FIRST AMERICAN STRATEGY FUNDS INC, 497, 1997-08-27

FIRST AMERICAN STRATEGY FUNDS INC
497, 1997-08-27

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FIRST AMERICAN STRATEGY FUNDS, INC.

* STRATEGY INCOME FUND

* STRATEGY GROWTH AND INCOME FUND

* STRATEGY GROWTH FUND

* STRATEGY AGGRESSIVE GROWTH FUND

PROSPECTUS

[LOGO] FIRST AMERICAN FUNDS
THE POWER OF DISCIPLINED INVESTING

OCTOBER 1, 1996
AS SUPPLEMENTED JANUARY 31 ,1997
MARCH 26, 1997 AND AUGUST 27, 1997

<PAGE>

FIRST AMERICAN STRATEGY FUNDS, INC.
Oaks, Pennsylvania 19456

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, as supplemented
January 31, 1997, March 26, 1997 and August 27, 1997, 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 1-888-99STRAT or write SEI Investments
Distribution Co., Oaks, Pennsylvania 19456.

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 TO
THE CONTRARY IS A CRIMINAL OFFENSE.

The date of this Prospectus is October 1, 1996, as supplemented January 31,
1997, March 26, 1997 and August 27, 1997.

<PAGE>
TABLE OF CONTENTS

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

FINANCIAL HIGHLIGHTS ............................ 11

THE FUNDS ....................................... 11

INVESTMENT OBJECTIVES AND POLICIES .............. 12
Objectives ...................................... 12
Investment Policies ............................. 13
Risks to Consider ............................... 14
Portfolio Turnover .............................. 15
Investment Restrictions ......................... 15
Possible Conflicts of Interest and Receipt of
Securities ...................................... 16
Exemptive Order ................................. 17

THE UNDERLYING FUNDS ............................ 17
General ......................................... 17
Equity Income Fund .............................. 18
Stock Fund ...................................... 19
Diversified Growth Fund ......................... 20
Emerging Growth Fund ............................ 20
Regional Equity Fund ............................ 21
Special Equity Fund ............................. 22
International Fund .............................. 23
Technology Fund ................................. 25
Health Sciences Fund ............................ 26
Real Estate Securities Fund ..................... 27
Policies Common to Underlying Equity Funds ...... 28
Fixed Income Fund ............................... 29
Prime Obligations Fund .......................... 30
Risks to Consider with Respect to the
Underlying Funds ................................ 31

MANAGEMENT ...................................... 33
Investment Adviser to the Funds ................. 34
Portfolio Management of the Funds ............... 35
Investment Adviser and Sub-Adviser to the
Underlying Funds ................................ 36
Custodian ....................................... 37
Administrator ................................... 37
Transfer Agent .................................. 37

DISTRIBUTOR ..................................... 37

INVESTING IN THE FUNDS .......................... 40
Share Purchases ................................. 40
Minimum Investment Required ..................... 41
Systematic Exchange Program ..................... 41
Systematic Investment Program ................... 41
Certificates and Confirmations .................. 41
Dividends and Distributions ..................... 42
Exchange Privilege .............................. 42

REDEEMING SHARES ................................ 43
By Telephone .................................... 43
By Mail ......................................... 44
By Systematic Withdrawal Program ................ 45
Redemption Before Purchase Instruments Clear .... 45
Accounts with Low Balances ...................... 45

DETERMINING THE PRICE OF SHARES ................. 46
Determining Net Asset Value ..................... 46

FEDERAL INCOME TAXES ............................ 47

FUND SHARES ..................................... 48

CALCULATION OF PERFORMANCE DATA ................. 48

SPECIAL INVESTMENT METHODS ...................... 49
Cash Items ...................................... 49
Repurchase Agreements ........................... 50
When-Issued and Delayed-Delivery Transactions ... 50
Lending of Portfolio Securities ................. 51
Options Transactions ............................ 51
Futures and Options on Futures .................. 52
Fixed Income Securities ......................... 54
Foreign Securities .............................. 54
Foreign Currency Transactions ................... 56
Mortgage-Backed Securities ...................... 57
Asset-Backed Securities ......................... 58
Bank Instruments ................................ 58
Loan Participations; Section 4(2) and Rule
144A Securities ................................. 59
Credit Enhancement Agreements ................... 59
Money Market Funds .............................. 59
Investment Restrictions of the Underlying
Funds ........................................... 60
Information Concerning Compensation Paid to
First Trust National Association and Its
Affiliates ...................................... 61

<PAGE>

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.
<PAGE>

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 Investments Distribution Co. (the "Distributor") serves as the
distributor of the Funds' shares. SEI Investments 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."
<PAGE>

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 small-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 significant 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.
<PAGE>

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 1-888-99STRAT, or to the
financial institution which holds shares on an investor's behalf.
<PAGE>

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 AGGRESSIVE
INCOME INCOME GROWTH GROWTH
FUND FUND FUND 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 3.20% for Income
Fund; 3.76% for Growth and Income Fund; 5.75% for Growth Fund and 5.94% for
Aggressive Growth Fund; and total fund operating expenses calculated on
such basis would be 3.45% for Income Fund; 4.01% for Growth and Income
Fund; 6.00% for Growth Fund and 6.19% for Aggressive Growth Fund. "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
<PAGE>

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>
GROWTH
AND AGGRESSIVE
RANGES OF COMBINED DIRECT AND INDIRECT INCOME INCOME GROWTH GROWTH
EXPENSE RATIOS FUND FUND FUND FUND
<S> <C> <C> <C> <C>
1.26% 1.27% 1.34% 1.41%
to to to to
1.33% 1.54% 1.65% 1.71%
</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:

GROWTH
AND AGGRESSIVE
INCOME INCOME GROWTH GROWTH
FUND FUND FUND FUND

1 year $13 $14 $15 $16
3 years $41 $45 $47 $49

(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, $42 and $126; Growth and Income Fund, $48 and $145; Growth Fund, $68
and $201; and Aggressive Growth Fund, $71 and $208.

UNDERLYING FUND EXPENSE RATIOS

Based on information as of September 30, 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.

EXPENSE
UNDERLYING FUND RATIO(7)

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) 0.88%
Special Equity Fund(3)(4) 0.88%
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%

(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, 0.95%; Stock Fund, 0.88%;
Diversified Growth Fund, 0.92%; Emerging Growth Fund, 0.96%; Regional
Equity Fund, 0.90%; Special Equity Fund, 0.88%; International Fund, 1.72%;
Technology Fund, 1.01%; Health Sciences Fund, 1.87%; Real Estate Securities
Fund, 1.51%; Fixed Income Fund, 0.87%; and Prime Obligations Fund, 0.54%.
<PAGE>

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.
<PAGE>

FINANCIAL HIGHLIGHTS

The unaudited financial highlights for Income Fund, Growth and Income Fund,
Growth Fund, and Aggressive Growth Fund for the period ended February 28, 1997,
are set forth below.

For the period ended February 28, 1997 -- For a share outstanding throughout
the period.

RATIO OF
RATIO OF NET RATIO OF
REALIZED NET NET EXPENSES INVESTMENT EXPENSES TO
NET ASSET NET AND DIVIDENDS ASSET ASSETS TO INCOME TO AVERAGE
VALUE INVEST- UNREALIZED FROM NET VALUE END OF AVERAGE AVERAGE NET ASSETS
BEGINNING MENT GAINS ON INVESTMENT END OF TOTAL PERIOD NET NET (EXCLUDING PORTFOLIO
OF PERIOD INCOME INVESTMENTS INCOME PERIOD RETURN (000) ASSETS ASSETS WAIVERS) TURNOVER
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income Fund (1) $10.00 $ 0.15 $0.26 $(0.15) $ 10.26 4.11%+ $10,315 0.60% 4.52% 3.45% 2%
Growth and
Income Fund (1) $10.00 $ 0.10 $0.49 $(0.10) $ 10.49 5.88%+ $ 8,016 0.60% 2.80% 4.01% 23%
Growth Fund (1) $10.00 $ 0.08 $0.45 $(0.08) $ 10.45 5.32%+ $ 3,694 0.60% 2.15% 6.00% 8%
Aggressive
Growth Fund (1) $10.00 $ 0.06 $0.49 $(0.06) $ 10.49 5.55%+ $ 3,519 0.60% 0.86% 6.19% 8%
</TABLE>

+ Returns are for the period indicated and have not been annualized.
(1) Commenced operations on October 1, 1996. All ratios for the period have
been annualized.

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 Oaks,
Pennsylvania 19456. 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.

<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

OBJECTIVES

The investment objectives of the Funds are as follows:

INCOME FUND

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

AGGRESSIVE GROWTH FUND

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").
<PAGE>

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% 15% 5% 25% 10% 40%
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
<PAGE>

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.

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 small-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 significant
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.
<PAGE>

* 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

<PAGE>

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

<PAGE>

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 operate under an exemptive order from the
Securities and Exchange Commission permitting them to invest up to 100% of their
assets in shares of other mutual funds which are part of the "same group of
investment companies" as the Funds 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 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 Investments Distribution Co., Oaks, Pennsylvania 19456,
or by calling 1-888-99STRAT.

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
<PAGE>

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 65% 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
<PAGE>

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 September 30, 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, 5%; 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 35% 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.
<PAGE>

INVESTMENT POLICIES.

Under normal market conditions, Stock Fund invests at least 65% of its total
assets 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 35% 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 65% 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 35% 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.
<PAGE>

INVESTMENT POLICIES.

Under normal market conditions, Emerging Growth Fund invests at least 65% of its
total assets in equity securities of small-capitalization companies that
exhibit, in its adviser's opinion, outstanding potential for superior growth.
For these purposes, small-capitalization 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-capitalization 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-capitalization
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
<PAGE>

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 of mid-capitalization companies. For these
purposes, mid-capitalization companies are deemed those with market
capitalizations of from $1 billion to $5 billion. 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
<PAGE>

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, Brazil, Canada, Chile, China, Columbia,
the Czech Republic, Denmark, Finland, France, Germany, Greece, Hong Kong,
Hungary, India, Indonesia, Ireland, Israel, Italy, Japan, Korea, Luxembourg,
Malaysia, Mexico, the Netherlands, New Zealand, Norway, Pakistan, Peru, the
Philippines, Poland, Portugal, Singapore, South Africa, Spain, Sri Lanka,
Sweden, Switzerland, Taiwan, Thailand, Turkey, 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
<PAGE>

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 and write call options
on stock indices related to such equity securities; (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.
<PAGE>

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 65% 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 35% 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.
<PAGE>

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 65% 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 35% 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.
<PAGE>

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
<PAGE>

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, Health Sciences Fund and Real Estate
Securities 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 and write call options on stock indices related to such securities; (iv)
purchase securities on a when-issued or delayed-delivery basis; and
<PAGE>

(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 deemed to be of comparable quality as set forth above 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.

<PAGE>

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
<PAGE>

days from the date of purchase as determined pursuant to Rule 2a-7, 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 as
determined pursuant to Rule 2a-7. For more information on these types of
securities, see "Special Investment Methods" below. Under Rule 2a-7, securities
which are subject to certain types of demand or put features may be deemed to
mature at the next demand or put date although they have a longer stated
maturity.

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:
<PAGE>

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.

SMALL-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 small-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 small-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.
<PAGE>

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.

<PAGE>

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 December 31, 1996, the Adviser was
managing accounts with an aggregate value of approximately $35 billion,
including mutual fund assets in excess of $12 billion. U.S. Bancorp (formerly
known as 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.
<PAGE>

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.
<PAGE>

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, 1996, the sub-adviser
managed a total of $3.3 billion in investments for 51 institutional
investors.

<PAGE>

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 U.S. Bancorp (formerly known as 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 Investments Management Corporation, Oaks,
Pennsylvania 19456. The Administrator, a wholly-owned subsidiary of SEI
Investments Company, 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
1004 Baltimore 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 Investments Distribution Co. 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 Investments Company and is located at Oaks,
Pennsylvania 19456. The Distributor is not affiliated with the Adviser, First
Bank System, Inc., the Custodian or their respective affiliates.

<PAGE>

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
<PAGE>

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.
<PAGE>

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.
<PAGE>

BY WIRE

To purchase shares of a Fund by wire, call 1-888-99STRAT 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 160234580266; 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 1-888-99STRAT.

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
1-888-99STRAT.

CERTIFICATES AND CONFIRMATIONS

The Transfer Agent maintains a share account for each shareholder. Share
certificates will not be issued by the Funds.
<PAGE>

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.
<PAGE>

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., 1004
Baltimore, 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
<PAGE>

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 1-888-99STRAT. 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. Wire instructions must be previously established on the account or
provided in writing. 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:
<PAGE>

* 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.

<PAGE>

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.
<PAGE>

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.

<PAGE>

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.
<PAGE>

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 and to composites of such
indices and averages. 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.
<PAGE>

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.
<PAGE>

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%
<PAGE>

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 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.

The Equity Funds also may write call options on indices the movements of which
generally correlate with those of the respective Equity Funds' portfolio
holdings. These transactions, which would be undertaken principally to produce
additional income, entail the risk of an imperfect correlation between movements
of the index covered by the option and movements in the price of the applicable
Equity Fund's portfolio securities.

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
<PAGE>

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
<PAGE>

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.

In addition, Equity Income Fund may invest up to 25% of its total assets, and
each of the other Equity Funds may invest up to 5% of its net 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) 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
<PAGE>

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
<PAGE>

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
<PAGE>

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
<PAGE>

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.
<PAGE>

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. 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.

<PAGE>

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.
<PAGE>

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 and 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.

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 the 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.

<PAGE>

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<PAGE>

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<PAGE>

FIRST AMERICAN STRATEGY FUNDS, INC.
Oaks, Pennsylvania 19456

INVESTMENT ADVISOR
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 INVESTMENTS DISTRIBUTION CO.
Oaks, Pennsylvania 19456

ADMINISTRATOR
SEI INVESTMENTS MANAGEMENT CORPORATION
Oaks, Pennsylvania 19456

TRANSFER AGENT
DST SYSTEMS, INC.
1004 Baltimore
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

<PAGE>

FIRST AMERICAN STRATEGY FUNDS, INC.

STATEMENT OF ADDITIONAL INFORMATION
DATED OCTOBER 1, 1996 AS SUPPLEMENTED JANUARY 31, 1997,
MARCH 26, 1997 AND AUGUST 27, 1997

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 as supplemented January 31, 1997, March 26, 1997 and August 27, 1997.
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, Oaks, Pennsylvania 19456,
telephone: 1-888-99STRAT. 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................................. 18
Investment Advisory Agreement.............. 18
Administration Agreement................... 19
Distributor and Shareholder Service
Plan and Agreement...................... 19
Custodian; Transfer Agent; Counsel;
Accountants............................. 19

Investment Advisory Services for the
Underlying Funds.............................. 20
Investment Advisory Agreements of
the Underlying Funds.................... 20

Sub-Advisory Agreement for International
Fund.................................... 21
Portfolio Managers for the Underlying
Funds................................... 21

Portfolio Transactions and Allocation
of Brokerage................................. 23

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

<PAGE>

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.

<PAGE>

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.

<PAGE>

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.

<PAGE>

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. Short-term
investments may be entered into on a joint basis by the Funds, the Underlying
Funds, and other funds advised by the Adviser, and repurchase agreements may be
entered into on a joint basis by the Underlying Funds and other funds advised by
the Adviser, in each case to the extent permitted by Securities and Exchanges
Commission exemptive order. 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).

<PAGE>

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.

As set forth in the Prospectus, First Trust National Association, the
Funds' and the Underlying Funds' custodian and an affiliate of the Adviser, may
act as securities lending agent for the Underlying Funds and receive separate
compensation for such services.

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

<PAGE>

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

<PAGE>

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.

<PAGE>

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

<PAGE>

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
certain Underlying Funds 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

<PAGE>

considered to be less than "investment grade" and are sometimes referred to as
"junk bonds." The limitations on investments by the Underlying Funds 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.

<PAGE>

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 delayed-delivery 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

<PAGE>

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, Health Sciences Fund, and Real Estate Securities 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.

<PAGE>

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.

<PAGE>

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.

<PAGE>

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.

Andrew M. Hunter III, 537 Harrington Road, Wayzata, Minnesota 55391:
Director of FAIF, FAF and FASF since January 1997; Chairman of Hunter, Keith
Industries, a diversified manufacturing and services management company, since
1975. Age: 49.

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.

* Robert L. Spies, 4715 Twin Lakes Avenue, Brooklyn Center, Minnesota
55429: Director of FAIF, FAF and FASF since January 31, 1997; employed by First
Bank System, Inc. and subsidiaries from 1957 to January 31, 1997, most recently
as Vice President, First Bank National Association. Since his retirement from
First Bank National Association, Mr. Spies has continued to provide consulting
services to the Bank. Age: 62.

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 1993 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 1993; owner and CEO of Shingobee
Builders, Inc., a general contractor. Age: 53.

EXECUTIVE OFFICERS

David Lee, SEI Investments Company, Oaks, Pennsylvania 19456: 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 Investments Distribution Co. (the "Distributor") since
1991; President, GW Sierra Trust Funds prior to 1991. Age: 44.

Carmen V. Romeo, SEI Investments Company, Oaks, Pennsylvania 19456:
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 Investments Management
Corporation (the "Administrator") and the Distributor since 1981. Age: 52.

Kevin P. Robins, SEI Investments Company, Oaks, Pennsylvania 19456:
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.

<PAGE>

Kathryn Stanton, SEI Investments Company, Oaks, Pennsylvania 19456:
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 Investments Company, Oaks, Pennsylvania 19456:
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: 40.

Marc Cahn, SEI Investments Company, Oaks, Pennsylvania 19456: 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, SEI Investments Company, Oaks, Pennsylvania 19456:
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.

Stephen G. Meyer, SEI Investments Company, Oaks, Pennsylvania 19456:
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: 52.

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, 1996. No executive officer or affiliated person of FASF had
aggregate compensation from FASF in excess of $60,000 during such fiscal year:

<PAGE>

<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- $32,850

Andrew M. Hunter III, Director * -0- -0- -0- -0-

Leonard W. Kedrowski, Director -0- -0- -0- $34,150

Robert L. Spies, Director * -0- -0- -0- -0-

Joseph D. Strauss, Director -0- -0- -0- $56,375

Virginia L. Stringer, Director -0- -0- -0- $35,350

Gae B. Veit, Director -0- -0- -0- $34,950

</TABLE>

* Not a director during the fiscal year ended September 30, 1996.

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

<PAGE>

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 Investments 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 Investments
Company, 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 Investments Distribution Co. (the "Distributor") serves as the
distributor for the shares of each Fund. The Distributor is a wholly-owned
subsidiary of SEI Investments Company, 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

<PAGE>

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., 1004 Baltimore, 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

<PAGE>

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
Investments Distribution Co., Oaks, Pennsylvania 19456, 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, 1996, the sub-adviser managed a total of $3.3 billion in
investments for 51 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, Mr. Shields, and Mr. Twele. Equity Income
Fund and Diversified Growth Fund are managed by a committee comprised of Mr.
Bren, Mr. Doak, Mr. Dubiak, 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."

<PAGE>

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."

Cori B. Johnson is a member of the committee which manages two of the
Underlying Funds, as set forth above, and she is portfolio 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.

John A. Twele is a member of the committee which manages one of the
Underlying Funds, as set forth above. Prior to joining First Bank in 1996, he
was employed in various positions at American Express Financial Advisors;
Investment Advisers, Inc.; Kemper Financial; and Mercantile Trust. John received
his bachelor's degree from Indiana University.

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 seven 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

<PAGE>

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.

William E. Dodge has been Senior Managing Director and Portfolio
Manager of the sub-adviser since 1996. Mr. Dodge was Chief Investment Strategist
and Chairman of the Investment Policy Committee of Dean Witter in New York from
1991 to 1996, and he served as a Senior Portfolio Manager, Director of
Quantitative Equity Strategies, and United States equity analyst at the DuPont
Corporation pension fund from 1983 to 1991. From 1976 to 1983 Mr. Dodge served
in various United States portfolio management and analytical positions including
senior investment manager of a bank trust department from 1981 to 1983. He
received his bachelor's degree and his master's degree in business
administration from the University of Massachusetts at Amherst. He is a
Chartered Financial Analyst and a member of the Financial Analysts Federation.

Terry B. Mason is a Senior Vice President and Portfolio Manager of the
sub-adviser. Before joining the sub-adviser, 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.

David L. Schaen is a Vice President and Portfolio Manager for the
sub-adviser. Before becoming a Portfolio Manager, Mr. Schaen was Head Trader for
the sub-adviser from 1991 to 1994 and an International Analyst for the
sub-adviser from 1994 to 1995. Prior to 1991 he was Head Trader and Investment
Officer at the Bank of Delaware. He received his bachelor's degree from the
University of Delaware and his master's degree in business administration from
Widener 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

<PAGE>

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

<PAGE>

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 Investments Distribution Co., Oaks, Pennsylvania 19456, telephone:
(800) 637-2548.

<PAGE>

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
<S> <C>
INCOME FUND
SEI Investments Distribution Co. ...................................................... 100%
Oaks, Pennsylvania 19456

GROWTH AND INCOME FUND
SEI Investments Distribution Co. ...................................................... 100%
Oaks, Pennsylvania 19456

GROWTH FUND
SEI Investments Distribution Co. ...................................................... 100%
Oaks, Pennsylvania 19456

AGGRESSIVE GROWTH FUND
SEI Investments Distribution Co. ...................................................... 100%
Oaks, Pennsylvania 19456

</TABLE>

<PAGE>

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:

<PAGE>

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. 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 SEC-registered corporate debt.

<PAGE>

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,

<PAGE>

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.

<PAGE>

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
impairment sometime in the future.

Baa: Securities which are rated Baa are considered as medium grade
obligations, being neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
securities lack outstanding investment characteristics, and in fact
have some speculative characteristics.

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.

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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.

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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.