board noted that the Acquired Funds and
the Acquiring Funds are all fairly small, and combining the Funds
should provide larger funds which potentially can be more efficiently
managed. The Board also noted that combining the Funds will reduce
duplicative expenses (i.e., audit fees, annual and semi-annual
reports, blue sky fees, etc.), and shareholders may benefit from other
economies of scale often associated with larger funds. Finally,
although each Acquired Fund is somewhat larger than its corresponding
Acquiring Fund, the Board considered the Advisor's assertion that
California and Colorado long-term tax free funds represent larger
asset classes than California and Colorado intermediate-term tax free
funds, respectively, and that these larger asset classes historically
have had greater asset flows, offering the longer-maturity Acquiring
Funds more potential for asset growth.
- The Funds' relative expenses: The Board noted that each Acquired Fund
has the same contractual investment advisory fees as its corresponding
Acquiring Fund. The Board also considered that, although the total
expenses of the Acquiring Funds, before expense waivers, are higher
than those of the Acquired Funds, primarily because of the smaller
size of the Acquiring Funds, each Acquiring Fund has lower total
expenses than its corresponding Acquired Fund after fee waivers and
expense reimbursements by the Advisor. Finally, the Board considered
that the Advisor has contractually agreed to maintain the Acquiring
Funds' total expense ratios at their current levels through at least
June 30, 2009.
- The portfolio composition of the Funds: The board noted that all
securities held by the Acquired Fund are eligible for investment by
the Acquiring Fund.
- The tax consequences of the Reorganization: The board noted that each
Reorganization is expected to be tax-free to shareholders of the
participating Funds, which it believes is in their best interests.
- The investment experience, expertise, and results of each Fund's
portfolio managers: The Board noted that each Acquired Fund is managed
by the same portfolio managers as its corresponding Acquiring Fund,
and considered the investment experience, expertise, and results of
these portfolio managers.
- The effect of the Reorganization on each Fund's shareholders' rights:
The Board noted that the rights of the shareholders of the Funds are
identical.
- Expenses of the Reorganization: The board noted that the Advisor has
agreed to pay the expenses associated with the Reorganizations,
including the expenses of preparing, filing,
20
printing, and mailing this Prospectus/Proxy Statement and of holding
the Meeting, so that no shareholders of any Fund will effectively bear
these expenses.
- The alternatives to the Reorganizations: The Board could have decided
to continue the Acquired Funds in their present form, but believed
this was not in shareholders' best interests given the small size of
the Funds and resulting high expenses before expense waivers, and the
limited prospects for growth given the small asset class sizes of
California and Colorado intermediate-term tax free funds. The board
also noted that liquidating the Acquired Funds would be a taxable
event to shareholders.
- The potential benefits of the Reorganization to the Advisor and its
affiliates: The Board recognized that the Advisor may benefit from the
Reorganization. To the extent that the Acquiring Funds realize
economies of scale, the Advisor may spend less in connection with fee
waivers following the Reorganizations than it does today. The Board
also noted, however, that the Advisor is not obligated to make any
such waivers (beyond the contractual period) and that, in any event,
the proposed Reorganizations are expected to provide benefits to
shareholders.
The Board did not assign specific weights to any or all of these factors,
but it did consider all of them in determining, in its business judgment, to
approve the Reorganizations and to recommend the approval by each Acquired
Fund's shareholders.
DESCRIPTION OF SECURITIES TO BE ISSUED
FAIF is registered with the SEC as an open-end management investment
company. Fund shares entitle their holders to one vote per full share and
fractional votes for fractional shares held. Each Acquiring Fund currently has
Class A, Class C and Class Y shares outstanding. Each Acquired Fund currently
has Class A and Class Y shares outstanding. If the Reorganization Plan is
approved with respect to an Acquired Fund, each shareholder thereof will receive
Acquiring Fund shares of the same class as their Acquired Fund shares and having
a net asset value equal to the total net asset value of their Acquired Fund
shares.
FEDERAL INCOME TAX CONSIDERATIONS
The exchange of an Acquired Fund's assets for shares of its corresponding
Acquiring Fund and the Acquiring Fund's assumption of that Acquired Fund's
liabilities, and the subsequent distribution of those shares, is intended to
qualify for federal income tax purposes as a tax-free reorganization under
section 368(a)(1)(C) of the Code. FAIF will receive a tax opinion from Dorsey &
Whitney LLP substantially to the effect that, with respect to each
Reorganization:
(1) the Reorganization will constitute a reorganization within the meaning
of Section 368(a)(1)(C) of the Code, and the Acquired Fund and the
Acquiring Fund each will qualify as a party to the Reorganization
under Section 368(b) of the Code;
(2) Acquired Fund shareholders will recognize no income, gain or loss upon
receipt, pursuant to the Reorganization, of shares of the Acquiring
Fund. Acquired Fund shareholders subject to taxation will recognize
income upon receipt of any net investment income not constituting
exempt interest dividends or any net capital gains of the Acquired
Fund which are distributed by the Acquired Fund prior to the Effective
Time;
(3) the tax basis of Acquiring Fund shares received by each Acquired Fund
shareholder pursuant to the Reorganization will be equal to the tax
basis of Acquired Fund shares exchanged therefor;
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(4) the holding period of Acquiring Fund shares received by each Acquired
Fund shareholder pursuant to the Reorganization will include the
period during which each Acquired Fund shareholder held Acquired Fund
shares exchanged therefor, provided that the Acquired Fund shares were
held as a capital asset at the Effective Time;
(5) the Acquired Fund will recognize no income, gain or loss by reason of
the Reorganization;
(6) the Acquiring Fund will recognize no income, gain or loss by reason of
the Reorganization;
(7) the tax basis of the assets received by the Acquiring Fund pursuant to
the Reorganization will be the same as the basis of those assets in
the hands of the Acquired Fund as of the Effective Time;
(8) the holding period of the assets received by the Acquiring Fund
pursuant to the Reorganization will include the period during which
such assets were held by the Acquired Fund; and
(9) the Acquiring Fund will succeed to and take into account the earnings
and profits, or deficit in earnings and profits, of the Acquired Fund
as of the Effective Time.
The tax opinion will state that no opinion is expressed as to the effect of
the Reorganization on the Funds or any shareholder with respect to any asset as
to which any unrealized gain or loss is required to be recognized for federal
income tax purposes at the end of a taxable year (or on the termination or
transfer thereof) under a mark-to-market system of accounting.
An Acquiring Fund's utilization after a Reorganization of (1) carryovers of
pre-Reorganization capital losses realized by its corresponding Acquired Fund
and (2) capital losses it realizes after the Reorganization that are
attributable to that Acquired Fund's built-in unrealized capital losses as of
the Effective Time will be subject to limitation under the Code. In addition,
the ability of certain Acquiring Funds to use a corresponding Acquired Fund's
capital loss carryovers within the succeeding five years may be limited to the
Acquiring Fund's net asset value at the time of the reorganization multiplied by
the long-term tax exempt rate.
Acquired Fund shareholders should consult their tax advisors regarding the
effect, if any, of the Reorganizations in light of their individual
circumstances. Because the foregoing discussion only relates to the federal
income tax consequences of the Reorganizations, those shareholders also should
consult their tax advisors about state and local tax consequences, if any, of
the Reorganizations.
CAPITALIZATION
The following tables set forth the capitalization of each Acquired Fund and
the corresponding Acquiring Fund, and the capitalization of the combined
Acquiring Fund on a pro forma basis, as of June 30, 2008, giving effect to the
proposed acquisition of assets of the Acquired Fund at its then current net
asset value.
22
CAPITALIZATION OF CALIFORNIA INTERMEDIATE TAX FREE FUND,
CALIFORNIA TAX FREE FUND AND UNAUDITED PRO FORMA COMBINED
CALIFORNIA TAX FREE FUND
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
CALIFORNIA PRO FORMA -
INTERMEDIATE CALIFORNIA TAX CALIFORNIA
TAX FREE FUND FREE FUND TAX FREE FUND
------------- -------------- -------------
NET ASSETS
Class A $ 4,463 $12,076 $ 16,539
Class C N/A $ 2,480 $ 2,480
Class Y $52,924 $30,485 $ 83,409
TOTAL $57,387 $45,041 $102,428
SHARES OUTSTANDING
Class A 447 1,128 1,545
Class C N/A 231 231
Class Y 5,284 2,847 7,789
NET ASSET VALUE PER
SHARE
Class A $ 9.99 $ 10.71 $ 10.71
Class C N/A $ 10.72 $ 10.72
Class Y $ 10.02 $ 10.71 $ 10.71
CAPITALIZATION OF COLORADO INTERMEDIATE TAX FREE FUND,
COLORADO TAX FREE FUND AND UNAUDITED PRO FORMA COMBINED COLORADO TAX FREE FUND
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
COLORADO PRO FORMA -
INTERMEDIATE COLORADO TAX COLORADO
TAX FREE FUND FREE FUND TAX FREE FUND
------------- -------------- -------------
NET ASSETS
Class A $ 6,199 $ 5,815 $12,014
Class C N/A $ 2,859 $ 2,859
Class Y $43,933 $15,889 $59,822
TOTAL $50,132 $24,563 $74,695
23
SHARES OUTSTANDING
Class A 609 566 1,169
Class C N/A 279 279
Class Y 4,324 1,543 5,812
NET ASSET VALUE PER
SHARE
Class A $ 10.19 $ 10.28 $ 10.28
Class C N/A $ 10.26 $ 10.26
Class Y $ 10.16 $ 10.29 $ 10.29
24
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
(EXCERPTED FROM THE FUNDS' ANNUAL REPORTS FOR THE FISCAL YEAR ENDED JUNE 30,
2008)
California Intermediate Tax Free Fund
Investment Objective: providing current income that is exempt from both federal
income tax and California state income tax to the extent consistent with
preservation of capital
HOW DID THE FUND PERFORM FOR THE FISCAL YEAR ENDED JUNE 30, 2008?
The First American California Intermediate Tax Free Fund (the "fund"), Class Y
shares, returned 3.33% for the fiscal year ended June 30, 2008 (Class A shares
returned 3.20%, without taking the sales charge into account, for the same
period). By comparison, the fund's benchmark, the Lehman 7-Year Municipal Bond
Index*, returned 5.60%. Performance for the fund's peer group, the Lipper
California Intermediate Municipal Debt Funds Average, was 2.59%.
WHAT WERE THE GENERAL MUNICIPAL MARKET CONDITIONS DURING THE FISCAL YEAR?
The municipal market endured one of its more tumultuous years ever as fallout
from the housing debacle rocked market participants. Deterioration within their
relatively new mortgage-backed book of business ultimately led to downgrades for
several of the major monoline municipal bond insurers. The impaired credit
quality and loss of confidence in many of the insurers affected much of the
municipal market (use of insurance had become so pervasive that in recent years
close to 50% of all new issuance came to market with an insurance wrap). The
market was buffeted by irregular bouts of volatility and selling pressure as a
number of accounts unwound positions. For example, tax-exempt money funds were
forced to exit insured holdings en masse due to minimum ratings and liquidity
requirements. To reduce debt, many municipal market investors were pressured to
sell longer-maturity bonds when the floating-rate component of their borrowing
programs was no longer money-fund eligible (the municipal market had in recent
years developed its own form of "carry" trade, in which investors borrow in the
short-term money markets and invest in longer maturities, trying to take
advantage of the relative steepness of the municipal yield curve in comparison
to other fixed-income markets).
Credit spreads (i.e., the differences in yield between higher- and lower-quality
debt) were the first to widen as the market anticipated that lower-quality debt
would struggle in a slowing economy. Ultimately, however, the insurer debacle
cut an even wider swath through the market. Many insured bonds now trade solely
based on the creditworthiness of underlying obligors with little or no value
attributed to the insurance wrap. Not surprisingly, in this environment natural
standalone (i.e., without an insurance wrap) AAA- and AA-rated bonds were
generally the best performers for the year.
The municipal yield curve steepened over the past 12 months as yields on shorter
maturities fell while longer maturity yields rose slightly. In terms of total
return, intermediate maturities generally produced the best returns and
longer-maturity bonds were the weakest-performing part of the curve. Although
the overall municipal market started to regain its bearings near the end of the
fiscal year, high-grade bonds still finished at yields of more than 90% (and in
some cases more than 100%) of comparable-maturity Treasuries, which typically
indicates that the high-grade bonds represent good value relative to Treasuries.
HOW DID MARKET CONDITIONS AND INVESTMENT STRATEGIES AFFECT THE FUND'S
PERFORMANCE?
Reflecting the trends in the broader market, the fund's holdings in lower-grade
securities underperformed for the fiscal year. The best-performing bonds in the
fund were generally the natural high-grades (AAA- and AA-rated bonds), which
were not affected by the insurer debacle, and shorter intermediate maturities,
which benefited from the flattening yield curve over the course of the year. The
fund's holdings in lower-grade securities were generally short in maturity and
somewhat less volatile in nature, and therefore were not a major detriment to
performance. Although the fund's duration (a measure of its sensitivity to
interest-rate movements) was somewhat longer than the benchmark's for most of
the fiscal year, the fund posted solid total return numbers relative to its peer
group.
WHAT STRATEGIC MOVES WERE MADE BY THE FUND AND WHY?
The fund's duration was slightly longer than the benchmark duration most of the
past year, due in part to the relatively steeper slope of the California yield
curve. Given the turmoil in the marketplace and the resultant supply pressures,
the fund added to weightings in a variety of issuers and sectors (such as
healthcare and education) at wider credit spreads - and, therefore, lower prices
- - than have been available for a number of years. Since we anticipate the shape
of the municipal yield curve to flatten over time, we focused many purchases in
the 10- to 15-plus-year range and reallocated out of shorter-maturity ranges
while keeping duration constant by adjusting the fund's cash reserves.
* Unlike mutual funds, index returns do not reflect any expenses, transaction
costs, or cash flow effects.
PORTFOLIO ALLOCATION AS OF JUNE 30, 2008(1) (% OF NET ASSETS)
Revenue Bonds(3) 69.8%
General Obligations(3) 19.4
Certificates of Participation(3) 3.6
Short-Term Investment 6.1
Other Assets and Liabilities, Net(4) 1.1
-----
100.0%
=====
BOND CREDIT QUALITY DISTRIBUTION AS OF JUNE 30, 2008(2) (% OF MARKET VALUE)
AAA 7.0%
AA 23.0
A 45.0
BBB 22.9
BB 0.8
Non-Rated 1.3
-----
100.0%
=====
(1) Portfolio allocations are subject to change and are not recommendations to
buy or sell any security.
(2) Individual security ratings are based on information from Moody's Investors
Service, Standard & Poor's, and/or Fitch. If there are multiple ratings for
a security, the lowest rating is used unless ratings are provided by all
three agencies, in which case the middle rating is used.
(3) These securities may include bonds that are pre-refunded or escrowed to
maturity issues; see the fund's Schedule of Investments. As of June 30,
2008, 7.4% of the fund's net assets were pre-refunded and escrowed to
maturity issues.
(4) Investments typically comprise substantially all of the fund's net assets.
Other assets and liabilities include receivables for items such as income
earned but not yet received and payables for items such as fund expenses
incurred but not yet paid.
ANNUAL PERFORMANCE(1,2) AS OF JUNE 30, 2008
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
AVERAGE ANNUAL RETURN WITH SALES CHARGE (POP)
Class A 0.90% 2.33% 3.93%
AVERAGE ANNUAL RETURN WITHOUT SALES CHARGE (NAV)
Class A 3.20% 2.80% 4.17%
Class Y 3.33% 2.95% 4.28%
Lehman 7-Year Municipal Bond Index(3) 5.60% 3.24% 4.80%
THE PERFORMANCE DATA QUOTED ON THIS PAGE REPRESENTS PAST PERFORMANCE AND DOES
NOT GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE OF THE FUND MAY
BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED. PERFORMANCE DATA CURRENT TO
THE MOST RECENT MONTH-END MAY BE OBTAINED BY CALLING 800.677.FUND.
(1) TOTAL RETURNS AT NET ASSET VALUE ("NAV") REFLECT PERFORMANCE OVER THE TIME
PERIOD INDICATED WITHOUT INCLUDING THE FUND'S MAXIMUM SALES CHARGE AND
ASSUME REINVESTMENT OF ALL DISTRIBUTIONS AT NAV.
TOTAL RETURNS AT PUBLIC OFFERING PRICE ("POP") REFLECT PERFORMANCE OVER THE
TIME PERIOD INDICATED INCLUDING MAXIMUM SALES CHARGES OF 2.25% FOR CLASS A
SHARES. TOTAL RETURNS ASSUME REINVESTMENT OF ALL DISTRIBUTIONS AT NAV.
INVESTMENTS IN DEBT SECURITIES TYPICALLY DECREASE IN VALUE WHEN INTEREST
RATES RISE. THE RISK IS USUALLY GREATER FOR LONGER-TERM DEBT SECURITIES.
AS OF THE MOST RECENT PROSPECTUS, THE FUND'S TOTAL ANNUAL OPERATING EXPENSE
RATIO FOR CLASS A AND CLASS Y SHARES WAS 1.25% AND 1.00%, RESPECTIVELY. THE
ADVISOR HAS CONTRACTUALLY AGREED TO WAIVE FEES AND REIMBURSE OTHER FUND
EXPENSES THROUGH AT LEAST JUNE 30, 2009 SO THAT TOTAL ANNUAL FUND OPERATING
EXPENSES FOR CLASS A AND CLASS Y SHARES DO NOT EXCEED 0.70% AND 0.70%,
RESPECTIVELY. THESE FEE WAIVERS AND EXPENSE REIMBURSEMENTS MAY BE
TERMINATED AT ANY TIME AFTER JUNE 30, 2009, AT THE DISCRETION OF THE
ADVISOR. PRIOR TO THAT TIME, SUCH WAIVERS AND REIMBURSEMENTS MAY NOT BE
TERMINATED WITHOUT THE APPROVAL OF THE FUND'S BOARD OF DIRECTORS.
VALUE OF $10,000 INVESTMENT(1,2,4) AS OF JUNE 30, 2008
California Intermediate Tax Free Fund, Class A (NAV) $15,039
California Intermediate Tax Free Fund, Class A (POP) $14,704
Lehman 7-Year Municipal Bond Index(3) $15,986
The chart at right illustrates the total value of an assumed $10,000 investment
in the fund's Class A shares (from 6/30/1998 to 6/30/2008) as compared to the
Lehman 7-Year Municipal Bond Index(3)
(PERFORMANCE GRAPH)
(2) Performance does not reflect the deduction of taxes that a shareholder
would pay on fund distributions or redemption of fund shares. Investment
performance reflects fee waivers that are or were in effect. In the absence
of such fee waivers, total returns would be reduced. Index performance is
for illustrative purposes only and does not reflect any expenses,
transaction costs, or cash flow effects. Direct investment in the index is
not available.
A portion of the fund's income may be subject to state and/or federal
income tax, including the alternative minimum tax. Capital gains
distributions, if any, will be subject to tax.
(3) An unmanaged index comprised of fixed-rate, investment-grade tax-exempt
bonds with remaining maturities between six and eight years.
(4) Performance for Class Y shares is not presented. Performance for this class
will vary due to a different expense structure.
California Tax Free Fund
Investment Objective: providing maximum current income that is exempt from both
federal income tax and California state income tax to the extent consistent with
prudent investment risk
HOW DID THE FUND PERFORM FOR THE FISCAL YEAR ENDED JUNE 30, 2008?
The First American California Tax Free Fund (the "fund"), Class Y shares,
returned 2.28% for the fiscal year ended June 30, 2008 (Class A shares returned
2.11%, without taking the sales charge into account, for the same period). By
comparison, the fund's benchmark, the Lehman Municipal Bond Index*, returned
3.23%. Performance for the fund's peer group, the Lipper California Municipal
Debt Funds Average, was -0.54%.
WHAT WERE THE GENERAL MUNICIPAL MARKET CONDITIONS DURING THE FISCAL YEAR?
The municipal market endured one of its more tumultuous years ever as fallout
from the housing debacle rocked market participants. Deterioration within their
relatively new mortgage-backed book of business ultimately led to downgrades for
several of the major monoline municipal bond insurers. The impaired credit
quality and loss of confidence in many of the insurers affected much of the
municipal market (use of insurance had become so pervasive that in recent years
close to 50% of all new issuance came to market with an insurance wrap). The
market was buffeted by irregular bouts of volatility and selling pressure as a
number of accounts unwound positions. For example, tax-exempt money funds were
forced to exit insured holdings en masse due to minimum ratings and liquidity
requirements. To reduce debt, many municipal market investors were pressured to
sell longer-maturity bonds when the floating-rate component of their borrowing
programs was no longer money-fund eligible (the municipal market had in recent
years developed its own form of "carry" trade, in which investors borrow in the
short-term money markets and invest in longer maturities, trying to take
advantage of the relative steepness of the municipal yield curve in comparison
to other fixed-income markets).
Credit spreads (i.e., the differences in yield between higher- and lower-quality
debt) were the first to widen as the market anticipated that lower-quality debt
would struggle in a slowing economy. Ultimately, however, the insurer debacle
cut an even wider swath through the market. Many insured bonds now trade solely
based on the creditworthiness of underlying obligors with little or no value
attributed to the insurance wrap. Not surprisingly, in this environment natural
standalone (i.e., without an insurance wrap) AAA- and AA-rated bonds were
generally the best performers for the year.
The municipal yield curve steepened over the past 12 months as yields on shorter
maturities fell while longer maturity yields rose slightly. In terms of total
return, intermediate maturities generally produced the best returns and
longer-maturity bonds were the weakest-performing part of the curve. Although
the overall municipal market started to regain its bearings near the end of the
fiscal year, high-grade bonds still finished at yields of more than 90% (and in
some cases more than 100%) of comparable-maturity Treasuries, which typically
indicates that the high-grade bonds represent good value relative to Treasuries.
HOW DID MARKET CONDITIONS AND INVESTMENT STRATEGIES AFFECT THE FUND'S
PERFORMANCE?
Reflecting the trends in the broader market, the fund's holdings in lower-grade
securities generally had a negative effect on performance. The best-performing
bonds in the fund from a quality standpoint were generally the natural
high-grades (AAA- and AA-rated bonds) not affected by either the insurer debacle
or the general widening in yield in lower-grade bonds. The fund also benefited
from not having a high weighting in lower-grade land-based "dirt" bonds (issued
to back new construction projects). The fund's allocations to
intermediate-maturity bonds also helped performance due to the flattening yield
curve and general underperformance of long-maturity (10 years or more) bonds for
the year.
WHAT STRATEGIC MOVES WERE MADE BY THE FUND AND WHY?
The fund did slightly increase its duration (i.e., sensitivity to interest-rate
movements) over the past few months as yields increased to historically high
levels relative to comparable-maturity Treasuries. Since we anticipate the shape
of the municipal yield curve to flatten over time, we reduced some of the
weighting in intermediate maturities in favor of longer bonds. Given the turmoil
throughout the year and the resultant supply pressures, the fund added to
weightings in a variety of issuers and sectors (such as healthcare and
education) at wider credit spreads - and, therefore, lower prices - than have
been available for a number of years.
* Unlike mutual funds, index returns do not reflect any expenses, transaction
costs, or cash flow effects.
PORTFOLIO ALLOCATION AS OF JUNE 30, 2008(1) (% OF NET ASSETS)
Revenue Bonds(3) 67.6%
General Obligations(3) 24.3
Certificates of Participation(3) 4.6
Short-Term Investment 2.6
Other Assets and Liabilities, Net(4) 0.9
-----
100.0%
=====
BOND CREDIT QUALITY DISTRIBUTION AS OF JUNE 30, 2008(2) (% OF MARKET VALUE)
AAA 16.8%
AA 21.4
A 42.0
BBB 17.8
Non-Rated 2.0
-----
100.0%
=====
(1) Portfolio allocations are subject to change and are not recommendations to
buy or sell any security.
(2) Individual security ratings are based on information from Moody's Investors
Service, Standard & Poor's, and/or Fitch. If there are multiple ratings for
a security, the lowest rating is used unless ratings are provided by all
three agencies, in which case the middle rating is used.
(3) These securities may include bonds that are pre-refunded or escrowed to
maturity issues; see the fund's Schedule of Investments. As of June 30,
2008, 12.1% of the fund's net assets were pre-refunded and escrowed to
maturity issues.
(4) Investments typically comprise substantially all of the fund's net assets.
Other assets and liabilities include receivables for items such as income
earned but not yet received and payables for items such as fund expenses
incurred but not yet paid.
ANNUAL PERFORMANCE(1,2) AS OF JUNE 30, 2008
SINCE
INCEPTION
1 YEAR 5 YEARS 2/01/2000
------ ------- ---------
AVERAGE ANNUAL RETURN WITH SALES CHARGE (POP)
Class A (2.25)% 2.22% 5.09%
Class C 0.64% 2.68% 5.21%
AVERAGE ANNUAL RETURN WITHOUT SALES CHARGE (NAV)
Class A 2.11% 3.11% 5.62%
Class C 1.61% 2.68% 5.21%
Class Y 2.28% 3.35% 5.87%
Lehman Municipal Bond Index(3) 3.23% 3.52% 5.71%
THE PERFORMANCE DATA QUOTED ON THIS PAGE REPRESENTS PAST PERFORMANCE AND DOES
NOT GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE OF THE FUND MAY
BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED. PERFORMANCE DATA CURRENT TO
THE MOST RECENT MONTH-END MAY BE OBTAINED BY CALLING 800.677.FUND.
(1) TOTAL RETURNS AT NET ASSET VALUE ("NAV") REFLECT PERFORMANCE OVER THE TIME
PERIOD INDICATED WITHOUT INCLUDING THE FUND'S MAXIMUM SALES CHARGE AND
ASSUME REINVESTMENT OF ALL DISTRIBUTIONS AT NAV.
TOTAL RETURNS AT PUBLIC OFFERING PRICE ("POP") REFLECT PERFORMANCE OVER THE
TIME PERIOD INDICATED INCLUDING MAXIMUM SALES CHARGES OF 4.25% FOR CLASS A
SHARES AND THE MAXIMUM CONTINGENT DEFERRED SALES CHARGE ("CDSC") FOR CLASS
C SHARES FOR THE RELEVANT PERIOD. MAXIMUM CDSC IS 1.00% FOR CLASS C SHARES.
TOTAL RETURNS ASSUME REINVESTMENT OF ALL DISTRIBUTIONS AT NAV.
INVESTMENTS IN DEBT SECURITIES TYPICALLY DECREASE IN VALUE WHEN INTEREST
RATES RISE. THE RISK IS USUALLY GREATER FOR LONGER-TERM DEBT SECURITIES.
AS OF THE MOST RECENT PROSPECTUS, THE FUND'S TOTAL ANNUAL OPERATING EXPENSE
RATIO FOR CLASS A, CLASS C, AND CLASS Y SHARES WAS 1.46%, 1.98%, AND 1.21%,
RESPECTIVELY. THE ADVISOR HAS CONTRACTUALLY AGREED TO WAIVE FEES AND
REIMBURSE OTHER FUND EXPENSES THROUGH AT LEAST JUNE 30, 2009 SO THAT TOTAL
ANNUAL FUND OPERATING EXPENSES FOR CLASS A, CLASS C, AND CLASS Y SHARES DO
NOT EXCEED 0.65%, 1.15%, AND 0.50%, RESPECTIVELY. THESE FEE WAIVERS AND
EXPENSE REIMBURSEMENTS MAY BE TERMINATED AT ANY TIME AFTER JUNE 30, 2009,
AT THE DISCRETION OF THE ADVISOR. PRIOR TO THAT TIME, SUCH WAIVERS AND
REIMBURSEMENTS MAY NOT BE TERMINATED WITHOUT THE APPROVAL OF THE FUND'S
BOARD OF DIRECTORS.
VALUE OF $10,000 INVESTMENT(1,2,4) AS OF JUNE 30, 2008
California Tax Free Fund, Class A (NAV) $15,845
California Tax Free Fund, Class A (POP) $15,177
Lehman Municipal Bond Index(3) $15,955
The chart at right illustrates the total value of an assumed $10,000 investment
in the fund's Class A shares (from 2/1/2000 to 6/30/2008) as compared to the
Lehman Municipal Bond Index(3).
(PERFORMANCE GRAPH)
(2) Performance does not reflect the deduction of taxes that a shareholder
would pay on fund distributions or redemption of fund shares. Investment
performance reflects fee waivers that are or were in effect. In the absence
of such fee waivers, total returns would be reduced. Index performance is
for illustrative purposes only and does not reflect any expenses,
transaction costs, or cash flow effects. Direct investment in the index is
not available.
A portion of the fund's income may be subject to state and/or federal
income tax, including the alternative minimum tax. Capital gains
distributions, if any, will be subject to tax.
(3) An unmanaged index comprised of fixed-rate, investment-grade tax-exempt
bonds with remaining maturities of one year or more.
(4) Performance for Class C and Class Y shares is not presented. Performance
for these classes will vary due to different expense structures.
Colorado Intermediate Tax Free Fund
Investment Objective: providing current income that is exempt from both federal
income tax and Colorado state income tax to the extent consistent with
preservation of capital
HOW DID THE FUND PERFORM FOR THE FISCAL YEAR ENDED JUNE 30, 2008?
The First American Colorado Intermediate Tax Free Fund (the "fund"), Class Y
shares, returned 3.20% for the fiscal year ended June 30, 2008 (Class A shares
returned 3.04%, without taking the sales charge into account, for the same
period). By comparison, the fund's benchmark, the Lehman 7-Year Municipal Bond
Index*, returned 5.60%. Performance for the fund's peer group, the Lipper Other
States Intermediate Municipal Debt Funds Average, was 3.02%.
WHAT WERE THE GENERAL MUNICIPAL MARKET CONDITIONS DURING THE FISCAL YEAR?
The municipal market endured one of its more tumultuous years ever as fallout
from the housing debacle rocked market participants. Deterioration within their
relatively new mortgage-backed book of business ultimately led to downgrades for
several of the major monoline municipal bond insurers. The impaired credit
quality and loss of confidence in many of the insurers affected much of the
municipal market (use of insurance had become so pervasive that in recent years
close to 50% of all new issuance came to market with an insurance wrap). The
market was buffeted by irregular bouts of volatility and selling pressure as a
number of accounts unwound positions. For example, tax-exempt money funds were
forced to exit insured holdings en masse due to minimum ratings and liquidity
requirements. To reduce debt, many municipal market investors were pressured to
sell longer-maturity bonds when the floating-rate component of their borrowing
programs was no longer money-fund eligible (the municipal market had in recent
years developed its own form of "carry" trade, in which investors borrow in the
short-term money markets and invest in longer maturities, trying to take
advantage of the relative steepness of the municipal yield curve in comparison
to other fixed-income markets).
Credit spreads (i.e., the differences in yield between higher- and lower-quality
debt) were the first to widen as the market anticipated that lower-quality debt
would struggle in a slowing economy. Ultimately, however, the insurer debacle
cut an even wider swath through the market. Many insured bonds now trade solely
based on the creditworthiness of underlying obligors with little or no value
attributed to the insurance wrap. Not surprisingly, in this environment natural
standalone (i.e., without an insurance wrap) AAA- and AA-rated bonds were
generally the best performers for the year.
The municipal yield curve steepened over the past 12 months as yields on shorter
maturities fell while longer maturity yields rose slightly. In terms of total
return, intermediate maturities generally produced the best returns and
longer-maturity bonds were the weakest-performing part of the curve. Although
the overall municipal market started to regain its bearings near the end of the
fiscal year, high-grade bonds still finished at yields of more than 90% (and in
some cases more than 100%) of comparable-maturity Treasuries, which typically
indicates that the high-grade bonds represent good value relative to Treasuries.
HOW DID MARKET CONDITIONS AND INVESTMENT STRATEGIES AFFECT THE FUND'S
PERFORMANCE?
Reflecting the trends in the broader market, the fund's holdings in lower-grade
securities generally had a negative effect on performance. The best-performing
bonds in the fund from a quality standpoint were generally the natural
high-grades (AAA- and AA-rated) not affected by either the insurer debacle or
the general widening in yield in lower-grade bonds. Although the fund did hold
meaningful positions in mid to lower-grade securities, which generally
underperformed for the year, the fund's performance improved over the first half
of 2008 as credit spreads - and the performance of lower-rated securities -
showed signs of stabilizing while the market focus increasingly shifted toward
the insurer crisis. The entire year, while tumultuous, produced many relative
value opportunities from both a trading and credit perspective that helped
bolster the fund's performance.
WHAT STRATEGIC MOVES WERE MADE BY THE FUND AND WHY?
Since we anticipate the shape of the municipal yield curve to flatten over time,
we focused many purchases in the 10- to 15-plus-year range and reallocated out
of shorter maturity ranges while keeping duration (i.e., the fund's sensitivity
to interest-rate movements) constant by adjusting the fund's cash reserves.
Given the turmoil throughout the year and the resultant supply pressures, the
fund added to weightings in a variety of issuers and revenue bond sectors
(comprised of bonds that are backed by the revenue of specific projects) at
wider credit spreads - and, therefore, lower prices - than have been available
for a number of years. On a security-specific basis, the fund also sold a number
of positions where we anticipated credit stress was not fully reflected in
realized prices.
* Unlike mutual funds, index returns do not reflect any expenses, transaction
costs, or cash flow effects.
PORTFOLIO ALLOCATION AS OF JUNE 30, 2008(1) (% OF NET ASSETS)
Revenue Bonds(3) 76.2%
General Obligations(3) 19.5
Certificates of Participation(3) 3.1
Short-Term Investment 1.8
Other Assets and Liabilities, Net(4) (0.6)
-----
100.0%
=====
BOND CREDIT QUALITY DISTRIBUTION AS OF JUNE 30, 2008(2) (% OF MARKET VALUE)
AAA 14.2%
AA 26.6
A 28.8
BBB 20.1
Non-Rated 10.3
-----
100.0%
=====
(1) Portfolio allocations are subject to change and are not recommendations to
buy or sell any security.
(2) Individual security ratings are based on information from Moody's Investors
Service, Standard & Poor's, and/or Fitch. If there are multiple ratings for
a security, the lowest rating is used unless ratings are provided by all
three agencies, in which case the middle rating is used.
(3) These securities may include bonds that are pre-refunded or escrowed to
maturity issues; see the fund's Notes to Schedule of Investments. As of
June 30, 2008, 19.0% of the fund's net assets were pre-refunded and
escrowed to maturity issues.
(4) Investments typically comprise substantially all of the fund's net assets.
Other assets and liabilities include receivables for items such as income
earned but not yet received and payables for items such as fund expenses
incurred but not yet paid.
ANNUAL PERFORMANCE(1,2) AS OF JUNE 30, 2008
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
AVERAGE ANNUAL RETURN WITH SALES CHARGE (POP)
Class A 0.70% 2.12% 3.77%
AVERAGE ANNUAL RETURN WITHOUT SALES CHARGE (NAV)
Class A 3.04% 2.59% 4.01%
Class Y 3.20% 2.73% 4.10%
Lehman 7-Year Municipal Bond Index(3) 5.60% 3.24% 4.80%
THE PERFORMANCE DATA QUOTED ON THIS PAGE REPRESENTS PAST PERFORMANCE AND DOES
NOT GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE OF THE FUND MAY
BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED. PERFORMANCE DATA CURRENT TO
THE MOST RECENT MONTH-END MAY BE OBTAINED BY CALLING 800.677.FUND.
(1) TOTAL RETURNS AT NET ASSET VALUE ("NAV") REFLECT PERFORMANCE OVER THE TIME
PERIOD INDICATED WITHOUT INCLUDING THE FUND'S MAXIMUM SALES CHARGE AND
ASSUME REINVESTMENT OF ALL DISTRIBUTIONS AT NAV.
TOTAL RETURNS AT PUBLIC OFFERING PRICE ("POP") REFLECT PERFORMANCE OVER THE
TIME PERIOD INDICATED INCLUDING MAXIMUM SALES CHARGES OF 2.25% FOR CLASS A
SHARES. TOTAL RETURNS ASSUME REINVESTMENT OF ALL DISTRIBUTIONS AT NAV.
INVESTMENTS IN DEBT SECURITIES TYPICALLY DECREASE IN VALUE WHEN INTEREST
RATES RISE. THE RISK IS USUALLY GREATER FOR LONGER-TERM DEBT SECURITIES.
AS OF THE MOST RECENT PROSPECTUS, THE FUND'S TOTAL ANNUAL OPERATING EXPENSE
RATIO FOR CLASS A AND CLASS Y SHARES WAS 1.36% AND 1.11%, RESPECTIVELY. THE
ADVISOR HAS CONTRACTUALLY AGREED TO WAIVE FEES AND REIMBURSE OTHER FUND
EXPENSES THROUGH AT LEAST JUNE 30, 2009 SO THAT TOTAL ANNUAL FUND OPERATING
EXPENSES FOR CLASS A AND CLASS Y SHARES DO NOT EXCEED 0.85% AND 0.70%,
RESPECTIVELY. THESE FEE WAIVERS AND EXPENSE REIMBURSEMENTS MAY BE
TERMINATED AT ANY TIME AFTER JUNE 30, 2009, AT THE DISCRETION OF THE
ADVISOR. PRIOR TO THAT TIME, SUCH WAIVERS AND REIMBURSEMENTS MAY NOT BE
TERMINATED WITHOUT THE APPROVAL OF THE FUND'S BOARD OF DIRECTORS.
VALUE OF $10,000 INVESTMENT(1,2,4) AS OF JUNE 30, 2008
Colorado Intermediate Tax Free Fund, Class A (NAV) $14,811
Colorado Intermediate Tax Free Fund, Class A (POP) $14,472
Lehman 7-Year Municipal Bond Index(3) $15,986
The chart at right illustrates the total value of an assumed $10,000 investment
in the fund's Class A shares (from 6/30/1998 to 6/30/2008) as compared to the
Lehman 7-Year Municipal Bond Index(3).
(PERFORMANCE GRAPH)
(2) Performance does not reflect the deduction of taxes that a shareholder
would pay on fund distributions or redemption of fund shares. Investment
performance reflects fee waivers that are or were in effect. In the absence
of such fee waivers, total returns would be reduced. Index performance is
for illustrative purposes only and does not reflect any expenses,
transaction costs, or cash flow effects. Direct investment in the index is
not available.
A portion of the fund's income may be subject to state and/or federal
income tax, including the alternative minimum tax. Capital gains
distributions, if any, will be subject to tax.
(3) An unmanaged index comprised of fixed-rate, investment-grade tax-exempt
bonds with remaining maturities between six and eight years.
(4) Performance for Class Y shares is not presented. Performance for this class
will vary due to a different expense structure.
Colorado Tax Free Fund
Investment Objective: providing maximum current income that is exempt from both
federal income tax and Colorado state income tax to the extent consistent with
prudent investment risk
HOW DID THE FUND PERFORM FOR THE FISCAL YEAR ENDED JUNE 30, 2008?
The First American Colorado Tax Free Fund (the "fund"), Class Y shares, returned
1.67% for the fiscal year ended June 30, 2008 (Class A shares returned 1.52%,
without taking the sales charge into account, for the same period). By
comparison, the fund's benchmark, the Lehman Municipal Bond Index*, returned
3.23%. Performance for the fund's peer group, the Lipper Colorado Municipal Debt
Funds Average, was 1.12%.
WHAT WERE THE GENERAL MUNICIPAL MARKET CONDITIONS DURING THE FISCAL YEAR?
The municipal market endured one of its more tumultuous years ever as fallout
from the housing debacle rocked market participants. Deterioration within their
relatively new mortgage-backed book of business ultimately led to downgrades for
several of the major monoline municipal bond insurers. The impaired credit
quality and loss of confidence in many of the insurers affected much of the
municipal market (use of insurance had become so pervasive that in recent years
close to 50% of all new issuance came to market with an insurance wrap). The
market was buffeted by irregular bouts of volatility and selling pressure as a
number of accounts unwound positions. For example, tax-exempt money funds were
forced to exit insured holdings en masse due to minimum ratings and liquidity
requirements. To reduce debt, many municipal market investors were pressured to
sell longer-maturity bonds when the floating-rate component of their borrowing
programs was no longer money-fund eligible (the municipal market had in recent
years developed its own form of "carry" trade, in which investors borrow in the
short-term money markets and invest in longer maturities, trying to take
advantage of the relative steepness of the municipal yield curve in comparison
to other fixed-income markets).
Credit spreads (i.e., the differences in yield between higher- and lower-quality
debt) were the first to widen as the market anticipated that lower-quality debt
would struggle in a slowing economy. Ultimately, however, the insurer debacle
cut an even wider swath through the market. Many insured bonds now trade solely
based on the creditworthiness of underlying obligors with little or no value
attributed to the insurance wrap. Not surprisingly, in this environment natural
standalone (i.e., without an insurance wrap) AAA- and AA-rated bonds were
generally the best performers for the year.
The municipal yield curve steepened over the past 12 months as yields on shorter
maturities fell while longer maturity yields rose slightly. In terms of total
return, intermediate maturities generally produced the best returns and
longer-maturity bonds were the weakest-performing part of the curve. Although
the overall municipal market started to regain its bearings near the end of the
fiscal year, high-grade bonds still finished at yields of more than 90% (and in
some cases more than 100%) of comparable-maturity Treasuries, which typically
indicates that the high-grade bonds represent good value relative to Treasuries.
HOW DID MARKET CONDITIONS AND INVESTMENT STRATEGIES AFFECT THE FUND'S
PERFORMANCE?
Reflecting the trends in the broader market, the fund's positions in mid to
lower-grade securities underperformed for the 12-month period. The
best-performing bonds in the fund from a quality standpoint were generally the
natural high-grades (AAA and AA-rated bonds) not affected by either the insurer
debacle or the general widening of credit spreads in lower-grade bonds. The
fund's relative performance improved markedly over the first half of 2008, when
credit spreads - and the performance of lower-rated securities - showed signs of
stabilizing as the market's focus shifted toward the insurer debacle. The entire
year, while tumultuous, produced many relative value opportunities from both a
trading and credit perspective that helped bolster the fund's performance.
WHAT STRATEGIC MOVES WERE MADE BY THE FUND AND WHY?
The fund did slightly increase its duration over the past few months as yields
increased to historically high levels relative to comparable-maturity
Treasuries. Given the high level of turmoil throughout the year and the
resultant supply pressures, the fund added to weightings in a variety of issuers
and revenue bond sectors (comprised of bonds that are backed by the revenue of
specific projects) at wider credit spreads - and therefore lower prices - than
have been available for a number of years. On a security-specific basis, the
fund also sold a number of positions where we anticipated credit stress was not
fully reflected in realized prices.
* Unlike mutual funds, index returns do not reflect any expenses, transaction
costs, or cash flow effects.
PORTFOLIO ALLOCATION AS OF JUNE 30, 2008(1) (% OF NET ASSETS)
Revenue Bonds(3) 76.8%
General Obligations(3) 10.0
Certificates of Participation(3) 7.2
Short-Term Investment 7.5
Other Assets and Liabilities, Net(4) (1.5)
-----
100.0%
=====
BOND CREDIT QUALITY DISTRIBUTION AS OF JUNE 30, 2008(2) (% OF MARKET VALUE)
AAA 13.1%
AA 18.6
A 34.5
BBB 26.3
Non-Rated 7.5
-----
100.0%
=====
(1) Portfolio allocations are subject to change and are not recommendations to
buy or sell any security.
(2) Individual security ratings are based on information from Moody's Investors
Service, Standard & Poor's, and/or Fitch. If there are multiple ratings for
a security, the lowest rating is used unless ratings are provided by all
three agencies, in which case the middle rating is used.
(3) These securities may include bonds that are pre-refunded or escrowed to
maturity issues; see the fund's Notes to Schedule of Investments. As of
June 30, 2008, 17.4% of the fund's net assets were pre-refunded and
escrowed to maturity issues.
(4) Investments typically comprise substantially all of the fund's net assets.
Other assets and liabilities include receivables for items such as income
earned but not yet received and payables for items such as fund expenses
incurred but not yet paid.
ANNUAL PERFORMANCE(1,2) AS OF JUNE 30, 2008
SINCE
INCEPTION
1 YEAR 5 YEARS 2/01/2000
------ ------- ---------
AVERAGE ANNUAL RETURN WITH SALES CHARGE (POP)
Class A (2.78)% 2.02% 5.03%
Class C 0.15% 2.50% 5.16%
AVERAGE ANNUAL RETURN WITHOUT SALES CHARGE (NAV)
Class A 1.52% 2.91% 5.57%
Class C 1.12% 2.50% 5.16%
Class Y 1.67% 3.14% 5.84%
Lehman Municipal Bond Index(3) 3.23% 3.52% 5.71%
THE PERFORMANCE DATA QUOTED ON THIS PAGE REPRESENTS PAST PERFORMANCE AND DOES
NOT GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE OF THE FUND MAY
BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED. PERFORMANCE DATA CURRENT TO
THE MOST RECENT MONTH-END MAY BE OBTAINED BY CALLING 800.677.FUND.
(1) TOTAL RETURNS AT NET ASSET VALUE ("NAV") REFLECT PERFORMANCE OVER THE TIME
PERIOD INDICATED WITHOUT INCLUDING THE FUND'S MAXIMUM SALES CHARGE AND
ASSUME REINVESTMENT OF ALL DISTRIBUTIONS AT NAV.
TOTAL RETURNS AT PUBLIC OFFERING PRICE ("POP") REFLECT PERFORMANCE OVER THE
TIME PERIOD INDICATED INCLUDING MAXIMUM SALES CHARGES OF 4.25% FOR CLASS A
SHARES AND THE MAXIMUM CONTINGENT DEFERRED SALES CHARGE ("CDSC") FOR CLASS
C SHARES FOR THE RELEVANT PERIOD. MAXIMUM CDSC IS 1.00% FOR CLASS C SHARES.
TOTAL RETURNS ASSUME REINVESTMENT OF ALL DISTRIBUTIONS AT NAV.
INVESTMENTS IN DEBT SECURITIES TYPICALLY DECREASE IN VALUE WHEN INTEREST
RATES RISE. THE RISK IS USUALLY GREATER FOR LONGER-TERM DEBT SECURITIES.
AS OF THE MOST RECENT PROSPECTUS, THE FUND'S TOTAL ANNUAL OPERATING EXPENSE
RATIO (INCLUDING ACQUIRED FUND FEES AND EXPENSES) FOR CLASS A, CLASS C, AND
CLASS Y SHARES WAS 1.76%, 2.25%, AND 1.51%, RESPECTIVELY. THE ADVISOR HAS
CONTRACTUALLY AGREED TO WAIVE FEES AND REIMBURSE OTHER FUND EXPENSES
THROUGH AT LEAST JUNE 30, 2009 SO THAT TOTAL ANNUAL FUND OPERATING EXPENSES
(AFTER WAIVERS AND EXCLUDING ACQUIRED FUND FEES AND EXPENSES) FOR CLASS A,
CLASS C, AND CLASS Y SHARES DO NOT EXCEED 0.75%, 1.15%, AND 0.50%,
RESPECTIVELY. THESE FEE WAIVERS AND EXPENSE REIMBURSEMENTS MAY BE
TERMINATED AT ANY TIME AFTER JUNE 30, 2009, AT THE DISCRETION OF THE
ADVISOR. PRIOR TO THAT TIME, SUCH WAIVERS AND REIMBURSEMENTS MAY NOT BE
TERMINATED WITHOUT THE APPROVAL OF THE FUND'S BOARD OF DIRECTORS.
VALUE OF $10,000 INVESTMENT (1,2,4) AS OF JUNE 30, 2008
Colorado Tax Free Fund, Class A (NAV) $15,780
Colorado Tax Free Fund, Class A (POP) $15,115
Lehman Municipal Bond Index(3) $15,955
The chart at right illustrates the total value of an assumed $10,000 investment
in the fund's Class A shares (from 2/01/2000 to 6/30/2008) as compared to the
Lehman Municipal Bond Index(3).
(PERFORMANCE GRAPH)
(2) Performance does not reflect the deduction of taxes that a shareholder
would pay on fund distributions or redemption of fund shares. Investment
performance reflects fee waivers that are or were in effect. In the absence
of such fee waivers, total returns would be reduced. Index performance is
for illustrative purposes only and does not reflect any expenses,
transaction costs, or cash flow effects. Direct investment in the index is
not available.
A portion of the fund's income may be subject to state and/or federal
income tax, including the alternative minimum tax. Capital gains
distributions, if any, will be subject to tax.
(3) An unmanaged index comprised of fixed-rate, investment-grade tax-exempt
bonds with remaining maturities of one year or more.
(4) Performance for Class C and Class Y shares is not presented. Performance
for these classes will vary due to different expense structures.
FINANCIAL HIGHLIGHTS
The financial highlights tables set forth below are intended to help you
understand each Fund's financial performance for the past five years. Some of
this information reflects financial results for a single Fund share held
throughout the period. Total returns in the tables represent the rate that you
would have earned or lost on an investment in the Fund, excluding sales charges
and assuming you reinvested all of your dividends and distributions.
The information below has been derived from the financial statements
audited by Ernst & Young LLP, independent registered public accounting firm,
whose report, along with the Funds' financial statements, is included in the
Funds' annual report, which is available upon request.
California Intermediate Tax Free Fund
Fiscal year
ended
June 30, Fiscal period Fiscal year ended September 30,
------------------ ended --------------------------------
CLASS A SHARES 2008 2007 June 30, 2006(1) 2005 2004 2003
- -------------- ------ ------ ---------------- ------ ------ ------
PER SHARE DATA
Net Asset Value, Beginning of Period $10.07 $10.11 $10.35 $10.55 $10.64 $10.80
------ ------ ------ ------ ------ ------
Investment Operations:
Net Investment Income 0.38 0.38 0.28 0.39 0.40 0.41
Realized and Unrealized Gains (Losses) on
Investments (0.06) 0.01 (0.20) (0.13) (0.05) (0.14)
------ ------ ------ ------ ------ ------
Total From Investment Operations 0.32 0.39 0.08 0.26 0.35 0.27
------ ------ ------ ------ ------ ------
Less Distributions:
Dividends (from net investment income) (0.39) (0.38) (0.29) (0.39) (0.41) (0.41)
Distributions (from net realized gains) (0.01) (0.05) (0.03) (0.07) (0.03) (0.02)
------ ------ ------ ------ ------ ------
Total Distributions (0.40) (0.43) (0.32) (0.46) (0.44) (0.43)
------ ------ ------ ------ ------ ------
Net Asset Value, End of Period $ 9.99 $10.07 $10.11 $10.35 $10.55 $10.64
====== ====== ====== ====== ====== ======
Total Return(2) 3.20% 3.86% 0.78% 2.51% 3.36% 2.58%
RATIO/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $4,463 $6,226 $3,441 $3,946 $3,381 $4,262
Ratio of Expenses to Average Net Assets 0.73% 0.85% 0.85% 0.85% 0.85% 0.85%
Ratio of Net Investment Income to Average Net
Assets 3.83% 3.66% 3.73% 3.71% 3.78% 3.86%
Ratio of Expenses to Average Net Assets
(excluding waivers) 1.27% 1.25% 1.22% 1.10% 1.06% 1.06%
Ratio of Net Investment Income to Average Net
Assets (excluding waivers) 3.29% 3.26% 3.36% 3.46% 3.57% 3.65%
Portfolio Turnover Rate 25% 20% 21% 29% 20% 17%
(1) For the period October 1, 2005 to June 30, 2006. Effective in 2006, the
fund's fiscal year end was changed from September 30 to June 30. All ratios
for the period have been annualized, except total return and portfolio
turnover.
(2) Total return does not reflect sales charges. Total return would have been
lower had certain expenses not been waived.
Fiscal year Fiscal period Fiscal year ended September 30,
ended ended -------------------------------
CLASS Y SHARES 2008 June 30, 2007 June 30, 2006(1) 2005 2004 2003
- -------------- ------- ------------- ---------------- ------- ------- -------
PER SHARE DATA
Net Asset Value, Beginning of Period $ 10.09 $ 10.13 $ 10.37 $ 10.57 $ 10.66 $ 10.81
------- ------- ------- ------- ------- -------
Investment Operations:
Net Investment Income 0.39 0.39 0.30 0.40 0.41 0.43
Realized and Unrealized Gains (Losses) on
Investments (0.06) 0.01 (0.21) (0.13) (0.05) (0.14)
------- ------- ------- ------- ------- -------
Total From Investment Operations 0.33 0.40 0.09 0.27 0.36 0.29
------- ------- ------- ------- ------- -------
Less Distributions:
Dividends (from net investment income) (0.39) (0.39) (0.30) (0.40) (0.42) (0.42)
Distributions (from net realized gains) (0.01) (0.05) (0.03) (0.07) (0.03) (0.02)
------- ------- ------- ------- ------- -------
Total Distributions (0.40) (0.44) (0.33) (0.47) (0.45) (0.44)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period $ 10.02 $ 10.09 $ 10.13 $ 10.37 $ 10.57 $ 10.66
======= ======= ======= ======= ======= =======
Total Return(2) 3.33% 4.01% 0.88% 2.66% 3.51% 2.83%
RATIO/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $52,924 $52,966 $51,726 $49,292 $46,953 $44,600
Ratio of Expenses to Average Net Assets 0.70% 0.70% 0.70% 0.70% 0.70% 0.70%
Ratio of Net Investment Income to Average
Net Assets 3.84% 3.82% 3.89% 3.86% 3.93% 4.02%
Ratio of Expenses to Average Net Assets
(excluding waivers) 1.02% 1.00% 0.97% 0.85% 0.81% 0.81%
Ratio of Net Investment Income to Average
Net Assets (excluding waivers) 3.52% 3.52% 3.62% 3.71% 3.82% 3.91%
Portfolio Turnover Rate 25% 20% 21% 29% 20% 17%
(1) For the period October 1, 2005 to June 30, 2006. Effective in 2006, the
fund's fiscal year end was changed from September 30 to June 30. All ratios
for the period have been annualized, except total return and portfolio
turnover.
(2) Total return would have been lower had certain expenses not been waived.
California Tax Free Fund
Fiscal year
ended
June 30, Fiscal period Fiscal year ended September 30,
--------------------- ended ----------------------------------
CLASS A SHARES 2008 2007 June 30, 2006(1) 2005 2004 2003
- -------------- ------- ------- ---------------- ------- ------ -------
PER SHARE DATA
Net Asset Value, Beginning of Period $ 10.98 $ 10.96 $ 11.24 $ 11.40 $11.40 $ 11.63
------- ------- ------- ------- ------ -------
Investment Operations:
Net Investment Income 0.46 0.45 0.33 0.44 0.46 0.47
Realized and Unrealized Gains
(Losses) on Investments (0.23) 0.06 (0.26) (0.05) 0.08 (0.16)
------- ------- ------- ------- ------ -------
Total From Investment Operations 0.23 0.51 0.07 0.39 0.54 0.31
------- ------- ------- ------- ------ -------
Less Distributions:
Dividends (from net investment
income) (0.46) (0.45) (0.33) (0.44) (0.46) (0.47)
Distributions (from net realized
gains) (0.04) (0.04) (0.02) (0.11) (0.08) (0.07)
------- ------- ------- ------- ------ -------
Total Distributions (0.50) (0.49) (0.35) (0.55) (0.54) (0.54)
------- ------- ------- ------- ------ -------
Net Asset Value, End of Period $ 10.71 $ 10.98 $ 10.96 $ 11.24 $11.40 $ 11.40
======= ======= ======= ======= ====== =======
Total Return(2) 2.11% 4.62% 0.63% 3.50% 4.93% 2.85%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $12,076 $11,375 $10,783 $11,888 $9,513 $11,143
Ratio of Expenses to Average Net
Assets 0.67% 0.75% 0.75% 0.75% 0.75% 0.75%
Ratio of Net Investment Income to
Average
Net Assets 4.19% 4.00% 3.99% 3.88% 4.03% 4.16%
Ratio of Expenses to Average Net
Assets (excluding waivers) 1.46% 1.46% 1.34% 1.15% 1.09% 1.08%
Ratio of Net Investment Income to
Average
Net Assets (excluding waivers) 3.40% 3.29% 3.40% 3.48% 3.69% 3.83%
Portfolio Turnover Rate 45% 36% 24% 14% 16% 20%
(1) For the period October 1, 2005 to June 30, 2006. Effective in 2006, the
fund's fiscal year end was changed from September 30 to June 30. All ratios
for the period have been annualized, except total return and portfolio
turnover.
(2) Total return does not reflect sales charges. Total return would have been
lower had certain expenses not been waived.
Fiscal year
ended
June 30, Fiscal period Fiscal year ended September 30,
------------------- ended --------------------------------
CLASS C SHARES 2008 2007 June 30, 2006(1) 2005 2004 2003
- -------------- ------ ------ ---------------- ------ ------ ------
PER SHARE DATA
Net Asset Value, Beginning of Period $10.99 $10.97 $11.25 $11.41 $11.41 $11.64
------ ------ ------ ------ ------ ------
Investment Operations:
Net Investment Income 0.40 0.41 0.30 0.40 0.41 0.43
Realized and Unrealized Gains
(Losses) on Investments (0.22) 0.05 (0.26) (0.05) 0.09 (0.16)
------ ------ ------ ------ ------ ------
Total From Investment Operations 0.18 0.46 0.04 0.35 0.50 0.27
------ ------ ------ ------ ------ ------
Less Distributions:
Dividends (from net investment
income) (0.41) (0.40) (0.30) (0.40) (0.42) (0.43)
Distributions (from net realized
gains) (0.04) (0.04) (0.02) (0.11) (0.08) (0.07)
------ ------ ------ ------ ------ ------
Total Distributions (0.45) (0.44) (0.32) (0.51) (0.50) (0.50)
------ ------ ------ ------ ------ ------
Net Asset Value, End of Period $10.72 $10.99 $10.97 $11.25 $11.41 $11.41
====== ====== ====== ====== ====== ======
Total Return(2) 1.61% 4.17% 0.33% 3.11% 4.52% 2.45%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $2,480 $1,507 $3,592 $3,068 $1,294 $1,101
Ratio of Expenses to Average Net Assets 1.15% 1.15% 1.15% 1.15% 1.15% 1.15%
Ratio of Net Investment Income to
Average Net Assets 3.68% 3.60% 3.60% 3.47% 3.65% 3.75%
Ratio of Expenses to Average Net Assets
(excluding waivers) 1.85% 1.98% 2.09% 1.90% 1.84% 1.83%
Ratio of Net Investment Income to
Average Net Assets (excluding
waivers) 2.98% 2.77% 2.66% 2.72% 2.96% 3.07%
Portfolio Turnover Rate 45% 36% 24% 14% 16% 20%
</Table>
(1) For the period October 1, 2005 to June 30, 2006. Effective in 2006, the
fund's fiscal year end was changed from September 30 to June 30. All ratios
for the period have been annualized, except total return and portfolio
turnover.
(2) Total return does not reflect sales charges. Total return would have been
lower had certain expenses not been waived.
California Tax Free Fund (CONTINUED)
Fiscal year
ended
June 30, Fiscal period Fiscal year ended September 30,
--------------------- ended -----------------------------------
CLASS Y SHARES 2008 2007 June 30, 2006(1) 2005 2004 2003
- -------------- ------- ------- ---------------- ------- ------- -------
PER SHARE DATA
Net Asset Value, Beginning of Period $ 10.98 $ 10.97 $ 11.25 $ 11.40 $ 11.40 $ 11.63
------- ------- ------- ------- ------- -------
Investment Operations:
Net Investment Income 0.48 0.47 0.35 0.47 0.48 0.49
Realized and Unrealized Gains
(Losses) on Investments (0.23) 0.05 (0.26) (0.04) 0.09 (0.15)
------- ------- ------- ------- ------- -------
Total From Investment Operations 0.25 0.52 0.09 0.43 0.57 0.34
------- ------- ------- ------- ------- -------
Less Distributions:
Dividends (from net investment
income) (0.48) (0.47) (0.35) (0.47) (0.49) (0.50)
Distributions (from net realized
gains) (0.04) (0.04) (0.02) (0.11) (0.08) (0.07)
------- ------- ------- ------- ------- -------
Total Distributions (0.52) (0.51) (0.37) (0.58) (0.57) (0.57)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period $ 10.71 $ 10.98 $ 10.97 $ 11.25 $ 11.40 $ 11.40
======= ======= ======= ======= ======= =======
Total Return(2) 2.28% 4.78% 0.82% 3.85% 5.19% 3.11%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $30,485 $24,835 $21,767 $19,556 $16,047 $15,243
Ratio of Expenses to Average Net
Assets 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Ratio of Net Investment Income to
Average Net Assets 4.36% 4.25% 4.24% 4.12% 4.29% 4.40%
Ratio of Expenses to Average Net
Assets (excluding waivers) 1.20% 1.21% 1.09% 0.90% 0.84% 0.83%
Ratio of Net Investment Income to
Average Net Assets (excluding
waivers) 3.66% 3.54% 3.65% 3.72% 3.95% 4.07%
Portfolio Turnover Rate 45% 36% 24% 14% 16% 20%
</Table>
(1) For the period October 1, 2005 to June 30, 2006. Effective in 2006, the
fund's fiscal year end was changed from September 30 to June 30. All ratios
for the period have been annualized, except total return and portfolio
turnover.
(2) Total return would have been lower had certain expenses not been waived.
Colorado Intermediate Tax Free Fund
Fiscal year
ended
June 30, Fiscal period Fiscal year ended September 30,
------------------ ended -------------------------------
CLASS A SHARES 2008 2007 June 30, 2006(1) 2005 2004 2003
- -------------- ------ ------ ---------------- ------- ------- -------
PER SHARE DATA
Net Asset Value, Beginning of Period $10.33 $10.40 $10.74 $ 10.98 $ 11.08 $ 11.12
------ ------ ------ ------- ------- -------
Investment Operations:
Net Investment Income 0.41 0.43 0.32 0.42 0.45 0.41
Realized and Unrealized Gains (Losses) on
Investments (0.10) 0.01 (0.28) (0.19) (0.11) (0.02)
------ ------ ------ ------- ------- -------
Total From Investment Operations 0.31 0.44 0.04 0.23 0.34 0.39
------ ------ ------ ------- ------- -------
Less Distributions:
Dividends (from net investment income) (0.40) (0.43) (0.32) (0.43) (0.44) (0.43)
Distributions (from net realized gains) (0.05) (0.08) (0.06) (0.04) -- --
------ ------ ------ ------- ------- -------
Total Distributions (0.45) (0.51) (0.38) (0.47) (0.44) (0.43)
------ ------ ------ ------- ------- -------
Net Asset Value, End of Period $10.19 $10.33 $10.40 $ 10.74 $ 10.98 $ 11.08
====== ====== ====== ======= ======= =======
Total Return(2) 3.04% 4.21% 0.37% 2.11% 3.12% 3.64%
RATIO/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $6,199 $6,783 $9,577 $13,426 $13,969 $22,555
Ratio of Expenses to Average Net Assets 0.85% 0.85% 0.85% 0.85% 0.85% 0.85%
Ratio of Net Investment Income to Average Net
Assets 3.92% 3.99% 4.02% 3.85% 4.00% 3.79%
Ratio of Expenses to Average Net Assets
(excluding waivers) 1.33% 1.36% 1.27% 1.10% 1.06% 1.06%
Ratio of Net Investment Income to Average Net
Assets (excluding waivers) 3.44% 3.48% 3.60% 3.60% 3.79% 3.58%
Portfolio Turnover Rate 21% 35% 17% 20% 4% 14%
(1) For the period October 1, 2005 to June 30, 2006. Effective in 2006, the
fund's fiscal year end was changed from September 30 to June 30. All ratios
for the period have been annualized, except total return and portfolio
turnover.
(2) Total return does not reflect sales charges. Total return would have been
lower had certain expenses not been waived.
Fiscal year
ended
June 30, Fiscal period Fiscal year ended September 30,
-------------------- ended -------------------------------
CLASS Y SHARES 2008 2007 June 30, 2006(1) 2005 2004 2003
- -------------- ------- ------- ---------------- ------- ------- -------
PER SHARE DATA
Net Asset Value, Beginning of Period $ 10.30 $ 10.38 $ 10.72 $ 10.95 $ 11.05 $ 11.10
------- ------- ------- ------- ------- -------
Investment Operations:
Net Investment Income 0.42 0.43 0.33 0.43 0.46 0.43
Realized and Unrealized Gains (Losses) on
Investments (0.09) 0.01 (0.28) (0.18) (0.11) (0.03)
------- ------- ------- ------- ------- -------
Total From Investment Operations 0.33 0.44 0.05 0.25 0.35 0.40
------- ------- ------- ------- ------- -------
Less Distributions:
Dividends (from net investment income) (0.42) (0.44) (0.33) (0.44) (0.45) (0.45)
Distributions (from net realized gains) (0.05) (0.08) (0.06) (0.04) -- --
------- ------- ------- ------- ------- -------
Total Distributions (0.47) (0.52) (0.39) (0.48) (0.45) (0.45)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period $ 10.16 $ 10.30 $ 10.38 $ 10.72 $ 10.95 $ 11.05
======= ======= ======= ======= ======= =======
Total Return(2) 3.20% 4.28% 0.49% 2.36% 3.29% 3.71%
RATIO/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $43,933 $34,447 $32,661 $34,562 $37,748 $47,854
Ratio of Expenses to Average Net Assets 0.70% 0.70% 0.70% 0.70% 0.70% 0.70%
Ratio of Net Investment Income to Average Net
Assets 4.05% 4.14% 4.18% 4.01% 4.15% 3.94%
Ratio of Expenses to Average Net Assets
(excluding waivers) 1.08% 1.11% 1.02% 0.85% 0.81% 0.81%
Ratio of Net Investment Income to Average Net
Assets (excluding waivers) 3.67% 3.73% 3.86% 3.86% 4.04% 3.83%
Portfolio Turnover Rate 21% 35% 17% 20% 4% 14%
(1) For the period October 1, 2005 to June 30, 2006. Effective in 2006, the
fund's fiscal year end was changed from September 30 to June 30. All ratios
for the period have been annualized, except total return and portfolio
turnover.
(2) Total return would have been lower had certain expenses not been waived.
Colorado Tax Free Fund
Fiscal year
ended
June 30, Fiscal period Fiscal year ended September 30,
------------------- ended ----------------------------------
CLASS A SHARES 2008 2007 June 30, 2006(1) 2005 2004 2003
- -------------- ------ ------ ---------------- ------ ------- -------
PER SHARE DATA
Net Asset Value, Beginning of Period $10.61 $10.73 $11.30 $11.52 $ 11.57 $ 11.65
------ ------ ------ ------ ------- -------
Investment Operations:
Net Investment Income 0.48 0.46 0.35 0.49 0.51 0.50
Realized and Unrealized Gains (Losses)
on Investments (0.33) (0.02) (0.26) (0.11) 0.02 (0.10)
------ ------ ------ ------ ------- -------
Total From Investment Operations 0.15 0.44 0.09 0.38 0.53 0.40
------ ------ ------ ------ ------- -------
Less Distributions:
Dividends (from net investment income) (0.45) (0.48) (0.34) (0.51) (0.50) (0.48)
Distributions (from net realized
gains) (0.03) (0.08) (0.32) (0.09) (0.08) --
------ ------ ------ ------ ------- -------
Total Distributions (0.48) (0.56) (0.66) (0.60) (0.58) (0.48)
------ ------ ------ ------ ------- -------
Net Asset Value, End of Period $10.28 $10.61 $10.73 $11.30 $ 11.52 $ 11.57
====== ====== ====== ====== ======= =======
Total Return(2) 1.52% 4.13% 0.77% 3.36% 4.71% 3.53%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $5,815 $8,788 $8,507 $8,362 $10,598 $13,843
Ratio of Expenses to Average Net Assets 0.75% 0.75% 0.75% 0.75% 0.75% 0.75%
Ratio of Net Investment Income to
Average Net Assets 4.40% 4.27% 4.30% 4.23% 4.25% 4.23%
Ratio of Expenses to Average Net Assets
(excluding waivers) 1.80% 1.75% 1.52% 1.18% 1.09% 1.07%
Ratio of Net Investment Income to
Average Net Assets (excluding waivers) 3.35% 3.27% 3.53% 3.80% 3.91% 3.91%
Portfolio Turnover Rate 49% 47% 35% 30% 12% 14%
(1) For the period October 1, 2005 to June 30, 2006. Effective in 2006, the
fund's fiscal year end was changed from September 30 to June 30. All ratios
for the period have been annualized, except total return and portfolio
turnover.
(2) Total return does not reflect sales charges. Total return would have been
lower had certain expenses not been waived.
Fiscal year
ended
June 30, Fiscal period Fiscal year ended September 30,
------------------- ended --------------------------------
CLASS C SHARES 2008 2007 June 30, 2006(1) 2005 2004 2003
- -------------- ------ ------ ---------------- ------ ------ ------
PER SHARE DATA
Net Asset Value, Beginning of Period $10.59 $10.71 $11.28 $11.50 $11.56 $11.63
------ ------ ------ ------ ------ ------
Investment Operations:
Net Investment Income 0.42 0.42 0.32 0.43 0.44 0.44
Realized and Unrealized Gains
(Losses) on Investments (0.31) (0.02) (0.27) (0.10) 0.03 (0.08)
------ ------ ------ ------ ------ ------
Total From Investment Operations 0.11 0.40 0.05 0.33 0.47 0.36
------ ------ ------ ------ ------ ------
Less Distributions:
Dividends (from net investment
income) (0.41) (0.44) (0.30) (0.46) (0.45) (0.43)
Distributions (from net realized
gains) (0.03) (0.08) (0.32) (0.09) (0.08) --
------ ------ ------ ------ ------ ------
Total Distributions (0.44) (0.52) (0.62) (0.55) (0.53) (0.43)
------ ------ ------ ------ ------ ------
Net Asset Value, End of Period $10.26 $10.59 $10.71 $11.28 $11.50 $11.56
====== ====== ====== ====== ====== ======
Total Return(2) 1.12% 3.72% 0.47% 2.95% 4.21% 3.23%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $2,859 $2,888 $3,007 $3,423 $3,787 $4,284
Ratio of Expenses to Average Net Assets 1.15% 1.15% 1.15% 1.15% 1.15% 1.15%
Ratio of Net Investment Income to
Average Net Assets 3.98% 3.87% 3.90% 3.83% 3.85% 3.83%
Ratio of Expenses to Average Net Assets
(excluding waivers) 2.20% 2.24% 2.27% 1.93% 1.84% 1.82%
Ratio of Net Investment Income to
Average Net Assets (excluding
waivers) 2.93% 2.78% 2.78% 3.05% 3.16% 3.16%
Portfolio Turnover Rate 49% 47% 35% 30% 12% 14%
(1) For the period October 1, 2005 to June 30, 2006. Effective in 2006, the
fund's fiscal year end was changed from September 30 to June 30. All ratios
for the period have been annualized, except total return and portfolio
turnover.
(2) Total return does not reflect sales charges. Total return would have been
lower had certain expenses not been waived.
Colorado Tax Free Fund (CONTINUED)
Fiscal year
ended
June 30, Fiscal period Fiscal year ended September 30,
--------------------- ended --------------------------------
CLASS Y SHARES 2008 2007 June 30, 2006(1) 2005 2004 2003
- -------------- ------- ------- ---------------- ------ ------ ------
PER SHARE DATA
Net Asset Value, Beginning of Period $ 10.63 $ 10.75 $ 11.32 $11.53 $11.59 $11.67
------- ------- ------- ------ ------ ------
Investment Operations:
Net Investment Income 0.49 0.50 0.37 0.51 0.52 0.51
Realized and Unrealized Gains
(Losses) on Investments (0.32) (0.03) (0.26) (0.09) 0.03 (0.09)
------- ------- ------- ------ ------ ------
Total From Investment Operations 0.17 0.47 0.11 0.42 0.55 0.42
------- ------- ------- ------ ------ ------
Less Distributions:
Dividends (from net investment
income) (0.48) (0.51) (0.36) (0.54) (0.53) (0.50)
Distributions (from net realized
gains) (0.03) (0.08) (0.32) (0.09) (0.08) --
------- ------- ------- ------ ------ ------
Total Distributions (0.51) (0.59) (0.68) (0.63) (0.61) (0.50)
------- ------- ------- ------ ------ ------
Net Asset Value, End of Period $ 10.29 $ 10.63 $ 10.75 $11.32 $11.53 $11.59
======= ======= ======= ====== ====== ======
Total Return(2) 1.67% 4.39% 0.96% 3.70% 4.87% 3.78%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $15,889 $13,477 $10,181 $8,363 $9,439 $9,516
Ratio of Expenses to Average Net
Assets 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Ratio of Net Investment Income to
Average Net Assets 4.63% 4.51% 4.58% 4.48% 4.51% 4.49%
Ratio of Expenses to Average Net
Assets (excluding waivers) 1.55% 1.50% 1.27% 0.93% 0.84% 0.82%
Ratio of Net Investment Income to
Average Net Assets (excluding
waivers) 3.58% 3.51% 3.81% 4.05% 4.17% 4.17%
Portfolio Turnover Rate 49% 47% 35% 30% 12% 14%
(1) For the period October 1, 2005 to June 30, 2006. Effective in 2006, the
fund's fiscal year end was changed from September 30 to June 30. All ratios
for the period have been annualized, except total return and portfolio
turnover.
(2) Total return would have been lower had certain expenses not been waived.
VOTING INFORMATION
GENERAL INFORMATION
This Prospectus/Proxy Statement is being sent to shareholders of California
Intermediate Tax Free Fund and Colorado Intermediate Tax Free Fund, each a
series of FAIF, in connection with a solicitation of proxies by the Board of
Directors, to be used at the Meeting. This Prospectus/Proxy Statement, along
with a Notice of the Meeting and a proxy card, is first being mailed to
shareholders of the Acquired Funds on or about November __, 2008.
The Board of Directors has fixed the close of business on November 4, 2008,
as the record date (the "Record Date") for determining the shareholders of the
Acquired Funds entitled to receive notice of the Meeting and to submit proxies,
and for determining the number of shares for which proxies may be submitted,
with respect to the Meeting or any adjournment thereof.
VOTING RIGHTS AND REQUIRED VOTE
Shares which represent interests in a particular Acquired Fund vote
separately on the Reorganization pertaining to that Acquired Fund. Approval of a
Reorganization will require the affirmative vote of a majority of the
outstanding shares of the Acquired Fund, with both classes of the Acquired Fund
voting together and not by class. Abstentions will be counted for purposes of
determining a quorum, but will not be included in the amount of shares voted.
Accordingly, an abstention will have the effect of a negative vote. Approval of
the Reorganization Plan with respect to an Acquired Fund will be considered
approval of the amendment to the Amended and Restated Articles of Incorporation
of FAIF (which amendment is included as Exhibit 1 to the Reorganization Plan
which is included as Appendix A to this Prospectus/Proxy Statement) required to
effect the Reorganization.
25
If a proxy that is properly executed and returned represents a broker
"non-vote" (broker non-votes are shares held by a broker or nominee for which an
executed proxy is received by the Fund but are not voted as to the proposal
because instructions have not been received from the beneficial owners or
persons entitled to vote, and the broker or nominee holding the shares does not
have discretionary voting power), the shares represented thereby will only be
considered present for purposes of determining the existence of a quorum for the
transaction of business and will not be included in determining the number of
votes cast. Accordingly, broker non-votes will have the effect of negative
votes.
The individuals named as proxies on the enclosed proxy card will vote in
accordance with your direction as indicated thereon, if your card is received
properly executed by you or by your duly appointed agent or attorney-in-fact. If
your card is properly executed and you give no voting instructions, your shares
will be voted FOR the Reorganization. You can also vote by telephone, with a
toll-free call to the appropriate number on the proxy card, and through the
Internet Website stated on the proxy card.
You may revoke any proxy by giving another proxy or by letter or telegram
revoking the initial proxy. In addition, you can revoke a prior proxy by simply
voting again using the proxy card, by a toll-free call to the appropriate number
on the proxy card, or through the Internet Website listed on the proxy card. To
be effective, your revocation must be received prior to the Meeting and must
indicate your name and account number. In addition, if you attend the Meeting in
person you may, if you wish, vote by ballot at the Meeting, thereby canceling
any proxy previously given.
Proxy solicitations will be made primarily by mail but may also be made by
telephone, through the Internet or personal solicitations conducted by officers
and employees of the Advisor, its affiliates or other representatives of
Acquired Funds (who will not be paid for their soliciting activities). The costs
of solicitation and the expenses incurred in connection with preparing this
Prospectus/Proxy Statement and its enclosures will be paid by the Advisor.
Neither the Acquired Funds nor the Acquiring Funds will bear any costs
associated with the Meeting, this proxy solicitation or any adjourned session.
If shareholders of an Acquired Fund do not vote to approve the applicable
Reorganization, the Directors will consider other possible courses of action in
the best interests of shareholders. If a quorum is not present at the Meeting,
or if a quorum is present at the Meeting but sufficient votes to approve a
Reorganization are not received, the persons named as proxies on a proxy form
sent to the shareholders may propose one or more adjournments of the Meeting to
permit further proxy solicitation. In determining whether to adjourn the
Meeting, the following factors may be considered: the percentage of votes
actually cast, the percentage of negative votes actually cast, the nature of any
further solicitation and the information to be provided to shareholders with
respect to the reasons for the solicitation. Any adjournment will require an
affirmative vote of a majority of those shares represented at the Meeting in
person or by proxy. The persons named as proxies will vote upon such adjournment
after consideration of all circumstances which may bear upon a decision to
adjourn the Meeting.
A shareholder of an Acquired Fund who objects to the Reorganization will
not be entitled under either Maryland law or the Amended and Restated Articles
of Incorporation of FAIF to demand payment for, or an appraisal of, his or her
shares.
FAIF does not hold annual shareholder meetings. Shareholders wishing to
submit proposals to be considered for inclusion in a proxy statement for a
subsequent shareholder meeting should send their written proposals to the
Secretary of FAIF at the address set forth on the cover of this Prospectus/Proxy
Statement so that they will be received by FAIF in a reasonable period of time
prior to that meeting.
The votes of the shareholders of the Acquiring Funds are not being
solicited by this Prospectus/Proxy Statement and are not required to carry out
the proposed Reorganizations.
26
OUTSTANDING SHARES
The shareholders of each Acquired Fund as of the Record Date will be
entitled to be present at the Meeting and vote their shares of the applicable
Acquired Fund owned as of the Record Date.
The following table identifies the number of shares of each class of each
Acquired Fund and Acquiring Fund that were outstanding as of the close of
business on the Record Date:
CALIFORNIA CALIFORNIA COLORADO COLORADO
INTERMEDIATE TAX TAX FREE INTERMEDIATE TAX TAX FREE
FREE FUND FUND FREE FUND FUND
---------------- ---------- ---------------- --------
CLASS A
CLASS C N/A N/A
CLASS Y
SHAREHOLDER RIGHTS
Each Fund is a separate series of FAIF. Since the Funds are part of the
same corporate entity, there are no differences in shareholders' rights between
an Acquired Fund and its corresponding Acquiring Fund.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of the Record Date, the officers and directors of FAIF beneficially
owned as a group less than 1% of the outstanding shares of each Fund, and FAIF
was aware that the following persons owned of record 5% or more of the
outstanding shares of each class of stock of the Funds:
PERCENT
OF OUTSTANDING SHARES
NUMBER OF ---------------------------
SHARES OWNED CLASS A CLASS C CLASS Y
------------ ------- ------- -------
CALIFORNIA INTERMEDIATE TAX FREE FUND
CALIFORNIA TAX FREE FUND
27
COLORADO INTERMEDIATE TAX FREE FUND
COLORADO TAX FREE FUND
ADDITIONAL INFORMATION ABOUT THE FUNDS
Information concerning the Funds in the Funds' current prospectuses and SAI
(including any supplements) and information in the Reorganization SAI is
incorporated into this Prospectus/Proxy Statement by reference. This means that
such information is legally considered to be part of this Prospectus/Proxy
Statement. For a free copy of an Acquired Fund's prospectus, the Funds'
Statement of Additional Information or annual report, or the Reorganization SAI,
please call (800) 677-3863 or write to First American Investment Funds, Inc.,
800 Nicollet Mall, Minneapolis, MN 55402.
Each Fund is subject to the informational requirements of the Securities
Exchange Act of 1934 and the 1940 Act, and in accordance therewith files reports
and other information including proxy material and charter documents with the
SEC. These items can be inspected and copied at the Public Reference Facilities
maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the SEC's Regional Offices located at 175 West Jackson Boulevard, Chicago,
Illinois 60604 and at 3 World Financial Center, New York, New York 10281. Copies
of such materials can also be obtained at prescribed rates from the Public
Reference Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, Washington, D.C. 20549. Further information
on the operations of the public reference facilities may be obtained by calling
(800) SEC-0330. In addition, the SEC maintains an Internet site that contains
copies of the information. The address of the site is www.sec.gov.
MISCELLANEOUS
LEGAL MATTERS
Certain legal matters in connection with the issuance of Acquiring Fund
shares as part of the Reorganization will be passed on by Dorsey & Whitney LLP,
50 South Sixth Street, Suite 1500, Minneapolis, MN 55402.
EXPERTS
The audited financial statements for the Funds, incorporated by reference
into the Reorganization SAI, have been audited by Ernst & Young LLP, an
independent registered public accounting firm, as set forth in their report
appearing in the Funds' annual report for the fiscal year ended June 30, 2008.
The financial statements audited by Ernst & Young LLP have been incorporated by
reference in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
28
OTHER BUSINESS
The board of directors does not intend to present any other business at the
Meeting. If, however, any other matters are properly brought before the Meeting,
the persons named in the accompanying form of proxy will vote thereon in
accordance with their judgment.
NOTICE TO BANKS, BROKER-DEALERS AND VOTING TRUSTEES
AND THEIR NOMINEES
Please advise FAIF, in care of FAF Advisors, Inc., Mail Stop BC-MN-H04N,
800 Nicollet Mall, Minneapolis, MN 55402, whether other persons are beneficial
owners of Acquired Fund shares for which proxies are being solicited and, if so,
the number of copies of this Prospectus/Proxy Statement you wish to receive in
order to supply copies to the beneficial owners of the respective shares.
BOARD RECOMMENDATION
REQUIRED VOTE. Approval of the Reorganization Plan with respect to an
Acquired Fund requires the affirmative vote of a majority of the Fund's
outstanding voting securities.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE
PROPOSED REORGANIZATION OF YOUR ACQUIRED FUND AND TO APPROVE THE REORGANIZATION
PLAN WITH RESPECT TO YOUR ACQUIRED FUND.
November __, 2008
29
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this ____ day of December, 2008, by First American Investment Funds, Inc., a
Maryland corporation with its principal place of business at 800 Nicollet Mall,
Minneapolis, Minnesota 55402 ("FAIF"), on behalf of each segregated portfolio of
assets ("series") thereof listed on Schedule A to this Plan ("Schedule A").
(Each such series listed under the heading "Acquired Funds" is referred to
herein as an "Acquired Fund," each such series listed under the heading
"Acquiring Funds" is referred to herein as an "Acquiring Fund," and all such
series are sometimes referred to herein individually as a "Fund" and
collectively as the "Funds.")
FAIF wishes to effect two separate reorganizations, each described in
section 368(a)(1) of the Internal Revenue Code of 1986, as amended ("Code"), and
intends this Agreement to be, and adopts it as, a "plan of reorganization"
within the meaning of the regulations under section 368 of the Code
("Regulations"). Each reorganization will involve the transfer of an Acquired
Fund's assets to the Acquiring Fund listed on Schedule A opposite its name
(each, a "corresponding Acquiring Fund") in exchange solely for voting shares of
common stock, par value $0.0001 per share, of that Acquiring Fund ("Acquiring
Fund Shares") and that Acquiring Fund's assumption of that Acquired Fund's
liabilities, followed by the constructive distribution of those shares pro rata
to the holders of shares of common stock, par value $0.0001 per share, of that
Acquired Fund ("Acquired Fund Shares") in exchange therefor, all on the terms
and conditions set forth herein. (Each such series of transactions involving
each Acquired Fund and its corresponding Acquiring Fund is referred to herein as
a "Reorganization.") The exchange of Acquiring Fund Shares for Acquired Fund
Shares will be effected pursuant to an amendment to FAIF's amended and restated
articles of incorporation in the form attached hereto as Exhibit 1 (the
"Amendment") to be adopted in accordance with the Maryland General Corporation
Law.
The consummation of one Reorganization is not contingent on the
consummation of any other Reorganization. (For convenience, the balance of this
Agreement refers only to a single Reorganization, one Acquired Fund, and one
Acquiring Fund, but the terms and conditions hereof apply separately to each
Reorganization and the Funds participating therein.)
WITNESSETH:
WHEREAS, FAIF is a registered, open-end management investment company that
offers its shares of common stock in multiple series (each of which series
represents a separate and distinct portfolio of assets and liabilities);
WHEREAS, the Acquiring Fund offers Class A shares, Class C shares and Class
Y shares and the Acquired Fund offers Class A shares and Class Y;
WHEREAS, the Acquired Fund owns securities which generally are assets of
the character in which the Acquiring Fund is permitted to invest; and
WHEREAS, the Board of Directors of FAIF has determined that the
consolidation of the Acquired Fund with and into the Acquiring Fund by means of
the exchange of Class A and Class Y Acquiring Fund Shares for all of the issued
and outstanding Class A and Class Y Acquired Fund Shares,
A-1
respectively, on the basis set forth herein is in the best interests of the
Acquired Fund shareholders and the Acquiring Fund shareholders and has made the
determinations required by Rule 17a-8 under the Investment Company Act of 1940,
as amended (the "1940 Act") with respect to the Reorganization;
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. EXCHANGE OF SHARES; REALLOCATION OF ASSETS AND LIABILITIES
1.1 Subject to the requisite approval by the Acquired Fund shareholders and
to the other terms and conditions herein set forth and on the basis of the
representations and warranties contained herein, the Acquired Fund and the
Acquiring Fund agree that at the Effective Time (as defined in Section 3.1), (a)
each issued and outstanding Class A Acquired Fund Share shall be, without
further action, exchanged for that number of Class A Acquiring Fund Shares
calculated in accordance with Article 2 hereof and the Amendment; and (b) each
issued and outstanding Class Y Acquired Fund Share shall be, without further
action, exchanged for that number of Class Y Acquiring Fund Shares calculated in
accordance with Article 2 hereof and the Amendment.
1.2 (a) At the Effective Time, the assets belonging to the Acquired Fund,
the liabilities belonging to the Acquired Fund, and the General Assets and
General Liabilities allocated to the Acquired Fund, shall become, without
further action, assets belonging to the Acquiring Fund, liabilities belonging to
the Acquiring Fund, and General Assets and General Liabilities allocated to the
Acquiring Fund, all in accordance with Article IV, Section 1(d)(i) and (ii) of
FAIF's amended and restated articles of incorporation. For purposes of the
foregoing, the terms "assets belonging to," "liabilities belonging to," "General
Assets" and "General Liabilities" have the meanings assigned to them in said
Article IV, Section 1(d)(i) and (ii). Such assets belonging to the Acquired Fund
to become assets belonging to the Acquiring Fund shall consist of all of the
Acquired Fund's property, including, but not limited to, all cash, securities,
commodities and futures interests and dividends or interest receivable which are
assets belonging to the Acquired Fund as of the Effective Time. All of said
assets shall be set forth in detail in an unaudited statement of assets and
liabilities of the Acquired Fund as of the Effective Time (the "Effective Time
Statement"). The Effective Time Statement shall, with respect to the listing of
the Acquired Fund's portfolio securities, detail the adjusted tax basis of such
securities by lot, the respective holding periods of such securities and the
current and accumulated earnings and profits of the Acquired Fund. The Effective
Time Statement shall be prepared in accordance with generally accepted
accounting principles (except for footnotes) consistently applied.
(b) The Acquired Fund has provided the Acquiring Fund with a list of all of
the Acquired Fund's assets as of the date of execution of this Agreement. The
Acquired Fund reserves the right to sell any of these securities prior to the
Effective Time and to acquire additional securities in the ordinary course of
its business.
1.3 Pursuant to Section 1.2(a), at the Effective Time the liabilities,
expenses, costs, charges and reserves (including, but not limited to, expenses
incurred in the ordinary course of the Acquired Fund's operations, such as
accounts payable relating to custodian and transfer agency fees, investment
management and administrative fees, and legal and audit fees) as reflected in
the Effective Time Statement shall become liabilities, expenses, costs, charges
and reserves of the Acquiring Fund.
1.4 At the Effective Time and pursuant to the plan of reorganization
adopted herein, the Acquiring Fund will issue and, on behalf of the Acquired
Fund, distribute to the Acquired Fund's shareholders of record, determined as of
the Effective Time (the "Acquired Fund Shareholders"), the Acquiring Fund Shares
issued in exchange for the Acquired Fund Shares pursuant to Section 1.1 and
A-2
Article 2. Thereafter, no additional shares representing interests in the
Acquired Fund shall be issued, and the Acquired Fund shall be deemed to be
liquidated. Such distribution shall be accomplished by the issuance of such
Acquiring Fund Shares to open accounts on the share records of the Acquiring
Fund in the names of the Acquired Fund Shareholders representing the numbers and
classes of Acquiring Fund Shares due each such shareholder. All issued and
outstanding shares of the Acquired Fund will simultaneously be cancelled on the
books of the Acquired Fund, although from and after the Effective Time share
certificates representing interests in the Acquired Fund will represent those
numbers and classes of Acquiring Fund Shares as determined in accordance with
Article 2. Unless requested by Acquired Fund Shareholders, the Acquiring Fund
will not issue certificates representing the Acquiring Fund Shares in connection
with such exchange.
1.5 Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund. Shares of the Acquiring Fund will be issued in the manner
described in the Acquiring Fund's Prospectus and Statement of Additional
Information (in effect as of the Effective Time), except that no sales charges
will be incurred by the Acquired Fund Shareholders in connection with the
acquisition by the Acquired Fund Shareholders of Acquiring Fund Shares pursuant
to this Agreement.
1.6 In the event that Class A shares of the Acquiring Fund are distributed
in the Reorganization to former holders of Class A shares of the Acquired Fund
with respect to which the front-end sales charge was waived due to a purchase of
$1 million or more, the Acquiring Fund agrees that in determining whether a
deferred sales charge is payable upon the sale of such Class A shares of the
Acquiring Fund it shall give credit for the period during which the holder
thereof held such Acquired Fund shares.
1.7 Any reporting responsibility of the Acquired Fund, including, but not
limited to, the responsibility for filing of regulatory reports, tax returns, or
other documents with the Securities and Exchange Commission (the "Commission"),
any state securities commissions, and any federal, state or local tax
authorities or any other relevant regulatory authority, is and shall remain the
responsibility of the Acquired Fund.
2. EXCHANGE RATIOS; VALUATION; ISSUANCE OF ACQUIRING FUND SHARES
2.1 The net asset value per share of the Acquired Fund's and the Acquiring
Fund's Class A shares and Class Y shares shall be computed as of the Effective
Time using the valuation procedures set forth in FAIF's amended and restated
articles of incorporation and bylaws and then-current Prospectuses and Statement
of Additional Information and as may be required by the 1940 Act.
2.2 (a) The total number of the Acquiring Fund's Class A shares to be
issued (including fractional shares, if any) in exchange for the Acquired Fund's
Class A shares shall be determined as of the Effective Time by multiplying the
number of the Acquired Fund's Class A shares outstanding immediately prior to
the Effective Time times a fraction, the numerator of which is the net asset
value per share of the Acquired Fund's Class A shares immediately prior to the
Effective Time, and the denominator of which is the net asset value per share of
the Acquiring Fund's Class A shares immediately prior to the Effective Time,
each as determined pursuant to Section 2.1.
(b) The total number of the Acquiring Fund's Class Y shares to be issued
(including fractional shares, if any) in exchange for the Acquired Fund's Class
Y shares shall be determined as of the Effective Time by multiplying the number
of the Acquired Fund's Class Y shares outstanding immediately prior to the
Effective Time times a fraction, the numerator of which is the net asset value
per
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share of the Acquired Fund's Class Y shares immediately prior to the Effective
Time, and the denominator of which is the net asset value per share of the
Acquiring Fund's Class Y shares immediately prior to the Effective Time, each as
determined pursuant to Section 2.1.
2.3 At the Effective Time, the Acquiring Fund shall issue and, on behalf of
the Acquired Fund, distribute to the Acquired Fund Shareholders of the
respective classes pro rata within such classes (based upon the ratio that the
number of Acquired Fund shares of the respective classes owned by each Acquired
Fund Shareholder immediately prior to the Effective Time bears to the total
number of issued and outstanding Acquired Fund shares of the respective classes
immediately prior to the Effective Time) the full and fractional Acquiring Fund
Shares of the respective classes to be issued by the Acquiring Fund pursuant to
Section 2.2. Accordingly, each Class A Acquired Fund Shareholder shall receive,
at the Effective Time, Class A Acquiring Fund Shares with an aggregate net asset
value equal to the aggregate net asset value of the Class A Acquired Fund Shares
owned by such Acquired Fund Shareholder immediately prior to the Effective Time;
and each Class Y Acquired Fund Shareholder shall receive, at the Effective Time,
Class Y Acquiring Fund Shares with an aggregate net asset value equal to the
aggregate net asset value of the Class Y Acquired Fund Shares owned by such
Acquired Fund Shareholder immediately prior to the Effective Time.
3. EFFECTIVE TIME OF CLOSING
3.1 The closing of the transactions contemplated by this Agreement (the
"Closing") shall occur as of the close of normal trading on the New York Stock
Exchange (the "Exchange") (currently, 4:00 p.m. Eastern time) on the first day
upon which the conditions to closing shall have been satisfied, or at such time
on such later date as provided herein or as the parties otherwise may agree in
writing (such time and date being referred to herein as the "Effective Time").
All acts taking place at the Closing shall be deemed to take place
simultaneously as of the Effective Time unless otherwise agreed to by the
parties. The Closing shall be held at the offices of FAF Advisors, Inc., 800
Nicollet Mall, Minneapolis, Minnesota 55402, or at such other place as the
parties may agree.
3.2 The custodian for the Acquiring Fund (the "Custodian") shall deliver at
the Closing a certificate of an authorized officer stating that the Acquired
Fund's portfolio securities, cash, and any other assets of the Acquired Fund
held by the Custodian will be transferred to the Acquiring Fund at the Effective
Time.
3.3 In the event that the Effective Time would occur on a day on which (a)
the Exchange or another primary trading market for portfolio securities of the
Acquiring Fund or the Acquired Fund shall be closed to trading or trading
thereon shall be restricted, or (b) trading or the reporting of trading on the
Exchange or elsewhere shall be disrupted so that accurate appraisal of the value
of the net assets of the Acquiring Fund or the Acquired Fund is impracticable,
the Effective Time shall be postponed until the close of normal trading on the
Exchange on the first business day when trading shall have been fully resumed
and reporting shall have been restored.
3.4 The Acquired Fund shall deliver at the Closing its certificate stating
that the records maintained by its transfer agent (which shall be made available
to the Acquiring Fund) contain the names and addresses of the Acquired Fund
Shareholders and the number of outstanding Acquired Fund shares owned by each
such shareholder as of the Effective Time. The Acquiring Fund shall certify at
the Closing that the Acquiring Fund Shares required to be issued by it pursuant
to this Agreement have been issued and delivered as required herein. At the
Closing, each party shall deliver to the other such bills of sale, liability
assumption agreements, checks, assignments, share certificates, if any, receipts
or other documents as such other party or its counsel may reasonably request.
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4. REPRESENTATIONS, WARRANTIES AND COVENANTS
4.1 The Acquired Fund represents, warrants and covenants to the Acquiring
Fund as follows:
(a) FAIF is a corporation duly organized, validly existing and in good
standing under the laws of the State of Maryland;
(b) FAIF is a registered investment company classified as a management
company of the open-end type, and its registration with the Commission as an
investment company under the 1940 Act, and of each series of shares offered by
FAIF under the Securities Act of 1933, as amended (the "1933 Act"), is in full
force and effect;
(c) Shares of the Acquired Fund are registered in all jurisdictions in
which they are required to be registered under applicable state securities laws
and any other applicable laws, and said registrations, including any periodic
reports or supplemental filings, are complete and current, and all fees required
to be paid have been paid, and the Acquired Fund is in good standing, is not
subject to any stop orders, and is fully qualified to sell its shares in any
state in which its shares have been registered;
(d) The Acquired Fund is not in violation, and the execution, delivery and
performance of this Agreement will not result in a violation, of FAIF's amended
and restated articles of incorporation or bylaws or of any material agreement,
indenture, instrument, contract, lease or other undertaking to which the
Acquired Fund is a party or by which it is bound;
(e) No material litigation or administrative proceeding or investigation of
or before any court or governmental body is presently pending or, to the
Acquired Fund's knowledge, threatened against the Acquired Fund or any of its
properties or assets. The Acquired Fund is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental body
which materially and adversely affects its business or its ability to consummate
the transactions herein contemplated;
(f) The statement of assets and liabilities of the Acquired Fund as at June
30, 2008 has been audited by Ernst & Young LLP, independent accountants, and is
in accordance with generally accepted accounting principles consistently
applied, and such statement (a copy of which has been furnished to the Acquiring
Fund) presents fairly, in all material respects, the financial position of the
Acquired Fund as at such date, and there are no known material contingent
liabilities of the Acquired Fund as at such date not disclosed therein;
(g) Since June 30, 2008, there has not been any material adverse change in
the Acquired Fund's financial condition, assets, liabilities or business other
than changes occurring in the ordinary course of business, except as otherwise
disclosed to the Acquiring Fund. For the purposes of this paragraph (g), a
decline in net asset value per share of the Acquired Fund, the discharge or
incurrence of Acquired Fund liabilities in the ordinary course of business, or
the redemption of Acquired Fund shares by Acquired Fund Shareholders shall not
constitute such a material adverse change;
(h) All material federal and other tax returns and reports of the Acquired
Fund required by law to have been filed prior to the Effective Time shall have
been filed and shall be correct, and all federal and other taxes shown as due or
required to be shown as due on said returns and reports shall have been paid or
provision shall have been made for the payment thereof, and, to the best of the
Acquired Fund's knowledge, no such return is currently or shall be under audit
and no assessment shall have been asserted with respect to such returns;
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(i) For each taxable year of its operation, the Acquired Fund has met the
requirements of Subchapter M of the Code for qualification and treatment as a
regulated investment company, and the Acquired Fund intends to meet the
requirements of Subchapter M of the Code for qualification and treatment as a
regulated investment company for its final, partial taxable year;
(j) All issued and outstanding shares of the Acquired Fund are, and at the
Effective Time will be, duly and validly issued and outstanding, fully paid and
non-assessable. All of the issued and outstanding shares of the Acquired Fund
will, at the Effective Time, be held by the persons and in the amounts set forth
in the records of the Acquired Fund, as provided in Section 3.4. The Acquired
Fund does not have outstanding any options, warrants or other rights to
subscribe for or purchase any of the Acquired Fund shares, and there is not
outstanding any security convertible into any of the Acquired Fund shares;
(k) At the Effective Time, the Acquired Fund will have good and marketable
title to the Acquired Fund's assets to be allocated to the Acquiring Fund
pursuant to Section 1.2, and from and after the Effective Time the Acquiring
Fund will have good and marketable title thereto, subject to no restrictions on
the transfer thereof, including such restrictions as might arise under the 1933
Act other than as disclosed to the Acquiring Fund in the Effective Time
Statement;
(l) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Effective Time by all necessary action on the
part of FAIF's Board of Directors, and, subject to the approval of the Acquired
Fund Shareholders, this Agreement will constitute a valid and binding obligation
of the Acquired Fund, enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance and other laws relating to or affecting creditors' rights and to the
application of equitable principles in any proceeding, whether at law or in
equity;
(m) The information to be furnished by the Acquired Fund for use in
registration statements, proxy materials and other documents which may be
necessary in connection with the transactions contemplated hereby shall be
accurate and complete in all material respects;
(n) All information pertaining to the Acquired Fund and its agents and
affiliates and included in the Registration Statement referred to in Section 5.5
(or supplied by the Acquired Fund, its agents or affiliates for inclusion in
said Registration Statement), on the effective date of said Registration
Statement and up to and including the Effective Time, will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which such statements are made, not materially misleading
(other than as may timely be remedied by further appropriate disclosure);
(o) Since June 30, 2008, there have been no material changes by the
Acquired Fund in accounting methods, principles or practices, including those
required by generally accepted accounting principles, except as disclosed in
writing to the Acquiring Fund; and
(p) The Effective Time Statement will be prepared in accordance with
generally accepted accounting principles (except for footnotes) consistently
applied and will present accurately the assets and liabilities of the Acquired
Fund as of the Effective Time, and the values of the Acquired Fund's assets and
liabilities to be set forth in the Effective Time Statement will be computed as
of the Effective Time using the valuation procedures set forth in the Acquired
Fund's amended and restated articles of incorporation and bylaws and
then-current Prospectus and Statement of Additional Information and as may be
required by the 1940 Act.
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4.2 The Acquiring Fund represents, warrants and covenants to the Acquired
Fund as follows:
(a) FAIF is a corporation duly organized, validly existing and in good
standing under the laws of the State of Maryland;
(b) FAIF is a registered investment company classified as a management
company of the open-end type, and its registration with the Commission as an
investment company under the 1940 Act, and of each series of shares offered by
FAIF under the 1933 Act, is in full force and effect;
(c) At or before the Effective Time, shares of the Acquiring Fund
(including, but not limited to, the Acquiring Fund Shares) will be registered in
all jurisdictions in which they will be required to be registered under
applicable state securities laws and any other applicable laws (including, but
not limited to, all jurisdictions necessary to effect the Reorganization), and
said registrations, including any periodic reports or supplemental filings, will
be complete and current, and all fees required to be paid will have been paid,
and the Acquiring Fund will be in good standing, and will not be subject to any
stop orders, and will be fully qualified to sell its shares in any state in
which its shares will have been registered;
(d) The Prospectus and Statement of Additional Information of the Acquiring
Fund, as of the date hereof and up to and including the Effective Time, conform
and will conform in all material respects to the applicable requirements of the
1933 Act and the 1940 Act and the rules and regulations of the Commission
thereunder and do not and will not include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not materially misleading;
(e) The Acquiring Fund is not in violation, and the execution, delivery and
performance of this Agreement will not result in a violation, of FAIF's amended
and restated articles of incorporation or bylaws or of any material agreement,
indenture, instrument, contract, lease or other undertaking to which the
Acquiring Fund is a party or by which it is bound;
(f) No material litigation or administrative proceeding or investigation of
or before any court or governmental body is presently pending or, to the
Acquiring Fund's knowledge, threatened against the Acquiring Fund or any of its
properties or assets. The Acquiring Fund is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental body
which materially and adversely affects its business or its ability to consummate
the transactions herein contemplated;
(g) The statement of assets and liabilities of the Acquiring Fund as at
June 30, 2008 has been audited by Ernst & Young LLP, independent accountants,
and is in accordance with generally accepted accounting principles consistently
applied, and such statement (a copy of which has been furnished to the Acquired
Fund) presents fairly, in all material respects, the financial position of the
Acquiring Fund as at such date, and there are no known material contingent
liabilities of the Acquiring Fund as at such date not disclosed therein;
(h) Since June 30, 2008, there has not been any material adverse change in
the Acquiring Fund's financial condition, assets, liabilities or business other
than changes occurring in the ordinary course of business, except as otherwise
disclosed to the Acquired Fund. For the purposes of this paragraph (h), a
decline in net asset value per share of the Acquiring Fund, the discharge or
incurrence of Acquiring Fund liabilities in the ordinary course of business, or
the redemption of Acquiring Fund Shares by Acquiring Fund shareholders shall not
constitute a material adverse change;
(i) All material federal and other tax returns and reports of the Acquiring
Fund required by law to have been filed prior to the Effective Time shall have
been filed and shall be correct, and all
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federal and other taxes shown as due or required to be shown as due on said
returns and reports shall have been paid or provision shall have been made for
the payment thereof, and to the best of the Acquiring Fund's knowledge no such
return is currently or shall be under audit and no assessment shall have been
asserted with respect to such returns;
(j) For each taxable year of its operation, the Acquiring Fund has met the
requirements of Subchapter M of the Code for qualification and treatment as a
regulated investment company, and the Acquiring Fund intends to meet the
requirements of Subchapter M of the Code for qualification and treatment as a
regulated investment company in the current and future years;
(k) All issued and outstanding shares of the Acquiring Fund are, and at
Effective Time will be, duly and validly issued and outstanding, fully paid and
non-assessable;
(l) The Acquiring Fund Shares to be issued and delivered to the Acquired
Fund, for the account of the Acquired Fund Shareholders, pursuant to the terms
of this Agreement, at the Effective Time will have been duly authorized and,
when so issued and delivered, will be duly and validly issued Acquiring Fund
Shares and will be fully paid and non-assessable;
(m) The Acquiring Fund does not have outstanding any options, warrants or
other rights to subscribe for or purchase any of the Acquiring Fund Shares, and
there is not outstanding any security convertible into any of the Acquiring Fund
Shares;
(n) At the Effective Time, the Acquiring Fund will have good and marketable
title to the Acquiring Fund's assets;
(o) Since June 30, 2008, there have been no material changes by the
Acquiring Fund in accounting methods, principles or practices, including those
required by generally accepted accounting principles, except as disclosed in
writing to the Acquired Fund;
(p) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Effective Time by all necessary action on the
part of the Board of Directors of FAIF, as issuer of the Acquiring Fund Shares,
and this Agreement will constitute a valid and binding obligation of the
Acquiring Fund enforceable in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance and other laws relating to or affecting creditors' rights and to the
application of equitable principles in any proceeding, whether at law or in
equity. Consummation of the transactions contemplated by this Agreement does not
require the approval of the Acquiring Fund's shareholders;
(q) The information to be furnished by the Acquiring Fund for use in
registration statements, proxy materials and other documents which may be
necessary in connection with the transactions contemplated hereby shall be
accurate and complete in all material respects;
(r) Following the Reorganization, the Acquiring Fund shall determine its
net asset value per share in accordance with the valuation procedures set forth
in the Acquiring Fund's amended and restated articles of incorporation, bylaws
and Prospectus and Statement of Additional Information (as the same may be
amended from time to time) and as may be required by the 1940 Act; and
(s) The Registration Statement referred to in Section 5.5, on its effective
date and up to and including the Effective Time, will (i) conform in all
material respects to the applicable requirements of the 1933 Act, the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and the 1940 Act and the
rules and regulations of the Commission thereunder, and (ii) not contain any
untrue statement of a
A-8
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which such statements were made, not materially misleading (other than as may
timely be remedied by further appropriate disclosure); provided, however, that
the representations and warranties in clause (ii) of this paragraph shall not
apply to statements in (or omissions from) the Registration Statement concerning
the Acquired Fund.
5. FURTHER COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1 Each of the Acquired Fund and the Acquiring Fund will operate its
business in the ordinary course between the date hereof and the Effective Time,
it being understood that such ordinary course of business will include the
declaration and payment of customary dividends and distributions, and any other
distributions that may be advisable (which may include distributions prior to
the Effective Time of net income and/or net realized capital gains not
previously distributed).
5.2 The Acquired Fund will call a meeting of its shareholders to consider
and act upon this Agreement, the Amendment and the Reorganization and to take
all other action necessary to obtain approval of the transactions contemplated
herein.
5.3 The Acquired Fund will assist the Acquiring Fund in obtaining such
information as the Acquiring Fund reasonably requests concerning the beneficial
ownership of the Acquired Fund shares.
5.4 Subject to the provisions of this Agreement, the Acquiring Fund and the
Acquired Fund will each take, or cause to be taken, all actions, and do or cause
to be done, all things reasonably necessary, proper or advisable to consummate
and make effective the transactions contemplated by this Agreement.
5.5 The Acquired Fund will provide the Acquiring Fund with information
reasonably necessary with respect to the Acquired Fund and its agents and
affiliates for the preparation of the Registration Statement on Form N-14 of the
Acquiring Fund (the "Registration Statement"), in compliance with the 1933 Act,
the 1934 Act and the 1940 Act.
5.6 The Acquiring Fund agrees to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act and such of
the state blue sky or securities laws as may be necessary in order to conduct
its operations after the Effective Time.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of the Acquired Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder at or
before the Effective Time, and, in addition thereto, the following further
conditions (any of which may be waived by the Acquired Fund, in its sole and
absolute discretion):
6.1 All representations and warranties of the Acquiring Fund contained in
this Agreement shall be true and correct as of the date hereof and, except as
they may be affected by the transactions contemplated by this Agreement, as of
the Effective Time with the same force and effect as if made at such time; and
6.2 The Acquiring Fund shall have delivered to the Acquired Fund a
certificate executed in its name by its President or a Vice President, in a form
reasonably satisfactory to the Acquired Fund and dated as of the date of the
Closing, to the effect that the representations and warranties of the Acquiring
Fund made in this Agreement are true and correct at the Effective Time, except
as they may be affected
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by the transactions contemplated by this Agreement and as to such other matters
as the Acquired Fund shall reasonably request.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to complete the transactions provided
for herein shall be subject, at its election, to the performance by the Acquired
Fund of all of the obligations to be performed by it hereunder at or before the
Effective Time and, in addition thereto, the following conditions (any of which
may be waived by the Acquiring Fund, in its sole and absolute discretion):
7.1 All representations and warranties of the Acquired Fund contained in
this Agreement shall be true and correct as of the date hereof and, except as
they may be affected by the transactions contemplated by this Agreement, as of
the Effective Time with the same force and effect as if made at such time;
7.2 The Acquiring Fund shall have received, and certified as to its receipt
of, the Effective Time Statement;
7.3 The Acquired Fund shall have delivered to the Acquiring Fund a
certificate executed in its name by its President or a Vice President, in form
and substance satisfactory to the Acquiring Fund and dated as of the date of the
Closing, to the effect that the representations and warranties of the Acquired
Fund made in this Agreement are true and correct at and as of the Effective
Time, except as they may be affected by the transactions contemplated by this
Agreement, and as to such other matters as the Acquiring Fund shall reasonably
request; and
7.4 At or prior to the Effective Time, the Acquired Fund's investment
advisor, or an affiliate thereof, shall have reimbursed or agreed to reimburse
the Acquired Fund by the amount, if any, that the expenses incurred by the
Acquired Fund (or accrued up to the Effective Time) exceed any applicable
contractual expense limitations.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND THE
ACQUIRED FUND
The following shall constitute further conditions precedent to the
consummation of the Reorganization:
8.1 This Agreement, the Amendment, and the transactions contemplated herein
and therein shall have been approved by the requisite vote of the holders of the
outstanding shares of the Acquired Fund in accordance with the provisions of
FAIF's amended and restated articles of incorporation and bylaws and applicable
law, and certified copies of the resolutions evidencing such approval shall have
been delivered to the Acquiring Fund. Notwithstanding anything herein to the
contrary, neither the Acquiring Fund nor the Acquired Fund may waive the
conditions set forth in this Section 8.1;
8.2 The Acquiring Fund's investment advisor shall have paid or agreed to
pay the costs incurred by FAIF in connection with the Reorganization, including
the fees and expenses associated with the preparation and filing of the
Registration Statement referred to in Section 5.5 above, and the expenses of
printing and mailing the prospectus/proxy statement, soliciting proxies and
holding the shareholders meeting required to approve the transactions
contemplated by this Agreement;
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8.3 As of the Effective Time, no action, suit or other proceeding shall be
threatened or pending before any court or governmental agency in which it is
sought to restrain or prohibit, or obtain damages or other relief in connection
with, this Agreement or the transactions contemplated herein;
8.4 All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities deemed necessary by
the Acquiring Fund or the Acquired Fund to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain any such consent, order or permit would not
involve a risk of a material adverse effect on the assets or properties of the
Acquiring Fund or the Acquired Fund, provided that either party hereto may for
itself waive any of such conditions;
8.5 The Registration Statement shall have become effective under the 1933
Act, and no stop order suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act;
8.6 The parties shall have received the opinion of Dorsey & Whitney LLP
addressed to the Acquired Fund and the Acquiring Fund, dated as of the date of
the Closing, and based in part on certain representations to be furnished by the
Acquired Fund, the Acquiring Fund, and their investment advisor and other
service providers, substantially to the effect that:
(i) the Reorganization will constitute a reorganization within the meaning
of Section 368(a)(1) of the Code, and the Acquiring Fund and the
Acquired Fund each will qualify as a party to the Reorganization under
Section 368(b) of the Code;
(ii) the Acquired Fund Shareholders will recognize no income, gain or loss
upon receipt, pursuant to the Reorganization, of the Acquiring Fund
Shares. Acquired Fund Shareholders subject to taxation will recognize
income upon receipt of any net investment income or net capital gains
of the Acquired Fund which are distributed by the Acquired Fund prior
to the Effective Time;
(iii) the tax basis of the Acquiring Fund Shares received by each Acquired
Fund Shareholder pursuant to the Reorganization will be equal to the
tax basis of the Acquired Fund Shares exchanged therefor;
(iv) the holding period of the Acquiring Fund Shares received by each
Acquired Fund Shareholder pursuant to the Reorganization will include
the period during which the Acquired Fund Shareholder held the
Acquired Fund Shares exchanged therefor, provided that the Acquired
Fund shares were held as a capital asset at the Effective Time;
(v) the Acquired Fund will recognize no income, gain or loss by reason of
the Reorganization;
(vi) the Acquiring Fund will recognize no income, gain or loss by reason of
the Reorganization;
(vii) the tax basis of the assets received by the Acquiring Fund pursuant
to the Reorganization will be the same as the basis of those assets in
the hands of the Acquired Fund as of the Effective Time;
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(viii) the holding period of the assets received by the Acquiring Fund
pursuant to the Reorganization will include the period during which
such assets were held by the Acquired Fund; and
(ix) the Acquiring Fund will succeed to and take into account the earnings
and profits, or deficit in earnings and profits, of the Acquired Fund
as of the Effective Time; and
8.7 The Amendment shall have been filed in accordance with the applicable
provisions of Maryland law.
9. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
9.1 The Acquiring Fund and the Acquired Fund agree that neither party has
made any representation, warranty or covenant not set forth herein and that this
Agreement constitutes the entire agreement between the parties with respect to
the subject matter hereof.
9.2 The representations and warranties contained in this Agreement or in
any document delivered pursuant hereto or in connection herewith shall survive
the consummation of the transactions contemplated hereunder.
10. TERMINATION
This Agreement and the transactions contemplated hereby may be terminated
and abandoned by either party by resolution of FAIF's Board of Directors at any
time prior to the Effective Time, if circumstances should develop that, in the
good faith opinion of such Board, make proceeding with the Agreement not in the
best interest of the shareholders of the Acquired Fund or the Acquiring Fund.
11. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officers of the
Acquired Fund and the Acquiring Fund; provided, however, that following the
meeting of the Acquired Fund Shareholders called by the Acquired Fund pursuant
to Section 5.2 of this Agreement, no such amendment may have the effect of
changing the provisions for determining the number of the Acquiring Fund Shares
to be issued to the Acquired Fund Shareholders under this Agreement to the
detriment of such shareholders without their further approval.
12. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be deemed duly given
if delivered or mailed by registered mail, postage prepaid, addressed to the
Acquiring Fund or the Acquired Fund, 800 Nicollet Mall, Minneapolis, Minnesota
55402, Attention: President (with a copy to Dorsey & Whitney LLP, 50 South Sixth
Street, Minneapolis, Minnesota 55402, Attention: James D. Alt).
13. HEADINGS; COUNTERPARTS; ASSIGNMENT; MISCELLANEOUS
13.1 The Article and Section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
A-12
13.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original and all of which together shall constitute one
and the same agreement.
13.3 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the prior written consent of the other party. Nothing herein
expressed or implied is intended or shall be construed to confer upon or give
any person, firm or corporation, other than the parties hereto and their
respective successors and assigns, any rights or remedies under or by reason of
this Agreement.
13.4 The validity, interpretation and effect of this Agreement shall be
governed exclusively by the laws of the State of Minnesota, without giving
effect to the principles of conflict of laws thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by its President or a Vice President.
FIRST AMERICAN INVESTMENT FUNDS, INC.,
ON BEHALF OF ITS CALIFORNIA INTERMEDIATE
TAX FREE FUND AND COLORADO INTERMEDIATE
TAX FREE FUND
By
------------------------------------
Its
------------------------------------
FIRST AMERICAN INVESTMENT FUNDS, INC.,
ON BEHALF OF ITS CALIFORNIA TAX FREE
FUND AND COLORADO TAX FREE FUND
By
------------------------------------
Its
------------------------------------
A-13
SCHEDULE A TO AGREEMENT AND PLAN OF REORGANIZATION
ACQUIRED FUNDS ACQUIRING FUNDS
- -------------- ----------------------------------------
California Intermediate Tax Free Fund California Tax Free Fund
Colorado Intermediate Tax Free Fund Colorado Tax Free Fund
A-14
EXHIBIT 1 TO AGREEMENT AND PLAN OF REORGANIZATION
ARTICLES OF AMENDMENT
TO
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
FIRST AMERICAN INVESTMENT FUNDS, INC.
The undersigned officer of First American Investment Funds, Inc. (the
"Corporation"), a Maryland corporation, hereby certifies that the following
amendments to the Corporation's Amended and Restated Articles of Incorporation
have been advised by the Corporation's Board of Directors and approved by the
Corporation's stockholders in the manner required by the Maryland General
Corporation Law:
WHEREAS, the Corporation is registered as an open-end management investment
company (i.e., a mutual fund) under the Investment Company Act of 1940 and
offers its shares to the public in several classes, each of which
represents a separate and distinct portfolio of assets;
WHEREAS, it is desirable and in the best interests of the holders of the
Class Y shares of the Corporation (also known as "California Intermediate
Tax Free Fund") that the assets belonging to such class be sold to a
separate portfolio of the Corporation which is known as "California Tax
Free Fund" and which is represented by the Corporation's Class II shares,
in exchange for shares of California Tax Free Fund which are to be
delivered to former California Intermediate Tax Free Fund holders;
WHEREAS, California Intermediate Tax Free Fund and California Tax Free Fund
have entered into an Agreement and Plan of Reorganization providing for the
foregoing transactions; and
WHEREAS, the Agreement and Plan of Reorganization requires that, in order
to bind all holders of shares of California Intermediate Tax Free Fund to
the foregoing transactions, and in particular to bind such holders to the
exchange of their California Intermediate Tax Free Fund shares for
California Tax Free Fund shares, it is necessary to adopt an amendment to
the Corporation's Amended and Restated Articles of Incorporation.
NOW, THEREFORE, BE IT RESOLVED, that the Corporation's Amended and Restated
Articles of Incorporation be, and the same hereby are, amended to add the
following Article IV(R) immediately following Article IV(Q) thereof:
ARTICLE IV(R). (a) For purposes of this Article IV(R), the following
terms shall have the following meanings:
"Corporation" means this corporation.
"Acquired Fund" means the Corporation's California Intermediate Tax
Free Fund, which is represented by the Corporation's Class Y shares.
"Class A Acquired Fund Shares" means the Corporation's Class Y Common
Shares.
"Class Y Acquired Fund Shares" means the Corporation's Class Y Series
2 Common Shares.
A-15
"Acquiring Fund" means the Corporation's California Tax Free Fund,
which is represented by the Corporation's Class II shares.
"Class A Acquiring Fund Shares" means the Corporation's Class II
Common Shares.
"Class Y Acquiring Fund Shares" means the Corporation's Class II,
Series 3 Common Shares.
"Effective Time" means 4:00 p.m. Eastern time on the date upon which
these Articles of Amendment are filed with the Maryland State
Department of Assessments and Taxation.
(b) At the Effective Time, the assets belonging to the Acquired Fund,
the liabilities belonging to the Acquired Fund, and the General Assets and
General Liabilities allocated to the Acquired Fund, shall become, without
further action, assets belonging to the Acquiring Fund, liabilities
belonging to the Acquiring Fund, and General Assets and General Liabilities
allocated to the Acquiring Fund. For purposes of the foregoing, the terms
"assets belonging to," "liabilities belonging to," "General Assets" and
"General Liabilities" have the meanings assigned to them in Article IV,
Section 1(d)(i) and (ii) of the Corporation's Amended and Restated Articles
of Incorporation.
(c) At the Effective Time, each issued and outstanding Acquired Fund
share shall be, without further action, exchanged for those numbers and
classes of Acquiring Fund shares calculated in accordance with paragraph
(d) below.
(d) The numbers of Class A and Class Y Acquiring Fund Shares to be
issued in exchange for the Class A and Class Y Acquired Fund Shares shall
be determined as follows:
(i) The net asset value per share of the Acquired Fund's and the
Acquiring Fund's Class A Shares and Class Y Shares shall be computed
as of the Effective Time using the valuation procedures set forth in
the Corporation's articles of incorporation and bylaws and
then-current Prospectuses and Statement of Additional Information and
as may be required by the Investment Company Act of 1940, as amended
(the "1940 Act").
(ii) The total number of Class A Acquiring Fund Shares to be
issued (including fractional shares, if any) in exchange for the Class
A Acquired Fund Shares shall be determined as of the Effective Time by
multiplying the number of Class A Acquired Fund Shares outstanding
immediately prior to the Effective Time times a fraction, the
numerator of which is the net asset value per share of Class A
Acquired Fund Shares immediately prior to the Effective Time, and the
denominator of which is the net asset value per share of the Class A
Acquiring Fund Shares immediately prior to the Effective Time, each as
determined pursuant to (i) above.
(iii) The total number of Class Y Acquiring Fund Shares to be
issued (including fractional shares, if any) in exchange for the Class
Y Acquired Fund Shares shall be determined as of the Effective Time by
multiplying the number of Class Y Acquired Fund Shares outstanding
immediately prior to the Effective Time times a fraction, the
numerator of which is the net asset value per share of Class Y
Acquired Fund Shares immediately prior to the Effective Time, and the
denominator of which is the net asset value per share of the Class Y
Acquiring Fund Shares immediately prior to the Effective Time, each as
determined pursuant to (i) above.
A-16
(iv) At the Effective Time, the Acquired Fund shall issue and
distribute to the Acquired Fund shareholders of the respective classes
pro rata within such classes (based upon the ratio that the number of
Acquired Fund shares of the respective classes owned by each Acquired
Fund shareholder immediately prior to the Effective Time bears to the
total number of issued and outstanding Acquired Fund shares of the
respective classes immediately prior to the Effective Time) the full
and fractional Acquiring Fund shares of the respective classes issued
by the Acquiring Fund pursuant to (ii) and (iii) above. Accordingly,
each Class A Acquired Fund shareholder shall receive, at the Effective
Time, Class A Acquiring Fund Shares with an aggregate net asset value
equal to the aggregate net asset value of the Class A Acquired Fund
Shares owned by such Acquired Fund shareholder immediately prior to
the Effective Time; and each Class Y Acquired Fund shareholder shall
receive, at the Effective Time, Class Y Acquiring Fund Shares with an
aggregate net asset value equal to the aggregate net asset value of
the Class Y Acquired Fund Shares owned by such Acquired Fund
shareholder immediately prior to the Effective Time.
(e) The distribution of Acquiring Fund shares to Acquired Fund
shareholders provided for in paragraphs (c) and (d) above shall be
accomplished by the issuance of such Acquiring Fund shares to open accounts
on the share records of the Acquiring Fund in the names of the Acquired
Fund shareholders representing the numbers and classes of Acquiring Fund
shares due each such shareholder pursuant to the foregoing provisions. All
issued and outstanding shares of the Acquired Fund shall simultaneously be
cancelled on the books of the Acquired Fund and retired. From and after the
Effective Time, share certificates formerly representing Acquired Fund
shares shall represent the numbers and classes of Acquiring Fund shares
determined in accordance with the foregoing provisions.
(f) From and after the Effective Time, the Acquired Fund shares
cancelled and retired pursuant to paragraph (e) above shall have the status
of authorized and unissued Class Y common shares of the Corporation,
without designation as to series.
WHEREAS, the Corporation is registered as an open-end management investment
company (i.e., a mutual fund) under the Investment Company Act of 1940 and
offers its shares to the public in several classes, each of which
represents a separate and distinct portfolio of assets;
WHEREAS, it is desirable and in the best interests of the holders of the
Class N shares of the Corporation (also known as "Colorado Intermediate Tax
Free Fund") that the assets belonging to such class be sold to a separate
portfolio of the Corporation which is known as "Colorado Tax Free Fund" and
which is represented by the Corporation's Class KK shares, in exchange for
shares of Colorado Tax Free Fund which are to be delivered to former
Colorado Intermediate Tax Free Fund holders;
WHEREAS, Colorado Intermediate Tax Free Fund and Colorado Tax Free Fund
have entered into an Agreement and Plan of Reorganization providing for the
foregoing transactions; and
WHEREAS, the Agreement and Plan of Reorganization requires that, in order
to bind all holders of shares of Colorado Intermediate Tax Free Fund to the
foregoing transactions, and in particular to bind such holders to the
exchange of their Colorado Intermediate Tax Free Fund shares for Colorado
Tax Free Fund shares, it is necessary to adopt an amendment to the
Corporation's Amended and Restated Articles of Incorporation.
A-17
NOW, THEREFORE, BE IT RESOLVED, that the Corporation's Amended and Restated
Articles of Incorporation be, and the same hereby are, amended to add the
following Article IV(S) immediately following Article IV(R) thereof:
ARTICLE IV(S). (a) For purposes of this Article IV(S), the following
terms shall have the following meanings:
"Corporation" means this corporation.
"Acquired Fund" means the Corporation's Colorado Intermediate Tax Free
Fund, which is represented by the Corporation's Class N shares.
"Class A Acquired Fund Shares" means the Corporation's Class N Common
Shares.
"Class Y Acquired Fund Shares" means the Corporation's Class N Series
2 Common Shares.
"Acquiring Fund" means the Corporation's Colorado Tax Free Fund, which
is represented by the Corporation's Class KK shares.
"Class A Acquiring Fund Shares" means the Corporation's Class KK
Common Shares.
"Class Y Acquiring Fund Shares" means the Corporation's Class KK,
Series 3 Common Shares.
"Effective Time" means 4:00 p.m. Eastern time on the date upon which
these Articles of Amendment are filed with the Maryland State
Department of Assessments and Taxation.
(b) At the Effective Time, the assets belonging to the Acquired Fund,
the liabilities belonging to the Acquired Fund, and the General Assets and
General Liabilities allocated to the Acquired Fund, shall become, without
further action, assets belonging to the Acquiring Fund, liabilities
belonging to the Acquiring Fund, and General Assets and General Liabilities
allocated to the Acquiring Fund. For purposes of the foregoing, the terms
"assets belonging to," "liabilities belonging to," "General Assets" and
"General Liabilities" have the meanings assigned to them in Article IV,
Section 1(d)(i) and (ii) of the Corporation's Amended and Restated Articles
of Incorporation.
(c) At the Effective Time, each issued and outstanding Acquired Fund
share shall be, without further action, exchanged for those numbers and
classes of Acquiring Fund shares calculated in accordance with paragraph
(d) below.
(d) The numbers of Class A and Class Y Acquiring Fund Shares to be
issued in exchange for the Class A and Class Y Acquired Fund Shares shall
be determined as follows:
(i) The net asset value per share of the Acquired Fund's and the
Acquiring Fund's Class A Shares and Class Y Shares shall be computed
as of the Effective Time using the valuation procedures set forth in
the Corporation's articles of incorporation and bylaws and
then-current Prospectuses and Statement of Additional Information and
as may be required by the Investment Company Act of 1940, as amended
(the "1940 Act").
A-18
(ii) The total number of Class A Acquiring Fund Shares to be
issued (including fractional shares, if any) in exchange for the Class
A Acquired Fund Shares shall be determined as of the Effective Time by
multiplying the number of Class A Acquired Fund Shares outstanding
immediately prior to the Effective Time times a fraction, the
numerator of which is the net asset value per share of Class A
Acquired Fund Shares immediately prior to the Effective Time, and the
denominator of which is the net asset value per share of the Class A
Acquiring Fund Shares immediately prior to the Effective Time, each as
determined pursuant to (i) above.
(iii) The total number of Class Y Acquiring Fund Shares to be
issued (including fractional shares, if any) in exchange for the Class
Y Acquired Fund Shares shall be determined as of the Effective Time by
multiplying the number of Class Y Acquired Fund Shares outstanding
immediately prior to the Effective Time times a fraction, the
numerator of which is the net asset value per share of Class Y
Acquired Fund Shares immediately prior to the Effective Time, and the
denominator of which is the net asset value per share of the Class Y
Acquiring Fund Shares immediately prior to the Effective Time, each as
determined pursuant to (i) above.
(iv) At the Effective Time, the Acquired Fund shall issue and
distribute to the Acquired Fund shareholders of the respective classes
pro rata within such classes (based upon the ratio that the number of
Acquired Fund shares of the respective classes owned by each Acquired
Fund shareholder immediately prior to the Effective Time bears to the
total number of issued and outstanding Acquired Fund shares of the
respective classes immediately prior to the Effective Time) the full
and fractional Acquiring Fund shares of the respective classes issued
by the Acquiring Fund pursuant to (ii) and (iii) above. Accordingly,
each Class A Acquired Fund shareholder shall receive, at the Effective
Time, Class A Acquiring Fund Shares with an aggregate net asset value
equal to the aggregate net asset value of the Class A Acquired Fund
Shares owned by such Acquired Fund shareholder immediately prior to
the Effective Time; and each Class Y Acquired Fund shareholder shall
receive, at the Effective Time, Class Y Acquiring Fund Shares with an
aggregate net asset value equal to the aggregate net asset value of
the Class Y Acquired Fund Shares owned by such Acquired Fund
shareholder immediately prior to the Effective Time.
(e) The distribution of Acquiring Fund shares to Acquired Fund
shareholders provided for in paragraphs (c) and (d) above shall be
accomplished by the issuance of such Acquiring Fund shares to open accounts
on the share records of the Acquiring Fund in the names of the Acquired
Fund shareholders representing the numbers and classes of Acquiring Fund
shares due each such shareholder pursuant to the foregoing provisions. All
issued and outstanding shares of the Acquired Fund shall simultaneously be
cancelled on the books of the Acquired Fund and retired. From and after the
Effective Time, share certificates formerly representing Acquired Fund
shares shall represent the numbers and classes of Acquiring Fund shares
determined in accordance with the foregoing provisions.
(f) From and after the Effective Time, the Acquired Fund shares
cancelled and retired pursuant to paragraph (e) above shall have the status
of authorized and unissued Class N common shares of the Corporation,
without designation as to series.
The undersigned officer of the Corporation hereby acknowledges, in the name
and on behalf of the Corporation, the foregoing Articles of Amendment to be the
corporate act of the Corporation and further certifies that, to the best of his
or her knowledge, information and belief, the matters and facts set
A-19
forth therein with respect to the approval thereof are true in all material
respects, under the penalties of perjury.
IN WITNESS WHEREOF, the Corporation has caused these Articles of Amendment
to be signed in its name and on its behalf by its President or a Vice President
and witnessed by its Secretary or an Assistant Secretary on this ____ day of
December, 2008.
FIRST AMERICAN INVESTMENT FUNDS, INC.
By
------------------------------------
Its
------------------------------------
Witness:
- -------------------------------------
[Assistant] Secretary
A-20
PART B
FORM N-14
FIRST AMERICAN INVESTMENT FUNDS, INC.
800 Nicollet Mall
Minneapolis, MN 55402
(800) 677-3863
Statement of Additional Information
November __, 2008
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the Prospectus/Proxy
Statement dated November __, 2008, relating to the proposed reorganizations of
California Intermediate Tax Free Fund and Colorado Intermediate Tax Free Fund
(each an "Acquired Fund"), each a separate series of First American Investments
Funds, Inc. ("FAIF"), with and into California Tax Free Fund and Colorado Tax
Free Fund, respectively (each an "Acquiring Fund"), each of which is also a
separate series of FAIF. A copy of the Prospectus/Proxy Statement may be
obtained without charge by calling or writing to FAIF at the telephone number or
address set forth above. This Statement of Additional Information has been
incorporated by reference into the Prospectus/Proxy Statement.
Unless otherwise indicated, capitalized terms used herein and not otherwise
defined have the same meanings as are given to them in the Prospectus/Proxy
Statement.
Further information about the Acquired Funds and the Acquiring Funds is
contained in their Prospectuses, each dated October 29, 2007, and any
supplements, their Statement of Additional Information dated October 29, 2007,
as supplemented ("SAI"), and their Annual Report to Shareholders for the fiscal
year ended June 30, 2008 ("Annual Report").
This Statement of Additional Information incorporates by reference the SAI
and the Annual Report, each of which accompanies this Statement of Additional
Information.
TABLE OF CONTENTS
I. Unaudited Pro Forma Financial Statements .......................... [B-2]
I. UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Set forth on the following pages are unaudited pro forma financial
statements which are presented to show the effect of (a) the proposed
acquisition of California Intermediate Tax Free Fund by California Tax Free Fund
and (b) the proposed acquisition of Colorado Intermediate Tax Free Fund by
Colorado Tax Free Fund, in each case as if such acquisition had taken place as
of the close of business on June 30, 2008.
B-1
First American California Tax Free Fund
Unaudited Pro Forma Statements of ASSETS AND LIABILITIES
June 30, 2008, all dollars and shares are rounded to thousands (000), except per
share data
CALIFORNIA
INTERMEDIATE TAX CALIFORNIA TAX
FREE FUND, FREE FUND, PRO FORMA PRO FORMA
TARGET FUND ACQUIRING FUND ADJUSTMENTS COMBINED
----------------- -------------- ----------- ---------
Unaffiliated investments, at cost $56,686 $44,878 $ -- $101,564
ASSETS:
Unaffiliated investments, at value $56,745 $44,627 $ -- $101,372
Receivable for dividends and interest 693 602 -- 1,295
Receivable for capital shares sold 188 234 -- 422
Receivable from advisor -- 9 -- 9
Prepaid expenses and other assets 1 1 -- 2
------- ------- ----- --------
Total assets 57,627 45,473 -- 103,100
======= ======= ===== ========
LIABILITIES:
Bank overdraft 3 1 -- 4
Dividends payable 172 122 -- 294
Payable for investments purchased -- 259 -- 259
Payable for capital shares redeemed 10 -- -- 10
Payable to affiliates 29 21 -- 50
Payable for distribution and
shareholder servicing fees -- 3 -- 3
Accrued expenses and other liabilities 26 26 -- 52
Total liabilities 240 432 -- 672
------- ------- ----- --------
Net assets 57,387 45,041 -- 1,344
======= ======= ===== ========
COMPOSITION OF NET ASSETS:
Portfolio capital 57,016 45,292 -- 102,308
Undistributed net investment income 5 1 -- 6
Accumulated net realized gain (loss)
on investments 307 (1) -- 306
Net unrealized appreciation
(depreciation) of investments 59 (251) -- (192)
------- ------- ----- --------
Net assets $57,387 $45,041 $ -- $102,428
======= ======= ===== ========
Class A:
Net assets $ 4,463 $12,076 $ -- $ 16,539
Shares issued and outstanding (1) 447 1,128 (30) 1,545
Net asset value and redemption price
per share $ 9.99 $ 10.71 $ -- $ 10.71
Maximum offering price per share (2) $ 10.22 $ 11.19 $ -- $ 11.19
Class C:
Net assets $ N/A $ 2,480 $ -- $ 2,480
Shares issued and outstanding (1) N/A 231 -- 231
Net asset value, offering price, and
redemption price per share (3) $ N/A $ 10.72 $ -- $ 10.72
Class Y:
Net assets $52,924 $30,485 $ -- $ 83,409
Shares issued and outstanding (1) 5,284 2,847 (342) 7,789
Net asset value, offering price, and
redemption price per share $ 10.02 $ 10.71 $ -- $ 10.71
B-2
(1) $0.0001 par value - 2 billion authorized for each class
(2) The offering price is calculated by dividing the net asset value by 1 minus
the maximum sales charge
(3) Class C has a contingent deferred sales charge.
The accompanying notes are an integral part of the unaudited pro forma financial
statements.
B-3
First American California Tax Free Fund
Unaudited Pro Forma Statement of OPERATIONS
For the Year Ended June 30, 2008, all dollars are rounded to thousands (000)
CALIFORNIA
INTERMEDIATE TAX CALIFORNIA TAX
FREE FUND, FREE FUND, PRO FORMA PRO FORMA
TARGET FUND ACQUIRING FUND ADJUSTMENTS COMBINED
----------------- -------------- ----------- ---------
INVESTMENT INCOME:
Interest from unaffiliated securities $2,567 $ 1,913 $ -- $ 4,480
Dividends from unaffiliate money
market funds $ 29 $ 31 $ -- $ 60
------ ------- ----- -------
Total investment income 2,596 1,944 -- 4,540
EXPENSES:
Investment advisory fees 286 200 -- 486
Administration fees 134 96 (6)A 224
Transfer agent fees 60 83 (59)B 84
Custodian fees 3 2 -- 5
Legal fees 13 13 (11)C 15
Audit fees 33 33 (33)D 33
Registration fees 5 6 (5)E 6
Postage and printing fees 4 3 -- 7
Directors' fees 27 27 (23)F 31
Other expenses 16 16 (16)G 16
Distribution and shareholder servicing
fees - Class A 14 28 -- 42
Distribution and shareholder servicing
fees - Class C -- 10 -- 10
------ ------- ----- -------
Total expenses 595 517 (153) 959
Less: Fee waivers (194) (289) 44H (439)
Less: Indirect payments from custodian -- -- -- --
------ ------- ----- -------
Total net expenses 401 228 (109) 520
------ ------- ----- -------
Investment income - net $2,195 $ 1,716 $ 109 $ 4,020
REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS - NET:
Net realized gain (loss) on investments $ 328 $ (1) $ -- $ 327
Net change in unrealized appreciation
or depreciation of investments (702) (1,044) -- (1,746)
------ ------- ----- -------
Net gain (loss) on investments (374) (1,045) -- (1,419)
------ ------- ----- -------
Net increase in net assets resulting
from operations $1,821 $ 671 $ 109 $ 2,601
====== ======= ===== =======
A To reflect a reduction in administration fees due to the merger.
B To reflect a reduction in transfer agent fees due to the merger.
C To reflect a reduction in legal fees due to the merger.
D To reflect a reduction in audit fees due to the merger.
B-4
E To reflect a reduction in registration fees due to the merger.
F To reflect a reduction in Directors' compensation due to the merger.
G To reflect a reduction in other expenses due to the merger.
H To adjust the expense reimbursement to reflect the net reduction in fees
resulting from the merger per the agreement by FAF Advisors, Inc. and its
affiliates to waive fees and reimburse other fund expenses following the
merger.
The accompanying notes are an integral part of the unaudited pro forma financial
statements.
B-5
First American California Tax Free Fund
Unaudited Pro Forma Schedule of INVESTMENTS
June 30, 2008, all dollars are rounded to thousands (000)
California Intermediate Tax California Tax Free Fund,
Free Fund, Target Fund Acquiring Fund Pro Forma Combined
--------------------------- ------------------------- ---------------------
PAR/ PAR/ PAR/
DESCRIPTION SHARES VALUE SHARES VALUE SHARES VALUE
- ----------- ---------- ------- ---------- ------- ---------- --------
MUNICIPAL BONDS - 94.4%
REVENUE BONDS - 68.9%
CONTINUING CARE RETIREMENT COMMUNITIES - 2.0%
Association of Bay Area Governments Finance
Authority, Lincoln Glen Manor Senior
Citizens (CMI)
6.100%, 02/15/2025 $ -- $ -- $ 250 $ 253 $ 250 $ 253
California Health Facilities Financing
Authority, Paradise Valley Estates (CMI)
4.375%, 01/01/2012 540 551 -- -- 540 551
California Statewide Communities Development
Authority, Los Angeles Jewish Home (CMI)
5.000%, 11/15/2012 500 524 -- -- 500 524
Illinois Finance Authority, Franciscan
Communities, Series A
5.500%, 05/15/2027 -- -- 300 265 300 265
La Verne, Brethren Hillcrest Homes,
Series B (ACA)
5.600%, 02/15/2033 500 438 -- -- 500 438
---------- ------- ---------- ------- ---------- --------
1,540 1,513 550 518 2,090 2,031
---------- ------- ---------- ------- ---------- --------
ECONOMIC DEVELOPMENT - 1.0%
Port of Oakland, Series B (MBIA)
5.000%, 11/01/2018 1,000 1,040 -- -- 1,000 1,040
---------- ------- ---------- ------- ---------- --------
EDUCATION - 11.1%
Association of Bay Area Governments Financial
Authority, Schools of the Sacred Heart,
Series A, Escrowed to Maturity
5.900%, 06/01/2010 (a) -- -- 200 212 200 212
California Educational Facilities Authority,
Claremont Graduate University, Series A
5.000%, 03/01/2020 240 244 -- -- 240 244
California Educational Facilities Authority,
Golden Gate University
5.000%, 10/01/2020 505 482 -- -- 505 482
California Educational Facilities Authority,
Lutheran University, Series C
4.750%, 10/01/2015 675 670 -- -- 675 670
California Educational Facilities Authority,
Series B, Escrowed to Maturity
6.000%, 06/01/2010 (a) 85 90 -- -- 85 90
6.000%, 06/01/2010 (a) 410 435 -- -- 410 435
California Educational Facilities Authority,
Series B, Pre-refunded 06/01/2010 @ 101
B-6
First American California Tax Free Fund
Unaudited Pro Forma Schedule of INVESTMENTS
June 30, 2008, all dollars are rounded to thousands (000)
California Intermediate Tax California Tax Free Fund,
Free Fund, Target Fund Acquiring Fund Pro Forma Combined
--------------------------- ------------------------- ---------------------
PAR/ PAR/ PAR/
DESCRIPTION SHARES VALUE SHARES VALUE SHARES VALUE
- ----------- ---------- ------- ---------- ------- ---------- --------
6.625%, 06/01/2020 (b) -- -- 35 38 35 38
6.625%, 06/01/2020 (b) -- -- 180 194 180 194
California Educational Facilities Authority,
University of Redlands, Series A
5.000%, 10/01/2020 500 505 500 505 1,000 1,010
5.000%, 08/01/2028 500 479 500 478 1,000 957
California Educational Facilities Authority,
University of the Pacific
5.000%, 11/01/2015 300 317 -- -- 300 317
5.000%, 11/01/2030 -- -- 1,000 987 1,000 987
California Educational Facilities Authority,
Woodbury University
4.400%, 01/01/2015 450 434 -- -- 450 434
4.500%, 01/01/2016 -- -- 470 451 470 451
California Municipal Finance Authority, Biola
University
5.000%, 10/01/2018 800 786 200 196 1,000 982
5.625%, 10/01/2023 -- -- 500 503 500 503
California Municipal Finance Authority,
Education Revenue, American Heritage
Education Foundation Project, Series A
5.250%, 06/01/2026 -- -- 400 366 400 366
California Municipal Finance Authority,
Loma Linda University
4.250%, 04/01/2018 300 292 -- -- 300 292
4.375%, 04/01/2019 -- -- 300 293 300 293
California State Higher Educational
Facilities Authority, Fresno Pacific
University, Series A
6.750%, 03/01/2019 -- -- 380 392 380 392
California State Higher Educational
Facilities Authority, University of
Redlands, Series A, Escrowed to Maturity
5.550%, 06/01/2009 (a) 225 233 -- -- 225 233
California State Higher Educational
Facilities Authority, University of
Redlands, Series A,Pre-refunded 06/01/2010
@ 101
5.700%, 06/01/2011 (b) 250 266 -- -- 250 266
5.750%, 06/01/2012 (b) 260 277 -- -- 260 277
5.950%, 06/01/2015 (b) -- -- 310 332 310 332
California Statewide Communities Development
Authority, Viewpoint Schools (ACA)
4.125%, 10/01/2014 405 381 -- -- 405 381
California State University Foundation,
Monterey Bay, Pre-refunded 06/01/2011
@ 100 (MBIA)
5.300%, 06/01/2022 (b) -- -- 500 534 500 534
---------- ------- ---------- ------- ---------- --------
5,905 5,891 5,475 5,481 11,380 11,372
---------- ------- ---------- ------- ---------- --------
HEALTHCARE - 17.5%
B-7
First American California Tax Free Fund
Unaudited Pro Forma Schedule of INVESTMENTS
June 30, 2008, all dollars are rounded to thousands (000)
California Intermediate Tax California Tax Free Fund,
Free Fund, Target Fund Acquiring Fund Pro Forma Combined
--------------------------- ------------------------- ---------------------
PAR/ PAR/ PAR/
DESCRIPTION SHARES VALUE SHARES VALUE SHARES VALUE
- ----------- ---------- ------- ---------- ------- ---------- --------
Association of Bay Area Governments Financial
Authority, Children's Hospital, Series A
4.500%, 12/01/2019 425 402 -- -- 425 402
4.750%, 12/01/2022 -- -- 350 333 350 333
California Health Facilities Financing
Authority, Casa Colina
5.500%, 04/01/2013 300 308 50 51 350 359
California Health Facilities Financing
Authority, Catholic Healthcare West,
Series G 5.500%, 07/01/2025 1,000 1,016 -- -- 1,000 1,016
California Health Facilities Financing
Authority, Catholic Healthcare West,
Series I, Mandatory Put 07/01/2014 @ 100
4.950%, 07/01/2026 450 463 -- -- 450 463
California Health Facilities Financing
Authority, Marshall Medical Center,
Series A (CMI)
4.750%, 11/01/2019 1,200 1,204 560 562 1,760 1,766
California Health Facilities Financing
Authority, Sutter Health, Series A
5.000%, 08/15/2038 -- -- 250 238 250 238
California Health Facilities Financing
Authority, Valleycare Medical Center,
Series A, Pre-refunded 05/01/2012 @
100 (CMI)
4.625%, 05/01/2013 (b) 300 315 -- -- 300 315
California Statewide Communities Development
Authority, Adventist Health, Series A
5.000%, 03/01/2030 -- -- 300 286 300 286
California Statewide Communities Development
Authority, Catholic Healthcare West, Series C
5.625%, 07/01/2035 -- -- 1,000 1,002 1,000 1,002
California Statewide Communities Development
Authority, Daughters of Charity Healthcare,
Series A
5.250%, 07/01/2030 -- -- 100 93 100 93
California Statewide Communities Development
Authority, Daughters of Charity Health,
Series G
5.250%, 07/01/2013 500 511 -- -- 500 511
California Statewide Communities Development
Authority, Elder Care Alliance, Series A,
Escrowed to Maturity
7.250%, 11/15/2011 (a) 355 380 180 193 535 573
California Statewide Communities Development
Authority, Henry Mayo Newhall Memorial
Hospital (CMI)
5.000%, 10/01/2020 500 504 -- -- 500 504
5.000%, 10/01/2027 -- -- 400 394 400 394
B-8
First American California Tax Free Fund
Unaudited Pro Forma Schedule of INVESTMENTS
June 30, 2008, all dollars are rounded to thousands (000)
California Intermediate Tax California Tax Free Fund,
Free Fund, Target Fund Acquiring Fund Pro Forma Combined
--------------------------- ------------------------- ---------------------
PAR/ PAR/ PAR/
DESCRIPTION SHARES VALUE SHARES VALUE SHARES VALUE
- ----------- ---------- ------- ---------- ------- ---------- --------
California Statewide Communities Development
Authority, Henry Mayo Newhall Memorial,
Series B (AMBAC) (CMI)
5.200%, 10/01/2037 -- -- 500 489 500 489
California Statewide Communities Development
Authority, Jewish Home (CMI)
4.500%, 11/15/2019 -- -- 560 536 560 536
5.000%, 11/15/2037 -- -- 500 468 500 468
California Statewide Communities Development
Authority, Kaiser Permanente, Series C,
Mandatory Put 06/01/2012 @ 100
3.850%, 11/01/2029 1,000 995 -- -- 1,000 995
California Statewide Communities Development
Authority, Redlands Community Hospital,
Series A (RAAI)
5.000%, 04/01/2015 -- -- 500 507 500 507
California Statewide Communities Development
Authority, St. Joseph, Series B (FGIC)
5.500%, 07/01/2027 250 254 850 865 1,100 1,119
California Statewide Communities Development
Authority, St. Joseph, Series C (FGIC)
5.500%, 07/01/2027 500 509 -- -- 500 509
Loma Linda University Medical Center,
Hospital Revenue, Series A
5.000%, 12/01/2015 600 609 400 406 1,000 1,015
Marysville Hospital, Fremont Rideout Health
Project, Series A (AMBAC)
5.000%, 01/01/2010 500 514 -- -- 500 514
Puerto Rico Industrial, Tourist, Educational,
Medical & Environmental Control
Facilities, Hospital de la Concepcion,
Series A
5.500%, 11/15/2009 650 671 -- -- 650 671
Sierra View Health Care District
5.250%, 07/01/2024 500 488 500 488 1,000 976
5.300%, 07/01/2026 -- -- 1,000 973 1,000 973
Turlock California Health Facilities Revenue,
Emanuel Medical Center
5.000%, 10/15/2024 700 636 300 272 1,000 908
---------- ------- ---------- ------- ---------- --------
9,730 9,779 8,300 8,156 18,030 17,935
---------- ------- ---------- ------- ---------- --------
HOUSING - 2.7%
Aztec Shops, California State Auxiliary
Organization, San Diego State University
5.400%, 09/01/2011 1,035 1,064 -- -- 1,035 1,064
California State Department of Veterans
Affairs, Series C (AMT)
5.500%, 12/01/2019 -- -- 180 182 180 182
B-9
First American California Tax Free Fund
Unaudited Pro Forma Schedule of INVESTMENTS
June 30, 2008, all dollars are rounded to thousands (000)
California Intermediate Tax California Tax Free Fund,
Free Fund, Target Fund Acquiring Fund Pro Forma Combined
--------------------------- ------------------------- ---------------------
PAR/ PAR/ PAR/
DESCRIPTION SHARES VALUE SHARES VALUE SHARES VALUE
- ----------- ---------- ------- ---------- ------- ---------- --------
California Rural Home Mortgage Finance
Authority, Single Family Mortgage, Series
B (AMT) (FNMA) (GNMA)
5.650%, 06/01/2010 -- -- 5 5 5 5
California Rural Home Mortgage Finance
Authority, Single Family Mortgage, Series
D (AMT) (FNMA) (GNMA)
5.250%, 06/01/2010 5 5 -- -- 5 5
California Statewide Communities Development
Authority, Equity Residential, Series B,
Mandatory Put 06/15/2009 @ 100
5.200%, 12/01/2029 500 500 -- -- 500 500
Ventura County Area Housing Authority, Mira
Vista Senior Apartments, Series A (AMBAC)
(AMT)
5.150%, 12/01/2031 -- -- 1,000 961 1,000 961
---------- ------- ---------- ------- ---------- --------
1,540 1,569 1,185 1,148 2,725 2,717
---------- ------- ---------- ------- ---------- --------
LEASE REVENUE - 7.7%
Apple Valley Public Financing Authority,
Lease Revenue, Town Hall Annex Project,
Series A (AMBAC)
4.500%, 09/01/2017 535 538 -- -- 535 538
5.000%, 09/01/2027 -- -- 500 491 500 491
California State Public Works Board,
California Community Colleges, Series A
4.875%, 12/01/2018 200 203 -- -- 200 203
California State Public Works Board,
California Community Colleges, Series B
5.500%, 06/01/2019 -- -- 1,035 1,098 1,035 1,098
California State Public Works Board,
Department of Corrections &
Rehabilitation, Series F (FGIC)
5.000%, 11/01/2016 1,500 1,574 -- -- 1,500 1,574
California State Public Works Board,
Department of Health Services, Series A
(MBIA)
5.200%, 11/01/2012 500 515 -- -- 500 515
California State Public Works Board,
Department of Mental Health, Series A
5.500%, 06/01/2016 540 584 -- -- 540 584
Golden State Tobacco Securitization
Corporation, California Tobacco
Settlement, Convertible CABs, Series A
(FSA)
0.000% through 06/01/2010, thereafter
4.550%, 06/01/2022 (c) 150 125 1,750 1,466 1,900 1,591
Los Angeles Community Redevelopment Agency,
Lease Revenue, Manchester Social Services
Project (AMBAC)
5.000%, 09/01/2016 1,200 1,255 -- -- 1,200 1,255
---------- ------- ---------- ------- ---------- --------
4,625 4,794 3,285 3,055 7,910 7,849
---------- ------- ---------- ------- ---------- --------
MISCELLANEOUS -5.1%
California Infrastructure & Economic
Development, Salvation Army Western
(AMBAC)
B-10
First American California Tax Free Fund
Unaudited Pro Forma Schedule of INVESTMENTS
June 30, 2008, all dollars are rounded to thousands (000)
California Intermediate Tax California Tax Free Fund,
Free Fund, Target Fund Acquiring Fund Pro Forma Combined
--------------------------- ------------------------- ---------------------
PAR/ PAR/ PAR/
DESCRIPTION SHARES VALUE SHARES VALUE SHARES VALUE
- ----------- ---------- ------- ---------- ------- ---------- --------
4.000%, 09/01/2018 1,000 973 -- -- 1,000 973
California Infrastructure & Economic
Development Bank, Walt Disney Family
Museum
5.250%, 02/01/2033 -- -- 200 201 200 201
Golden West Schools Financing Authority,
Series A (MBIA)
5.700%, 02/01/2013 720 788 -- -- 720 788
5.750%, 02/01/2014 520 576 250 277 770 853
5.800%, 08/01/2022 -- -- 320 366 320 366
5.800%, 08/01/2023 -- -- 345 395 345 395
Golden West Schools Financing Authority,
Series A, Zero Coupon Bond (MBIA)
4.017%, 02/01/2012 (d) 535 464 -- -- 535 464
Sacramento City Financing Authority,
Pre-refunded 06/01/2010 @ 101
5.400%, 06/01/2018 (b) -- -- 455 483 455 483
5.500%, 06/01/2023 (b) -- -- 645 687 645 687
---------- ------- ---------- ------- ---------- --------
2,775 2,801 2,215 2,409 4,990 5,210
---------- ------- ---------- ------- ---------- --------
RECREATIONAL FACILITY AUTHORITY - 1.3%
California Infrastructure & Economic
Development, Performing Arts Center
4.000%, 12/01/2015 220 221 -- -- 220 221
California State University Fresno
Association, Auxiliary Organization Event
Center, Pre-refunded 07/01/2012 @ 101
6.000%, 07/01/2022 (b) 500 555 500 555 1,000 1,110
---------- ------- ---------- ------- ---------- --------
720 776 500 555 1,220 1,331
---------- ------- ---------- ------- ---------- --------
TAX REVENUE - 10.6%
Antioch Area Public Facilities Financing
Agency, Special Tax, Community Facilities
District #1989-1 (AMBAC)
4.000%, 08/01/2018 1,000 970 -- -- 1,000 970
Corona Redevelopment Agency, Tax Allocation,
Temescal Canyon Project Area, Series A
(AGTY)
4.125%, 11/01/2017 205 207 -- -- 205 207
Fortuna Public Financing Authority (AGTY)
5.000%, 11/01/2038 -- -- 500 501 500 501
Grass Valley Community Redevelopment Agency,
Tax Allocation
6.400%, 12/01/2034 -- -- 400 411 400 411
Long Beach Community Facilities District #5,
Towne Center Special Tax,
Pre-refunded 10/01/2008 @ 100
6.100%, 10/01/2012 (b) 165 167 250 252 415 419
Los Angeles
5.625%, 03/01/2019 -- -- 200 209 200 209
B-11
First American California Tax Free Fund
Unaudited Pro Forma Schedule of INVESTMENTS
June 30, 2008, all dollars are rounded to thousands (000)
California Intermediate Tax California Tax Free Fund,
Free Fund, Target Fund Acquiring Fund Pro Forma Combined
--------------------------- ------------------------- ---------------------
PAR/ PAR/ PAR/
DESCRIPTION SHARES VALUE SHARES VALUE SHARES VALUE
- ----------- ---------- ------- ---------- ------- ---------- --------
Los Angeles County Community Facilities
District #3, Special Tax, Series A (AMBAC)
5.250%, 09/01/2018 -- -- 715 738 715 738
Murrieta Community Facilities District #2,
The Oaks Area
5.750%, 09/01/2020 250 249 125 124 375 373
Norco, Special Tax, Community Facilities
District #97-1 (AGTY)
4.500%, 10/01/2016 260 270 -- -- 260 270
4.875%, 10/01/2030 -- -- 500 500 500 500
Palm Desert Financing Authority, Tax
Allocation Revenue, Project Area #4,
Series A (MBIA)
4.750%, 10/01/2013 500 522 -- -- 500 522
5.000%, 10/01/2029 -- -- 1,000 986 1,000 986
Poway Unified School District, Special Tax,
Community Facilities District #6-4
5.000%, 09/01/2023 400 384 250 240 650 624
Rancho Cucamonga Redevelopment Agency,
Series A (MBIA)
4.125%, 09/01/2018 310 301 -- -- 310 301
5.000%, 09/01/2034 -- -- 500 487 500 487
San Bernardino Redevelopment Agency, Tax
Allocation Revenue, San Sevaine
Redevelopment Project, Series A (RAAI)
5.000%, 09/01/2016 500 499 350 350 850 849
San Francisco City & County Redevelopment
Financing Authority, Tax Allocation
Revenue, Mission Bay North Redevelopment
Project, Series B (RAAI)
4.000%, 08/01/2012 295 291 -- -- 295 291
4.100%, 08/01/2014 325 316 -- -- 325 316
4.250%, 08/01/2016 250 239 -- -- 250 239
4.375%, 08/01/2018 -- -- 380 357 380 357
Sand City Redevelopment Agency Tax Allocation
Revenue, Series A (AGTY)
4.000%, 11/01/2019 315 313 -- -- 315 313
Soledad Redevelopment Agency, Tax Allocation
Revenue, Series A (XLCA)
4.500%, 12/01/2016 205 206 -- -- 205 206
South Tahoe Redevelopment Agency, Special
Tax, Community Facilities District #2001-1
4.400%, 10/01/2015 -- -- 120 116 120 116
4.500%, 10/01/2016 -- -- 125 116 125 116
4.600%, 10/01/2018 280 251 -- -- 280 251
Stockton Public Financing Revenue, Assessment
Districts, Senior Lien, Series A (RAAI)
4.375%, 09/02/2020 -- -- 365 335 365 335
---------- ------- ---------- -------
B-12
First American California Tax Free Fund
Unaudited Pro Forma Schedule of INVESTMENTS
June 30, 2008, all dollars are rounded to thousands (000)
California Intermediate Tax California Tax Free Fund,
Free Fund, Target Fund Acquiring Fund Pro Forma Combined
--------------------------- ------------------------- ---------------------
PAR/ PAR/ PAR/
DESCRIPTION SHARES VALUE SHARES VALUE SHARES VALUE
- ----------- ---------- ------- ---------- ------- ---------- --------
5,260 5,185 5,780 5,722 11,040 10,907
---------- ------- ---------- ------- ---------- ---------
TRANSPORTATION-- 1.1%
Alameda Corridor Transportation Authority,
Zero Coupon Bond (AMBAC)
4.570%, 10/01/2014 (d) 1,000 754 -- -- 1,000 754
Puerto Rico Commonwealth Highway &
Transportation Authority, Series X (MBIA)
5.500%, 07/01/2015 -- -- 100 105 100 105
San Francisco Airport Commission, SFO Fuel
Company (AMT) (FSA)
5.625%, 01/01/2012 -- -- 250 255 250 255
---------- ------- ---------- ------- ---------- ---------
1,000 754 350 360 1,350 1,114
---------- ------- ---------- ------- ---------- ---------
UTILITIES - 8.8%
Banning Water Utility Authority, Enterprise
Revenue, Referendum and Improvement
Projects (FGIC)
5.000%, 11/01/2020 1,025 1,034 -- -- 1,025 1,034
Banning Water Utility Authority, Enterprise
Revenue, Referendum and Improvement
Projects (FGIC)
5.000%, 11/01/2023 -- -- 1,040 1,034 1,040 1,034
California Municipal Financial Authority,
Solid Waste Disposal Revenue, Waste
Management Incorporated Project, Mandatory
Put 09/01/2009 @ 100 (AMT)
4.100%, 09/01/2014 750 748 -- -- 750 748
California Pollution Control Financing
Authority, Solid Waste Disposal Revenue,
Waste Management Incorporated Project,
Series A-2 (AMT)
5.400%, 04/01/2025 -- -- 500 461 500 461
California Pollution Control Financing
Authority, Solid Waste Disposal Revenue,
Waste Management Incorporated Project,
Series B (AMT)
5.000%, 07/01/2027 250 217 250 217 500 434
California Statewide Communities Development
Authority, Pollution Control Revenue,
Southern California Edison Company,
Series A, Mandatory Put 04/01/2013 @ 100
(XLCA)
4.100%, 04/01/2028 500 489 -- -- 500 489
California Statewide Communities Development
Authority, Water Revenue, Series B (FSA)
4.250%, 10/01/2017 285 289 -- -- 285 289
Chino Basin Regional Financing Authority,
Inland Empire Utility Agency Sewer
Project, Pre-refunded 11/01/2009 @ 101
(MBIA)
5.200%, 11/01/2011 (b) 405 425 -- -- 405 425
Compton Sewer Authority (IBC) (MBIA)
5.375%, 09/01/2023 -- -- 1,150 1,176 1,150 1,176
Imperial, Wastewater Treatment Facility
(FGIC)
5.000%, 10/15/2020 1,000 1,003 -- -- 1,000 1,003
B-13
First American California Tax Free Fund
Unaudited Pro Forma Schedule of INVESTMENTS
June 30, 2008, all dollars are rounded to thousands (000)
California Intermediate Tax California Tax Free Fund,
Free Fund, Target Fund Acquiring Fund Pro Forma Combined
--------------------------- ------------------------- ---------------------
PAR/ PAR/ PAR/
DESCRIPTION SHARES VALUE SHARES VALUE SHARES VALUE
- ----------- ---------- ------- ---------- ------- ---------- --------
Richmond Wastewater Systems, Pre-refunded
08/01/2009 @ 102 (FGIC)
5.200%, 08/01/2011 (b) 500 527 -- -- 500 527
Signal Hill, Water Revenue (MBIA)
4.375%, 11/01/2018 345 346 -- -- 345 346
South Bayside Waste Management Authority
(AMBAC)
5.750%, 03/01/2020 -- -- 150 155 150 155
Southern California Public Power Authority,
Natural Gas Project Revenue, Project #1,
Series A
5.250%, 11/01/2020 500 500 -- -- 500 500
Whittier Utility Authority (MBIA)
4.400%, 06/01/2017 305 311 -- -- 305 311
4.500%, 06/01/2018 65 66 -- -- 65 66
---------- ------- ---------- ------- ---------- ---------
5,930 5,955 3,090 3,043 9,020 8,998
---------- ------- ---------- ------- ---------- ---------
TOTAL REVENUE BONDS 40,025 40,057 30,730 30,447 70,755 70,504
---------- ------- ---------- ------- ---------- ---------
GENERAL OBLIGATIONS - 21.5%
Acalanes Unified High School District, Zero
Coupon Bond, Pre-refunded 08/01/2010
@ 70.92 (FGIC)
3.024%, 08/01/2016 (b) (d) -- -- 700 466 700 466
Alisal Union School District, Series C, Zero
Coupon Bond (FGIC)
2.619%, 08/01/2008 (d) 860 858 -- -- 860 858
Baldwin Park Unified School District Election
of 2002, Zero Coupon Bond (AMBAC)
5.354%, 08/01/2020 (d) 1,000 528 -- -- 1,000 528
Bassett Unified School District Election of
2006 (FSA)
5.000%, 08/01/2027 -- -- 500 516 500 516
Burlingame Elementary School District,
Series A
5.000%, 08/01/2032 -- -- 255 259 255 259
California State
5.000%, 02/01/2017 1,000 1,041 -- -- 1,000 1,041
5.000%, 02/01/2024 -- -- 700 710 700 710
5.125%, 04/01/2024 500 509 -- -- 500 509
4.500%, 08/01/2026 -- -- 500 475 500 475
California State, Pre-refunded 10/01/2010 @
100
5.250%, 10/01/2019 (b) -- -- 35 37 35 37
5.250%, 10/01/2019 (b) -- -- 105 111 105 111
5.250%, 10/01/2019 (b) -- -- 460 484 460 484
California State, Water Reservoir
Development, Series Q
4.750%, 03/01/2020 200 200 -- -- 200 200
Foothill-De Anza Community College District
6.000%, 08/01/2011 300 321 -- -- 300 321
Fresno Unified School District, Series A
(MBIA)
6.050%, 08/01/2011 500 539 -- -- 500 539
B-14
First American California Tax Free Fund
Unaudited Pro Forma Schedule of INVESTMENTS
June 30, 2008, all dollars are rounded to thousands (000)
California Intermediate Tax California Tax Free Fund,
Free Fund, Target Fund Acquiring Fund Pro Forma Combined
--------------------------- ------------------------- ---------------------
PAR/ PAR/ PAR/
DESCRIPTION SHARES VALUE SHARES VALUE SHARES VALUE
- ----------- ---------- ------- ---------- ------- ---------- --------
Grant Joint Union High School District,
Capital Appreciation, Election 2006, Zero
Coupon Bond (FSA)
5.272%, 08/01/2026 (d) 650 254 -- -- 650 254
Hemet Unified School District, 2006 Election,
Series B (AGTY)
5.000%, 08/01/2030 -- -- 600 611 600 611
Jefferson Union High School District, San
Mateo County, Series A (MBIA)
6.250%, 02/01/2014 300 322 -- -- 300 322
6.250%, 08/01/2020 -- -- 460 504 460 504
Los Angeles Unified School District, Election
2002, Series B (AMBAC)
4.500%, 07/01/2025 -- -- 1,925 1,850 1,925 1,850
Los Angeles Unified School District Election
of 2005, Series C (AMBAC)
5.000%, 07/01/2015 1,000 1,072 -- -- 1,000 1,072
Los Angeles Unified School District, Series
A-1 (FSA)
4.500%, 07/01/2024 -- -- 225 222 225 222
Lucia Mar Unified School District (FGIC)
5.250%, 08/01/2022 -- -- 150 160 150 160
Oakland, Series A (MBIA)
5.000%, 01/15/2026 185 187 250 253 435 440
Palm Springs Unified School District,
Election 2004, Series B (FSA)
4.750%, 08/01/2035 -- -- 2,060 2,014 2,060 2,014
Pomona Unified School District, Series A
(MBIA)
6.150%, 08/01/2015 500 551 -- -- 500 551
5.950%, 02/01/2017 -- -- 855 908 855 908
Puerto Rico Commonwealth, Government
Development, Series B
5.000%, 12/01/2014 -- -- 200 201 200 201
Puerto Rico Commonwealth, Series B (FSA)
6.500%, 07/01/2015 1,000 1,145 -- -- 1,000 1,145
Puerto Rico Commonwealth, Series C-7 (MBIA)
6.000%, 07/01/2027 -- -- 250 261 250 261
Redondo Beach Unified School District,
Election 2008, Series A
4.250%, 08/01/2021 545 534 -- -- 545 534
Roseville Joint Union High School District,
Election of 2004, Series B (FGIC)
5.000%, 08/01/2018 550 579 -- -- 550 579
Roseville Joint Union High School District,
Series E
5.200%, 08/01/2020 600 621 -- -- 600 621
Sacramento Unified School District, Series A,
Pre-refunded 07/01/2009 @ 102
B-15
First American California Tax Free Fund
Unaudited Pro Forma Schedule of INVESTMENTS
June 30, 2008, all dollars are rounded to thousands (000)
California Intermediate Tax California Tax Free Fund,
Free Fund, Target Fund Acquiring Fund Pro Forma Combined
--------------------------- ------------------------- ---------------------
PAR/ PAR/ PAR/
DESCRIPTION SHARES VALUE SHARES VALUE SHARES VALUE
- ----------- ---------- ------- ---------- ------- ---------- --------
5.750%, 07/01/2017 (b) -- -- 400 424 400 424
San Francisco City & County Unified School
District, 2003 Election, Series C (MBIA)
4.500%, 06/15/2026 -- -- 500 472 500 472
San Mateo Unified High School District,
Series B, Zero Coupon Bond (FGIC)
4.757%, 09/01/2017 (d) 1,000 650 -- -- 1,000 650
Upland Unified School District, Election
2008, Series A (FSA)
4.000%, 08/01/2020 150 146 -- -- 150 146
Walnut Valley Unified School District,
Series A, Pre-refunded 08/01/2010 @ 102
(FSA)
5.000%, 08/01/2012 (b) 255 272 -- -- 255 272
West Covina Unified School District, Series A
(MBIA)
5.350%, 02/01/2020 770 782 -- -- 770 782
---------- ------- ---------- ------- ---------- --------
TOTAL GENERAL OBLIGATIONS 11,865 11,111 11,130 10,938 22,995 22,049
---------- ------- ---------- ------- ---------- --------
CERTIFICATES OF PARTICIPATION - 4.0%
Escondido, Series A (FGIC)
5.625%, 09/01/2020 -- -- 140 146 140 146
Escondido, Series A, Pre-refunded 09/01/2010
@ 101 (FGIC)
5.625%, 09/01/2020 (b) -- -- 160 172 160 172
Grossmont Unified High School District,
Pre-refunded 09/01/2008 @ 102 (FSA)
5.400%, 09/01/2013 (b) 300 308 -- -- 300 308
Kern County Board of Education, Series A
(MBIA)
5.200%, 05/01/2012 325 334 -- -- 325 334
Los Angeles County Schools, Regionalized
Business Services Financing Project,
Series A
5.000%, 09/01/2008 200 201 -- -- 200 201
Los Angeles, Sonnenblick del Rio Senior Lien
(AMBAC)
6.000%, 11/01/2019 -- -- 330 350 330 350
Los Angeles, Sonnenblick Del Rio, West Los
Angeles (AMBAC)
5.375%, 11/01/2010 305 314 -- -- 305 314
Poway California (AMBAC)
4.500%, 08/01/2016 585 594 -- -- 585 594
Ramona Unified School District, Convertible
CABs (FGIC)
0.000% through 05/01/2012, thereafter
5.000%, 05/01/2032 (c) -- -- 500 405 500 405
Ridgecrest Civic Center Project, Pre-refunded
03/01/2009 @ 101
6.250%, 03/01/2021 (b) -- -- 250 260 250 260
B-16
First American California Tax Free Fund
Unaudited Pro Forma Schedule of INVESTMENTS
June 30, 2008, all dollars are rounded to thousands (000)
California Intermediate Tax California Tax Free Fund,
Free Fund, Target Fund Acquiring Fund Pro Forma Combined
--------------------------- ------------------------- ---------------------
PAR/ PAR/ PAR/
DESCRIPTION SHARES VALUE SHARES VALUE SHARES VALUE
- ----------- ---------- ------- ---------- ------- ---------- --------
Roseville Water Utility (MBIA)
4.750%, 12/01/2023 -- -- 750 752 750 752
Travis Unified School District (FGIC)
4.500%, 09/01/2016 300 301 -- -- 300 301
---------- ------- ---------- ------- ---------- --------
TOTAL CERTIFICATES OF PARTICIPATION 2,015 2,052 2,130 2,085 4,145 4,137
---------- ------- ---------- ------- ---------- --------
TOTAL MUNICIPAL BONDS
(COST $53,161 AND $43,721, RESPECTIVELY) 53,905 53,220 43,990 43,470 97,895 96,690
---------- ------- ---------- ------- ---------- --------
SHORT-TERM INVESTMENT - 4.6%
Blackrock Liquidity Funds
(COST $3,525 AND $1,157, RESPECTIVELY) 3,524,936 3,525 1,156,683 1,157 4,681,619 4,682
------- ------- --------
TOTAL INVESTMENTS - 99.0%
(COST $56,686 AND $44,878, RESPECTIVELY) 56,745 44,627 101,372
------- ------- --------
OTHER ASSETS AND LIABILITIES, NET - 1.0% 642 414 1,056
------- ------- --------
TOTAL NET ASSETS - 100.0% $57,387 $45,041 $102,428
======= ======= ========
Escrowed to Maturity issues are typically backed by U.S. government obligations.
If callable, these bonds may still be subject to call prior to maturity.
Pre-refunded issues are typically backed by U.S. government obligations, which
ensure the timely payment of principal and interest. These bonds mature at the
call date and price indicated.
Convertible Capital Appreciation Bonds (Convertible CABs) - These bonds
initially pay no interest but accrete in value from the date of issuance through
the conversion date, at which time the bonds start to accrue and pay interest on
a semiannual basis until final maturity.
Zero coupon bonds make no periodic interest payments, but are issued at deep
discounts from par value. The rate shown is the effective yield as of June 30,
2008.
AGTY - Assured Guaranty
AMBAC - American Municipal Bond Assurance Corporation
AMT - Alternative Minimum Tax. As of June 30, 2008, the aggregate market value
of securities subject to the AMT was $3,051, which represents 3.0% of total net
assets.
CMI - California Mortgage Insurance Program
FGIC - Financial Guaranty Insurance Corporation
FNMA - Federal National Mortgage Association
FSA - Financial Security Assurance
GNMA - Government National Mortgage Association
MBIA - Municipal Bond Insurance Association
RAAI - Radian Asset Assurance Inc.
The accompanying notes are an integral part of the unaudited pro forma financial
statements.
B-17
FIRST AMERICAN CALIFORNIA TAX FREE FUND
FIRST AMERICAN CALIFORNIA INTERMEDIATE TAX FREE FUND
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
JUNE 30, 2008 (000'S OMITTED)
1. Basis of Combination
The accompanying Unaudited Pro Forma Combined Financial Statements,
including the Statements of Assets and Liabilities, Statements of
Operations, and Schedule of Investments (collectively, "Unaudited Pro Forma
Financial Statements") reflect the accounts of California Tax Free Fund
(the "acquiring fund") and California Intermediate Tax Free Fund (the
"acquired fund"), each a series of First American Investment Funds, Inc.
The Statements of Assets and Liabilities and Schedule of Investments
reflect fund information as if the proposed reorganization occurred as of
June 30, 2008. The Statement of Operations reflects fund information as if
the proposed reorganization was in effect for the twelve month period ended
June 30, 2008. The Unaudited Pro Forma Financial Statements have been
derived from books and records utilized in calculating daily net asset
values of California Tax Free Fund and California Intermediate Tax Free
Fund at June 30, 2008.
The Plan of Reorganization provides that at the time the reorganization
becomes effective (the "Effective Time of the Reorganization")
substantially all of the assets and liabilities of the acquired fund will
become assets and liabilities of the acquiring fund. In exchange for the
transfer of assets and liabilities, the acquiring fund will issue to the
acquired fund full and fractional shares of the designated share classes of
the acquiring fund, and the acquired fund will make a liquidating
distribution of such shares to its shareholders. The number of shares of
the acquiring fund so issued will be in equal value to the full and
fractional shares of the acquired fund that are outstanding immediately
prior to the Effective Time of the Reorganization. At and after the
Effective Time of the Reorganization, all debts, liabilities and
obligations of the acquired fund will attach to the acquiring fund and may
thereafter be enforced against the acquiring fund to the same extent as if
the acquiring fund had incurred them. The Unaudited Pro Forma Financial
Statements give effect to the proposed transfer described above.
The Unaudited Pro Forma Financial Statements reflect the combined results
of operations of the acquired and acquiring funds. However, should such
reorganization be effected, the Statements of Operations of the acquiring
fund will not be restated for pre-combination period results of the
acquired fund. The Unaudited Pro Forma Financial Statements should be read
in conjunction with the historical financial statements of each Fund
incorporated by reference in the Statement of Additional Information.
2. Service Providers
FAF Advisors, Inc. (the "Advisor"), a subsidiary of U.S. Bank National
Association ("U.S. Bank"), will serve as the combined fund's investment
advisor and administrator. U.S. Bancorp Fund Services, LLC ("USBFS") will
serve as sub-administrator and transfer agent to the fund. U.S. Bank will
serve as the custodian to the fund.
3. Share Classes and Fees
The acquiring fund has Class A, Class C, and Class Y shares, which have
identical voting, dividend, liquidation, and other rights, and the same
terms and conditions, except that certain fees and expenses, including
distribution and shareholder servicing fees, may differ among classes. Each
class has
B-18
exclusive voting rights on any matters relating to that class' servicing or
distribution arrangements. Class A shares of California Intermediate Tax
Free Fund are sold with a maximum front-end sales charge of 2.25% and
Class A shares of California Tax Free Fund are sold with a maximum
front-end sales charge of 4.25%. Class C shares, offered only by California
Tax Free Fund, may be subject to a contingent deferred sales charge of
1.00% for 12 months. Class Y shares of both Funds have no sales charge and
are offered only to qualifying institutional investors and certain other
qualifying accounts. More information on the classes of shares offered can
be found in the Proxy Statement/Prospectus.
The investment advisory fees and distribution fees (less any fee waivers or
expense reimbursements in effect during the period) have been charged to
the combined Fund based on the fee schedule in effect for California Tax
Free Fund at the combined level of average net assets for the periods
ended June 30, 2008. The Advisor has contractually agreed to waive fees and
reimburse expenses during the current fiscal year so that total fund
operating expenses do not exceed 0.65%, 1.15% and 0.50%, respectively, for
Class A, Class C and Class Y shares. The Advisor has also contractually
agreed, in addition to other fee waivers and expense reimbursements, to
reimburse an amount of Class A share 12b-1 fees equal to 0.10% of average
daily net assets for California Tax Free Fund through October 31, 2009.
These fee waivers may be terminated at any time after October 31, 2009, at
the discretion of the Advisor.
4. Unaudited Pro Forma Adjustments and Unaudited Pro Forma Combined Columns
The Unaudited Pro Forma Combined Statements of Operations assume similar
rates of gross investment income for the investments of each Fund.
Accordingly, the combined gross investment income is equal to the sum of
each Fund's gross investment income. Unaudited Pro Forma operating expenses
include the actual expenses of the Funds adjusted to reflect the expected
expenses of the combined entity.
5. Portfolio Valuation, Securities Transactions and Related Income
Securities are valued at market value. Short-term investments maturing in
60 days or less are valued at amortized cost, which approximates market
value. For financial reporting purposes, security transactions are
accounted for on a trade date basis. Net realized gains or losses from
sales of securities are determined by comparing the net sale proceeds to an
identified cost basis. Interest income, including amortization of bond
premium and discount, and expenses are recorded on an accrual basis.
6. Capital Shares
The Unaudited Pro Forma net asset values per share assume the issuance of
Class A and Y shares of the California Tax Free Fund which would have been
issued at June 30, 2008 in connection with the proposed Reorganization.
Shareholders of the California Intermediate Tax Free Fund would receive
Class A and Class Y shares of the California Tax Free Fund based on
conversion ratios determined on June 30, 2008. The conversion ratios are
calculated by dividing the net asset value of the California Intermediate
Tax Free Fund by the net asset value per share of the respective class of
the California Tax Free Fund.
7. Merger Costs
All costs associated with the Reorganization will be paid by the Advisor.
B-19
First American Colorado Tax Free Fund
Unaudited Pro Forma Statements of ASSETS AND LIABILITIES
June 30, 2008, all dollars and shares are rounded to thousands (000), except per
share data
Colorado
Intermediate Tax Colorado Tax
Free Fund, Free Fund, Pro Forma Pro Forma
Target Fund Acquiring Fund Adjustments Combined
---------------- -------------- ----------- ---------
Unaffiliated investments, at cost $49,011 $23,232 $ -- $72,243
Affiliated money market fund, at cost 916 1,844 -- 2,760
ASSETS:
Unaffiliated investments, at value $49,530 $23,091 $ -- $72,621
Affiliated money market fund, at value 916 1,844 -- 2,760
Receivable for dividends and interest 345 175 -- 520
Receivable for capital shares sold 1 4 -- 5
Receivable from advisor -- 14 -- 14
Prepaid expenses and other assets 2 2 -- 4
------- ------- ---- -------
Total assets 50,794 25,130 -- 75,924
======= ======= ==== =======
LIABILITIES:
Bank overdraft 1 -- -- 1
Dividends payable 150 62 -- 212
Payable for investments purchased 259 259 -- 518
Payable for capital shares redeemed 201 200 -- 401
Payable to affiliates 24 17 -- 41
Payable for distribution and
shareholder servicing fees 1 3 -- 4
Accrued expenses and other liabilities 26 26 -- 52
------- ------- ---- -------
Total liabilities 662 567 -- 1,229
------- ------- ---- -------
Net assets 50,132 24,563 -- 74,695
======= ======= ==== =======
COMPOSITION OF NET ASSETS:
Portfolio capital 49,492 24,548 -- 74,040
Undistributed net investment income 5 15 -- 20
Accumulated net realized gain on
investments 116 141 -- 257
Net unrealized appreciation
(depreciation) of investments 519 (141) -- 378
------- ------- ---- -------
Net assets $50,132 $24,563 $ -- $74,695
======= ======= ==== =======
Class A:
Net assets $ 6,199 $ 5,815 $ -- $12,014
Shares issued and outstanding (1) 609 566 (6) 1,169
Net asset value and redemption price
per share $ 10.19 $ 10.28 $ -- $ 10.28
Maximum offering price per share (2) $ 10.42 $ 10.74 $ -- $ 10.74
Class C:
Net assets $ N/A $ 2,859 $ -- $ 2,859
Shares issued and outstanding (1) N/A 279 -- 279
Net asset value, offering price, and
redemption price per share (3) $ N/A $ 10.26 $ -- $ 10.26
Class Y:
Net assets $43,933 $15,889 $ -- $59,822
B-20
First American Colorado Tax Free Fund
Unaudited Pro Forma Statements of ASSETS AND LIABILITIES
June 30, 2008, all dollars and shares are rounded to thousands (000), except per
share data
Colorado
Intermediate Tax Colorado Tax
Free Fund, Free Fund, Pro Forma Pro Forma
Target Fund Acquiring Fund Adjustments Combined
---------------- -------------- ----------- ---------
Shares issued and outstanding (1) 4,324 1,543 (55) 5,812
Net asset value, offering price, and
redemption price per share $10.16 $10.29 $ -- $10.29
1 $0.0001 par value - 2 billion authorized for each class
2 The offering price is calculated by dividing the net asset value by 1 minus
the maximum sales charge
3 Class C has a contingent deferred sales charge.
The accompanying notes are an integral part of the unaudited pro forma financial
statements.
B-21
First American Colorado Tax Free Fund
Unaudited Pro Forma Statement of OPERATIONS
For the Year Ended June 30, 2008, all dollars are rounded to thousands (000)
Colorado
Intermediate Tax Colorado Tax
Free Fund, Free Fund, Pro Forma Pro Forma
Target Fund Acquiring Fund Adjustments Combined
---------------- -------------- ----------- ---------
INVESTMENT INCOME:
Interest from unaffiliated investments $2,200 $1,163 $ -- $ 3,363
Dividends from affiliated money market
fund 21 17 -- 38
------ ------ ----- -------
Total investment income 2,221 1,180 -- 3,401
EXPENSES:
Investment advisory fees 234 115 -- 349
Administration fees 110 57 (6)A 161
Transfer agent fees 60 83 (59)B 84
Custodian fees 3 2 -- 5
Legal fees 13 13 (11)C 15
Audit fees 33 33 (33)D 33
Registration fees 5 6 (5)E 6
Postage and printing fees 3 2 -- 5
Directors' fees 26 27 (23)F 30
Other expenses 16 16 (16)G 16
Distribution and shareholder servicing
fees -- Class A 15 17 -- 32
Distribution and shareholder servicing
fees -- Class C -- 18 -- 18
------ ------ ----- -------
Total expenses 518 389 (153) 754
Less: Fee waivers (182) (240) 66H (356)
Less: Indirect payments from custodian -- -- -- --
------ ------ ----- -------
Total net expenses 336 149 (87) 398
------ ------ ----- -------
Investment income - net $1,885 $1,031 $ 87 $ 3,003
REALIZED AND UNREALIZED
GAINS (LOSSES) ON INVESTMENTS-NET:
Net realized gain (loss) on
investments $ 116 $ 144 $ -- $ 260
Net change in unrealized appreciation
or depreciation of investments (552) (802) -- (1,354)
------ ------ ----- -------
Net gain (loss) on investments (436) (658) -- (1,094)
------ ------ ----- -------
Net increase in net assets resulting
from operations $1,449 $ 373 $ 87 $ 1,909
====== ====== ===== =======
A To reflect a reduction in administration fees due to the merger.
B To reflect a reduction in transfer agent fees due to the merger.
C To reflect a reduction in legal fees due to the merger.
D To reflect a reduction in audit fees due to the merger.
E To reflect a reduction in registration fees due to the merger.
B-22
F To reflect a reduction in Directors' compensation due to the merger.
G To reflect a reduction in other expenses due to the merger.
H To adjust the expense reimbursement to reflect the net reduction in fees
resulting from the merger per the agreement by FAF Advisors, Inc. and its
affiliates to waive fees and reimburse other fund expenses following the
merger.
The accompanying notes are an integral part of the unaudited pro forma financial
statements.
B-23
First American Colorado Tax Free Fund
Unaudited Pro Forma Schedule of
INVESTMENTS
June 30, 2008, all dollars are rounded to thousands (000)
Colorado Intermediate Tax Colorado Tax Free Fund,
Free Fund, Target Fund Acquiring Fund Pro Forma Combined
------------------------- ----------------------- ----------------------
PAR/ PAR/ PAR/
DESCRIPTION SHARES VALUE SHARES VALUE SHARES VALUE
- ----------- ---------- ------- ---------- ------- ---------- --------
MUNICIPAL BONDS - 97.2%
REVENUE BONDS - 76.4%
CONTINUING CARE RETIREMENT COMMUNITIES - 2.2%
Colorado State Health Facilities Authority,
Christian Living Communities Project,
Series A
5.250%, 01/01/2014 $ 250 $ 241 $ -- $ -- $ 250 $ 241
5.750%, 01/01/2026 -- -- 100 91 100 91
Colorado State Health Facilities Authority,
Covenant Retirement Communities
5.000%, 12/01/2016 500 494 -- -- 500 494
5.250%, 12/01/2025 -- -- 200 185 200 185
Colorado State Health Facilities Authority,
Covenant Retirement Communities, Series B
6.125%, 12/01/2033 -- -- 350 347 350 347
Illinois Finance Authority, Franciscan
Communities, Series A
5.500%, 05/15/2037 -- -- 225 189 225 189
Illinois Finance Authority, Three Crowns Park
Plaza, Series A
5.875%, 02/15/2026 -- -- 100 91 100 91
---------- ------- ---------- ------- ---------- --------
750 735 975 903 1,725 1,638
---------- ------- ---------- ------- ---------- --------
EDUCATION - 12.1%
Anderson, Indiana, Economic Development
Revenue, Anderson University Project
5.000%, 10/01/2032 -- -- 350 299 350 299
Colorado Educational & Cultural Facilities
Authority, Academy Charter School Project,
Series A (SMO)
4.625%, 12/15/2028 -- -- 330 309 330 309
Colorado Educational & Cultural Facilities
Authority, Ave Maria School Project (RAAI)
4.750%, 12/01/2014 220 221 -- -- 220 221
4.750%, 12/01/2015 230 229 -- -- 230 229
4.850%, 12/01/2025 -- -- 250 236 250 236
Colorado Educational & Cultural Facilities
Authority, Ave Maria School Project,
Pre-refunded 12/01/2010 @ 100 (RAAI)
6.000%, 12/01/2016 (a) -- -- 200 215 200 215
Colorado Educational & Cultural Facilities
Authority, Charter School, James Irwin
Foundation (CIFG) (STAID)
5.000%, 08/01/2027 -- -- 250 245 250 245
Colorado Educational & Cultural Facilities
Authority, Cheyenne Mountain Charter
School, Series A (SMO)
5.000%, 06/15/2018 240 244 -- -- 240 244
5.000%, 06/15/2019 255 258 -- -- 255 258
5.000%, 06/15/2020 265 266 -- -- 265 266
5.250%, 06/15/2029 -- -- 500 500 500 500
Colorado Educational & Cultural Facilities
Authority, Northwest Nazarene
4.500%, 11/01/2015 450 435 240 232 690 667
B-24
First American Colorado Tax Free Fund
Unaudited Pro Forma Schedule of
INVESTMENTS
June 30, 2008, all dollars are rounded to thousands (000)
Colorado Intermediate Tax Colorado Tax Free Fund,
Free Fund, Target Fund Acquiring Fund Pro Forma Combined
------------------------- ----------------------- ----------------------
PAR/ PAR/ PAR/
DESCRIPTION SHARES VALUE SHARES VALUE SHARES VALUE
- ----------- ---------- ------- ---------- ------- ---------- --------
Colorado Educational & Cultural Facilities
Authority, Northwest Nazarene,
Pre-refunded 11/01/2010 @ 102
4.500%, 11/01/2015 (a) 100 105 60 63 160 168
Colorado State Board of Governors University
Enterprise System Revenue, Series B (FGIC)
4.250%, 03/01/2017 500 495 -- -- 500 495
Colorado State Educational & Cultural
Facilities Authority, Bromley East Charter
School Project, Escrowed to Maturity
6.250%, 09/15/2011 (b) 230 241 -- -- 230 241
Colorado State Educational & Cultural
Facilities Authority, Classical Academy
Charter School Project, Escrowed to
Maturity
6.375%, 12/01/2011 (b) 495 524 350 371 845 895
Colorado State Educational & Cultural
Facilities Authority, Core Knowledge
Charter School, Pre-refunded 11/01/2009
@ 100
6.850%, 11/01/2016 (a) 440 466 -- -- 440 466
Colorado State Educational & Cultural
Facilities Authority, Front Range
Christian School Project (LOC: Evangelical
Christian, Wescorp Credit Union)
4.500%, 04/01/2018 225 224 -- -- 225 224
4.500%, 04/01/2019 240 237 -- -- 240 237
5.000%, 04/01/2037 -- -- 750 712 750 712
Fort Lewis College Board, Trustees Enterprise
Revenue, Series A (FGIC)
4.375%, 10/01/2020 -- -- 100 96 100 96
Fort Lewis College Board, Trustees Enterprise
Revenue, Series B-1 (FGIC)
4.250%, 10/01/2019 625 603 -- -- 625 603
4.375%, 10/01/2020 725 699 -- -- 725 699
University of Colorado Enterprise System
Revenue, University of Colorado Regents
(MBIA)
5.000%, 06/01/2032 -- -- 500 504 500 504
---------- ------- ---------- ------- ---------- --------
5,240 5,247 3,880 3,782 9,120 9,029
---------- ------- ---------- ------- ---------- --------
HEALTHCARE - 23.2%
Aspen Valley Hospital
4.375%, 10/15/2014 560 549 -- -- 560 549
Boulder County Longmont United Hospital
Project (RAAI)
5.300%, 12/01/2010 -- -- 330 340 330 340
Colorado Health Facilities Revenue, Valley
View Hospital Association
5.500%, 05/15/2028 -- -- 400 391 400 391
Colorado Health Facilities, Class B
5.250%, 03/01/2036 -- -- 1,000 1,010 1,000 1,010
Colorado Health Facilities, Parkview Medical
Center Project, Series B
5.000%, 09/01/2029 -- -- 355 334 355 334
Colorado Springs Hospital Revenue, Series B
(AMBAC)
6.500%, 12/15/2024 (c) 700 700 350 350 1,050 1,050
Colorado State Health Facilities Authority,
Adventist Health, Sunbelt, Series E
5.000%, 11/15/2012 500 517 -- -- 500 517
Colorado State Health Facilities Authority,
Boulder Hospital (MBIA)
5.000%, 10/01/2010 500 520 -- -- 500 520
B-25
First American Colorado Tax Free Fund
Unaudited Pro Forma Schedule of
INVESTMENTS
June 30, 2008, all dollars are rounded to thousands (000)
Colorado Intermediate Tax Colorado Tax Free Fund,
Free Fund, Target Fund Acquiring Fund Pro Forma Combined
------------------------- ----------------------- ----------------------
PAR/ PAR/ PAR/
DESCRIPTION SHARES VALUE SHARES VALUE SHARES VALUE
- ----------- ---------- ------- ---------- ------- ---------- --------
Colorado State Health Facilities Authority,
Evangelical Lutheran, Series A
5.250%, 06/01/2034 -- -- 230 215 230 215
Colorado State Health Facilities Authority,
Evangelical Lutheran, Unrefunded
6.900%, 12/01/2025 135 143 60 63 195 206
Colorado State Health Facilities Authority,
Evangelical Lutheran, Pre-refunded
12/01/2010 @ 102
6.900%, 12/01/2025 (a) 215 239 90 100 305 339
Colorado State Health Facilities Authority,
Evangelical Lutheran Project
5.000%, 06/01/2016 250 253 100 101 350 354
Colorado State Health Facilities Authority,
Health & Residential Care Facilities,
Volunteers of America, Series A
5.000%, 07/01/2015 500 478 -- -- 500 478
5.250%, 07/01/2027 -- -- 300 260 300 260
Colorado State Health Facilities Authority,
Longmont United Hospital, Series B (RAAI)
5.250%, 12/01/2013 860 885 -- -- 860 885
4.625%, 12/01/2024 -- -- 325 298 325 298
Colorado State Health Facilities Authority,
National Jewish Medical & Research Center
Project
5.375%, 01/01/2016 700 701 300 301 1,000 1,002
Colorado State Health Facilities Authority,
Parkview Medical Center
5.750%, 09/01/2008 250 251 -- -- 250 251
Colorado State Health Facilities Authority,
Parkview Medical Center, Escrowed to
Maturity
5.500%, 09/01/2009 (b) 500 519 -- -- 500 519
5.600%, 09/01/2011 (b) -- -- 300 322 300 322
Colorado State Health Facilities Authority,
Parkview Medical Center Project, Series B
5.000%, 09/01/2018 500 499 -- -- 500 499
Colorado State Health Facilities Authority,
Portercare Adventist Project, Pre-refunded
11/15/2011 @ 101
6.500%, 11/15/2023 (a) -- -- 600 668 600 668
Colorado State Health Facilities Authority,
Poudre Valley Health Care, Series F
5.000%, 03/01/2025 -- -- 350 329 350 329
Colorado State Health Facilities Authority,
The Devereux Foundation (RAAI)
4.200%, 11/01/2013 80 78 -- -- 80 78
Colorado State Health Facilities Authority,
Vail Valley Medical Center Project
5.000%, 01/15/2013 300 306 -- -- 300 306
5.000%, 01/15/2020 -- -- 250 244 250 244
5.750%, 01/15/2022 800 810 -- -- 800 810
5.800%, 01/15/2027 -- -- 500 505 500 505
Colorado State Health Facilities Authority,
Valley View Hospital Association Project,
Series A (RAAI)
5.000%, 05/15/2012 165 168 -- -- 165 168
B-26
First American Colorado Tax Free Fund
Unaudited Pro Forma Schedule of
INVESTMENTS
June 30, 2008, all dollars are rounded to thousands (000)
Colorado Intermediate Tax Colorado Tax Free Fund,
Free Fund, Target Fund Acquiring Fund Pro Forma Combined
--------------------------- ------------------------- ---------------------
PAR/ PAR/ PAR/
DESCRIPTION SHARES VALUE SHARES VALUE SHARES VALUE
- ----------- ---------- ------- ---------- ------- ---------- --------
5.000%, 05/15/2013 500 508 -- -- 500 508
Colorado State Health Facilities Authority,
Yampa Valley Medical Center Project
5.000%, 09/15/2013 410 411 -- -- 410 411
Delta County Memorial Hospital District
5.350%, 09/01/2017 500 500 220 220 720 720
Denver Health & Hospital Authority,
Healthcare Revenue, Series A
4.750%, 12/01/2027 -- -- 250 219 250 219
Halifax Medical Center, Hospital Revenue,
Series A
5.000%, 06/01/2038 -- -- 325 281 325 281
Iowa Finance Authority, Health Facilities
Revenue, Care Initiatives Project,
Series A
5.000%, 07/01/2020 -- -- 100 88 100 88
La Junta County Hospital, Arkansas Valley
Regional Medical Center Project
5.500%, 04/01/2009 355 360 -- -- 355 360
6.100%, 04/01/2024 -- -- 100 101 100 101
Montrose Memorial Hospital
5.300%, 12/01/2013 260 264 -- -- 260 264
5.450%, 12/01/2014 390 398 -- -- 390 398
6.375%, 12/01/2023 -- -- 130 135 130 135
New Hampshire Health & Educational Facilities
Authority, The Memorial Hospital
5.250%, 06/01/2036 -- -- 100 88 100 88
University of Colorado Hospital Authority,
Pre-refunded 11/15/2011 @ 100
5.000%, 11/15/2014 (a) 300 316 -- -- 300 316
---------- ------- ---------- ------- ---------- --------
10,230 10,373 7,065 6,963 17,295 17,336
---------- ------- ---------- ------- ---------- --------
HOUSING - 2.9%
Colorado State Housing & Finance Authority,
Multifamily Project, Class I, Series B-4
5.900%, 04/01/2031 -- -- 100 102 100 102
Colorado State Housing & Finance Authority,
Series E-2 (AMT)
7.000%, 02/01/2030 -- -- 40 42 40 42
Colorado State Housing & Finance Authority,
Single Family Housing Program, Series
B-2 (AMT)
7.100%, 04/01/2017 -- -- 20 21 20 21
Denver City & County Housing Authority,
Capital Funding Program, Three Towers
Rehabilitation Project (AMT) (FSA)
4.000%, 05/01/2012 270 268 -- -- 270 268
4.000%, 11/01/2012 270 268 -- -- 270 268
4.550%, 11/01/2017 1,000 977 -- -- 1,000 977
5.200%, 11/01/2027 250 245 250 245 500 490
---------- ------- ---------- ------- ---------- --------
1,790 1,758 410 410 2,200 2,168
---------- ------- ---------- ------- ---------- --------
LEASE REVENUE - 0.7%
Puerto Rico Public Buildings Authority,
Government Facilities, Series M-2,
Mandatory Put 07/01/2017 @ 100 (AMBAC)
(COMGTY)
5.500%, 07/01/2035 500 511 -- -- 500 511
---------- ------- ---------- ------- ---------- --------
B-27
First American Colorado Tax Free Fund
Unaudited Pro Forma Schedule of INVESTMENTS
June 30, 2008, all dollars are rounded to thousands (000)
Colorado Intermediate Tax Colorado Tax Free Fund,
Free Fund, Target Fund Acquiring Fund Pro Forma Combined
------------------------- ------------------------- ---------------------
PAR/ PAR/ PAR/
DESCRIPTION SHARES VALUE SHARES VALUE SHARES VALUE
- ----------- ---------- ------- ---------- ------- ---------- --------
MISCELLANEOUS - 5.1%
Colorado Educational & Cultural Facilities
Authority, Colorado Public Radio
4.800%, 07/01/2009 250 253 -- -- 250 253
4.900%, 07/01/2010 265 270 -- -- 265 270
Colorado Educational & Cultural Facilities
Authority, National Conference of State
Legislatures
5.250%, 06/01/2013 700 725 -- -- 700 725
5.250%, 06/01/2021 -- -- 750 757 750 757
Denver City & County, Helen G. Bonfils
Foundation Project, Series B
5.125%, 12/01/2017 900 901 100 100 1,000 1,001
High Plains Metropolitan District, Series B
(LOC: Compass Bank)
4.375%, 12/01/2015 785 794 -- -- 785 794
---------- ------- ---------- ------- ---------- --------
2,900 2,943 850 857 3,750 3,800
---------- ------- ---------- ------- ---------- --------
RECREATIONAL FACILITY AUTHORITY - 0.6%
Hyland Hills Metropolitan Park & Recreation
District, Series A
6.100%, 12/15/2009 210 212 -- -- 210 212
Hyland Hills Metropolitan Park & Recreation
District, Special Revenue (ACA)
5.000%, 12/15/2015 300 293 -- -- 300 293
---------- ------- ---------- ------- ---------- --------
510 505 -- -- 510 505
---------- ------- ---------- ------- ---------- --------
REVOLVING FUND - 0.1%
Colorado Water Resource & Power Development
Authority, Small Water Resources, Series A
(FGIC)
5.700%, 11/01/2015 55 56 -- -- 55 56
---------- ------- ---------- ------- ---------- --------
TAX REVENUE - 3.7%
Douglas County Sales & Use Tax Revenue (FSA)
5.625%, 10/15/2020 -- -- 200 210 200 210
Highlands Ranch Metropolitan School District
#2 (FSA)
5.000%, 06/15/2016 -- -- 20 20 20 20
Larimer County Sales & Use Tax (AMBAC)
5.000%, 12/15/2010 300 315 -- -- 300 315
Larimer County Sales & Use Tax, Pre-refunded
12/15/2010 @ 100 (AMBAC)
5.625%, 12/15/2018 (a) -- -- 100 107 100 107
Longmont Sales & Use Tax, Pre-refunded
11/15/2010 @ 100
5.500%, 11/15/2015 (a) 500 531 -- -- 500 531
Park Meadows Business Improvement District,
Shared Sales Tax
5.000%, 12/01/2017 250 243 -- -- 250 243
5.300%, 12/01/2027 -- -- 475 445 475 445
Superior Open Space Sales & Use Tax
4.500%, 06/01/2013 100 99 -- -- 100 99
4.600%, 06/01/2014 225 223 -- -- 225 223
5.000%, 06/01/2026 -- -- 330 312 330 312
Westminster Special Purpose Sales & Use Tax,
Post Project, Series D (FSA)
4.250%, 12/01/2018 250 253 -- -- 250 253
---------- ------- ---------- ------- ---------- --------
1,625 1,664 1,125 1,094 2,750 2,758
---------- ------- ---------- ------- ---------- --------
TRANSPORTATION - 13.4%
Colorado Department of Transportation (AMBAC)
6.000%, 06/15/2010 1,000 1,060 -- -- 1,000 1,060
B-28
First American Colorado Tax Free Fund
Unaudited Pro Forma Schedule of INVESTMENTS
June 30, 2008, all dollars are rounded to thousands (000)
colorado Intermediate Tax colorado Tax Free Fund,
Free Fund, Target Fund Acquiring Fund Pro Forma Combined
--------------------------- ------------------------- ---------------------
PAR/ PAR/ PAR/
DESCRIPTION SHARES VALUE SHARES VALUE SHARES VALUE
- ----------- ---------- ------- ---------- ------- ---------- --------
E-470 Public Highway Authority, Series B,
Zero Coupon Bond (MBIA)
5.147%, 09/01/2017 (d) 1,575 988 -- -- 1,575 988
5.337%, 09/01/2019 (d) 960 533 -- -- 960 533
5.640%, 09/01/2022 (d) 1,000 455 -- -- 1,000 455
E-470 Public Highway Authority, Series C,
Convertible CABs (MBIA) 0.000% through
09/01/2011, thereafter 5.000%, 09/01/2017
(e) 500 427 -- -- 500 427
E-470 Public Highway Authority, Series D1
(MBIA)
5.500%, 09/01/2024 -- -- 300 305 300 305
Eagle County Air Terminal Revenue, Airport
Terminal Improvement Project, Series B
(AMT)
5.250%, 05/01/2020 130 116 75 67 205 183
Northwest Parkway Public Highway Authority,
Convertible CABs, Escrowed to Maturity
(FSA) 0.000% through 06/15/2011,
thereafter 5.200%, 06/15/2014 (b) (e) 750 695 750 695 1,500 1,390
Northwest Parkway Public Highway Authority,
Convertible CABs, Escrowed to Maturity
(AMBAC) 0.000% through 06/15/2011,
thereafter 5.250%, 06/15/2015 (b) (e) 2,000 1,863 500 466 2,500 2,329
Northwest Parkway Public Highway Authority,
Convertible CABs, Escrowed to Maturity
(FSA) 0.000% through 06/15/2011,
thereafter 5.350%, 06/15/2016 (b) (e) 1,000 936 -- -- 1,000 936
Northwest Parkway Public Highway Authority,
Convertible CABs, Pre-refunded 06/15/2016
@ 100 (AMBAC) 0.000% through 06/15/2011,
thereafter 5.700%, 06/15/2021 (a) (d) -- -- 1,000 950 1,000 950
Walker Field Public Airport Authority Revenue
4.500%, 12/01/2016 275 260 -- -- 275 260
4.750%, 12/01/2027 -- -- 250 216 250 216
---------- ------- ---------- ------- ---------- --------
9,190 7,333 2,875 2,699 12,065 10,032
---------- ------- ---------- ------- ---------- --------
UTILITIES - 12.4%
Arapahoe County Water & Wastewater Authority,
Escrowed to Maturity
5.750%, 12/01/2008 (b) 160 163 -- -- 160 163
Arapahoe County Water & Wastewater Authority,
Pre-refunded 12/01/2009 @ 100
6.000%, 12/01/2011 (a) 185 194 -- -- 185 194
Arkansas River Power Authority
6.000%, 10/01/2040 -- -- 225 221 225 221
Aurora Water System Revenue, First Lien,
Series A
4.750%, 08/01/2026 1,500 1,511 -- -- 1,500 1,511
4.750%, 08/01/2027 225 226 -- -- 225 226
Boulder Water & Sewer, Escrowed to Maturity
5.750%, 12/01/2010 (b) 1,545 1,651 -- -- 1,545 1,651
Boulder Water & Sewer, Pre-refunded
12/01/2010 @ 100
5.700%, 12/01/2019 (a) -- -- 300 320 300 320
Broomfield Water Activity Enterprise (MBIA)
5.500%, 12/01/2017 500 527 -- -- 500 527
B-29
First American Colorado Tax Free Fund
Unaudited Pro Forma Schedule of
INVESTMENTS
June 30, 2008, all dollars are rounded to thousands (000)
Colorado Intermediate Tax Colorado Tax Free Fund,
Free Fund, Target Fund Acquiring Fund Pro Forma Combined
--------------------------- ------------------------- ---------------------
PAR/ PAR/ PAR/
DESCRIPTION SHARES VALUE SHARES VALUE SHARES VALUE
- ----------- ---------- ------- ---------- ------- ---------- --------
5.500%, 12/01/2019 -- -- 400 420 400 420
Colorado Housing & Finance Authority, Waste
Disposal Management Income Project (AMT)
5.700%, 07/01/2018 -- -- 250 244 250 244
Colorado Water Resource & Power Development
Authority, Small Water Resources,
Series A, Pre-refunded 11/01/2010
@ 100 (FGIC)
5.700%, 11/01/2015 (a) 45 48 -- -- 45 48
Denver City & County Wastewater (FGIC)
5.250%, 11/01/2017 1,260 1,316 -- -- 1,260 1,316
Fort Collins Wastewater Utility Enterprise
(FSA)
5.500%, 12/01/2020 -- -- 300 314 300 314
Inverness Water & Sanitation District,
Arapahoe & Douglas Counties, Series A
(RAAI)
4.250%, 12/01/2016 600 569 -- -- 600 569
Public Authority for Colorado Energy
Natural Gas Revenue
6.250%, 11/15/2028 350 337 150 144 500 481
Puerto Rico Commonwealth, Aqueduct & Sewer
Authority, Series A (AGTY)
5.000%, 07/01/2016 500 528 -- -- 500 528
Puerto Rico Electric Power Authority, Series
WW
5.250%, 07/01/2025 -- -- 500 504 500 504
---------- ------- ---------- ------- ---------- --------
6,870 7,070 2,125 2,167 8,995 9,237
---------- ------- ---------- ------- ---------- --------
TOTAL REVENUE BONDS 39,660 38,195 19,305 18,875 58,965 57,070
---------- ------- ---------- ------- ---------- --------
GENERAL OBLIGATIONS - 16.3%
Antelope Water System
4.875%, 12/01/2025 -- -- 175 167 175 167
Arapahoe County School District #5, Cherry
Creek, Pre-refunded 12/15/2009 @ 100 (STAID)
5.500%, 12/15/2011 (a) 1,000 1,046 -- -- 1,000 1,046
Bromley Park Metropolitan District #2,
Series A (RAAI)
5.000%, 12/01/2027 -- -- 500 477 500 477
Cordillera Metropolitan School District,
Eagle County (RAAI)
5.000%, 12/01/2013 620 630 -- -- 620 630
Denver City & County, Medical Facilities
4.000%, 08/01/2016 500 505 -- -- 500 505
Denver West Metropolitan School District
4.125%, 12/01/2014 150 141 -- -- 150 141
4.200%, 12/01/2015 480 449 -- -- 480 449
Douglas County School District #RE-1,
Douglas & Elbert Counties, Series B, Zero
Coupon Bond (FSA) (STAID)
3.947%, 12/15/2015 (d) 335 250 -- -- 335 250
Fiddlers Business Improvement District,
Greenwood Village, Series 1 (ACA)
4.250%, 12/01/2015 460 434 -- -- 460 434
4.500%, 12/01/2027 -- -- 375 307 375 307
Garfield County School District #RE-2 (FSA)
(STAID)
5.250%, 12/01/2019 1,530 1,608 -- -- 1,530 1,608
Jefferson County School District #R-001
(MBIA) (STAID)
6.250%, 12/15/2009 1,000 1,055 -- -- 1,000 1,055
McCook, Illinois
B-30
First American Colorado Tax Free Fund
Unaudited Pro Forma Schedule of
INVESTMENTS
June 30, 2008, all dollars are rounded to thousands (000)
Colorado Intermediate Tax Colorado Tax Free Fund,
Free Fund, Target Fund Acquiring Fund Pro Forma Combined
--------------------------- ------------------------- ---------------------
PAR/ PAR/ PAR/
DESCRIPTION SHARES VALUE SHARES VALUE SHARES VALUE
- ----------- ---------- ------- ---------- ------- ---------- --------
5.000%, 12/01/2026 -- -- 350 342 350 342
Midcities Metropolitan School District #2
(RAAI)
5.125%, 12/01/2030 -- -- 200 193 200 193
North Range Metropolitan District #1 (ACA)
4.250%, 12/15/2018 560 480 -- -- 560 480
4.500%, 12/15/2031 -- -- 300 219 300 219
Pueblo County School District #070, Pueblo
Rural (FGIC) (STAID)
5.000%, 12/01/2019 910 955 -- -- 910 955
Puerto Rico Commonwealth, Public Improvement,
Series A
5.250%, 07/01/2026 -- -- 500 490 500 490
Puerto Rico Commonwealth, Series C-7 (MBIA)
6.000%, 07/01/2027 250 261 250 261 500 522
SBC Metropolitan School District (ACA)
4.250%, 12/01/2015 445 433 -- -- 445 433
Sterling Hills West Metropolitan District
(FSA)
4.750%, 12/01/2018 250 262 -- -- 250 262
Westglenn Metropolitan District
6.000%, 12/01/2014 1,220 1,242 -- -- 1,220 1,242
---------- ------- ---------- ------- ---------- --------
TOTAL GENERAL OBLIGATIONS 9,710 9,751 2,650 2,456 12,360 12,207
---------- ------- ---------- ------- ---------- --------
CERTIFICATES OF PARTICIPATION - 4.5%
Broomfield County Open Space Park &
Recreation Facilities (AMBAC)
5.500%, 12/01/2020 -- -- 800 831 800 831
Broomfield County, Westminster Open Space
Foundation
4.625%, 12/01/2025 -- -- 330 317 330 317
Canon City Finance Authority (AGTY)
4.250%, 12/01/2023 200 189 -- -- 200 189
Colorado Springs Old City Hall Project (FSA)
5.500%, 12/01/2017 -- -- 200 210 200 210
5.500%, 12/01/2020 -- -- 200 209 200 209
Garfield County Building Corporation (AMBAC)
5.300%, 12/01/2011 400 415 -- -- 400 415
Pueblo County, Capital Construction
4.400%, 12/01/2016 410 405 -- -- 410 405
5.000%, 12/01/2024 -- -- 200 193 200 193
Rangeview Library District (AGTY)
4.250%, 12/15/2021 595 575 -- -- 595 575
---------- ------- ---------- ------- ---------- --------
TOTAL CERTIFICATES OF PARTICIPATION 1,605 1,584 1,730 1,760 3,335 3,344
---------- ------- ---------- ------- ---------- --------
TOTAL MUNICIPAL BONDS
(COST $49,011 AND $23,232, RESPECTIVELY) 50,975 49,530 23,685 23,091 74,660 72,621
---------- ------- ---------- ------- ---------- --------
SHORT-TERM INVESTMENT - 3.7%
First American Tax Free Obligations Fund,
Class Z (f)
(COST $916 AND $1,844, RESPECTIVELY) 916,442 916 1,844,482 1,844 2,760,924 2,760
---------- ------- ---------- ------- ---------- --------
TOTAL INVESTMENTS - 100.9%
(COST $49,927 AND $25,076, RESPECTIVELY) 50,446 24,935 75,381
------- ------- --------
B-31
First American Colorado Tax Free Fund
Unaudited Pro Forma Schedule of
INVESTMENTS
June 30, 2008, all dollars are rounded to thousands (000)
Colorado Intermediate Tax Colorado Tax Free Fund,
Free Fund, Target Fund Acquiring Fund Pro Forma Combined
--------------------------- ------------------------- ---------------------
PAR/ PAR/ PAR/
DESCRIPTION SHARES VALUE SHARES VALUE SHARES VALUE
- ----------- ---------- ------- ---------- ------- ---------- --------
OTHER ASSETS AND LIABILITIES, NET - (0.9)% (314) (372) (686)
------- ------- --------
TOTAL NET ASSETS - 100.0% $50,132 $24,563 $ 74,695
------- ------- --------
Pre-refunded issues are typically backed by U.S. government obligations, which
secure the timely payment of principal and interest. These bonds mature at the
call date and price indicated.
Escrowed to Maturity issues are typically backed by U.S. government obligations,
which secure the timely payment of principal and interest. If callable, these
bonds may still be subject to call prior to maturity.
Auction rate security. The coupon rate shown represents the rate as of June 30,
2008.
Zero coupon bonds make no periodic interest payments, but are issued at deep
discounts from par value. The rate shown is the effective yield at June 30,
2008.
Convertible Capital Appreciation Bonds (Convertible CABs) - These bonds
initially pay no interest but accrete in value from the date of issuance through
the conversion date, at which time the bonds start to accrue and pay interest on
a semiannual basis until final maturity.
Investment in affiliated security. This money market fund is advised by FAF
Advisors, Inc., which also serves as advisor for this fund.
ACA - American Capital Access
AGTY - Assured Guaranty
AMBAC - American Municipal Bond Assurance Corporation
AMT - Alternative Minimum Tax. As of June 30, 2008, the aggregate market value
of securities subject to the AMT was $2,493, which represents 3.3% of net
assets.
CIFG - CDC IXIS Financial Guaranty
COMTGY - Commonwealth Guaranty
FGIC - Financial Guaranty Insurance Corporation
FSA - Financial Security Assurance
LOC - Letter of Credit
MBIA - Municipal Bond Insurance Association
RAAI - Radian Asset Assurance Inc.
SMO - State Moral Obligation
STAID - State Aid Withholding
The accompanying notes are an integral part of the unaudited pro forma financial
statements.
B-32
FIRST AMERICAN COLORADO TAX FREE FUND
FIRST AMERICAN COLORADO INTERMEDIATE TAX FREE FUND
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
JUNE 30, 2008 (000'S OMITTED)
1. Basis of Combination
The accompanying Unaudited Pro Forma Combined Financial Statements
including the Statements of Assets and Liabilities, Statements of
Operations, and Schedule of Investments (Collectively, "Unaudited Pro Forma
Financial Statements") reflect the accounts of Colorado Tax Free Fund (the
"acquiring fund") and Colorado Intermediate Tax Free Fund (the "acquired
fund"), each a series of First American Investment Funds, Inc. The
Statements of Assets and Liabilities and Schedule of Investments reflect
fund information as if the proposed reorganization occurred as of June 30,
2008. The Statement of Operations reflects fund information as if the
proposed reorganization was in effect for the twelve month period ended
June 30, 2008. The Unaudited Pro Forma Financial Statements have been
derived from books and records utilized in calculating daily net asset
values of Colorado Tax Free Fund and Colorado Intermediate Tax Free Fund at
June 30, 2008.
The Plan of Reorganization provides that at the time the reorganization
becomes effective (the "Effective Time of the Reorganization")
substantially all of the assets and liabilities of the acquired fund will
become assets and liabilities of the acquiring fund. In exchange for the
transfer of assets and liabilities, the acquiring fund will issue to the
acquired fund full and fractional shares of the designated share classes of
the acquiring fund, and the acquired fund will make a liquidating
distribution of such shares to its shareholders. The number of shares of
the acquiring fund so issued will be in equal value to the full and
fractional shares of the acquired fund that are outstanding immediately
prior to the Effective Time of the Reorganization. At and after the
Effective Time of the Reorganization, all debts, liabilities and
obligations of the acquired fund will attach to the acquiring fund and may
thereafter be enforced against the acquiring fund to the same extent as if
the acquiring fund had incurred them. The Unaudited Pro Forma Financial
Statements give effect to the proposed transfer described above.
The Unaudited Pro Forma Financial Statements reflect the combined results
of operations of the acquired and acquiring funds. However, should such
reorganization be effected, the Statements of Operations of the acquiring
fund will not be restated for pre-combination period results of the
acquired fund. The Unaudited Pro Forma Financial Statements should be read
in conjunction with the historical financial statements of each Fund
incorporated by reference in the Statement of Additional Information.
2. Service Providers
FAF Advisors, Inc. (the "Advisor"), a subsidiary of U.S. Bank National
Association ("U.S. Bank"), will serve as the combined fund's investment
advisor and administrator. U.S. Bancorp Fund Services, LLC ("USBFS") will
serve as sub-administrator and transfer agent to the fund. U.S. Bank will
serve as the custodian to the fund.
3. Share Classes and Fees
The acquiring fund has Class A, Class C, and Class Y shares, which have
identical voting, dividend, liquidation, and other rights, and the same
terms and conditions, except that certain fees and expenses, including
distribution and shareholder servicing fees, may differ among classes. Each
class has
B-33
exclusive voting rights on any matters relating to that class' servicing or
distribution arrangements. Class A shares of Colorado Intermediate Tax Free
Fund are sold with a maximum front-end sales charge of 2.25% and Class A
shares of Colorado Tax Free Fund are sold with a maximum front-end sales
charge of 4.25%. Class C shares, offered only by Colorado Tax Free Fund,
may be subject to a contingent deferred sales charge of 1.00% for 12
months. Class Y shares of both Funds have no sales charge and are offered
only to qualifying institutional investors and certain other qualifying
accounts. More information on the classes of shares offered can be found in
the Proxy Statement/Prospectus.
The investment advisory fees and distribution fees (less any fee waivers or
expense reimbursements in effect during the period) have been charged to
the combined Fund based on the fee schedule in effect for Colorado Tax Free
Fund at the combined level of average net assets for the periods ended June
30, 2008. The Advisor has contractually agreed to waive fees and reimburse
expenses during the current fiscal year so that total fund operating
expenses do not exceed 0.75%, 1.15% and 0.50%, respectively, for Class A,
Class C and Class Y shares. These fee waivers may be terminated at any time
after October 31, 2009, at the discretion of the Advisor.
4. Unaudited Pro Forma Adjustments and Unaudited Pro Forma Combined Columns
The Unaudited Pro Forma Combined Statements of Operations assume similar
rates of gross investment income for the investments of each Fund.
Accordingly, the combined gross investment income is equal to the sum of
each Fund's gross investment income. Unaudited Pro Forma operating expenses
include the actual expenses of the Funds adjusted to reflect the expected
expenses of the combined entity.
5. Portfolio Valuation, Securities Transactions and Related Income
Securities are valued at market value. Short-term investments maturing in
60 days or less are valued at amortized cost, which approximates market
value. For financial reporting purposes, security transactions are
accounted for on a trade date basis. Net realized gains or losses from
sales of securities are determined by comparing the net sale proceeds to an
identified cost basis. Interest income, including amortization of bond
premium and discount, and expenses are recorded on an accrual basis.
6. Capital Shares
The Unaudited Pro Forma net asset values per share assume the issuance of
Class A and Y shares of the Colorado Tax Free Fund which would have been
issued at June 30, 2008 in connection with the proposed Reorganization.
Shareholders of the Colorado Intermediate Tax Free Fund would receive Class
A and Class Y shares of the Colorado Tax Free Fund based on conversion
ratios determined on June 30, 2008. The conversion ratios are calculated by
dividing the net asset value of the Colorado Intermediate Tax Free Fund by
the net asset value per share of the respective class of the Colorado Tax
Free Fund.
7. Merger Costs
All costs associated with the Reorganization will be paid by the Advisor.
B-34
PART C
FORM N-14
OTHER INFORMATION
ITEM 15. INDEMNIFICATION.
The Registrant's Articles of Incorporation and Bylaws provide that each
present or former director, officer, agent and employee of the Registrant or any
predecessor or constituent corporation, and each person who, at the request of
the Registrant, serves or served another business enterprise in any such
capacity, and the heirs and personal representatives of each of the foregoing
shall be indemnified by the Registrant to the fullest extent permitted by law
against all expenses, including without limitation amounts of judgments, fines,
amounts paid in settlement, attorneys' and accountants' fees, and costs of
litigation, which shall necessarily or reasonably be incurred by him or her in
connection with any action, suit or proceeding to which he or she was, is or
shall be a party, or with which he or she may be threatened, by reason of his or
her being or having been a director, officer, agent or employee of the
Registrant or such predecessor or constituent corporation or such business
enterprise, whether or not he or she continues to be such at the time of
incurring such expenses. Such indemnification may include without limitation the
purchase of insurance and advancement of any expenses, and the Registrant shall
be empowered to enter into agreements to limit the liability of directors and
officers of the Registrant. No indemnification shall be made in violation of the
General Corporation Law of the State of Maryland or the Investment Company Act
of 1940 (the "1940 Act"). The Registrant's Articles of Incorporation and Bylaws
further provide that no director or officer of the Registrant shall be liable to
the Registrant or its stockholders for money damages, except (i) to the extent
that it is proved that such director or officer actually received an improper
benefit or profit in money, property or services, for the amount of the benefit
or profit in money, property or services actually received, or (ii) to the
extent that a judgment or other final adjudication adverse to such director or
officer is entered in a proceeding based on a finding in the proceeding that
such director's or officer's action, or failure to act, was the result of active
and deliberate dishonesty and was material to the cause of action adjudicated in
the proceeding. The foregoing shall not be construed to protect or purport to
protect any director or officer of the Registrant against any liability to the
Registrant or its stockholders to which such director or officer would otherwise
be subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of such office. The
Registrant undertakes that no indemnification or advance will be made unless it
is consistent with Sections 17(h) or 17(i) of the Investment Company Act of
1940, as now enacted or hereafter amended, and Securities and Exchange
Commission rules, regulations, and releases (including, without limitation,
Investment Company Act of 1940 Release No. 11330, September 2, 1980). Insofar as
the indemnification for liability arising under the Securities Act of 1933, as
amended, (the "1933 Act") may be permitted to directors, officers, and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer, or
controlling person of the Registrant in the successful defense of any action,
suit, or proceeding) is asserted by such director, officer, or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the 1933
Act, as amended, and will be governed by the final adjudication of
1
such issue. The Registrant maintains officers' and directors' liability
insurance providing coverage, with certain exceptions, for acts and omissions in
the course of the covered persons' duties as officers and directors.
ITEM 16. EXHIBITS.
(1)(a) Amended and Restated Articles of Incorporation (Incorporated by
reference to Exhibit (1) to Post-Effective Amendment No. 21, Filed on
May 15, 1995 (File Nos. 033-16905, 811-05309)).
(1)(b) Articles Supplementary, designating new series and new share classes
(Incorporated by reference to Exhibit (1) to Post-Effective Amendment
No. 36, Filed on April 15, 1998 (File Nos. 033-16905, 811-05309)).
(1)(c) Articles Supplementary, designating new series and new share classes
(Incorporated by reference to Exhibit (a)(2) to Post-Effective Amendment
No. 54, Filed on June 27, 2001 (File Nos. 033-16905, 811-05309)).
(1)(d) Articles Supplementary, designating new series (Incorporated by
reference to Exhibit (a)(3) to Post-Effective Amendment No. 61, Filed on
April 30, 2002 (File Nos. 033-16905, 811-05309)).
(1)(e) Articles Supplementary designating new series (Incorporated by reference
to Exhibit (a)(4) to Post-Effective Amendment No. 65, Filed on October
24, 2002 (File Nos. 033-16905, 811-05309)).
(1)(f) Articles Supplementary designating new series (Incorporated by reference
to Exhibit (a)(5) to Post-Effective Amendment No. 66, Filed on January
28, 2003 (File Nos. 033-16905, 811-05309)).
(1)(g) Articles Supplementary decreasing authorizations of specified classes
and series and decreasing total authorized shares (Incorporated by
reference to Exhibit (a)(6) to Post-Effective Amendment No. 70, filed on
June 30, 2004 (File nos. 033-16905, 811-05309)).
(1)(h) Articles Supplementary designating new series (Incorporated by reference
to Exhibit (a)(7) to Post-Effective Amendment No. 72, filed on September
24, 2004 (File Nos. 033-16905, 811-05309)).
(1)(i) Articles Supplementary designating new series (Incorporated by reference
to Exhibit (a)(9) to Post-Effective Amendment No. 84, filed on December
20, 2006 (File Nos. 033-16905, 811-05309)).
(1)(j) Articles Supplementary designating new series (Incorporated by reference
to Exhibit (a)(10) to Post-Effective Amendment No. 87, filed on July 31,
2007 (File Nos. 033-16905, 811-05309)).
(1)(k) Articles Supplementary designating new series (Incorporated by reference
to Exhibit (a)(11) to Post-Effective Amendment No. 90, filed on December
17, 2007 (File Nos. 033-16905, 811-05309)).
(1)(l) Form of Articles Supplementary designating new share classes
(Incorporated by reference to Exhibit (a)(12) to Post-Effective
Amendment No. 92, filed on September 3, 2008 (File Nos. 033-16905,
811-05309)).
(2)(a) Bylaws, as amended (Incorporated by reference to Exhibit (b) to
Post-Effective Amendment No. 90, filed on December 17, 2007 (File Nos.
033-16905, 811-05309)).
2
(2)(b) Form of Bylaws, as amended (Incorporated by reference to Exhibit (b)(2)
to Post-Effective Amendment No. 92, filed on September 3, 2008 (File
Nos. 033-16905, 811-05309)).
(3) Not applicable.
(4) Agreement and Plan of Reorganization - constitutes Appendix A to Part A
hereof.
(5) Not applicable.
(6)(a) Investment Advisory Agreement dated April 2, 1991, between the
Registrant and First Bank National Association (Incorporated by
reference to Exhibit (d)(1) to Post-Effective Amendment No. 73, Filed on
December 2, 2004 (File Nos. 033-16905, 811-05309)).
(6)(b) Assignment and Assumption Agreement dated May 2, 2001, relating to
assignment of Investment Advisory Agreement to U.S. Bancorp Piper
Jaffray Asset Management, Inc. (Incorporated by reference to Exhibit
(d)(3) to Post-Effective Amendment No. 73, Filed on December 2, 2004
(File Nos. 033-16905, 811-05309)).
(6)(c) Amendment to Investment Advisory Agreement dated May 3, 2007 relating to
authority to appoint a sub-advisor to any series of the Registrant
(Incorporated by reference to Exhibit (d)(3) to Post-Effective Amendment
No. 86, filed on May 17, 2007 (File Nos. 033-16905, 811-05309)).
(6)(d) Exhibit A to Investment Advisory Agreement, effective December 5, 2007
(Incorporated by reference to Exhibit (d)(4) to Post-Effective Amendment
No. 90, filed on December 17, 2007 (File Nos. 033-16905, 811-05309)).
(6)(e) Expense Limitation Agreement between Registrant and FAF Advisors, Inc.,
dated February 29, 2008, effective through February 28, 2009, with
respect to certain Equity Funds (Incorporated by reference to Exhibit
(d)(5) to Post-Effective Amendment No. 91, filed on February 29, 2008
(File Nos. 033-16905, 811-05309)).
(6)(f) Expense Limitation and Fee Reimbursement Agreement between Registrant
and FAF Advisors, Inc., dated October 29, 2007, effective through
October 31, 2008, with respect to certain Bond Funds (Incorporated by
reference to Exhibit (d)(7) to Post-Effective Amendment No. 89, filed on
October 29, 2007 (File Nos. 033-16905, 811-05309)).
(6)(g) Expense Limitation Agreement between Registrant and FAF Advisors, Inc.,
dated September 3, 2008, effective through October 31, 2009, with
respect to Global Infrastructure Fund (Incorporated by reference to
Exhibit (d)(7) to Post-Effective Amendment No. 92, filed on September 3,
2008 (File Nos. 033-16905, 811-05309)).
(6)(h) Sub-Advisory Agreement dated December 9, 2004, by and among Registrant,
FAF Advisors, Inc. and J.P. Morgan Investment Management Inc. with
respect to International Fund (Incorporated by reference to Exhibit
(d)(6) to Post-Effective Amendment No. 74, Filed on January 31, 2005
(File Nos. 033-16905, 811-05309)).
(6)(i) Letter of Agreement dated March 28, 2007, by and between FAF Advisors
and J.P. Morgan Investment Management Inc. with respect to International
Fund (Incorporated by
3
reference to Exhibit (d)(8) to Post-Effective Amendment No. 87, filed on
July 31, 2007 (File Nos. 033-16905, 811-05309)).
(6)(j) Amendment to Sub-Advisory Agreement dated May 3, 2007, by and among
Registrant, FAF Advisors, Inc. and J.P. Morgan Investment Management
Inc. with respect to International Fund (Incorporated by reference to
Exhibit (d)(11) to Post Effective Amendment No. 86, filed on May 17,
2007 (File Nos. 033-16905, 811-05309)).
(6)(k) Sub-Advisory Agreement dated November 27, 2006, by and between FAF
Advisors, Inc. and Altrinsic Global Advisors, LLC with respect to
International Select Fund (Incorporated by reference to Exhibit (d)(6)
to Post-Effective Amendment No. 84, filed on December 20, 2006 (File
Nos. 033-16905, 811-05309)).
(6)(l) Letter of Agreement dated March 28, 2007, by and between FAF Advisors
and Altrinsic Global Advisors, LLC with respect to International Select
Fund (Incorporated by reference to Exhibit (d)(11) to Post-Effective
Amendment No. 87, filed on July 31, 2007 (File Nos. 033-16905,
811-05309)).
(6)(m) Amendment to Sub-Advisory Agreement dated May 3, 2007, by and between
FAF Advisors, Inc. and Altrinsic Global Advisors, LLC with respect to
International Select Fund (Incorporated by reference to Exhibit (d)(12)
to Post Effective Amendment No. 86, filed on May 17, 2007 (File Nos.
033-16905, 811-05309)).
(6)(n) Sub-Advisory Agreement dated February 22, 2007, by and between FAF
Advisors, Inc. and Hansberger Global Investors, Inc. with respect to
International Select Fund (Incorporated by reference to Exhibit (d)(13)
to Post-Effective Amendment No. 87, filed on July 31, 2007 (File Nos.
033-16905, 811-05309)).
(6)(o) Letter of Agreement dated March 28, 2007, by and between FAF Advisors
and Hansberger Global Investors, Inc. with respect to International
Select Fund (Incorporated by reference to Exhibit (d)(14) to
Post-Effective Amendment No. 87, filed on July 31, 2007 (File Nos.
033-16905, 811-05309)).
(6)(p) Amendment to Sub-Advisory Agreement dated May 3, 2007, by and between
FAF Advisors, Inc. and Hansberger Global Investors, Inc. with respect to
International Select Fund (Incorporated by reference to Exhibit (d)(13)
to Post Effective Amendment No. 86, filed on May 17, 2007 (File Nos.
033-16905, 811-05309)).
(6)(q) Sub-Advisory Agreement dated November 27, 2006, by and between FAF
Advisors, Inc. and Lazard Asset Management LLC with respect to
International Select Fund (Incorporated by reference to Exhibit (d)(8)
to Post-Effective Amendment No. 84, filed on December 20, 2006 (File
Nos. 033-16905, 811-05309)).
(6)(r) Letter of Agreement dated March 28, 2007, by and between FAF Advisors
and Lazard Asset Management LLC with respect to International Select
Fund (Incorporated by reference to Exhibit (d)(17) to Post-Effective
Amendment No. 87, filed on July 31, 2007 (File Nos. 033-16905,
811-05309)).
(6)(s) Amendment to Sub-Advisory Agreement dated May 3, 2007, by and between
FAF Advisors, Inc. and Lazard Asset Management LLC with respect to
International Select
4
Fund (Incorporated by reference to Exhibit (d)(14) to Post Effective
Amendment No. 86, filed on May 17, 2007 (File Nos. 033-16905,
811-05309)).
(7)(a) Distribution Agreement between the Registrant and Quasar Distributors,
LLC, effective July 1, 2007 (Incorporated by reference to Exhibit (e)(1)
to Post-Effective Amendment No. 87, filed on July 31, 2007 (File Nos.
033-16905, 811-05309)).
(7)(b) Fee Limitation Agreement between Registrant and Quasar Distributors,
LLC, dated October 29, 2007, effective through October 31, 2008, with
respect to certain Bond Funds (Incorporated by reference to Exhibit
(e)(2) to Post-Effective Amendment No. 89, filed on October 29, 2007
(File Nos. 033-16905, 811-05309)).
(7)(c) Form of Dealer Agreement (Incorporated by reference to Exhibit (e)(3) to
Post-Effective Amendment No. 88, filed on October 3, 2007 (File Nos.
033-16905, 811-05309)).
(8)(a) Deferred Compensation Plan for Directors dated January 1, 2000, as
amended December 2007 (Incorporated by reference to Exhibit (f)(1) to
Post-Effective Amendment No. 90, filed December 17, 2007 (File Nos.
033-16905, 811-05309)).
(8)(b) Deferred Compensation Plan for Directors, Amended Summary of Terms dated
February 2005 (Incorporated by reference to Exhibit (f)(2) to
Post-Effective Amendment No. 76, filed May 13, 2005 (File Nos.
033-16905, 811-05309)).
(9)(a) Custody Agreement dated July 1, 2006, between the Registrant and U.S.
Bank National Association (Incorporated by reference to Exhibit (g)(1)
to Post-Effective Amendment No. 80, Filed on August 31, 2006 (File Nos.
033-16905, 811-05309)).
(9)(b) Amendment to Custody Agreement dated July 1, 2007, by and between
Registrant and U.S. Bank National Association (Incorporated by reference
to Exhibit (g)(2) to Post-Effective Amendment No. 87, filed on July 31,
2007 (File Nos. 033-16905, 811-05309)).
(9)(c) Exhibit C effective June 20, 2007 to Custody Agreement dated July 1,
2006 (Incorporated by reference to Exhibit (g)(3) to Post-Effective
Amendment No. 87, filed on July 31, 2007 (File Nos. 033-16905,
811-05309)).
(9)(d) Exhibit D effective December 5, 2007 to Custody Agreement dated July 1,
2006 (Incorporated by reference to Exhibit (g)(4) to Post-Effective
Amendment No. 90, filed on December 17, 2007 (File Nos. 033-16905,
811-05309)).
(9)(e) Custodian Agreement dated July 1, 2005, by and between Registrant and
State Street Bank and Trust Company with respect to International Fund
(Incorporated by reference to Exhibit (g)(5) to Post-Effective Amendment
No. 77, Filed on August 3, 2005 (File Nos. 033-16905, 811-05309)).
(9)(f) Letter Amendment dated November 21, 2006 to the Custodian Agreement
dated July 1, 2005 by and between Registrant and State Street Bank and
Trust Company with respect to International Select Fund (Incorporated by
reference to Exhibit (g)(3) to Post-Effective Amendment No. 84, filed on
December 20, 2006 (File Nos. 033-16905, 811-05309)).
(9)(g) Letter Amendment dated December 6, 2007 to the Custodian Agreement dated
July 1, 2005 by and between Registrant and State Street Bank and Trust
Company with respect
5
to Global Infrastructure Fund (Incorporated by reference to Exhibit
(g)(7) to Post-Effective Amendment No. 90, filed on December 17, 2007
(File Nos. 033-16905, 811-05309)).
(10)(a) Amended and Restated Distribution and Service Plan for Class A, B, C,
and R shares, effective September 19, 2006 (Incorporated by reference to
Exhibit (m) to Post-Effective Amendment No. 87, filed on July 31, 2007
(File Nos. 033-16905, 811-05309)).
(10)(b) Amended and Restated Multiple Class Plan Pursuant to Rule 18f-3,
effective December 5, 2007 (Incorporated by reference to Exhibit (n) to
Post-Effective Amendment No. 90, filed on December 17, 2007 (File Nos.
033-16905, 811-05309)).
(11) Opinion and Consent of Dorsey & Whitney LLP as to the legality of the
securities being registered.*
(12) Opinion and Consent of Dorsey & Whitney LLP supporting the tax matters
discussed in the prospectus.**
(13)(a) Administration Agreement dated July 1, 2006, by and between Registrant
and FAF Advisors, Inc. (Incorporated by reference to Exhibit (h)(1) to
Post-Effective Amendment No. 80, Filed on August 31, 2006 (File Nos.
033-16905, 811-05309)).
(13)(b) Schedule A to Administration Agreement dated July 1, 2006 between
Registrant and FAF Advisors, Inc. (Incorporated by reference to Exhibit
(h)(2) to Post-Effective Amendment No. 80, Filed on August 31, 2006
(File Nos. 033-16905, 811-05309)).
(13)(c) Sub-Administration Agreement dated July 1, 2005, by and between FAF
Advisors, Inc. and U.S. Bancorp Fund Services, LLC (Incorporated by
reference to Exhibit (h)(2) to Post-Effective Amendment No. 77, Filed on
August 3, 2005 (File Nos. 033-16905, 811-05309)).
(13)(d) Transfer Agent and Shareholder Servicing Agreement dated September 19,
2006, by and among Registrant, U.S. Bancorp Fund Services, LLC, and FAF
Advisors, Inc. (Incorporated by reference to Exhibit (h)(4) to
Post-Effective Amendment No. 87, filed on July 31, 2007 (File Nos.
033-16905, 811-05309)).
(13)(e) Exhibit A to Transfer Agent and Shareholder Servicing Agreement
effective April 1, 2007(Incorporated by reference to Exhibit (h)(5) to
Post-Effective Amendment No. 92, filed on September 3, 2008 (File Nos.
033-16905, 811-05309)).
(14) Consent of Ernst & Young LLP with respect to financial statements of
Registrant.*
(15) Not applicable.
(16) Power of Attorney dated September 24, 2008.*
(17)(a) Form of Proxy for Special Meeting of Shareholders of California
Intermediate Tax Free Fund to be held on December 16, 2008.*
(17)(b) Form of Proxy for Special Meeting of Shareholders of Colorado
Intermediate Tax Free Fund to be held on December 16, 2008.*
(17)(c) First American Tax Free Income Funds Prospectus, dated October 29, 2007
(including prospectus supplement dated August 18, 2008).*
(17)(d) First American Short & Intermediate Tax Free Income Funds Prospectus,
dated October 29, 2007 (including prospectus supplements dated August 18
and September 26, 2008).*
(17)(e) First American Investment Funds, Inc. Statement of Additional
Information (relating to Tax Free and Bond Funds)(SAI), dated October
29, 2007 (including SAI supplements dated November 30, 2007, and January
7 and August 11, 2008).*
(17)(f) First American Funds 2008 Annual Report - Tax Free Income Funds, dated
June 30, 2008.*
* Filed herewith.
** To be filed by amendment.
ITEM 17. UNDERTAKINGS.
(1) The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus which is a part of
this registration statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the 1933 Act, the reoffering
prospectus will contain the information called for by the applicable
registration form for reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial BONA FIDE offering of them.
(3) The undersigned Registrant agrees to file an amendment to the
Registration Statement, pursuant to Rule 485(b) of Regulation C of the 1933 Act,
for the purpose of including Exhibit 12, Opinion and consent of Dorsey & Whitney
LLP regarding tax matters, within a reasonable time after closing of the
Reorganizations.
6
SIGNATURES
As required by the Securities Act of 1933, this registration statement has
been signed on behalf of the registrant, in the City of Minneapolis, and the
State of Minnesota on the 10th day of October, 2008.
FIRST AMERICAN INVESTMENT FUNDS, INC.
By /s/ Thomas S. Schreier, Jr.
---------------------------------
Name: Thomas S. Schreier, Jr.
Title: President
As required by the Securities Act of 1933, this registration statement has
been signed by the following persons in the capacities and on the dates
indicated.
Signatures Title
- ---------- -----
/s/ Thomas S. Schreier, Jr. President October 10, 2008
- -------------------------------------
Thomas S. Schreier, Jr.
/s/ Charles D. Gariboldi Treasurer (principal financial/ October 10, 2008
- ------------------------------------- accounting officer)
Charles D. Gariboldi
/s/ * Virginia L. Stringer Chair of the Board and Director October 10, 2008
- -------------------------------------
Virginia L. Stringer
/s/ * Benjamin R. Field III Director October 10, 2008
- -------------------------------------
Benjamin R. Field III
/s/ * Roger A. Gibson Director October 10, 2008
- -------------------------------------
Roger A. Gibson
/s/ * Victoria J. Herget Director October 10, 2008
- -------------------------------------
Victoria J. Herget
/s/ * John P. Kayser Director October 10, 2008
- -------------------------------------
John P. Kayser
/s/ * Leonard W. Kedrowski Director October 10, 2008
- -------------------------------------
Leonard W. Kedrowski
/s/ * Richard K. Riederer Director October 10, 2008
- -------------------------------------
Richard K. Riederer
/s/ * Joseph D. Strauss Director October 10, 2008
- -------------------------------------
Joseph D. Strauss
/s/ * James M. Wade Director October 10, 2008
- -------------------------------------
James M. Wade
*By /s/ Richard J. Ertel
---------------------------------
Attorney-in-Fact
* Pursuant to powers of attorney filed herewith.
INDEX TO EXHIBITS
EXHIBIT NUMBER NAME OF EXHIBIT
- -------------- ---------------
(11) Opinion and Consent of Dorsey & Whitney LLP
(14) Consent of Ernst & Young LLP
(16) Power of Attorney
(17)(a) Form of Proxy Card (California Intermediate Tax Free Fund)
(17)(b) Form of Proxy Card (Colorado Intermediate Tax Free Fund)
(17)(c) First American Tax Free Income Funds Prospectus
(17)(d) First American Short & Intermediate Tax Free Income Funds
Prospectus
(17)(e) First American Tax Free and Bond Funds Statement of Additional
Information
(17)(f) First American Funds Annual Report - Tax Free Income Funds