1933 Act Registration No. 333-7463
1940 Act Registration No. 811-7687
As filed with the Securities and Exchange Commission on September 12, 1996
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. __ [ ]
Post-Effective Amendment No. 1 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 [X]
Amendment No. 1
FIRST AMERICAN STRATEGY FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
680 EAST SWEDESFORD ROAD, WAYNE, PENNSYLVANIA 19087
(Address of Principal Executive Offices) (Zip Code)
(610) 254-1000
(Registrant's Telephone Number, including Area Code)
DAVID G. LEE
C/O SEI CORPORATION, 680 EAST SWEDESFORD ROAD, WAYNE, PENNSYLVANIA 19087
(Name and Address of Agent for Service)
Copies to:
Kathryn Stanton, Esq. Michael J. Radmer, Esq.
SEI Corporation James D. Alt, Esq.
680 East Swedesford Road Dorsey & Whitney LLP
Wayne, Pennsylvania 19087 220 South Sixth Street
Minneapolis, Minnesota 55402
[ ] immediately upon filling pursuant to paragraph (b) of rule 485
[ ] on (date) pursuant to paragraph (b) of rule 485
[X] 60 days after filing pursuant to paragraph (a)(1) of Rule 485*
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
- -----------------
* Concurrently with the filing hereof, Registrant is filing a request seeking
acceleration of effectiveness to September 20, 1996, or as soon thereafter as
is practicable.
FIRST AMERICAN STRATEGY FUNDS, INC.
CROSS REFERENCE SHEET FOR ITEMS REQUIRED BY FORM N-1A
ITEM NUMBER OF FORM N-1A
PART A CAPTION IN PROSPECTUS
1 Cover Page
2 Summary; Fees and Expenses
3 Not Applicable
4 The Funds; Investment Objectives and Policies; The Underlying
Funds; Special Investment Methods
5 Management; Distributor
5A Not Applicable
6 Fund Shares; Investing in the Funds; Federal Income Taxes
7 Distributor; Investing in the Funds; Determining the Price of
Shares
8 Redeeming Shares
9 Not Applicable
CAPTION IN STATEMENT
PART B OF ADDITIONAL INFORMATION
10 Cover Page
11 Table of Contents
12 General Information
13 Additional Information Concerning Investments by the Funds and the
Underlying Funds; Investment Restrictions; Investment Restrictions
of the Funds; Investment Restrictions of the Underlying Funds
14 Directors and Executive Officers
15 Capital Stock
16 Investment Advisory and Other Services for the Funds; Investment
Advisory Services for the Underlying Funds
17 Portfolio Transactions and Allocation of Brokerage
18 Not Applicable
19 Net Asset Value and Public Offering Price
20 Taxation
21 Investment Advisory and Other Services
22 Fund Performance
23 Financial Statements
FIRST AMERICAN STRATEGY FUNDS, INC.
INCOME FUND GROWTH FUND
GROWTH AND INCOME FUND AGRESSIVE GROWTH FUND
PROSPECTUS
OCTOBER 1, 1996
[LOGO] FIRST AMERICAN FUNDS
THE POWER OF DISCIPLINED INVESTING
FIRST AMERICAN STRATEGY FUNDS, INC.
680 East Swedesford Road, Wayne, Pennsylvania 19087
PROSPECTUS
The shares described in this Prospectus represent interests in First American
Strategy Funds, Inc., which consists of the following mutual funds (the
"Funds"):
* INCOME FUND * GROWTH FUND
* GROWTH AND INCOME FUND * AGGRESSIVE GROWTH FUND
As described in this Prospectus, the Funds' investment objectives are intended
to provide differing balances between the objectives of current income and of
growth of capital. Each Fund seeks to achieve its investment objectives by
investing primarily in a variety of other mutual funds which are also advised
by the Funds' investment adviser, First Bank National Association acting
through its First Asset Management group. In managing the Funds, the
investment adviser will allocate and re-allocate the Funds' assets among such
other mutual funds within predetermined ranges, expressed as percentages of
the Funds' net assets.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, INCLUDING FIRST BANK NATIONAL ASSOCIATION AND ANY OF
ITS AFFILIATES, NOR ARE THEY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. AN INVESTMENT IN
THE FUNDS INVOLVES INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL, DUE
TO FLUCTUATIONS IN EACH FUND'S NET ASSET VALUE.
This Prospectus concisely sets forth information about the Funds that a
prospective investor should know before investing. It should be read and
retained for future reference.
A Statement of Additional Information dated October 1, 1996 for the Funds has
been filed with the Securities and Exchange Commission and is incorporated in
its entirety by reference in this Prospectus. To obtain copies of the
Statement of Additional Information at no charge, or to obtain other
information or make inquiries about the Funds, call (800) 637-2548 or write
SEI Financial Services Company, 680 East Swedesford Road, Wayne, Pennsylvania
19087.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is October 1, 1996.
TABLE OF CONTENTS
PAGE
SUMMARY ............................ 4
FEES AND EXPENSES .................. 8
Shareholder Transaction Expenses . 8
Direct Annual Fund Operating
Expenses ........................ 8
Ranges of Combined Direct and
Indirect Expense Ratios ......... 8
Example .......................... 9
Underlying Fund Expense Ratios ... 9
Information Concerning Fees and
Expenses ........................ 10
THE FUNDS .......................... 11
INVESTMENT OBJECTIVES AND POLICIES . 11
Objectives ....................... 11
Investment Policies .............. 12
Risks to Consider ................ 13
Portfolio Turnover ............... 14
Investment Restrictions .......... 15
Possible Conflicts of Interest and
Receipt of Securities ........... 15
Exemptive Order .................. 16
THE UNDERLYING FUNDS 17
General .......................... 17
Equity Income Fund ............... 18
Stock Fund ....................... 19
Diversified Growth Fund .......... 20
Emerging Growth Fund ............. 20
Regional Equity Fund ............. 20
Special Equity Fund .............. 21
International Fund ............... 22
Technology Fund .................. 24
Health Sciences Fund ............. 24
Real Estate Securities Fund ...... 25
Policies Common to Underlying
Equity Funds .................... 27
Fixed Income Fund ................ 28
Prime Obligations Fund ........... 29
Risks to Consider with Respect to
the underlying funds ............. 30
MANAGEMENT 32
Investment Adviser to the Funds .. 32
Portfolio Management of the Funds 33
Investment Adviser and Sub-Adviser
to the Underlying Funds ......... 34
Custodian ........................ 35
Administrator .................... 35
Transfer Agent ................... 36
DISTRIBUTOR 36
INVESTING IN THE FUNDS 38
Share Purchases .................. 38
Minimum Investment Required ...... 39
Systematic Exchange Program ...... 39
Systematic Investment Program .... 39
Certificates and Confirmations ... 40
Dividends and Distributions ...... 40
Exchange Privilege ............... 40
REDEEMING SHARES 41
By Telephone ..................... 42
By Mail .......................... 42
By Systematic Withdrawal Program . 43
Redemption Before Purchase
Instruments Clear ............... 43
Accounts with Low Balances ....... 44
DETERMINING THE PRICE OF SHARES .... 44
Determining Net Asset Value ...... 44
FEDERAL INCOME TAXES ............... 45
FUND SHARES ........................ 46
CALCULATION OF PERFORMANCE DATA .... 46
SPECIAL INVESTMENT METHODS ......... 48
Cash Items ....................... 48
Repurchase Agreements ............ 48
When-Issued and Delayed-Delivery
Transactions .................... 48
Lending of Portfolio Securities .. 49
Options Transactions ............. 49
Futures and Options on Futures ... 51
Fixed Income Securities .......... 52
Foreign Securities ............... 53
Foreign Currency Transactions .... 54
Mortgage-Backed Securities ....... 55
Asset-Backed Securities .......... 57
Bank Instruments ................. 57
Loan Participations; Section 4(2)
and Rule 144A Securities ........ 57
Credit Enhancement Agreements .... 58
Money Market Funds ............... 58
Investment Restrictions of the
Underlying Funds ................ 59
Information Concerning
Compensation Paid to First Trust
National Association and Its
Affiliates ...................... 60
SUMMARY
First American Strategy Funds, Inc. ("FASF") is an open-end investment
company which offers shares in four different mutual funds (the "Funds"). The
Funds' investment objectives are intended to provide differing balances
between the objectives of current income and of growth of capital. These
investment objectives are as follows:
INCOME FUND seeks to provide a high level of current income consistent with
limited risk to capital. The Fund's limited equity component is designed to help
offset inflation and provide a source for potential increases in income over
time.
GROWTH AND INCOME FUND seeks to provide both capital growth and current income
through a balanced approach to equity securities and fixed-income investments.
GROWTH FUND seeks to provide capital growth with a moderate level of current
income. The Fund provides high allocations to various equity categories
including small company and international company equity securities.
AGGRESSIVE GROWTH FUND seeks to provide a high level of capital growth. The Fund
provides high allocations to various equity categories including small company
and international company equity securities and may include high allocations to
technology and health care company equity securities.
Each Fund seeks to achieve its investment objectives by investing primarily in a
variety of other mutual funds (the "Underlying Funds") which are also advised by
the Funds' investment adviser. In managing the Funds, the investment adviser
will allocate and re-allocate the Funds' assets among the Underlying Funds
within predetermined ranges, expressed as percentages of the Funds' net assets.
These ranges, and the investment adviser's allocations within the ranges, are
intended to reflect the Funds' differing balances between the investment
objectives of current income and of growth of capital.
The Underlying Funds include ten equity funds, one fixed income fund, and one
money market fund. The equity funds and the fixed income fund comprise separate
series of First American Investment Funds, Inc. ("FAIF"), and the money market
fund comprises a separate series of First American Funds, Inc. ("FAF"). The
predetermined ranges within which the Funds' assets may be allocated are set
forth below under the caption "Investment Objectives and Policies," and detailed
information concerning the Underlying Funds is set forth below under the caption
"The Underlying Funds." Each of the Funds is a non-diversified investment
company, as defined in the Investment Company Act of 1940.
INVESTMENT ADVISER First Bank National Association (the "Adviser"), acting
through its First Asset Management group, serves as investment adviser to each
of the Funds. See "Management."
DISTRIBUTOR; ADMINISTRATOR SEI Financial Services Company (the "Distributor")
serves as the distributor of the Funds' shares. SEI Financial Management
Corporation (the "Administrator") serves as the administrator of the Funds. See
"Management" and "Distributor."
OFFERING PRICES; EXPENSES Shares of the Funds are sold at net asset value
without any front-end or deferred sales charges. Shares of each Fund are subject
to a shareholder servicing fee computed at an annual rate of 0.25% of average
daily net assets. See "Investing in the Funds" and "Distributor."
Investors in the Funds will bear their proportionate share of the expenses of
the Funds (including operating costs, administrative fees, and, to the extent
not waived, investment advisory fees) and, in addition, will indirectly bear
similar expenses of the Underlying Funds. Some investors (primarily certain
institutional investors which are eligible to purchase the "no load" class of
Underlying Fund shares) might be able to realize lower aggregate charges and
expenses by investing directly in the Underlying Funds, rather than investing
indirectly in the Underlying Funds by purchasing Fund shares. An investor who
chose to invest directly in the Underlying Funds rather than purchasing Fund
shares would, however, forego the asset allocation services provided by the
Adviser in its management of the Funds. See "Fees and Expenses -- Information
Concerning Fees and Expenses."
MINIMUM INITIAL AND SUBSEQUENT INVESTMENTS The minimum initial investment is
$1,000 ($250 for retirement plans) for each Fund. Subsequent investments must be
$100 or more. Regular investment in the Funds is simplified through the
Systematic Investment Program through which monthly purchases of $100 or more
are possible. See "Investing in the Funds -- Minimum Investment Required" and
"-- Systematic Investment Program."
EXCHANGES Shares of any Fund may be exchanged for shares of any other Fund at
the shares' respective net asset values with no additional charge. Shares of the
Funds may not be exchanged for shares of the Underlying Funds, other than Class
A shares of FAF's Prime Obligations Fund. See "Investing in the Funds --
Exchange Privilege."
REDEMPTIONS Shares of each Fund may be redeemed at any time at their net asset
value next determined after receipt of a redemption request by the Funds'
transfer agent. Each Fund may, upon 60 days written notice, redeem an account if
the account's net asset value falls below $500. See "Investing in the Funds" and
"Redeeming Shares."
RISKS TO CONSIDER An investment in any of the Funds involves certain risks.
These include the following:
ACTIVE MANAGEMENT. The performance of the Funds will reflect in part the ability
of the Adviser to make asset allocation and other investment decisions which are
suited to achieving the Funds' investment objectives. Due to their active
management, the Funds could underperform other mutual funds with similar
investment objectives.
ADDITIONAL EXPENSES. Investing in the Underlying Funds through the Funds
involves certain additional expenses that would not be present in a direct
investment in the Underlying Funds. See "Fees and Expenses -- Information
Concerning Fees and Expenses."
RISKS ASSOCIATED WITH THE UNDERLYING FUNDS. The risks associated with the
Underlying Funds are discussed in greater detail under "The Underlying Funds."
These risks include, among others:
* The Underlying Funds are actively managed, and therefore may underperform
other mutual funds with similar investment objectives.
* Each of the Underlying Funds is subject to the risk of generally adverse
markets. In general, the market prices of equity securities frequently are
subject to greater volatility than the prices of fixed income securities.
Therefore, it may be expected that the net asset values of Funds which are
permitted to invest higher proportions of their assets in equity funds may
be more volatile than Funds which are limited to lower proportions.
* Certain of the Underlying Funds may (i) invest in smaller capitalization
companies; (ii) concentrate their investments in a single or related
economic sectors; (iii) invest in real estate investment trusts; (iv)
invest in securities of foreign issuers; (v) in the case of one Underlying
Fund, invest a portion of its assets in less than investment grade debt
securities; and (vi) engage (but not for speculative purposes) in options
and futures transactions.
* The Underlying Fund which invests primarily in debt securities is subject
to interest rate risk, credit risk, call risk, and certain risks associated
with investing in mortgage-backed securities. In addition, to the limited
extent to which several other Underlying Funds may invest in fixed-rate
debt securities, they also are subject to interest rate risk, credit risk,
and call risk.
POSSIBLE CONFLICTS OF INTEREST AND RECEIPT OF SECURITIES. It is possible that
situations could arise in which the interests of the Funds diverge from those of
the Underlying Funds. Since the Funds and the Underlying Funds have a common
investment adviser and common officers and directors, such situations could
place these persons in a position in which their duties to the Funds conflict
with their duties to the Underlying Funds. In order to resolve some types of
conflicts, an Underlying Fund could determine to meet a redemption request by a
Fund by distributing securities from its portfolio to the Fund rather than by
paying cash. Any securities received by a Fund as a result of such an in-kind
redemption would be held by the Fund until the Adviser determines that it is
appropriate to dispose of such securities. See "Investment Objectives and
Policies -- Possible Conflicts of Interest and Receipt of Securities."
SHAREHOLDER INQUIRIES Any questions or communications regarding the Funds or a
shareholder account should be directed to the Distributor by calling (800)
637-2548, or to the financial institution which holds shares on an investor's
behalf.
FEES AND EXPENSES
The following tables set forth the shareholder transaction expenses and the
direct annual operating expenses that a shareholder bears in connection with an
investment in the Funds' shares. As illustrated in the other tables under this
caption, Fund shareholders also indirectly bear their proportionate share of the
Underlying Funds' expenses.
<TABLE>
<CAPTION>
GROWTH AND
INCOME INCOME GROWTH
FUND FUND FUND AGGRESSIVE GROWTH FUND
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load
imposed on purchases None None None None
Maximum sales load
imposed on reinvested
dividends None None None None
Deferred sales load None None None None
Redemption fees None None None None
Exchange fees None None None None
DIRECT ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment advisory fee
(after voluntary fee
waivers and
reimbursements)(1) 0.00% 0.00% 0.00% 0.00%
Rule 12b-1 fees None None None None
Other expenses (after
voluntary fee waivers and
reimbursements)(1):
Shareholder servicing fee 0.25% 0.25% 0.25% 0.25%
Miscellaneous 0.35% 0.35% 0.35% 0.35%
Total other expenses 0.60% 0.60% 0.60% 0.60%
Total fund operating
expenses (after voluntary
fee waivers and
reimbursements)(1) 0.60% 0.60% 0.60% 0.60%
</TABLE>
(1) The Adviser intends to waive a portion of its fees and/or reimburse
expenses on a voluntary basis, and the amounts shown reflect this waiver
and reimbursement as of the date of this Prospectus. The Adviser intends to
maintain such waiver and reimbursement in effect for the current fiscal
year but reserves the right to discontinue them at any time in its sole
discretion. Absent any waivers, investment advisory fees as an annualized
percentage of average daily net assets would be 0.25% for each of the
Funds; other expenses calculated on such basis would be 1.78% for each of
the Funds; and total fund operating expenses calculated on such basis would
be 2.03% for each of the Funds. "Other expenses" is based on estimated
amounts for the current fiscal year.
RANGES OF COMBINED DIRECT AND INDIRECT EXPENSE RATIOS
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
As noted above, in addition to the Funds' direct expenses, Fund shareholders
also indirectly bear their proportionate share of the Underlying Funds'
expenses. The following table sets forth the ranges of combined direct and
indirect expense ratios borne by Fund shareholders after voluntary fee waivers
and reimbursements, taking into account Underlying Fund expenses indirectly
borne by Fund shareholders. Ranges are presented because the Underlying Funds'
expenses ratios differ from one another, so that the actual combined direct and
indirect expense ratios of the Funds will depend on the allocation of Fund
assets among the Underlying Funds. Information concerning the Underlying Funds'
expense ratios is set forth under "-- Underlying Fund Expense Ratios" below.
<TABLE>
<CAPTION>
INCOME GROWTH AND GROWTH AGGRESSIVE
FUND INCOME FUND FUND GROWTH FUND
<S> <C> <C> <C> <C>
Ranges of combined direct and
indirect expense ratios 1.26% to 1.33% 1.27% to 1.54% 1.34% to 1.66% 1.41% to 1.73%
</TABLE>
EXAMPLE(2)
Using the midpoint of the ranges set forth above, you would pay the following
expenses on a $1,000 investment, assuming (i) a 5% annual return, and (ii)
redemption at the end of each time period:
<TABLE>
<CAPTION>
INCOME GROWTH AND GROWTH AGGRESSIVE
FUND INCOME FUND FUND GROWTH FUND
<S> <C> <C> <C> <C>
1 year $13 $14 $15 $16
3 years $41 $45 $47 $50
</TABLE>
(2) Absent the fee waivers and reimbursements referred to in (1) above, the
dollar amounts for the 1 and 3-year periods would be as follows: Income
Fund, $28 and $85; Growth and Income Fund, $29 and $88; Growth Fund, $30
and $91; and Aggressive Growth Fund, $30 and $93.
UNDERLYING FUND EXPENSE RATIOS
Based on information as of March 31, 1996, the expense ratios of the Underlying
Funds in which the respective Funds may invest are as set forth in the table
below. The information in the table is for Class C Shares of the Underlying
Funds, which is the only class in which the Funds will invest. The ratios
presented reflect existing voluntary fee waiver and reimbursement arrangements
with respect to the Underlying Funds. These arrangements may be discontinued at
any time, in which event the Underlying Funds' expense ratios would be higher.
<TABLE>
<CAPTION>
EXPENSE
UNDERLYING FUND RATIO(7)
<S> <C>
Equity Income Fund(4)(5)(6) 0.75%
Stock Fund(3) 0.80%
Diversified Growth Fund(3) 0.80%
Emerging Growth Fund(3) 0.90%
Regional Equity Fund(3) 0.89%
Special Equity Fund(3)(4) 0.89%
International Fund(3) 1.72%
Technology Fund(3)(4)(5) 0.90%
Health Sciences Fund(3)(4)(5) 0.90%
Real Estate Securities
Fund(5)(6) 0.80%
Fixed Income Fund 0.70%
Prime Obligations Fund 0.45%
</TABLE>
(3) Income Fund is not permitted to invest in this Underlying Fund.
(4) Growth and Income Fund is not permitted to invest in this Underlying Fund.
(5) Growth Fund is not permitted to invest in this Underlying Fund.
(6) Aggressive Growth Fund is not permitted to invest in this Underlying Fund.
(7) Absent voluntary fee waiver and reimbursement arrangements, these expense
ratios would be as follows: Equity Income Fund, 0.96%; Stock Fund, 0.88%;
Diversified Growth Fund, 0.92%; Emerging Growth Fund, 0.97%; Regional
Equity Fund, 0.89%; Special Equity Fund, 0.89%; International Fund, 1.72%;
Technology Fund, 1.00%; Health Sciences Fund, 2.22%; Real Estate Securities
Fund, 1.60%; Fixed Income Fund, 0.86%; and Prime Obligations Fund, 0.54%.
INFORMATION CONCERNING FEES AND EXPENSES
The purpose of the preceding tables is to assist the investor in understanding
the various costs and expenses that an investor in a Fund may bear directly or
indirectly. THE EXAMPLES CONTAINED IN THE TABLES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.
The examples in the above tables are based on projected annual Fund operating
expenses after voluntary fee waivers and expense reimbursements by the Adviser.
Although the Adviser intends to maintain such waivers in effect for the current
fiscal year, such waivers are voluntary and may be discontinued at any time.
Prior to fee waivers, investment advisory fees accrue at the annual rate as a
percentage of average daily net assets of 0.25% for each of the Funds.
Shares of each Fund pay shareholder servicing fees in an amount equaling
0.25% per year of average daily net assets. See "Distributor."
Other expenses include fees paid by each Fund to the Administrator for providing
various services necessary to operate the Funds. These include shareholder
servicing and certain accounting and other services. The Administrator provides
these services for a fee calculated at an annual rate of 0.12% of average daily
net assets of each Fund subject to a minimum of $50,000 per Fund per fiscal
year; provided, that to the extent that the aggregate net assets of all First
American funds exceed $8 billion, the percentage stated above is reduced to
0.105%. Other expenses of the Funds also includes the cost of maintaining
shareholder records, furnishing shareholder statements and reports, and other
services. Investment advisory fees, administrative fees and other expenses are
reflected in the Funds' dividends and are not charged to individual shareholder
accounts.
As noted above, investors in the Funds, in addition to bearing their
proportionate share of the expenses of the Funds, will indirectly bear expenses
of the Underlying Funds. The class of Underlying Fund shares in which the Funds
will invest is sold without any front-end or deferred sales charges and does not
bear any Rule 12b-1 distribution fees or shareholder servicing fees. Certain
institutional investors are eligible to invest directly in such class of the
Underlying Funds. Other investors can invest directly in other classes of the
Underlying Funds which bear sales charges and are subject to Rule 12b-1
distribution fees and/or shareholder servicing fees, and which might over time
bear lower aggregate fees and expenses than Fund shares. Thus, some investors
might be able to realize lower aggregate charges and expenses by investing
directly in the Underlying Funds, rather than investing indirectly in the
Underlying Funds by purchasing Fund shares. An investor who chose to invest
directly in the Underlying Funds rather than purchasing Fund shares would,
however, forego the asset allocation services provided by the Adviser in its
management of the Funds.
THE FUNDS
FASF is an open-end management investment company which offers shares in several
different mutual funds, each of which evidences an interest in a separate and
distinct investment portfolio. FASF was incorporated under the laws of the State
of Minnesota in 1996, and its principal offices are located at 680 East
Swedesford Road, Wayne, Pennsylvania 19087. The Board of Directors of FASF may
authorize additional series or classes of common stock in the future. Each of
the Funds pays its expenses, including the fees of its service providers, audit
and legal expenses, expenses of preparing prospectuses, proxy solicitation
materials and reports to shareholders, costs of custodial services and
registering shares under federal and state securities laws, pricing, insurance
expenses, brokerage costs, interest charges, taxes, directors' fees, and
organization expenses.
INVESTMENT OBJECTIVES AND POLICIES
OBJECTIVES
The investment objectives of the Funds are as follows:
INCOME FUND seeks to provide a high level of current income consistent with
limited risk to capital. The Fund's limited equity component is designed to help
offset inflation and provide a source for potential increases in income over
time.
GROWTH AND INCOME FUND seeks to provide both capital growth and current income
through a balanced approach to equity securities and fixed-income investments.
GROWTH FUND seeks to provide capital growth with a moderate level of current
income. The Fund provides high allocations to various equity categories
including small company and international company equity securities.
AGGRESSIVE GROWTH FUND seeks to provide a high level of capital growth. The Fund
provides high allocations to various equity categories including small company
and international company equity securities and may include high allocations to
technology and health care company equity securities.
There is no assurance that any of these objectives will be achieved. The
investment objectives of the Funds are not fundamental and therefore may be
changed without a vote of shareholders. Such changes could result in a Fund
having investment objectives different from those which shareholders considered
appropriate at the time of their investment in a Fund. Shareholders will receive
written notification at least 30 days prior to a change in a Fund's investment
objectives. Each of the Funds is a non-diversified investment company, as
defined in the Investment Company Act of 1940 (the "1940 Act").
INVESTMENT POLICIES
Each Fund seeks to achieve its investment objectives by investing in a variety
of the Underlying Funds. The Underlying Funds include the ten Equity Funds named
in the table below, Fixed Income Fund, and Prime Obligations Fund (a money
market fund). In managing the Funds, the Adviser will allocate and re-allocate
their assets among the Underlying Funds within the following ranges, expressed
as percentages of the Funds' net assets:
<TABLE>
<CAPTION>
GROWTH AND AGGRESSIVE
INCOME FUND INCOME FUND GROWTH FUND GROWTH FUND
-------------------- -------------------- -------------------- -----------------
UNDERLYING FUNDS MINIMUM MAXIMUM MINIMUM MAXIMUM MINIMUM MAXIMUM MINIMUM MAXIMUM
- ---------------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Funds as a whole 20% 40% 40% 70% 55% 85% 65% 95%
Equity Income Fund 20% 40% 0% 0% 0% 0% 0% 0%
Stock Fund 0% 0% 10% 30% 10% 35% 10% 40%
Diversified Growth Fund 0% 0% 10% 30% 10% 35% 10% 40%
Emerging Growth Fund 0% 0% 0% 15% 5% 25% 10% 40%
Regional Equity Fund 0% 0% 0% 15% 5% 25% 10% 40%
Special Equity Fund 0% 0% 0% 0% 0% 15% 5% 20%
International Fund 0% 0% 0% 15% 5% 25% 10% 30%
Technology Fund 0% 0% 0% 0% 0% 0% 0% 20%
Health Sciences Fund 0% 0% 0% 0% 0% 0% 0% 20%
Real Estate Securities Fund 0% 10% 0% 10% 0% 0% 0% 0%
Fixed Income Fund 60% 80% 30% 60% 15% 45% 5% 35%
Prime Obligations Fund 0% 20% 0% 30% 0% 30% 0% 30%
</TABLE>
The ranges set forth above, and the Adviser's allocations within the ranges, are
intended to reflect the Funds' differing balances between the investment
objectives of current income and of growth of capital. The Funds may make
alterations to the ranges and the Underlying Funds set forth above without
shareholder approval, provided that this Prospectus is appropriately amended or
supplemented. Detailed information concerning the Underlying Funds is set forth
below under the caption "The Underlying Funds."
In addition to Prime Obligations Fund, the Funds also may hold cash or invest in
cash items of the kinds described under "Special Investment Methods -- Cash
Items." Under normal circumstances, the aggregate investments of the Funds in
Prime Obligations Fund and such cash and cash items will not exceed the maximum
percentages set forth in the table above for Prime Obligations Fund. However,
for temporary defensive purposes during times of unusual market conditions, the
Funds may without limitation hold shares of Prime Obligations Fund and such cash
and cash items.
The Funds are permitted to invest in futures contracts and options on futures in
order to remain effectively fully invested in proportions consistent with their
current asset allocation strategy in a cost effective manner; to re-allocate
assets among asset categories while minimizing transaction costs; to maintain
cash reserves while simulating full investment; to facilitate trading; or to
seek higher investment returns when a futures contract is priced more
attractively than the underlying security or index. For information about these
investment methods, restrictions on their use, and certain associated risks, see
"Special Investment Methods -- Futures and Options on Futures."
RISKS TO CONSIDER
An investment in any of the Funds involves certain risks. These include the
following:
ACTIVE MANAGEMENT. All of the Funds are actively managed. The performance of the
Funds therefore will reflect in part the ability of the Adviser to make asset
allocation and other investment decisions which are suited to achieving the
Funds' investment objectives. Due to their active management, the Funds could
underperform other mutual funds with similar investment objectives.
ADDITIONAL EXPENSES. Investing in the Underlying Funds through the Funds
involves certain additional expenses that would not be present in a direct
investment in the Underlying Funds. See "Fees and Expenses -- Information
Concerning Fees and Expenses."
RISKS ASSOCIATED WITH THE UNDERLYING FUNDS. The risks associated with the
Underlying Funds are discussed in greater detail under "The Underlying Funds."
These risks include, among others:
* The Underlying Funds are actively managed, and therefore may
underperform other mutual funds with similar investment objectives.
* Each of the Underlying Funds is subject to the risk of generally
adverse markets. In general, the market prices of equity securities
frequently are subject to greater volatility than the prices of fixed
income securities. Therefore, it may be expected that the net asset
values of Funds which are permitted to invest higher proportions of
their assets in the Equity Funds may be more volatile than Funds which
are limited to lower proportions.
* With respect to the Equity Funds, (i) certain of these funds are
subject to risks associated with investing in smaller-capitalization
companies; (ii) Technology Fund, Health Sciences Fund, and Real Estate
Securities Fund are subject to risks associated with concentrating
their investments in a single or related economic sectors; (iii) Real
Estate Securities Fund is subject to risks associated with direct
investments in real estate investment trusts; (iv) International Fund
is subject to risks associated with investing in foreign securities
and to currency risk; (v) Equity Income Fund may invest a portion of
its assets in less than investment grade convertible debt obligations;
(vi) certain of the other Equity Funds may invest specified portions
of their assets in securities of foreign issuers which are listed on a
United States stock exchange or are represented by American Depository
Receipts; and (vii) certain Underlying Funds may engage (but not for
speculative purposes) in options and futures transactions.
* Fixed Income Fund (i) is subject to interest rate risk (the risk that
increases in market interest rates will cause declines in the value of
the debt securities held by the fund), credit risk (the risk that the
issuers of debt securities held by the fund default in making required
payments), and call or prepayment risk (the risk that a borrower may
exercise the right to prepay a debt obligation before its stated
maturity, requiring the fund to reinvest the prepayment at a lower
interest rate); (ii) may invest in mortgage-backed securities which
are subject to certain additional risks; and (iii) may, in order to
attempt to reduce risk, invest in exchange traded put and call option
on interest rate futures contracts and on interest rate indices. In
addition, to the limited extent to which the Equity Funds may invest
in fixed-rate debt securities, they also are subject to interest rate
risk, credit risk, and call risk.
POSSIBLE CONFLICTS OF INTEREST. As discussed below under "-- Possible Conflicts
of Interest and Receipt of Securities," it is possible that situations could
arise in which the interests of the Funds diverge from those of the Underlying
Funds.
PORTFOLIO TURNOVER
Each Fund's portfolio turnover rate is not expected to exceed 25% annually. It
is expected that the Adviser will make asset re-allocation decisions for the
Funds on a monthly basis. However, the Adviser may re-allocate assets more
frequently if it determines that market conditions so warrant. The Funds will
purchase and sell shares of the Underlying Funds and other permitted investments
(i) to maintain or modify the allocation of the Funds' assets in the Underlying
Funds within the percentage ranges set forth above under "-- Investment
Policies;" (ii) to accommodate purchases and redemptions of the Funds' shares;
and (iii) in response to market or other economic conditions. It should be noted
that the portfolio turnover rates of the Underlying Funds can be higher than the
Funds' portfolio turnover rates. High portfolio turnover rates in the Underlying
Funds generally would result in higher transaction costs and could result in
additional tax consequences to the Underlying Funds' shareholders, including the
Funds.
INVESTMENT RESTRICTIONS
The fundamental and nonfundamental investment restrictions of the Funds are
set forth in full in the Funds' Statement of Additional Information. The
fundamental restrictions include the following:
* None of the Funds will invest more than 25% of its total assets in any
one industry, except for investment companies which are part of the
"same group of investment companies" (as defined in Rule 11a-3 under
the 1940 Act) as the Funds.
* None of the Funds will borrow money, except from banks for temporary
or emergency purposes. The amount of such borrowing may not exceed 10%
of the borrowing Fund's total assets. None of the Funds will borrow
money for leverage purposes. For the purpose of this investment
restriction, the use of options and futures transactions shall not be
deemed the borrowing of money. If a Fund engages in borrowing, its
share price may be subject to greater fluctuation, and the interest
expense associated with the borrowing may reduce the Fund's net
income.
* None of the Funds will mortgage, pledge or hypothecate its assets,
except in an amount not to exceed 15% of the value of its total assets
to secure temporary or emergency borrowing.
* None of the Funds will make short sales of securities.
* None of the Funds will purchase any securities on margin except to
obtain such short-term credits as may be necessary to for the
clearance of transactions.
A fundamental policy or restriction, including those stated above, cannot be
changed without an affirmative vote of the holders of a "majority" of the
outstanding shares of the applicable Fund, as defined in the 1940 Act.
As a nonfundamental policy, none of the Funds will invest more than 15% of its
net assets in all forms of illiquid investments, as determined pursuant to
applicable Securities and Exchange Commission rules and interpretations. Section
4(2) commercial paper and Rule 144A securities may be determined to be "liquid"
under guidelines adopted by the Board of Directors.
POSSIBLE CONFLICTS OF INTEREST AND RECEIPT OF SECURITIES
The officers and directors of FASF also serve as officers and directors of FAIF
and FAF. In addition, the Adviser to the Funds also serves as investment adviser
to the Underlying Funds. It is possible that situations could arise in which the
interests of the Funds diverge from those of the Underlying Funds, so that these
officers and directors and the Adviser could be subject to conflicts of
interest. For example, the Adviser might determine that a particular Fund should
reduce its allocation of assets to a particular Underlying Fund, thus requiring
it to redeem shares of such Underlying Fund, at a time when it is not in the
best interests of such Underlying Fund to sell portfolio securities in order to
meet such a redemption request. Other types of conflicts of interest between the
Funds and the Underlying Funds may arise as well. The Adviser intends to monitor
the operations of the Funds and of the Underlying Funds for potential conflicts
of interest and to take and recommend to the directors such steps as it believes
are necessary in order to avoid or minimize, to the extent possible, adverse
consequences to the Funds or the Underlying Funds from such conflicts of
interest.
In order to resolve some types of conflicts of interest, the Adviser might
determine that an Underlying Fund should meet a redemption request by a Fund
by distributing securities from its portfolio to the Fund rather than by paying
cash to the Fund. For example, where an Underlying Fund would incur sizeable
brokerage commissions in disposing of portfolio securities in order to pay a
Fund's redemption request in cash, the Underlying Fund might instead distribute
portfolio securities to the Fund so that the Fund alone, and not the Underlying
Fund and its other shareholders, would bear the brokerage commissions associated
with disposing of such securities. If a Fund receives securities as a result of
such in-kind distributions, it may hold such securities until the Adviser
determines that it is appropriate to dispose of them, and the receipt and
holding of such securities will not be deemed to violate the Fund's investment
policies.
EXEMPTIVE ORDER
Each Fund seeks to achieve its investment objectives by investing in the
Underlying Funds within the percentage ranges set forth above under
"-- Investment Policies." The Funds will initially operate under an exemptive
order obtained by the Distributor from the Securities and Exchange Commission
permitting mutual funds distributed by the Distributor to invest up to 100% of
their assets in shares of other mutual funds which are part of the "same group
of investment companies" within the meaning of Rule 11a-3 under the 1940 Act,
subject to certain conditions. Absent such exemptive relief, the 1940 Act would
substantially limit the ability of the Funds to purchase shares of the
Underlying Funds. The Funds are seeking similar exemptive relief on their own
behalf. There is no assurance that such exemptive relief will be granted. If
such exemptive relief is not obtained on the Funds' own behalf, the resignation
or removal of the Distributor would require the Funds to retain a replacement
distributor which has obtained similar exemptive relief or to substantially
change the manner in which they operate.
THE UNDERLYING FUNDS
This section sets forth information concerning the investment objectives,
policies, and restrictions of the Underlying Funds. There is no assurance that
any of the Underlying Funds' investment objectives will be achieved. Each of the
Underlying Funds is a separate series of FAIF except for Prime Obligations Fund,
which is a separate series of FAF. The Adviser also acts as investment adviser
for each of the Underlying Funds. The Adviser has retained a sub-adviser with
respect to International Fund. See "Management."
Additional information concerning the Underlying Funds is contained in their
Prospectuses and Statements of Additional Information, copies of which can be
obtained by writing SEI Financial Services Company, 680 East Swedesford Road,
Wayne, Pennsylvania 19087, or by calling (800) 637-2548.
GENERAL
Except with respect to Prime Obligations Fund, the Underlying Funds' investment
objectives are not fundamental and therefore may be changed without a vote of
shareholders. Each of the Underlying Funds except Technology Fund, Health
Sciences Fund, and Real Estate Securities Fund is a diversified investment
company, as defined in the 1940 Act. Technology Fund, Health Sciences Fund, and
Real Estate Securities Fund are non-diversified companies under the 1940 Act.
If a percentage limitation on investments by an Underlying Fund stated below is
adhered to at the time of an investment, a later increase or decrease in
percentage resulting from changes in asset values will not be deemed to violate
the limitation except in the case of the limitation on illiquid investments.
Similarly, if an Underlying Fund is required or permitted to invest a stated
percentage of its assets in companies with no more or no less than a stated
market capitalization, deviations from the stated percentages which result from
changes in companies' market capitalizations after the Underlying Fund purchases
their shares will not be deemed to violate the limitation. An Underlying Fund
which is limited to investing in securities with specified ratings is not
required to sell a security if its rating is reduced or discontinued after
purchase, but the Underlying Fund may consider doing so. However, except in the
case of Equity Income Fund, in no event will more than 5% of any Underlying
Fund's net assets be invested in non-investment grade securities. Descriptions
of the rating categories of Standard & Poor's Corporation ("Standard & Poor's")
and Moody's Investors Service, Inc. ("Moody's") are contained in the Statement
of Additional Information.
When the term "equity securities" is used in the following sections, it refers
to common stock and securities which are convertible into or exchangeable for,
or which carry warrants or other rights to acquire, common stock.
In addition to the investment policies described under the specific Equity
Funds' captions below, the Equity Funds also are subject to the investment
policies described below under the caption "-- Policies Common to Underlying
Equity Funds." Certain fundamental investment restrictions of the Underlying
Funds are described under "Special Investment Methods -- Investment Restrictions
of the Underlying Funds."
EQUITY INCOME FUND
OBJECTIVE. Equity Income Fund has an objective of long-term growth of capital
and income.
INVESTMENT POLICIES. Under normal market conditions, Equity Income Fund invests
at least 80% of its total assets in equity securities of issuers believed by its
adviser to be characterized by sound management, the ability to finance expected
growth and the ability to pay above average dividends.
Equity Income Fund invests in equity securities that have relatively high
dividend yields and which, in the adviser's opinion, will result in a relatively
stable fund dividend with a growth rate sufficient to maintain the purchasing
power of the income stream. Although the adviser anticipates that higher
yielding equity securities will generally represent the core holdings of Equity
Income Fund, Equity Income Fund may invest in lower yielding but higher growth
equity securities to the extent that the adviser believes such investments are
appropriate to achieve portfolio balance. All securities held by Equity Income
Fund will provide current income consistent with its investment objective.
The "equity securities" in which Equity Income Fund may invest include corporate
debt obligations which are convertible into common stock. These convertible debt
obligations may include obligations rated at the time of purchase as low as CCC
by Standard & Poor's or Caa by Moody's, or which have been assigned an
equivalent rating by another nationally recognized statistical rating
organization, or which are of comparable quality in the judgment of the adviser.
Debt obligations rated less than BBB by Standard & Poor's or Baa by Moody's are
considered to be less than "investment grade" and are sometimes referred to as
"junk bonds." Obligations rated CCC by Standard & Poor's or Caa by Moody's are
considered to be of poor standing and are predominantly speculative.
Descriptions of Standard & Poor's and Moody's rating categories are contained in
the Statement of Additional Information. If the rating of an obligation is
reduced below the categories set forth above after purchase or is discontinued,
Equity Income Fund is not required to sell the obligation but may consider doing
so.
Purchases of less than investment grade convertible debt obligations are
intended to advance Equity Income Fund's objective of long-term growth of
capital through the "upside" potential of the obligations' conversion features
and to advance Equity Income Fund's objective of income through receipt of
interest payable on the obligations. Equity Income Fund will not invest more
than 25% of its total assets in convertible debt obligations which are rated
less than investment grade or which are of comparable quality in the judgment of
the adviser. At July 31, 1996, the following percentages of Equity Income Fund's
total assets were invested in convertible and nonconvertible debt obligations
with the indicated Standard & Poor's ratings or their equivalents: AAA, 0%; AA,
0%; A, 0%; BBB, 3%; BB, 3%; B, 6%; and CCC, 0%.
Debt obligations which are rated less than investment grade generally are
subject to greater market fluctuations and greater risk of loss of income and
principal due to default by the issuer than are higher-rated obligations. The
value of these obligations tends to reflect short-term corporate, economic,
interest rate and market developments and investor perceptions of the issuer's
credit quality to a greater extent than investment grade obligations. In
addition, since the market for these obligations is relatively new and does not
have as many participants as the market for higher-rated obligations, it may be
more difficult to dispose of or to determine the value of these obligations. In
the case of a convertible debt obligation, these risks may be present in a
greater degree where the principal amount of the obligation is greater than the
current market value of the common stock into which it is convertible.
Equity Income Fund also may invest up to 20% of its total assets in fixed income
securities of the kinds described under "Special Investment Methods --Fixed
Income Securities."
STOCK FUND
OBJECTIVES. Stock Fund has a primary objective of capital appreciation. A
secondary objective of Stock Fund is to provide current income.
INVESTMENT POLICIES. Under normal market conditions, Stock Fund invests at least
80% of its total assets in equity securities (and at least 65% in common stocks)
diversified among a broad range of industries and among companies that have a
market capitalization of at least $500 million. In selecting equity securities,
its adviser employs a value-based selection discipline. The adviser anticipates
investing in equity securities of companies it believes are selling at less than
fair value and offer the potential for appreciation as a result of improved
profitability reflecting corporate restructuring or elimination of unprofitable
operations, change in management or management goals, or improving demand for
the companies' goods or services.
Stock Fund also may invest up to 20% of its total assets in the aggregate in
equity securities of issuers with a market capitalization of less than $500
million and in fixed income securities of the kinds described under "Special
Investment Methods -- Fixed Income Securities."
DIVERSIFIED GROWTH FUND
OBJECTIVES. Diversified Growth Fund has a primary objective of long-term growth
of capital. A secondary objective of Diversified Growth Fund is to provide
current income.
INVESTMENT POLICIES. Under normal market conditions, Diversified Growth Fund
invests at least 80% of its total assets in equity securities of a diverse group
of companies that will provide representation across all economic sectors
included in the Standard & Poor's 500 Composite Stock Price Index (the "S&P
500"). Its adviser may overweight Diversified Growth Fund's portfolio holdings
in sectors that it believes provide above average total return potential and may
underweight Diversified Growth Fund's holdings in those sectors that it believes
have a lower total return potential. Within a given sector, Diversified Growth
Fund's assets are invested in securities of those companies that, in the
adviser's judgment, exhibit a combination of above average growth in revenue and
earnings, strong management and sound and improving financial condition.
Diversified Growth Fund also may invest up to 20% of its total assets in fixed
income securities of the kinds described under "Special Investment Methods --
Fixed Income Securities."
EMERGING GROWTH FUND
OBJECTIVE. Emerging Growth Fund has an objective of growth of capital.
INVESTMENT POLICIES. Under normal market conditions, Emerging Growth Fund
invests at least 65% of its total assets in equity securities of small-sized
companies that exhibit, in its adviser's opinion, outstanding potential for
superior growth. For these purposes, small-sized companies are deemed those with
market capitalizations of less than $1 billion. Companies that participate in
sectors that are identified by the adviser as having long-term growth potential
generally are expected to make up a substantial portion of Emerging Growth
Fund's holdings. These companies often have established a market niche or have
developed unique products or technologies that are expected by the adviser to
produce superior growth in revenues and earnings.
Emerging Growth Fund also may invest up to 35% of its total assets in the
aggregate in equity securities of issuers with a market capitalization of $1
billion or more and in fixed income securities of the kinds described under
"Special Investment Methods -- Fixed Income Securities."
REGIONAL EQUITY FUND
OBJECTIVE. Regional Equity Fund has an objective of capital appreciation.
INVESTMENT POLICIES. Regional Equity Fund seeks to achieve its objective by
investing, in normal market conditions, at least 65% of its total assets in
equity securities of small-sized companies headquartered in Minnesota, North and
South Dakota, Montana, Wisconsin, Michigan, Iowa, Nebraska, Colorado and
Illinois.
Regional Equity Fund's adviser anticipates investing primarily in the securities
of rapidly growing small-sized companies which generally will have the following
characteristics, in the adviser's opinion: (i) company-specific fundamentals
that grow shareholder value, (ii) experienced, shareholder-oriented management,
and (iii) undervaluation by the market. For these purposes, small-sized
companies are deemed those with market capitalizations of less than $1 billion.
In addition to the risks associated with investing in smaller-capitalization
companies, see "-- Risks to Consider with Respect to the Underlying Funds
- -- Smaller-Capitalization Companies" below, Regional Equity Fund's policy of
concentrating its equity investments in a geographic region means that it will
be subject to adverse economic, political or other developments in that region.
Although the region in which Regional Equity Fund principally invests has a
diverse industrial base (including, but not limited to, agriculture, mining,
retail, transportation, utilities, heavy and light manufacturing, financial
services, insurance, computer technology and medical technology), this
industrial base is not as diverse as that of the country as a whole. Regional
Equity Fund therefore may be less diversified by industry and company than other
funds with a similar investment objective and no geographic limitation.
Regional Equity Fund also may invest up to 35% of its total assets in the
aggregate in equity securities without regard to the location of the issuer's
headquarters or the issuer's market capitalization and in fixed income
securities of the kinds described under "Special Investment Methods -- Fixed
Income Securities."
SPECIAL EQUITY FUND
OBJECTIVE. Special Equity Fund has an objective of capital appreciation.
INVESTMENT POLICIES. Under normal market conditions, Special Equity Fund invests
at least 65% of its total assets in equity securities. Special Equity Fund's
policy is to invest in equity securities which its adviser believes offer the
potential for greater than average capital appreciation. The adviser believes
that this policy can best be achieved by investing in the equity securities of
companies where fundamental changes are occurring, are likely to occur, or have
occurred and where, in the opinion of the adviser, the changes have not been
adequately reflected in the price of the securities and thus are considered by
the adviser to be undervalued.
Undervalued securities may include securities of companies which (i) have been
unpopular for some time but where, in the adviser's opinion, recent developments
(such as those listed in the next sentence) suggest the possibility of improved
operating results; (ii) have recently experienced marked popularity but which,
in the opinion of the adviser, have temporarily fallen out of favor for reasons
that are considered by the adviser to be non-recurring or short-term; and (iii)
appear to the adviser to be undervalued in relation to popular securities of
other companies in the same industry. Typically, but not exclusively, the
adviser will consider investing in undervalued issues in which it sees the
possibility of substantially improved market price due to increasing demand for
an issuer's products or services, the development of new or improved products or
services, the probability of increased operating efficiencies, the elimination
of unprofitable products or operations, changes in management or management
goals, fundamental changes in the industry in which the issuer operates, new or
increased emphasis on research and development, or possible mergers or
acquisitions.
In selecting securities judged to be undervalued and in investing in potential
"turnaround" situations, the adviser will be acting on opinions and exercising
judgments which may be contrary to those of the majority of investors. These
opinions and judgments involve the risks of either (i) a correct judgment by the
majority, in which case losses may be incurred or profits may be limited, or
(ii) a long delay before majority recognition of the accuracy of the adviser's
judgment, in which case capital invested by Special Equity Fund in an individual
security or group of securities may be nonproductive for an extended period.
Special Equity Fund also may invest up to 35% of its total assets in fixed
income securities of the kinds described under "Special Investment Methods
- -- Fixed Income Securities."
INTERNATIONAL FUND
OBJECTIVE. International Fund has an objective of long-term growth of capital.
INVESTMENT POLICIES. Under normal market conditions, International Fund invests
at least 65% of its total assets in an internationally diversified portfolio of
equity securities which trade in markets other than the United States. Generally
these securities are issued by companies (i) domiciled in countries other than
the United States, or (ii) that derive at least 50% of either their revenues or
their pre-tax income from activities outside of the United States. The
securities in which International Fund invests include common and preferred
stock, securities (bonds and preferred stock) convertible into common stock,
warrants and securities representing underlying international securities such as
American Depositary Receipts and European Depositary Receipts. International
Fund also may hold securities of other investment companies (which investments
are also subject to the advisory fee) and depositary or custodial receipts
representing beneficial interests in any of the foregoing securities.
International Fund may invest in securities of issuers in, but not limited to,
Argentina, Australia, Austria, Belgium, Canada, Chile, China, Columbia, the
Czech Republic, Denmark, Finland, France, Germany, Hong Kong, India, Indonesia,
Ireland, Israel, Italy, Japan, Korea, Luxembourg, Malaysia, Mexico, the
Netherlands, New Zealand, Norway, Peru, the Philippines, Singapore, Spain,
Sweden, Switzerland, Taiwan, Thailand, the United Kingdom, and Venezuela.
Normally, International Fund will invest at least 65% of its total assets in
securities traded in at least three foreign countries, including the countries
listed above. It is possible, although not currently anticipated, that up to 35%
of International Fund's assets could be invested in United States companies.
In investing International Fund's assets, the sub-adviser expects to place
primary emphasis on country selection, followed by selection of industries or
sectors within or across countries and by selection of individual stocks
corresponding to the industries or sectors selected. Investments are expected to
be made primarily in developed markets and larger capitalization companies.
However, International Fund also may invest in emerging markets where smaller
capitalization companies are the norm.
In addition, International Fund may (i) enter into repurchase agreements; (ii)
in order to attempt to reduce risk, purchase put and call options on equity
securities and on stock indices; (iii) write covered call options covering up to
50% of the equity securities owned by International Fund; (iv) purchase
securities on a when-issued or delayed-delivery basis; (v) engage in the lending
of portfolio securities; (vi) engage in foreign currency transactions; (vii) in
order to attempt to reduce risk, purchase put and call options on foreign
currencies; (viii) write covered call options on foreign currencies owned by
International Fund; and (ix) enter into contracts for the future purchase or
delivery of securities, foreign currencies, and indices, purchase or sell
options on any such futures contracts and engage in related closing
transactions. For information about these investment methods, restrictions on
their use, and certain associated risks, see the related headings under "Special
Investment Methods."
Under normal market conditions, it is expected that International Fund will be
fully invested in equity securities and related hedging instruments (except for
short-term investments of cash for liquidity purposes and pending investment).
However, for temporary defensive purposes during times of unusual market
conditions, International Fund may without limitation hold cash or invest in
cash items of the kinds described under "Special Investment Methods -- Cash
Items."
International Fund is subject to special risks associated with investing in
foreign securities and to declines in net asset value resulting from changes in
exchange rates between the United States dollar and foreign currencies. These
risks are discussed under "Special Investment Methods -- Foreign Securities" and
"-- Foreign Currency Transactions" elsewhere here. Because of the special risks
associated with foreign investing and the sub-adviser's ability to invest
substantial portions of International Fund's assets in a small number of
countries, International Fund may be subject to greater volatility than most
mutual funds which invest principally in domestic securities.
TECHNOLOGY FUND
OBJECTIVE. Technology Fund has an objective of long-term growth of capital.
INVESTMENT POLICIES. Under normal market conditions, Technology Fund invests at
least 80% of its total assets in equity securities of companies which its
adviser believes have, or will develop, products, processes or services that
will provide or will benefit significantly from technological advances and
improvements. The description of the technology sector is interpreted broadly by
the adviser and may include such products or services as inexpensive computing
power, such as personal computers; improved methods of communications, such as
satellite transmission; or labor saving machines or instruments, such as
computer-aided design equipment. The prime emphasis of Technology Fund is to
identify those companies positioned, in the adviser's opinion, to benefit from
technological advances in areas such as semiconductors, minicomputers and
peripheral equipment, scientific instruments, computer software, communications,
and future automation trends in both office and factory settings.
Technology Fund also may invest up to 20% of its total assets in fixed income
securities of the kinds described under "Special Investment Methods -- Fixed
Income Securities."
Technology Fund operates as a non-diversified investment company, as defined in
the 1940 Act, but intends to conduct its operations so as to qualify as a
regulated investment company for purposes of the Internal Revenue Code of 1986,
as amended. Since a relatively high percentage of the assets of Technology Fund
may be invested in the securities of a limited number of issuers which will be
in the same or related economic sectors, Technology Fund's portfolio securities
may be more susceptible to any single economic, technological or regulatory
occurrence than the portfolio securities of diversified investment companies. In
addition, competitive pressures may have a significant effect on the financial
condition of companies in the technology industry. For example, if technology
continues to advance at an accelerated rate, and the number of companies and
product offerings continue to expand, these companies could become increasingly
sensitive to short product cycles and aggressive pricing.
HEALTH SCIENCES FUND
OBJECTIVE. Health Sciences Fund has an objective of long-term growth of capital.
INVESTMENT POLICIES. Under normal market conditions, Health Sciences Fund
invests at least 80% of its total assets in equity securities of companies which
its adviser considers to be principally engaged in the development, production
or distribution of products or services connected with health care or medicine.
Examples of these products and services include pharmaceuticals, health care
services and administration, diagnostics, medical equipment and supplies,
medical technology, and medical research and development. The adviser
anticipates investing in companies that have the potential for above average
growth in revenue and earnings as a result of new or unique products, processes
or services, increasing demand for a company's products or services, established
market leadership, or exceptional management. A company will be deemed
"principally engaged" in the health sciences industries if at the time of
investment the adviser determines that at least 50% of its assets, revenues or
profits are derived from those industries.
Health Sciences Fund also may invest up to 20% of its total assets in fixed
income securities of the kinds described under "Special Investment Methods
- -- Fixed Income Securities."
Health Sciences Fund operates as a non-diversified investment company, as
defined in the 1940 Act, but intends to conduct its operations so as to qualify
as a regulated investment company for purposes of the Internal Revenue Code of
1986, as amended. Since a relatively high percentage of the assets of Health
Sciences Fund may be invested in the securities of a limited number of issuers
which will be in the same or related economic sectors, Health Sciences Fund's
portfolio securities may be more susceptible to any single economic,
technological or regulatory occurrence than the portfolio securities of
diversified investment companies. Many products and services in the health
sciences industries may become rapidly obsolete due to technological and
scientific advances. In addition, the health sciences industries generally are
subject to greater governmental regulation than many other industries, so that
changes in governmental policies may have a material effect on the demand for
products and services in these industries. Regulatory approvals generally are
required before new drugs, medical devices or medical procedures can be
introduced and before health care providers can acquire additional facilities or
equipment.
REAL ESTATE SECURITIES FUND
OBJECTIVE. Real Estate Securities Fund has an objective of providing above
average current income and long-term capital appreciation by investing primarily
in equity securities of real estate companies.
INVESTMENT POLICIES. Under normal market conditions, Real Estate Securities Fund
invests at least 65% of its total assets in income producing equity securities
of publicly traded companies principally engaged in the real estate industry.
For this purpose, a company is deemed to be "principally engaged" in the real
estate industry if (i) it derives at least 50% of its revenues or profits from
the ownership, construction, management, financing or sale of residential,
commercial or industrial real estate, or (ii) has at least 50% of the fair
market value of its assets invested in such real estate. Real Estate Securities
Fund seeks to invest in equity securities that provide a dividend yield that
exceeds the composite dividend yield of the securities included in the S&P 500.
A majority of Real Estate Securities Fund's total assets will be invested in
securities of real estate investment trusts ("REITs"). REITs are publicly traded
corporations or trusts that specialize in acquiring, holding, and managing
residential, commercial or industrial real estate. A REIT is not taxed at the
entity level on income distributed to its shareholders or unitholders if it
distributes to shareholders or unitholders at least 95% of its taxable income
for each taxable year and complies with regulatory requirements relating to its
organization, ownership, assets and income.
REITs generally can be classified as Equity REITs, Mortgage REITs, and Hybrid
REITs. An Equity REIT invests the majority of its assets directly in real
property and derives its income primarily from rents and from capital gains on
real estate appreciation which are realized through property sales. A Mortgage
REIT invests the majority of its assets in real estate mortgage loans and
derives its income primarily from interest payments. A Hybrid REIT combines the
characteristics of an Equity REIT and a Mortgage REIT. Although Real Estate
Securities Fund can invest in all three kinds of REITs, its emphasis is expected
to be on investments in Equity REITs.
Real Estate Securities Fund also may invest up to 35% of its total assets in
fixed income securities of the kinds described under "Special Investment Methods
- -- Fixed Income Securities."
Because Real Estate Securities Fund invests primarily in the real estate
industry, it is particularly subject to risks associated with that industry. The
real estate industry has been subject to substantial fluctuations and declines
on a local, regional and national basis in the past and may continue to be in
the future. Real property values and incomes from real property may decline due
to general and local economic conditions, overbuilding and increased
competition, increases in property taxes and operating expenses, changes in
zoning laws, casualty or condemnation losses, regulatory limitations on rents,
changes in neighborhoods and in demographics, increases in market interest
rates, or other factors. Factors such as these may adversely affect companies
which own and operate real estate directly, companies which lend to such
companies, and companies which service the real estate industry. Although Real
Estate Securities Fund will operate as a non-diversified investment company
under the 1940 Act, it intends to conduct its operations so as to qualify as a
regulated investment company under the Internal Revenue Code of 1986, as
amended.
Because Real Estate Securities Fund may invest a substantial portion of its
assets in REITs, it also is subject to risks associated with direct investments
in REITs. Equity REITs will be affected by changes in the values of and incomes
from the properties they own, while Mortgage REITs may be affected by the credit
quality of the mortgage loans they hold. In addition, REITs are dependent on
specialized management skills and on their ability to generate cash flow for
operating purposes and to make distributions to shareholders or unitholders.
REITs may have limited diversification and are subject to risks associated with
obtaining financing for real property, as well as to the risk of
self-liquidation. REITs also can be adversely affected by their failure to
qualify for tax-free pass-through treatment of their income under the Internal
Revenue Code of 1986, as amended, or their failure to maintain an exemption from
registration under the 1940 Act. By investing in REITs indirectly through Real
Estate Securities Fund, a shareholder of Real Estate Securities Fund bears not
only a proportionate share of the expenses of Real Estate Securities Fund, but
also may indirectly bear similar expenses of some of the REITs in which it
invests.
POLICIES COMMON TO UNDERLYING EQUITY FUNDS
Subject to the limitations stated under their respective captions above, each of
Equity Income Fund, Stock Fund, Diversified Growth Fund, Emerging Growth Fund,
Special Equity Fund, Technology Fund, and Health Sciences Fund may invest up to
25% of its total assets in securities of foreign issuers which are either listed
on a United States stock exchange or represented by American Depositary
Receipts. For information about these kinds of investments and certain
associated risks, see "Special Investment Methods -- Foreign Securities."
Each of Equity Income Fund, Stock Fund, Diversified Growth Fund, Emerging Growth
Fund, Regional Equity Fund, Special Equity Fund, Technology Fund, Health
Sciences Fund, and Real Estate Securities Fund may (i) enter into repurchase
agreements; (ii) in order to attempt to reduce risk, purchase put and call
options on equity securities and on stock indices; (iii) write covered call
options covering up to 25% of the equity securities owned by such Underlying
Fund; (iv) purchase securities on a when-issued or delayed-delivery basis; and
(v) engage in the lending of portfolio securities. For information about these
investment methods, restrictions on their use, and certain associated risks, see
the related headings under "Special Investment Methods." International Fund may
engage and these and certain additional activities to the extent described under
its caption above.
Each of Equity Income Fund, Stock Fund, Diversified Growth Fund, Regional Equity
Fund, Emerging Growth Fund, Special Equity Fund, Technology Fund, Health
Sciences Fund, and Real Estate Securities Fund may, for temporary defensive
purposes during times of unusual market conditions, without limitation hold cash
or invest in cash items of the kinds described under "Special Investment Methods
- -- Cash Items." Each such Underlying Fund also may invest not more than 35% of
its total assets in cash and cash items in order to utilize assets awaiting
normal investment.
FIXED INCOME FUND
OBJECTIVE. Fixed Income Fund has an objective of providing a high level of
current income consistent with limited risk to capital.
INVESTMENT POLICIES. Fixed Income Fund invests in investment grade debt
securities, at least 65% of which are United States Government obligations and
corporate debt obligations and mortgage-backed and asset-backed securities rated
at least A by Standard & Poor's or Moody's or which have been assigned an
equivalent rating by another nationally recognized statistical rating
organization. Under normal market conditions, the weighted average maturity of
the securities held by Fixed Income Fund will not exceed 15 years.
Fixed Income Fund's permitted investments include notes, bonds and discount
notes of United States Government agencies or instrumentalities; domestic issues
of corporate debt obligations having floating or fixed rates of interest and
rated at least BBB by Standard & Poor's or Baa by Moody's, or which have been
assigned an equivalent rating by another nationally recognized statistical
rating organization, or which are of comparable quality in the judgment of the
adviser; other fixed income securities, including mortgage-backed securities,
which are rated in one of the four highest categories by a nationally recognized
statistical rating organization or which are of comparable quality in the
judgment of the adviser; and commercial paper which is rated A-1 by Standard &
Poor's or P-1 by Moody's or which has been assigned an equivalent rating by
another nationally recognized statistical rating organization. Unrated
securities will not exceed 10% in the aggregate of the value of the total assets
of Fixed Income Fund. At least 65% of the total assets of Fixed Income Fund will
be invested in fixed rate obligations.
Subject to the foregoing limitations, Fixed Income Fund may invest in the
following kinds of securities, as described under the related headings under
"Special Investment Methods:" (i) mortgage-backed securities (provided that
Fixed Income Fund will not invest more than 10% of its total assets in the
aggregate in interest-only, principal-only or inverse floating rate
mortgage-backed securities); (ii) asset-backed securities; and (iii) bank
instruments.
In addition, Fixed Income Fund may (i) invest up to 15% of its total assets in
foreign securities payable in United States dollars; (ii) enter into repurchase
agreements; (iii) in order to attempt to reduce risk, invest in exchange traded
put and call options on interest rate futures contracts and on interest rate
indices; (iv) purchase securities on a when-issued or delayed-delivery basis;
and (v) engage in the lending of portfolio securities. For information about
these investment methods, restrictions on their use, and certain associated
risks, see the related headings under "Special Investment Methods."
Although Fixed Income Fund will not make direct purchases of common or preferred
stocks or rights to acquire common or preferred stocks, Fixed Income Fund may
invest in debt securities which are convertible into or exchangeable for, or
which carry warrants or other rights to acquire, such stocks. Equity interests
acquired through conversion, exchange or exercise of rights to acquire stock
will be disposed of by Fixed Income Fund as soon as practicable in an orderly
manner.
For temporary defensive purposes during times of unusual market conditions,
Fixed Income Fund may without limitation hold cash or invest in cash items.
Fixed Income Fund also may invest not more than 35% of its total assets in cash
and cash items in order to utilize assets awaiting normal investment. Cash items
may include short-term obligations such as rated commercial paper and variable
amount master demand notes; time and savings deposits (including certificates of
deposit); bankers acceptances; obligations of the United States Government or
its agencies or instrumentalities; and repurchase agreements collateralized by
eligible investments. Fixed Income Fund also may invest in securities of other
mutual funds which invest primarily in debt obligations with remaining
maturities of 13 months or less.
PRIME OBLIGATIONS FUND
OBJECTIVE. Prime Obligations Fund seeks to achieve maximum current income to the
extent consistent with the preservation of capital and the maintenance of
liquidity.
INVESTMENT POLICIES. Prime Obligations Fund seeks to maintain a constant dollar
price of $1.00 per share and holds itself out as a "money market fund." As such,
Prime Obligations Fund is subject to the provisions of Rule 2a-7 under the 1940
Act, which require, among other things, that the fund invest exclusively in
securities that mature within 397 days from the date of purchase, that it
maintain an average weighted maturity of not more than 90 days, and that it
invest only in United States dollar-denominated investments that meet specified
credit quality standards. There is no assurance that Prime Obligations Fund will
be able to maintain a constant dollar price of $1.00 per share.
In seeking to achieve its objective, Prime Obligations Fund invests in money
market instruments, including marketable securities issued or guaranteed by the
United States Government or its agencies or instrumentalities; United States
dollar-denominated obligations (including bankers' acceptances, time deposits,
and certificates of deposit, including variable rate certificates of deposit) of
banks (including commercial banks, savings banks, and savings and loan
associations) organized under the laws of the United States or any state,
foreign banks, United States branches of foreign banks, and foreign branches of
United States banks, if such banks have total assets of not less than $500
million; and certain corporate and other obligations, including high grade
commercial paper, non-convertible corporate debt securities, and loan
participation interests with no more than 397 days remaining to maturity. For
more information on these types of securities, see "Special Investment Methods"
below.
Prime Obligations Fund may also (i) engage in repurchase agreements with respect
to any of its portfolio securities, (ii) purchase credit enhancement agreements
to enhance the creditworthiness of its portfolio securities, (iii) lend
securities from its portfolio, or (iv) purchase the securities described above
on a when-issued or delayed-delivery basis. See "Special Investment Methods"
below.
Prime Obligations Fund may invest (i) up to 25% of its total assets in
dollar-denominated obligations of United States branches of foreign banks which
are subject to the same regulation as United States banks, and (ii) up to 25% of
its total assets collectively in dollar-denominated obligations of foreign
branches of domestic banks, foreign banks, and foreign corporations. Prime
Obligations Fund may invest in United States dollar-denominated obligations of
foreign corporations if the obligations satisfy the same quality standards set
forth above for domestic corporations. See "Special Investment Methods" for a
discussion of the risks relating to investments in such securities.
RISKS TO CONSIDER WITH RESPECT TO THE UNDERLYING FUNDS
An investment in the Underlying Funds involves certain risks in addition to
those noted above with respect to particular funds. These include the
following:
EQUITY SECURITIES GENERALLY. Market prices of equity securities generally, and
of particular companies' equity securities, frequently are subject to greater
volatility than prices of fixed income securities. Market prices of equity
securities as a group have dropped dramatically in a short period of time on
several occasions in the past, and they may do so again in the future. Each of
the Equity Funds is subject to the risk of generally adverse equity markets.
SMALLER-CAPITALIZATION COMPANIES. Emerging Growth Fund and Regional Equity Fund
emphasize investments in companies with relatively small market capitalizations,
and the remaining Equity Funds are permitted to invest in equity securities of
such companies. The equity securities of smaller-capitalization companies
frequently have experienced greater price volatility in the past than those of
larger-capitalization companies, and they may be expected to do so in the
future. To the extent that the Equity Funds invest in smaller-capitalization
companies, they are subject to this risk of greater volatility.
INTEREST RATE, CREDIT, AND CALL RISK. Fixed Income Fund is subject to interest
rate, credit, and call risk, as are the Equity Funds to the extent that they are
permitted to invest limited portions of their assets in fixed-rate securities:
Interest rate risk is the risk that the value of a fixed-rate debt security
will decline due to changes in market interest rates. In general, when
interest rates rise, the value of a fixed-rate debt security declines.
Conversely, when interest rates decline, the value of a fixed-rate debt
security generally increases. In general, the value of fixed-rate debt
securities with longer maturities is more sensitive to changes in market
interest rates than the value of such securities with shorter maturities.
Thus, the net asset value of a fund which invests in securities with longer
weighted average maturities, such as Fixed Income Fund, should be expected to
have greater volatility in periods of changing market interest rates than that
of a fund which invests in securities with shorter weighted average
maturities.
CREDIT RISK is the risk that the issuer of a debt security will fail to make
payments on the security when due. Fixed Income Fund can invest in debt
securities rated as low as BBB by Standard & Poor's or Baa by Moody's, or
which have been assigned an equivalent rating by another nationally recognized
statistical rating organization, or which are of comparable quality in the
judgment of the fund's adviser. Although these rating categories are
investment grade, obligations with these ratings are viewed as having
speculative characteristics and carry a somewhat higher risk of default than
obligations rated in the higher investment grade categories.
CALL RISK is the risk that a corporate bond will be called for redemption at
the option of its issuer at a price specified in the indenture or other
investment pursuant to which it was issued. In general, it is advantageous for
an issuer to call its bonds if they can be refinanced through the issuance of
new bonds which bear a lower interest rate than that of the called bonds. If a
bond is called during a period of declining interest rates, its holder
probably will have to reinvest the proceeds received by it at a lower interest
rate than that borne by the called bond, thus resulting in a decrease in
income.
MORTGAGE-BACKED SECURITIES. Fixed Income Fund also is subject to certain risks
associated with investing in mortgage-backed securities. Because residential
mortgage loans generally can be prepaid in whole or in part by the borrowers at
any time without any prepayment penalty, the holder of a mortgage-backed
security which represents an interest in a pool of such mortgage loans is
subject to a form of call risk which is generally called "prepayment risk." In
addition, it is more difficult to predict the effect of changes in market
interest rates on the return on mortgage-backed securities than on the return of
a conventional fixed-rate debt instrument; the magnitude of such changes may be
greater in some cases; and the return on certain types of mortgage-backed
securities, such as interest-only, principal-only and inverse floating rate
mortgage-backed securities, is particularly sensitive to changes in interest
rates and in the rate at which the mortgage loans underlying the securities are
prepaid by borrowers. See "Special Investment Methods -- Mortgage-Backed
Securities."
ACTIVE MANAGEMENT. All of the Underlying Funds are actively managed by their
adviser or, in the case of International Fund, its sub-adviser. Their
performance therefore will reflect in part the ability of the adviser or
sub-adviser to select securities which are suited to achieving their investment
objectives. Due to their active management, the Underlying Funds could
underperform other mutual funds with similar investment objectives or the market
generally.
OTHER. Investors also should review "Special Investment Methods" for information
concerning risks associated with certain investment techniques which may be
utilized by Underlying Funds.
MANAGEMENT
The Board of Directors of FASF has the primary responsibility for overseeing the
overall management and electing the officers of FASF. Subject to the overall
direction and supervision of the Board of Directors, the Adviser acts as
investment adviser for and manages the investment portfolios of FASF.
INVESTMENT ADVISER TO THE FUNDS
First Bank National Association, 601 Second Avenue South, Minneapolis, Minnesota
55480, acts as the Funds' investment adviser through its First Asset Management
group. The Adviser has acted as an investment adviser to FASF since its
inception in 1996. The Adviser also has acted as investment adviser to FAIF
since 1987 and to FAF since 1982. As of June 30, 1996, the Adviser was managing
accounts with an aggregate value of approximately $32 billion, including mutual
fund assets in excess of $9 billion. First Bank System, Inc., 601 Second Avenue
South, Minneapolis, Minnesota 55480, is the holding company for the Adviser.
Each of the Funds has agreed to pay the Adviser monthly fees calculated on an
annual basis equal to 0.25% of its average daily net assets. The Adviser may, at
its option, waive any or all of its fees, or reimburse expenses, with respect to
any Fund from time to time. Any such waiver or reimbursement is voluntary and
may be discontinued at any time. The Adviser also may absorb or reimburse
expenses of the Funds from time to time, in its discretion, while retaining the
ability to be reimbursed by the Funds for such amounts prior to the end of the
fiscal year. This practice would have the effect of lowering a Fund's overall
expense ratio and of increasing yield to investors, or the converse, at the time
such amounts are absorbed or reimbursed, as the case may be.
The Glass-Steagall Act generally prohibits banks from engaging in the business
of underwriting, selling or distributing securities and from being affiliated
with companies principally engaged in those activities. In addition,
administrative and judicial interpretations of the Glass-Steagall Act prohibit
bank holding companies and their bank and nonbank subsidiaries from organizing,
sponsoring or controlling registered open-end investment companies that are
continuously engaged in distributing their shares. Bank holding companies and
their bank and nonbank subsidiaries may serve, however, as investment advisers
to registered investment companies, subject to a number of terms and conditions.
Although the scope of the prohibitions and limitations imposed by the
Glass-Steagall Act has not been fully defined by the courts or the appropriate
regulatory agencies, the Funds believe that the Adviser is not prohibited from
performing the investment advisory services described above, and that FBS
Investment Services, Inc., a wholly owned broker-dealer subsidiary of the
Adviser, is not prohibited from entering into a sales agreement with the
Distributor as described herein. In the event of changes in federal or state
statutes or regulations or judicial and administrative interpretations or
decisions pertaining to permissible activities of bank holding companies and
their bank and nonbank subsidiaries, the Adviser and FBS Investment Services,
Inc. might be prohibited from continuing these arrangements. In that event, it
is expected that the Board of Directors would make other arrangements and that
shareholders would not suffer adverse financial consequences.
PORTFOLIO MANAGEMENT OF THE FUNDS
Asset allocation decisions for the Funds are made by a committee comprised of
Mr. Bren, Mr. Doak, Mr. Dubiak, Mr. Jones, Mr. Murphy, Mr. Rovner, Mr. Stanley,
and Mr. Ulrey, whose backgrounds are set forth below.
GERALD C. BREN joined the Adviser in 1972 as an investment analyst. He received
his master's degree in business administration from the University of Chicago in
1972 and his Chartered Financial Analyst certification in 1977. He also
participates in the management of certain of the Equity Funds.
JAMES DOAK joined the Adviser in 1982 after serving for two years as vice
president of INA Capital Advisors and ten years as Vice President of
Loomis-Sayles & Co. He has managed assets for individual and institutional
clients, specializing in equity investment. Jim received his bachelor's degree
from Brown University and his master's degree in business administration from
the Wharton School of Business. He is a Chartered Financial Analyst. He also
participates in the management of certain of the Equity Funds.
ALBIN S. DUBIAK began his investment career as a security trader with The First
National Bank of Chicago in 1963 before joining the Adviser as an investment
analyst in 1969. Al received his bachelor's degree from Indiana University in
1962 and his master's degree in business administration from the University of
Arizona in 1969. He also participates in the management of certain of the Equity
Funds.
MARTIN L. JONES heads the Fixed Income Group of the Adviser and has over 20
years of investment experience. Formerly with Harris Trust & Savings Bank,
Dillon, Read & Co., and Loeb Rhoades & Co., Martin received his bachelor's
degree from Texas Tech University, his master's degree from University of Texas,
and his master's in business administration degree from the University of
Chicago. He also is portfolio manager of Fixed Income Fund.
JOHN M. MURPHY, JR. is Chief Investment Officer of the Adviser's First Asset
Management group, having joined the Adviser in 1984. He has more than 30 years
in the investment management field and served with Investment Advisers, Inc. and
Blyth, Eastman, Dillon & Co. before joining the Adviser. He received his
bachelor's degree from Regis College. He also participates in the management of
certain of the Equity Funds.
JAMES S. ROVNER joined the Adviser in 1986 and has managed assets for
institutional and individual clients for over 15 years, specializing in equity
and balanced investment strategies. Jim received his bachelor's degree and his
master's degree in business administration from the University of Wisconsin. He
is a Chartered Financial Analyst. He also participates in the management of
certain of the Equity Funds.
RICHARD W. STANLEY entered the investment business via investment sales with
Smith Barney & Co. in 1958. He then moved to Heritage Investment Advisers as
head of fixed income investment in 1973. He joined the Adviser in early 1986 as
Vice President and Manager of Fixed Income/Personal Trust. Dick received his
master's in business administration degree from Cornell University in 1958 and
received his Chartered Financial Analyst certification in 1977. He also
participates in the management of certain tax-exempt funds offered by FAIF.
JOSEPH M. ULREY III spent 10 years overseeing various functions in the Treasury
and Finance Divisions of First Bank System before joining the Adviser. For the
past several years he has managed assets for individuals and institutional
clients of the Adviser. Joseph graduated from Macalester College with a
bachelor's degree in mathematics/economics and went on to the University of
Chicago for his master's in business administration, concentrating in finance.
He also participates in the management of Prime Obligations Fund.
INVESTMENT ADVISER AND SUB-ADVISER TO THE UNDERLYING FUNDS
First Bank National Association ("First Bank"), the Adviser to the Funds, also
acts as investment adviser to each of the Underlying Funds through its First
Asset Management group. Each of the Equity Funds other than International Fund
has agreed to pay First Bank monthly fees calculated on an annual basis equal to
0.70% of its daily average assets. International Fund pays First Bank a monthly
fee calculated on the same basis equal to 1.25% of its average daily net assets,
out of which First Bank pays that fund's sub-adviser's fees. Fixed Income Fund
and Prime Obligations Fund pay First Bank monthly fees calculated on the same
basis equal to 0.70% and 0.40%, respectively, of their average daily net assets.
First Bank may, at its option, waive any or all of such fees, or reimburse
expenses, with respect to any Underlying Fund from time to time and may
discontinue any such waiver or reimbursement at any time.
Marvin & Palmer Associates, Inc., 1201 North Market Street, Suite 2300,
Wilmington, Delaware 19801, is sub-adviser to International Fund under an
agreement with First Bank. The sub-adviser is responsible for the investment and
reinvestment of International Fund's assets and the placement of brokerage
transactions in connection therewith. For its services, the sub-adviser is paid
a monthly fee by First Bank calculated on an annual basis equal to 0.75% of the
first $100 million of International Fund's average daily net assets, 0.70% of
the second $100 million of International Fund's average daily net assets, 0.65%
of the third $100 million of International Fund's average daily net assets, and
0.60% of International Fund's average daily net assets in excess of $300
million.
The sub-adviser, a privately held company, was founded in 1986 by David F.
Marvin and Stanley Palmer. The stock of the sub-adviser is owned by Mr. Marvin,
Mr. Palmer and several other holders. The sub-adviser is engaged in the
management of global, non-United States and emerging markets equity portfolios
for institutional accounts. At September 30, 1995, the sub-adviser managed a
total of $3.1 billion in investments for 55 institutional investors.
CUSTODIAN
The custodian of the Funds' assets is First Trust National Association (the
"Custodian"), First Trust Center, 180 East Fifth Street, St. Paul, Minnesota
55101. The Custodian is a subsidiary of First Bank System, Inc., which also
controls the adviser.
As compensation for its services to the Funds, the Custodian is paid monthly
fees equal to 0.03% of the average daily net assets of each Fund. In addition,
the Custodian is reimbursed for its out-of-pocket expenses incurred while
providing its services to the Funds. The Custodian also acts as custodian of the
Underlying Funds' assets and receives compensation for such services.
ADMINISTRATOR
The administrator for the Funds is SEI Financial Management Corporation (the
"Administrator"), 680 East Swedesford Road, Wayne, Pennsylvania 19087. The
Administrator, a wholly-owned subsidiary of SEI Corporation, provides the Funds
with certain administrative services necessary to operate the Funds. These
services include shareholder servicing and certain accounting and other
services. The Administrator provides these services for a fee calculated at an
annual rate of 0.12% of each Fund's average daily net assets, subject to a
minimum administrative fee during each fiscal year of $50,000 per Fund;
provided, that to the extent that the aggregate net assets of all First American
funds exceed $8 billion, the percentage stated above is reduced to 0.105%. From
time to time, the Administrator may voluntarily waive its fees or reimburse
expenses with respect to any of the Funds. Any such waivers or reimbursements
may be made at the Administrator's discretion and may be terminated at any time.
The Administrator also acts as administrator for the Underlying Funds and
receives compensation for such services.
TRANSFER AGENT
DST Systems, Inc. (the "Transfer Agent") serves as the transfer agent and
dividend disbursing agent for the Funds. The address of the Transfer Agent is
210 West 10th Street, Kansas City, Missouri 64105. The Transfer Agent is not
affiliated with the Distributor, the Administrator or the Adviser. The Transfer
Agent also serves as transfer agent and dividend disbursing agent for the
Underlying Funds and receives compensation for such services.
DISTRIBUTOR
SEI Financial Services Company is the principal distributor for shares of the
Funds. The Distributor is a Pennsylvania corporation and is the principal
distributor for a number of investment companies. The Distributor is a
wholly-owned subsidiary of SEI Corporation and is located at 680 East Swedesford
Road, Wayne, Pennsylvania 19087. The Distributor is not affiliated with the
Adviser, First Bank System, Inc., the Custodian or their respective affiliates.
Shares of the Funds are distributed through the Distributor and securities
firms, financial institutions (including, without limitation, banks) and other
industry professionals which enter into sales agreements with the Distributor.
FASF has adopted and entered into a shareholder service plan and agreement (the
"Service Agreement") pursuant to which the Distributor agrees to provide, or to
enter into written agreements with service providers to provide, one or more
specified shareholder services to beneficial owners of shares of the Funds. In
consideration of the services and facilities to be provided by the Distributor
or any service provider, each Fund will pay to the Distributor a shareholder
servicing fee at an annual rate of 0.25% of the average net asset value of all
shares of each Fund, which fee will be computed daily and paid monthly. The
shareholder servicing fee is intended to compensate the Distributor for the
provision of shareholder services and may be used by the Distributor to provide
compensation to institutions through which shareholders hold their shares for
ongoing service and/or maintenance of shareholder accounts. Such shareholder
services may include maintaining accounts relating to beneficial owners that
invest in shares; providing information periodically to beneficial owners
showing their positions in shares; arranging for bank wires; responding to
inquiries from beneficial owners relating to the services performed by the
Distributor or any service provider; responding to inquiries from beneficial
owners concerning their investments in shares; forwarding shareholder
communications from the Funds (such as proxies, shareholder reports, annual and
semi-annual financial statements and dividend, distribution and tax notices) to
beneficial owners; processing purchase, exchange and redemption requests from
beneficial owners and placing such orders with the Funds or its service
providers; assisting beneficial owners in changing dividend options, account
designations, and addresses; providing subaccounting with respect to shares
beneficially owned; processing dividend payments from the Funds on behalf of
beneficial owners; and providing such other similar services as the Funds may
reasonably request to the extent that the Distributor and/or the service
provider is permitted to do so under applicable laws or regulations. To the
extent that shares are held through affiliates of the Adviser, such as FBS
Investment Services, Inc. or First Trust National Association, those entities
may receive shareholder servicing fees from the Distributor. The shareholder
servicing fee is intended to be a "service fee" as defined in Section 2830 of
the NASD Conduct Rules.
The Adviser, the Administrator, the Distributor, and any institution which has
entered into a sales agreement with the Distributor may in their discretion use
their own assets to pay for certain additional costs of distributing Fund shares
or servicing shareholder accounts. Any such arrangement may be commenced or
discontinued by any of these persons at any time, and any sales promotion
arrangement offered by the Adviser, the Administrator or the Distributor will be
offered on a uniform basis to all entities distributing Fund shares or servicing
Fund shareholders unless otherwise disclosed herein. FBS Investment Services,
Inc., a subsidiary of the Adviser, has entered into a sales agreement with the
Distributor. The Adviser may pay FBS Investment Services, Inc. an amount equal
to up to 3% of the net asset value of Fund shares sold through it.
Institutions through which Fund shareholders hold shares may impose additional
charges on such shareholders in connection with services provided by them,
provided that such charges are disclosed to such shareholders.
The Distributor also acts as the principal distributor for the Underlying Funds
and receives compensation (but not for distribution of the class of shares in
which the Funds invest) for such services.
INVESTING IN THE FUNDS
SHARE PURCHASES
Shares of the Funds are sold at their net asset value, next determined after an
order is received, without any sales charge, on days on which the New York Stock
Exchange is open for business. Shares may be purchased as described below. The
Funds reserve the right to reject any purchase request.
Net asset value is determined at 3:00 p.m. Central time Monday through Friday
except on (i) days on which there are not sufficient changes in the value of a
Fund's portfolio securities that its net asset value might be materially
affected; (ii) days during which no shares are tendered for redemption and no
orders to purchase shares are received; and (iii) on the following federal
holidays: New Year's Day, Presidents' Day, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day. In addition, net asset value will not
be calculated on Good Friday.
THROUGH A FINANCIAL INSTITUTION. Shares may be purchased through a financial
institution which has a sales agreement with the Distributor, such as FBS
Investment Services, Inc. An investor may call his or her financial institution
to place an order. Purchase orders must be received by the financial institution
by the time specified by the institution to be assured same day processing, and
purchase orders must be transmitted to and received by the Funds by 3:00 p.m.
Central time in order for shares to be purchased at that day's price. It is the
financial institution's responsibility to transmit orders promptly.
BY MAIL. An investor may place an order to purchase shares of the Funds directly
through the Transfer Agent. Orders by mail will be executed upon receipt of
payment by the Transfer Agent. If an investor's check does not clear, the
purchase will be cancelled and the investor could be liable for any losses or
fees incurred. Third-party checks, credit cards, credit card checks and cash
will not be accepted. When purchases are made by check, the proceeds of
redemptions of the shares purchased are not available until the Transfer Agent
is reasonably certain that the purchase payment has cleared, which could take up
to ten calendar days from the purchase date.
In order to purchase shares by mail, an investor must:
* complete and sign the new account form;
* enclose a check made payable to (Fund name); and
* mail both to DST Systems, Inc., P.O. Box 419382, Kansas City, Missouri
64141-6382.
After an account is established, an investor can purchase shares by mail by
enclosing a check and mailing it to DST Systems, Inc. at the above address.
BY WIRE. To purchase shares of a Fund by wire, call (800) 637-2548 before 3:00
p.m. Central time. All information needed will be taken over the telephone, and
the order will be considered placed when the Custodian receives payment by wire.
If the Custodian does not receive the wire by 3:00 p.m. Central time, the order
will be executed the next business day. Federal funds should be wired as
follows: First Bank National Association, Minneapolis, Minnesota, ABA Number
091000022; For Credit to: DST Systems: Account Number 6023458026; For Further
Credit To: (Investor Name and Fund Name). Shares cannot be purchased by Federal
Reserve wire on days on which the New York Stock Exchange is closed and on
federal holidays upon which wire transfers are restricted.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment for each Fund is $1,000 unless the investment is
in a retirement plan, in which case the minimum investment is $250. The minimum
subsequent investment is $100. The Funds reserve the right to waive the minimum
investment requirement for employees of First Bank National Association, First
Trust National Association and First Bank System, Inc. and their respective
affiliates.
SYSTEMATIC EXCHANGE PROGRAM
Shares of a Fund may also be purchased through automatic monthly deductions from
a shareholder's account in the Class A shares of Prime Obligations Fund of FAF.
Under a systematic exchange program, a shareholder enters an agreement to
purchase shares of one or more Funds over a specified period of time, and
initially purchases Prime Obligations Fund shares in an amount equal to the
total amount of the investment. On a monthly basis a specified dollar amount of
shares of Prime Obligations Fund is exchanged for shares of the Funds specified.
The systematic exchange program of investing a fixed dollar amount at regular
intervals over time has the effect of reducing the average cost per share of the
Funds. This effect also can be achieved through the systematic investment
program described below. A shareholder may apply for participation in this
program through his or her financial institution or by calling (800) 637-2548.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account and
invested in Fund shares at the net asset value next determined after an order is
received, plus any applicable sales charge. A shareholder may apply for
participation in this program through his or her financial institution or call
(800) 637-2548.
CERTIFICATES AND CONFIRMATIONS
The Transfer Agent maintains a share account for each shareholder. Share
certificates will not be issued by the Funds.
Confirmations of each purchase and redemption are sent to each shareholder.
In addition, monthly confirmations are sent to report all transactions and
dividends paid during that month for the Funds.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared and paid monthly with respect to the Funds. Distributions
of any net realized long-term capital gains will be made at least once every 12
months. Dividends and distributions are automatically reinvested in additional
shares of the Fund paying the dividend on payment dates at the ex-dividend date
net asset value without a sales charge, unless shareholders request cash
payments on the new account form or by writing to the Fund.
All shareholders on the record date are entitled to the dividend. If shares are
purchased before a record date for a dividend or a distribution of capital
gains, a shareholder will pay the full price for the shares and will receive
some portion of the purchase price back as a taxable dividend or distribution
(to the extent, if any, that the dividend or distribution is otherwise taxable
to holders of Fund shares). If shares are redeemed or exchanged before the
record date for a dividend or distribution or are purchased after the record
date, those shares are not entitled to the dividend or distribution.
EXCHANGE PRIVILEGE
Shares of a Fund, whether acquired by direct purchase, reinvestment of dividends
on such shares, or otherwise, may be exchanged for shares of the other Funds
without the payment of any sales charge (i.e., at net asset value). Exchanges of
shares among the Funds must meet any applicable minimum investment of the Fund
for which shares are being exchanged.
Shares of the Funds may not be exchanged for shares of the Underlying Funds,
other than Class A shares of FAF's Prime Obligations Fund.
The ability to exchange shares of the Funds does not constitute an offering or
recommendation of shares of one Fund by another Fund. This privilege is
available to shareholders resident in any state in which the Fund shares being
acquired may be sold. Exchanges may be accomplished by a written request, or by
telephone if a preauthorized exchange authorization is on file with the Transfer
Agent, shareholder servicing agent, or financial institution.
Written exchange requests must be signed exactly as shown on the authorization
form, and the signatures may be required to be guaranteed as for a redemption of
shares by an entity described below under "Redeeming Shares." Neither the Funds,
the Distributor, the Transfer Agent, any shareholder servicing agent, or any
financial institution will be responsible for further verification of the
authenticity of the exchange instructions.
Telephone exchange instructions made by an investor may be carried out only if a
telephone authorization form completed by the investor is on file with the
Transfer Agent, shareholder servicing agent, or financial institution. Shares
may be exchanged between two Funds by telephone only if both Funds have
identical shareholder registrations.
Telephone exchange instructions may be recorded and will be binding upon the
shareholder. Telephone instructions must be received by the Transfer Agent
before 3:00 p.m. Central time, or by a shareholder's shareholder servicing agent
or financial institution by the time specified by it, in order for shares to be
exchanged the same day. Neither the Transfer Agent nor any Fund will be
responsible for the authenticity of exchange instructions received by telephone
if it reasonably believes those instructions to be genuine. The Funds and the
Transfer Agent will each employ reasonable procedures to confirm that telephone
instructions are genuine, and they may be liable for losses resulting from
unauthorized or fraudulent telephone instructions if they do not employ these
procedures.
Shareholders of the Funds may have difficulty in making exchanges by telephone
through brokers and other financial institutions during times of drastic
economic or market changes. If a shareholder cannot contact his or her broker or
financial institution by telephone, it is recommended that an exchange request
be made in writing and sent by overnight mail to DST Systems, Inc., 210 West
10th Street, Kansas City, Missouri 64105.
The terms of any exchange privilege may be modified or terminated by the Funds
at any time. There are currently no additional fees or charges for the exchange
service. The Funds do not contemplate establishing such fees or charges, but
they reserve the right to do so. Shareholders will be notified of any
modification or termination of the exchange privilege and of the imposition of
any additional fees or changes.
REDEEMING SHARES
Each Fund redeems shares at their net asset value next determined after the
Transfer Agent receives the redemption request, without deduction of any
redemption fee or deferred sales charge. Redemptions will be made on days on
which the Fund computes its net asset value. Redemption requests can be made
as described below and must be received in proper form.
BY TELEPHONE
A shareholder may redeem shares of a Fund, if he or she elects the privilege on
the initial shareholder application, by calling his or her financial institution
to request the redemption. Shares will be redeemed at the net asset value next
determined after the Fund receives the redemption request from the financial
institution. Redemption requests must be received by the financial institution
by the time specified by the institution in order for shares to be redeemed at
that day's net asset value, and redemption requests must be transmitted to and
received by the Funds by 3:00 p.m. Central time in order for shares to be
redeemed at that day's net asset value. Pursuant to instructions received from
the financial institution, redemptions will be made by check or by wire
transfer. It is the financial institution's responsibility to transmit
redemption requests promptly.
Shareholders who did not purchase their shares of a Fund through a financial
institution may redeem their shares by telephoning (800) 637-2548. At the
shareholder's request, redemption proceeds will be paid by check mailed to the
shareholder's address of record or wire transferred to the shareholder's account
at a domestic commercial bank that is a member of the Federal Reserve System,
normally within one business day, but in no event more than seven days after the
request. The minimum amount for a wire transfer is $1,000. If at any time the
Funds determine it necessary to terminate or modify this method of redemption,
shareholders will be promptly notified.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming shares by telephone. If this should occur, another
method of redemption should be considered. Neither the Transfer Agent nor any
Fund will be responsible for any loss, liability, cost or expense for acting
upon wire instructions or upon telephone instructions that it reasonably
believes to be genuine. The Transfer Agent and the Funds will each employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine. These procedures may include the taping of telephone conversations. To
ensure authenticity of redemption or exchange instructions received by
telephone, the Transfer Agent examines each shareholder request by verifying the
account number and/or tax identification number at the time such request is
made. The Transfer Agent subsequently sends confirmations of both exchange sales
and exchange purchases to the shareholder for verification. If reasonable
procedures are not employed, the Transfer Agent and the Funds may be liable for
any losses due to unauthorized or fraudulent telephone transactions.
BY MAIL
Any shareholder may redeem Fund shares by sending a written request to the
Transfer Agent, shareholder servicing agent, or financial institution. The
written request should include the shareholder's name, the Fund name, the
account number, and the share or dollar amount requested to be redeemed, and
should be signed exactly as the shares are registered. Shareholders should call
the Fund, shareholder servicing agent or financial institution for assistance in
redeeming by mail. A check for redemption proceeds normally is mailed within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request.
Shareholders requesting a redemption of $5,000 or more, a redemption of any
amount to be sent to an address other than that on record with the Fund, or a
redemption payable other than to the shareholder of record, must have signatures
on written redemption requests guaranteed by:
* a trust company or commercial bank the deposits of which are insured by the
Bank Insurance Fund, which is administered by the Federal Deposit Insurance
Corporation ("FDIC");
* a member firm of the New York, American, Boston, Midwest, or Pacific Stock
Exchanges or of the National Association of Securities Dealers;
* a savings bank or savings and loan association the deposits of which are
insured by the Savings Association Insurance Fund, which is administered by
the FDIC; or
* any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Funds do not accept signatures guaranteed by a notary public.
The Funds and the Transfer Agent have adopted standards for accepting signature
guarantees from the above institutions. The Funds may elect in the future to
limit eligible signature guarantees to institutions that are members of a
signature guarantee program. The Funds and the Transfer Agent reserve the right
to amend these standards at any time without notice.
BY SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders whose account value is at least $5,000 may elect to participate in
the Systematic Withdrawal Program. Under this program, Fund shares are redeemed
to provide for periodic withdrawal payments in an amount directed by the
shareholder. A shareholder may apply to participate in this program through his
or her financial institution.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When shares are purchased by check or with funds transmitted through the
Automated Clearing House, the proceeds of redemptions of those shares are not
available until the Transfer Agent is reasonably certain that the purchase
payment has cleared, which could take up to ten calendar days from the purchase
date.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, a Fund may
redeem shares in any account, except retirement plans, and pay the proceeds to
the shareholder if the account balance falls below the required minimum value of
$500. Shares will not be redeemed in this manner, however, if the balance falls
below $500 because of changes in a Fund's net asset value. Before shares are
redeemed to close an account, the shareholder will be notified in writing and
allowed 60 days to purchase additional shares to meet the minimum account
requirement.
DETERMINING THE PRICE OF SHARES
Shares of the Funds are sold at net asset value, without any sales charge.
Shares are redeemed at net asset value, without deduction of any redemption fee
or deferred sales charge.
The net asset value per share is determined as of the earlier of the close of
the New York Stock Exchange or 3:00 p.m. Central time on each day the New York
Stock Exchange is open for business, provided that net asset value need not be
determined on days when no Fund shares are tendered for redemption and no order
for that Fund's shares is received and on days on which changes in the value of
portfolio securities will not materially affect the current net asset value of
the Fund's shares. The price per share for purchases or redemptions is such
value next computed after the Transfer Agent receives the purchase order or
redemption request.
It is the responsibility of investors' financial institutions promptly to
forward purchase and redemption orders to the Transfer Agent. In the case of
redemptions and repurchases of shares owned by corporations, trusts or estates,
the Transfer Agent or Fund may require additional documents to evidence
appropriate authority in order to effect the redemption, and the applicable
price will be that next determined following the receipt of the required
documentation.
DETERMINING NET ASSET VALUE
The net asset value per share for each of the Funds is determined by dividing
the value of the securities owned by the Fund plus any cash and other assets
(including interest accrued and dividends declared but not collected), less all
liabilities, by the number of Fund shares outstanding. The assets of each Fund
are expected to consist primarily of shares of the Underlying Funds, which are
valued at their respective net asset values. For the purpose of determining the
aggregate net assets of the Funds, cash and receivables will be valued at their
face amounts. Interest will be recorded as accrued and dividends will be
recorded on the ex-dividend date. Investments in equity securities which are
traded on a national securities exchange (or reported on the NASDAQ national
market system) are stated at the last quoted sales price if readily available
for such equity securities on each business day; other equity securities traded
in the over-the-counter market and listed equity securities for which no sale
was reported on that date are stated at the last quoted bid price. Debt
obligations exceeding 60 days to maturity which are actively traded are valued
by an independent pricing service at the most recently quoted bid price. Debt
obligations with 60 days or less remaining until maturity may be valued at their
amortized cost. When market quotations are not readily available, securities are
valued at fair value as determined in good faith by procedures established and
approved by the Board of Directors.
Portfolio securities underlying actively traded options are valued at their
market price as determined above. The current market value of any exchange
traded option held or written by a Fund is its last sales price on the exchange
prior to the time when assets are valued, unless the bid price is higher or the
asked price is lower, in which event the bid or asked price is used. In the
absence of any sales that day, options will be valued at the current closing bid
price.
FEDERAL INCOME TAXES
Each Fund intends to qualify as a regulated investment company under Subchapter
M of the Internal Revenue Code of 1986, as amended (the "Code"), during its
current taxable year in order to be relieved of payment of federal income taxes
on amounts of taxable income it distributes to shareholders.
Dividends paid from each Fund's net investment income and net short-term capital
gains will be taxable to shareholders as ordinary income, whether or not the
shareholder elects to have such dividends automatically reinvested in additional
shares. Dividends paid by the Funds attributable to investments by the
Underlying Funds in the securities of foreign issuers, debt securities, or REITs
will not be eligible for the 70% deduction for dividends received by
corporations.
Dividends paid from the net capital gains of each Fund and designated as capital
gain dividends will be taxable to shareholders as long-term capital gains,
regardless of the length of time for which they have held their shares in the
Fund. Long-term capital gains of individuals are currently subject to a maximum
tax rate of 28%.
Gain or loss realized upon the sale of shares in the Funds will be treated as
capital gain or loss, provided that the shares represented a capital asset in
the hands of the shareholder. Such gain or loss will be long-term gain or loss
if the shares were held for more than one year.
Investment income received by the Funds from sources within foreign countries
may be subject to foreign income taxes withheld at the source. The Funds will
not be able to treat shareholders as having paid their proportionate share of
such taxes for foreign tax credit purposes.
Each Fund is required by federal law to withhold 31% of reportable payments
(including dividends, capital gain distributions, and redemptions) paid to
certain accounts whose owners have not complied with IRS regulations. In order
to avoid this withholding requirement, each shareholder will be asked to certify
on the shareholder's account application that the social security or taxpayer
identification number provided is correct and that the shareholder is not
subject to backup withholding for previous underreporting to the IRS.
This is a general summary of the federal tax laws applicable to the Funds and
their shareholders as of the date of this Prospectus. See the Statement of
Additional Information for further details. Before investing in the Funds, an
investor should consult his or her tax adviser about the consequences of state
and local tax laws.
FUND SHARES
Each share of a Fund is fully paid, nonassessable, and transferable. Shares may
be issued as either full or fractional shares. Fractional shares have pro rata
the same rights and privileges as full shares. Shares of the Funds have no
preemptive or conversion rights.
Each share of a Fund has one vote. On some issues, such as the election of
directors, all shares of all FASF Funds vote together as one series. The shares
do not have cumulative voting rights. Consequently, the holders of more than 50%
of the shares voting for the election of directors are able to elect all of the
directors if they choose to do so. On issues affecting only a particular Fund,
the shares of that Fund will vote as a separate series. Examples of such issues
would be proposals to alter a fundamental investment restriction pertaining to a
Fund or to approve, disapprove or alter a distribution plan.
The Bylaws of FASF provide that annual shareholders meetings are not required
and that meetings of shareholders need only be held with such frequency as
required under Minnesota law and the 1940 Act.
CALCULATION OF PERFORMANCE DATA
From time to time, any of the Funds may advertise information regarding its
performance. Each Fund may publish its "yield," its "cumulative total return,"
its "average annual total return" and its "distribution rate." Distribution
rates may only be used in connection with sales literature and shareholder
communications preceded or accompanied by a Prospectus. Each of these
performance figures is based upon historical results and is not intended to
indicate future performance, and, except for "distribution rate," is
standardized in accordance with Securities and Exchange Commission regulations.
"Yield" for the Funds is computed by dividing the net investment income per
share (as defined in applicable Securities and Exchange Commission regulations)
earned during a 30-day period (which period will be stated in the advertisement)
by the maximum offering price per share on the last day of the period. Yield is
an annualized figure, in that it assumes that the same level of net investment
income is generated over a one year period. The yield formula annualizes net
investment income by providing for semi-annual compounding.
"Total return" is based on the overall dollar or percentage change in value of a
hypothetical investment in a Fund assuming reinvestment of dividend
distributions and deduction of all expenses. "Cumulative total return" reflects
a Fund's performance over a stated period of time. "Average annual total return"
reflects the hypothetical annually compounded rate that would have produced the
same cumulative total return if performance had been constant over the entire
period. Because average annual returns tend to smooth out variations in a Fund's
performance, they are not the same as actual year-by-year results.
A Fund's "historical distribution rate" is determined by dividing the income
dividends per share for a stated period by the maximum offering price per share
on the last day of the period. A Fund's "annualized current distribution rate"
is computed by dividing the Fund's income dividends for a specified month by the
number of days in that month and multiplying by 365, and dividing the resulting
figure by the maximum offering price on the last day of the specified period.
All distribution rates published for the Funds are measures of the level of
income dividends distributed during a specified period. Thus, these rates differ
from yield (which measures income actually earned by a Fund) and total return
(which measures actual income, plus realized and unrealized gains or losses of a
Fund's investments). Consequently, distribution rates alone should not be
considered complete measures of performance.
In reports or other communications to shareholders and in advertising material,
the performance of each Fund may be compared to recognized unmanaged indices or
averages of the performance of similar securities. Also, the performance of each
Fund may be compared to that of other funds of similar size and objectives as
listed in the rankings prepared by Lipper Analytical Services, Inc. or similar
independent mutual fund rating services, and each Fund may include in such
reports, communications and advertising material evaluations published by
nationally recognized independent ranking services and publications. For further
information regarding the Funds' performance, see "Fund Performance" in the
Statement of Additional Information.
SPECIAL INVESTMENT METHODS
This section provides additional information concerning the securities in which
the Funds and the Underlying Funds may invest and related topics. Further
information concerning these matters is contained in the Statement of Additional
Information.
CASH ITEMS
The "cash items" in which the Funds and the Equity Funds may invest, as
described under "Investment Objectives and Policies" and "The Underlying Funds,"
include short-term obligations such as rated commercial paper and variable
amount master demand notes; United States dollar-denominated time and savings
and time deposits (including certificates of deposit); bankers acceptances;
obligations of the United States Government or its agencies or
instrumentalities; repurchase agreements collateralized by eligible investments
of an Underlying Fund; securities of other mutual funds which invest primarily
in debt obligations with remaining maturities of 13 months or less (which
investments also are subject to the advisory fee); and other similar
high-quality short-term United States dollar-denominated obligations.
REPURCHASE AGREEMENTS
Each of the Underlying Funds may enter into repurchase agreements. A repurchase
agreement involves the purchase by an Underlying Fund of securities with the
agreement that after a stated period of time, the original seller will buy back
the same securities ("collateral") at a predetermined price or yield. Repurchase
agreements involve certain risks not associated with direct investments in
securities. If the original seller defaults on its obligation to repurchase as a
result of its bankruptcy or otherwise, the purchasing Underlying Fund will seek
to sell the collateral, which could involve costs or delays. Although collateral
(which may consist of any fixed income security which is an eligible investment
for the Underlying Fund entering into the repurchase agreement) will at all
times be maintained in an amount equal to the repurchase price under the
agreement (including accrued interest), an Underlying Fund would suffer a loss
if the proceeds from the sale of the collateral were less than the agreed-upon
repurchase price. The adviser of an Underlying Fund or, in the case of
International Fund, its sub-adviser will monitor the creditworthiness of the
firms with which the Underlying Funds enter into repurchase agreements.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS
Each of the Underlying Funds may purchase securities on a when-issued or
delayed-delivery basis. When such a transaction is negotiated, the purchase
price is fixed at the time the purchase commitment is entered, but delivery of
and payment for the securities take place at a later date. An Underlying Fund
will not accrue income with respect to securities purchased on a when-issued or
delayed-delivery basis prior to their stated delivery date. Pending delivery of
the securities, each Underlying Fund will maintain in a segregated account cash
or liquid high-grade securities in an amount sufficient to meet its purchase
commitments.
The purchase of securities on a when-issued or delayed-delivery basis exposes an
Underlying Fund to risk because the securities may decrease in value prior to
delivery. In addition, an Underlying Fund's purchase of securities on a
when-issued or delayed-delivery basis while remaining substantially fully
invested could increase the amount of the Underlying Fund's total assets that
are subject to market risk, resulting in increased sensitivity of net asset
value to changes in market prices. However, the Underlying Funds will engage in
when-issued and delayed-delivery transactions only for the purpose of acquiring
portfolio securities consistent with their investment objectives, and not for
the purpose of investment leverage. A seller's failure to deliver securities to
an Underlying Fund could prevent the Underlying Fund from realizing a price or
yield considered to be advantageous. Prime Obligations Fund will not purchase
securities on a when-issued or delayed-delivery basis if, as a result thereof,
more than 15% of its net assets would be so invested.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, each of the Underlying Funds may lend
portfolio securities representing up to one-third of the value of its total
assets to broker-dealers, banks or other institutional borrowers of securities.
As with other extensions of credit, there may be risks of delay in recovery of
the securities or even loss of rights in the collateral should the borrower of
the securities fail financially. However, the Underlying Funds will only enter
into loan arrangements with broker-dealers, banks, or other institutions which
its adviser or, in the case of International Fund, its sub-adviser has
determined are creditworthy under guidelines established by the Board of
Directors. In these loan arrangements, the Underlying Funds will receive
collateral in the form of cash, United States Government securities or other
high-grade debt obligations equal to at least 100% of the value of the
securities loaned. Collateral is marked to market daily. The Underlying Funds
will pay a portion of the income earned on the lending transaction to the
placing broker and may pay administrative and custodial fees (including fees to
an affiliate of the Adviser) in connection with these loans.
OPTIONS TRANSACTIONS
PURCHASES OF PUT AND CALL OPTIONS. The Underlying Funds, other than Prime
Obligations Fund, may purchase put and call options. These transactions will be
undertaken only for the purpose of reducing risk to the Underlying Funds; that
is, for "hedging" purposes. Depending on the Underlying Fund, these transactions
may include the purchase of put and call options on equity securities, on stock
indices, on interest rate indices, or (only in the case of International Fund)
on foreign currencies. Options on futures contracts are discussed below under
"Futures and Options on Futures."
A put option on a security gives the purchaser of the option the right (but not
the obligation) to sell, and the writer of the option the obligation to buy, the
underlying security at a stated price (the "exercise price") at any time before
the option expires. A call option on a security gives the purchaser the right
(but not the obligation) to buy, and the writer the obligation to sell, the
underlying security at the exercise price at any time before the option expires.
The purchase price for a put or call option is the "premium" paid by the
purchaser for the right to sell or buy.
Options on indices are similar to options on securities except that, rather than
the right to take or make delivery of a specific security at a stated price, an
option on an index gives the holder the right to receive, upon exercise of the
option, a defined amount of cash if the closing value of the index upon which
the option is based is greater than, in the case of a call, or less than, in the
case of a put, the exercise price of the option.
None of the Underlying Funds other than International Fund will invest more than
5% of the value of its total assets in purchased options, provided that options
which are "in the money" at the time of purchase may be excluded from this 5%
limitation. A call option is "in the money" if the exercise price is lower than
the current market price of the underlying security or index, and a put option
is "in the money" if the exercise price is higher than the current market price.
An Underlying Fund's loss exposure in purchasing an option is limited to the sum
of the premium paid and the commission or other transaction expenses associated
with acquiring the option.
The use of purchased put and call options involves certain risks. These include
the risk of an imperfect correlation between market prices of securities held by
an Underlying Fund and the prices of options, and the risk of limited liquidity
in the event that an Underlying Fund seeks to close out an options position
before expiration by entering into an offsetting transaction.
WRITING OF COVERED CALL OPTIONS. The Underlying Funds may write (sell) covered
call options to the extent specified with respect to particular Underlying Funds
under "The Underlying Funds." These transactions would be undertaken principally
to produce additional income. Depending on the Underlying Fund, these
transactions may include the writing of covered call options on equity
securities or (only in the case of International Fund) on foreign currencies
which an Underlying Fund owns or has the right to acquire or on interest rate
indices.
When an Underlying Fund sells a covered call option, it is paid a premium by the
purchaser. If the market price of the security covered by the option does not
increase above the exercise price before the option expires, the option
generally will expire without being exercised, and the Underlying Fund will
retain both the premium paid for the option and the security. If the market
price of the security covered by the option does increase above the exercise
price before the option expires, however, the option is likely to be exercised
by the purchaser. In that case the Underlying Fund will be required to sell the
security at the exercise price, and it will not realize the benefit of increases
in the market price of the security above the exercise price of the option.
FUTURES AND OPTIONS ON FUTURES
The Funds, as well as Fixed Income Fund and International Fund, may engage in
futures transactions and purchase options on futures as described with respect
to the Funds under "Investment Objectives and Policies -- Investment Policies"
and with respect to such Underlying Funds under "The Underlying Funds." In
addition, International Fund may enter into contracts for the future delivery of
securities or foreign currencies and futures contracts based on a specific
security, class of securities, or foreign currency.
A futures contract on a security obligates one party to purchase, and the other
to sell, a specified security at a specified price on a date certain in the
future. A futures contract on an index obligates the seller to deliver, and
entitles the purchaser to receive, an amount of cash equal to a specific dollar
amount times the difference between the value of the index at the expiration
date of the contract and the index value specified in the contract. The
acquisition of put and call options on futures contracts will, respectively,
give a fund the right (but not the obligation), for a specified exercise price,
to sell or to purchase the underlying futures contract at any time during the
option period.
The Funds may use futures contracts and options on futures for the purposes
specified under "Investment Objectives and Policies -- Investment Policies." An
Underlying Fund may use futures contracts and options on futures in an effort to
hedge against market risks and, in the case of International Fund, as part of
its management of foreign currency transactions.
Aggregate initial margin deposits for futures contracts, and premiums paid for
related options, may not exceed 5% of a Fund's or Underlying Fund's total
assets, and the value of securities that are the subject of such futures and
options (both for receipt and delivery) may not exceed 1/3 of the market value
of International Fund's total assets. Futures transactions will be limited to
the extent necessary to maintain each Fund's and Underlying Fund's qualification
as a regulated investment company under the Internal Revenue Code of 1986, as
amended.
Where a Fund or an Underlying Fund is permitted to purchase options on futures,
its potential loss is limited to the amount of the premiums paid for the
options. As stated above, this amount may not exceed 5% of a Fund's or
Underlying Fund's total assets. Where a Fund or an Underlying Fund is permitted
to enter into futures contracts obligating it to purchase securities, currency
or an index in the future at a specified price, such Fund or Underlying Fund
could lose 100% of its net assets in connection therewith if it engaged
extensively in such transactions and if the market value or index value of the
subject securities, currency or index at the delivery or settlement date fell to
zero for all contracts into which a Fund or Underlying Fund was permitted to
enter. Where an Underlying Fund is permitted to enter into futures contracts
obligating it to sell securities or currencies (as is the case with respect only
to International Fund), its potential losses are unlimited if it does not own
the securities or currencies covered by the contracts and it is unable to close
out the contracts prior to the settlement date.
Futures transactions involve brokerage costs and require a Fund or Underlying
Fund to segregate assets to cover contracts that would require it to purchase
securities or currencies. A Fund or Underlying Fund may lose the expected
benefit of futures transactions if interest rates, exchange rates or securities
prices move in an unanticipated manner. Such unanticipated changes may also
result in poorer overall performance than if the Fund or Underlying Fund had not
entered into any futures transactions. In addition, the value of a Fund's or
Underlying Fund's futures positions may not prove to be perfectly or even highly
correlated with the value of its portfolio securities or foreign currencies,
limiting the Fund's or Underlying Fund's ability to hedge effectively against
interest rate, exchange rate and/or market risk and giving rise to additional
risks. There is no assurance of liquidity in the secondary market for purposes
of closing out futures positions.
FIXED INCOME SECURITIES
The fixed income securities in which the Equity Funds may invest include
securities issued or guaranteed by the United States Government or its agencies
or instrumentalities, nonconvertible preferred stocks, nonconvertible corporate
debt securities, and short-term obligations of the kinds described above under
"-- Cash Items." Investments in nonconvertible preferred stocks and
nonconvertible corporate debt securities will be limited to securities which are
rated at the time of purchase not less than BBB by Standard & Poor's or Baa by
Moody's (or equivalent short-term ratings), or which have been assigned an
equivalent rating by another nationally recognized statistical rating
organization, or which are of comparable quality in the judgment of the adviser.
Obligations rated BBB, Baa or their equivalent, although investment grade, have
speculative characteristics and carry a somewhat higher risk of default than
obligations rated in the higher investment grade categories.
Equity Income Fund also may invest a portion of its assets in less than
investment grade convertible debt obligations. For a description of such
obligations and the risks associated therewith, see "The Underlying Funds
- -- Equity Income Fund."
FOREIGN SECURITIES
GENERAL. Under normal market conditions International Fund invests at least 65%
of its total assets in equity securities which trade in markets other than the
United States. In addition, the other Equity Funds (excluding Regional Equity
Fund and Real Estate Securities Fund) may invest lesser proportions of their
assets in securities of foreign issuers which are either listed on a United
States securities exchange or represented by American Depositary Receipts.
Fixed Income Fund may invest up to 15% of its total assets in foreign securities
payable in United States dollars. These securities may include securities issued
or guaranteed by (i) the government of Canada, any Canadian province, or any
instrumentality or political subdivision thereof; (ii) any other foreign
government, agency or instrumentality; (iii) foreign subsidiaries of United
States corporations; and (iv) foreign banks having total capital and surplus at
the time of investment of at least $1 billion. Such foreign bank or corporate
securities must be rated by at least one major United States rating agency as
having a quality not less than that which would be required for comparable
domestic securities. In addition, Fixed Income Fund also may invest in
Eurodollar Certificates of Deposit, Eurodollar Time Deposits and Yankee
Certificates of Deposit as described under "-- Bank Instruments" below.
Prime Obligations Fund may invest in United States dollar-denominated
obligations of foreign banks, United States branches of foreign banks, and
foreign branches of United States banks, subject to the limitations described
under "The Underlying Funds -- Prime Obligations Fund" above.
Investment in foreign securities is subject to special investment risks that
differ in some respects from those related to investments in securities of
United States domestic issuers. These risks include political, social or
economic instability in the country of the issuer, the difficulty of predicting
international trade patterns, the possibility of the imposition of exchange
controls, expropriation, limits on removal of currency or other assets,
nationalization of assets, foreign withholding and income taxation, and foreign
trading practices (including higher trading commissions, custodial charges and
delayed settlements). Foreign securities also may be subject to greater
fluctuations in price than securities issued by United States corporations. The
principal markets on which these securities trade may have less volume and
liquidity, and may be more volatile, than securities markets in the United
States.
In addition, there may be less publicly available information about a foreign
company than about a United States domiciled company. Foreign companies
generally are not subject to uniform accounting, auditing and financial
reporting standards comparable to those applicable to United States domestic
companies. There is also generally less government regulation of securities
exchanges, brokers and listed companies abroad than in the United States.
Confiscatory taxation or diplomatic developments could also affect investment in
those countries. In addition, foreign branches of United States banks, foreign
banks and foreign issuers may be subject to less stringent reserve requirements
and to different accounting, auditing, reporting, and recordkeeping standards
than those applicable to domestic branches of United States banks and United
States domestic issuers.
AMERICAN DEPOSITARY RECEIPTS AND EUROPEAN DEPOSITARY RECEIPTS. For many foreign
securities, United States dollar-denominated American Depositary Receipts, which
are traded in the United States on exchanges or over-the-counter, are issued by
domestic banks. American Depositary Receipts represent the right to receive
securities of foreign issuers deposited in a domestic bank or a correspondent
bank. American Depositary Receipts do not eliminate all the risk inherent in
investing in the securities of foreign issuers. However, by investing in
American Depositary Receipts rather than directly in foreign issuers' stock, an
Equity Fund can avoid currency risks during the settlement period for either
purchases or sales. In general, there is a large, liquid market in the United
States for many American Depositary Receipts. The information available for
American Depositary Receipts is subject to the accounting, auditing and
financial reporting standards of the domestic market or exchange on which they
are traded, which standards are more uniform and more exacting than those to
which many foreign issuers may be subject. International Fund also may invest in
European Depositary Receipts, which are receipts evidencing an arrangement with
a European bank similar to that for American Depositary Receipts and which are
designed for use in the European securities markets. European Depositary
Receipts are not necessarily denominated in the currency of the underlying
security.
Certain American Depositary Receipts and European Depositary Receipts, typically
those denominated as unsponsored, require the holders thereof to bear most of
the costs of the facilities while issuers of sponsored facilities normally pay
more of the costs thereof. The depository of an unsponsored facility frequently
is under no obligation to distribute shareholder communications received from
the issuer of the deposited securities or to pass through the voting rights to
facility holders in respect to the deposited securities, whereas the depository
of a sponsored facility typically distributes shareholder communications and
passes through voting rights.
FOREIGN CURRENCY TRANSACTIONS
International Fund invests in securities which are purchased and sold in foreign
currencies. The value of its assets as measured in United States dollars
therefore may be affected favorably or unfavorably by changes in foreign
currency exchange rates and exchange control regulations. International Fund
also will incur costs in converting United States dollars to local currencies,
and vice versa.
International Fund will conduct its foreign currency exchange transactions
either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign
currency exchange market, or through forward contracts to purchase or sell
foreign currencies. A forward foreign currency exchange contract involves an
obligation to purchase or sell a specific currency at a future date certain at a
specified price. These forward currency contracts are traded directly between
currency traders (usually large commercial banks) and their customers.
International Fund may enter into forward currency contracts in order to hedge
against adverse movements in exchange rates between currencies. It may engage in
"transaction hedging" to protect against a change in the foreign currency
exchange rate between the date International Fund contracts to purchase or sell
a security and the settlement date, or to "lock in" the United States dollar
equivalent of a dividend or interest payment made in a foreign currency. It also
may engage in "portfolio hedging" to protect against a decline in the value of
its portfolio securities as measured in United States dollars which could result
from changes in exchange rates between the United States dollar and the foreign
currencies in which the portfolio securities are purchased and sold.
International Fund also may hedge its foreign currency exchange rate risk by
engaging in currency financial futures and options transactions.
Although a foreign currency hedge may be effective in protecting International
Fund from losses resulting from unfavorable changes in exchanges rates between
the United States dollar and foreign currencies, it also would limit the gains
which might be realized by International Fund from favorable changes in exchange
rates. The sub-adviser's decision whether to enter into currency hedging
transactions will depend in part on its view regarding the direction and amount
in which exchange rates are likely to move. The forecasting of movements in
exchange rates is extremely difficult, so that it is highly uncertain whether a
hedging strategy, if undertaken, would be successful. To the extent that the
sub-adviser's view regarding future exchange rates proves to have been
incorrect, International Fund may realize losses on its foreign currency
transactions.
International Fund does not intend to enter into forward currency contracts or
maintain a net exposure in such contracts where it would be obligated to deliver
an amount of foreign currency in excess of the value of its portfolio securities
or other assets denominated in that currency.
MORTGAGE-BACKED SECURITIES
Fixed Income Fund may invest in mortgage-backed securities which are Agency
Pass-Through Certificates or collateralized mortgage obligations ("CMOs"), as
described below.
Agency Pass-Through Certificates are mortgage pass-through certificates
representing undivided interests in pools of residential mortgage loans.
Distribution of principal and interest on the mortgage loans underlying an
Agency Pass-Through Certificate is an obligation of or guaranteed by Government
National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA"), or the Federal Home Loan Mortgage Corporation ("FHLMC").
The obligation of GNMA with respect to such certificates is backed by the full
faith and credit of the United States, while the obligations of FNMA and FHLMC
with respect to such certificates rely solely on the assets and credit of those
entities. The mortgage loans underlying GNMA certificates are partially or fully
guaranteed by the Federal Housing Administration or the Veterans Administration,
while the mortgage loans underlying FNMA certificates and FHLMC certificates are
conventional mortgage loans which are, in some cases, insured by private
mortgage insurance companies. Agency Pass-Through Certificates may be issued in
a single class with respect to a given pool of mortgage loans or in multiple
classes.
CMOs are debt obligations typically issued by a private special-purpose entity
and collateralized by residential or commercial mortgage loans or Agency
Pass-Through Certificates. Fixed Income Fund will invest only in CMOs which are
rated in one of the four highest rating categories by a nationally recognized
statistical rating organization or which are of comparable quality in the
judgment of the adviser. Because CMOs are debt obligations of private entities,
payments on CMOs generally are not obligations of or guaranteed by any
governmental entity, and their ratings and creditworthiness typically depend,
among other factors, on the legal insulation of the issuer and transaction from
the consequences of a sponsoring entity's bankruptcy. CMOs generally are issued
in multiple classes, with holders of each class entitled to receive specified
portions of the principal payments and prepayments and/or of the interest
payments on the underlying mortgage loans. These entitlements can be specified
in a wide variety of ways, so that the payment characteristics of various
classes may differ greatly from one another. Examples of the more common classes
are provided in the Statement of Additional Information. The CMOs in which the
Fixed Income Fund may invest include classes which are subordinated in right of
payment to other classes, as long as they have the required rating referred to
above.
It generally is more difficult to predict the effect of changes in market
interest rates on the return on mortgaged-backed securities than to predict the
effect of such changes on the return of a conventional fixed-rate debt
instrument, and the magnitude of such effects may be greater in some cases. The
return on interest-only and principal-only mortgage-backed securities is
particularly sensitive to changes in interest rates and prepayment speeds. When
interest rates decline and prepayment speeds increase, the holder of an
interest-only mortgage-backed security may not even recover its initial
investment. Similarly, the return on an inverse floating rate CMO is likely to
decline more sharply in periods of increasing interest rates than that of a
fixed-rate security. For these reasons, interest-only, principal-only and
inverse floating rate mortgage-backed securities generally have greater risk
than more conventional classes of mortgage-backed securities. Fixed Income Fund
will not invest more than 10% of its total assets in interest-only,
principal-only or inverse floating rate mortgage backed securities.
ASSET-BACKED SECURITIES
Fixed Income Fund may invest in asset-backed securities. Asset-backed securities
generally constitute interests in, or obligations secured by, a pool of
receivables other than mortgage loans, such as automobile loans and leases,
credit card receivables, home equity loans and trade receivables. Asset-backed
securities generally are issued by a private special-purpose entity. Their
ratings and creditworthiness typically depend on the legal insulation of the
issuer and transaction from the consequences of a sponsoring entity's
bankruptcy, as well as on the credit quality of the underlying receivables and
the amount and credit quality of any third-party credit enhancement supporting
the underlying receivables or the asset-backed securities. Asset-backed
securities and their underlying receivables generally are not issued or
guaranteed by any governmental entity.
BANK INSTRUMENTS
The bank instruments in which Fixed Income Fund may invest include time and
savings deposits, deposit notes and bankers acceptances (including certificates
of deposit) in commercial or savings banks. They also include Eurodollar
Certificates of Deposit issued by foreign branches of United States or foreign
banks; Eurodollar Time Deposits, which are United States dollar-denominated
deposits in foreign branches of United States or foreign banks; and Yankee
Certificates of Deposit, which are United States dollar-denominated certificates
of deposit issued by United States branches of foreign banks and held in the
United States. For a description of certain risks of investing in foreign
issuers' securities, see "-- Foreign Securities" above. In each instance, Fixed
Income Fund may only invest in bank instruments issued by an institution which
has capital, surplus and undivided profits of more than $100 million or the
deposits of which are insured by the Bank Insurance Fund or the Savings
Association Insurance Fund.
LOAN PARTICIPATIONS; SECTION 4(2) AND RULE 144A SECURITIES
The loan participation interests in which Prime Obligations Fund may invest
represent pro rata undivided interests in an underlying bank loan. Participation
interests, like the underlying loans, may have fixed, floating, or variable
rates of interest. The bank selling a participation interest generally acts as a
mere conduit between its borrower and the purchasers of interests in the loan.
The purchaser of an interest generally does not have recourse against the bank
in the event of a default on the underlying loan. Therefore, the credit risk
associated with such instruments is governed by the creditworthiness of the
underlying borrowers and not by the banks selling the interests. Loan
participation interests that can be sold within a seven-day period are deemed by
the adviser to be liquid investments. If a loan participation interest is
restricted from being sold within a seven-day period, then it, as a fundamental
policy, will be limited, together with other illiquid investments, to not more
than 10% of the Prime Obligations Fund's total assets. Commercial paper issued
in reliance on the exemption from registration afforded by Section 4(2) of the
Securities Act of 1933 and corporate obligations qualifying for resale to
certain "qualified institutional buyers" pursuant to Rule 144A under the
Securities Act of 1933 meet the criteria for liquidity established by the Board
of Directors and are quite liquid. Consequently, Prime Obligations Fund does not
intend to subject such securities to the limitation applicable to restricted
securities.
CREDIT ENHANCEMENT AGREEMENTS
Prime Obligations Fund may arrange for guarantees, letters of credit, or other
forms of credit enhancement agreements (collectively, "Guarantees") for the
purpose of further securing the payment of principal and/or interest on Prime
Obligation Fund's investment securities. Although each investment security, at
the time it is purchased, must meet Prime Obligations Fund's creditworthiness
criteria, Guarantees sometimes are purchased from banks and other institutions
(collectively, "Guarantors") when the adviser, through yield and credit
analysis, deems that credit enhancement of certain of Prime Obligations Fund's
securities is advisable. As a non-fundamental policy, Prime Obligations Fund
will limit the value of all investment securities issued or guaranteed by each
Guarantor to not more than 10% of the value of Prime Obligations Fund's total
assets.
MONEY MARKET FUNDS
When an Underlying Fund is permitted to invest a portion of its assets in
securities of other mutual funds which invest primarily in debt obligations with
remaining maturities of 13 months or less (i.e., in money market funds), the
other funds in which it is permitted to invest include money market funds
advised by the Underlying Fund's adviser. Investments by the Underlying Funds in
money market funds advised by such adviser are subject to certain restrictions
contained in an exemptive order issued by the Securities and Exchange Commission
with respect thereto. These restrictions include the requirement that the
adviser must waive its money market fund advisory fee with respect to the
Underlying Fund assets which are invested therein. Where Prime Obligations Fund
invests in other money market funds, the permitted investments of such other
money market funds must constitute permitted investments of Prime Obligations
Fund.
INVESTMENT RESTRICTIONS OF THE UNDERLYING FUNDS
The fundamental and nonfundamental investment restrictions of the Underlying
Funds are set forth in full in their Statements of Additional Information. The
fundamental restrictions include the following:
* None of the Equity Funds or Fixed Income Fund will borrow money, except from
banks for temporary or emergency purposes. The amount of such borrowing may
not exceed 10% of the borrowing Underlying Fund's total assets. None of such
Underlying Funds will borrow money for leverage purposes. For the purpose of
this investment restriction, the use of options and futures transactions and
the purchase of securities on a when-issued or delayed-delivery basis shall
not be deemed the borrowing of money. If an Underlying Fund engages in
borrowing, its share price may be subject to greater fluctuation, and the
interest expense associated with the borrowing may reduce the Underlying
Fund's net income.
* None of the Underlying Funds will mortgage, pledge or hypothecate its
assets, except in an amount not exceeding 15% of the value of its total
assets to secure temporary or emergency borrowing.
* None of the Underlying Funds will make short sales of securities.
* None of the Underlying Funds will purchase any securities on margin except,
in the case of the Equity Funds and Fixed Income Fund, to obtain such
short-term credits as may be necessary for the clearance of transactions and
except, in the case of Emerging Growth Fund, Technology Fund, and
International Fund as may be necessary to make margin payments in connection
with foreign currency futures and other derivative transactions.
* Prime Obligations Fund will not purchase a security if, as a result: (i)
more than 10% of its net assets would be in illiquid assets including time
deposits and repurchase agreements maturing in more than seven days; or (ii)
25% or more of its total assets would be in any single industry, except that
there is no limitation on the purchase of obligations of domestic commercial
banks (excluding, for this purpose, foreign branches of domestic commercial
banks). Limitation (ii) does not apply to obligations issued or guaranteed
by the United States or its agencies or instrumentalities.
* Prime Obligations Fund will not borrow money except from banks for temporary
or emergency purposes for the purpose of meeting redemption requests which
might otherwise require the untimely disposition of securities. Borrowing in
the aggregate may not exceed 10% of the value of Prime Obligations Fund's
total assets (including the amount borrowed) valued at the lesser of cost or
market less liabilities (not including the amount borrowed) at the time the
borrowing is made. The borrowings will be repaid before any additional
investments are made. However, even with such authority to borrow money,
there is no assurance that Prime Obligations Fund will not have to dispose
of securities on an untimely basis to meet redemption requests.
A fundamental policy or restriction, including those stated above, cannot be
changed without an affirmative vote of the holders of a "majority" of the
outstanding shares of the applicable Underlying Fund, as defined in the 1940
Act.
As a nonfundamental policy, none of the Equity Funds or Fixed Income Fund will
invest more than 15% of its net assets in all forms of illiquid investments, as
determined pursuant to applicable Securities and Exchange Commission rules and
interpretations. Section 4(2) commercial paper may be determined to be "liquid"
under guidelines adopted by the Board of Directors. Rule 144A securities may be
determined to be "liquid" under guidelines adopted by the Board of Directors.
Investing in Rule 144A securities could have the effect of increasing the level
of illiquidity in an Underlying Fund to the extent that qualified institutional
buyers become, for a time, uninterested in purchasing these securities.
Pursuant to an undertaking to certain state securities regulators, Real Estate
Securities Fund will purchase securities that meet its investment objectives and
policies, are acquired for investment and not for resale, that are liquid and
not restricted as to transfer, and that have a value that is readily
ascertainable as evidenced by a listing on the New York Stock Exchange, the
American Stock Exchange, or NASDAQ.
INFORMATION CONCERNING COMPENSATION PAID TO FIRST TRUST NATIONAL ASSOCIATION AND
ITS AFFILIATES
First Trust National Association ("First Trust") may act as fiduciary with
respect to plans subject to the Employee Retirement Income Security Act of 1974
("ERISA") which invest in the Funds. This section sets forth information
concerning compensation that First Trust and its affiliates may receive from the
Funds.
First Trust, as custodian for the assets of the Funds, receives the custodian
fees specified herein under the caption "Management -- Custodian." First Trust
also acts as custodian for the assets of the Underlying Funds. As compensation
for its custodian services to Stock Fund, Regional Equity Fund, and Special
Equity Fund, First Trust is paid the following fees: (i) an annual
administration fee of $750 per fund; (ii) an issue held fee, computed as of the
end of each month, at the annual rate of $30 per securities issue held by each
fund; (iii) transaction fees, consisting of (a) a securities buy/sell/maturity
fee of $15 per each such transaction, and (b) a payment received fee of $12 for
each principal pay down payment received on collateralized mortgage pass-through
instruments; (iv) a wire transfer fee of $10 per transaction; (v) a cash
management fee, for "sweeping" cash into overnight investments, at an annual
rate of 0.25% of the amounts so invested; and (vi) a remittance fee, for payment
of each fund's expenses, of $3.50 per each check drawn for such remittances. It
is anticipated that commencing January 31, 1997, First Trust will receive as
compensation for custodian services to Stock Fund, Regional Equity Fund, and
Special Equity Fund monthly fees equal to an annual rate of 0.03% of the average
daily assets of such funds. As compensation for its custodian services to the
remaining Underlying Funds, First Trust is paid monthly fees equal to an annual
rate of 0.03% (0.25% in the case of International Fund) of the average daily
assets of such funds. Sub-custodian fees with respect to International Fund are
paid by First Trust out of its compensation with respect to such fund. In
addition, First Trust is reimbursed for its out-of-pocket expenses incurred in
providing services to the Underlying Funds.
First Bank National Association, which is under common ownership with First
Trust, acts as investment adviser to the Funds and receives the advisory fees
specified herein under the caption "Management -- Investment Adviser to the
Funds." It also acts as investment adviser to the Underlying Funds and receives
the advisory fees specified herein under the caption "Management --Investment
Adviser and Sub-Adviser to the Underlying Funds."
First Trust and its affiliates may receive shareholder servicing fees in the
amounts specified herein under the caption "Distributor." First Trust also may
act as securities lending agent in connection with the Underlying Funds'
securities lending transactions and receive, as compensation for such services,
fees equal to 40% of the Underlying Funds' income from such securities lending
transactions.
FIRST AMERICAN STRATEGY FUNDS, INC.
680 East Swedesford Road
Wayne, Pennsylvania 19087
INVESTMENT ADVISER
FIRST BANK NATIONAL ASSOCIATION
601 Second Avenue South
Minneapolis, Minnesota 55402
CUSTODIAN
FIRST TRUST NATIONAL ASSOCIATION
180 East Fifth Street
St. Paul, Minnesota 55101
DISTRIBUTOR
SEI FINANCIAL SERVICES COMPANY
680 East Swedesford Road
Wayne, Pennsylvania 19087
ADMINISTRATOR
SEI FINANCIAL MANAGEMENT
CORPORATION
680 East Swedesford Road
Wayne, Pennsylvania 19087
TRANSFER AGENT
DST SYSTEMS, INC.
210 West 10th Street
Kansas City, Missouri 64105
INDEPENDENT AUDITORS
KPMG PEAT MARWICK LLP
90 South Seventh Street
Minneapolis, Minnesota 55402
COUNSEL
DORSEY & WHITNEY LLP
220 South Sixth Street
Minneapolis, Minnesota 55402
FAIF-1003 (1/96)R
FIRST AMERICAN STRATEGY FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION
DATED OCTOBER 1, 1996
INCOME FUND GROWTH FUND
GROWTH AND INCOME FUND AGGRESSIVE GROWTH FUND
This Statement of Additional Information relates to the funds named
above (the "Funds"), each of which is a series of First American Strategy Funds,
Inc. ("FASF"). This Statement of Additional Information is not a prospectus, but
should be read in conjunction with the Funds' current Prospectus dated October
1, 1996. This Statement of Additional Information is incorporated into the
Funds' Prospectus by reference. To obtain copies of the Prospectus, write or
call the Funds' distributor SEI Financial Services Company, 680 East Swedesford
Road, Wayne, Pennsylvania 19087, telephone: (800) 637-2548. Please retain this
Statement of Additional Information for future reference.
TABLE OF CONTENTS
PAGE
General Information........................... 2
Investment Restrictions of the Funds 3
Additional Information Concerning
Investments by the Funds and the
Underlying Funds.............................. 5
Short-Term Investments..................... 5
Repurchase Agreements...................... 5
When-Issued and Delayed-Delivery
Transactions............................ 6
Lending of Portfolio Securities............ 6
Options Transactions....................... 6
Futures and Options on Futures............. 7
Foreign Securities......................... 8
Foreign Currency Transactions.............. 8
Mortgage-Backed Securities................. 9
Debt Obligations Rated Less Than
Investment Grade........................ 10
Investment Restrictions of the Underlying
Funds......................................... 12
Restrictions Applicable to the Equity
Funds and Fixed Income Fund............. 12
Restrictions Applicable to Prime Obligations
Fund.................................... 14
Directors and Executive Officers.............. 16
Directors.................................. 16
Executive Officers......................... 16
Compensation............................... 17
Investment Advisory and Other Services
for the Funds................................. 19
Investment Advisory Agreement.............. 19
Administration Agreement................... 19
Distributor and Shareholder Service
Plan and Agreement...................... 20
Custodian; Transfer Agent; Counsel;
Accountants............................. 20
Investment Advisory Services for the
Underlying Funds.............................. 21
Investment Advisory Agreements of
the Underlying Funds.................... 21
Sub-Advisory Agreement for International
Fund.................................... 21
Portfolio Managers for the Underlying
Funds................................... 22
Portfolio Transactions and Allocation
of Brokerage................................. 24
Capital Stock................................. 26
Net Asset Value and Public Offering
Price........................................ 27
Fund Performance.............................. 27
SEC Standardized Performance Figures ...... 27
Non-Standard Distribution Rates............ 28
Certain Performance Comparisons............ 28
Taxation...................................... 29
Ratings....................................... 30
Financial Statements.......................... 33
GENERAL INFORMATION
First American Strategy Funds, Inc. ("FASF") was incorporated in the
State of Minnesota on June 19, 1996. FASF is organized as a series fund and
currently issues its shares in four series. Each series of shares represents a
separate investment portfolio with its own investment objectives and policies
(in essence, a separate mutual fund). The series of FASF to which this Statement
of Additional Information relates are named on the cover hereof. These series
are referred to in this Statement of Additional Information as the "Funds."
As described in the Funds' Prospectus, each Fund seeks to achieve its
investment objectives by investing primarily in a variety of other mutual funds
which are also advised by the Funds' investment adviser. These other mutual
funds include Equity Income Fund, Stock Fund, Diversified Growth Fund, Emerging
Growth Fund, Regional Equity Fund, Special Equity Fund, International Fund,
Technology Fund, Health Sciences Fund, Real Estate Securities Fund and Fixed
Income Fund, each of which is a series of First American Investment Funds, Inc.
("FAIF"), and Prime Obligations Fund, which is a series of First American Funds,
Inc. ("FAF"). These other funds are referred to herein and in the Prospectus
collectively as the "Underlying Funds." The first ten funds named above are
referred to herein and in the Prospectus collectively as the "Equity Funds."
The Bylaws of FASF provide that annual shareholders meetings are not
required and that meetings of shareholders need only be held with such frequency
as required under Minnesota law and the Investment Company Act of 1940 (the
"1940 Act"). Minnesota law provides that if a regular meeting of shareholders
has not been held during the immediately preceding 15 months, a shareholder or
shareholders holding 3% or more of the voting power of all shares entitled to
vote may demand a regular meeting of shareholders. Minnesota law further
provides that a special meeting of shareholders may be called by a shareholder
or shareholders holding 10% or more of the voting power of all shares entitled
to vote, except that a special meeting for the purpose of considering any action
to facilitate or effect a business combination, including any action to change
or otherwise affect the composition of the board of directors for that purpose,
must be called by 25% or more of the voting power of all shares entitled to
vote. The 1940 Act requires a shareholder vote for all amendments to fundamental
investment policies and restrictions, for approval of all investment advisory
agreements, and for the adoption of, and material increases in amounts payable
under, Rule 12b-1 distribution plans.
INVESTMENT RESTRICTIONS OF THE FUNDS
In addition to the investment objectives and policies set forth in the
Prospectus and under the caption "Additional Information Concerning Investments
by the Funds and the Underlying Funds" below, each of the Funds is subject to
the investment restrictions set forth below. The investment restrictions set
forth in paragraphs 1 through 10 below are fundamental and cannot be changed
with respect to a Fund without approval by the holders of a majority of the
outstanding shares of that Fund as defined in the 1940 Act, i.e., by the lesser
of the vote of (a) 67% of the shares of the Fund present at a meeting where more
than 50% of the outstanding shares are present in person or by proxy, or (b)
more than 50% of the outstanding shares of the Fund.
None of the investment restrictions set forth below shall be deemed to
restrict any Fund from holding securities of investment companies which engage
in the activities described in such investment restrictions. None of the
investment restrictions set forth below shall be deemed to restrict any Fund
from receiving, holding, and disposing of any securities received as a result of
an in-kind redemption by an investment company whose shares are held by such
Fund.
None of the Funds will:
1. Invest more than 25% of its total assets in any one industry, except
for investment companies which are part of the "same group of
investment companies" (as defined in Rule 11a-3 under the 1940 Act) as
the Funds.
2. Issue any senior securities (as defined in the 1940 Act), other than
as set forth in restriction number 3 below and except to the extent
that using options may be deemed to constitute issuing a senior
security.
3. Borrow money, except from banks for temporary or emergency purposes.
The amount of such borrowing may not exceed 10% of the borrowing
Fund's total assets. None of the Funds will borrow money for leverage
purposes. For the purpose of this investment restriction, the use of
options and futures transactions shall not be deemed the borrowing of
money. (As a non-fundamental policy, no Fund will make additional
investments while its borrowings exceed 5% of total assets.)
4. Mortgage, pledge or hypothecate its assets, except in an amount not
exceeding 15% of the value of its total assets to secure temporary or
emergency borrowing.
5. Make short sales of securities.
6. Purchase any securities on margin except to obtain such short-term
credits as may be necessary for the clearance of transactions.
7. Purchase or sell physical commodities (including, by way of
example and not by way of limitation, grains, oilseeds, livestock,
meat, food, fiber, metals, petroleum, petroleum-based products or
natural gas) or futures or options contracts with respect to
physical commodities. This restriction shall not restrict any Fund
from purchasing or selling any financial contracts or instruments
which may be deemed commodities (including, by way of example and
not by way of limitation, options, futures and options on futures
with respect, in each case, to interest rates, currencies, stock
indices, bond indices or interest rate indices) or any security
which is collateralized or otherwise backed by physical
commodities.
8. Purchase or sell real estate or real estate mortgage loans, except
that the Funds may invest in securities secured by real estate or
interests therein or issued by companies that invest in or hold real
estate or interests therein, and in mortgage-backed securities.
9. Act as an underwriter of securities of other issuers, except to the
extent a Fund may be deemed to be an underwriter, under Federal
securities laws, in connection with the disposition of portfolio
securities.
10. Lend any of their assets, except portfolio securities representing up
to one-third of the value of their total assets.
The following restrictions are non-fundamental and may be changed by
FASF's Board of Directors without shareholder vote. None of the Funds will:
11. Invest more than 15% of its net assets in all forms of illiquid
investments, as determined pursuant to applicable Securities and
Exchange Commission rules and interpretations.
12. Invest in any securities, if as a result more than 5% of the value of
its total assets is invested in the securities of any issuers, other
than registered investment companies and series thereof, which, with
their predecessors, have a record of less than three years continuous
operation. (Securities of any of such issuers will not be deemed to
fall within this limitation if they are guaranteed by an entity which
has been in continuous operation for more than three years.)
13. Invest for the purpose of exercising control or management.
14. Purchase or sell real estate limited partnership interests, or oil,
gas or other mineral leases, rights or royalty contracts, except that
the Funds may purchase or sell securities of companies which invest in
or hold the foregoing.
15. Purchase securities of any other registered investment company (as
defined in the 1940 Act), except, subject to 1940 Act limitations, (a)
each of the Funds may, as part of its investment in cash items, invest
in securities of other mutual funds which invest primarily in debt
obligations with remaining maturities of 13 months or less, (b) all
Funds may purchase securities as part of a merger, consolidation,
reorganization or acquisition of assets, and (c) all Funds may invest
in securities of other registered investment companies to the extent
permitted by applicable Securities and Exchange Commission exemptive
relief, no-action letters, or rules or pursuant to the 1940 Act.
ADDITIONAL INFORMATION CONCERNING INVESTMENTS
BY THE FUNDS AND THE UNDERLYING FUNDS
The investment objectives, policies and restrictions of the Funds and
the Underlying Funds are set forth in the Funds' Prospectus. Additional
information concerning the investments which may be made by the Funds and the
Underlying Funds is set forth under this caption. Additional information
concerning the Funds' investment restrictions is set forth above under the
caption "Investment Restrictions of the Funds," and additional information
concerning the Underlying Funds' investment restrictions is set forth below
under the caption "Investment Restrictions of the Underlying Funds."
SHORT-TERM INVESTMENTS
The Funds and the Underlying Funds can invest in a variety of
short-term instruments which are specified in the Prospectus. A brief
description of certain kinds of short-term instruments follows:
COMMERCIAL PAPER. Commercial paper consists of unsecured promissory
notes issued by corporations. Issues of commercial paper normally have
maturities of less than nine months and fixed rates of return. Subject to the
limitations described in the Prospectus, the Funds and the Underlying Funds may
purchase commercial paper consisting of issues rated at the time of purchase
within the two highest rating categories by Standard & Poor's Corporation
("Standard & Poor's") or Moody's Investors Service, Inc. ("Moody's"), or which
have been assigned an equivalent rating by another nationally recognized
statistical rating organization. The Funds and the Underlying Funds also may
invest in commercial paper that is not rated but that is determined by the
Adviser to be of comparable quality to instruments that are so rated. For a
description of the rating categories of Standard & Poor's and Moody's, see
"Ratings" herein.
BANKERS ACCEPTANCES. Bankers acceptances are credit instruments
evidencing the obligation of a bank to pay a draft drawn on it by a customer.
These instruments reflect the obligation both of the bank and of the drawer to
pay the full amount of the instrument upon maturity.
VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand
notes are unsecured demand notes that permit the indebtedness thereunder to vary
and provide for periodic adjustments in the interest rate according to the terms
of the instrument. Because master demand notes are direct lending arrangements
between a Fund or an Underlying Fund and the issuer, they are not normally
traded. Although there is no secondary market in the notes, a Fund or an
Underlying Fund may demand payment of principal and accrued interest at any
time. While the notes are not typically rated by credit rating agencies, issuers
of variable amount master demand notes (which are normally manufacturing,
retail, financial, and other business concerns) must satisfy the same criteria
as set forth above for commercial paper. The Adviser or, in the case of
International Fund, its sub-adviser will consider the earning power, cash flow,
and other liquidity ratios of the issuers of such notes and will continuously
monitor their financial status and ability to meet payment on demand.
REPURCHASE AGREEMENTS
The Underlying Funds may invest in repurchase agreements to the extent
specified in the Prospectus. The Underlying Funds' custodian will hold the
securities underlying any repurchase agreement, or the securities will be part
of the Federal Reserve/Treasury Book Entry System. The market value of the
collateral underlying the repurchase agreement will be determined on each
business day. If at any time the market value of the collateral falls below the
repurchase price under the repurchase agreement (including any accrued
interest), the appropriate Underlying Fund will promptly receive additional
collateral (so the total collateral is an amount at least equal to the
repurchase price plus accrued interest).
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS
When an Underlying Fund agrees to purchase securities on a when-issued
or delayed-delivery basis, its custodian will set aside cash or liquid
securities equal to the amount of the commitment in a separate account.
Normally, the custodian will set aside securities to satisfy the purchase
commitment, and in that case, an Underlying Fund may be required subsequently to
place additional assets in the separate account in order to assure that the
value of the account remains equal to the amount of the Underlying Fund's
commitments. It may be expected that an Underlying Fund's net assets will
fluctuate to a greater degree when it sets aside securities to cover such
purchase commitments than when it sets aside cash. In addition, because an
Underlying Fund will set aside cash or liquid securities to satisfy its purchase
commitments in the manner described above, its liquidity and the ability of its
adviser to manage it might be affected in the event its commitments to purchase
when-issued or delayed-delivery securities ever exceeded 25% of the value of its
assets. Under normal market conditions, however, an Underlying Fund's
commitments to purchase when-issued or delayed-delivery securities will not
exceed 25% of the value of its assets.
LENDING OF PORTFOLIO SECURITIES
When an Underlying Fund lends portfolio securities, it must receive
100% collateral as described in the Prospectus. This collateral must be valued
daily by the Underlying Fund's adviser or sub-adviser and, if the market value
of the loaned securities increases, the borrower must furnish additional
collateral to the lending Underlying Fund. During the time portfolio securities
are on loan, the borrower pays the lending Underlying Fund any dividends or
interest paid on the securities. Loans are subject to termination by the lending
Underlying Fund or the borrower at any time. While an Underlying Fund does not
have the right to vote securities on loan, it would terminate the loan and
regain the right to vote if that were considered important with respect to the
investment.
OPTIONS TRANSACTIONS
OPTIONS ON SECURITIES. To the extent specified in the Prospectus,
Underlying Funds may purchase put and call options on securities and may write
covered call options on securities which they own or have the right to acquire.
An Underlying Fund may purchase put options to hedge against a decline in the
value of its portfolio. By using put options in this way, an Underlying Fund
would reduce any profit it might otherwise have realized in the underlying
security by the amount of the premium paid for the put option and by transaction
costs. In similar fashion, an Underlying Fund may purchase call options to hedge
against an increase in the price of securities that the Underlying Fund
anticipates purchasing in the future. The premium paid for the call option plus
any transaction costs will reduce the benefit, if any, realized by the
Underlying Fund upon exercise of the option, and, unless the price of the
underlying security rises sufficiently, the option may expire unexercised.
The writer (seller) of a call option has no control over when the
underlying securities must be sold; the writer may be assigned an exercise
notice at any time prior to the termination of the option. If a call option is
exercised, the writer experiences a profit or loss from the sale of the
underlying security. The writer of a call option that wishes to terminate its
obligation may effect a "closing purchase transaction." This is accomplished by
buying an option on the same security as the option previously written. If an
Underlying Fund was unable to effect a closing purchase transaction in a
secondary market, it would not be able to sell the underlying security until the
option expires or it delivers the underlying security upon exercise.
OPTIONS ON STOCK INDICES. Options on stock indices are similar to
options on individual stocks except that, rather than the right to take or make
delivery of stock at a specified price, an option on a stock index gives the
holder the right to receive, upon exercise of the option, an amount of cash if
the closing value of the stock index upon which the option is based is greater
than, in the case of a call, or lesser than, in the case of a put, the exercise
price of the option. This amount of cash is equal to the difference between the
closing price of the index and the exercise price of the option expressed in
dollars times a specified multiple (the "multiplier"). The writer of the option
is obligated, in return for the premium received, to make delivery of this
amount. Unlike stock options, all settlements for stock index options are in
cash, and gain or loss depends on price movements in the stock market generally
(or in a particular industry or segment of the market) rather than price
movements in individual stocks. The multiplier for an index option performs a
function similar to the unit of trading for a stock option. It determines the
total dollar value per contract of each point in the difference between the
underlying stock index. A multiplier of 100 means that a one-point difference
will yield $100. Options on different stock indices may have different
multipliers.
OPTIONS ON INTEREST RATE INDICES. An option on an interest rate index
gives the holder the right to receive, upon exercise of the option, an amount of
cash if the closing value of the interest rate index upon which the option is
based is greater than, in the case of a call, or lesser than, in the case of a
put, the exercise price of the option. This amount of cash is equal to the
difference between the closing price of the index and the exercise price of the
option expressed in dollars times a specified multiple (the "multiplier"). The
writer of the option is obligated, for the premium received, to make delivery of
this amount. Unlike interest rate futures options contracts, settlements for
interest rate index options are always in cash. Gain or loss depends on price
movements in the interest rate movements with respect to specific financial
instruments. As with stock index options, the multiplier for interest rate index
options determines the total dollar value per contract of each point in the
difference between the exercise price of an option and the current value of the
underlying interest rate index. Options on different interest rate indices may
have different multipliers.
FUTURES AND OPTIONS ON FUTURES
As discussed in the Prospectus, the Funds and certain of the Underlying
Funds may enter into futures contracts and may purchase options on futures
contracts of various types. In the case of the Funds, these investment
techniques may be used in order to remain effectively fully invested in
proportions consistent with their current asset allocation strategy in a cost
effective manner; to re-allocate assets among asset categories while minimizing
transaction costs; to maintain cash reserves while simulating full investment;
to facilitate trading; or to seek higher investment returns when a futures
contract is priced more attractively than the underlying security or index. In
the case of the Underlying Funds, these investment techniques are designed
primarily to hedge against anticipated future changes in market conditions or
foreign exchange rates which otherwise might adversely affect the value of
securities which an Underlying Fund holds or intends to purchase. The types of
futures and options on futures which the Funds and particular Underlying Funds
may utilize are described in the Prospectus.
At the same time a futures contract is purchased or sold, a Fund or
Underlying Fund generally must allocate cash or securities as a deposit payment
("initial deposit"). It is expected that the initial deposit would be
approximately 1-1/2% to 5% of a contract's face value. Daily thereafter, the
futures contract is valued and the payment of "variation margin" may be
required, since each day the Fund or Underlying Fund would provide or receive
cash that reflects any decline or increase in the contract's value. Futures
transactions also involve brokerage costs and require a Fund or Underlying Fund
to segregate liquid assets, such as cash, United States Government securities or
other liquid high grade debt obligations, to cover its performance under such
contracts.
A Fund or Underlying Fund may lose the expected benefit of futures
transactions if interest rates, securities prices or foreign exchange rates move
in an unanticipated manner. Such unanticipated changes may also result in poorer
overall performance than if the Fund or Underlying Fund had not entered into any
futures transactions. In addition, the value of an Underlying Fund's futures
positions may not prove to be perfectly or even highly correlated with the value
of its portfolio securities and foreign currencies, limiting the Fund's or
Underlying Fund's ability to hedge effectively against interest rate, foreign
exchange rate and/or market risk and giving rise to additional risks. Because of
the low margin requirements in the futures markets, they may be subject to
market forces, including speculative activity, which do not affect the cash
markets. There also is no assurance of liquidity in the secondary market for
purposes of closing out futures positions.
FOREIGN SECURITIES
As described in the Prospectus, under normal market conditions
International Fund invests principally in foreign securities. In addition, the
other Equity Funds (excluding Regional Equity Fund and Real Estate Securities
Fund) may invest lesser proportions of their assets in securities of foreign
issuers which are either listed on a United States securities exchange or
represented by American Depositary Receipts, and Fixed Income Fund and Prime
Obligations Fund may invest in securities of foreign issuers in the manner and
to the extent described in the Prospectus.
Fixed commissions on foreign securities exchanges are generally higher
than negotiated commissions on United States exchanges. Foreign markets also
have different clearance and settlement procedures, and in some markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
Delays in settlement could result in temporary periods when a portion of the
assets of International Fund is uninvested. In addition, settlement problems
could cause International Fund to miss attractive investment opportunities or to
incur losses due to an inability to sell or deliver securities in a timely
fashion. In the event of a default by an issuer of foreign securities, it may be
more difficult for a Fund to obtain or to enforce a judgment against the issuer.
FOREIGN CURRENCY TRANSACTIONS
As described in the Prospectus, International Fund may engage in a
variety of foreign currency transactions in connection with its investment
activities. These include forward foreign currency exchange contracts, foreign
currency futures, and foreign currency options.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
These contracts are traded directly between currency traders (usually large
commercial banks) and their customers. International Fund will not enter into
such forward contracts or maintain a net exposure in such contracts where
International Fund would be obligated to deliver an amount of foreign currency
in excess of the value of its securities or other assets denominated in that
currency. International Fund will comply with applicable Securities and Exchange
Commission announcements requiring it to segregate assets to cover its
commitments with respect to such contracts. At the present time, these
announcements generally require a fund with a long position in a forward foreign
currency contract to establish with its custodian a segregated account
containing cash or liquid high grade debt securities equal to the purchase price
of the contract, and require a fund with a short position in a forward foreign
currency contract to establish with its custodian a segregated account
containing cash or liquid high grade debt securities that, when added to any
margin deposit, equal the market value of the currency underlying the forward
contract. These requirements will not apply where a forward contract is used in
connection with the settlement of investment purchases or sales or where the
position has been "covered" by entering into an offsetting position.
International Fund generally will not enter into a forward contract with a term
longer than one year.
FOREIGN CURRENCY FUTURES TRANSACTIONS. Unlike forward foreign currency
exchange contracts, foreign currency futures contracts and options on foreign
currency futures contracts are standardized as to amount and delivery period and
may be traded on boards of trade and commodities exchanges or directly with a
dealer which makes a market in such contracts and options. It is anticipated
that such contracts may provide greater liquidity and lower cost than forward
foreign currency exchange contracts. As part of its financial futures
transactions, International Fund may use foreign currency futures contracts and
options on such futures contracts. Through the purchase or sale of such
contracts, International Fund may be able to achieve many of the same objectives
as through forward foreign currency exchange contracts more effectively and
possibly at a lower cost.
FOREIGN CURRENCY OPTIONS. A foreign currency option provides the option
buyer with the right to buy or sell a stated amount of foreign currency at the
exercise price at a specified date or during the option period. A call option
gives its owner the right, but not the obligation, to buy the currency, while a
put option gives its owner the right, but not the obligation, to sell the
currency. The option seller (writer) is obligated to fulfill the terms of the
option sold if it is exercised. However, either seller or buyer may close its
position during the option period in the secondary market for such options at
any time prior to expiration.
A foreign currency call option rises in value if the underlying
currency appreciates. Conversely, a foreign currency put option rises in value
if the underlying currency depreciates. While purchasing a foreign currency
option may protect International Fund against an adverse movement in the value
of a foreign currency, it would not limit the gain which might result from a
favorable movement in the value of the currency. For example, if International
Fund were holding securities denominated in an appreciating foreign currency and
had purchased a foreign currency put to hedge against a decline in the value of
the currency, it would not have to exercise its put. In such an event, however,
the amount of International Fund's gain would be offset in part by the premium
paid for the option. Similarly, if International Fund entered into a contract to
purchase a security denominated in a foreign currency and purchased a foreign
currency call to hedge against a rise in the value of the currency between the
date of purchase and the settlement date, International Fund would not need to
exercise its call if the currency instead depreciated in value. In such a case,
International Fund could acquire the amount of foreign currency needed for
settlement in the spot market at a lower price than the exercise price of the
option.
MORTGAGE-BACKED SECURITIES
As described in the Prospectus, Fixed Income Fund may invest in
mortgage-backed securities. Fixed Income Fund will invest only in
mortgage-backed securities which are Agency Pass-Through Certificates or
collateralized mortgage obligations ("CMOs"), as defined and described in the
Prospectus.
Agency Pass-Through Certificates are issued or guaranteed by the
Government National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA"), or the Federal Home Loan Mortgage Corporation ("FHLMC").
GNMA is a wholly-owned corporate instrumentality of the United States within the
Department of Housing and Urban Development. The guarantee of GNMA with respect
to GNMA certificates is backed by the full faith and credit of the United
States, and GNMA is authorized to borrow from the United States Treasury in an
amount which is at any time sufficient to enable GNMA, with no limitation as to
amount, to perform its guarantee.
FNMA is a federally chartered and privately owned corporation organized
and existing under federal law. Although the Secretary of the Treasury of the
United States has discretionary authority to lend funds to FNMA, neither the
United States nor any agency thereof is obligated to finance FNMA's operations
or to assist FNMA in any other manner.
FHLMC is a federally chartered corporation organized and existing under
federal law, the common stock of which is owned by the Federal Home Loan Banks.
Neither the United States nor any agency thereof is obligated to finance FNMA's
operations or to assist FNMA in any other manner.
The residential mortgage loans evidenced by Agency Pass-Through
Certificates and upon which CMOs are based generally are secured by first
mortgages on one- to four-family residential dwellings. Such mortgage loans
generally have final maturities ranging from 15 to 30 years and provide for
monthly payments in amounts sufficient to amortize their original principal
amounts by the maturity dates. Thus, each monthly payment on such mortgage loans
generally includes both an interest component and a principal component, so that
the holder of the mortgage loans receives both interest and a partial return of
principal in each monthly payment. In general, such mortgage loans can be
prepaid by the borrowers at any time without any prepayment penalty. In
addition, many such mortgage loans contain a "due-on-sale" clause requiring the
loans to be repaid in full upon the sale of the property securing the loans.
Because residential mortgage loans generally provide for monthly amortization
and may be prepaid in full at any time, the weighted average maturity of a pool
of residential mortgage loans is likely to be substantially shorter than its
stated final maturity date. The rate at which a pool of residential mortgage
loans is prepaid may be influenced by many factors and is not predictable with
precision.
As stated in the Prospectus, CMOs generally are issued in multiple
classes, with holders of each class entitled to receive specified portions of
the principal payments and prepayments and/or of the interest payments on the
underlying mortgage loans. These entitlements can be specified in a wide variety
of ways, so that the payment characteristics of various classes may differ
greatly from one another. For example:
* In a sequential-pay CMO structure, one class is entitled to receive all
principal payments and prepayments on the underlying mortgage loans
(and interest on unpaid principal) until the principal of the class is
repaid in full, while the remaining classes receive only interest; when
the first class is repaid in full, a second class becomes entitled to
receive all principal payments and prepayments on the underlying
mortgage loans until the class is repaid in full, and so forth.
* A planned amortization class ("PAC") of CMOs is entitled to receive
principal on a stated schedule to the extent that it is available from
the underlying mortgage loans, thus providing a greater (but not
absolute) degree of certainty as to the schedule upon which principal
will be repaid.
* An accrual class of CMOs provides for interest to accrue and be added
to principal (but not be paid currently) until specified payments have
been made on prior classes, at which time the principal of the accrual
class (including the accrued interest which was added to principal) and
interest thereon begins to be paid from payments on the underlying
mortgage loans.
* As discussed above with respect to Agency Pass-Through Certificates, an
interest-only class of CMOs entitles the holder to receive all of the
interest and none of the principal on the underlying mortgage loans,
while a principal-only class of CMOs entitles the holder to receive all
of the principal payments and prepayments and none of the interest on
the underlying mortgage loans.
* A floating rate class of CMOs entitles the holder to receive interest
at a rate which changes in the same direction and magnitude as changes
in a specified index rate. An inverse floating rate class of CMOs
entitles the holder to receive interest at a rate which changes in the
opposite direction from, and in the same magnitude as or in a multiple
of, changes in a specified index rate. Floating rate and inverse
floating rate classes also may be subject to "caps" and "floors" on
adjustments to the interest rates which they bear.
* A subordinated class of CMOs is subordinated in right of payment to one
or more other classes. Such a subordinated class provides some or all
of the credit support for the classes that are senior to it by
absorbing losses on the underlying mortgage loans before the senior
classes absorb any losses. A subordinated class which is subordinated
to one or more classes but senior to one or more other classes is
sometimes referred to as a "mezzanine" class. A subordinated class
generally carries a lower rating than the classes that are senior to
it, but may still carry an investment grade rating.
DEBT OBLIGATIONS RATED LESS THAN INVESTMENT GRADE
As described in the Prospectus, the "equity securities" in which Equity
Income Fund may invest include corporate debt obligations which are convertible
into common stock. These convertible debt obligations may include obligations
rated as low as CCC by Standard & Poor's or Caa by Moody's or which have been
assigned an equivalent rating by another nationally recognized statistical
rating organization. Debt obligations rated BB, B or CCC by Standard & Poor's or
Ba, B or Caa by Moody's are considered to be less than "investment grade" and
are sometimes referred to as "junk bonds." The limitations on investments by
Equity Income Fund in less than investment grade convertible debt obligations
are set forth in the Prospectus.
Purchases of less than investment grade corporate debt obligations
generally involve greater risks than purchases of higher rated obligations. Less
than investment grade debt obligations are especially subject to adverse changes
in general economic conditions and to changes in the financial condition of
their issuers. During periods of economic downturn or rising interest rates,
issuers of such obligations may experience financial stress that could adversely
affect their ability to make payments of principal and interest and increase the
possibility of default.
Yields on less than investment grade debt obligations will fluctuate
over time. The prices of such obligations have been found to be less sensitive
to interest rate changes than higher rated obligations, but more sensitive to
adverse economic changes or individual corporate developments. Also, during an
economic downturn or period of rising interest rates, highly leveraged issuers
may experience financial stress which could adversely affect their ability to
service principal and interest payment obligations, to meet projected business
goals, and to obtain additional financing. In addition, periods of economic
uncertainty and changes can be expected to result in increased volatility of
market prices of less than investment grade debt obligations.
In addition, the secondary trading market for less than investment
grade debt obligations may be less developed than the market for investment
grade obligations. This may make it more difficult for Equity Income Fund to
value and dispose of such obligations. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of less than investment grade obligations, especially in a
thin secondary trading market.
Certain risks also are associated with the use of credit ratings as a
method for evaluating less than investment grade debt obligations. For example,
credit ratings evaluate the safety of principal and interest payments, not the
market value risk of such obligations. In addition, credit rating agencies may
not timely change credit ratings to reflect current events. Thus, the success of
Equity Income Fund's use of less than investment grade convertible debt
obligations may be more dependent on its adviser's own credit analysis than is
the case with investment grade obligations.
INVESTMENT RESTRICTIONS OF THE UNDERLYING FUNDS
RESTRICTIONS APPLICABLE TO THE EQUITY FUNDS AND FIXED INCOME FUND
In addition to the investment objectives and policies set forth in the
Prospectus and under the caption "Additional Information Concerning Investments
by the Funds and the Underlying Funds" above, the Equity Funds and Fixed Income
Fund are subject to the investment restrictions set forth below. The investment
restrictions set forth in paragraphs 1 through 10 below are fundamental and
cannot be changed with respect to any of these Underlying Funds without approval
by the holders of a majority of the outstanding shares of the applicable
Underlying Fund as defined in the 1940 Act. See "Investment Restrictions of the
Funds" above.
None of the Equity Funds or Fixed Income Fund will:
1. Except for Technology Fund and Health Sciences Fund, invest in any
securities if, as a result, 25% or more of the value of its total
assets would be invested in the securities of issuers conducting their
principal business activities in any one industry, except that Real
Estate Securities Fund will invest without restriction in issuers
principally engaged in the real estate industry. This restriction does
not apply to securities of the United States Government or its
agencies and instrumentalities or repurchase agreements relating
thereto.
2. Issue any senior securities (as defined in the 1940 Act), other than
as set forth in restriction number 3 below and except to the extent
that using options or purchasing securities on a when-issued basis may
be deemed to constitute issuing a senior security.
3. Borrow money, except from banks for temporary or emergency purposes.
The amount of such borrowing may not exceed 10% of the borrowing
Fund's total assets. None of these Underlying Funds will borrow money
for leverage purposes. For the purpose of this investment restriction,
the use of options and futures transactions and the purchase of
securities on a when-issued or delayeddelivery basis shall not be
deemed the borrowing of money. (As a non-fundamental policy, no such
Underlying Fund will make additional investments while its borrowings
exceed 5% of total assets.)
4. Mortgage, pledge or hypothecate its assets, except in an amount not
exceeding 15% of the value of its total assets to secure temporary or
emergency borrowing.
5. Make short sales of securities.
6. Purchase any securities on margin except to obtain such short-term
credits as may be necessary for the clearance of transactions and
except, in the case of Emerging Growth Fund, Technology Fund, and
International Fund, as may be necessary to make margin payments in
connection with foreign currency futures and other derivative
transactions.
7. Purchase or sell physical commodities (including, by way of example
and not by way of limitation, grains, oilseeds, livestock, meat, food,
fiber, metals, petroleum, petroleum-based products or natural gas) or
futures or options contracts with respect to physical commodities.
This restriction shall not restrict any of these Underlying Funds from
purchasing or selling any financial contracts or instruments which may
be deemed commodities (including, by way of example and not by way of
limitation, options, futures and options on futures with respect, in
each case, to interest rates, currencies, stock indices, bond indices
or interest rate indices) or any security which is collateralized or
otherwise backed by physical commodities.
8. Purchase or sell real estate or real estate mortgage loans, except
that these Underlying Funds may invest in securities secured by real
estate or interests therein or issued by companies that invest in or
hold real estate or interests therein, and except that Fixed Income
Fund, Emerging Growth Fund, Technology Fund, Health Sciences Fund,
Real Estate Securities Fund, and International Fund may
invest in mortgage-backed securities.
9. Act as an underwriter of securities of other issuers, except to the
extent such an Underlying Fund may be deemed to be an underwriter,
under Federal securities laws, in connection with the disposition of
portfolio securities.
10. Lend any of their assets, except portfolio securities representing up
to one-third of the value of their total assets.
The following restrictions are non-fundamental and may be changed by
FAIF's Board of Directors without shareholder vote. None of the Equity Funds or
Fixed Income Fund will:
11. Invest more than 15% of its net assets in all forms of illiquid
investments, as determined pursuant to applicable Securities and
Exchange Commission rules and interpretations.
12. Invest in any securities, if as a result more than 5% of the value of
its total assets is invested in the securities of any issuers (other
than, in the case of Real Estate Securities Fund, publicly traded real
estate investment trusts) which, with their predecessors, have a
record of less than three years continuous operation. (Securities of
any of such issuers will not be deemed to fall within this limitation
if they are guaranteed by an entity which has been in continuous
operation for more than three years.)
13. Invest for the purpose of exercising control or management.
14. Purchase or sell real estate limited partnership interests (other
than, in the case of Real Estate Securities Fund, publicly traded real
estate limited partnership interests), or oil, gas or other mineral
leases, rights or royalty contracts, except that these Underlying
Funds may purchase or sell securities of companies which invest in or
hold the foregoing.
15. Purchase securities of any other registered investment company (as
defined in the 1940 Act), except, subject to 1940 Act limitations, (a)
International Fund may purchase shares of open-end investment
companies which invest in permitted investments for such Underlying
Fund; (b) each of Stock Fund, Equity Income Fund, Diversified Growth
Fund, Emerging Growth Fund, Regional Equity Fund, Special Equity Fund,
Technology Fund, Health Sciences Fund, Real Estate Securities Fund,
International Fund, and Fixed Income Fund may, as part of its
investment in cash items, invest in securities of other mutual funds
which invest primarily in debt obligations with remaining maturities
of 13 months or less; and (c) all such Underlying Funds may purchase
securities as part of a merger, consolidation, reorganization or
acquisition of assets.
16. Invest in foreign securities, except that (a) Fixed Income Fund each
may invest up to 15% of its total assets in foreign securities payable
in United States Dollars; (b) Stock Fund, Equity Income Fund,
Diversified Growth Fund, Emerging Growth Fund, Special Equity Fund,
Technology Fund, and Health Sciences Fund each may invest may invest
up to 25% of its total assets in securities of foreign issuers which
are either listed on a United States stock exchange or represented by
American Depositary Receipts; and (c) International Fund may invest in
foreign securities without limitation.
17. Except for International Fund, invest in warrants; provided, that the
other of such Underlying Funds may invest in warrants in an amount not
exceeding 5% of such Underlying Fund's net assets. No more than 2% of
this 5% may be warrants which are not listed on the New York Stock
Exchange.
For determining compliance with its investment restriction relating to
industry concentration, each such Underlying Fund classifies asset-backed
securities in its portfolio in separate industries based upon a combination of
the industry of the issuer or sponsor and the type of collateral. The industry
of the issuer or sponsor and the type of collateral will be determined by the
Underlying Fund's adviser. For example, an asset-backed security known as "Money
Store 94D A2" would be classified as follows: the issuer or sponsor of the
security is The Money Store, a personal finance company, and the collateral
underlying the security is automobile receivables. Therefore, the industry
classification would be Personal Finance Companies -- Automobile. Similarly, an
asset-backed security known as "Midlantic Automobile Grantor Trust 1992-1 B"
would be classified as follows: the issuer or sponsor of the security is
Midlantic National Bank, a banking organization, and the collateral underlying
the security is automobile receivables. Therefore, the industry classification
would be Banks -- Automobile. Thus, an issuer or sponsor may be included in more
than one "industry" classification, as may a particular type of collateral.
RESTRICTIONS APPLICABLE TO PRIME OBLIGATIONS FUND
In addition to the investment objectives and policies set forth in the
Prospectus and under the caption "Additional Information Concerning Investments
by the Funds and the Underlying Funds" above, Prime Obligations Fund is subject
to the investment restrictions set forth below. The investment restrictions set
forth in paragraphs 1 through 12 below are fundamental and cannot be changed
without approval by the holders of a majority of the outstanding shares of Prime
Obligations Fund as defined in the 1940 Act. See "Investment Restrictions of the
Funds" above.
Prime Obligations Fund may not:
1. Purchase common stocks, preferred stocks, warrants, other equity
securities, corporate bonds or debentures, state bonds, municipal
bonds, or industrial revenue bonds (except through the purchase of
obligations referred to under "Investment Objective and Policies" in
Prime Obligations Fund's Prospectus).
2. Borrow money except from banks for temporary or emergency purposes for
the purpose of meeting redemption requests which might otherwise
require the untimely disposition of securities. Borrowing in the
aggregate may not exceed 10% of the value of Prime Obligations Fund's
total assets (including the amount borrowed) valued at the lesser of
cost or market less liabilities (not including the amount borrowed) at
the time the borrowing is made. The borrowings will be repaid before
any additional investments are made. However, even with such authority
to borrow money, there is no assurance that Prime Obligations Fund
will not have to dispose of securities on an untimely basis to meet
redemption requests.
3. Pledge, hypothecate, mortgage or otherwise encumber its assets, except
in an amount up to 15% of the value of its total assets but only to
secure borrowings for temporary or emergency purposes.
4. Sell securities short or purchase securities on margin.
5. Write or purchase put or call options, except that Prime Obligations
Fund may write or purchase put or call options in connection with the
purchase of variable rate certificates of deposit described below.
6. Underwrite the securities of other issuers except to the extent Prime
Obligations Fund may be deemed to be an underwriter, under federal
securities laws, in connection with the disposition of portfolio
securities, or purchase securities with contractual or other
restrictions on resale.
7. Invest more than 10% of its net assets in illiquid assets, including,
without limitation, time deposits and repurchase agreements maturing
in more than seven days.
8. Purchase or sell real estate, real estate investment trust securities,
commodities or commodity contracts, or oil and gas interests.
9. Lend money to others except through the purchase of debt obligations
of the type which Prime Obligations Fund is permitted to purchase (see
"Investment Objective and Policies" in Prime Obligations Fund's
Prospectus).
10. Invest 25% or more of its assets in the securities of issuers in any
single industry; provided that there shall be no limitation on the
purchase of obligations issued or guaranteed by the United States, its
agencies or instrumentalities, or obligations of domestic commercial
banks, excluding for this purpose, foreign branches of domestic
commercial banks. As to utility companies, gas, electric, water, and
telephone companies are considered as separate industries. As to
finance companies, the following two categories are each considered a
separate industry: (A) business credit institutions, such as Honeywell
Finance Corporation and General Electric Credit Corp., and (B)
personal credit institutions, such as Sears Roebuck Acceptance Corp.
and Household Finance Corporation.
11. Invest in companies for the purpose of exercising control.
12. Purchase or retain the securities of any issuer if any of the officers
or directors of Prime Obligations Fund or its investment adviser owns
beneficially more than 1/2 of 1% of the securities of such issuer and
together own more than 5% of the securities of such issuer.
In connection with Prime Obligations Fund's purchase of variable rate
certificates of deposit ("CDs"), it may enter into agreements with banks or
dealers allowing Prime Obligations Fund to resell the certificates to the bank
or dealer, at Prime Obligations Fund's option. Time deposits which may be
purchased by Prime Obligations Fund are deposits held in foreign branches of
United States banks which have a specified term or maturity. Prime Obligations
Fund purchases CDs from only those domestic savings and loan institutions which
are regulated by the Office of Thrift Supervision and the Federal Deposit
Insurance Corporation ("FDIC"), and whose deposits are insured by either the
Savings Association Insurance Fund or the Bank Insurance Fund, each of which is
administered by the FDIC. However, because Prime Obligations Fund purchases
large denomination CDs, it does not expect to benefit materially from such
insurance. The policies described in this paragraph are nonfundamental and may
be changed by FAF's Board of Directors.
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of FASF are listed below, together
with their business addresses and their principal occupations during the past
five years. Directors who are "interested persons" (as that term is defined in
the 1940 Act) of FASF are identified with an asterisk.
DIRECTORS
Robert J. Dayton, 5140 Norwest Center, Minneapolis, Minnesota 55402:
Director of FASF since June 1996, of FAIF since September 1994 and of FAF since
December 1994; Chairman (1989-1993) and Chief Executive Officer (1993-present),
Okabena Company (private family investment office). Age: 54.
* Welles B. Eastman, 998 Shady Lane, Wayzata, Minnesota 55391: Director
of FASF since June 1996, of FAF since January 1990 and of FAIF since April 1991;
Chairman of the Board of Directors of Annandale State Bank, Annandale,
Minnesota; Vice President of the Adviser from 1968 and Vice President of the
Institutional Trust Group of First Trust National Association from 1986 until
his retirement in December 1988 from such positions. Age: 69.
Irving D. Fish, 901 Marquette, Suite 3200, Minneapolis, Minnesota
55402: Director of FASF since June 1996, of FAF since 1984 and of FAIF since
April 1991; Partner and Chief Financial Officer of Fallon McElligott, Inc., a
Minneapolis-based advertising agency. Age: 48.
Leonard W. Kedrowski, 16 Dellwood Avenue, Dellwood, Minnesota 55110:
Director of FASF since June 1996, of FAIF and FAF since November 1993; President
and owner of Executive and Management Consulting, Inc., a management consulting
firm; Vice President, Chief Financial Officer, Treasurer, Secretary and Director
of Anderson Corporation, a large privately-held manufacturer of wood windows,
from 1983 to October 1992. Age: 55.
Joseph D. Strauss, 8617 Edenbrook Crossing, # 443, Brooklyn Park,
Minnesota 55443: Director of FASF since June 1996, of FAF since 1984 and of FAIF
since April 1991; Chairman of FAF's and FAIF's Boards since 1992 and of FASF's
Board since June 1996; President of FAF and FAIF from June 1989 to November
1989; Owner and President, Strauss Management Company, since 1993; Owner and
President, Community Resource Partnerships, Inc., a community business retention
survey company, since 1992; attorney-at-law. Age: 56.
Virginia L. Stringer, 712 Linwood Avenue, St. Paul, Minnesota 55105:
Director of FASF since June 1996, of FAIF since August 1987 and of FAF since
April 1991; Owner and President, Strategic Management Resources, Inc. since
1993; formerly President and Director of The Inventure Group, a management
consulting and training company, President of Scott's, Inc., a transportation
company, and Vice President of Human Resources of The Pillsbury Company. Age:
52.
Gae B. Veit, P.O. Box 6, Loretto, Minnesota 55357: Director of FASF
since June 1996, of FAIF and FAF since December 7, 1993; owner and CEO of
Shingobee Builders, Inc., a general contractor. Age: 53.
EXECUTIVE OFFICERS
David Lee, SEI Corporation, 680 East Swedesford Road, Wayne,
Pennsylvania 19087: President of FASF since June 1996 and of FAIF and FAF since
April 1994; Senior Vice President and Assistant Secretary of FAF and FAIF
beginning June 1, 1993; Senior Vice President of SEI Financial Services Company
(the "Distributor") since 1991; President, GW Sierra Trust Funds prior to 1991.
Age: 44.
Carmen V. Romeo, SEI Corporation, 680 East Swedesford Road, Wayne,
Pennsylvania 19087: Treasurer and Assistant Secretary of FASF since June 1996
and of FAIF and FAF beginning November 1992; Director, Executive Vice President,
Chief Financial Officer and Treasurer of SEI Corporation ("SEI"), SEI Financial
Management Corporation (the "Administrator") and the Distributor since 1981.
Age: 52.
Kevin P. Robins, SEI Corporation, 680 East Swedesford Road, Wayne,
Pennsylvania 19087: Vice President and Assistant Secretary of FASF since June
1996 and of FAIF and FAF since April 1994; Senior Vice President, Assistant
Secretary and General Counsel of the Administrator and the Distributor. Age: 36.
Kathryn Stanton, SEI Corporation, 680 East Swedesford Road, Wayne,
Pennsylvania 19087: Vice President and Assistant Secretary of FASF since June
1996 and of FAIF and FAF since April 1994; Vice President and Assistant
Secretary of the Administrator and the Distributor since April 1994; Associate,
Morgan, Lewis & Bockius, from 1989 to 1994. Age: 37.
Sandra K. Orlow, SEI Corporation, 680 East Swedesford Road, Wayne,
Pennsylvania 19087: Vice President and Assistant Secretary of FASF since June
1996 and of FAIF and FAF since 1992; Vice President and Assistant Secretary of
the Administrator and the Distributor since 1983. Age: 42.
Marc Cahn, 680 East Swedesford Road, Wayne, Pennsylvania 19087: Vice
President and Assistant Secretary of FASF, FAIF and FAF since June 1996; Vice
President and Assistant Secretary of the Administrator and Distributor since May
1996; Associate General Counsel, Barclays Bank PLC, from 1994 to 1996; ERISA
Counsel, First Fidelity Bancorporation, prior to 1994. Age: 39.
Barbara A. Nugent, 680 East Swedesford Road, Wayne, Pennsylvania 19087:
Vice President and Assistant Secretary of FASF, FAIF and FAF since June 1996;
Vice President and Assistant Secretary of the Administrator and Distributor
since April 1996; Associate, Drinker, Biddle & Reath, from 1994 to 1996;
Assistant Vice President/Administration (1992 to 1993) and Operations (1988 to
1992), Delaware Service Company, Inc. Age: 39.
Joseph Lydon, 680 East Swedesford Road, Wayne, Pennsylvania 19087: Vice
President of FASF since June 1996 and of FAIF and FAF since June 1995; Director
of Business Administration of the Administrator and Distributor since April
1995; Vice President, Fund Group and Adviser, Dreman Value Management, L.P. and
President, Dreman Financial Services, Inc., from 1989 to 1995. Age: 36.
Stephen G. Meyer, SEI Corporation, 680 East Swedesford Road, Wayne,
Pennsylvania 19087: Controller of FASF since June 1996 and of FAIF and FAF since
March 1995; Director of Internal Audit and Risk Management of SEI from 1992 to
1995; Senior Associate, Coopers & Lybrand, from 1990 to 1992. Age: 31.
Michael J. Radmer, 220 South Sixth Street, Minneapolis, Minnesota
55402: Secretary of FASF since June 1996 and of FAIF since April 1991 and of FAF
since 1981; Partner, Dorsey & Whitney LLP, a Minneapolis- based law firm and
general counsel of FASF, FAIF and FAF. Age: 51.
COMPENSATION
The First American Family of Funds, which includes FASF, FAIF and FAF,
currently pays only to directors of the funds who are not paid employees or
affiliates of the funds a fee of $15,000 per year ($22,500 in the case of the
Chair) plus $2,500 ($3,750 in the case of the Chair) per meeting of the Board
attended and $800 per committee meeting attended ($1,600 in the case of a
committee chair) and reimburses travel expenses of directors and officers to
attend Board meetings. Legal fees and expenses are also paid to Dorsey & Whitney
LLP, the law firm of which Michael J. Radmer, secretary of FASF, FAIF and FAF,
is a partner. The following table sets forth information concerning aggregate
compensation paid to each director of FASF (i) by FASF (column 2), and (ii) by
FASF, FAIF and FAF collectively (column 5) during the fiscal year ended
September 30, 1995. No executive officer or affiliated person of FASF had
aggregate compensation from FASF in excess of $60,000 during such fiscal year:
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Total Compensation
Aggregate Pension or Retirement Estimated From Registrant and
Name of Compensation Benefits Accrued as Annual Benefits Fund Complex
Person, Position From Registrant Part of Fund Expenses Upon Retirement Paid to Directors
---------------- --------------- --------------------- --------------- -----------------
<S> <C> <C> <C> <C>
Robert J. Dayton, Director -0- - 0 - - 0 - $14,800
Welles B. Eastman, Director -0- - 0 - - 0 - $17,000
Irving D. Fish, Director -0- - 0 - - 0 - $15,800
Leonard W. Kedrowski, Director -0- - 0 - - 0 - $17,000
Joseph D. Strauss, Director -0- - 0 - - 0 - $35,600
Virginia L. Stringer, Director -0- - 0 - - 0 - $17,400
Gae B. Veit, Director -0- - 0 - - 0 - $16,200
</TABLE>
INVESTMENT ADVISORY AND OTHER SERVICES FOR THE FUNDS
INVESTMENT ADVISORY AGREEMENT
First Bank National Association (the "Adviser"), 601 Second Avenue
South, Minneapolis, Minnesota 55480, serves as the investment adviser and
manager of the Funds through its First Asset Management group. The Adviser is a
national banking association that has professionally managed accounts for
individuals, insurance companies, foundations, commingled accounts, trust funds,
and others for over 75 years. The Adviser is a subsidiary of First Bank System,
Inc. ("FBS"), 601 Second Avenue South, Minneapolis, Minnesota 55480, which is a
regional, multi-state bank holding company headquartered in Minneapolis,
Minnesota. FBS is comprised of 13 banks and several trust and nonbank
subsidiaries, with 362 banking locations and 18 nonbank offices primarily in
Minnesota, Colorado, Illinois, Iowa, Kansas, Montana, Nebraska, North Dakota,
South Dakota, Wisconsin and Wyoming. Through its subsidiaries, FBS provides
consumer banking, commercial lending, financing of import/export trade, foreign
exchange and investment services as well as mortgage banking, trust, commercial
and agricultural finance, data processing, leasing and brokerage services.
Pursuant to an Investment Advisory Agreement dated as of October 1,
1996 (the "Advisory Agreement"), the Funds engage the Adviser to act as
investment adviser for and to manage the investment of the assets of the Funds.
Each Fund pays the Adviser monthly fees calculated on an annual basis equal to
0.25% of its average daily net assets.
The Advisory Agreement requires the Adviser to provide FASF with all
necessary office space, personnel and facilities necessary and incident to the
Adviser's performance of its services thereunder. The Adviser is responsible for
the payment of all compensation to personnel of FASF and the officers and
directors of FASF, if any, who are affiliated with the Adviser or any of its
affiliates. The Advisory Agreement provides that each Fund will be reimbursed by
the Adviser, in an amount not in excess of the advisory fees payable by such
Fund, for excess fund expenses as may be required by the laws of certain states
in which the Fund's shares may be offered for sale. As of the date of this
Statement of Additional Information, the most restrictive state limitation in
effect requires that "aggregate annual expenses" (which include the investment
advisory fee and other operating expenses but exclude interest, taxes, brokerage
commissions, Rule 12b-1 fees and certain other expenses) shall not exceed 2-1/2%
of the first $30 million of average net assets, 2% of the next $70 million of
average net assets and 1-1/2% of the remaining average net assets of a Fund for
any fiscal year.
In addition to the investment advisory fee, each Fund pays all its
expenses that are not expressly assumed by the Adviser or any other organization
with which the Fund may enter into an agreement for the performance of services.
Each Fund is liable for such nonrecurring expenses as may arise, including
litigation to which the Fund may be a party, and it may have an obligation to
indemnify its directors and officers with respect to such litigation.
ADMINISTRATION AGREEMENT
SEI Financial Management Corporation (the "Administrator") serves as
administrator for the Funds pursuant to an Administration Agreement between it
and the Funds. The Administrator is a wholly-owned subsidiary of SEI
Corporation, which also owns the Funds' distributor. See "-- Distributor and
Shareholder Service Plan and Agreement" below. Under the Administration
Agreement, the Administrator provides administrative personnel and services to
the Funds for a fee as described in the Funds' Prospectus. These services
include, among others, regulatory reporting, fund and portfolio accounting,
shareholder reporting services, and compliance monitoring services. The
Administrator also serves as administrator for the Underlying Funds and receives
compensation for such services.
DISTRIBUTOR AND SHAREHOLDER SERVICE PLAN AND AGREEMENT
SEI Financial Services Company (the "Distributor") serves as the
distributor for the shares of each Fund. The Distributor is a wholly-owned
subsidiary of SEI Corporation, which also owns the Funds' Administrator. See "--
Administration Agreement" above.
The Distributor serves as distributor for the shares of the Funds
pursuant to a Distribution Agreement dated as of October 1, 1996 (the
"Distribution Agreement") between itself and the Funds. Under the Distribution
Agreement, the Distributor has agreed to perform all distribution services and
functions of the Funds. The Distributor may enter into sub-distribution
agreements with securities firms, financial institutions (including, without
limitation, banks) and other industry professionals. The Distributor receives no
separate compensation for distribution of the Funds' Shares.
The Funds also have entered into a Shareholder Service Plan and
Agreement with the Distributor pursuant to which the Distributor agrees to
provide, or to enter into written agreements with service providers to provide,
one or more specified shareholder services to beneficial owners of shares of the
Funds. The Distributor has agreed that the services provided pursuant to the
Shareholder Service Plan and Agreement will in no event be primarily intended to
result in the sale of Fund shares. Pursuant to the Shareholder Service Plan and
Agreement, the Funds have agreed to pay the Distributor a fee at an annual rate
of 0.25% of the average net asset value of the shares of the Funds, computed
daily and paid monthly. The Distributor is to pay any shareholder service
providers with which it enters into written agreements out of this amount.
The Distributor also serves as distributor for the shares of the
Underlying Funds and receives compensation (but not with respect to the class of
shares purchased by the Funds) for such services.
CUSTODIAN; TRANSFER AGENT; COUNSEL; ACCOUNTANTS
The custodian of the Funds' assets is First Trust National Association
(the "Custodian"), First Trust Center, 180 East Fifth Street, St. Paul,
Minnesota 55101. The Custodian is a subsidiary of First Bank System, Inc., which
also owns the Adviser.
The Custodian takes no part in determining the investment policies of
the Funds or in deciding which securities are purchased or sold by the Funds.
All of the instruments representing the investments of the Funds and all cash is
held by the Custodian. The Custodian delivers securities against payment upon
sale and pays for securities against delivery upon purchase. The Custodian also
remits Fund assets in payment of Fund expenses, pursuant to instructions of
FASF's officers or resolutions of the Board of Directors.
As compensation for its services to the Funds, the Custodian is paid a
monthly fee calculated on an annual basis equal to 0.03% of each Fund's average
daily net assets. In addition, the Custodian is reimbursed for its out-of-pocket
expenses incurred while providing its services to the Funds. The Custodian
continues to serve so long as its appointment is approved at least annually by
the Board of Directors including a majority of the directors who are not
interested persons (as defined under the 1940 Act) of FASF. The Custodian also
serves as custodian of the Underlying Funds' assets and receives compensation
for such services. In addition, the Custodian may serve as securities lending
agent for the Underlying Funds in connection with securities lending
transactions undertaken by the Underlying Funds, and it may receive compensation
for its provision of services as such securities lending agent.
DST Systems, Inc., 210 West 10th Street, Kansas City, Missouri 64105,
is transfer agent and dividend disbursing agent for the shares of the Funds. DST
Systems, Inc. also serves as transfer agent and dividend disbursing agent for
the Underlying Funds.
Dorsey & Whitney LLP, 220 South Sixth Street, Minneapolis, Minnesota
55402, is independent General Counsel for the Funds. Dorsey & Whitney LLP also
serves as independent General Counsel for the Underlying Funds.
KPMG Peat Marwick LLP, 90 South Seventh Street, Minneapolis, Minnesota
55402, acts as the Funds' independent auditors, providing audit services
including audits of the annual financial statements and assistance and
consultation in connection with SEC filings. KPMG Peat Marwick LLP also acts as
the Underlying Funds' independent auditors.
INVESTMENT ADVISORY SERVICES FOR THE UNDERLYING FUNDS
INVESTMENT ADVISORY AGREEMENTS OF THE UNDERLYING FUNDS
First Bank National Association ("First Bank"), the Adviser of the
Funds, also serves as investment adviser and manager of each of the Underlying
Funds through its First Asset Management group. For information concerning First
Bank, see "Investment Advisory and Other Services for the Funds -- Investment
Advisory Agreement" above.
Pursuant to an Investment Advisory Agreement dated April 2, 1991 (the
"FAIF Advisory Agreement"), the Equity Funds and Fixed Income Fund engage First
Bank to act as investment adviser for and to manage the investment of the assets
of each such Underlying Fund. Each such Underlying Fund other than International
Fund pays First Bank monthly fees calculated on an annual basis equal to 0.70%
of its average daily net assets. International Fund pays First Bank monthly fees
calculated on an annual basis equal to 1.25% of its average daily net assets.
Pursuant to an Investment Advisory Agreement effective as of January
20, 1995 (the "FAF Advisory Agreement"), Prime Obligations Fund engages First
Bank to act as investment adviser for and to manage the investment of the assets
of Prime Obligations Fund. Prime Obligations Fund pays First Bank monthly fees
calculated on an annual basis equal to 0.40% of its average daily net assets.
The FAIF Advisory Agreement and the FAF Advisory Agreement require
First Bank to provide FAIF and FAF with all necessary office space, personnel
and facilities necessary and incident to First Bank's performance of its
services thereunder. First Bank is responsible for the payment of all
compensation to personnel of FAIF and FAF and the officers and directors of FAIF
and FAF, if any, who are affiliated with First Bank or any of its affiliates.
The FAIF Advisory Agreement and the FAF Advisory Agreement provide that each
Underlying Fund will be reimbursed by First Bank, in an amount not in excess of
the advisory fees payable by such Underlying Fund, for excess fund expenses as
may be required by the laws of certain states in which the Underlying Fund's
shares may be offered for sale. As of the date of this Statement of Additional
Information, the most restrictive state limitation in effect requires that
"aggregate annual expenses" (which include the investment advisory fee and other
operating expenses but exclude interest, taxes, brokerage commissions, Rule
12b-1 fees and certain other expenses) shall not exceed 2-1/2% of the first $30
million of average net assets, 2% of the next $70 million of average net assets
and 1-1/2% of the remaining average net assets of an Underlying Fund for any
fiscal year.
In addition to the investment advisory fee, each Underlying Fund pays
all its expenses that are not expressly assumed by First Bank or any other
organization with which the Underlying Fund may enter into an agreement for the
performance of services. Each Underlying Fund is liable for such nonrecurring
expenses as may arise, including litigation to which the Underlying Fund may be
a party, and it may have an obligation to indemnify its directors and officers
with respect to such litigation.
Information concerning advisory fees paid by the Underlying Funds
during their three most recent fiscal years is set forth in their Statements of
Additional Information, which may be obtained by writing or calling SEI
Financial Services Company, 680 East Swedesford Road, Wayne, Pennsylvania 19087,
telephone: (800) 637-2548.
SUB-ADVISORY AGREEMENT FOR INTERNATIONAL FUND
Marvin & Palmer Associates, Inc., 1201 North Market Street, Suite 2300,
Wilmington, Delaware 19801, is sub-adviser for International Fund under an
agreement with First Bank (the "Sub-Advisory Agreement"). The sub-adviser, a
privately-held company, was founded in 1986 by David F. Marvin and Stanley
Palmer. The sub-adviser is engaged in the management of global, non-United
States and emerging markets equity portfolios for institutional accounts. At
September 30, 1995, the sub-adviser managed a total of $3.1 billion in
investments for 55 institutional investors. Pursuant to the Sub-Advisory
Agreement, the sub-adviser is responsible for the investment and reinvestment of
International Fund's assets and the placement of brokerage transactions in
connection therewith. Under the Sub-Advisory Agreement, the sub-adviser is
required, among other things, to report to First Bank or the FAIF Board
regularly at such times and in such detail as First Bank or the Board may from
time to time request in order to permit First Bank and the Board to determine
the adherence of International Fund to its investment objectives, policies and
restrictions. The Sub-Advisory Agreement also requires the sub-adviser to
provide all office space, personnel and facilities necessary and incident to the
sub-adviser's performance of its services under the Sub-Advisory Agreement.
For its services under the Sub-Advisory Agreement, the sub-adviser is
paid a monthly fee by First Bank calculated on an annual basis equal to 0.75% of
the first $100 million of International Fund's average daily net assets, 0.70%
of the second $100 million of International Fund's average daily net assets,
0.65% of the third $100 million of International Fund's average daily net
assets, and 0.60% of International Fund's average daily net assets in excess of
$300 million.
PORTFOLIO MANAGERS FOR THE UNDERLYING FUNDS
Stock Fund is managed by a committee comprised of Mr. Doak, Mr. Murphy,
Mr. Rovner, Mr. Dubiak, Mr. Whitcomb, and Mr. Shields. Equity Income Fund and
Diversified Growth Fund are managed by a committee comprised of Mr. Bren, Mr.
Doak, Mr. Dubiak, Ms. Hoyme, Ms. Johnson, Mr. Murphy, Mr. Whitcomb, and Mr.
Johnson. The remaining Underlying Funds are managed or co-managed as indicated
below.
James Doak and John M. Murphy, Jr. are members of the committees which
manage three of the Underlying Funds, as set forth above. Their biographies are
set forth in the Funds' Prospectus under the caption "Management -- Portfolio
Management of the Funds."
James S. Rovner is a member of the committee which manages one of the
Underlying Funds, as set forth above, and he is portfolio manager for Special
Equity Fund. His biography is set forth in the Funds' Prospectus under the
caption "Management -- Portfolio Management of the Funds."
Gerald C. Bren is a member of the committee which manages two of the
Underlying Funds, as set forth above, and he is portfolio co-manager for
Emerging Growth Fund and Health Sciences Fund. His biography is set forth in the
Funds' Prospectus under the caption "Management -- Portfolio Management of the
Funds."
Albin S. Dubiak is a member of the committees which manage three of the
Underlying Funds, as set forth above, and he is portfolio co-manager for
Emerging Growth Fund, Regional Equity Fund, and Health Sciences Fund. His
biography is set forth in the Funds' Prospectus under the caption "Management
- -- Portfolio Management of the Funds."
Mary M. Hoyme is a member of the committee which manages two of the
Underlying Funds, as set forth above, and she is portfolio co-manager for Real
Estate Securities Fund. Mary joined First Bank in 1989 as a research analyst,
prior to which she was employed for seven years as an equity and economic
analyst with IDS Financial Services. She received her bachelor's degree from the
University of Wisconsin -- Eau Claire and here master's degree in business
administration from the College of St. Thomas. She is a Chartered Financial
Analyst.
Cori B. Johnson is a member of the committee which manages two of the
Underlying Funds, as set forth above, and she is portfolio co-manager for Real
Estate Securities Fund. Cori has been managing assets using quantitative
analysis techniques since 1992. She joined First Bank in 1991 as a securities
analyst. Cori received her bachelor's degree from Concordia College and her
master's degree in business administration from the University of Minnesota. She
is a Chartered Financial Analyst.
Roland B. Whitcomb is a member of the committees which manage three of
the Underlying Funds, as set forth above, and he is portfolio co-manager for
Regional Equity Fund and Technology Fund. Roland jointed First Bank in 1986
after serving as an account executive with Smith Barney & Co. since 1979. He
received his bachelor's degree from the University of Chicago and is a Chartered
Financial Analyst.
Jeff A. Johnson is a member of the committee which manages two of the
Underlying Funds, as set forth above, and he is portfolio co-manager for
Regional Equity Fund and Technology Fund. Jeff has been employed by First Bank
in investment management since 1991 and in commercial lending from 1985 to 1991.
He received his master of arts degree from the University of Iowa.
Kevin Shields is a member of the committee which manages one of the
Underlying Funds, as set forth above. Kevin, who joined First Bank in 1993,
received his bachelor's degree from Marquette University and his master's degree
from the University of Wisconsin -- Madison.
Martin L. Jones is portfolio manager for Fixed Income Fund. His
biography is set forth in the Funds' Prospectus under the caption "Management --
Portfolio Management of the Funds."
Joseph M. Ulrey III is portfolio co-manager for Prime Obligations Fund.
His biography is set forth in the Funds' Prospectus under the caption
"Management -- Portfolio Management of the Funds."
Jim Palmer is portfolio co-manager for Prime Obligations Fund. Jim
joined First Bank in 1992, prior to which he was a securities lending trader and
senior master trust accountant with First Trust National Association. He holds a
bachelor's degree from the University of Wisconsin -- LaCrosse and a masters's
of business administration degree from the University of Minnesota.
A committee comprised of the following five individuals shares the
management of International Fund on behalf of its sub-adviser:
David F. Marvin is Chairman of the sub-adviser and founded the firm
together with Mr. Palmer in 1986. Before founding the sub-adviser, Mr. Marvin
was Vice President in charge of DuPont Corporation's $10 billion
internally-managed pension fund. Prior to that Mr. Marvin was Associate
Portfolio Manager, and then Head Portfolio Manager, for Investors Diversified
Services' IDS Stock Fund. Mr. Marvin started in the investment business in 1965
as a securities analyst for Chicago Title & Trust. He received his bachelor's
degree from the University of Illinois and his master's degree in business
administration from Northwestern University. He is a Chartered Financial Analyst
and a member of the Financial Analysts Federation.
Stanley Palmer is President of the sub-adviser and co-founder of the
firm. Mr. Palmer was Equity Portfolio Manager for DuPont Corporation from 1978
through 1986, an analyst and portfolio manager at Investors Diversified Services
from 1971 through 1978, and an analyst at Harris Trust & Savings Bank from 1964
through 1971. He received his bachelor's degree from Gustavus Adophus College
and his master's degree in business administration from the University of Iowa.
He is a Chartered Financial Analyst and a member of the Financial Analysts
Federation.
Terry B. Mason is a Vice President and Portfolio Manager of the
sub-adviser. Before joining the subadviser, Mr. Mason was employed for 14 years
by DuPont Corporation, the last five as international equity analyst and
international trader. He received his bachelor's degree from Glassboro State
College and his master's degree in business administration from Widener
University.
Jay F. Middleton is a Vice President and Portfolio Manager for the
sub-adviser and joined the firm in 1989. He received his bachelor's degree from
Wesleyan University.
Todd D. Marvin is a Vice President and Portfolio Manager for the
sub-adviser and joined the firm in 1991. Before joining the sub-adviser, Mr.
Marvin was employed by Oppenheimer & Company as an analyst in investment
banking. Mr. Marvin received his bachelor's degree from Wesleyan University.
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE
It anticipated that the majority of the Funds' portfolio transactions
will consist of purchases and sales of shares of the Underlying Funds. These
purchases and sales will be made directly with the Underlying Funds. The class
of shares of the Underlying Funds in which the Funds will invest is not subject
to any front-end or deferred sales charges, any Rule 12b-1 distribution fees or
any shareholder servicing fees.
To the extent that the Funds may purchase or sell securities other than
shares of the Underlying Funds, decisions with respect to placement of the
Funds' portfolio transactions are made by the Adviser. The Funds' policy is to
seek to place portfolio transactions with brokers or dealers who will execute
transactions as efficiently as possible and at the most favorable price. The
Adviser may, however, select a broker or dealer to effect a particular
transaction without communicating with all brokers or dealers who might be able
to effect such transaction because of the volatility of the market and the
desire of the Adviser to accept a particular price for a security because the
price offered by the broker or dealer meets guidelines for profit, yield or
both. Some portfolio transactions may involve payment of a brokerage commission
by the appropriate Fund. In some cases, transactions may be with dealers or
issuers who act as principal for their own accounts and not as brokers.
Transactions effected on a principal basis are made without the payment of
brokerage commissions but at net prices, which usually include a spread or
markup. In effecting transactions in over-the-counter securities, the Funds
expect to deal with market makers unless it appears that better price and
execution are available elsewhere.
While the Adviser does not deem it practicable and in the Funds' best
interest to solicit competitive bids for commission rates on each transaction,
consideration will regularly be given by the Adviser to posted commission rates
as well as to other information concerning the level of commissions charged on
comparable transactions by other qualified brokers.
Subject to the policy of seeking favorable price and execution for the
transaction size and risk involved, in selecting brokers and dealers other than
the Distributor and determining commissions paid to them, the Adviser may
consider ability to provide supplemental performance, statistical and other
research information as well as computer hardware and software for research
purpose for consideration, analysis and evaluation by the staff of the Adviser.
In accordance with this policy, the Funds do not execute brokerage transactions
solely on the basis of the lowest commission rate available for a particular
transaction. Subject to the requirements of favorable price and efficient
execution, placement of orders by securities firms for the purchase of shares of
the Funds may be taken into account as a factor in the allocation of portfolio
transactions.
Research services that may be received by the Adviser would include
advice, both directly and in writing, as to the value of securities, the
advisability of investing in, purchasing, or selling securities, and the
availability of securities or purchasers or sellers of securities, as well as
analyses and reports concerning issuers, industries, securities, economic
factors and trends, portfolio strategy, and the performance of accounts. The
research services may allow the Adviser to supplement its own investment
research activities and enable the Adviser to obtain the views and information
of individuals and research staffs of many different securities firms prior to
making investment decisions for the Funds. To the extent portfolio transactions
are effected with brokers and dealers who furnish research services, the Adviser
would receive a benefit, which is not capable of evaluation in dollar amounts,
without providing any direct monetary benefit to the Funds from these
transactions. Research services furnished by brokers and dealers used by the
Funds for portfolio transactions may be utilized by the Adviser in connection
with investment services for other accounts and, likewise, research services
provided by brokers and dealers used for transactions of other accounts may be
utilized by the Adviser in performing services for the Funds. The Adviser
determine the reasonableness of the commissions paid in relation to their view
of the value of the brokerage and research services provided, considered in
terms of the particular transactions and their overall responsibilities with
respect to all accounts as to which they exercise investment discretion.
The Adviser has not entered into any formal or informal agreements with
any broker or dealer, and do not maintain any "formula" that must be followed in
connection with the placement of Fund portfolio transactions in exchange for
research services provided to the Adviser, except as noted below. The Adviser
may, from time to time, maintain an informal list of brokers and dealers that
will be used as a general guide in the placement of Fund business in order to
encourage certain brokers and dealers to provide the Adviser with research
services, which the Adviser anticipates will be useful to it. Any list, if
maintained, would be merely a general guide, which would be used only after the
primary criteria for the selection of brokers and dealers (discussed above) had
been met, and, accordingly, substantial deviations from the list could occur.
The Adviser would authorize the Funds to pay an amount of commission for
effecting a securities transaction in excess of the amount of commission another
broker or dealer would have charged only if the Adviser determined in good faith
that the amount of such commission was reasonable in relation to the value of
the brokerage and research services provided by such broker or dealer, viewed in
terms of either that particular transaction or the overall responsibilities of
the Adviser with respect to the Funds.
The Funds do not effect any brokerage transactions in their portfolio
securities with any broker or dealer affiliated directly or indirectly with the
Adviser or the Distributor unless such transactions, including the frequency
thereof, the receipt of commissions payable in connection therewith, and the
selection of the affiliated broker or dealer effecting such transactions are not
unfair or unreasonable to the shareholders of the Funds, as determined by the
Board of Directors. Any transactions with an affiliated broker or dealer must be
on terms that are both at least as favorable to the Funds as the Funds can
obtain elsewhere and at least as favorable as such affiliated broker or dealer
normally gives to others.
When two or more clients of the Adviser are simultaneously engaged in
the purchase or sale of the same security, the prices and amounts are allocated
in accordance with a formula considered by the Adviser to be equitable to each
client. In some cases, this system could have a detrimental effect on the price
or volume of the security as far as each client is concerned. In other cases,
however, the ability of the clients to participate in volume transactions may
produce better executions for each client.
The policies of the Underlying Funds with respect to portfolio
transactions and the allocation of brokerage, and the brokerage commissions paid
by them during their three most recent fiscal years, are set forth in their
Statements of Additional Information, which may be obtained by writing or
calling SEI Financial Services Company, 680 East Swedesford Road, Wayne,
Pennsylvania 19087, telephone: (800) 637-2548.
CAPITAL STOCK
As of September 16, 1996, the directors and officers of FASF as a group
owned less than one percent of each Fund's outstanding shares. As of that date,
the Funds were aware that the following persons owned of record five percent or
more of the outstanding shares of each class of stock of the Funds.
PERCENTAGE OF
SHARES OWNED
------------
INCOME FUND
SEI Financial Services Company.......................... 100%
680 East Swedesford Road
Wayne, Pennsylvania 19087
GROWTH AND INCOME FUND
SEI Financial Services Company.......................... 100%
680 East Swedesford Road
Wayne, Pennsylvania 19087
GROWTH FUND
SEI Financial Services Company.......................... 100%
680 East Swedesford Road
Wayne, Pennsylvania 19087
AGGRESSIVE GROWTH FUND
SEI Financial Services Company.......................... 100%
680 East Swedesford Road
Wayne, Pennsylvania 19087
NET ASSET VALUE AND PUBLIC OFFERING PRICE
The method for determining the public offering price of the shares of
the Funds is summarized in the Prospectus under the caption "Investing in the
Funds." The net asset value of each Fund's shares is determined on each day
during which the New York Stock Exchange (the "NYSE") is open for business. The
NYSE is not open for business on the following holidays (or on the nearest
Monday or Friday if the holiday falls on a weekend): New Year's Day,
Washington's Birthday (observed), Good Friday, Memorial Day (observed),
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Each year the
NYSE may designate different dates for the observance of these holidays as well
as designate other holidays for closing in the future.
FUND PERFORMANCE
SEC STANDARDIZED PERFORMANCE FIGURES
YIELD FOR THE FUNDS. Yield for the Funds is a measure of the net
investment income per share (as defined) earned over a 30-day period expressed
as a percentage of the maximum offering price of a Fund's shares at the end of
the period.
Such yield figures are determined by dividing the net investment income
per share earned during the specified 30-day period by the maximum offering
price per share on the last day of the period, according to the following
formula:
Yield = 2 [((a - b) / cd) + 1)6 - 1]
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = average daily number of shares outstanding during the
period that were entitled to receive dividends
d = maximum offering price per share on the last day of the
period
TOTAL RETURN. Total return measures both the net investment income
generated by, and the effect of any realized or unrealized appreciation or
depreciation of, the underlying investments in a Fund's portfolio. The Funds'
average annual and cumulative total return figures are computed in accordance
with the standardized methods prescribed by the Securities and Exchange
Commission.
AVERAGE ANNUAL TOTAL RETURN. Average annual total return figures are
computed by determining the average annual compounded rates of return over the
periods indicated in the advertisement, sales literature or shareholders'
report, that would equate the initial amount invested to the ending redeemable
value, according to the following formula:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the period
of a hypothetical $1,000 payment made at the
beginning of such period
This calculation (i) assumes all dividends and distributions are reinvested at
net asset value on the appropriate reinvestment dates as described in the
Prospectus, and (ii) deducts all recurring fees, such as advisory fees, charged
as expenses to all shareholder accounts.
CUMULATIVE TOTAL RETURN. Cumulative total return is computed by finding
the cumulative compounded rate of return over the period indicated in the
advertisement that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
CTR = ((ERV - P) / P ) 10
Where: CTR = cumulative total return
ERV = ending redeemable value at the end of, the
period of a hypothetical $1,000 payment made at
the beginning of such period; and
P = initial payment of $1,000
This calculation (i) assumes all dividends and distributions are reinvested at
net asset value on the appropriate reinvestment dates as described in the
Prospectuses, and (ii) deducts all recurring fees, such as advisory fees,
charged as expenses to all shareholder accounts.
NON-STANDARD DISTRIBUTION RATES
HISTORICAL DISTRIBUTION RATES. The Funds' historical annualized
distribution rates are computed by dividing the income dividends of a Fund for a
stated period by the maximum offering price on the last day of such period.
ANNUALIZED CURRENT DISTRIBUTION RATES. The Funds' annualized current
distribution rates are computed by dividing a Fund's income dividends for a
specified month by the number of days in that month and multiplying by 365, and
dividing the resulting figure by the maximum offering price on the last day of
the specified period.
CERTAIN PERFORMANCE COMPARISONS
The Funds may compare their performance to that of certain published or
otherwise widely disseminated indices or averages compiled by third parties.
These indices and averages are as follows, among others:
STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS ("S&P
500") is a composite index of common stocks in industrial, transportation, and
financial and public utility companies which compares total returns of funds
whose portfolios are invested primarily in common stocks. In addition, the S&P
500 index assumes reinvestment of all dividends paid by stocks listed in its
index. Taxes due on any of these distributions are not included, nor are
brokerage or other fees calculated in Standard & Poor's figures.
RUSSELL 2000 INDEX is a broadly diversified index consisting of
approximately 2,000 small capitalization common stocks that can be used to
compare to the total returns of funds whose portfolios are invested primarily in
small capitalization common stocks.
LIPPER BALANCED AVERAGE is an average of funds whose primary objective
is to conserve principal by maintaining at all times a balanced portfolio of
both stocks and bonds.
LIPPER FLEXIBLE PORTFOLIO AVERAGE is an average of funds which allocate
investments across various asset classes, including domestic common stocks,
bonds and money market instruments, with a focus on total return.
MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE, AUSTRALIA AND FAR EAST
("EAFE") INDEX is an aggregate of 15 individual country indices that
collectively represent many of the major markets of the world, excluding the
United States and Canada.
LEHMAN GOVERNMENT/CORPORATE (TOTAL) INDEX is a market weighted index
comprised of all public obligations of the U.S. Treasury, excluding flower bonds
and foreign-targeted issues; all publicly issued debt of U.S. Government
agencies and quasi-federal corporations, and corporate debt guaranteed by the
U.S. Government; and all publicly issued, fixed rate, nonconvertible investment
grade dollar-denominated SECregistered corporate debt.
SALOMON BROTHERS 3-MONTH U.S. TREASURY BILL INDEX represents monthly
return equivalents of yield averages which are not marked to market.
In addition, the Funds may compare their performance to composites
constructed from the foregoing indices and averages.
TAXATION
The tax status of the Funds and the distributions that the Funds will
make to shareholders are summarized in the Prospectus in the section entitled
"Federal Income Taxes." Each Fund intends to fulfill the requirements of
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), as a
regulated investment company. If so qualified, each Fund will not be liable for
federal income taxes to the extent it distributes its taxable income to its
shareholders.
To qualify under Subchapter M for tax treatment as a regulated
investment company, each Fund must, among other things: (1) derive at least 90%
of its gross income from dividends, interest, and certain other types of
payments related to its investment in stock or securities; (2) distribute to its
shareholders at least 90% of its investment company taxable income (as that term
is defined in the Code determined without regard to the deduction for dividends
paid) and 90% of its net tax-exempt income; (3) derive less than 30% of its
annual gross income from the sale or other disposition of stock, securities,
options, futures, or forward contracts held for less than three months; and (4)
diversify its holdings so that, at the end of each fiscal quarter of the Fund,
(a) at least 50% of the market value of the Fund's assets is represented by
cash, cash items, U.S. Government securities and securities of other regulated
investment companies, and other securities, with these other securities limited,
with respect to any one issuer, to an amount no greater than 5% of the Fund's
total assets and no greater than 10% of the outstanding voting securities of
such issuer, and (b) not more than 25% of the market value of the Fund's total
assets is invested in the securities of any one issuer (other than U.S.
Government securities or securities of other regulated investment companies).
Each Fund is subject to a nondeductible excise tax equal to 4% of the
excess, if any, of the amount required to be distributed for each calendar year
over the amount actually distributed. For this purpose, any amount on which the
Fund is subject to corporate-level income tax is considered to have been
distributed. In order to avoid the imposition of this excise tax, each Fund must
declare and pay dividends representing 98% of its net investment income for that
calendar year and 98% of its capital gains (both long-term and short-term) for
the twelve-month period ending October 31 of the calendar year.
Any loss on the sale or exchange of shares of a Fund generally will be
disallowed to the extent that a shareholder acquires or contracts to acquire
shares of the same Fund within 30 days before or after such sale or exchange.
Furthermore, if Fund shares with respect to which a long-term capital gain
distribution has been made are held for less than six months, any loss on the
sale or exchange of such shares will be treated as a long-term capital loss to
the extent of such long-term capital gain distribution.
For federal tax purposes, if a shareholder exchanges shares of a Fund
for shares of any other Fund pursuant to the exchange privilege (see "Investing
in the Funds -- Exchange Privilege" in the Prospectus), such exchange will be
considered a taxable sale of the shares being exchanged.
Dividends generally are taxable to shareholders at the time they are
paid. However, dividends declared in October, November and December, made
payable to shareholders of record in such a month and actually paid in January
of the following year are treated as paid and are thereby taxable to
shareholders as of December 31.
Pursuant to the Code, distributions of net investment income by a Fund
to a shareholder who, as to the United States, is a nonresident alien
individual, nonresident alien fiduciary of a trust or estate, foreign
corporation, or foreign partnership (a "foreign shareholder") will be subject to
U.S. withholding tax (at a rate of 30% or lower treaty rate). Withholding will
not apply if a dividend paid by a Fund to a foreign shareholder is `'effectively
connected" with a U.S. trade or business of such shareholder, in which case the
reporting and withholding requirements applicable to U.S. citizens or domestic
corporations will apply. Distributions of net long-term capital gains are not
subject to tax withholding but, in the case of a foreign shareholder who is a
nonresident alien individual, such distributions ordinarily will be subject to
U.S. income tax at a rate of 30% if the individual is physically present in the
U.S. for more than 182 days during the taxable year. Each Fund will report
annually to its shareholders the amount of any withholding.
The foregoing relates only to federal income taxation and is a general
summary of the federal tax law in effect as of the date of this Statement of
Additional Information.
RATINGS
A rating of a rating service represents that service's opinion as to
the credit quality of the rated security. However, such ratings are general and
cannot be considered absolute standards of quality or guarantees as to the
creditworthiness of an issuer. A rating is not a recommendation to purchase,
sell or hold a security, because it does not take into account market value or
suitability for a particular investor. Markets values of debt securities may
change as a result of a variety of factors unrelated to credit quality,
including changes in market interest rates.
When a security has been rated by more than one service, the ratings
may not coincide, and each rating should be evaluated independently. Ratings are
based on current information furnished by the issuer or obtained by the rating
services from other sources which they consider reliable. Ratings may be
changed, suspended or withdrawn as a result of changes in or unavailability of
such information, or for other reasons. In general, the Underlying Funds are not
required to dispose of a security if its rating declines after it is purchased,
although they may consider doing so.
RATINGS OF CORPORATE DEBT OBLIGATIONS AND MUNICIPAL BONDS
STANDARD & POOR'S CORPORATION
AAA: Securities rated AAA have the highest rating assigned by Standard
& Poor's to a debt obligation. Capacity to pay interest and repay
principal is extremely strong.
AA: Securities rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only to a
small degree.
A: Securities rated A have a strong capacity to pay interest and repay
principal, although they are somewhat more susceptible to adverse
effects of changes in circumstances and economic conditions than bonds
in higher rated categories.
BBB: Securities rated BBB are regarded as having an adequate capacity
to pay interest and repay principal. Although such securities normally
exhibit adequate protection standards, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity
to pay interest and repay principal for securities in this category
than for those in higher rated categories.
Debt rated BB, B, CCC, CC, and C by Standard & Poor's is regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
BB: Securities rated BB have less near-term vulnerability to default
than other speculative issues. However, they face major ongoing
uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to inadequate capacity to meet timely
interest and principal payments. The BB rating category is also used
for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating.
B: Securities rated B have a greater vulnerability to default but
currently have the capacity to meet interest payments and principal
repayments. Adverse business, financial, or economic conditions will
likely impair capacity or willingness to pay interest and repay
principal. The B rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied BB or BB- rating.
CCC: Securities rated CCC have a currently identifiable vulnerability
to default, and are dependent upon favorable business, financial, and
economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial, or economic
conditions, they are not likely to have the capacity to pay interest
and repay principal. The CCC rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied B or
B- rating.
The ratings from AA to CCC may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories.
MOODY'S INVESTORS SERVICE, INC.
Aaa: Securities which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are protected
by a large or exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Securities which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group, they comprise what are
generally known as high grade securities. They are rated lower than the
best securities because margins of protection may not be as large as in
Aaa securities, or fluctuation of protective elements may be of greater
magnitude, or there may be other elements present which make the
long-term risks appear somewhat greater than in Aaa securities.
A: Securities which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impair-ment sometime in the future.
Baa: Securities which are rated Baa are considered as medium grade
obligations, being neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
securities lack outstanding investment characteristics, and in fact
have some speculative characteristics.
Ba: An issue which is rated Ba is judged to have speculative elements;
its future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes issues in this class.
B: An issue which is rated B generally lacks characteristics of the
desirable investment. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of
time may be small.
Caa: An issue which is rated Caa is of poor standing. Such an issue may
be in default or there may be present elements of danger with respect
to principal or interest.
Those securities in the Aa, A and Baa groups which Moody's believes possess the
strongest investment attributes are designated by the symbols Aa-1, A-1 and
Baa-1. Other Aa, A and Baa securities comprise the balance of their respective
groups. These rankings (1) designate the securities which offer the maximum in
security within their quality groups, (2) designate securities which can be
bought for possible upgrading in quality, and (3) additionally afford the
investor an opportunity to gauge more precisely the relative attractiveness of
offerings in the marketplace.
RATINGS OF PREFERRED STOCK
STANDARD & POOR'S CORPORATION. Standard & Poor's ratings for preferred
stock have the following definitions:
AAA: An issue rated "AAA" has the highest rating that may be assigned
by Standard & Poor's to a preferred stock issue and indicates an
extremely strong capacity to pay the preferred stock obligations.
AA: A preferred stock issue rated "AA" also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations
is very strong, although not as overwhelming as for issues rated "AAA."
A: An issue rated "A" is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more susceptible
to the adverse effects of changes in circumstances and economic
conditions.
BBB: An issue rated "BBB" is regarded as backed by an adequate capacity
to pay the preferred stock obligations. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to make
payments for a preferred stock in this category than for issues in the
category.
MOODY'S INVESTORS SERVICE, INC. Moody's ratings for preferred stock
include the following:
aaa: An issue which is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the
least risk of dividend impairment within the universe of preferred
stocks.
aa: An issue which is rated "aa" is considered a high grade preferred
stock. This rating indicates that there is reasonable assurance that
earnings and asset protection will remain relatively well maintained in
the foreseeable future.
a: An issue which is rate "a" is considered to be an upper medium grade
preferred stock. While risks are judged to be somewhat greater than in
the "aaa" and "aa" classifications, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.
baa: An issue which is rated "baa" is considered to be medium grade,
neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any
great length of time.
RATINGS OF COMMERCIAL PAPER
STANDARD & POOR'S CORPORATION. Commercial paper ratings are graded into
four categories, ranging from "A" for the highest quality obligations to "D" for
the lowest. Issues assigned the A rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designation 1, 2 and 3 to indicate the relative degree of safety. The "A-1"
designation indicates that the degree of safety regarding timely payment is very
strong. Those issues determined to possess overwhelming safety characteristics
will be denoted with a plus (+) symbol designation. None of the Funds or the
Underlying Funds will purchase commercial paper rated A-3 or lower.
MOODY'S INVESTORS SERVICE, INC. Moody's commercial paper ratings are
opinions as to the ability of the issuers to timely repay promissory obligations
not having an original maturity in excess of nine months. Moody's makes no
representation that such obligations are exempt from registration under the
Securities Act of 1933, and it does not represent that any specific instrument
is a valid obligation of a rated issuer or issued in conformity with any
applicable law. Moody's employs the following three designations, all judged to
be investment grade, to indicate the relative repayment capacity of rated
issuers:
PRIME-1: Superior capacity for repayment.
PRIME-2: Strong capacity for repayment .
PRIME-3: Acceptable capacity for repayment .
None of the Funds or the Underlying Funds will purchase Prime-3 commercial
paper.
BEST'S RATING SYSTEM FOR INSURANCE COMPANIES
The objective of Best's Rating System is to evaluate the various
factors affecting the overall performance of an insurance company in order to
provide an opinion as to the company's relative financial strength and ability
to meet its contractual obligations. The procedure includes both a quantitative
and qualitative review of the company.
The quantitative evaluation is based on an analysis of the company's
financial condition and operating performance utilizing a series of financial
tests. These tests measure a company's performance in the three critical areas
of Profitability, Leverage and Liquidity in comparison to the norms established
by the A.M. Best Company. These norms are based on an evaluation of the actual
performance of the insurance industry.
Best's review also includes a qualitative evaluation of the adequacy
and soundness of a company's reinsurance, the adequacy of its reserves and the
experience of its management. In addition, various other factors of importance
are considered such as the composition of the company's book of business and the
quality and diversification of its assets.
Upon completion of analysis, Best's Ratings are assigned to those
companies that meet the qualifications for rating. The Best's Rating
classifications are A+ (Superior); A & A- (Excellent); B+ (Very Good); B & B-
(Good); C+ (Fairly Good); and C & C- (Fair). Those not qualifying for a current
Best's Rating are classified in the "Not Assigned" category that has ten
classifications which identify why a company is not eligible for a Best's
Rating. Care should be exercised in the use of Best's Ratings without further
reference to additional Best's publications.
FINANCIAL STATEMENTS
The Funds' audited statement of assets and liabilities is attached to
this Statement of Additional Information.
<TABLE>
<CAPTION>
FIRST AMERICAN STRATEGY FUNDS, INC.
STATEMENTS OF ASSETS AND LIABILITIES
SEPTEMBER 5, 1996
GROWTH AGGRESSIVE
INCOME AND INCOME GROWTH GROWTH
FUND FUND FUND FUND
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Assets:
Cash $ 97,000 $ 1,000 $ 1,000 $ 1,000
Deferred organization costs 16,143 16,143 16,143 16,143
Deferred offering costs 19,500 19,500 19,500 19,500
-------- -------- -------- --------
Total Assets 132,643 36,643 36,643 36,643
-------- -------- -------- --------
Liabilities:
Due to Administrator for reimbursement of
organization and offering costs 35,643 35,643 35,643 35,643
-------- -------- -------- --------
Net Assets: $ 97,000 $ 1,000 $ 1,000 $ 1,000
======== ======== ======== ========
Portfolio shares - ($.01 par value- 20 billion authorized) based
on 9,700, 100, 100, and 100 outstanding shares respectively $ 97,000 $ 1,000 $ 1,000 $ 1,000
Total Net Assets $ 97,000 $ 1,000 $ 1,000 $ 1,000
======== ======== ======== ========
Net asset value $ 10.00 $ 10.00 $ 10.00 $ 10.00
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
First American Strategy Funds, Inc.
Notes to Financial Statements
September 5, 1996
1. Organization:
The Income Fund, Growth and Income Fund, Growth Fund, and Aggressive Growth Fund
are series of the First American Strategy Funds, Inc. (FASF). FASF (the "Funds")
is a corporation organized under Minnesota law which is registered under the
Investment Company Act of 1940, as amended, as an open end, management
investment company. The articles of incorporation of FASF permit the Board of
Directors to create additional funds in the future.
FASF Funds will initially offer their shares in one class. The class will not be
subject to front-end or deferred sales charges, redemption fees, or 12b-1
distribution fees. Additional classes of shares may be offered in the future.
The Funds' prospectus provides a description of each Fund's investment
objectives, policies, and strategies. The Funds have not commenced operations
except with respect to organizational matters and the sale of initial shares of
interest to SEI Financial Management Corporation (SFM) (the Administrator) on
September 5, 1996.
2. Investment Advisory, Management, Distribution and Shareholder Servicing
Agreements:
The Funds expect to enter into the following service agreements prior to
commencement of operations:
First Bank National Association (the Adviser) will manage each Fund's assets and
furnish related office facilities, equipment, research and personnel pursuant to
an investment advisory agreement (the Agreement). The Agreement will require
each Fund to pay the Adviser a monthly fee based upon average daily net assets.
The fee for each of the Funds will be equal to an annual rate of 0.25% of
average daily net assets. The adviser intends to waive their entire fee for the
fiscal year ended September 30, 1997. Such waivers are voluntary and may be
discontinued at any time.
SEI Financial Services Company (SFS) and SEI Financial Management Corporation
(SFM) serve as Distributor and Administrator of the Funds, respectively. Under
the distribution plan there will be no 12b-1 arrangement, however, the
individual funds will be subject to a shareholder servicing fee calculated at an
annual rate of 0.25% of average daily assets. SFM provides administrative
services, including certain accounting, legal, and shareholder services, at an
annual rate of 0.12% of each FASF Fund's average daily net assets, with a
minimum annual fee of $50,000 per Fund. To the extent that the aggregate net
assets of the entire First American Funds exceed $8 billion, the percentage
stated above is reduced to 0.105%.
3. Organizational Costs, Offering Costs and Transactions with Affiliates:
Organizational costs have been capitalized by the Fund and will be amortized
over 60 months commencing with operations. In the event any of the initial
shares are redeemed by any holder thereof during the period that the Fund is
amortizing its organizational costs, the redemption proceeds payable to the
holder thereof by the Fund will be reduced by the unamortized organizational
costs in the same ratio as the number of initial shares being redeemed bears to
the number of initial shares outstanding at the time of the redemption. These
costs include legal fees of approximately $60,000 for organizational work
performed by a law firm of which the Secretary of the Funds is a partner.
Offering costs have been deferred by the Funds and will be amortized over twelve
months commencing with operations.
4. Management Estimates
The preparation of financial statements, in conformity with generally accepted
accounting principals, requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholder
First American Strategy Funds, Inc.:
We have audited the statements of assets and liabilities of Income Fund, Growth
and Income Fund, Growth Fund, and Aggressive Growth Fund (funds within First
American Strategy Funds, Inc.) as of September 5, 1996. These financial
statements are the responsibility of Fund management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures include
confirmation of cash in bank by correspondence with the custodian. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the statements of assets and liabilities referred to above
present fairly, in all material respects, the financial position of Income Fund,
Growth and Income Fund, Growth Fund, and Aggressive Growth Fund as of September
5, 1996 in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
September 6, 1996
PART C -- OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements: An audited balance sheet of each series
to be offered is filed as part of Part B of Post-Effective
Amendment No. 1 to this Registration Statement.
(b) Exhibits:
* (1) Articles of Incorporation of Registrant.
* (2) Bylaws of Registrant.
(3) Not applicable.
* (4) Form of Common Stock Certificate.
* (5) Form of Investment Advisory Agreement between Registrant and
First Bank National Association.
* (6) Form of Distribution Agreement between Registrant and SEI
Financial Services Company.
(7) Not applicable.
* (8) Form of Custodian Agreement between Registrant and First
Trust National Association, including form of Compensation
Agreement pursuant thereto.
+ (9) (a) Form of Administration Agreement between Registrant
and SEI Financial Management Corporation.
+ (9) (b) Form of Transfer Agency Agreement between Registrant
and DST Systems, Inc.
* (9) (c) Form of Shareholder Service Plan and Agreement
between Registrant and SEI Financial Services
Company.
* (10) Opinion and Consent of Dorsey & Whitney LLP.
+ (11) Consent of KPMG Peat Marwick LLP.
(12) Not applicable.
+ (13) Investment Letter for Initial Shares of of the
respective Series.
* (14) (a) 401(k) Prototype Basic Plan Document # 02
(1989 Restatement), including Amendment Nos.
1, 2, and 3 and sample Adoption Agreement.
* (14) (b) Defined Contribution Prototype Basic Plan
Document # 01 (1989 Restatement), including
Amendment Nos. 1 and 2 and sample Adoption
Agreement.
* (14) (c) IRA Applications and Documentation.
(15) Not applicable.
(16) Not applicable.
(17) Not applicable.
(18) Not applicable.
* (19) Powers of Attorney of Directors Dayton, Eastman,
Fish, Kedrowski, Strauss, Stringer and Veit.
* Previously filed.
+ Filed herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
At the time the registration statement becomes effective, all
outstanding shares of each series of Registrant will be owned by SEI Financial
Services Company, a Pennsylvania corporation and a wholly-owned subsidiary of
SEI Corporation, a Pennsylvania corporation. SEI Corporation also is the sole
shareholder of SEI Financial Management Corporation and of other financial
management and services companies.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
The following table sets forth the anticipated number of holders of
shares of each series of Common Stock of the Registrant as of September 16,
1996:
NUMBER OF
FUND RECORD HOLDERS
- ---- --------------
Income Fund............................................... 1
Growth and Income Fund.................................... 1
Growth Fund............................................... 1
Aggressive Growth Fund.................................... 1
ITEM 27. INDEMNIFICATION
The Articles of Incorporation and Bylaws of Registrant provide in
substance that the Registrant shall indemnify such persons for such expenses and
liabilities, in such manner, under such circumstances, and to the full extent
permitted by Section 302A.521 of the Minnesota Statutes, as now enacted or
hereafter amended. Section 302A.521 requires a Minnesota corporation to
indemnify its present and former directors and officers made or threatened to be
made a party to a proceeding by reason of the former or present official
capacity of the person against judgments, penalities, fines, settlements, and
reasonable expenses, including attorneys' fees and disbursements, incurred by
the person in connection with the proceeding, provided that certain conditions
set forth in the statute are satisfied. These conditions include, among others,
that the indemnitee acted in good faith; received no improper personal benefit;
in the case of a criminal proceeding, had no reasonable cause to believe that
the conduct at issue was unlawful; and reasonably believed that the conduct was
in the best interests of (or, in certain cases, was not opposed to the best
interests of) the corporation. Section 302A.521 also provides for the
advancement of expenses.
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, may be permitted to directors, officers, and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in such Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer, or
controlling person of the Registrant in the successful defense of any action,
suit, or proceeding) is asserted by such director, officer, or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933, as amended, and will be governed by the final
adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Information on the business of the Registrant's investment adviser,
First Bank National Association (the "Adviser"), is set forth in the section of
the Registrant's Statement of Additional Information, filed as part of this
Registration Statement, entitled "Investment Advisory and Other Services." The
directors and executive officers of the Adviser are listed below, together with
their principal occupation or other positions of a substantial nature during the
past two fiscal years.
<TABLE>
<CAPTION>
OTHER POSITIONS AND OFFICES
NAME POSITIONS AND OFFICES WITH ADVISER AND PRINCIPAL BUSINESS ADDRESS
<S> <C> <C>
John F. Grundhofer Chairman, President and Chief Chairman, President and Chief
Executive Officer Executive Officer of First Bank
System, Inc. ("FBS").*
Richard A. Zona Director and Vice Chairman--Finance Vice Chairman--Finance of FBS*
Philip G. Heasley Director and Vice Chairman Vice Chairman and Group Head of the
Retail Product Group of FBS.*
Daniel C. Rohr Director and Executive Vice President Executive Vice President, Commercial
Banking Group of FBS.*
J. Robert Hoffmann Director, Chief Credit Officer Executive Vice President and Chief
and Executive Vice President Credit Officer of FBS.*
Lee R. Mitau Director, General Counsel, Executive Vice President, Secretary,
Executive Vice President and Secretary and General Counsel of FBS; prior to
October 1995 partner in Dorsey &
Whitney LLP*
Susan E. Lester Director, Executive Vice President and Executive Vice President and Chief
Chief Financial Officer Financial Officer of FBS; prior to
December 1995 executive vice president
and chief financial officer of Shawmut
National Corporation.*
Larry S. Crawford Executive Vice President and General --*
Manager, Central Banking Group
Robert J. Anderson Executive Vice President --*
John M. Murphy, Jr. Executive Vice President Executive Vice President of FBS.*
Robert H. Sayre Executive Vice President Executive Vice President, Human
Resources.*
</TABLE>
* Address: First Bank Place, 601 Second Avenue South, Minneapolis, Minnesota
55402.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Furnish the name of each investment company (other than the
Registrant) for which each principal underwriter currently distributing
securities of the Registrant also acts as a principal underwriter, distributor
or investment adviser:
Registrant's distributor, SEI Financial Services Company ("SFS") acts
as distributor for SEI Liquid Asset Trust, SEI Daily Income Trust, SEI Tax
Exempt Trust, SEI Index Funds, SEI Institutional Managed Trust, SEI
International Trust, Stepstone Funds, The Advisors' Inner Circle Fund, Pillar
Funds, CUFund, STI Classic Funds, CoreFunds, Inc., First American Funds, Inc.,
The Arbor Fund, 1784 Funds, Marquis Funds, Morgan Grenfell Investment Trust, The
PBHG Funds, Inc., Inventor Funds, Inc., The Achievement Funds Trust, Insurance
Investment Products Trust, Bishop Street Funds, CrestFunds, Inc., STI Classic
Variable Trust, ARK Funds, Monitor Funds, FMB Funds, Inc., SEI Asset Allocation
Trust, and Turner Funds pursuant to distribution agreements dated November 29,
1982, July 15, 1982, December 3, 1982, July 10, 1985, January 22, 1987, August
30, 1988, January 30, 1991, November 14, 1991, February 28, 1992, May 1, 1992,
May 29, 1992, October 30, 1992, November 1, 1992, January 28, 1993, June 1,
1993, August 17, 1993, January 3, 1994, August 1, 1994, December 27, 1994,
December 30, 1994, January 27, 1995, March 1, 1995, August 18, 1995, November 1,
1995, January 11, 1996, March 1, 1996, April 1, 1996, and April 29, 1996,
respectively.
SFS provides numerous financial services to investment managers,
pension plan sponsors, and bank trust departments. These services include
portfolio evaluation, performance measurement, and consulting services ("Funds
Evaluation") and automated execution, clearing and settlement of securities
transactions ("MarketLink").
(b) Furnish the information required by the following table with
respect to each director, officer or partner of each principal underwriter named
in the answer to Item 21 of Part B. Unless otherwise noted, the business address
of each director or officer is 680 East Swedesford Road, Wayne, Pennsylvania
19087.
<TABLE>
<CAPTION>
NAME POSITIONS AND OFFICES WITH UNDERWRITER POSITIONS AND OFFICES WITH REGISTRANT
<S> <C> <C>
Alfred P. West, Jr. Director, Chairman & Chief --
Executive Officer
Henry H. Greer Director, President & Chief --
Operating Officer
Carmen V. Romeo Director, Executive Treasurer, Assistant Secretary
Vice President & Treasurer
Gilbert L. Beebower Executive Vice President --
Richard B. Lieb Executive Vice President, President-Investment --
Services Division
Leo J. Dolan, Jr. Senior Vice President --
Carl A. Guarino Senior Vice President --
Jerome Hickey Senior Vice President --
David G. Lee Senior Vice President President
William Maddon Senior Vice President --
A. Keith McDowell Senior Vice President --
Dennis J. McGonigle Senior Vice President --
Hartland J. McKeown Senior Vice President --
James V. Morris Senior Vice President --
Steven Onofrio Senior Vice President --
Kevin P. Robins Senior Vice President, General Counsel Vice President & Assistant Secretary
& Secretary
Robert Wagner Senior Vice President --
Patrick K. Walsh Senior Vice President --
Kenneth Zimmer Senior Vice President --
Ronert Aller Vice President --
Steve Bendinell Vice President --
Marc H. Cahn Vice President & Assistant Secretary Vice President & Assistant Secretary
Gordon W. Carpenter Vice President --
Todd Cipperman Vice President & Assistant Secretary --
Robert Crudup Vice President & Managing Director --
Ed Daly Vice President --
Jeff Drennen Vice President --
Mick Duncan Vice President & Team Leader --
Vic Galef Vice President & Managing Director --
Kathy Heilig Vice President --
Larry Hutchison Vice President --
Michael Kantor Vice President --
Samuel King Vice President --
Kim Kirk Vice President & Managing Director --
Donald H. Korytowski Vice President --
John Krzeminski Vice President & Managing Director --
Robert S. Ludwig Vice President & Team Leader --
Vicki Malloy Vice President & Team Leader --
Jack May Vice President --
Carolyn McLaurin Vice President & Managing Director --
Barbara Moore Vice President & Managing Director --
W. Kelso Morrill Vice President --
Barbara A. Nugent Vice President & Assistant Secretary --
Sandra K. Orlow Vice President & Assistant Secretary Vice President & Assistant Secretary
Donald Pepin Vice President & Managing Director --
Larry Pokora Vice President --
Kim Rainey Vice President --
Paul Sachs Vice President --
Mark Samuels Vice President & Managing Director --
Steve Smith Vice President --
Daniel Spaventa Vice President --
Kathryn L. Stanton Vice President & Assistant Secretary Vice President & Assistant Secretary
Wayne M. Withrow Vice President & Managing Director --
William Zawaski Vice President --
James Dougherty Director of Brokerage Services --
</TABLE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
<TABLE>
<CAPTION>
LOCATION
OF TYPE OF
REGULATION RECORD RECORD FUND
<S> <C> <C> <C>
270.31a-1(a) 2 General Ledger B
2 Cash Transaction Statement D
2 Monthly Cash Summary Report M
2 Purchases Report D
2 Sales Report D
2 Realized Gain/Loss Report D
2 Securities Movement and Control List of Assets for Close of
Business B
270.31a-1(b)(1) 2 Daily Portfolio Transaction Detail D
2 Daily Settled Purchase and Sales Journal D
2 Money Market Monthly Transaction Journal M
2 Money Market General Ledger Activity Journal M
270.31a-1(b)2(i) 2 General Ledger B
2 Money Market General Ledger Activity Journal M
2 Open Trades/Secs. Out for Transfer Report D
2 Securities Movement and Control List of Assets for Close of
Business B
2 Federal Reserve 3E Safe-Keeping Acct. Listing of Securities held
by the Fund B
2 Div. Income Summary Report D
2 Div. and Interest Receivable Report D
2 Earned Income Report B
2 Money Market Daily Accrual Report M
2 Money Market Daily Amortization Report M
2 Statement of Condition B
270.31a-1(b)2(ii) 2 Fund Master Ledger D
2 Corporate Action Announcement Report D
2 Purchases Report D
2 Sales Report D
270.31a-1(b)2(iii) 2 Brokerage Alloc/Commission Detail Report D
270.31a-1(b)2(iv) 1 Shareholder Master File -- CRT B
1 Shareholder History File -- CRT B
270.31a-1(b)3 2 Fund Master Ledger D
270.31a-1(b)4 1 Articles of Incorporation B
1 Declaration of Trust B
1 By-Laws B
1 Minute Books B
270.31a-1(b)5 1 Trade Tickets B
2 Purchase Report D
2 Sales Report D
270.31a-1(b)5 1 Trade Tickets B
2 Purchase Report D
2 Sales Report D
270.31a-1(b)6 1 Trade Tickets B
270.31a-1(b)7 2 Fund Master Ledger D
270.31a-1(b)8 2 Statement of Condition B
2 General Ledger B
2 Money Market General Ledger Activity Journal M
270.31a-1(b)9 2 Brokerage Alloc./Commission Detail Report D
1 Brokerage Commission Report B
1 Reduction and Commission Report D
1 Quarterly Brokerage Log B
270.31a-1(b)10 1 Custodian Blanket Authorization B
1 Portfolio Manager Signoff B
270.31a-1(b)11 1 Portfolio Manager Signoff B
270.31a-1(b)12 2 All supporting documentation B
270.31a-1(c) Not applicable
270.31a-1(d) 1 Director Payments thru Fund Journal B
1 Exchange Purchase Journal B
1 Confirmed Payments Journal B
1 Fiduciary Contribution Journal B
1 Direct Payments Journal B
1 Direct Redemptions Journal B
2 General Ledger B
1 Shareholder Master File -- CRT B
1 Shareholder History File -- CRT B
1 Daily Div. Close-out Journal B
1 Asset Transfer/Rollover Journal B
1 Redemption Check Register B
1 Purchase Cancellations Journal B
1 Redemption Cancellation Journal B
1 Fail/Free Report B
1 Broker/Dealer Order Ticket B
1 Inv. Services Order Breakdowns B
1 EDGE Transaction Journal B
1 Shareholder Receipt -- Retail B
1 Account Application -- Retail B
1 Additional Deposit Slip -- Retail B
1 Trade Cancel Form B
1 Confirmation Statement B
1 Shareholder Statement B
1 Form U-4 B
1 Fingerprint Card B
1 Form U-4 Status Report B
1 Form U-4 Score Report B
1 Form U-5 B
270.31a-1(e) Not applicable
270.31a-1(f) 2 General Ledger B
1 Portfolio Manager Signoff B
1 Trade Tickets B
270.31a-2(a)(1) 2 Daily Portfolio Transaction Detail D
2 Daily Settled Pur. and Sales Journal D
2 Money Market Monthly Transaction Journal M
2 Money Market General Ledger Activity Journal M
2 Open Trades/Secs. Out for Transfer Report D
2 Securities Movement and Control List of Assets for Close of
Business B
2 Fed. Reserve 3E Safe-Keeping Acct. Listing of Securities held
by the Fund B
270.31a-2(a)(1) 2 Div. Income Summary Report D
2 Div. and Interest Receivable Report D
2 Earned Income Report B
2 Money Market Daily Accrual Report M
2 Money Market Daily Amortization Report M
2 Statement of Condition B
2 Fund Master Ledger D
2 Corporate Action Announcement Report D
2 Brokerage Alloc./Commission Detail Report D
1 Shareholder Master File -- CRT B
1 Shareholder History File -- CRT B
1 Declaration of Trust B
1 By-laws B
1 Minute Books B
270.31a-2(a)(2) 2 Purchases Report D
2 Sales Report D
2 General Ledger B
2 Money Market General Ledger Activity Journal M
2 Statement of Condition B
2 Fund Master Ledger D
2 Brokerage Alloc./Commission Detail Report D
1 Trade Tickets B
1 Brokerage Commission Report B
1 Reduction and Commission Report D
1 Quarterly Brokerage Log B
1 Custodian Blanket Authorization B
1 Portfolio Manager Signoff B
270.31a-2(a)(3) 1 Sales Literature File B
270.31a-2(b) Not applicable
270.31a-2(c) 1 Director Payments thru Fund Journal B
1 Exchange Purchase Journal B
1 Confirmed Payments Journal B
1 Fiduciary Contribution Journal B
1 Direct Payments Journal B
1 Direct Redemptions Journal B
2 General Ledger B
1 Shareholder Master File -- CRT B
1 Shareholder History File -- CRT B
1 Daily Div. Close-Out Journal B
1 Asset Transfer/Rollover Journal B
1 Redemption Check Register B
1 Purchase Cancellations Journal B
1 Redemption Cancellation Journal B
1 Fail/Free Report B
1 Broker/Dealer Order Ticket B
1 Inv. Services Order Breakdowns B
1 EDGE Transaction Journal B
1 Shareholder Receipt -- Retail B
1 Account Application -- Retail B
1 Additional Deposit Slip -- Retail B
1 Trade Cancel Form B
270.31a-2(c) 1 Confirmation Statement B
1 Shareholder Statement B
1 Form U-4 B
1 Fingerprint Card B
1 Form U-4 Status Report B
1 Form U-4 Score Report B
1 Form U-5 B
270.31a-2(d) Not applicable
270.31a-2(e) 2 General Ledger B
1 Portfolio Manager Signoff B
1 Trade Tickets B
270.31a-2(f)(1) 1 Microfilm B
270.31a-2(f)(2) 1 Retention Plan B
270.31a-2(f)(3) Not applicable
270.31a-3 1 Custodian Agreement B
</TABLE>
(1) SEI Financial Management Corporation and SEI Financial Services Company
680 East Swedesford Road
Wayne, Pennsylvania 19087-1658
(2) First Trust National Association
180 East Fifth Street
St. Paul, Minnesota 55101
B = Both D = Debt Equity M = Money Market
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
Registrant undertakes to file a post-effective amendment, using
financial statements which need not be certified, within four to six months from
the effective date of this registration statement.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, the Registrant has duly caused this
Post-Effective Amendment No. 1 to the Registration Statement on Form N-1A to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Wayne, Commonwealth of Pennsylvania, on the 11th day of September, 1996.
FIRST AMERICAN STRATEGY FUNDS, INC.
ATTEST: /s/ Stephen G. Meyer By: /s/ Kathryn L. Stanton
Stephen G. Meyer Kathryn L. Stanton, Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 1 to the Registration Statement has been signed
below by the following persons in the capacity and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Stephen G. Meyer Controller (Principal **
Stephen G. Meyer Financial and Accounting
Officer)
* Director **
Robert J. Dayton
* Director **
Welles B. Eastman
* Director **
Irving D. Fish
* Director **
Leonard W. Kedrowski
* Director **
Joseph D. Strauss
* Director **
Virginia L. Stringer
* Director **
Gae B. Veit
* By: /s/ Kathryn L. Stanton
Kathryn L. Stanton
Attorney in Fact
** September 11, 1996.
N-1A
EXHIBIT (9)(a)
ADMINISTRATION AGREEMENT
THIS AGREEMENT is made as of this 1st day of October, 1996, by and between
FIRST AMERICAN STRATEGY FUNDS, INC. a Minnesota corporation (the "Fund"), and
SEI Financial Management Corporation (the "Administrator"), a Delaware
corporation.
WHEREAS, the Fund is an open-end diversified management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"), consisting of several series of shares of Common Stock; and
WHEREAS, the Fund desires the Administrator to provide, and the
Administrator is willing to provide, management and administrative services to
such portfolios of the Fund as the Fund and the Administrator may agree on
("Portfolios") and as listed on the schedules attached hereto ("Schedules") and
made a part of this Agreement, on the terms and conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Fund and the Administrator hereby agree as follows:
ARTICLE 1. Retention of the Administrator. The Fund hereby retains the
Administrator to act as the administrator of the Portfolios and to furnish the
Portfolios with the management and administrative services as set forth in
Article 2 below. The Administrator hereby accepts such employment to perform the
duties set forth below.
The Administrator shall, for all purposes herein, be deemed to be an
independent contractor and, unless otherwise expressly provided or authorized,
shall have no authority to act for or represent the Fund in any way and shall
not be deemed an agent of the Fund.
ARTICLE 2. Administrative Services. The Administrator shall perform or
supervise the performance by others of other administrative services in
connection with the operations of the Portfolios, and, on behalf of the Fund,
will investigate, assist in the selection of and conduct relations with
custodians, depositories, accountants, legal counsel, underwriters, brokers and
dealers, corporate fiduciaries, insurers, banks and persons in any other
capacity deemed to be necessary or desirable for the Portfolios' operations. The
Administrator shall provide the Directors of the Fund with such reports
regarding investment performance as they may reasonably request but shall have
no responsibility for supervising the performance by any investment adviser or
sub-adviser of its responsibilities.
The Administrator shall provide the Fund with regulatory reporting,
fund accounting and related portfolio accounting services, all necessary office
space, equipment, personnel, compensation and facilities (including facilities
for Shareholders' and Directors' meetings) for handling the affairs of the
Portfolios and such other services as the Administrator shall, from time to
time, determine to be necessary to perform its obligations under this Agreement.
In addition, at the request of the Board of Directors, the Administrator shall
make reports to the Fund's Directors concerning the performance of its
obligations hereunder.
Without limiting the generality of the foregoing, the Administrator shall:
(a) calculate contractual Fund expenses and control all
disbursements for the Fund, and as appropriate compute the
Fund's yields, total return, expense ratios, portfolio
turnover rate and, if required, portfolio average
dollar-weighed maturity;
(b) assist Fund counsel with the preparation of prospectuses,
statements of additional information, registration statements,
proxy materials;
(c) prepare such reports, applications and documents (including
reports regarding the sale and redemption of Shares as may be
required in order to comply with Federal and state securities
law) as may be necessary or desirable to register the Fund's
shares with state securities authorities, monitor sale of Fund
shares for compliance with state securities laws. and file
with the appropriate state securities authorities the
registration statements and reports for the Fund and the
Fund's shares and all amendments thereto, as may be necessary
or convenient to register and keep effective the Fund and the
Fund's shares with state securities authorities to enable the
Fund to make a continuous offering of its shares;
(d) develop and prepare communications to shareholders, including
the annual report to shareholders, coordinate mailing
prospectuses, notices, proxy statements, proxies and other
reports to Fund shareholders, and supervise and facilitate the
solicitation of proxies solicited by the Fund for all
shareholder meetings, including tabulation process for
shareholder meetings;
(e) prepare, negotiate, and administer contracts on behalf of the
Fund with, among others, the Fund's investment adviser,
distributor, custodian, and transfer agent;
(f) maintain the Fund's general ledger and prepare the Fund's
financial statements, including expense accruals and payments,
determine the net asset value of the Fund's assets and of the
Fund's shares, and supervise the Fund's transfer agent with
respect to the payment of dividends and other distributions to
shareholders;
(g) calculate performance data of the Fund and its portfolios for
dissemination to information services covering the investment
company industry;
(h) coordinate and supervise the preparation and filing of the
Fund's tax returns;
(i) examine and review the operations and performance of the
various organizations providing services to the Fund or any
Portfolio of the Fund, including, without limitation, the
Fund's investment adviser, distributor, custodian, transfer
agent, outside legal counsel and independent public
accountants, and at the request of the Board of Directors,
report to the Board on the performance of organizations;
(j) assist with the layout and printing of publicly disseminated
prospectuses and assist with and coordinate layout and
printing of the Fund's semi-annual and annual reports to
shareholders;
(k) provide internal legal and administrative services as
requested by the Fund from time to time;
(l) assist with the design, development, and operation of the
Fund, including new portfolio and class investment objectives,
policies and structure;
(m) provide individuals reasonably acceptable to the Fund's Board
of Directors for nomination, appointment, or election as
officers of the Fund, who will be responsible for the
management of certain of the Fund's affairs as determined by
the Fund's Board of Directors;
(n) advise the Fund and its Board of Directors on matters
concerning the Fund and its affairs;
(o) obtain and keep in effect fidelity bonds and directors and
officers/errors and omissions insurance policies for the Fund
in accordance with the requirements of Rules 17g-1 and
17d-1(7) under the 1940 Act as such bonds and policies are
approved by the Fund's Board of Directors;
(p) monitor and advise the Fund and its Portfolios on their
registered investment company status under the Internal
Revenue Code of 1986, as amended;
(q) perform all administrative services and functions of the Fund
and each Portfolio to the extent administrative services and
functions are not provided to the Fund or such Portfolio
pursuant to the Fund's or such Portfolio's investment advisory
agreement, distribution agreement, custodian agreement and
transfer agent agreement;
(r) furnish advice and recommendations with respect to other
aspects of the business and affairs of the Portfolios as the
Fund and the Administrator shall determine desirable; and
(s) prepare and file with the SEC the semi-annual report for the
Fund on Form N-SAR and all required notices pursuant to Rule
24f-2.
Also, the Administrator will perform other services for the Fund as agreed from
time to time at the request of the Board of Directors, including, but not
limited to performing internal audit examinations; mailing the annual reports of
the Portfolios; preparing an annual list of shareholders; and mailing notices of
shareholders' meetings, proxies and proxy statements, for all of which the Fund
will pay the Administrator's out-of-pocket expenses.
ARTICLE 3. Allocation of Charges and Expenses.
(A) The Administrator. The Administrator shall furnish at its own
expense the executive, supervisory and clerical personnel necessary to perform
its obligations under this Agreement. The Administrator shall also provide the
items which it is obligated to provide under this Agreement, and shall pay all
compensation, if any, of officers of the Fund as well as all Directors of the
Fund who are affiliated persons of the Administrator or any affiliated
corporation of the Administrator; provided, however, that unless otherwise
specifically provided, the Administrator shall not be obligated to pay the
compensation of any employee of the Fund retained by the Directors of the Fund
to perform services on behalf of the Fund.
(B) The Fund. The Fund assumes and shall pay or cause to be paid all
other expenses of the Fund not otherwise allocated herein, including, without
limitation, organizational costs, taxes, expenses for legal and auditing
services, the expenses of preparing (including typesetting), printing and
mailing reports, prospectuses, statements of additional information, proxy
solicitation material and notices to existing Shareholders, all expenses
incurred in connection with issuing and redeeming Shares, the costs of custodial
services, the cost of initial and ongoing registration of the Shares under
Federal and state securities laws, fees and out-of-pocket expenses of Directors
who are not affiliated persons of the Administrator or the investment adviser to
the Fund or any affiliated corporation of the Administrator or the investment
Adviser, insurance, interest, brokerage costs, litigation and other
extraordinary or nonrecurring expenses, and all fees and charges of investment
advisers to the Fund.
ARTICLE 4. Compensation of the Administrator.
(A) Administration Fee. For the services to be rendered, the facilities
furnished and the expenses assumed by the Administrator pursuant to this
Agreement, the Fund shall pay to the Administrator compensation at an annual
rate specified in the Schedules. Such compensation shall be calculated and
accrued daily, and paid to the Administrator monthly. The Fund shall also
reimburse the Administrator for its reasonable out-of-pocket expenses, including
the travel and lodging expenses incurred by officers and employees of the
Administrator in connection with attendance at Board meetings.
If this Agreement becomes effective subsequent to the first day of a
month or terminates before the last day of a month, the Administrator's
compensation for that part of the month in which this Agreement is in effect
shall be prorated in a manner consistent with the calculation of the fees as set
forth above. Payment of the Administrator's compensation for the preceding month
shall be made promptly.
(B) Compensation from Transactions. The Fund hereby authorizes any
entity or person associated with the Administrator which is a member of a
national securities exchange to effect any transaction on the exchange for the
account of the Fund which is permitted by Section 11 (a) of the Securities
Exchange Act of 1934 and Rule 11a2-2(T) thereunder, and the Fund hereby consents
to the retention of compensation for such transactions in accordance with Rule
11a2-2(T) (a) (2) (iv).
(C) Survival of Compensation Rates. All rights of compensation under
this Agreement for services performed as of the termination date shall survive
the termination of this Agreement.
ARTICLE 5. Limitation of Liability of the Administrator. The duties of
the Administrator shall be confined to those expressly set forth herein, and no
implied duties are assumed by or may be asserted against the Administrator
hereunder. The Administrator shall not be liable for any error of judgment or
mistake of law or for any loss arising out of any investment or for any act or
omission in carrying out its duties hereunder, except a loss resulting from
willful misfeasance, bad faith or negligence in the performance of its duties,
or by reason of reckless disregard of its obligations and duties hereunder,
except as may otherwise be provided under provisions of applicable law which
cannot be waived or modified hereby. (As used in this Article 5, the term
"Administrator" shall include directors, officers, employees and other corporate
agents of the Administrator as well as that corporation itself.)
So long as the Administrator acts in good faith and with due diligence
and without negligence, the Fund assumes full responsibility and shall indemnify
the Administrator and hold it harmless from and against any and all actions,
suits and claims, whether groundless or otherwise, and from and against any and
all losses, damages, costs, charges, reasonable counsel fees and disbursements,
payments, expenses and liabilities (including reasonable investigation expenses)
arising directly or indirectly out of said administration, transfer agency, and
dividend disbursing relationships to the Fund or any other service rendered to
the Fund hereunder. The indemnity and defense provisions set forth herein shall
indefinitely survive the termination of this Agreement.
The rights hereunder shall include the right to reasonable advances of
defense expenses in the event of any pending or threatened litigation with
respect to which indemnification hereunder may ultimately be merited. In order
that the indemnification provision contained herein shall apply, however, it is
understood that if in any case the Fund may be asked to indemnify or hold the
Administrator harmless, the Fund shall be fully and promptly advised of all
pertinent facts concerning the situation in question, and it is further
understood that the Administrator will use all reasonable care to identify and
notify the Fund promptly concerning any situation which presents or appears
likely to present the probability of such a claim for indemnification against
the Fund, but failure to do so in good faith shall not affect the rights
hereunder.
The Fund shall be entitled to participate at its own expense or, if it
so elects, to assume the defense of any suit brought to enforce any claims
subject to this indemnity provision. If the Fund elects to assume the defense of
any such claim, the defense shall be conducted by counsel chosen by the Fund and
satisfactory to the Administrator, whose approval shall not be unreasonably
withheld. In the event that the Fund elects to assume the defense of any suit
and retain counsel, the Administrator shall bear the fees and expenses of any
additional counsel retained by it. If the Fund does not elect to assume the
defense of a suit, it will reimburse the Administrator for the reasonable fees
and expenses of any counsel retained by the Administrator.
The Administrator may apply to the Fund at any time for instructions
and may consult counsel for the Fund or its own counsel and with accountants and
other experts with respect to any matter arising in connection with the
Administrator's duties, and the Administrator shall not be liable or accountable
for any action taken or omitted by it in good faith in accordance with such
instruction or with the opinion of such counsel, accountants or other experts.
Also, the Administrator shall be protected in acting upon any document
which it reasonably believes to be genuine and to have been signed or presented
by the proper person or persons. Nor shall the Administrator be held to have
notice of any change of authority of any officers, employee or agent of the Fund
until receipt of written notice thereof from the Fund.
ARTICLE 6. Activities of the Administrator. The services of the
Administrator rendered to the Fund are not to be deemed to be exclusive. The
Administrator is free to render such services to others and to have other
businesses and interests. It is understood that Directors, officers, employees
and Shareholders of the Fund are or may be or become interested in the
Administrator, as directors, officers, employees and shareholders or otherwise
and that directors, officers, employees and shareholders of the Administrator
and its counsel are or may be or become similarly interested in the Fund, and
that the Administrator may be or become interested in the Fund as a Shareholder
or otherwise.
ARTICLE 7. Duration of this Agreement. The Term of this Agreement shall
be as specified in the Schedules.
This Agreement shall not be assignable by either party without the
written consent of the other party.
ARTICLE 8. Amendments. This Agreement may be amended by the parties
hereto only if such amendment is specifically approved (i) by the vote of a
majority of the Directors of the Fund, and (ii) by the vote of a majority of the
Directors of the Fund who are not parties to this Agreement or interested
persons of any such party, cast in person at a Board of Directors meeting called
for the purpose of voting on such approval.
For special cases, the parties hereto may amend such procedures set
forth herein as may be appropriate or practical under the circumstances, and the
Administrator may conclusively assume that any special procedure which has been
approved by the Fund does not conflict with or violate any requirements of its
Charter or then current prospectuses, or any rule, regulation or requirement of
any regulatory body.
ARTICLE 9. Certain Records. The Administrator shall maintain customary
records in connection with its duties as specified in this Agreement. Any
records required to be maintained and preserved pursuant to Rules 31a-1 and
31a-2 under the 1940 Act which are prepared or maintained by the Administrator
on behalf of the Fund shall be prepared and maintained at the expense of the
Administrator, but shall be the property of the Fund and will be made available
to or surrendered promptly to the Fund on request.
In case of any request or demand for the inspection of such records by
another party, the Administrator shall notify the Fund and follow the Fund's
instructions as to permitting or refusing such inspection; provided that the
Administrator may exhibit such records to any person in any case where it is
advised by its counsel that it may be held liable for failure to do so, unless
(in cases involving potential exposure only to civil liability) the Fund has
agreed to indemnify the Administrator against such liability.
ARTICLE 10. Definitions of Certain Terms. The terms "interested person"
and "affiliated person," when used in this Agreement, shall have the respective
meanings specified in the 1940 Act and the rules and regulations thereunder,
subject to such exemptions as may be granted by the Securities and Exchange
Commission.
ARTICLE 11. Notice. Any notice required or permitted to be given by
either party to the other shall be deemed sufficient if sent by registered or
certified mail, postage prepaid, addressed by the party giving notice to the
other party at the last address furnished by the other party to the party giving
notice: if to the Fund, at c/o Kevin P. Robins, General Counsel, SEI Financial
Management Corporation, 680 East Swedesford Road, Wayne, PA 19087; and to its
Secretary at the following address: Michael J. Radmer, Esq., Dorsey & Whitney,
220 South Sixth Street, Minneapolis, MN 55402-1498; and if to the Administrator
at 680 East Swedesford Road, Wayne, PA 19087-1658.
ARTICLE 12. Governing Law. This Agreement shall be construed in
accordance with the laws of the State of Minnesota and the applicable provisions
of the 1940 Act. To the extent that the applicable laws of the State of
Minnesota, or any of the provisions herein, conflict with the applicable
provisions of the 1940 Act, the latter shall control.
ARTICLE 13. Multiple Originals. This Agreement may be executed in two
or more counterparts, each of which when so executed shall be deemed to be an
original, but such counterparts shall together constitute but one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
FIRST AMERICAN STRATEGY FUNDS, INC.
By:
Attest:
SEI FINANCIAL MANAGEMENT CORPORATION
By:
Attest:
SCHEDULE
TO THE ADMINISTRATION AGREEMENT
DATED AS OF OCTOBER 1, 1996
BETWEEN
FIRST AMERICAN STRATEGY FUNDS, INC.
AND
SEI FINANCIAL MANAGEMENT CORPORATION
Portfolios: This Agreement shall apply to all Portfolios of First American
Strategy Funds, Inc., either now or hereafter created. The
current portfolios of First American Strategy Funds, Inc. are set
forth below: Income Fund, Growth and Income Fund, Growth Fund and
Aggressive Growth Fund (collectively, the "Portfolios").
Fees: Pursuant to Article 4, the Fund shall pay the Administrator
compensation for services rendered to the Portfolios at an annual
rate, which is calculated daily and paid monthly, at a maximum
administrative fee equal to (i) .12% of each Portfolio's average
daily net assets until the aggregate net assets of all funds
within the First American family of funds (currently, First
American Funds, Inc., First American Investment Funds, Inc., and
First American Strategy Funds, Inc., Inc.) exceed $8 billion and
(ii) .105% to the extent that the aggregate net assets of all
such funds within the First American family of funds exceed $8
billion; provided, however, that in no event shall the annual
administrative fee for any Portfolio be less than $50,000.
The parties hereby confirm that the $50,000 per annum
administrative fee is to be applied to each Portfolio as a whole,
and not to separate classes of shares within the portfolios.
Term: Pursuant to Article 7, the term of this Agreement shall commence
on October 1, 1996 and shall remain in effect through December
31, 1998 ("Initial Term"). This Agreement shall continue in
effect for successive periods of 2 years after the Initial Term,
unless terminated by either party on not less than 90 days prior
written notice to the other party. In the event of a material
breach of this Agreement by either party, the non-breaching party
shall notify the breaching party in writing of such breach and
upon receipt of such notice, the breaching party shall have 45
days to remedy the breach or the nonbreaching party may
immediately terminate this Agreement.
EXHIBIT (9)(b)
AGENCY AGREEMENT
THIS AGREEMENT made the 1st day of October, 1996 by and between FIRST
AMERICAN STRATEGY FUNDS, INC., a corporation existing under the laws of the
State of Minnesota, having its principal place of business at 680 Swedesford
Road, Wayne, Pennsylvania 19087 (the "Fund"), and DST SYSTEMS, INC., a
corporation existing under the laws of the State of Delaware, having its
principal place of business at 1055 Broadway, Kansas City, Missouri 64105
("DST"):
WITNESSETH:
WHEREAS, the Fund desires to appoint DST as Transfer Agent and Dividend
Disbursing Agent, and DST desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
1. Documents to be Filed with Appointment.
In connection with the appointment of DST as Transfer Agent and
Dividend Disbursing Agent for the Fund, there will be filed with DST
the following documents:
A. A certified copy of the resolutions of the Board of Directors
of the Fund (which term when used herein shall include any
Board of Trustees, or other governing body of the Fund,
however styled) appointing DST as Transfer Agent and Dividend
Disbursing Agent, approving the form of this Agreement, and
designating certain persons to sign stock certificates, if
any, and give written instructions and requests on behalf of
the Fund;
B. A certified copy of the Articles of Incorporation (which term
as used herein shall include, where relevant, the Declaration
of Trust, or other basic instrument establishing the existence
and nature of the Fund) of the Fund and all amendments
thereto;
C. A certified copy of the Bylaws of the Fund;
D. Copies of Registration Statements and amendments thereto,
filed with the Securities and Exchange Commission.
E. Specimens of all forms of outstanding stock certificates, in
the forms approved by the Board of Directors of the Fund, with
a certificate of the Secretary of the Fund, as to such
approval;
F. Specimens of the signatures of the officers of the Fund
authorized to sign stock certificates and individuals
authorized to sign written instructions and requests;
G. An opinion of counsel for the Fund, as such opinion(s) have
been filed with the Fund's Registration Statement or notices
required under Rule 24f-2 under the Investment Company Act of
1940 (the "1940 Act"), with respect to:
(1) The Fund's organization and existence under the laws of
its state of organization, and
(2) That all issued shares are validly issued, fully paid and
nonassessable.
2. Certain Representations and Warranties of DST.
DST represents and warrants to the Fund that:
A. It is a corporation duly organized and existing and in good
standing under the laws of Delaware.
B. It is duly qualified to carry on its business in the State of
Missouri.
C. It is empowered under applicable laws and by its Articles of
Incorporation and Bylaws to enter into and perform the
services contemplated in this Agreement.
D. It is registered as a transfer agent to the extent required
under the Securities Exchange Act of 1934 (the "1934 Act").
E. All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
F. It has and will continue to have and maintain the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
G. It is in compliance with Securities and Exchange Commission
("SEC") regulations and is not subject to restrictions under
Rule 17Ad.
H. Copies of DST's Rule 17Ad-13 reports will be provided to the
Fund annually as and to the extent required under Rule 17Ad-13
under the 1934 Act.
I. Its fidelity bonding and minimum capital meet the transfer
agency requirements of the New York Stock Exchange and the
American Stock Exchange.
3. Certain Representations and Warranties of the Fund.
The Fund represents and warrants to DST that:
A. It is a corporation duly organized and existing and in good
standing under the laws of the State of Minnesota.
B. It is an open-end management investment company registered
under the 1940 Act, as amended, the portfolios of which may be
diversified or non-diversified.
C. A registration statement under the Securities Act of 1933 has
been filed and will be effective with respect to all shares of
the Fund being offered for sale.
D. All requisite steps have been and will continue to be taken to
register the Fund's shares for sale in all applicable states
and such registration will be effective at all times shares
are offered for sale in such state.
E. The Fund is empowered under applicable laws and by its charter
and Bylaws to enter into and perform this Agreement.
4. Scope of Appointment.
A. Subject to the conditions set forth in this Agreement, the
Fund hereby appoints DST as Transfer Agent and Dividend
Disbursing Agent.
B. DST hereby accepts such appointment and agrees that it will
act as the Fund's Transfer Agent and Dividend Disbursing
Agent. DST agrees that it will also act as agent in connection
with the Fund's periodic withdrawal payment accounts and other
open accounts or similar plans for shareholders, if any.
C. The Fund agrees to use its reasonable efforts to deliver to
DST in Kansas City, Missouri, as soon as they are available,
all of its shareholder account records.
D. DST, utilizing TA2000(TM), DST's computerized data processing
system for securityholder accounting (the "TA2000(TM)
System"), will perform the following services as transfer and
dividend disbursing agent for the Fund, and as agent of the
Fund for shareholder accounts thereof, in a timely manner:
issuing (including countersigning), transferring and canceling
share certificates, if any; maintaining all shareholder
accounts; providing transaction journals; as requested by the
Fund and subject to payment by the Fund of an additional fee,
preparing shareholder meeting lists for use in connection with
any annual or special meeting and arrange for an affiliate to
print, mail and receive back proxies and to certify the
shareholder votes of the Fund of any portfolios thereof;
mailing shareholder reports and prospectuses; withholding, as
required by federal law, taxes on shareholder accounts,
disbursing income dividends and capital gains distributions to
shareholders, preparing, filing and mailing U.S. Treasury
Department Forms 1099, 1042, and 1042S and performing and
paying backup withholding as required for all shareholders;
preparing and mailing confirmation forms to shareholders and
dealers, as instructed, for all purchases and liquidations of
shares of the Fund and other confirmable transactions in
shareholders' accounts; recording reinvestment of dividends
and distributions in shares of the Fund; providing or making
available on-line daily and monthly reports as provided by the
TA2000(TM) System and as requested by the Fund or its
management company; maintaining those records necessary to
carry out DST's duties hereunder, including all information
reasonably required by the Fund to account for all
transactions in the Fund shares, calculating the appropriate
sales charge with respect to each purchase of the Fund shares
as set forth in the prospectus for the Fund, determining the
portion of each sales charge payable to the dealer
participating in a sale in accordance with schedules delivered
to DST by the Fund's principal underwriter or distributor
(hereinafter "principal underwriter") from time to time,
disbursing dealer commissions collected to such dealers,
determining the portion of each sales charge payable to such
principal underwriter and disbursing such commissions to the
principal underwriter; receiving correspondence pertaining to
any former, existing or new shareholder account, processing
such correspondence for proper recordkeeping, and responding
promptly to shareholder correspondence; mailing to dealers
confirmations of wire order trades; mailing copies of
shareholder statements to shareholders and registered
representatives of dealers in accordance with the Fund's
instructions; interfacing with, accepting and effectuating
order for transactions and registration and maintenance
information, all on an automated basis, from, and providing
advices to the Fund's custodian bank and to the Fund's
settlement bank in connection with the settling of such
transactions, with, the National Securities Clearing
Corporation ("NSCC") pertaining to NSCC's Fund/SERV and
Networking programs; and processing, generally on the date of
receipt, purchases or redemptions or instructions to settle
any mail or wire order purchases or redemptions received in
proper order as set forth in the prospectus, rejecting
promptly any requests not received in proper order (as defined
by the Fund or its agents), and causing exchanges of shares to
be executed in accordance with the Fund's instructions and
prospectus and the general exchange privilege applicable.
E. At the request of Fund, DST shall use reasonable efforts to
provide the services set forth in Section 4.D. other than
through DST's usual methods of and procedures to utilize the
TA2000 System, that is by using methods and procedures other
than those usually employed by DST to perform services
requiring more manual intervention by DST, either in the entry
of data, in the maintenance of account lists and/or the
effecting of transactions with respect to timers and accounts
subject to agreements with timers, or in the modification or
amendment of reports generated by the TA2000 System, or which
provides information to DST after the commencement of the
nightly processing cycle of the TA2000 System, thereby
decreasing the effective time for performance by DST (the
"Exception Services").
F. DST shall use reasonable efforts to provide, reasonably
promptly under the circumstances, the same transfer agent
services with respect to any new, additional functions or
features or any changes or improvements to existing functions
or features as provided for in the Fund's instructions,
prospectus or application as amended from time to time, for
the Fund provided (i) DST is advised in advance by the Fund of
any changes therein and (ii) the TA2000(TM) System and the
mode of operations utilized by DST as then constituted
supports such additional functions and features. If any
addition to, improvement of or change in the features and
functions currently provided by the TA2000(TM) System or the
operations as requested by the Fund requires an enhancement or
modification to the TA2000(TM) System or to operations as then
conducted by DST, DST shall not be liable therefore until such
modification or enhancement is installed on the TA2000(TM)
System or new mode of operation is instituted. If any new,
additional function or feature or change or improvement to
existing functions or features or new service or mode of
operation measurably increases DST's cost of performing the
services required hereunder at the current level of service,
DST shall advise the Fund of the amount of such increase and
if the Fund elects to utilize such function, feature or
service, DST shall be entitled to increase its fees by the
amount of the increase in costs. In no event shall DST be
responsible for or liable to provide any additional function,
feature, improvement or change in method of operation until it
has consented thereto in writing.
G. The Fund shall have the right to add new series to the
TA2000(TM) System upon at least thirty (30) days' prior
written notice to DST provided that the requirements of the
new series are generally consistent with services then being
provided by DST under this Agreement. Rates or charges for
additional series shall be as set forth in Exhibit A, as
hereinafter defined, for the remainder of the contract term
except as such series use functions, features or
characteristics for which DST has imposed an additional charge
as part of its standard pricing schedule. In the latter event,
rates and charges shall be in accordance with DST's
then-standard pricing schedule.
5. Limit of Authority.
Unless otherwise expressly limited by the resolution of appointment or
by subsequent action by the Fund, the appointment of DST as Transfer
Agent will be construed to cover the full amount of authorized stock of
the class or classes for which DST is appointed as the same will, from
time to time, be constituted, and any subsequent increases in such
authorized amount.
In case of such increase the Fund will file with DST:
A. If the appointment of DST was theretofore expressly limited, a
certified copy of a resolution of the Board of Directors of
the Fund increasing the authority of DST;
B. A certified copy of the amendment to the Articles of
Incorporation of the Fund authorizing the increase of stock;
C. A certified copy of the order or consent of each governmental
or regulatory authority required by law to consent to the
issuance of the increased stock, and an opinion of counsel
that the order or consent of no other governmental or
regulatory authority is required;
D. Opinion of counsel for the Fund, as such opinion(s) have been
filed with the Fund's Registration Statement or notices
required under Rule 24f-2 under the 1940 Act, stating:
(1) The status of the additional shares of stock of the Fund
under the Securities Act of 1933, as amended, and any other
applicable federal or state statute; and
(2) That the additional shares are validly issued, fully paid
and nonassessable.
6. Compensation and Expenses.
A. In consideration for its services hereunder as Transfer Agent
and Dividend Disbursing Agent, the Fund will pay to DST from
time to time a reasonable compensation for all services
rendered as Agent, and also, all its reasonable billable
expenses, charges, counsel fees, and other disbursements
("Compensation and Expenses") incurred in connection with the
agency. Such compensation is set forth in a separate schedule
to be agreed to by the Fund and DST, a copy of which is
attached hereto as Exhibit A. If the Fund has not paid such
Compensation and Expenses to DST within a reasonable time, DST
may charge against any monies held under this Agreement, the
amount of any Compensation and/or Expenses for which it shall
be entitled to reimbursement under this Agreement.
B. The Fund also agrees promptly to reimburse DST for all
reasonable billable expenses or disbursements incurred by DST
in connection with the performance of services under this
Agreement including, but not limited to, expenses for postage,
express delivery services, freight charges, envelopes, checks,
drafts, forms (continuous or otherwise), specially requested
reports and statements, telephone calls, telegraphs,
stationery supplies, counsel fees, outside printing and
mailing firms (including Output Technology, Inc. and Support
Resources, Inc.), magnetic tapes, reels or cartridges (if sent
to the Fund or to a third party at the Fund's request) and
magnetic tape handling charges, off-site record storage, media
for storage of records (e.g., microfilm, microfiche, optical
platters, computer tapes), computer equipment installed at the
Fund's request at the Fund's or a third party's premises,
telecommunications equipment, telephone/telecommunication
lines between the Fund and its agents, on one hand, and DST on
the other, proxy soliciting, processing and/or tabulating
costs, second-site backup computer facility, transmission of
statement data for remote printing or processing, and National
Securities Clearing Corporation ("NSCC") transaction fees to
the extent any of the foregoing are paid by DST. The Fund
agrees to pay postage expenses at least one day in advance if
so requested. In addition, any other expenses incurred by DST
at the request or with the consent of the Fund will be
promptly reimbursed by the Fund.
C. Amounts due hereunder shall be due and paid on or before the
thirtieth (30th) business day after receipt of the statement
therefor by the Fund (the "Due Date"). The Fund is aware that
its failure to pay all amounts in a timely fashion so that
they will be received by DST on or before the Due Date will
give rise to costs to DST not contemplated by this Agreement,
including but not limited to carrying, processing and
accounting charges. Accordingly, subject to Section 6.D.
hereof, in the event that any amounts due hereunder are not
received by DST by the Due Date, the Fund shall pay a late
charge equal to the lesser of the maximum amount permitted by
applicable law or the product of that rate announced from time
to time by State Street Bank and Trust Company as its "Prime
Rate" plus three (3) percentage points times the amount
overdue, times the number of days from the Due Date up to and
including the day on which payment is received by DST divided
by 365. The parties hereby agree that such late charge
represents a fair and reasonable computation of the costs
incurred by reason of late payment or payment of amounts not
properly due. Acceptance of such late charge shall in no event
constitute a waiver of the Fund's or DST's default or prevent
the non-defaulting party from exercising any other rights and
remedies available to it.
D. In the event that any charges are disputed, the Fund shall, on
or before the Due Date, pay all undisputed amounts due
hereunder and notify DST in writing of any disputed charges
for billable expenses which it is disputing in good faith.
Payment for such disputed charges shall be due on or before
the close of the fifth (5th) business day after the day on
which DST provides to the Fund documentation which an
objective observer would agree reasonably supports the
disputed charges (the "Revised Due Date"). Late charges shall
not begin to accrue as to charges disputed in good faith until
the first business day after the Revised Due Date.
E. The fees and charges set forth on Exhibit A shall increase or
may be increased as follows:
(1) On the first day of each new term, but only in
accordance with the "Fee Increases" provision in
Exhibit A;
(2) DST may increase the fees and charges set forth on
Exhibit A upon at least ninety (90) days prior
written notice, if changes in existing laws, rules or
regulations: (i) require substantial system
modifications or (ii) materially increase cost of
performance hereunder;
(3) Upon at least ninety (90) days prior written notice,
DST may impose a reasonable charge for additional
features of TA2000 used by the Fund which features
are not consistent with the Fund's current processing
requirements; and
(4) In the event DST, at the Fund's request or direction,
performs Exception Services, DST shall be entitled to
impose a reasonable increase in the fees and charges
for such Exception Services from those set forth on
Exhibit A to the extent such Exception Services
increase DST's cost of performance.
If DST notifies the Fund of an increase in fees or charges
pursuant to subparagraph (2) of this Section 6.E., the parties shall
confer, diligently and in good faith and agree upon a new fee to cover
the amount necessary, but not more than such amount, to reimburse DST
for the Fund's aliquot portion of the cost of developing the new
software to comply with regulatory charges and for the increased cost
of operation.
If DST notifies the Fund of an increase in fees or charges
under subparagraphs (3) or (4) of this Section 6.E., the parties shall
confer, diligently and in good faith, and agree upon a new fee to cover
such new fund feature.
7. Operation of DST System.
In connection with the performance of its services under this
Agreement, DST is responsible for such items as:
A. That entries in DST's records, and in the Fund's records on
the TA2000(TM) System created by DST, accurately reflect the
orders, instructions, and other information received by DST
from the Fund, the Fund's distributor, manager or principal
underwriter, the Fund's investment adviser, or the Fund's
administrator (each an "Authorized Person"), broker-dealers
and/or shareholders;
B. That shareholder lists, shareholder account verifications,
confirmations and other shareholder account information to be
produced from its records or data be available and accurately
reflect the data in the Fund's records on the TA2000(TM)
System;
C. The accurate and timely issuance of dividend and distribution
checks in accordance with instructions received from the Fund
and the data in the Fund's records on the TA2000(TM) System;
D. That redemption transactions and payments be effected timely,
under normal circumstances on the day of receipt, and
accurately in accordance with redemption instructions received
by DST from Authorized Persons, broker-dealers or shareholders
and the data in the Fund's records on the TA2000(TM) System;
E. The deposit daily in the Fund's appropriate bank account of
all checks and payments received by DST from NSCC,
broker-dealers or shareholders for investment in shares;
F. Notwithstanding anything herein to the contrary, with respect
to "as of" adjustments, DST will not assume one hundred
percent (100%) responsibility for losses resulting from "as
ofs" due to clerical errors or misinterpretations of
shareholder instructions, but DST will discuss with the Fund
DST's accepting liability for an "as of" on a case-by-case
basis and may accept financial responsibility for a particular
situation resulting in a financial loss to the Fund where DST
in its discretion deems that to be appropriate;
G. The requiring of proper forms of instructions, signatures and
signature guarantees(1) and any necessary documents supporting
the opening of shareholder accounts, transfers, redemptions
and other shareholder account transactions, all in conformance
with DST's present procedures as set forth in its Legal
Manual, Third Party Check Procedures, Checkwriting Draft
Procedures, and Signature Guarantee Procedures (collectively
the "Procedures") with such changes or deviations therefrom as
may be from time to time required or approved by the Fund, its
investment adviser or principal underwriter, or its or DST's
counsel and the rejection of orders or instructions not in
good order in accordance with the applicable prospectus or the
Procedures;
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(1) DST shall ascertain that what reasonably purports to be an appropriate
signature guarantee is present if a signature guarantee is required, but DST
shall have no responsibility for verifying the authenticity thereof or the
authority of the person executing the signature guarantee.
H. The maintenance of customary records in connection with its
agency, and particularly those records required to be
maintained pursuant to subparagraph (2)(iv) of paragraph (b)
of Rule 31a-1 under the Investment Company Act of 1940, if
any; and
I. The maintenance of a current, duplicate set of the Fund's
essential records at a secure separate location, in a form
available and usable forthwith in the event of any breakdown
or disaster disrupting its main operation.
8. Indemnification.
A. DST shall at all times use reasonable care, due diligence and
act in good faith in performing its duties under this
Agreement. DST shall provide its services as Transfer Agent in
accordance with Section 17A of the Securities Exchange Act of
1934, and the rules and regulations thereunder. In the absence
of bad faith, willful misconduct, knowing violations of
applicable law pertaining to the manner in which transfer
agency services are to be performed by DST (excluding any
violations arising directly or indirectly out of the actions
or omissions to act of third parties unaffiliated with DST),
reckless disregard of the performance of its duties, or
negligence on its part, DST shall not be liable for any action
taken, suffered, or omitted by it or for any error of judgment
(including reasonable interpretations of unclear, ambiguous or
obscure instructions) made by it or its employees in the
performance of its duties under this Agreement. For those
activities or actions delineated in the Procedures, DST shall
be presumed to have used reasonable care, due diligence and
acted in good faith if it has acted in accordance with the
Procedures, copies of which have been provided to the Fund and
reviewed and approved by the Fund's counsel, as amended from
time to time with approval of counsel, or for any deviation
therefrom approved by the Fund or DST counsel.
B. DST shall not be responsible for, and the Fund shall indemnify
and hold DST harmless from and against, any and all losses,
damages, costs, charges, counsel fees, payments, expenses and
liability which are asserted against DST or for which DST is
to be liable, arising out of or attributable to:
(1) All actions of DST required to be taken by DST
pursuant to this Agreement, provided that DST has
acted in good faith and with due diligence and
reasonable care;
(2) The Fund's refusal or failure to comply with the
terms of this Agreement, the Fund's negligence or
willful misconduct, or the breach of any
representation or warranty of the Fund hereunder;
(3) The good faith reliance on, or the carrying out of,
any written or oral instructions or requests of
persons designated by the Fund in writing (see
Exhibit B) from time to time as authorized to give
instructions on its behalf or representatives of an
Authorized Person or DST's good faith reliance on, or
use of, information, data, records and documents
received from, or which have been prepared and/or
maintained by the Fund, its investment advisor, its
sponsor or its principal underwriter;
(4) Defaults by dealers or shareowners with respect to
payment for share orders previously entered if DST
has acted in good faith;
(5) The offer or sale of the Fund's shares in violation
of any requirement under federal securities laws or
regulations or the securities laws or regulations of
any state or in violation of any stop order or other
determination or ruling by any federal agency or
state with respect to the offer or sale of such
shares in such state (unless such violation results
from DST's failure to comply with written
instructions of the Fund or of any officer of the
Fund that no offers or sales be input into the Fund's
securityholder records in or to residents of such
state);
(6) The Fund's errors and mistakes in the use of the
TA2000(TM) System, the data center, computer and
related equipment used to access the TA2000(TM)
System (the "DST Facilities"), and control procedures
relating thereto in the verification of output and in
the remote input of data;
(7) Errors, inaccuracies, and omissions in, or errors,
inaccuracies or omissions of DST arising out of or
resulting from such errors, inaccuracies and
omissions in, the Fund's records, shareholder and
other records, delivered to DST hereunder by the Fund
or its prior agent(s);
(8) Actions or omissions to act by the Fund or agents
designated by the Fund with respect to duties assumed
thereby as provided for in Section 21 hereof; and
(9) DST's performance of Exception Services except where
DST acted or omitted to act in bad faith, with
reckless disregard of its obligations or with gross
negligence.
C. Except where DST is entitled to indemnification under Section
8.B. hereof and with respect to "as ofs" set forth in Section
7.F., DST shall indemnify and hold the Fund harmless from and
against any and all losses, damages, costs, charges, counsel
fees, payments, expenses and liability arising out of DST's
failure to comply with the terms of this Agreement or arising
out of or attributable to DST's negligence or willful
misconduct or breach of any representation or warranty of DST
hereunder.
D. EXCEPT FOR VIOLATIONS OF SECTION 23, IN NO EVENT AND UNDER NO
CIRCUMSTANCES SHALL EITHER PARTY TO THIS AGREEMENT BE LIABLE
TO ANYONE, INCLUDING, WITHOUT LIMITATION TO THE OTHER PARTY,
FOR CONSEQUENTIAL DAMAGES FOR ANY ACT OR FAILURE TO ACT UNDER
ANY PROVISION OF THIS AGREEMENT EVEN IF ADVISED OF THE
POSSIBILITY THEREOF.
E. Promptly after receipt by an indemnified person of notice of
the commencement of any action, such indemnified person will,
if a claim in respect thereto is to be made against an
indemnifying party hereunder, notify the indemnifying party in
writing of the commencement thereof; but the failure so to
notify the indemnifying party will not relieve an indemnifying
party from any liability that it may have to any indemnified
person for contribution or otherwise under the indemnity
agreement contained herein except to the extent it is
prejudiced as a proximate result of such failure to timely
notify. In case any such action is brought against any
indemnified person and such indemnified person seeks or
intends to seek indemnity from an indemnifying party, the
indemnifying party will be entitled to participate in, and, to
the extent that it may wish, assume the defense thereof (in
its own name or in the name and on behalf of any indemnified
party or both with counsel reasonably satisfactory to such
indemnified person); provided, however, if the defendants in
any such action include both the indemnified person and an
indemnifying party and the indemnified person shall have
reasonably concluded that there may be a conflict between the
positions of the indemnified person and an indemnifying party
in conducting the defense of any such action or that there may
be legal defenses available to it and/or other indemnified
persons which are inconsistent with those available to an
indemnifying party, the indemnified person or indemnified
persons shall have the right to select one separate counsel
(in addition to local counsel) to assume such legal defense
and to otherwise participate in the defense of such action on
behalf of such indemnified person or indemnified persons at
such indemnified party's sole expense. Upon receipt of notice
from an indemnifying party to such indemnified person of its
election so to assume the defense of such action and approval
by the indemnified person of counsel, which approval shall not
be unreasonably withheld (and any disapproval shall be
accompanied by a written statement of the reasons therefor),
the indemnifying party will not be liable to such indemnified
person hereunder for any legal or other expenses subsequently
incurred by such indemnified person in connection with the
defense thereof. An indemnifying party will not settle or
compromise or consent to the entry of any judgment with
respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified
persons are actual or potential parties to such claim, action,
suit or proceeding) unless such settlement, compromise or
consent includes an unconditional release of each indemnified
person from all liability arising out of such claim, action,
suit or proceeding. An indemnified party will not, without the
prior written consent of the indemnifying party settle or
compromise or consent to the entry of any judgment with
respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution
may be sought hereunder. If it does so, it waives its right to
indemnification therefor.
9. Certain Covenants of DST and the Fund.
A. All requisite steps will be taken by the Fund from time to
time when and as necessary to register the Fund's shares for
sale in all states in which the Fund's shares shall at the
time be offered for sale and require registration. If at any
time the Fund receives notice of any stop order or other
proceeding in any such state affecting such registration or
the sale of the Fund's shares, or of any stop order or other
proceeding under the federal securities laws affecting the
sale of the Fund's shares, the Fund will give prompt notice
thereof to DST.
B. DST hereby agrees to perform such transfer agency functions as
are set forth in Section 4.D. above and establish and maintain
facilities and procedures reasonably acceptable to the Fund
for safekeeping of stock certificates, check forms, and
facsimile signature imprinting devices, if any; and for the
preparation or use, and for keeping account of, such
certificates, forms and devices, and to carry such insurance
as it considers adequate and reasonably available.
C. To the extent required by Section 31 of the Investment Company
Act of 1940 as amended and Rules thereunder, DST agrees that
all records maintained by DST relating to the services to be
performed by DST under this Agreement are the property of the
Fund and will be preserved and will be surrendered promptly to
the Fund on request.
D. DST agrees to furnish the Fund annual reports of its financial
condition, consisting of a balance sheet, earnings statement
and any other publicly available financial information
reasonably requested by the Fund and a copy of the report
issued by its certified public accountants pursuant to Rule
17Ad-13 under the 1934 Act as filed with the SEC. The annual
financial statements will be certified by DST's certified
public accountants and may be included in DST's publicly
distributed Annual Report.
E. DST represents and agrees that it will use its reasonable
efforts to keep current on the trends of the investment
company industry relating to shareholder services and will use
its reasonable efforts to continue to modernize and improve.
F. DST will permit the Fund and its authorized representatives to
make periodic inspections of its operations as such would
involve the Fund at reasonable times during business hours.
G. DST will provide in Kansas City at the Fund's request and
expense training for the Fund's personnel in connection with
use and operation of the TA2000(TM) System. All travel and
reimbursable expenses incurred by the Fund's personnel in
connection with and during training at DST's Facility shall be
borne by the Fund. At the Fund's option and expense, DST also
agrees to use its reasonable efforts to provide two (2) man
weeks of training at the Fund's facility for the Fund's
personnel in connection with the continued operation of the
TA2000 System. Reasonable travel, per diem and reimbursable
expenses incurred by DST personnel in connection with and
during training at the Fund's facility or in connection with
the conversion shall be borne by the Fund.
10. Recapitalization or Readjustment.
In case of any recapitalization, readjustment or other change in the
capital structure of the Fund requiring a change in the form of stock
certificates, DST will issue or register certificates in the new form
in exchange for, or in transfer of, the outstanding certificates in the
old form, upon receiving:
A. Written instructions from an officer of the Fund;
B. Certified copy of the amendment to the Articles of
Incorporation or other document effecting the change;
C. Certified copy of the order or consent of each governmental or
regulatory authority, required by law to the issuance of the
stock in the new form, and an opinion of counsel that the
order or consent of no other government or regulatory
authority is required;
D. Specimens of the new certificates in the form approved by the
Board of Directors of the Fund, with a certificate of the
Secretary of the Fund as to such approval;
E. Opinion of counsel for the Fund stating:
(1) The status of the shares of stock of the Fund in the
new form under the Securities Act of 1933, as amended
and any other applicable federal or state statute;
and
(2) That the issued shares in the new form are, and all
unissued shares will be, when issued, validly issued,
fully paid and nonassessable.
11. Reserved.
12. Death, Resignation or Removal of Signing Officer.
The Fund will file promptly with DST written notice of any change in
the officers authorized to sign written requests or instructions to
give requests or instructions, together with two signature cards
bearing the specimen signature of each newly authorized officer.
13. Future Amendments of Charter and Bylaws.
The Fund will promptly file with DST copies of all material amendments
to its Articles of Incorporation or Bylaws made after the date of this
Agreement.
14. Instructions, Opinion of Counsel and Signatures.
At any time DST may apply to any person authorized by the Fund to give
instructions to DST, and may with the approval of a Fund officer and at
the expense of the Fund, either consult with legal counsel for the Fund
or consult with counsel chosen by DST and acceptable to the Fund, with
respect to any matter arising in connection with the agency and it will
not be liable for any action taken or omitted by it in good faith in
reliance upon such instructions or upon the opinion of such counsel.
For purposes hereof, DST's internal counsel and attorneys employed by
Watson & Marshall L.C., DST's primary outside counsel, are acceptable
to the Fund. DST will be protected in acting upon any paper or document
reasonably believed by it to be genuine and to have been signed by the
proper person or persons and will not be held to have notice of any
change of authority of any person, until receipt of written notice
thereof from the Fund. It will also be protected in recognizing stock
certificates which it reasonably believes to bear the proper manual or
facsimile signatures of the officers of the Fund, and the proper
countersignature of any former Transfer Agent or Registrar, or of a
co-Transfer Agent or co-Registrar.
15. Force Majeure and Disaster Recovery Plans.
A. DST shall not be responsible or liable for its failure or
delay in performance of its obligations under this Agreement
arising out of or caused, directly or indirectly, by
circumstances beyond its reasonable control, including,
without limitation: any interruption, loss or malfunction or
any utility, transportation, computer hardware, provided such
equipment has been reasonably maintained, or third party
software or communication service; inability to obtain labor,
material, equipment or transportation, or a delay in mails;
governmental or exchange action, statute, ordinance, rulings,
regulations or direction; war, strike, riot, emergency, civil
disturbance, terrorism, vandalism, explosions, labor disputes,
freezes, floods, fires, tornadoes, acts of God or public
enemy, revolutions, or insurrection; or any other cause,
contingency, circumstance or delay not subject to DST's
reasonable control which prevents or hinders DST's performance
hereunder.
B. DST currently maintains an agreement with a third party
whereby DST is to be permitted to use on a "shared use" basis
a "hot site" (the "Recovery Facility") maintained by such
party in event of a disaster rendering the DST Facilities
inoperable. DST has developed and is continually revising a
business contingency plan (the "Business Contingency Plan")
detailing which, how, when, and by whom data maintained by DST
at the DST Facilities will be installed and operated at the
Recovery Facility. Provided the Fund is paying its pro rata
portion of the charge therefor, DST will, in the event of a
disaster rendering the DST Facilities inoperable, use
reasonable efforts to convert the TA2000(TM) System containing
the designated Fund data to the computers at the Recovery
Facility in accordance with the then current Business
Contingency Plan.
C. DST also currently maintains, separate from the area in which
the operations which provides the services to the Fund
hereunder are located, a Crisis Management Center consisting
of phones, computers and the other equipment necessary to
operate a full service transfer agency business in the event
one of its operations areas is rendered inoperable. The
transfer of operations to other operating areas or to the
Crisis Management Center is also covered in DST's Business
Contingency Plan.
16. Certification of Documents.
The required copy of the Articles of Incorporation of the Fund and
copies of all amendments thereto will be certified by the Secretary of
State (or other appropriate official) of the State of Incorporation,
and if such Articles of Incorporation and amendments are required by
law to be also filed with a county, city or other officer of official
body, a certificate of such filing will appear on the certified copy
submitted to DST. A copy of the order or consent of each governmental
or regulatory authority required by law to the issuance of the stock
will be certified by the Secretary or Clerk of such governmental or
regulatory authority, under proper seal of such authority. The copy of
the Bylaws and copies of all amendments thereto, and copies of
resolutions of the Board of Directors of the Fund, will be certified by
the Secretary or an Assistant Secretary of the Fund under the Fund's
seal.
17. Records.
DST will maintain customary records in connection with its agency, and
particularly will maintain those records required to be maintained
pursuant to subparagraph (2) (iv) of paragraph (b) of Rule 31a-1 under
the Investment Company Act of 1940, if any.
18. Disposition of Books, Records and Canceled Certificates.
DST may send periodically to the Fund, or to where designated by the
Secretary or an Assistant Secretary of the Fund, all books, documents, and all
records no longer deemed needed for current purposes and stock certificates
which have been canceled in transfer or in exchange, upon the understanding that
such books, documents, records, and stock certificates will be maintained by the
Fund under and in accordance with the requirements of Section 17Ad-7 adopted
under the Securities Exchange Act of 1934. Such materials will not be destroyed
by the Fund without the consent of DST (which consent will not be unreasonably
withheld), but will be safely stored for possible future reference.
19. Provisions Relating to DST as Transfer Agent.
A. Instructions for the transfer, exchange or redemption of
shares of the Fund will be accepted, the registration,
redemption or transfer of the shares be effected and, where
applicable, funds remitted therefor. Upon surrender of the old
certificates in form or receipt by DST of instructions deemed
by DST properly endorsed for transfer, exchange or redemption,
accompanied by such documents as DST may deem necessary to
evidence the authority of the person making the transfer,
exchange or redemption, the transfer, exchange or redemption
of the shares reflected by such certificates be effected and
any sums due in connection therewith be remitted, in
accordance with the instructions contained herein. DST
reserves the right to refuse to transfer or redeem shares
until it is satisfied that the endorsement or signature on the
instruction or any other document is valid and genuine, and
for that purpose it may require a guaranty of signature in
accordance with the Signature Guarantee Procedures. DST also
reserves the right to refuse to transfer, exchange or redeem
shares until it is satisfied that the requested transfer,
exchange or redemption is legally authorized, and DST will
incur no liability for the refusal in good faith to make
transfers or redemptions which, in its judgment, are improper
or unauthorized. DST may, in effecting transfers, exchanges or
redemptions, rely upon DST's Procedures and Simplification
Acts, Uniform Commercial Code or other statutes which protect
it and the Fund in not requiring complete fiduciary
documentation. In cases in which DST is not directed or
otherwise required to maintain the consolidated records of
shareholder's accounts, DST will not be liable for any loss
which may arise by reason of not having such records.
B. DST will, at the expense of the Fund, issue and mail
subscription warrants, effectuate stock dividends, exchanges
or split ups, or act as Conversion Agent upon receiving
written instructions from any officer of the Fund and such
other documents as DST deems necessary.
C. DST will, at the expense of the Fund, supply a shareholder's
list to the Fund for its annual meeting upon receiving a
request from an officer of the Fund. It will also, at the
expense of the Fund, supply lists at such other times as may
be requested by an officer of the Fund.
D. Upon receipt of written instructions of an officer of the
Fund, DST will, at the expense of the Fund, address and mail
notices to shareholders.
E. In case of any request or demand for the inspection of the
stock books of the Fund or any other books in the possession
of DST, DST will endeavor to notify the Fund and to secure
instructions as to permitting or refusing such inspection. DST
reserves the right, however, to exhibit the stock books or
other books to any person in case it is advised by its counsel
that it may be held responsible for the failure to exhibit the
stock books or other books to such person.
20. Provisions Relating to Dividend Disbursing Agency.
A. DST will, at the expense of the Fund, provide a special form
of check containing the imprint of any device or other matter
desired by the Fund. Said checks must, however, be of a form
and size convenient for use by DST.
B. If the Fund desires to include additional printed matter,
financial statements, etc., with the dividend checks, the same
will be furnished DST within a reasonable time prior to the
date of mailing of the dividend checks, at the expense of the
Fund.
C. If the Fund desires its distributions mailed in any special
form of envelopes, sufficient supply of the same will be
furnished to DST but the size and form of said envelopes will
be subject to the approval of DST. If stamped envelopes are
used, they must be furnished by the Fund; or if postage stamps
are to be affixed to the envelopes, the stamps or the cash
necessary for such stamps must be furnished by the Fund.
D. DST shall establish and maintain on behalf of the Fund one or
more deposit accounts as Agent for the Fund, into which DST
shall deposit the funds DST receives for payment of dividends,
distributions, redemptions or other disbursements provided for
hereunder and to draw checks against such accounts.
E. DST is authorized and directed to stop payment of checks
theretofore issued hereunder, but not presented for payment,
when the payees thereof allege either that they have not
received the checks or that such checks have been mislaid,
lost, stolen, destroyed or through no fault of theirs, are
otherwise beyond their control, and cannot be produced by them
for presentation and collection, and, to issue and deliver
duplicate checks in replacement thereof.
21. Assumption of Duties By the Fund or Agents Designated By the Fund.
A. The Fund or its designated agents other than DST may assume
certain duties and responsibilities of DST or those services
of Transfer Agent and Dividend Disbursing Agent as those terms
are referred to in Section 4.D. of this Agreement including
but not limited to answering and responding to telephone
inquiries from shareholders and brokers, accepting shareholder
and broker instructions (either or both oral and written) and
transmitting orders based on such instructions to DST,
preparing and mailing confirmations, obtaining certified TIN
numbers, classifying the status of shareholders and
shareholder accounts under applicable tax law, establishing
shareholder accounts on the TA2000(TM) System and assigning
social codes and Taxpayer Identification Number codes thereof,
and disbursing monies of the Fund, said assumption to be
embodied in writing to be signed by both parties.
B. To the extent the Fund or its agent or affiliate assumes such
duties and responsibilities, DST shall be relieved from all
responsibility and liability therefor and is hereby
indemnified and held harmless against any liability therefrom
and in the same manner and degree as provided for in Section 8
hereof.
C. Initially the Fund or its designees shall be responsible for
the following:
[RESERVED]
22. Termination of Agreement.
A. This Agreement shall be in effect for an initial period of
three (3) years and, thereafter, shall automatically extend
for additional, successive twelve (12) month terms upon the
expiration of any term hereof unless terminated as hereinafter
provided. This Agreement may be terminated by either party
upon the expiration of any term by the delivery to the other
party of one hundred twenty (120) days prior written notice of
such termination, provided, however, that the effective date
of any termination shall not occur during the period from
November 15 through March 15 of any year to avoid adversely
impacting year end.
B. Each party, in addition to any other rights and remedies,
shall have the right to terminate this Agreement forthwith
upon the occurrence at any time of any of the following events
with respect to the other party:
(1) The bankruptcy of the other party or its assigns or
the appointment of a receiver for the other party or
its assigns; or
(2) Failure by the other party or its assigns to perform
its duties in accordance with the Agreement, which
failure materially adversely affects the business
operations of the first party and which failure
continues for thirty (30) days after receipt of
written notice from the first party.
C. Either party may terminate this Agreement at any time by
delivery to the other party ninety (90) days prior written
notice of such termination.
D. (1) In the event of any termination of this
Agreement, the Fund will continue to pay to DST as
invoiced all sums due for DST's services until
completion of the conversion and will pay to DST, no
later than contemporaneously with the dispatch by DST
of the Fund's records, all amounts payable to DST
hereunder.
(2) In addition, if this Agreement is terminated by the
Fund under Section 22.A. hereof, the Fund shall pay
to DST a termination fee equal to the aggregate of
the fees charged to the Fund during the previous
three (3) calendar months preceding receipt of the
notice. If the Fund shall not have been billed for
three (3) months before termination, the average
monthly fee shall be calculated by dividing the
aggregate fees charged to the Fund during whatever
period it was billed by the number of months in that
period and the resulting average monthly fee shall be
multiplied by three (3) in order to determine the
aggregate fees in this subparagraph 22.D.(2).
(3) In addition, in the event of termination of this
Agreement by the Fund under Section 22.C. hereof, the
Fund shall pay to DST a termination fee as follows:
(a) If the termination of the Agreement is
effective on or prior to the second
anniversary thereof, nine (9) months' fees
calculated as provided in Section 22.D.(2);
(b) If the termination of the Agreement is
effective during the third year of the
initial term, six (6) month's fees
calculated as provided in Section 22.D.(2);
and
(c) If the termination of the Agreement is
effective after the expiration of the
initial term, three (3) months' fees
calculated as provided in Section 22.D.(2).
E. In addition, in the event of any termination, DST will,
provided the Fund contemporaneously pays all outstanding
charges and fees, promptly transfer all of the records of the
Fund to the designated successor transfer agent. DST shall
also provide reasonable assistance to the Fund and its
designated successor transfer agent and other information
relating to its services provided hereunder (subject to the
recompense of DST for such assistance and information at its
standard rates and fees for personnel then in effect at that
time); provided, however, as used herein "reasonable
assistance" and "other information" shall not include
assisting any new service or system provider to modify, alter,
enhance, or improve its system or to improve, enhance, or
alter its current system, or to provide any new, functionality
or to require DST to disclose any DST Confidential
Information, as hereinafter defined, or any information which
is otherwise confidential to DST.
F. In the event that the Fund provides to DST a written notice
of the termination of this Agreement (i) in one hundred twenty
(120) days under Section 22.A. or (ii) in ninety (90) days
under Section 22.C. and for any reason other than the failure
by DST to comply with the terms of Section 22.E. hereof the
Fund does not convert within the afore-specified time period,
the Compensation and Expenses set forth in Exhibit A shall
increase by ten percent (10%) during the first sixty (60) days
after the initially scheduled termination date and by a
further ten percent (10%) as of and after the sixty-first
(61st) day after the initially scheduled termination date. The
Fund shall provide forty-five (45) days prior written notice
as to any proposed new or subsequent termination date if the
Fund does not intend to terminate when initially scheduled to
do so.
G. In any event, the effective date of any deconversion as a
result a termination of this Agreement shall not occur during
the period from November 15th through March 15th of any year
to avoid adversely impacting year end.
23. Confidentiality.
A. DST agrees that, except as provided in the last sentence of
Section 19.J. hereof, or as otherwise required by law, DST
will keep confidential all records of and information in its
possession relating to the Fund or its shareholders or
shareholder accounts and will not disclose the same to any
person except at the request or with the consent of the Fund.
B. The Fund owns all of the data supplied by or on behalf of the
Fund to DST. The Fund has proprietary rights to all such data,
records and reports containing such data, but not including
the software programs upon which such data is installed, and
all records relating to such data will be transferred in
accordance with Section 22.D above in the event of
termination.
C. The Fund agrees to keep confidential all non-public financial
statements and other financial records of DST received
hereunder, all accountants' reports relating to DST, the terms
and provisions of this Agreement, including all exhibits and
schedules now or in the future attached hereto and all
manuals, systems and other technical information and data, not
publicly disclosed, relating to DST's operations and programs
furnished to it by DST pursuant to this Agreement and will not
disclose the same to any person except at the request or with
the consent of DST.
D. (1) The Fund acknowledges that DST has proprietary
rights in and to the TA2000(TM) System used to
perform services hereunder including, but not limited
to the maintenance of shareholder accounts and
records, processing of related information and
generation of output, including, without limitation
any changes or modifications of the TA2000(TM) System
and any other DST programs, data bases, supporting
documentation, or procedures (collectively "DST
Confidential Information") which the Fund's access to
the TA2000(TM) System or computer hardware or
software may permit the Fund or its employees or
agents to become aware of or to access and that the
DST Confidential Information constitutes confidential
material and trade secrets of DST. The Fund agrees to
maintain the confidentiality of the DST Confidential
Information.
(2) The Fund acknowledges that any unauthorized use,
misuse, disclosure or taking of DST Confidential
Information which is confidential as provided by law,
or which is a trade secret, residing or existing
internal or external to a computer, computer system,
or computer network, or the knowing and unauthorized
accessing or causing to be accessed of any computer,
computer system, or computer network, may be subject
to civil liabilities and criminal penalties under
applicable state law. The Fund will advise all of its
employees and agents who have access to any DST
Confidential Information or to any computer equipment
capable of accessing DST or DST hardware or software
of the foregoing.
(3) The Fund acknowledges that disclosure of the DST
Confidential Information may give rise to an
irreparable injury to DST inadequately compensable in
damages. Accordingly, DST may seek (without the
posting of any bond or other security) injunctive
relief against the breach of the foregoing
undertaking of confidentiality and nondisclosure, in
addition to any other legal remedies which may be
available, and the Fund consents to the obtaining of
such injunctive relief. All of the undertakings and
obligations relating to confidentiality and
nondisclosure, whether contained in this Section or
elsewhere in this Agreement shall survive the
termination or expiration of this Agreement for a
period of ten (10) years.
24. Changes and Modifications.
A. During the term of this Agreement DST will use on behalf of
the Fund without additional cost all modifications,
enhancements, or changes which DST may make to the TA2000(TM)
System in the normal course of its business and which are
applicable to functions and features offered by the Fund,
unless substantially all DST clients are charged separately
for such modifications, enhancements or changes, including,
without limitation, substantial system revisions or
modifications necessitated by changes in existing laws, rules
or regulations. The Fund agrees to pay DST promptly for
modifications and improvements which are charged for
separately at the rate provided for in DST's standard pricing
schedule which shall be identical for substantially all
clients, if a standard pricing schedule shall exist. If there
is no standard pricing schedule, the parties shall mutually
agree upon the rates to be charged.
B. DST shall have the right, at any time and from time to time,
to alter and modify any systems, programs, procedures or
facilities used or employed in performing its duties and
obligations hereunder; provided that the Fund will be notified
as promptly as possible prior to implementation of such
alterations and modifications and that no such alteration or
modification or deletion shall materially adversely change or
affect the operations and procedures of the Fund in using or
employing the TA2000(TM) System or DST Facilities hereunder or
the reports to be generated by such system and facilities
hereunder, unless the Fund is given thirty (30) days prior
notice to allow the Fund to change its procedures and DST
provides the Fund with revised operating procedures and
controls at the time such notice is delivered to the Fund.
C. All enhancements, improvements, changes, modifications or new
features added to the TA2000(TM) System however developed or
paid for shall be, and shall remain, the confidential and
exclusive property of, and proprietary to, DST.
25. Subcontractors.
Nothing herein shall impose any duty upon DST in connection with or
make DST liable for the actions or omissions to act of unaffiliated
third parties such as, by way of example and not limitation, Airborne
Services, the U.S. mails and telecommunication companies, provided, if
DST selected such company, DST shall have exercised due care in
selecting the same.
26. Limitations on Liability.
A. If the Fund is comprised of more than one Portfolio, each
Portfolio shall be regarded for all purposes hereunder as a
separate party apart from each other Portfolio. Unless the
context otherwise requires, with respect to every transaction
covered by this Agreement, every reference herein to the Fund
shall be deemed to relate solely to the particular Portfolio
to which such transaction relates. Under no circumstances
shall the rights, obligations or remedies with respect to a
particular Portfolio constitute a right, obligation or remedy
applicable to any other Portfolio. The use of this single
document to memorialize the separate agreement of each
Portfolio is understood to be for clerical convenience only
and shall not constitute any basis for joining the Portfolios
for any reason.
B. [RESERVED]
27. Miscellaneous.
A. This Agreement shall be construed according to, and the rights
and liabilities of the parties hereto shall be governed by,
the laws of the State of Missouri, excluding that body of law
applicable to choice of law.
B. All terms and provisions of this Agreement shall be binding
upon, inure to the benefit of and be enforceable by the
parties hereto and their respective successors and permitted
assigns.
C. The representations and warranties, and the indemnification
extended hereunder, if any, are intended to and shall continue
after and survive the expiration, termination or cancellation
of this Agreement.
D. No provisions of this Agreement may be amended or modified in
any manner except by a written agreement properly authorized
and executed by each party hereto.
E. The captions in this Agreement are included for convenience of
reference only, and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or
effect.
F. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
G. If any part, term or provision of this Agreement is by the
courts held to be illegal, in conflict with any law or
otherwise invalid, the remaining portion or portions shall be
considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced as
if the Agreement did not contain the particular part, term or
provision held to be illegal or invalid.
H. This Agreement may not be assigned by the Fund or DST without
the prior written consent of the other.
I. Neither the execution nor performance of this Agreement shall
be deemed to create a partnership or joint venture by and
between the Fund and DST. It is understood and agreed that all
services performed hereunder by DST shall be as an independent
contractor and not as an employee of the Fund. This Agreement
is between DST and the Fund and neither this Agreement nor the
performance of services under it shall create any rights in
any third parties. There are no third party beneficiaries
hereto.
J. Except as specifically provided herein, this Agreement does
not in any way affect any other agreements entered into among
the parties hereto and any actions taken or omitted by any
party hereunder shall not affect any rights or obligations of
any other party hereunder.
K. The failure of either party to insist upon the performance of
any terms or conditions of this Agreement or to enforce any
rights resulting from any breach of any of the terms or
conditions of this Agreement, including the payment of
damages, shall not be construed as a continuing or permanent
waiver of any such terms, conditions, rights or privileges,
but the same shall continue and remain in full force and
effect as if no such forbearance or waiver had occurred.
L. This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement, draft or
agreement or proposal with respect to the subject matter
hereof, whether oral or written, and this Agreement may not be
modified except by written instrument executed by both
parties.
M. All notices to be given hereunder shall be deemed properly
given if delivered in person or if sent by U.S. mail, first
class, postage prepaid, or if sent by facsimile and thereafter
confirmed by mail as follows:
If to DST:
DST Systems, Inc.
1055 Broadway, 7th Fl.
Kansas City, Missouri 64105
Attn: Senior Vice President-Full Service
Facsimile No.: 816-435-3455
With a copy of non-operational notices to:
DST Systems, Inc.
1055 Broadway, 9th Fl.
Kansas City, Missouri 64105
Attn: Legal Department
Facsimile No.: 816-435-8630
If to the Fund:
First American Strategy Funds, Inc.
680 East Swedesford Road
Wayne, Pennsylvania 19087
Attn: Legal Department
Facsimile No.: (610) 254-1040
or to such other address as shall have been specified in
writing by the party to whom such notice is to be given.
N. The representations and warranties contained herein shall
survive the execution of this Agreement. The representations
and warranties contained herein and the provisions of Section
8 hereof shall survive the termination of the Agreement and
the performance of services hereunder until any statute of
limitations applicable to the matter at issues shall have
expired.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective duly authorized officers, to be effective as of the
day and year first above written.
DST SYSTEMS, INC.
By:
Title:
FIRST AMERICAN STRATEGY FUNDS, INC.
By:
Title:
sei2-aa.cl2 9/9/96
EXHIBIT A, P. 1
REMOTE SERVICE
FEE SCHEDULE
FEE INCREASES
The fees and charges set forth in this Exhibit A shall increase annually upon
each anniversary of this Agreement over the fees and charges during the prior 12
months in an amount equal to the annual percentage of change in the Consumer
Price Index in the Kansas City, Missouri-Kansas Standard Metropolitan
Statistical Area, All Items, Base 1982-1984=100, as last reported by the U.S.
Bureau of Labor Statistics for the 12 calendar months immediately preceding such
anniversary. In the event that this Agreement was not signed as of the first day
of the month, the fees and charges increase shall be effective as of the first
day of the month immediately following the month during which the anniversary
occurred.
OPEN AND CLOSED ACCOUNTS FEES
The monthly fee for an open account shall be charged in the month during which
an account is opened through the month in which such account is closed. The
monthly fee for a closed account shall be charged in the month following the
month during which such account is closed and shall cease to be charged in the
month following the Purge Date, as hereinafter defined. The "Purge Date" for any
year shall be any day after June 1st of that year, as selected by the Fund,
provided that written notification is presented to DST at least forty-five (45)
days prior to the Purge Date.
REIMBURSABLE EXPENSES
Forms
Postage (to be paid in advance if so requested)
Outside Mailing Services
Computer Hardware
Telecommunications Equipment
Magnetic Tapes, Reels or Cartridges
Magnetic Tape Handling Charges
Microfiche/Microfilm
Freight Charges
EXHIBIT A, P. 2
REMOTE SERVICE
FEE SCHEDULE
Proxy Processing - per proxy mailed
not including postage
Includes: Proxy Card
Printing
Outgoing Envelope
Return Envelope
Tabulation
T.I.N. Certification (W-8 & W-9)
(Postage associated with the return
envelope is included)
N.S.C.C. Communications Charge Currently $1,200.00
(Fund/Serv and Networking) per Fund per Year
Off-site Record Storage
SunGard Second Site Disaster Currently $.07
Backup Fee (per account) (guaranteed not to
exceed $.11 through
12/31/97)
Transmission of Statement Data for Currently $.035/per
Remote Processing record
Travel, Per Diem and other Billables Incurred by DST personnel traveling
to, at and from the Fund at the request of the Fund
EXHIBIT B
AUTHORIZED PERSONNEL
Pursuant to Section 8.A. of the Agency Agreement between First American Strategy
Funds, Inc. (the "Fund") and DST (the "Agreement"), the Fund authorizes the
following Fund personnel to provide instructions to DST, and receive inquiries
from DST in connection with the Agreement:
Name Title
- ----------------------------- --------------------------------
- ----------------------------- --------------------------------
- ----------------------------- --------------------------------
- ----------------------------- --------------------------------
- ----------------------------- --------------------------------
- ----------------------------- --------------------------------
- ----------------------------- --------------------------------
This Exhibit may be revised by the Fund by providing DST with a substitute
Exhibit B. Any such substitute Exhibit B shall become effective twenty-four (24)
hours after DST's receipt of the document and shall be incorporated into the
Agreement.
ACKNOWLEDGMENT OF RECEIPT:
DST SYSTEMS, INC. FIRST AMERICAN STRATEGY FUNDS,
INC.
By:___________________________ By:____________________________
Title:________________________ Title:_________________________
Date:_________________________ Date:__________________________
EXHIBIT 11
Independent Auditors' Consent
The Board of Directors
First American Strategy Funds, Inc.:
We consent to the use of our report included herein and to the reference to our
Firm under the heading "Custodian; Administrator; Transfer Agent; Counsel;
Accountants" in Part B of the Registration Statement.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
September 10, 1996
EXHIBIT (13)
LETTER OF INVESTMENT INTENT
September 11, 1996
First American Strategy Funds, Inc.
680 East Swedesford Road
Wayne, Pennsylvania 19087
Ladies and Gentlemen:
In connection with the purchase by SEI Financial Management
Corporation (the "Purchaser") of shares of Income Fund, Growth and Income Fund,
Growth Fund, and Aggressive Growth Fund of First American Strategy Funds, Inc.
(the "Stock"), the Purchaser hereby represents that it is acquiring the Stock
for investment purposes with no present intention of selling or otherwise
disposing of or transferring it or any interest in it. The Purchaser hereby
further agrees that any transfer of any of the Stock or any interest in it shall
be subject to the following conditions:
1. The Purchaser shall furnish to you, prior to the time of
transfer, a written description of the proposed transfer specifying its
nature and giving the name of the proposed transferee, in form and
substance reasonably satisfactory to you and your counsel.
2. You shall have obtained from your counsel a written opinion
stating whether in the opinion of such counsel the proposed transfer
may be effected without registration or qualification under the
Securities Act of 1933 and applicable state securities laws. If such
opinion states that such transfer may be so effected, the Purchaser
shall then be entitled to transfer the Stock in accordance with the
terms specified in its description of the transaction to you. If such
opinion states that the proposed transfer may not be so effected, the
Purchaser will not be entitled to transfer the Stock unless the Stock
is so registered or qualified.
3. The Purchaser further agrees that all certificates
representing the Stock shall be endorsed with the following legend:
"The shares represented by this certificate may not
be transferred without (i) the opinion of counsel satisfactory
to First American Investment Funds, Inc. that the transfer may
lawfully be made without registration or qualification under
the Federal Securities Act of 1933 and applicable state
securities laws; or (ii) such registration or qualification."
The Purchaser hereby authorizes you to take such other action
as you shall reasonably deem appropriate to prevent any violation of the
Securities Act of 1933 in connection with the transfer of the Stock, including
the imposition of a requirement that any transferee of the Stock sign a letter
agreement similar to this one.
Very truly yours,
SEI FINANCIAL MANAGEMENT CORPORATION
By: /s/ Kathryn L. Stanton
Its: Vice President
