QUALIVEST FUNDS
3435 STELZER ROAD
COLUMBUS, OHIO 43219-3035
SEPTEMBER 15, 1997
Dear Qualivest Shareholder:
On behalf of the Board of Trustees of Qualivest Funds ("Qualivest"), we
are pleased to invite you to a special meeting of shareholders on October 31,
1997 (the "Meeting"), that has been called to consider matters that are
important to you. At the Meeting, you will be asked to consider (1) the
approval of an interim advisory agreement with First Bank National Association
("FBNA"), which became effective on August 1, 1997 (when U.S. Bancorp merged
with First Bank System, Inc., as discussed below), and (2) a proposed
reorganization of the four funds in the Qualivest Dynamic Allocation Series
(the "Qualivest Portfolios") into four corresponding funds of First American
Strategy Funds, Inc. (the "FASF Funds"). FBNA currently acts as the investment
adviser to the FASF Funds.
As a result of the merger of U.S. Bancorp and First Bank System, Inc.,
representatives of U.S. Bancorp and First Bank System, Inc. recommended to the
Board of Trustees of Qualivest that the Trustees consider and approve combining
the Qualivest Portfolios with the FASF Funds. This recommendation was made
because the representatives of the two banking institutions believed that
combining the Qualivest Portfolios and FASF Funds would offer a number of
potential benefits to the shareholders of the two mutual fund groups.
QUALIVEST'S BOARD OF TRUSTEES RECOMMENDS THAT YOU VOTE TO APPROVE BOTH THE
INTERIM ADVISORY AGREEMENT AND THE PROPOSED REORGANIZATION.
BACKGROUND. On August 1, 1997, U.S. Bancorp, the ultimate parent company
of Qualivest Capital Management, Inc. ("Qualivest Capital"), merged with First
Bank System, Inc. ("FBS"), the parent company of FBNA, and the name of FBS was
changed to U.S. Bancorp. By law, this merger resulted in the automatic
termination of the Qualivest Portfolios' then current investment advisory
agreement with Qualivest Capital. Because a number of Qualivest investment
personnel were expected to leave the employ of Qualivest Capital as a result of
the merger, Qualivest's Board of Trustees approved the interim investment
advisory agreement with FBNA, effective August 1, 1997, in order to provide, to
the extent practicable, continuity of management and to avoid harm to the
Qualivest Portfolios. At the upcoming meeting, you will be asked to ratify and
approve this interim advisory agreement, including the receipt of investment
advisory fees by FBNA for the period from August 1, 1997 forward.
In addition, at the upcoming meeting, you will be asked to approve a
reorganization of your Qualivest Portfolio into a corresponding FASF Fund. Each
FASF Fund is a series of First American Strategy Funds, Inc., an open-end
investment company advised by FBNA. If required approvals are obtained, the
Qualivest Portfolios are expected to be reorganized into the corresponding FASF
Funds on or about November 21, 1997, when your Qualivest Portfolio shares will
be exchanged for shares of the corresponding FASF Fund of equal value.
Shareholders of the nine other investment portfolios of Qualivest (Small
Companies Value Fund, Large Companies Value Fund, Optimized Stock Fund,
Intermediate Bond Fund, Diversified Bond Fund, International Opportunities
Fund, U.S. Treasury Money Market Fund, Money Market Fund and Tax-Free Money
Market Fund), including the Qualivest mutual funds in which the Qualivest
Portfolios invest, are being asked to approve the reorganizations of such
portfolios into investment portfolios First American Investment Funds, Inc. or
First American Funds, Inc. These proposed reorganizations are covered by two
additional sets of proxy materials. The reorganization that you are being asked
to approve should benefit shareholders by:
* facilitating investment management, administration and marketing by
combining the Qualivest Portfolios and the FASF Funds;
* improving efficiency, including the potential for economies of scale;
* eliminating duplicative shareholder costs; and
* making available to shareholders a greater number of investment
portfolio options.
QUAL-3
<PAGE>
In considering these matters, you should note:
* IDENTICAL TERMS AND FEES
The terms of the interim advisory agreement with FBNA are
substantially identical to the terms of the Qualivest Portfolios'
previous advisory agreement with Qualivest Capital. The fee rates are
unchanged.
* SUBSTANTIALLY SIMILAR OBJECTIVES AND POLICIES
All four Qualivest Portfolios will merge into operating FASF Funds.
Like the Qualivest Portfolios, each of the FASF Funds is a "fund of
funds." The FASF Funds invest their assets in the First American
family of mutual funds. The objectives and policies of each FASF Fund
are generally similar to those of its corresponding Qualivest
Portfolio. There are some differences, however, which are discussed in
the enclosed Combined Proxy Statement/Prospectus, and you should
consider these differences carefully.
* SIMILAR ACCESS ARRANGEMENTS
You will enjoy access to the FASF Funds through distribution,
transaction and shareholder servicing arrangements that are
substantially similar to the Qualivest Portfolios' current
arrangements.
* SAME VALUE OF SHARES
The total value of the FASF Fund shares that you receive in the
reorganization will be the same as the total value of the Qualivest
Portfolio shares that you hold immediately before the reorganization.
* LOWER OPERATING EXPENSE RATIOS
The annual fund operating expense ratio (after waivers) for the
corresponding FASF Fund after the reorganization is expected to be
less than or equal to the annual fund operating expense ratio of your
Qualivest Portfolio through at least September 30, 1998.
The formal Notice of Special Meeting, a Combined Proxy Statement/Prospectus
and a Proxy Ballot are enclosed. If you own shares in more than one Qualivest
Portfolio, more than one Proxy Ballot accompanies these proxy materials. You
will receive additional proxy materials if you are a shareholder of one or more
of the nine other investment portfolios of Qualivest.
YOUR VOTE IS VERY IMPORTANT TO US. WHETHER OR NOT YOU PLAN TO ATTEND THE
SPECIAL MEETING, PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY BALLOT
PROMPTLY, USING THE ENCLOSED POSTAGE-PAID ENVELOPE.
The interim investment advisory arrangements with FBNA, the proposed
reorganization and the reasons for the Qualivest Board of Trustees'
recommendation are discussed in detail in the enclosed materials, which you
should read carefully. If you have any questions about the new investment
advisory arrangements or the reorganization, please do not hesitate to call
First American Funds Investor Services toll free at 1-800-637-2548.
Very truly yours,
/s/ Irimga McKay
Irimga McKay
President
<PAGE>
QUALIVEST FUNDS
3435 STELZER ROAD
COLUMBUS, OHIO 43219-3035
NOTICE OF SPECIAL SHAREHOLDERS MEETING
TO BE HELD ON OCTOBER 31, 1997
NOTICE IS HEREBY GIVEN THAT a Special Meeting of the Shareholders of
Allocated Conservative Fund, Allocated Balanced Fund, Allocated Growth Fund and
Allocated Aggressive Fund (each a "Qualivest Portfolio"), series of QUALIVEST
FUNDS ("Qualivest"), will be held at the offices of SEI Investments Management
Corporation, Oaks, Pennsylvania, 19456 on October 31, 1997, at 10:00 A.M.
Eastern Time for the purpose of considering and voting upon:
1. A proposal to ratify and approve an interim investment advisory
agreement between Qualivest, on behalf of each Qualivest Portfolio, and First
Bank National Association ("FBNA"), and the receipt of investment advisory fees
by FBNA for the period from August 1, 1997 forward.
2. A proposal to approve an Agreement and Plan of Reorganization providing
for the transfer of the assets and liabilities of each Qualivest Portfolio to a
corresponding fund of First American Strategy Funds, Inc. ("FASF") in exchange
for shares of the corresponding FASF fund.
3. Such other business as may properly come before the Special Meeting or
any adjournment(s).
The proposals are described in the attached Combined Proxy Statement/
Prospectus. YOUR TRUSTEES RECOMMEND THAT YOU VOTE IN FAVOR OF EACH OF THESE
PROPOSALS.
Shareholders of record as of the close of business on September 2, 1997
are entitled to notice of, and to vote at, the Special Meeting or any
adjournment(s) thereof.
SHAREHOLDERS ARE REQUESTED TO MARK, DATE, SIGN AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE THE ACCOMPANYING PROXY CARD, WHICH IS BEING SOLICITED BY THE
QUALIVEST BOARD OF TRUSTEES. THIS IS IMPORTANT TO ENSURE A QUORUM AT THE
MEETING. PROXIES MAY BE REVOKED AT ANY TIME BEFORE THEY ARE EXERCISED BY
SUBMITTING TO QUALIVEST A WRITTEN NOTICE OF REVOCATION OR A SUBSEQUENTLY
EXECUTED PROXY OR BY ATTENDING THE MEETING AND VOTING IN PERSON. HOWEVER,
ATTENDANCE AT THE MEETING WILL NOT BY ITSELF SERVE TO REVISE A PROXY.
Gregory T. Maddox
Secretary
September 15, 1997
<PAGE>
COMBINED PROXY STATEMENT/PROSPECTUS
DATED SEPTEMBER 15, 1997
QUALIVEST FUNDS
3435 STELZER ROAD
COLUMBUS, OHIO 43219-3035
1-800-743-8637
FIRST AMERICAN STRATEGY FUNDS, INC.
OAKS, PENNSYLVANIA 19456
1-800-637-2548
This Combined Proxy Statement/Prospectus is furnished in connection with
the solicitation of proxies by the Board of Trustees of Qualivest Funds
("Qualivest") in connection with a Special Meeting of Shareholders of Allocated
Conservative Fund, Allocated Balanced Fund, Allocated Growth Fund and Allocated
Aggressive Fund (the "Qualivest Portfolios" or the "Portfolios") to be held at
10:00 A.M. Eastern Time on October 31, 1997 at the offices of SEI Investments
Management Corporation, Oaks, Pennsylvania, 19456. At the meeting, shareholders
will be asked (i) to ratify and approve an interim investment advisory
agreement with First Bank National Association ("FBNA") and the receipt of
investment advisory fees by FBNA for the period from August 1, 1997 forward,
and (ii) to approve a proposed Agreement and Plan of Reorganization dated
August 1, 1997 (the "Reorganization Agreement") between Qualivest and First
American Strategy Funds, Inc. ("FASF"). Copies of the interim investment
advisory agreement and the Reorganization Agreement are attached as Appendices
I and III, respectively.
Qualivest and FASF are open-end management investment companies (mutual
funds) that each currently offer their shares in four different investment
portfolios, or "funds." The Reorganization Agreement provides for the transfer
of the assets and liabilities of the four Qualivest Portfolios to the
corresponding investment portfolios of FASF (the "FASF Funds" or the "Funds")
in exchange for shares of the FASF Funds having an equal aggregate value (the
Reorganization"). As a result of the Reorganization, shareholders of the
Qualivest Portfolios will become shareholders of the FASF Funds. Table I, under
"Summary-Proposed Reorganization," shows each Qualivest Portfolio and the
corresponding FASF Fund. Each FASF Fund currently offers only one class of
shares. Both the Class A and Class Y shareholders of the Qualivest Portfolios
will receive shares of that one class in the Reorganization. It has also been
proposed that the nine other investment portfolios of Qualivest (Small
Companies Value Fund, Large Companies Value Fund, Optimized Stock Fund,
Intermediate Bond Fund, Diversified Bond Fund, International Opportunities
Fund, U.S. Treasury Money Market Fund, Money Market Fund and Tax-Free Money
Market Fund) be reorganized into First American Investment Funds, Inc. or First
American Funds, Inc. These other proposed reorganizations are not covered by
this Combined Proxy Statement/Prospectus.
This Combined Proxy Statement/Prospectus sets forth concisely the
information that a Qualivest Portfolio shareholder should know before voting,
and should be retained for future reference. This Combined Proxy
Statement/Prospectus is accompanied by the following additional documents: (i)
the 1997 Semi-Annual Report for the FASF Funds and (ii) the current Prospectus
for the FASF Funds dated October 1, 1996, as supplemented January 31, 1997 and
through the date hereof. Additional information relating to this Combined Proxy
Statement/Prospectus is set forth in the Statement of Additional Information,
dated the date hereof, which is incorporated herein by reference, and in the
Prospectuses dated December 1, 1996, as supplemented through the date hereof,
for the Qualivest Portfolios. Each of these documents is on file with the
Securities and Exchange Commission (the "SEC"), and is available without charge
by calling or writing Qualivest or FASF at the respective telephone numbers or
addresses stated above. The information contained in the FASF Prospectus and the
Prospectuses for the Qualivest Portfolios is incorporated by reference into this
Combined Proxy Statement/Prospectus.
This Combined Proxy Statement/Prospectus is expected to be first sent to
shareholders on or about September 15, 1997.
THE SECURITIES OF THE FASF FUNDS OFFERED HEREBY HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS COMBINED
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS COMBINED PROXY
STATEMENT/PROSPECTUS AND IN THE MATERIALS EXPRESSLY INCORPORATED HEREIN BY
REFERENCE AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY QUALIVEST, FASF OR THEIR
RESPECTIVE ADVISERS AND DISTRIBUTORS.
SHARES OF QUALIVEST AND FASF ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, FIRST BANK NATIONAL ASSOCIATION, THE UNITED STATES
NATIONAL BANK OF OREGON OR ANY OTHER BANK, AND ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY. MUTUAL FUND SHARES INVOLVE CERTAIN INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY ...................................................................... 5
Interim Advisory Agreement .................................................. 5
Qualivest Board Considerations .............................................. 6
Proposed Reorganization ..................................................... 6
Table I - Qualivest Portfolios and Corresponding FASF Funds ................. 6
Overview of FASF and Qualivest .............................................. 6
Qualivest and FASF Board Considerations ..................................... 7
Voting Information .......................................................... 8
PRINCIPAL RISK FACTORS ....................................................... 8
INFORMATION RELATING TO THE INTERIM ADVISORY AGREEMENT ....................... 9
The Merger of U.S. Bancorp into First Bank System, Inc. ..................... 9
The Interim Advisory Agreement .............................................. 10
Information About FBNA ...................................................... 11
Payments to FBNA Affiliates ................................................. 12
Affiliated Broker Commissions ............................................... 12
Section 15(f) of the 1940 Act ............................................... 12
Approval of Qualivest's Board of Trustees ................................... 13
INFORMATION RELATING TO THE PROPOSED REORGANIZATION .......................... 14
Description of the Reorganization Agreement ................................. 14
Qualivest Board Considerations .............................................. 15
Capitalization .............................................................. 16
Table II - Pro Forma Capitalization (as of June 30, 1997) ................... 16
Federal Income Tax Treatment ................................................ 18
COMPARISON OF FASF AND QUALIVEST ............................................. 19
Investment Objectives and Policies .......................................... 19
Underlying Funds and Portfolios ............................................. 20
Investment Advisory Fees and Total Expense Ratios ........................... 21
Table III - Investment Advisory And Total Expense Information ............... 22
FASF Funds' Investment Advisory Agreement ................................... 22
Information About FBNA and Other Service Providers .......................... 23
Share Structure ............................................................. 23
Distribution and Shareholder Services Plans ................................. 24
Shareholder Transactions and Services ....................................... 25
INFORMATION RELATING TO VOTING MATTERS ....................................... 25
General Information ......................................................... 25
Shareholder and Board Approvals ............................................. 26
Table IV(A) - Qualivest Portfolios - 5% Ownership as of September 2, 1997 27
Table IV(B) - FASF Funds - 5% Ownership as of September 2, 1997 ............. 28
Quorum ...................................................................... 28
Annual Meetings ............................................................. 29
Interests of Certain Persons ................................................ 29
ADDITIONAL INFORMATION ABOUT FASF ............................................ 29
ADDITIONAL INFORMATION ABOUT QUALIVEST ....................................... 30
FINANCIAL STATEMENTS ......................................................... 30
OTHER BUSINESS ............................................................... 30
SHAREHOLDER INQUIRIES ........................................................ 30
</TABLE>
<PAGE>
APPENDICES I - INVESTMENT ADVISORY AGREEMENT
II - PRINCIPAL EXECUTIVE OFFICER AND DIRECTORS OF FIRST
BANK NATIONAL ASSOCIATION
III - AGREEMENT AND PLAN OF REORGANIZATION
IV - FEES AND EXPENSES OF THE QUALIVEST PORTFOLIOS AND
CORRESPONDING FASF FUNDS
V - COMPARISON OF INTERIM ADVISORY AGREEMENT AND FASF
INVESTMENT ADVISORY AGREEMENT
VI - SHAREHOLDER TRANSACTIONS AND SERVICES
<PAGE>
SUMMARY
The following is a summary of certain information relating to the interim
investment advisory agreement and the proposed Reorganization, and is qualified
by reference to the more complete information contained elsewhere in this
Combined Proxy Statement/Prospectus, the Prospectuses and Statements of
Additional Information for the Qualivest Portfolios and the FASF Funds, and the
Appendices attached hereto.
INTERIM ADVISORY AGREEMENT. On August 1, 1997, pursuant to an Agreement
and Plan of Merger, U.S. Bancorp merged with and into First Bank System, Inc.
("FBS") and the name of FBS was changed to U.S. Bancorp ("New U.S. Bancorp")
(the "Holding Company Merger"). As a result of the Holding Company Merger,
Qualivest Capital Management, Inc. ("Qualivest Capital"), the investment
adviser to the Qualivest Portfolios at that time, became an indirect
wholly-owned subsidiary of New U.S. Bancorp. In accordance with the terms of
the then current investment advisory agreement between Qualivest Capital and
Qualivest, on behalf of the Qualivest Portfolios (the "Old Advisory
Agreement"), and consistent with the requirements of the Investment Company Act
of 1940, as amended (the "1940 Act"), this change in control of Qualivest
Capital resulted in the automatic and immediate termination of the Old Advisory
Agreement.
To better ensure that the Holding Company Merger and this automatic
termination would not disrupt the investment advisory services provided to the
Qualivest Portfolios, Qualivest, Qualivest Capital and FBNA obtained an
exemptive order from the SEC (the "Order") permitting FBNA to act as investment
adviser to the Qualivest Portfolios after the termination of the Old Advisory
Agreement, but prior to obtaining shareholder approval, under a new, interim
investment advisory agreement with Qualivest on behalf of the Portfolios (the
"Interim Advisory Agreement"). In accordance with the Order, the Interim
Advisory Agreement is subject to ratification and approval by the shareholders
of the Qualivest Portfolios at a meeting to be held within 120 days after
August 1, 1997 (the "Interim Period").
The Trustees of Qualivest now are proposing that the shareholders of each
Qualivest Portfolio ratify and approve the Interim Advisory Agreement. The
Interim Advisory Agreement became effective on August 1, 1997, the effective
date of the Holding Company Merger. Pending the ratification and approval of
the Interim Advisory Agreement, all fees payable under the Agreement are being
held in escrow. Any escrowed fees relating to a Qualivest Portfolio will be
received by FBNA only if the Interim Advisory Agreement is ratified and
approved by the shareholders of such Qualivest Portfolio.
The terms of the Interim Advisory Agreement are substantially identical to
the terms of the Old Advisory Agreement, except for (i) the change in the
investment adviser, (ii) the effective date, (iii) the termination date, and
(iv) inclusion of a provision requiring that all fees payable by each Qualivest
Portfolio under the Interim Advisory Agreement be held in escrow until the
Agreement is approved by such Portfolio's shareholders. The rate of the advisory
fee payable under the Interim Advisory Agreement by each Qualivest Portfolio is
identical to the rate of the fee under the Old Advisory Agreement. A description
of FBNA, the Interim Advisory Agreement and the services provided by FBNA
thereunder is set forth below under the heading "Information Relating to the
Interim Advisory Agreement." A copy of the Interim Advisory Agreement is
attached to this Combined Proxy Statement/Prospectus as Appendix I. The
description of the Interim Advisory Agreement is qualified in its entirety by
reference to the copy of the Interim Advisory Agreement attached hereto.
If ratified and approved, the Interim Advisory Agreement will continue in
effect with respect to the Qualivest Portfolios either (i) for successive one
year terms, subject to certain annual approval requirements, or (ii) until the
Reorganization is completed (which, subject to various conditions described
herein, is expected to occur on or about November 21, 1997) (the "Closing"),
whichever occurs earlier. It is expected that after the Closing, FBNA will
serve as investment adviser to each of the FASF Funds. In the event that the
Interim Advisory Agreement is not ratified and approved with respect to a
Qualivest Portfolio, the fees held in escrow with respect to that Portfolio
will be returned to the Portfolio, and Qualivest's Board of Trustees will
consider what actions should be taken with respect to management of the assets
of the Qualivest Portfolio until a new investment advisory agreement is
approved by the shareholders of the Portfolio or the Reorganization occurs.
<PAGE>
QUALIVEST BOARD CONSIDERATIONS. In approving the Interim Advisory
Agreement and recommending its ratification and approval to the shareholders of
the Qualivest Portfolios, Qualivest's Board of Trustees reviewed the
qualifications of FBNA to serve as investment adviser to the Qualivest
Portfolios and considered that a number of Qualivest investment personnel could
leave the employ of Qualivest Capital as a result of the Holding Company
Merger. In light of this fact, the Board determined that doubt existed as to
whether the remaining personnel of Qualivest Capital, acting alone, would be
able to provide the appropriate scope and quality of advisory services to the
Qualivest Portfolios following the Holding Company Merger. It was proposed that
certain Qualivest investment personnel would become employees of FBNA at the
effective date of the Holding Company Merger and that FBNA would then assume
management of the Qualivest Portfolios pursuant to the Interim Advisory
Agreement. The Board of Trustees determined that this arrangement would serve
Qualivest shareholders better than any available alternatives. The Board also
considered, among other things, that the provisions of the Interim Advisory
Agreement were substantially similar, and advisory fee rates were exactly the
same, as those of the Old Advisory Agreement. See "Information Relating to the
Interim Advisory Agreement - Approval of Qualivest's Board of Trustees."
QUALIVEST'S BOARD OF TRUSTEES RECOMMENDS THAT QUALIVEST SHAREHOLDERS RATIFY AND
APPROVE THE INTERIM ADVISORY AGREEMENT AND THE RECEIPT OF INVESTMENT ADVISORY
FEES BY FBNA FOR THE PERIOD FROM AUGUST 1, 1997 FORWARD.
PROPOSED REORGANIZATION. The Reorganization Agreement provides for: (i)
the transfer of all of the assets and liabilities of each of the four Qualivest
Portfolios to FASF in exchange for shares of the corresponding FASF Funds; and
(ii) the distribution of these FASF Fund shares to the shareholders of the
Qualivest Portfolios in liquidation of the Qualivest Portfolios. The
Reorganization is subject to a number of conditions with respect to each
Qualivest Portfolio, including the shareholder approvals described below.
Following the Reorganization (and the reorganization of the nine other
investment portfolios of Qualivest into investment portfolios of First American
Funds, Inc. or First American Investment Funds, Inc.), it is contemplated that
there will be a winding up of Qualivest's affairs, including the deregistration
of Qualivest as an investment company under the 1940 Act.
As a result of the proposed Reorganization, each shareholder of a
Qualivest Portfolio will become a shareholder of the corresponding FASF Fund
and will hold, immediately after the Closing, shares of the corresponding FASF
Fund having a total value equal to the total value of the shares of the
Qualivest Portfolio the shareholder holds immediately before the Closing. The
following Table I shows each Qualivest Portfolio and the corresponding FASF
Fund. Each FASF Fund currently offers only one class of shares. Both the Class
A and Class Y shareholders of the Qualivest Portfolios will receive shares of
that one class in the Reorganization.
TABLE I
QUALIVEST PORTFOLIOS AND CORRESPONDING FASF FUNDS
QUALIVEST PORTFOLIO CORRESPONDING FASF FUND
- ----------------------------- ---------------------------------
Allocated Conservative Fund Strategy Income Fund
Allocated Balanced Fund Strategy Growth and Income Fund
Allocated Growth Fund Strategy Growth Fund
Allocated Aggressive Fund Strategy Aggressive Growth Fund
The Reorganization Agreement provides that the Reorganization may be
abandoned at any time prior to the Closing upon the mutual consent of both
Qualivest and FASF, among other reasons. For further information, see
"Information Relating to the Proposed Reorganization."
OVERVIEW OF FASF AND QUALIVEST. The investment objectives, policies and
restrictions of the Qualivest Portfolios are, in general, similar to those of
their corresponding FASF Funds. Each of the FASF Funds operates as a "fund of
funds" by investing up to 100% of its assets in other mutual funds in the First
American family of funds (the "Underlying Funds"). The Underlying Funds in
which the FASF Funds invest are series of First American Investment Funds, Inc.
("FAIF") and First American Funds, Inc. ("FAF"), which are also open-end
management investment companies. Each of the four
<PAGE>
Qualivest Portfolios also operates as a "fund of funds" by investing up to 100%
of its assets in other mutual fund portfolios of Qualivest (the "Underlying
Portfolios"). See "Comparison of FASF and Qualivest."
The Qualivest Board has recommended, subject to shareholder approval and
the satisfaction of certain conditions, a reorganization of each of the
Underlying Portfolios into a series of either FAIF or FAF (the "Underlying
Portfolios Reorganizations"). Thus, even if shareholders of the Qualivest
Portfolios do not approve the Reorganization, they will hold indirect
investments in certain First American mutual funds if the Underlying Portfolios
Reorganizations are approved.
The investment objective of each Qualivest Portfolio is fundamental, which
means that it cannot be changed without the vote of a majority of the
outstanding shares (as defined in the 1940 Act) of such Portfolio. Each FASF
Fund's investment objective is non-fundamental, which means that it can be
changed without a vote of shareholders. Shareholders will receive written
notification at least 30 days prior to any change in an FASF Fund's investment
objective.
Additional information is provided below under "Comparison of FASF and
Qualivest - Investment Objectives and Policies" and "- Underlying Funds and
Portfolios."
As discussed under "Comparison of FASF and Qualivest - Investment Advisory
Fees and Total Expense Ratios," FBNA currently serves as the investment adviser
to each FASF Fund. Table III thereunder shows the investment advisory fees paid
by the Qualivest Portfolios during the six months ended January 31, 1997 and
the investment advisory fees that would be paid after consummation of the
Reorganization. Table III also shows that in all cases, the overall expense
ratios of the FASF Funds, after waivers, are expected to be equal to or less
than the overall expense ratios of the corresponding Qualivest Portfolios, as
FBNA has agreed to waive fees and reimburse expenses to the extent necessary to
maintain an expense ratio of 0.25% for each FASF Fund for the period commencing
on the Closing and continuing until September 30, 1998. The Qualivest
Portfolios and FASF Funds currently have different administrators,
distributors, transfer agents, independent auditors and trustees/directors, as
discussed under "Comparison of FASF and Qualivest - Information About FBNA and
Other Service Providers." Appendix IV to this Combined Proxy
Statement/Prospectus provides additional information about the fees and
expenses for the FASF Funds and corresponding Qualivest Portfolios.
As discussed under "Comparison of FASF and Qualivest - Share Structure,"
each of the FASF Funds currently issues only one class of shares and will issue
only that one class of shares in connection with the Reorganization. Currently,
the Qualivest Portfolios offer Class A and Class Y shares. Class A and Class Y
shares of the Qualivest Portfolios are in some respects similarly structured to
the shares of the FASF Funds. However, Class A shares of the Qualivest
Portfolios are currently offered for sale with a maximum sales load of 4.00% of
the public offering price and are subject to Rule 12b-1 fees of 0.25% of
average daily net assets. Class Y shares of the Qualivest Portfolios are
offered at net asset value and are not subject to Rule 12b-1 fees. The shares
of the FASF Funds are offered for sale without a sales load and are not subject
to a Rule 12b-1 fee, but are subject to a shareholder servicing fee of 0.25% of
average daily net assets.
With certain exceptions, the purchase, redemption, dividend and other
policies and procedures of the FASF Funds and Qualivest Portfolios are
generally similar. Additional information concerning these policies and
procedures for the Qualivest Portfolios and the FASF Funds is discussed further
under "Comparison of FASF and Qualivest - Shareholder Transactions and
Services" and in Appendix VI to this Combined Proxy Statement/Prospectus. NO
FRONT-END OR CONTINGENT DEFERRED SALES CHARGE WILL BE IMPOSED ON ANY OF THE
FASF FUND SHARES THAT ARE ISSUED TO QUALIVEST SHAREHOLDERS IN CONNECTION WITH
THE REORGANIZATION.
QUALIVEST AND FASF BOARD CONSIDERATIONS. In reviewing the proposed
Reorganization, the Boards of Qualivest and FASF considered, among other
things, (i) the terms and conditions of the Reorganization Agreement, including
provisions intended to avoid the dilution of shareholder interests; (ii) the
investment management capabilities of FBNA; (iii) the systems capabilities of
FBNA to provide shareholder servicing, reporting and systems integration with
related bank programs for Qualivest Portfolio shareholders; (iv) the similarity
of the distribution channels used by the FASF Funds and the
<PAGE>
Qualivest Portfolios; (v) the investment objectives, policies and limitations
of the Portfolios and the Funds; (vi) the historical investment performance of
the Portfolios and the Funds; (vii) the historical and projected operating
expenses of the Portfolios and the Funds; and (viii) the anticipated tax
treatment of the Reorganization. See "Information Relating to the Proposed
Reorganization - Board Considerations."
Based upon their evaluations of the information presented to them, and in
light of their fiduciary duties under Federal and state law, the Board of
Trustees of Qualivest and the Board of Directors of FASF, including all of the
members of each Board who are not interested persons, as that term is defined
in the 1940 Act, of Qualivest or FASF, have determined that the proposed
Reorganization is in the best interests of the shareholders of each Qualivest
Portfolio and each FASF Fund, respectively, and that the interests of the
shareholders of the respective Portfolios and Funds will not be diluted as a
result of the Reorganization. QUALIVEST'S BOARD OF TRUSTEES RECOMMENDS THAT THE
QUALIVEST SHAREHOLDERS APPROVE THE REORGANIZATION AGREEMENT.
VOTING INFORMATION. This Combined Proxy Statement/Prospectus is being
furnished in connection with the solicitation of proxies by Qualivest's Board
of Trustees for a Special Meeting of Shareholders to be held at the offices of
SEI Investments Management Corporation, Oaks, Pennsylvania, 19456 on October
31, 1997 at 10:00 A.M. Eastern Time. (This special meeting and any
adjournment(s) thereof are referred to as the "Meeting.") Only shareholders of
record at the close of business on September 2, 1997 will be entitled to vote
at the Meeting. Shares are entitled to one vote for each dollar of value
invested and a proportionate fractional vote for any fraction of a dollar
invested. Shares represented by a properly executed proxy will be voted in
accordance with the instructions thereon or, if no specification is made, the
persons named as proxies will vote in favor of each proposal set forth in the
Notice of Meeting. Proxies may be revoked at any time before they are exercised
by submitting to Qualivest a written notice of revocation or a subsequently
executed proxy or by attending the Meeting and voting in person. However,
attendance at the Meeting will not by itself serve to revoke a proxy. For
additional information, including a description of the shareholder votes
required for approval of the Interim Advisory Agreements and the Reorganization
Agreement, see "Information Relating to Voting Matters."
PRINCIPAL RISK FACTORS
The risks associated with an investment in the FASF Funds are discussed in
greater detail in the accompanying prospectus for the FASF Funds under
"Investment Objectives and Policies - Risks to Consider." In view of the
similar nature of the Qualivest Portfolios and the FASF Funds, in that both are
"funds of funds," management believes that an investment in an FASF Fund
involves risks that are generally similar to those of its corresponding
Qualivest Portfolio. However, to the extent the Underlying Funds differ from
the Underlying Portfolios, the risks of investing in the FASF Funds and the
Qualivest Portfolios will differ. The risks of investing in the FASF Funds
include, among others:
* The performance of the FASF Funds will reflect in part the ability of
the Funds' investment adviser to make asset allocation and other
investment decisions which are suited to achieving the Funds'
investment objectives. Due to their active management, the FASF Funds
could underperform other mutual funds with similar investment
objectives. The Qualivest Portfolios are subject to the same risks.
* Investing in the Underlying Funds through the FASF Funds involves
certain additional expenses that are not present in a direct
investment in the Underlying Funds. Investing in the Underlying
Portfolios through the Qualivest Portfolios also involves additional
expenses.
* The Underlying Funds are actively managed, and could underperform
other mutual funds with similar investment objectives (including the
Underlying Portfolios).
* 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 FASF Funds which are permitted to invest higher proportions
of their assets in Underlying Funds which
<PAGE>
invest in equity securities ("Underlying Equity Funds") may be more
volatile than FASF Funds which are limited to lower proportions.
* With respect to the Underlying 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.
* The Underlying Fund which invests in fixed income securities (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 options on
interest rate futures contracts and on interest rate indices. In
addition, to the limited extent to which the Underlying Equity Funds
may invest in fixed-rate debt securities, they also are subject to
interest rate risk, credit risk and call risk.
* It is possible that situations could arise in which the interests of
the FASF Funds diverge from those of the Underlying Funds.
As indicated above, some of the Underlying Funds, i.e., Technology Fund,
Health Sciences Fund and Real Estate Securities Fund, concentrate their
investments in a single or related economic sector and, as such, may be more
susceptible to any single economic, technological or regulatory occurrence than
the other Underlying Funds or the Underlying Portfolios. In addition, the
Regional Equity Fund, one of the Underlying Funds, concentrates its investments
in a particular geographic region which means that it will be subject to
adverse economic, political or other developments in that region. To the extent
the assets of an FASF Fund are allocated to one or more of such Underlying
Funds, the risks of such FASF Fund will differ from those of its corresponding
Qualivest Portfolio. The Underlying Funds and their risks are summarized in the
accompanying prospectus for the FASF Funds under the caption "The Underlying
Funds."
INFORMATION RELATING TO THE INTERIM ADVISORY AGREEMENT
THE MERGER OF U.S. BANCORP INTO FIRST BANK SYSTEM, INC. On August 1, 1997,
pursuant to an Agreement and Plan of Merger, U.S. Bancorp merged with and into
FBS and the name of FBS was changed to U.S. Bancorp ("New U.S. Bancorp"). As a
result of this Holding Company Merger, Qualivest Capital, the investment
adviser to the Qualivest Portfolios, became an indirect wholly-owned subsidiary
of New U.S. Bancorp. In accordance with the terms of the Old Advisory Agreement
and consistent with the requirements of the 1940 Act, this change in control of
Qualivest Capital resulted in the automatic and immediate termination of the
Old Advisory Agreement. The Old Advisory Agreement was dated July 29, 1994, was
adopted by the sole shareholder of each Qualivest Portfolio prior to
commencement of operations, and was last approved by the Qualivest Board of
Trustees on June 17, 1997. Table III, under "Comparison of FASF and Qualivest -
Investment Advisory Fees and Total Expense Ratios," shows for their latest
fiscal periods the advisory fees actually paid to Qualivest Capital by the
Qualivest Portfolios after waivers, the effective rate of such payments and the
contractual rate that Qualivest Capital was entitled to receive.
<PAGE>
To better ensure that this automatic termination would not disrupt the
investment advisory services provided to the Qualivest Portfolios, Qualivest,
Qualivest Capital and FBNA filed an exemptive application with the SEC on May
12, 1997 and an amendment on June 12, 1997. This application requested that the
SEC permit FBNA to act as investment adviser to the Qualivest Portfolios after
the termination of the Old Advisory Agreement, but prior to obtaining the
approval of the shareholders of the Qualivest Portfolios of the Interim
Advisory Agreement. In this connection, this application also requested that
the SEC permit FBNA to receive fees during the Interim Period from each
Qualivest Portfolio, under the Interim Advisory Agreement, subject to approval
by Qualivest's shareholders at a meeting to be held no later than November 28,
1997. In connection with this application, FBNA agreed to take steps to ensure
that the scope and quality of the investment advisory services will be the same
during the Interim Period as previously provided to Qualivest by Qualivest
Capital. The requested Order was granted by the SEC on July 29, 1997.
THE INTERIM ADVISORY AGREEMENT. As a result of the automatic termination
of the Old Advisory Agreement as described above, the Trustees are proposing
that the shareholders of the Qualivest Portfolios ratify and approve the
Interim Advisory Agreement. The Interim Advisory Agreement became effective on
August 1, 1997, the effective time of the Holding Company Merger. Pending such
ratification and approval, in accordance with the conditions of the Order, all
fees payable by the Qualivest Portfolios under the Interim Advisory Agreement
are being held in escrow. Such escrowed fees attributable to a Qualivest
Portfolio will be received by FBNA only if the Interim Advisory Agreement is
ratified and approved by the shareholders of such Qualivest Portfolio. If
ratified and approved, the Interim Advisory Agreement will continue in effect
for successive one year terms, subject to certain annual approval requirements,
or until the Closing (which, subject to various conditions described herein, is
expected to occur on or about November 21, 1997), whichever occurs earlier. In
the event the Interim Advisory Agreement is not ratified and approved with
respect to a Qualivest Portfolio, in accordance with the conditions of the
Order, the escrowed fees payable by that Portfolio will be returned to the
Portfolio and Qualivest's Board of Trustees will consider what actions should
be taken with respect to management of the assets of the Qualivest Portfolio
until a new investment advisory agreement is approved by the shareholders of
the Portfolio or the Reorganization occurs.
As more fully described below, the terms of the Interim Advisory Agreement
are substantially identical to the terms of the Old Advisory Agreement, except
for (i) the change in the investment adviser, (ii) the effective date, (iii)
the termination date and (iv) inclusion of a provision requiring that all fees
payable by each Qualivest Portfolio under the Interim Advisory Agreement be
held in escrow until the Agreement is approved by such Portfolio's
shareholders. The advisory fee rates payable under the Interim Advisory
Agreement are identical to those payable under the Old Advisory Agreement. A
copy of the Interim Advisory Agreement is attached to this Combined Proxy
Statement/Prospectus as Appendix I.
Pursuant to the Interim Advisory Agreement, FBNA agrees to provide,
subject to the supervision of Qualivest's Board of Trustees, a continuous
investment program for the Qualivest Portfolios, including investment research
and management with respect to all securities and investments and cash
equivalents in the Portfolios. FBNA will determine from time to time what
allocations will be made of the Qualivest Portfolios assets among the
Underlying Portfolios, in accordance with the current Prospectus of the
Qualivest Portfolios, and (assuming approval of the Interim Advisory Agreement
by the shareholders of the Underlying Portfolios) will determine what
securities and other investments will be purchased, retained or sold by
Qualivest with respect to the Underlying Portfolios, and will provide the
services under the Interim Advisory Agreement in accordance with each
Portfolio's investment objectives, policies and restrictions. Responsibilities
under the Interim Advisory Agreement also include maintaining books and records
with respect to each Portfolio's securities transactions; providing to
Qualivest's Board of Trustees such periodic and special reports as the Board
may request; and using its best efforts to obtain and provide to Qualivest's
fund accountant price information with respect to any security held, when
requested to do so by Qualivest's accountant. The Interim Advisory Agreement
provides that FBNA will pay its own expenses incurred in connection with its
activities under the Interim Advisory Agreement other than the cost of
securities purchased for the Qualivest Portfolios.
Portfolio securities of the Underlying Portfolios will not be purchased
from or sold to FBNA, Qualivest's distributor or any affiliated person (as
defined in the 1940 Act) of the foregoing companies
<PAGE>
except to the extent permitted by an SEC exemptive order or by applicable law.
FBNA may, however, cause the Underlying Portfolios to pay brokerage commissions
to an affiliate of FBNA or of Qualivest's distributor on securities acquired by
the Underlying Portfolios.
The Interim Advisory Agreement provides that FBNA will not be liable for
any error of judgment or mistake of law or for any loss suffered by Qualivest
in connection with the performance of the Interim Advisory Agreement, except a
loss resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith or gross negligence on FBNA's part in the performance of its duties or
from reckless disregard by FBNA of its obligations and duties under the Interim
Advisory Agreement. Qualivest agrees in the Interim Advisory Agreement to
indemnify FBNA to the full extent permitted by Qualivest's Declaration of
Trust.
The Interim Advisory Agreement provides that, unless sooner terminated, it
will continue in effect with respect to the Qualivest Portfolios for an initial
period of 120 days and thereafter for successive annual terms, provided that
such successive terms are specifically approved at least annually (a) by a vote
of a majority of those members of Qualivest's Board of Trustees who are not
parties to the Agreement or "interested persons" (as defined in the 1940 Act)
of any party to the Agreement, cast in person at a meeting called for the
purpose of voting on such approval, and (b) by the vote of a majority of the
Board of Trustees of Qualivest or, with respect to a particular Qualivest
Portfolio, a vote of a majority of the outstanding shares of such Portfolio.
The Interim Advisory Agreement provides that it will terminate immediately
in the event of its assignment and that it is terminable with respect to a
Qualivest Portfolio at any time without penalty by Qualivest (either by vote of
the Trustees or by vote of a majority of the outstanding shares of such
Portfolio), or by FBNA, on 60 days' written notice. To the extent required by
the 1940 Act, the Interim Advisory Agreement may not be amended as to a
Qualivest Portfolio without the approval of the shareholders of such Portfolio.
INFORMATION ABOUT FBNA. FBNA 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.
FBNA acts as the investment adviser to the Qualivest Portfolios through its
First Asset Management group. FBNA is a subsidiary of New U.S. Bancorp, 601
Second Avenue South, Minneapolis, Minnesota 55480, which is a regional,
multi-state bank holding company headquartered in Minneapolis, Minnesota.
In addition to serving as the investment adviser to the Qualivest
Portfolios, FBNA acts as the investment adviser to a number of other mutual
funds, including the following series of FASF, FAIF and FAF that have
investment objectives similar to those of one or more of the Qualivest
Portfolios or the Underlying Portfolios. FBNA is entitled to receive advisory
fees from such series as follows:
<TABLE>
<CAPTION>
CURRENT
CONTRACTUAL ADVISORY
NET ASSETS AS ADVISORY FEE RATE
OF JUNE 30, 1997 FEE RATE AFTER WAIVERS
---------------- ----------- -------------
<S> <C> <C> <C>
SERIES OF FIRST AMERICAN STRATEGY FUNDS, INC.:
Strategy Income Fund ......................... $ 17,169,909 0.25% 0.00%
Strategy Growth and Income Fund .............. $ 17,767,463 0.25% 0.00%
Strategy Growth Fund ......................... $ 7,210,190 0.25% 0.00%
Strategy Aggressive Growth Fund .............. $ 6,066,369 0.25% 0.00%
SERIES OF FIRST AMERICAN FUNDS, INC.:
Prime Obligations Fund ....................... $3,766,294,049 0.40% 0.31%
Treasury Obligations Fund .................... $3,727,459,707 0.40% 0.30%
Government Obligations Fund .................. $1,175,274,283 0.40% 0.32%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CURRENT
CONTRACTUAL ADVISORY
NET ASSETS AS ADVISORY FEE RATE
OF JUNE 30, 1997 FEE RATE AFTER WAIVERS
---------------- ----------- -------------
<S> <C> <C> <C>
SERIES OF FIRST AMERICAN INVESTMENT FUNDS, INC.:
Stock Fund ..................................... $1,065,554,369 0.70% 0.62%
Equity Index Fund .............................. $ 527,681,689 0.70% 0.16%
Balanced Fund .................................. $ 446,823,078 0.70% 0.61%
Asset Allocation Fund .......................... $ 117,220,306 0.70% 0.47%
Diversified Growth Fund ........................ $ 592,029,154 0.70% 0.57%
Emerging Growth Fund ........................... $ 129,945,121 0.70% 0.63%
Regional Equity Fund ........................... $ 357,727,906 0.70% 0.68%
Special Equity Fund ............................ $ 515,319,003 0.70% 0.70%
Technology Fund ................................ $ 137,227,632 0.70% 0.59%
Health Sciences Fund ........................... $ 38,523,406 0.70% 0.00%
Real Estate Securities Fund .................... $ 36,697,851 0.70% 0.00%
International Fund ............................. $ 209,421,079 1.25% 1.25%
Limited Term Income Fund ....................... $ 107,139,577 0.70% 0.46%
Intermediate Term Income Fund .................. $ 153,588,480 0.70% 0.52%
Fixed Income Fund .............................. $ 660,337,231 0.70% 0.53%
Intermediate Government Bond Fund .............. $ 179,490,927 0.70% 0.52%
</TABLE>
As of June 30, 1997, FBNA was managing accounts with an aggregate value of
approximately $42 billion, including mutual fund assets in excess of $14
billion. FBNA's main offices are located at 601 Second Avenue South,
Minneapolis, Minnesota 55480. Appendix II identifies the principal executive
officer and the directors of FBNA.
No officer or Trustee of Qualivest is an officer, employee, director,
general partner or shareholder of FBNA or any of its affiliates. In addition,
no Trustee of Qualivest has any material interest in any material transaction
in which FBNA or its affiliates is a party.
PAYMENTS TO FBNA AFFILIATES. Entities which, as a result of the Holding
Company Merger, are affiliates of FBNA have served as custodian for the
Qualivest Portfolios during the six-month period ended January 31, 1997 and
have received fees pursuant to certain distribution and shareholder service
plans that have been in effect during such year. The table below sets forth the
amounts of the payments made to such affiliates by the Qualivest Portfolios.
DISTRIBUTION AND
SHAREHOLDER
QUALIVEST PORTFOLIO CUSTODY FEES SERVICE PLAN FEES
------------------------------------ ------------ -----------------
Allocated Conservative Fund ........ $ 225 $ 556
Allocated Balanced Fund ............ $1,558 $1,887
Allocated Growth Fund .............. $ 360 $2,549
Allocated Aggressive Fund .......... $ 287 $1,228
It is expected that affiliates of FBNA will continue to receive custody,
distribution and shareholder servicing fees from the Qualivest Portfolios until
the Reorganization.
AFFILIATED BROKER COMMISSIONS. During the fiscal period ended January 31,
1997, the Qualivest Portfolios paid no brokerage commissions in connection with
purchases and sales of portfolio securities to any parties that would be
treated as an affiliated broker as defined in Item 22(a)(1)(ii) of Schedule 14A
under the Securities Exchange Act of 1934, as amended.
SECTION 15(f) OF THE 1940 ACT. FBNA has agreed to use its best efforts to
meet the requirements for the statutory exemption offered by Section 15(f) of
the 1940 Act to an investment adviser that receives "any amount or benefit" in
connection with the sale of interests that constitute a "change in control" of
the adviser. The statutory exemption under Section 15(f) is available provided
two conditions are satisfied: (1) for a three-year period following the
transaction, Qualivest or its successor(s) (which, assuming the Reorganization
is consummated, may include FASF) maintains a Board of Trustees or
<PAGE>
Directors at least 75% of whose members are not "interested persons," as that
term is defined under the 1940 Act, of the predecessor or successor investment
adviser, and (2) no "unfair burden" is imposed on Qualivest as a result of the
transaction. As defined in the 1940 Act, an "unfair burden" includes any
arrangement during the two-year period after the change in control whereby the
investment adviser (or predecessor or successor adviser), or any interested
person of such adviser, receives or is entitled to receive any compensation
directly or indirectly, from the investment company or its security holders
(other than fees for bona fide investment advisory or other services), or from
any person in connection with the purchase or sale of securities or other
property to, from, or on behalf of, the investment company (other than fees for
bona fide principal underwriting services provided to the investment company).
No such prohibited compensation arrangements are contemplated in connection with
either the Holding Company Merger or the Reorganization.
APPROVAL OF QUALIVEST'S BOARD OF TRUSTEES. As described above, the Old
Advisory Agreement that was previously in effect for the Qualivest Portfolios
automatically terminated on August 1, 1997 as a result of the Holding Company
Merger. In anticipation of this termination, and in order to minimize any
potential disruption of the advisory services provided to the Qualivest
Portfolios, on May 8, 1997 the Qualivest Board of Trustees authorized the filing
of the exemptive application described above with the SEC in order to permit
FBNA to act as investment adviser to the Qualivest Portfolios on and after
August 1, 1997 but prior to obtaining shareholder approval. At such meeting the
Board concluded that retaining FBNA would be the most appropriate means for the
Qualivest Portfolios to receive after the Holding Company Merger advisory
services of comparable scope and quality to the services received before such
Merger. In addition, at such meeting, Qualivest's Board of Trustees, including
all of the Trustees who are not interested persons (as that term is defined in
the 1940 Act) of Qualivest or FBNA (the "Non-Interested Trustees"), approved the
Interim Advisory Agreement with FBNA that became effective upon the consummation
of the Holding Company Merger on August 1, 1997. If approved by shareholders at
the Meeting, this agreement will continue in effect for the remainder of the
Interim Period and terminate, with respect to the Qualivest Portfolios, upon the
consummation of the Reorganization, at which point it will no longer be needed
since all Qualivest Portfolios will have been combined with FASF Funds.
In considering whether to approve the Interim Advisory Agreement and submit
it to shareholders for their approval, the Board of Trustees considered that a
number of Qualivest investment personnel were expected to leave the employ of
Qualivest Capital by or shortly after the effective date of the Holding Company
Merger. In light of this, the Board of Trustees determined that doubt existed
whether the remaining personnel of Qualivest Capital, acting alone, would be
able to provide an appropriate scope and quality of advisory services to the
Qualivest Portfolios after the Holding Company Merger. Accordingly, it was
necessary for the Board to consider arrangements that would avoid the harm to
the Portfolios that would result if Qualivest Capital's services proved to be
inadequate following the Holding Company Merger. In order to provide, to the
extent practicable, continuity of portfolio management and to avoid harm to the
Qualivest Portfolios, FBNA proposed that certain Qualivest investment personnel
employed by Qualivest Capital become employees of FBNA at the effective date of
the Holding Company Merger. These individuals, together with the large and
experienced group of investment professionals already employed by FBNA, then
would assume management of the Portfolios at the effective date of the Holding
Company Merger pursuant to the Interim Advisory Agreement.
The Board of Trustees determined that entering into the Interim Advisory
Agreement with FBNA would serve Portfolio shareholders better than any available
alternatives, in that it would (i) provide that the Portfolios would, to the
extent possible under the circumstances, continue to be managed by the same
individuals who managed them prior to the Holding Company Merger; (ii) ensure
that, to the extent portfolio managers of the Portfolios departed Qualivest
Capital, the affected Portfolios would be managed after the Holding Company
Merger by a group of investment professionals which the Board had determined
could provide the appropriate scope and quality of advisory services; and (iii)
avoid the need for the Board to consider on an emergency, AD HOC basis how to
proceed if and to the extent additional portfolio managers decided to leave
Qualivest Capital.
The Board of Trustees also considered the following factors: (i) FBNA's
representations that it would provide investment advisory and other services to
the Qualivest Portfolios of a scope and quality
<PAGE>
comparable, in the Board's judgment, to the scope and quality of services
previously provided to the Qualivest Portfolios by Qualivest Capital; (ii) the
substantially similar terms and conditions contained in the Interim Advisory
Agreement as compared to the Old Advisory Agreement; and (iii) FBNA's
representation that in the event of any material change in personnel providing
services under the Interim Advisory Agreement during the Interim Period, the
Board of Trustees of Qualivest would be consulted for the purpose of assuring
themselves that the services provided would not be diminished in scope or
quality.
Based on the foregoing factors, the Trustees concluded that approval of the
Interim Advisory Agreement was in the best interests of the Qualivest Portfolios
and their shareholders. The Board of Trustees further concluded that entering
into the Interim Advisory Agreement would be appropriate and fair considering
that (i) the fees to be paid, and the services to be provided therefor, would be
unchanged from the Old Advisory Agreement; (ii) the fees would be maintained in
an interest-bearing escrow account until payment was approved or disapproved by
shareholders of the Qualivest Portfolios; (iii) because of the relatively short
period for the consummation of the Holding Company Merger, there was
insufficient time to seek prior shareholder approval of the Interim Advisory
Agreement; and (iv) the non-payment of investment advisory fees during the
Interim Period would be an unduly harsh result to FBNA in view of the services
provided by FBNA to the Qualivest Portfolios, and the expenses incurred in
connection with such services, under the Interim Advisory Agreement.
Each Qualivest Portfolio will vote separately on a portfolio-by-portfolio
basis with respect to the approval of the Interim Advisory Agreement.
QUALIVEST'S BOARD OF TRUSTEES RECOMMENDS THAT QUALIVEST SHAREHOLDERS RATIFY AND
APPROVE THE INTERIM ADVISORY AGREEMENT AND THE RECEIPT OF INVESTMENT ADVISORY
FEES BY FBNA FOR THE PERIOD FROM AUGUST 1, 1997 FORWARD.
INFORMATION RELATING TO THE PROPOSED REORGANIZATION
The terms and conditions of the Reorganization are set forth in the
Reorganization Agreement. Significant provisions of the Reorganization Agreement
are summarized below; however, this summary is qualified in its entirety by
reference to the Reorganization Agreement, a copy of which is attached as
Appendix III to this Combined Proxy Statement/Prospectus.
DESCRIPTION OF THE REORGANIZATION AGREEMENT. The Reorganization Agreement
provides that at the Closing the assets and liabilities of the Qualivest
Portfolios will be transferred to corresponding FASF Funds in exchange for full
and fractional shares of the FASF Funds, as shown in Table I above under
"Summary - Proposed Reorganization."
The total shares issued by each FASF Fund in the Reorganization will have
an aggregate value equal to the aggregate value of the shares of the
corresponding Qualivest Portfolio that are outstanding immediately before the
Closing. Immediately after the Closing, the Qualivest Portfolios will distribute
the shares of the FASF Funds received in the Reorganization to their
shareholders in liquidation of the Qualivest Portfolios. Each shareholder owning
Class A or Class Y Shares of a particular Qualivest Portfolio at the Closing
will receive shares of the corresponding FASF Fund of equal value, and will
receive any unpaid dividends or distributions that were declared before the
Closing on their Qualivest Portfolio shares. Each FASF Fund currently offers
only one class of shares. Both the Class A and Class Y shareholders of the
Qualivest Portfolios will receive shares of that one class in the
Reorganization. FASF will establish an account for each former shareholder of
the Qualivest Portfolios reflecting the appropriate number of FASF Fund shares
distributed to the shareholder. These accounts will be identical to the accounts
currently maintained by Qualivest for each shareholder. Shares of the FASF Funds
are in uncertificated form.
Upon completion of the Reorganization, all outstanding shares of the
Qualivest Portfolios will be redeemed and canceled in exchange for shares of the
FASF Funds distributed. Thereafter, assuming that the nine other investment
portfolios of Qualivest that are not parties to the Reorganization have been
reorganized into investment portfolios of First American Funds, Inc. or First
American Investment Funds, Inc., Qualivest will wind up its affairs and be
deregistered as an investment company under the
<PAGE>
1940 Act. The stock transfer books of the Qualivest Portfolios will be
permanently closed as of the Closing. Exchange or redemption requests received
thereafter will be deemed to be exchange or redemption requests for shares of
the FASF Funds distributed to the former shareholders of the Qualivest
Portfolios.
The Reorganization is subject to a number of conditions, including
approval of the Reorganization Agreement by Qualivest Portfolio shareholders;
the receipt of certain legal opinions described in the Reorganization Agreement
(which include an opinion of counsel to FASF that the FASF Fund shares issued
in the Reorganization will be validly issued, fully paid and non-assessable);
the receipt of certain certificates from the parties concerning the continuing
accuracy of the representations and warranties in the Reorganization Agreement;
and the parties' performance in all material respects of their respective
agreements and undertakings in the Reorganization Agreement. Assuming
satisfaction of the conditions in the Reorganization Agreement, the Closing
will be effective on November 21, 1997 or such other date as agreed to by the
parties.
FBNA has undertaken to bear any Reorganization expenses incurred by the
Qualivest Portfolios and FASF Funds, including the costs associated with this
Combined Proxy Statement/Prospectus and the Meeting, but not including share
registration expenses.
The Reorganization may be abandoned at any time prior to the Closing upon
the mutual consent of both Qualivest and FASF, or by either Qualivest or FASF if
determined by the Board of Trustees or Directors that proceeding with the
Reorganization is inadvisable. The Reorganization Agreement provides further
that at any time before or (to the extent permitted by law) after approval of
the agreement by the shareholders of Qualivest (i) the parties may, by written
agreement authorized by their respective Boards of Trustees/Directors and with
or without the approval of their shareholders, amend any of the provisions of
the Reorganization Agreement and (ii) either party may waive any default by the
other party or the failure to satisfy any of the conditions to its obligations
(the waiver to be in writing and authorized by the Board of Trustees/Directors
of the waiving party with or without the approval of such party's shareholders).
QUALIVEST BOARD CONSIDERATIONS. At its May 8, 1997 meeting at which the
Interim Advisory Agreement described above was approved, the Qualivest Board of
Trustees was advised that FBNA was also considering the possibility of
consolidating the Qualivest Portfolios with the FASF Funds following the Holding
Company Merger. Following that meeting, FBNA provided information requested by
the Board relating to the possible consolidation of the two fund groups. This
information was reviewed in detail by the independent trustees of Qualivest at a
meeting held on June 16, 1997 and by the full Qualivest Board of Trustees at a
meeting held June 17, 1997, at which the proposal that the Qualivest Portfolios
be reorganized into the FASF Funds, as set forth in the Reorganization
Agreement, was approved by the Board of Trustees of Qualivest.
During its deliberations, Qualivest's Board of Trustees (with the advice
and assistance of independent counsel) reviewed, among other things: (i) the
potential effect of the Reorganization on the shareholders of the Qualivest
Portfolios; (ii) the investment management capabilities of FBNA; (iii) the
systems capabilities of FBNA to provide shareholder servicing, reporting and
systems integration with related bank programs for Qualivest Portfolio
shareholders; (iv) the similarity of the distribution channels used by the FASF
Funds and the Qualivest Portfolios; (v) the investment advisory and other fees
paid by the FASF Funds, and the historical and projected expense ratios of the
FASF Funds as compared to those of the Qualivest Portfolios; (vi) the potential
economies of scale that may result from the Reorganization; (vii) the expected
cost-savings for certain of the Portfolios as a result of the Reorganization;
(viii) the investment objectives, policies and limitations of the FASF Funds
and their relative compatibility with those of the Portfolios as discussed
further in this Combined Proxy Statement/Prospectus; (ix) the historical
investment performance records of the Qualivest Portfolios and Underlying
Portfolios and the FASF Funds and Underlying Funds; (x) the terms and
conditions of the Reorganization Agreement, including those provisions that
were intended to avoid dilution of the interests of Qualivest's shareholders;
(xi) the sales load structure applicable to the FASF Funds as compared to the
sales loads applicable to their corresponding Portfolios; (xii) the greater
number of investment portfolio options that would be available to shareholders
after the Reorganization; and (xiii) the anticipated tax treatment of the
Reorganization for the respective Qualivest Portfolios and their shareholders.
<PAGE>
Qualivest's Board of Trustees also noted FBNA's offer to pay the expenses
incurred by Qualivest and FASF in connection with the Reorganization and to
continue, at FBNA's expense, the Board of Trustees' liability coverage
currently carried by Qualivest. In addition, Qualivest's Board of Trustees
considered FBNA's agreement to waive fees and reimburse expenses to the extent
necessary to maintain, commencing on the Closing and until September 30, 1998,
an expense ratio of 0.25% for each FASF Fund, which will be equal to or less
than the current expense ratios for both the Class A and the Class Y shares of
the Qualivest Portfolios. FBNA has also agreed that, from October 1, 1998
through September 30, 1999, it will waive fees and reimburse expenses to the
extent necessary so that no FASF Fund will have total fund operating expense
ratios in excess of those currently applicable to the Class A shares of its
corresponding Qualivest Portfolio, as set forth in Appendix IV.
After consideration of all of the factors described above, the Qualivest
Board of Trustees determined that the Reorganization Agreement was in the best
interests of the shareholders of each Qualivest Portfolio, and that the
interests of the shareholders of the respective Qualivest Portfolios would not
be diluted as a result of the Reorganization.
BISYS Fund Services has asserted that consummation of the Reorganization
would cause certain amounts to become payable to it under so-called "liquidated
damages" clauses in administration and fund accounting agreements with
Qualivest, as well as under the terms of Qualivest's transfer agency agreement.
New U.S. Bancorp has agreed to indemnify and hold Qualivest, FASF, and their
respective shareholders harmless against any amount which is finally determined
in judicial or agreed-upon alternative dispute resolution proceedings, or agreed
by New U.S. Bancorp, BISYS and Qualivest, to be payable under such agreements.
Accordingly, if any amount is found or agreed to be payable under such
agreements, shareholders of Qualivest and FASF will not bear such expenses.
CAPITALIZATION. The following table sets forth, as of June 30, 1997, (i)
the capitalization of each of the four Qualivest Portfolios; (ii) the
capitalization of each of the corresponding FASF Funds; and (iii) the pro forma
capitalization of each of the FASF Funds as adjusted to give effect to the
Reorganization of the Qualivest Portfolios. The capitalization of each Qualivest
Portfolio and FASF Fund is likely to be different at the Closing as a result of
daily share purchase and redemption activity in the Qualivest Portfolios and the
FASF Funds, as well as the effects of the Qualivest Portfolios' and the FASF
Funds' other ongoing operations.
TABLE II
PRO FORMA CAPITALIZATION (AS OF JUNE 30, 1997)
(IN THOUSANDS, EXCEPT PER SHARE VALUES)
QUALIVEST ALLOCATED CONSERVATIVE FUND/FASF STRATEGY INCOME FUND
<TABLE>
<CAPTION>
QUALIVEST PORTFOLIO FASF FUND PRO FORMA
------------------- --------- ---------
<S> <C> <C> <C>
Class A Shares(1)(3)
Net assets ............................ $ 2,841 - -
Net asset value per share ............. $ 10.87 - -
Shares outstanding .................... 261 - -
Class Y Shares(1)(3)
Net assets ............................ $ 9,145 - -
Net asset value per share ............. $ 10.88 - -
Shares outstanding .................... 840 - -
Common Shares (no class designation)(2)
Net assets ............................ - $17,170 $29,156
Net asset value per share ............. - $ 10.49 $ 10.49
Shares outstanding .................... - 1,637 2,778
Total Net Assets ....................... $11,986 $17,170 $29,156
</TABLE>
- ------------------
(1) Not offered by FASF.
(2) Not offered by Qualivest.
(3) Pursuant to the Reorganization, Qualivest Class A and Class Y Shares will
be converted into Common Shares of FASF.
<PAGE>
QUALIVEST ALLOCATED BALANCED FUND/FASF STRATEGY GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
QUALIVEST PORTFOLIO FASF FUND PRO FORMA
------------------- --------- ---------
<S> <C> <C> <C>
Class A Shares(1)(3)
Net assets ........................... $ 9,897 - -
Net asset value per share ............ $ 11.49 - -
Shares outstanding ................... 861 - -
Class Y Shares(1)(3)
Net assets ........................... $118,507 - -
Net asset value per share ............ $ 11.39 - -
Shares outstanding ................... 10,407 - -
Common Shares (no class designation)(2)
Net assets ........................... - $17,767 $146,171
Net asset value per share ............ - $ 11.07 $ 11.07
Shares outstanding ................... - 1,605 13,207
Total Net Assets ...................... $128,404 $17,767 $146,171
</TABLE>
- ------------------
(1) Not offered by FASF.
(2) Not offered by Qualivest.
(3) Pursuant to the Reorganization, Qualivest Class A and Class Y Shares will
be converted into Common Shares of FASF.
QUALIVEST ALLOCATED GROWTH FUND/FASF STRATEGY GROWTH FUND
<TABLE>
<CAPTION>
QUALIVEST PORTFOLIO FASF FUND PRO FORMA
------------------- --------- ---------
<S> <C> <C> <C>
Class A Shares(1)(3)
Net assets ........................... $13,445 - -
Net asset value per share ............ $ 12.13 - -
Shares outstanding ................... 1,109 - -
Class Y Shares(1)(3)
Net assets ........................... $12,493 - -
Net asset value per share ............ $ 11.99 - -
Shares outstanding ................... 1,042 - -
Common Shares (no class designation)(2)
Net assets ........................... - $7,210 $33,148
Net asset value per share ............ - $11.24 $ 11.24
Shares outstanding ................... - 642 2,951
Total Net Assets ...................... $25,938 $7,210 $33,148
</TABLE>
- ------------------
(1) Not offered by FASF.
(2) Not offered by Qualivest.
(3) Pursuant to the Reorganization, Qualivest Class A and Class Y Shares will
be converted into Common Shares of FASF.
<PAGE>
QUALIVEST ALLOCATED AGGRESSIVE FUND/FASF STRATEGY AGGRESSIVE GROWTH FUND
<TABLE>
<CAPTION>
QUALIVEST PORTFOLIO FASF FUND PRO FORMA
------------------- --------- ---------
<S> <C> <C> <C>
Class A Shares(1)(3)
Net assets ........................... $ 8,315 - -
Net asset value per share ............ $ 12.37 - -
Shares outstanding ................... 672 - -
Class Y Shares(1)(3)
Net assets ........................... $20,812 - -
Net asset value per share ............ $ 12.34 - -
Shares outstanding ................... 1,687 - -
Common Shares (no class designation)(2)
Net assets ........................... - $6,066 $35,193
Net asset value per share ............ - $11.43 $ 11.43
Shares outstanding ................... - 531 3,079
Total Net Assets ...................... $29,127 $6,066 $35,193
</TABLE>
- ------------------
(1) Not offered by FASF.
(2) Not offered by Qualivest.
(3) Pursuant to the Reorganization, Qualivest Class A and Class Y Shares will
be converted into Common Shares of FASF.
FEDERAL INCOME TAX TREATMENT. Consummation of the Reorganization with
respect to each Qualivest Portfolio is subject to the condition that Qualivest
and FASF receive an opinion from Dorsey & Whitney LLP, counsel to FASF, to the
effect that, for federal income tax purposes: (i) the transfer of all of the
assets and liabilities of each Qualivest Portfolio to its corresponding FASF
Fund in exchange for shares of the FASF Fund and the distribution of these FASF
shares to shareholders of the Qualivest Portfolio, as described in the
Reorganization Agreement, will constitute a reorganization within the meaning of
Section 368(a)(1)(C) or Section 368(a)(1)(D) of the Internal Revenue Code of
1986, as amended (the "Code"); (ii) no income, gain or loss will be recognized
by the Qualivest Portfolios as a result of these transactions; (iii) no income,
gain or loss will be recognized by the FASF Funds as a result of these
transactions; (iv) no income, gain or loss will be recognized by the
shareholders of each Qualivest Portfolio on the distribution to them of shares
of the corresponding FASF Fund in exchange for their shares of the Qualivest
Portfolio (but shareholders of a Qualivest Portfolio subject to taxation will
recognize income upon receipt of any net investment income or net capital gains
of such Qualivest Portfolio which are distributed by such Qualivest Portfolio
prior to the Closing); (v) the tax basis of FASF Fund shares received by a
shareholder of a Qualivest Portfolio will be the same as the tax basis of the
shareholder's Qualivest Portfolio shares immediately before the Reorganization;
(vi) the tax basis to each FASF Fund of the assets of the corresponding
Qualivest Portfolio received pursuant to the Reorganization will be the same as
the tax basis of the assets in the hands of the Qualivest Portfolio immediately
before the Reorganization; (vii) a shareholder's holding period for FASF Fund
shares will be determined by including the period for which the shareholder held
the Qualivest Portfolio shares exchanged therefor, provided the shareholder held
the Qualivest Portfolio shares as a capital asset; (viii) each FASF Fund's
holding period with respect to the assets received in the Reorganization will
include the period for which the assets were held by the corresponding Qualivest
Portfolio, provided that each corresponding Qualivest Portfolio held such
Portfolio assets as capital assets; and (ix) each FASF Fund will succeed to and
take into account the earnings and profits, or deficit in earnings and profits,
of the corresponding Qualivest Portfolio immediately before the Reorganization.
FASF and Qualivest have not sought, and do not intend to seek, a ruling
from the Internal Revenue Service ("IRS") concerning the tax treatment of the
Reorganization. The opinion of counsel is not binding on the IRS and does not
preclude the IRS from adopting a contrary position. Shareholders may wish to
consult their own tax advisors concerning the potential tax consequences of the
Reorganization to them, including state and local income tax consequences.
<PAGE>
COMPARISON OF FASF AND QUALIVEST
INVESTMENT OBJECTIVES AND POLICIES. The investment objectives, policies and
restrictions of the FASF Funds are similar to those of the Qualivest Portfolios.
The investment objectives of the Qualivest Portfolios, as compared to the
investment objectives of the FASF Funds, are as follows:
The ALLOCATED CONSERVATIVE FUND seeks to produce current income with a
secondary objective of long-term capital appreciation, whereas its
corresponding FASF Fund, the STRATEGY INCOME FUND, seeks to provide a high
level of current income consistent with limited risk to capital. The
Strategy Income Fund's limited equity component is designed to help offset
inflation and provide a source for potential increases in income over time.
The ALLOCATED BALANCED FUND seeks to provide a balance between
long-term capital appreciation and current income, whereas its
corresponding FASF Fund, the STRATEGY GROWTH AND INCOME FUND, seeks to
provide both capital growth and current income through a balanced approach
to equity securities and fixed-income investments.
The ALLOCATED GROWTH FUND seeks to provide capital appreciation and
income growth, whereas its corresponding FASF Fund, the STRATEGY GROWTH
FUND, seeks to provide capital growth with a moderate level of current
income. The Strategy Growth Fund provides high allocations to various
equity categories including small company and international company equity
securities.
The ALLOCATED AGGRESSIVE FUND seeks to provide maximum capital
appreciation, whereas its corresponding FASF Fund, the STRATEGY AGGRESSIVE
GROWTH FUND, seeks to provide a high level of capital growth. The Strategy
Aggressive Growth 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 FASF Fund and each Qualivest Portfolio seeks to achieve its investment
objectives by investing in a variety of the Underlying Funds or Underlying
Portfolios. There is no assurance that the objectives of the Qualivest
Portfolios or the FASF Funds will be achieved. The investment objective of each
Qualivest Portfolio is fundamental, which means that it may not be changed
without a vote of the holders of a majority, as that term is defined in the 1940
Act, of the outstanding shares of that Portfolio. The investment objectives of
the FASF Funds are not fundamental and therefore may be changed without a vote
of shareholders. Such changes could result in an FASF Fund having investment
objectives different from those which shareholders considered appropriate at the
time of approving the Reorganization. Shareholders will receive written
notification at least 30 days prior to a change in an FASF Fund's investment
objectives.
The FASF Funds, in addition to investing in shares of the Underlying Funds,
may hold cash or invest in short-term obligations such as rated commercial paper
and variable amount master demand notes, U.S. dollar-denominated time and
savings deposits (including certificates of deposit), bankers acceptances,
obligations of the U.S. Government or its agencies or instrumentalities,
repurchase agreements, securities of other mutual funds which invest primarily
in debt obligations with remaining maturities of 13 months or less, and other
similar high-quality short-term U.S. dollar-denominated obligations. Under
normal circumstances, the aggregate investments of the FASF Funds in Prime
Obligations Fund (a money market fund) and such cash and cash items will not
exceed the maximum percentages set forth in the table below for Prime
Obligations Fund. See "Underlying Funds and Portfolios - FASF Fund Investments
in the Underlying Funds." However, for temporary defensive purposes during times
of unusual market conditions, the FASF Funds may without limitation hold shares
of Prime Obligations Fund and such cash and cash items.
Similarly, the Qualivest Portfolios, in addition to investing in shares of
the Underlying Portfolios, may invest, for temporary cash management purposes,
in short-term obligations (with maturities of 12 months or less) consisting of
commercial paper (including variable amount master demand notes), bankers'
acceptances, certificates of deposit, repurchase agreements, reverse repurchase
agreements and dollar roll agreements, obligations issued or guaranteed by the
U.S. Government or its agencies or instrumentalities, asset-backed and
mortgage-related securities, and demand and time deposits of domestic and
foreign banks and savings and loan associations. The Qualivest Portfolios also
may hold depositary or custodial receipts representing beneficial interests in
any of the foregoing securities.
<PAGE>
The FASF 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 transactions 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 more information
about these investment methods, restrictions on their use, and certain
associated risks, see "Special Investment Methods - Futures and Options on
Futures" in the accompanying prospectus for the FASF Funds. The Qualivest
Portfolios may not engage in these investment methods.
UNDERLYING FUNDS AND PORTFOLIOS. Information with respect to the investment
objectives, policies and restrictions of the Underlying Funds for the FASF
Funds, and of the Underlying Portfolios for the Qualivest Portfolios, is
included in their respective prospectuses, which have been incorporated herein
by reference. See "Investment Objectives and Policies" and "The Underlying
Funds" in the accompanying FASF Funds' prospectus and "Investment Objectives and
Policies - Underlying Funds" and "Underlying Funds' Investment Techniques and
Risk Factors" in the Qualivest Portfolios' prospectuses. The performance of the
Qualivest Portfolios and the FASF Funds is directly related to the performance
of the Underlying Portfolios and the Underlying Funds. Qualivest Portfolio
shareholders should be aware that the shareholders of each Underlying Portfolio
have been asked to approve a proposal whereby each such Portfolio would be
reorganized into a series of either FAIF or FAF (the "Underlying Portfolios
Reorganizations"). Thus, even if shareholders of the Qualivest Portfolios do not
approve the Reorganization, they will hold indirect investments in certain First
American mutual funds if the Underlying Portfolios Reorganizations are approved.
QUALIVEST PORTFOLIO INVESTMENTS IN UNDERLYING PORTFOLIOS
Each Qualivest Portfolio currently seeks its investment objective by
investing in the following Underlying Portfolios, each of which is an investment
portfolio of Qualivest: Large Companies Value Fund, Small Companies Value Fund,
International Opportunities Fund and Optimized Stock Fund (collectively, the
"Equity Funds"); Intermediate Bond Fund and Diversified Bond Fund (collectively,
the "Income Funds"); and U.S. Treasury Money Market Fund and Money Market Fund
(collectively, the "Money Funds").
The Qualivest Portfolios invest their assets in the Underlying Portfolios
within the ranges (expressed as a percentage of each Qualivest Portfolio's
assets) indicated below, determined at the time an investment is made:
<TABLE>
<CAPTION>
CONSERVATIVE BALANCED GROWTH AGGRESSIVE
UNDERLYING PORTFOLIO FUND FUND FUND FUND
- ------------------------------- ------------ -------- ------ ----------
<S> <C> <C> <C> <C>
Large Companies Fund .......... 0-35% 0-35% 0-35% 0-50%
Small Companies Fund .......... 0-35% 0-35% 0-35% 0-35%
International Fund ............ 0-35% 0-35% 0-35% 0-35%
Optimized Fund ................ 0-35% 0-35% 0-35% 0-50%
Intermediate Bond Fund ........ 0-50% 0-35% 0-35% 0%
Bond Fund ..................... 0-50% 0-35% 0-35% 0%
U.S. Treasury Fund ............ 0-10% 0-10% 0-10% 0%
Money Market Fund ............. 0-10% 0-10% 0-10% 0-10%
</TABLE>
<PAGE>
Although the Portfolios' investment adviser intends to invest each Qualivest
Portfolio's assets in the Underlying Portfolios within the ranges set forth
above, and to periodically adjust the allocations in response to economic and
market conditions, each Qualivest Portfolio has the following "neutral mix"
representing the intended typical allocation of the Portfolio's assets over
time:
UNDERLYING PORTFOLIOS
----------------------------
INCOME AND
QUALIVEST PORTFOLIO EQUITY FUNDS MONEY FUNDS
-------------------------- ------------ -----------
Conservative Fund ........ 30% 70%
Balanced Fund ............ 60% 40%
Growth Fund .............. 80% 20%
Aggressive Fund .......... 100% 0%
The Qualivest Portfolios have adopted a policy of limiting redemptions to
no more than 3% of any Underlying Portfolio's shares during any month, except as
necessary to meet redemption requests by the Underlying Portfolio's
shareholders. The Qualivest Portfolios may be unable to reallocate assets among
the Underlying Portfolios as quickly as would be the case in the absence of this
constraint.
FASF FUND INVESTMENTS IN THE UNDERLYING FUNDS
Each FASF 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). FBNA allocates and re-allocates the assets of the FASF
Funds among the Underlying Funds within the following ranges, expressed as
percentages of the FASF Funds' net assets:
<TABLE>
<CAPTION>
GROWTH AND AGGRESSIVE
INCOME FUND INCOME FUND GROWTH FUND GROWTH FUND
------------------- ------------------- ------------------- -------------------
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 FBNA's allocations within the ranges, are
intended to reflect the FASF Funds' differing balances between the investment
objectives of current income and of growth of capital. The FASF Funds may make
alterations to the ranges and the Underlying Funds set forth above without
shareholder approval, provided that the FASF Funds' prospectus is appropriately
amended or supplemented. If the Reorganizations are approved by shareholders,
the FASF Funds will also invest in Small Cap Value Fund and International Index
Fund, series of FAIF into which Qualivest Small Companies Fund and Qualivest
International Fund will be reorganized.
If the Reorganization is approved by shareholders, it is likely that, for a
period of time following the Reorganization, investments in the Underlying Funds
will not be within the ranges set forth above. To insure that the investments in
the Underlying Funds comply with each Fund's range, the FASF Funds may alter the
permissible ranges, which would require the prospectus to be amended and
supplemented, or adjust the investments in the Underlying Funds. Changes in
investments may result in a realization of capital gains for the Funds and
Shareholders.
INVESTMENT ADVISORY FEES AND TOTAL EXPENSE RATIOS. Currently, FBNA serves
as the investment adviser for each of the FASF Funds, and would continue to do
so after the Reorganization at the fee
<PAGE>
rates stated in Table III below. FBNA is also providing investment advisory
services to the Qualivest Portfolios under the Interim Advisory Agreement.
Table III shows (i) the advisory fees in dollars actually paid by the
Qualivest Portfolios for the six month period ended January 31, 1997, (ii) the
current contractual advisory fee rates payable with respect to the Qualivest
Portfolios (which are the same as the effective advisory fee rates for the
latest fiscal period, since no fees were waived), (iii) the post-Reorganization
contractual advisory fees payable with respect to the corresponding FASF Funds,
(iv) the current total expense ratio of the Qualivest Portfolios after waivers
and (v) the pro forma total expense ratio of the corresponding FASF Funds based
upon the fee arrangements, including waivers and reimbursements, that will be in
place upon consummation of the Reorganization. All fee rates are annualized, and
are computed daily and payable monthly based on a Qualivest Portfolio's or FASF
Fund's average daily net assets. Table III shows that while the contractual
investment advisory fee rates of the FASF Funds are higher than the contractual
rates for the corresponding Qualivest Portfolios, FBNA has agreed to waive fees
and reimburse expenses to the extent necessary to maintain, commencing on the
Closing and until September 30, 1998, an expense ratio of 0.25% for each FASF
Fund, which is the same as or lower than the current expense ratios of the
corresponding Qualivest Portfolios. FBNA has also agreed that, from October 1,
1998 through September 30, 1999, it will waive fees and reimburse expenses to
the extent necessary so that no FASF Fund will have total fund operating expense
ratios in excess of those currently applicable to the Class A shares of its
corresponding Qualivest Portfolio, as set forth in Appendix IV. Detailed pro
forma expense information for each proposed reorganization is included in
Appendix IV to this Combined Proxy Statement/Prospectus.
TABLE III
INVESTMENT ADVISORY AND TOTAL EXPENSE INFORMATION(1)
<TABLE>
<CAPTION>
POST-
CURRENT REORGANIZATION TOTAL FUND PRO FORMA FUND
ADVISORY FEES CONTRACTUAL CONTRACTUAL OPERATING OPERATING
FOR SIX MONTHS ADVISORY ADVISORY EXPENSES EXPENSES
NAME OF QUALIVEST PORTFOLIO ENDED 1/31/97(2) FEE RATE FEE RATE AS OF 1/31/97(3) (AFTER WAIVERS)
- ----------------------------- ---------------- ----------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Allocated $ 2,255 0.05% 0.25% 0.63% 0.25%
Conservative (Class A)
Fund 0.39%
(Class Y)
Allocated $15,575 0.05% 0.25% 0.53% 0.25%
Balanced Fund (Class A)
0.25%
(Class Y)
Allocated Growth $ 3,602 0.05% 0.25% 0.56% 0.25%
Fund (Class A)
0.29%
(Class Y)
Allocated $ 2,874 0.05% 0.25% 0.59% 0.25%
Aggressive Fund (Class A)
0.32%
(Class Y)
</TABLE>
- ------------------
(1) Fee Rates and Expense Ratios are based on a percentage of average net
assets.
(2) The Qualivest Portfolios commenced operations on May 1, 1996.
(3) Annualized, based on the six-month period ended January 31, 1997
(unaudited).
FASF FUNDS' INVESTMENT ADVISORY AGREEMENT. After the Closing, FBNA will
continue to serve as the investment adviser for each FASF Fund pursuant to the
FASF Funds' Investment Advisory Agreement. As set forth in Table III, the
contractual fee rates of the FASF Funds differ from those of the corresponding
Qualivest Portfolios. In addition, there are certain differences between the
Interim Advisory Agreement and the FASF Funds' Investment Advisory Agreement.
The significant differences
<PAGE>
between these Agreements are summarized and compared in Appendix V to this
Combined Proxy Statement/Prospectus.
INFORMATION ABOUT FBNA AND OTHER SERVICE PROVIDERS. FBNA acts as the
investment adviser to the FASF Funds through its First Asset Management group.
FBNA has acted as an investment adviser to FASF since its inception in 1996 and
has acted as investment adviser to FAIF and FAF since 1987 and 1982,
respectively. Additional information about FBNA is set forth above under
"Information Relating to the Interim Advisory Agreement - Information About
FBNA."
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, FASF has received an opinion from its counsel that FBNA and
its affiliates are not prohibited from performing the services contemplated by
the FASF Funds' Investment Advisory Agreement and the prospectus for the FASF
Funds. 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, FBNA and its affiliates 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.
The other service providers for the Qualivest Portfolios and the FASF Funds
are different, as set forth in the following table.
OTHER SERVICE PROVIDERS
FOR QUALIVEST PORTFOLIOS AND FASF FUNDS
<TABLE>
<CAPTION>
QUALIVEST PORTFOLIOS FASF FUNDS
-------------------- ----------
<S> <C> <C>
Distributor BISYS Fund Services SEI Investments Distribution Co.
Administrator BISYS Fund Services SEI Investments Management Corporation
Transfer Agent BISYS Fund Services Ohio, Inc. DST Systems, Inc.
Custodian United States National Bank First Trust National Association
of Oregon
Independent Auditors Deloitte & Touche LLP KPMG Peat Marwick LLP
</TABLE>
BISYS Fund Services, a division of BISYS Group, Inc., maintains offices at
3435 Stelzer Road, Columbus, Ohio 43219-3035. SEI Investments Distribution Co.
and SEI Investments Management Corporation, wholly owned subsidiaries of SEI
Investments Company, are located at Oaks, Pennsylvania 19456.
SHARE STRUCTURE. Both Qualivest and FASF are registered as open-end
management investment companies under the 1940 Act. Each offers its shares in a
number of separate investment portfolios, or "funds."
Qualivest is organized as a Massachusetts business trust and is subject to
the provisions of its Declaration of Trust and By-Laws. Qualivest is authorized
to issue an unlimited number of units of beneficial interest (referred to
herein as shares), without par value, which may be divided into separate
portfolios and separate classes of shares. FASF is organized as a corporation
under the laws of the State of Minnesota and is subject to the provisions of
its Articles of Incorporation and Bylaws. Although the rights of shareholders
of a Minnesota corporation vary in certain respects from the rights of a
shareholder of a Massachusetts business trust, the attributes of a share of
common stock in FASF are comparable to those of a share of beneficial interest
in Qualivest, except that there are differences with respect to voting rights.
Shares of the FASF Funds are entitled to one vote for each share held and
<PAGE>
fractional votes for fractional shares held. Shares of the Qualivest Portfolios
are entitled to one vote for each dollar of value invested and a proportionate
fractional vote for any fraction of a dollar invested. Shareholders of both the
Qualivest Portfolios and the FASF Funds will vote in the aggregate and not by
portfolio or class except as otherwise required by law or when portfolio or
class voting is permitted by their Board of Trustees/Directors. Shares of both
the Qualivest Portfolios and FASF have noncumulative voting rights. In
addition, shares of FASF have no pre-exemptive or conversion rights and shares
of the Qualivest Portfolios have only such conversion rights, exchange rights
and preemptive rights as the Board of Trustees of Qualivest may grant in its
discretion. When issued for payment or in accordance with their dividend
reinvestment plans, as described in their respective prospectuses, FASF Fund
shares and Qualivest shares are fully paid and non-assessable except, with
respect to Qualivest, as required under Massachusetts law.
Under Minnesota law, FASF Fund shareholders have no personal liability for
FASF's acts or obligations. Under Massachusetts law, shareholders of Qualivest
could, under certain circumstances, be held personally liable for the
obligations of Qualivest. However, Qualivest's Declaration of Trust provides
that shareholders shall not be subject to any personal liability for the
obligations of Qualivest. The Declaration of Trust also provides for
indemnification out of the property of a Qualivest Portfolio of any shareholder
held personally liable by reason of being or having been a shareholder of the
Portfolio. Thus, the risk of a shareholder incurring a financial loss on account
of shareholder liability is limited to circumstances in which a Qualivest
Portfolio itself would be unable to meet its obligations.
The Qualivest Portfolios offer Class A and Class Y shares in order to
allocate certain expenses, such as distribution and shareholder servicing fees
and other "class" expenses to different shareholder groups for which the fees
and expenses are incurred. The FASF Funds currently do not offer separate share
classes.
Additional information concerning the attributes of the shares issued by
Qualivest and FASF is included in their respective prospectuses, as supplemented
to the date hereof, which are incorporated herein by reference. Shareholders may
obtain copies of FASF's Articles of Incorporation and Bylaws and Qualivest's
Declaration of Trust and By-Laws from FASF upon written request at its principal
office.
DISTRIBUTION AND SHAREHOLDER SERVICE PLANS. FASF has adopted and entered
into a shareholder service plan and agreement (the "Service Agreement") pursuant
to which the distributor of the Funds' shares 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 FASF Funds. In
consideration of the services and facilities to be provided by the FASF Funds'
distributor or any service provider, each FASF Fund pays 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 FASF Fund, which fee is computed daily and paid
monthly. The shareholder servicing fee is intended to compensate the distributor
of the FASF Funds' shares for the provision of shareholders 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.
Qualivest has adopted a distribution and shareholder service plan with
respect to the Class A shares of each Qualivest Portfolio (the "Class A Plan").
The Class Y shares of the Qualivest Portfolios are not subject to a distribution
and shareholder service plan. However, each Portfolio has adopted, but not
implemented, a plan under which up to 0.25% of its average daily net assets
attributable to Class Y shares may be expended to procure shareholder services.
Pursuant to Qualivest's Class A Plan, each Portfolio is authorized to pay
or reimburse the distributor of the Class A shares for certain expenses incurred
in connection with shareholder servicing and distribution services. Payments
under the Class A Plan are calculated daily and paid monthly at an annual rate
not to exceed 0.25% of the average daily net assets of the Class A shares of
each Portfolio. Payments to the distributor of Qualivest Portfolio shares
pursuant to Qualivest's Class A Plan are used (i) to compensate banks,
broker-dealers and other institutions for providing distribution assistance
relating to Qualivest Portfolio shares, (ii) for promotional activities intended
to result in the sales of Qualivest Portfolio shares, such as to pay for the
preparation, printing and distribution of prospectuses to other than current
Qualivest Portfolio shareholders, and (iii) to compensate banks, broker-dealers
and
<PAGE>
other institutions for providing shareholder services with respect to their
customers who are, from time to time, beneficial and record holders of shares of
the Portfolios.
SHAREHOLDER TRANSACTIONS AND SERVICES. The respective purchase, redemption,
exchange, dividend and other policies and procedures of the FASF Funds and the
corresponding Qualivest Portfolios are generally similar. These policies and
procedures are more fully set forth in Appendix VI to this Combined Proxy
Statement/Prospectus.
Qualivest Portfolios' Class A and Class Y shareholders will receive the
same class of FASF Fund shares in connection with the Reorganization, as the
FASF Funds issue their shares in only one class. As shown in Appendix VI, there
are differences in the sales charge structures applicable to the Class A shares
of the Qualivest Portfolios and the FASF Fund shares to be received in the
Reorganization. The Class A shares of the Qualivest Portfolios are currently
sold with a front-end sales charge. Qualivest Portfolios' Class Y shares, and
all FASF Fund shares, are currently sold at net asset value without any
front-end or contingent deferred sales charge. NO SALES CHARGE WILL BE IMPOSED
ON ANY OF THE FASF FUND SHARES THAT ARE ISSUED TO QUALIVEST SHAREHOLDERS IN
CONNECTION WITH THE REORGANIZATION.
Purchase, redemption and exchange procedures for the Qualivest Portfolios
are generally similar to those for the FASF Funds. However, the minimum
purchase amount is lower for the Class A shares of the Qualivest Portfolios
than for the FASF Funds. The minimum purchase required to open an account
generally is $500 for the Class A shares of the Qualivest Portfolios and $1,000
for the FASF Funds. Subsequent purchases generally require a minimum payment of
$100 in both instances. Class Y shares of the Qualivest Portfolios are offered
only through trust departments of banks and through other institutional
investors for moneys that are held in a fiduciary, agency, custodial or similar
capacity.
There are also some differences in the dividend policies of the Qualivest
Portfolios and the FASF Funds. For the Allocated Conservative Fund and Allocated
Balanced Fund, and for their corresponding FASF Funds, net income dividends are
declared and paid monthly. For the Qualivest Allocated Growth Fund and Allocated
Aggressive Fund, which invest in Underlying Portfolios that in turn invest
primarily in equity securities, net income dividends are declared and paid
quarterly. For their corresponding FASF Funds, however, such dividends are
declared and paid monthly. For all Funds and Portfolios, distributions of any
net realized long-term capital gains are made at least once annually.
INFORMATION RELATING TO VOTING MATTERS
GENERAL INFORMATION. This Combined Proxy Statement/Prospectus is being
furnished in connection with the solicitation of proxies for the Meeting by the
Board of Trustees of Qualivest. It is expected that the solicitation of proxies
will be primarily by mail. Officers and service contractors of Qualivest and
FASF also may solicit proxies by telephone, telegraph or personal interview. In
this connection, FASF may retain a third party to assist in the solicitation of
proxies for the Reorganization. The cost of solicitation is estimated to be
approximately $32,000 and will be borne by FBNA. Shareholders may vote by
marking, signing, dating and returning the enclosed Proxy Ballot in the enclosed
postage-paid envelope. Any shareholder giving a proxy may revoke it at any time
before it is exercised by submitting to Qualivest a written notice of revocation
or a subsequently executed proxy or by attending the Meeting and voting in
person.
<PAGE>
Only shareholders of record at the close of business on September 2, 1997
will be entitled to vote at the Meeting. On that date, the following shares of
the Qualivest Portfolios were outstanding and entitled to be voted.
NAME OF PORTFOLIO AND CLASS SHARES ENTITLED TO VOTE
- ------------------------------ -----------------------
Allocated Conservative Fund -
Class A Shares 308,506
Class Y Shares 42,197
Allocated Balanced Fund -
Class A Shares 991,350
Class Y Shares 11,043,900
Allocated Growth Fund -
Class A Shares 1,222,580
Class Y Shares 1,128,969
Allocated Aggressive Fund -
Class A Shares 726,985
Class Y Shares 1,887,704
Shares are entitled to one vote for each dollar of value invested and a
proportionate fractional vote for any fraction of a dollar invested.
If the accompanying proxy is executed and returned in time for the Meeting,
the shares covered thereby will be voted in accordance with the proxy on all
matters that may properly come before the Meeting.
SHAREHOLDER AND BOARD APPROVALS. Pursuant to the Application, and the
conditions under which the Order was granted by the SEC, the Interim Advisory
Agreement is being submitted for the ratification and approval of the
shareholders of each of the Qualivest Portfolios. The Interim Advisory Agreement
must be ratified and approved by a majority of the outstanding shares of a
Qualivest Portfolio in order to remain effective with respect to such Portfolio.
In the event the Interim Advisory Agreement is not ratified and approved with
respect to a Qualivest Portfolio, the Interim Advisory Agreement will terminate,
the investment advisory fees accrued under such Agreement and held in escrow
with respect to that Portfolio will be returned to the Portfolio, and
Qualivest's Board of Trustees will consider what actions should be taken with
respect to management of the assets of the Qualivest Portfolio until a new
investment advisory agreement is approved by the shareholders of that Portfolio
or the Reorganization occurs.
The Reorganization Agreement is being submitted for approval at the Meeting
by the shareholders of each of the Qualivest Portfolios pursuant to the
provisions of Qualivest's Declaration of Trust. The Reorganization Agreement
must be approved for each Qualivest Portfolio by a majority of the shares
outstanding and entitled to vote of such Qualivest Portfolio, voting separately
on a portfolio-by-portfolio basis. The Reorganization Agreement provides that in
the event the Reorganization Agreement is approved with respect to some but not
all of the Qualivest Portfolios, the Board of Directors of FASF and the Board of
Trustees of Qualivest may, in the exercise of their reasonable business
judgment, either abandon the Reorganization Agreement with respect to all of the
Qualivest Portfolios or direct that the Reorganization and the other
transactions described in the Reorganization Agreement be consummated to the
extent they deem advisable.
The term "majority of the outstanding shares" of a particular Qualivest
Portfolio means the lesser of (i) 67% of the shares of the Portfolio present at
the Meeting if the holders of more than 50% of the outstanding shares of such
Portfolio are present or (ii) more than 50% of the outstanding shares of the
Portfolio, as applicable. The vote of the shareholders of the FASF Funds is not
being solicited, since their approval or consent is not necessary for the
Reorganization.
The approval of the Reorganization Agreement by the Board of Trustees of
Qualivest is discussed above under "Information Relating to the Proposed
Reorganization - Board Considerations." The Reorganization Agreement was
unanimously approved by the Board of Directors of FASF at a meeting held on
August 14, 1997.
<PAGE>
As of September 2, 1997, the officers and Trustees of Qualivest as a group
owned less than 1% of each Qualivest Portfolio. As of September 2, 1997, the
officers and Directors of FASF as a group owned less than 1% of each FASF Fund.
Table IV(A) shows the name, address and share ownership of each person known to
Qualivest to have beneficial and/or record ownership with respect to 5% or more
of a class of a Qualivest Portfolio as of September 2, 1997. Table IV(B) shows
the name, address and share ownership of each person known to FASF to have
beneficial or record ownership with respect to 5% or more of a class of a FASF
Fund as of September 2, 1997.
TABLE IV(A)
QUALIVEST PORTFOLIOS - 5% OWNERSHIP AS OF SEPTEMBER 2, 1997
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
SHARES PERCENTAGE OF PORTFOLIO
FASF FUND NAME AND ADDRESS OWNED OF CLASS POST-CLOSING
- ----------------------------- --------------------------------------- --------- ---------- ------------
<S> <C> <C> <C> <C>
Allocated Conservative Fund *Unit & Co. 126,415 14.98% 3.06%
c/o First Asset Management
601 2nd Avenue South MPFP 0505
Minneapolis, MN 55402
*TELCO 62,809 7.44% 1.52%
c/o First Asset Management
601 2nd Avenue South MPFP 0505
Minneapolis, MN 55402
*Romnia Ent. 401K Plan 214,887 25.46% 5.21%
c/o First Asset Management
601 2nd Avenue South MPFP 0505
Minneapolis, MN 55402
*Kipp and Christian 401K 91,144 10.80% 2.21%
c/o First Asset Management
601 2nd Avenue South MPFP 0505
Minneapolis, MN 55402
*Dr. Leland E. Armstrong, Sep IRA 47,408 5.62% 1.15%
c/o First Asset Management
601 2nd Avenue South MPFP 0505
Minneapolis, MN 55402
Allocated Growth Fund *UNIT & CO. 628,934 55.71% 18.65%
c/o First Asset Management
601 2nd Avenue South MPFP 0505
Minneapolis, MN 55402
*TELCO 71,542 6.34% 2.12%
c/o First Asset Management
601 2nd Avenue South MPFP 0505
Minneapolis, MN 55402
*Avonmore West, Inc. 401K 201,882 17.88% 5.98%
c/o First Asset Management
601 2nd Avenue South MPFP 0505
Minneapolis, MN 55402
*Forest City Trading CRP/Alloc. Grwth. 144,174 12.77% 4.27%
c/o First Asset Management
601 2nd Avenue South MPFP 0505
Minneapolis, MN 55402
Allocated Balanced Fund *UNIT & CO. 7,451,915 67.48% 52.90%
c/o First Asset Management
601 2nd Avenue South MPFP 0505
Minneapolis, MN 55402
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
SHARES PERCENTAGE OF PORTFOLIO
FASF FUND NAME AND ADDRESS OWNED OF CLASS POST-CLOSING
- --------------------------- ------------------------------- --------- ---------- ------------
<S> <C> <C> <C> <C>
*TELCO 1,230,437 11.14% 8.73%
c/o First Asset Management
601 2nd Avenue South MPFP 0505
Minneapolis, MN 55402
*Wachovia Bank, N.A. 2,228,765 20.18% 15.82%
Trust US Bancorp
Deferred Compensation Trust
301 North Main St.
Winston Salem, NC 27150
Allocated Aggressive Fund *UNIT & CO. 1,539,055 81.53% 45.00%
c/o First Asset Management
601 2nd Avenue South MPFP 0505
Minneapolis, MN 55402
*Forest City Trading 184,919 9.80% 5.41%
601 2nd Avenue South MPFP 0505
Minneapolis, MN 55402
</TABLE>
- ------------------
*Record holder only.
**Known to Qualivest to be beneficial owner.
TABLE IV(B)
FASF FUNDS - 5% OWNERSHIP AS OF SEPTEMBER 2, 1997
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
SHARES PERCENTAGE OF PORTFOLIO
FASF FUND NAME AND ADDRESS OWNED OF CLASS POST-CLOSING
- --------------------------------- ------------------------------------ --------- ---------- ------------
<S> <C> <C> <C> <C>
Strategy Income Fund *VAR & Co. 318,023 10.71% 7.71%
PO Box 64482
St. Paul, MN 55164-0482
*Service 145 Corp 510,572 17.19% 12.38%
Attn: Ron Heagle, Pres.
50 Green Meadow Blvd.
Eagan, MN 55121
Strategy Growth Fund *Video Professor 60,445 5.93% 1.79%
1310 Wadsworth Blvd.
Suite 100
Lakewood, CO 80215-5169
**Douglas Spedding TTEE 86,040 8.44% 2.55%
R. Douglas Spedding Trust
C/O 4380 E. Alameda Ave.
Glendale, CO 80222
Strategy Growth & Income Fund *Commercial Contractors Eqp. Inc. 143,219 6.99% 1.01%
P.O. Box 81036
Lincoln, NE 68501-1036
Strategy Aggressive Growth Fund **Douglas Spedding TTEE 83,345 10.34% 2.43%
R. Douglas Spedding Trust
C/O 4380 E. Alameda Ave.
Glendale, CO 80222
</TABLE>
- ------------------
*Record holder only.
**Known to FASF to be beneficial owner.
QUORUM. In the event that a quorum is not present at the Meeting, or in
the event that a quorum is present at the Meeting but sufficient votes to
approve the Interim Advisory Agreement or the Reorganization Agreement are not
received with respect to one or more of the Qualivest Portfolios, the persons
named as proxies may propose one or more adjournments of the Meeting to permit
further
<PAGE>
solicitation of proxies. Any such adjournment(s) will require the affirmative
vote of a majority of those shares affected by the adjournment(s) that are
represented at the Meeting in person or by proxy. If a quorum is present, the
persons named as proxies will vote those proxies which they are entitled to
vote FOR the particular proposal for which a quorum exists in favor of such
adjournment(s), and will vote those proxies required to be voted AGAINST such
proposal against any adjournment(s). A shareholder vote may be taken with
respect to one or more Qualivest Portfolios (but not the other Qualivest
Portfolios) on some or all matters before any such adjournment(s) if sufficient
votes have been received for approval. A quorum is constituted with respect to
a Qualivest Portfolio by the presence in person or by proxy of the holders of
more than 50% of the outstanding shares of the Portfolio entitled to vote at
the Meeting. For purposes of determining the presence of a quorum for
transacting business at the Meeting, abstentions will be treated as shares that
are present at the Meeting but which have not been voted. Abstentions will have
the effect of a "no" vote for purposes of obtaining the requisite approvals.
Broker "non-votes" (that is, proxies from brokers or nominees indicating that
such persons have not received instructions from the beneficial owners or other
persons entitled to vote shares on a particular matter with respect to which
the brokers or nominees do not have discretionary power) will not be treated as
shares that are present at the Meeting and, accordingly, could make it more
difficult to obtain the requisite approvals.
ANNUAL MEETINGS. Shareholder meetings are not required by Qualivest's
Declaration of Trust or other authority except, under certain circumstances, to
elect Trustees, amend the Declaration of Trust, approve an investment advisory
agreement and to satisfy certain other requirements. Qualivest is required to
call a special shareholder meeting for purposes of considering the removal of
one or more Trustees upon the written request of shareholders holding not less
than 10% of the outstanding votes of Qualivest. 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.
INTERESTS OF CERTAIN PERSONS. The following receive payments from the FASF
Funds for services rendered pursuant to contractual arrangements with the
Funds: FBNA, as the adviser of each Fund, receives payments for its investment
advisory and management services; SEI Investments Distribution Co., as the
distributor for each Fund, receives payments for providing distribution
services; SEI Investments Management Corporation, in its capacity as the
administrator for each Fund, receives payments for providing shareholder
servicing, legal and accounting and other administrative personnel and
services; DST Systems, Inc., in its capacity as transfer and dividend
disbursing agent for each Fund, receives payments for providing transfer agency
and dividend disbursing services; and First Trust National Association, a
subsidiary of New U.S. Bancorp, receives payments for providing custodial
services for each Fund, and may also act as securities lending agent in
connection with the Funds' securities lending transactions and receive, as
compensation for such securities lending services, fees based on a percentage
of the Funds' income from such securities lending transactions.
ADDITIONAL INFORMATION ABOUT FASF
Additional information about the FASF Funds is included in its Prospectus
and Statement of Additional Information dated January 31, 1997, as supplemented
through the date hereof, copies of which, to the extent not included herewith,
may be obtained without charge by writing to FASF, c/o SEI Investments
Distribution Co., Oaks, Pennsylvania 19456, or by calling 1-800-637-2548. FASF
is subject to the informational requirements of the Securities Exchange Act of
1934, as amended, and the 1940 Act, and in accordance therewith it files
reports, proxy materials and other information with the SEC. Reports and other
information filed by FASF can be inspected and copied at the Public Reference
Facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549. In addition, these materials can be inspected and copied at the SEC's
Regional Offices at 7 World Trade Center, Suite 1300, New York, New York 10048,
and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials also can be obtained from the Public
Reference Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, Washington, D.C. 20549, at prescribed
rates.
Information included in this Combined Proxy Statement/Prospectus
concerning FASF was provided by FASF.
<PAGE>
ADDITIONAL INFORMATION ABOUT QUALIVEST
Additional information about the Qualivest Portfolios is included in the
Prospectuses, dated December 1, 1996, as supplemented through the date hereof,
which have been filed with the SEC. Copies of these Prospectuses and the related
Statement of Additional Information may be obtained without charge by writing to
Qualivest Funds, c/o BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
43219-3035 or by calling 1-800-743-8637. Reports and other information filed by
Qualivest can be inspected and copied at the Public Reference Facilities
maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the offices of Qualivest Funds listed above. In addition, these materials can be
inspected and copied at the SEC's Regional Offices at 7 World Trade Center,
Suite 1300, New York, New York 10048, and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
also can be obtained from the Public Reference Branch, Office of Consumer
Affairs and Information Services, Securities and Exchange Commission,
Washington, D.C. 20549, at prescribed rates.
Information included in this Combined Proxy Statement/Prospectus concerning
Qualivest was provided by Qualivest.
FINANCIAL STATEMENTS
The audited statements of assets and liabilities, including the schedules
of portfolio investments, of the Qualivest Portfolios as of July 31, 1996, and
the related statements of operations, statements of changes in net assets and
financial highlights for the period then ended, as included in the July 31, 1996
Annual Report of Qualivest, and the audited statement of assets and liabilities
of the FASF Funds as of September 5, 1996, have been incorporated by reference
into this Combined Proxy Statement/Prospectus in reliance on the respective
reports of Deloitte & Touche LLP, independent auditors for Qualivest, and KPMG
Peat Marwick LLP, independent auditors for FASF, given on the authority of such
firms as experts in accounting and auditing. In addition, the unaudited January
31, 1997 financial statements of the Qualivest Portfolios and the unaudited
March 31, 1997 financial statements of the FASF Funds, as included in the
January 31, 1997 Semi-Annual Report of Qualivest and the March 31, 1997
Semi-Annual Report of FASF, are incorporated herein by reference.
OTHER BUSINESS
Qualivest's Board of Trustees knows of no other business to be brought
before the Meeting. However, if any other matters come before the Meeting, it is
the intention that proxies which do not contain specific restrictions to the
contrary will be voted on such matters in accordance with the judgment of the
persons named in the enclosed form of proxy.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to Qualivest Funds or to First
American Strategy Funds, Inc. in writing at the appropriate addresses on the
cover page of this Combined Proxy Statement/Prospectus or by telephoning
Qualivest at 1-800-743-8637 or FASF at 1-800-637-2548.
* * *
SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE MEETING ARE REQUESTED
TO MARK, SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED
ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. SHAREHOLDERS
ALSO MAY RETURN PROXIES BY TELEFAX OR VOTE BY TELEPHONE.
QUALIVEST FUNDS WILL FURNISH, WITHOUT CHARGE, COPIES OF ITS JULY 31, 1996
SHAREHOLDERS REPORT AND ITS JANUARY 31, 1997 SEMI-ANNUAL SHAREHOLDERS REPORT TO
ANY SHAREHOLDER UPON REQUEST ADDRESSED TO 3435 STELZER ROAD, COLUMBUS, OHIO
43219 OR BY TELEPHONE AT 1-800-743-8637.
<PAGE>
APPENDIX I
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this day 1st of August, 1997, between QUALIVEST FUNDS (the
"Trust"), a Massachusetts business trust having its principal place of business
at 3435 Stelzer Road, Columbus, Ohio 43219-3035, and FIRST BANK NATIONAL
ASSOCIATION (the "Investment Adviser"), a national banking association, having
its principal place of business at First Bank Place, 601 Second Avenue South,
Minneapolis, Minnesota 55402.
WHEREAS, the Trust is registered as an open-end, management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Trust desires to retain the Investment Adviser to furnish
investment advisory and administrative services to newly created investment
portfolios of the Trust and may retain the Investment Adviser to serve in such
capacity with respect to certain additional investment portfolios of the Trust,
all as now or hereafter may be identified in Schedule A hereto as such Schedule
may be amended from time to time (individually referred to herein as a "Fund"
and collectively referred to herein as the "Funds") and the Investment Adviser
represents that it is willing and possesses legal authority to so furnish such
services without violation of applicable laws and regulations;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Trust hereby appoints the Investment Adviser to act as
investment adviser to the Funds for the period and on the terms set forth in
this Agreement. The Investment Adviser accepts such appointment and agrees to
furnish the services herein set forth for the compensation herein provided.
Additional investment portfolios may from time to time be added to those
covered by this Agreement by the parties executing a new Schedule A which shall
become effective upon its execution and shall supersede any Schedule A having
an earlier date.
2. DELIVERY OF DOCUMENTS. The Trust has furnished the Investment Adviser
with copies properly certified or authenticated of each of the following:
(a) the Trust's Agreement and Declaration of Trust, dated as of May 19,
1994, and any and all amendments thereto or restatements thereof (such
Declaration, as presently in effect and as it shall from time to time
be amended or restated, is herein called the "Declaration of Trust");
(b) the Trust's By-Laws and any amendments thereto;
(c) resolutions of the Trust's Board of Trustees authorizing the
appointment of the Investment Adviser and approving this Agreement;
(d) the Trust's Notification of Registration on Form N-8A under the 1940
Act as filed with the Securities and Exchange Commission (the
"Commission") on May 20, 1994, and all amendments thereto;
(e) the Trust's Registration Statement on Form N-1A under the Securities
Act of 1933, as amended (the "1933 Act"), and under the 1940 Act as
filed with the Commission and all amendments thereto (the
"Registration Statement"); and
(f) the most recent Prospectus and Statement of Additional Information of
each of the Funds (such Prospectus and Statement of Additional
Information, as presently in effect, and all amendments and
supplements thereto, are herein collectively called the "Prospectus").
The Trust will furnish the Investment Adviser from time to time with copies
of all amendments of or supplements to the foregoing.
3. MANAGEMENT. Subject to the supervision of the Trust's Board of Trustees,
the Investment Adviser will provide a continuous investment program for the
Funds, including investment research and management with respect to all
securities and investments and cash equivalents in the Funds. The Investment
Adviser will determine from time to time what securities and other investments
will be
<PAGE>
purchased, retained or sold by the Trust with respect to the Funds. The
Investment Adviser will provide the services under this Agreement in accordance
with each of the Fund's investment objectives, policies, and restrictions as
stated in the Prospectus and resolutions of the Trust's Board of Trustees. The
Investment Adviser further agrees that it:
(a) will use the same skill and care in providing such services as it uses
in providing services to fiduciary accounts for which it has
investment responsibilities;
(b) will conform with all applicable Rules and Regulations of the
Commission under the 1940 Act and in addition will conduct its
activities under this Agreement in accordance with any applicable
regulations of any governmental authority pertaining to the investment
advisory activities of the Investment Adviser;
(c) will not make loans to any person to purchase or carry units of
beneficial interest ("shares") in the Trust or make loans to the
Trust;
(d) will place or cause to be placed orders for the Funds either directly
with the issuer or with any broker or dealer. In placing orders with
brokers and dealers, the Investment Adviser will attempt to obtain
prompt execution of orders in an effective manner at the most
favorable price. Consistent with this obligation and to the extent
permitted by the 1940 Act, when the execution and price offered by two
or more brokers or dealers are comparable, the Investment Adviser may,
in its discretion, purchase and sell portfolio securities to and from
brokers and dealers who provide the Investment Adviser with research
advice and other services. In no instance will portfolio securities be
purchased from or sold to BISYS Fund Services, the Investment Adviser,
or any affiliated person of the Trust, BISYS Fund Services or the
Investment Adviser, except to the extent permitted by the 1940 Act and
the Commission;
(e) will maintain all books and records with respect to the securities
transactions of the Funds and will furnish the Trust's Board of
Trustees with such periodic and special reports as the Board may
request;
(f) will treat confidentially and as proprietary information of the Trust
all records and other information relative to the Trust and the Funds
and prior, present or potential shareholders, and will not use such
records and information for any purpose other than performance of its
responsibilities and duties hereunder, except after prior notification
to and approval in writing by the Trust, which approval shall not be
unreasonably withheld and may not be withheld where the Investment
Adviser may be exposed to civil or criminal contempt proceedings for
failure to comply, when requested to divulge such information by duly
constituted authorities, or when so requested by the Trust;
(g) will maintain its policy and practice of conducting its fiduciary
functions independently. In making investment recommendations for the
Funds, the Investment Adviser's personnel will not inquire or take
into consideration whether the issuers of securities proposed for
purchase or sale for the Trust's account are customers of the
Investment Adviser or of its parent or its subsidiaries or affiliates.
In dealing with such customers, the Investment Adviser and its parent,
subsidiaries, and affiliates will not inquire or take into
consideration whether securities of those customers are held by the
Trust;
(h) will promptly review all (1) current security reports, (2) summary
reports of transactions and (3) current cash position reports upon
receipt thereof from the Trust and will report any errors or
discrepancies in such reports to the Trust or its designee within
three (3) business days; and
(i) will use its best efforts to obtain and provide to the Trust's fund
accountant (1) dealer quotations, (2) prices from a pricing service,
(3) matrix prices, or (4) any other price information believed to be
reliable by the Investment Adviser with respect to any security held
by a Fund, when requested to do so by the Trust's fund accountant.
4. SERVICES NOT EXCLUSIVE. The investment management services furnished by
the Investment Adviser hereunder are not to be deemed exclusive, and the
Investment Adviser shall be free to furnish similar services to others so long
as its services under this Agreement are not impaired thereby.
5. BOOKS AND RECORDS. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Investment Adviser hereby agrees that all records which
it maintains for the Funds are the property of the Trust and further agrees to
surrender promptly to the Trust any of such records upon the Trust's
<PAGE>
request. The Investment Adviser further agrees to preserve for the periods
prescribed by Rule 31a-2 under the 1940 Act the following records: (a)
completed trade tickets for all portfolio transactions, (b) broker
confirmations for individual and block trades, (c) credit files relating to (i)
money market securities and their issuers, (ii) repurchase agreement
counterparties and (iii) letter of credit providers, (d) transaction records
indicating the method of allocation with respect to the selection of brokers,
and (e) such other records that may be deemed necessary and appropriate by the
parties to this Agreement.
6. EXPENSES. During the term of this Agreement, the Investment Adviser
will pay all expenses incurred by it in connection with its activities under
this Agreement other than the cost of securities (including brokerage
commissions, if any) purchased for the Funds.
7. COMPENSATION. For the services provided and the expenses assumed
pursuant to this Agreement, each of the Funds will pay the Investment Adviser
and the Investment Adviser will accept as full compensation therefor a fee as
set forth on Schedule A hereto. The obligation of each Fund to pay the
above-described fee to the Adviser will begin as of the date of the initial
public sale of shares in such Fund. The fee attributable to each Fund shall be
the obligation of that Fund and not of any other Fund.
Pursuant to the terms of an order of exemption granted by the Commission
in QUALIVEST FUNDS, ET AL., Investment Company Act Rel. No. 22771 (July 29,
1997), all fees payable under this Agreement by any Fund shall be payable to an
independent escrow agent to be maintained in an interest-bearing escrow account
until this Agreement is approved by shareholders in accordance with the
provisions of Section 9 of this Agreement. If shareholders of any Fund fail to
approve this Agreement, the escrow agent will pay to the Fund the applicable
escrow amounts (including interest earned). The escrow agent will release the
escrow funds only upon receipt of a certificate from officers of the Trust
stating whether the escrowed funds are to be delivered to the Investment
Adviser or to the Fund.
If in any fiscal year the aggregate expenses of any of the Funds (as
defined under the securities regulations of any state having jurisdiction over
the Trust) exceed the expense limitations of any such state, the Investment
Adviser will reimburse the Fund for a portion of such excess expenses equal to
such excess times the ratio of the fees otherwise payable by the Fund to the
Investment Adviser hereunder to the aggregate fees otherwise payable by the
Fund to the Investment Adviser hereunder and to BISYS Fund Services under the
Management and Administration Agreement between BISYS Fund Services and the
Trust. The obligation of the Investment Adviser to reimburse the Funds
hereunder is limited in any fiscal year to the amount of its fee hereunder for
such fiscal year, provided, however, that notwithstanding the foregoing, the
Investment Adviser shall reimburse the Funds for such proportion of such excess
expenses regardless of the amount of fees paid to it during such fiscal year to
the extent that the securities regulations of any state having jurisdiction
over the Trust so require. Such expense reimbursement, if any, will be
estimated daily and reconciled and paid on a monthly basis.
8. LIMITATION OF LIABILITY. The Investment Adviser shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the Funds
in connection with the performance of this Agreement, except a loss resulting
from a breach of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Investment Adviser in the performance of its
duties or from reckless disregard by it of its obligations and duties under
this Agreement. It is further agreed that the Investment Adviser shall have no
responsibility or liability for the accuracy or completeness of the Trust's
Registration Statement under the 1940 Act and the 1933 Act, except for
information supplied by the Investment Adviser for inclusion therein or
information known by the Investment Adviser to be false or misleading. The
Trust agrees to indemnify the Investment Adviser to the full extent permitted
by the Trust's Declaration of Trust.
9. DURATION AND TERMINATION. This Agreement will become effective with
respect to each Fund listed on Schedule A as of the date first written above
(or, if a particular Fund is not in existence on that date, on the date a
registration statement relating to that Fund becomes effective with the
Commission) and, unless sooner terminated as provided herein, shall continue in
effect for an initial period of 120 days, provided that this Agreement is
approved by a majority of the outstanding voting securities of the applicable
Fund. Thereafter, if not terminated, this Agreement shall continue in effect as
to a particular Fund for successive one-year terms, only so long as such
continuance is specifically approved at least
<PAGE>
annually (a) by the vote of a majority of those members of the Trust's Board of
Trustees who are not parties to this Agreement or interested persons of any
party to this Agreement, cast in person at a meeting called for the purpose of
voting on such approval, and (b) by the vote of a majority of the Trust's Board
of Trustees or by the vote of a majority of all votes attributable to the
outstanding shares of such Fund. Notwithstanding the foregoing, this Agreement
may be terminated as to a particular Fund at any time on sixty days' written
notice, without the payment of any penalty, by the Trust (by vote of the
Trust's Board of Trustees or by vote of a majority of the outstanding voting
securities of such Fund) or by the Investment Adviser. This Agreement will
immediately terminate in the event of its assignment. (As used in this
Agreement, the terms "majority of the outstanding voting securities",
"interested persons" and "assignment" shall have the same meanings as ascribed
to such terms in the 1940 Act.)
10. INVESTMENT ADVISER'S REPRESENTATIONS. The Investment Adviser hereby
represents and warrants that it is willing and possesses all requisite legal
authority to provide the services contemplated by this Agreement without
violation of applicable laws and regulations.
11. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
12. GOVERNING LAW. This Agreement shall be governed by and its provisions
shall be construed in accordance with the laws of the Commonwealth of
Massachusetts.
13. MISCELLANEOUS. It is expressly agreed that the obligations of the
Trust hereunder shall not be binding upon any of the Trustees, shareholders,
nominees, officers, agents or employees of the Trust personally, but shall bind
only the trust property of the Trust. The execution and delivery of this
Agreement have been authorized by the Trustees, and this Agreement has been
signed and delivered by an authorized officer of the Trust, acting as such, and
neither such authorization by the Trustees nor such execution and delivery by
such officer shall be deemed to have been made by any of them individually or
to impose any liability on any of them personally, but shall bind only the
trust property of the Trust as provided in the Trust's Agreement and
Declaration of Trust.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
[SEAL] QUALIVEST FUNDS
By:
------------------------------------
Title:
---------------------------------
[SEAL] FIRST BANK NATIONAL ASSOCIATION
By:
------------------------------------
Title:
---------------------------------
<PAGE>
Dated: August 1, 1997
SCHEDULE A
TO THE INVESTMENT ADVISORY AGREEMENT
BETWEEN QUALIVEST FUNDS AND
FIRST BANK NATIONAL ASSOCIATION
<TABLE>
<CAPTION>
NAME OF FUND COMPENSATION
------------ -------------
<S> <C>
Qualivest U.S. Treasury Money Market Fund Annual rate of thirty five one-hundredths of one
percent (.35%) of the average daily net assets of
such Fund.
Qualivest Money Market Fund Annual rate of thirty five one-hundredths of one
percent (.35%) of the average daily net assets of
such Fund.
Qualivest Tax-Free Money Market Fund Annual rate of thirty five one-hundredths of one
percent (.35%) of the average daily net assets of
such Fund.
Qualivest Intermediate Bond Fund Annual rate of sixty one-hundredths of one percent
(.60%) of the average daily net assets of such Fund.
Qualivest Diversified Bond Fund Annual rate of sixty one-hundredths of one percent
(.60%) of the average daily net assets of such Fund.
Qualivest Tax-Free National Bond Fund Annual rate of fifty one-hundredths of one percent
(.50%) of the average daily net assets of such Fund.
Qualivest Large Companies Growth Fund Annual rate of one percent (1.00%) of the average
daily net assets of such Fund.
Qualivest MicroCap Value Fund Annual rate of one percent (1.00%) of the average
daily net assets of such Fund.
Qualivest Small Companies Value Fund Annual rate of eighty one-hundredths of one percent
(.80%) of the average daily net assets of such Fund.
Qualivest Large Companies Value Fund Annual rate of seventy five one-hundredths of one
percent (.75%) of the average daily net assets of
such Fund.
Qualivest Income Equity Value Fund Annual rate of sixty one-hundredths of one percent
(.60%) of the average daily net assets of such Fund.
Qualivest International Opportunities Fund Annual rate of sixty one-hundredths of one percent
(.60%) of the average daily net assets of such Fund.
Qualivest Optimized Stock Fund Annual rate of fifty one-hundredths of one percent
(.50%) of the average daily net assets of such Fund.
Qualivest Allocated Conservative Fund Annual rate of five one-hundredths of one percent
(.05%) of the average daily net assets of such Fund.
Qualivest Allocated Balanced Fund Annual rate of five one-hundredths of one percent
(.05%) of the average daily net assets of such Fund.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAME OF FUND COMPENSATION
------------ ------------
<S> <C>
Qualivest Allocated Growth Fund Annual rate of five one-hundredths of one percent
(.05%) of the average daily net assets of such Fund.
Qualivest Allocated Aggressive Fund Annual rate of five one-hundredths of one percent
(.05%) of the average daily net assets of such Fund.
</TABLE>
- ------------------
All fees are computed daily and paid monthly.
QUALIVEST FUNDS
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
FIRST BANK NATIONAL ASSOCIATION
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
<PAGE>
APPENDIX II
PRINCIPAL EXECUTIVE OFFICER AND DIRECTORS OF
FIRST BANK NATIONAL ASSOCIATION
The directors and the principal executive officer of FBNA are listed
below, together with their addresses and principal occupations.
<TABLE>
<CAPTION>
OTHER POSITIONS AND OFFICES
NAME POSITIONS AND OFFICES WITH FBNA AND PRINCIPAL BUSINESS ADDRESS
- ---- -------------------------------------- ------------------------------------
<S> <C> <C>
John F. Grundhofer Chairman, President and Chief President and Chief Executive
Executive Officer Officer of U.S. Bancorp*
Richard A. Zona Director and Vice Chairman-Finance Vice Chairman-Finance of U.S.
Bancorp*
Philip G. Heasley Director and Vice Chairman Vice Chairman and Group Head of
the Retail Product Group of U.S.
Bancorp*
Daniel C. Rohr Director and Executive Vice President Executive Vice President,
Commercial Banking Group of U.S.
Bancorp*
J. Robert Hoffman Director, Executive Vice President and Executive Vice President and Chief
Chief Credit Officer Credit Officer of U.S. Bancorp*
Lee R. Mitau Director, Executive Vice President, Executive Vice President, General
General Counsel and Secretary Counsel and Secretary of U.S.
Bancorp*
Susan E. Lester Director, Executive Vice President and Executive Vice President and Chief
Chief Financial Officer Financial Officer of U.S. Bancorp*
Robert D. Sznewajs Director and Vice Chairman Vice Chairman of U.S. Bancorp*
Gary T. Duim Director and Vice Chairman Vice Chairman of U.S. Bancorp*
</TABLE>
- ------------------
* Address: 601 Second Avenue South, Minneapolis, Minnesota 55402.
<PAGE>
APPENDIX III
AGREEMENT AND PLAN OF REORGANIZATION
BY AND BETWEEN
FIRST AMERICAN STRATEGY FUNDS, INC.
AND QUALIVEST FUNDS
DATED: AS OF , 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C> <C>
1. CONVEYANCE OF ASSETS OF QUALIVEST FUNDS ...................... 2
2. LIQUIDATION OF QUALIVEST FUNDS ............................... 3
3. EFFECTIVE TIME OF THE REORGANIZATION ......................... 3
4. CERTAIN REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF
QUALIVEST .................................................. 4
5. CERTAIN REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF FASF ... 6
6. SHAREHOLDER ACTION ........................................... 7
7. REGULATORY FILINGS ........................................... 8
8. FASF CONDITIONS .............................................. 8
9. QUALIVEST CONDITIONS ......................................... 10
10. FURTHER ASSURANCES ........................................... 11
11. INDEMNIFICATION .............................................. 11
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES ................... 11
13. TERMINATION OF AGREEMENT ..................................... 12
14. AMENDMENT AND WAIVER ......................................... 12
15. GOVERNING LAW ................................................ 12
16. SUCCESSORS AND ASSIGNS ....................................... 12
17. BENEFICIARIES ................................................ 12
18. BROKERAGE FEES AND EXPENSES .................................. 12
19. QUALIVEST LIABILITY .......................................... 12
20. NOTICES ...................................................... 12
21. ANNOUNCEMENTS ................................................ 13
22. ENTIRE AGREEMENT ............................................. 13
23. COUNTERPARTS ................................................. 13
</TABLE>
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this day of , 1997 by and between Qualivest Funds ("Qualivest"), a
Massachusetts business trust consisting of multiple investment portfolios
including, among others, Allocated Conservative Fund, Allocated Balanced Fund,
Allocated Growth Fund and Allocated Aggressive Fund (the "Qualivest Funds") and
First American Strategy Funds, Inc. ("FASF"), a Minnesota corporation
consisting of the following investment portfolios: Strategy Income Fund,
Strategy Growth and Income Fund, Strategy Growth Fund and Strategy Aggressive
Growth Fund (the "FASF Funds").
WHEREAS, each of Qualivest and FASF is an open-end management investment
company registered with the Securities and Exchange Commission (the "SEC")
under the Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the parties desire that the assets and liabilities of each
Qualivest Fund be conveyed to, and be acquired and assumed by, the respective
FASF Fund corresponding thereto, as stated herein, in exchange for shares of
specified classes of the corresponding FASF Fund which shall thereafter
promptly be distributed by Qualivest to the shareholders of the corresponding
classes of the Qualivest Fund in connection with its liquidation as described
in this Agreement (the "Reorganization"); and
<PAGE>
WHEREAS, Qualivest maintains nine additional investment portfolios that
have commenced operations - U.S. Treasury Money Market Fund, Money Market Fund,
Tax-Free Money Market Fund, Large Companies Value Fund, Small Companies Value
Fund, Optimized Stock Fund, Intermediate Bond Fund, Diversified Bond Fund and
International Opportunities Fund - that are not parties to the Reorganization,
but are being reorganized into series of First American Investment Funds, Inc.
or First American Funds, Inc.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth and subject to the terms and conditions hereof, the
parties hereto, intending to be legally bound, agree as follows:
1. CONVEYANCE OF ASSETS OF QUALIVEST FUNDS. (a) At the Effective Time of
the Reorganization, as defined in Section 3, all assets of every kind, and all
interests, rights, privileges and powers of each of the Qualivest Funds, subject
to all liabilities of such Portfolios, whether accrued, absolute, contingent or
otherwise existing as of the Effective Time of the Reorganization, which
liabilities shall include any obligation of the Qualivest Funds to indemnify
Qualivest's trustees and officers acting in their capacities as such to the
fullest extent permitted by law and Qualivest's Declaration of Trust as in
effect on the date hereof (such assets subject to such liabilities are herein
referred to as the "Fund Assets"), shall be transferred and conveyed by each
Qualivest Fund to the corresponding FASF Fund (as set forth below) and shall be
accepted and assumed by such FASF Fund as more particularly set forth in this
Agreement, such that at and after the Effective Time of the Reorganization: (i)
all assets of the Qualivest Funds shall become and be the assets of the
respective corresponding FASF Funds; and (ii) all liabilities of the Qualivest
Funds shall attach to the respective corresponding FASF Funds as aforesaid and
may thenceforth be enforced against the respective FASF Funds to the same extent
as if incurred by them.
(b) Without limiting the generality of the foregoing, it is understood that
the Fund Assets shall include all property and assets of any nature whatsoever,
including, without limitation, all cash, cash equivalents, securities, claims
(whether absolute or contingent, known or unknown, accrued or unaccrued) and
receivables (including dividend and interest receivables) owned by each
Qualivest Fund, and any deferred or prepaid expenses shown as an asset on each
Qualivest Fund's books, at the Effective Time of the Reorganization, and all
goodwill, all other intangible property and all books and records belonging to
the Qualivest Funds. Notwithstanding anything herein to the contrary, FASF shall
not be deemed to have assumed any liability of Qualivest to FASF that arises as
a result of the breach of any of the representations, warranties and agreements
of Qualivest set forth in Section 4, hereof.
(c) In particular, the Fund Assets of each Qualivest Fund shall be
transferred and conveyed to the corresponding FASF Fund, as set forth below:
QUALIVEST FUND CORRESPONDING FASF FUND
- -------------- -----------------------
Allocated Conservative Fund Strategy Income Fund
Allocated Balanced Fund Strategy Growth and Income Fund
Allocated Growth Fund Strategy Growth Fund
Allocated Aggressive Fund Strategy Aggressive Growth Fund
(d) In exchange for the transfer of the Fund Assets, each FASF Fund shall
simultaneously issue to each corresponding Qualivest Fund at the Effective Time
of the Reorganization full and fractional shares of common stock in the FASF
Fund having an aggregate net asset value equal to the net value of the Fund
Assets so conveyed, all determined and adjusted as provided in this Section 1.
In particular, each FASF Fund shall deliver to the corresponding Qualivest Fund
the number of shares, including fractional shares, determined by dividing the
value of the Fund Assets of the corresponding Qualivest Fund that are so
conveyed computed in the manner and as of the time and date set forth in this
Section, by the net asset value of one FASF Fund share, computed in the manner
and as of the time and date set forth in this Section.
(e) The net asset value of shares to be delivered by the FASF Funds, and
the net value of the Fund Assets to be conveyed by the Qualivest Funds, shall,
in each case, be determined as of the Effective Time of the Reorganization. The
net asset value of shares of the FASF Funds shall be computed in the manner set
forth in the FASF Funds' then current prospectuses under the Securities Act of
1933, as amended
<PAGE>
(the "1933 Act"). The net value of the Fund Assets to be transferred by the
Qualivest Funds shall be computed by Qualivest and shall be subject to
adjustment by the amount, if any, agreed to by FASF and the respective
Qualivest Funds. In determining the value of the securities transferred by the
Qualivest Funds to the FASF Funds, each security shall be priced in accordance
with the pricing policies and procedures of FASF as described in its then
current prospectus. For such purposes, price quotations and the security
characteristics relating to establishing such quotations shall be determined by
Qualivest, provided that such determination shall be subject to the approval of
FASF. Qualivest and FASF agree to use all commercially reasonable efforts to
resolve any material pricing differences between the prices of portfolio
securities determined in accordance with the pricing policies and procedures of
Qualivest and those determined in accordance with the pricing policies and
procedures of FASF prior to the Effective Time of the Reorganization.
(f) The holders of both Class A and Class Y shares of each Qualivest Fund
will receive in the Reorganization shares of the single currently outstanding
class of shares of the corresponding FASF Fund.
2. LIQUIDATION OF QUALIVEST FUNDS. At the Effective Time of the
Reorganization, each of the Qualivest Funds shall make a liquidating
distribution to its shareholders as follows. Shareholders of record of each
Qualivest Fund shall be credited with full and fractional shares of the class
of common stock that is issued by the corresponding FASF Fund in connection
with the Reorganization with respect to the shares that are held of record by
the shareholder. In addition, each shareholder of record of a Qualivest Fund
shall have the right to receive any unpaid dividends or other distributions
which were declared before the Effective Time of the Reorganization with
respect to the shares of such Qualivest Fund that are held by the shareholder
at the Effective Time of the Reorganization. In accordance with instructions it
receives from Qualivest, FASF shall record on its books the ownership of the
respective FASF Fund shares by the shareholders of record of the Qualivest
Funds. All of the issued and outstanding shares of the Qualivest Funds at the
Effective Time of the Reorganization shall be redeemed and canceled on the
books of Qualivest at such time. After the Effective Time of the
Reorganization, Qualivest shall wind up the affairs of the Qualivest Funds and
shall file any final regulatory reports, including but not limited to any Form
N-SAR and Rule 24f-2 filings with respect to the Qualivest Funds and, assuming
the nine other investment portfolios of Qualivest have been reorganized into
series of First American Funds, Inc. or First American Investment Funds, Inc.,
an application pursuant to Section 8(f) of the 1940 Act for an order declaring
that Qualivest has ceased to be an investment company.
3. EFFECTIVE TIME OF THE REORGANIZATION. (a) Delivery of the Fund Assets
and the shares of the FASF Funds to be issued pursuant to Section 1 and the
liquidation of the Qualivest Funds pursuant to Section 2 (the "Closing") shall
occur after the close of normal trading on the New York Stock Exchange (the
"Exchange") (currently, 4:00 p.m. Eastern time), and after (i) the declaration
of any dividends or distributions on such date and (ii) the closing of the
reorganization of the other investment portfolios of Qualivest into series of
First American Investment Funds, Inc. or First American Funds, Inc., on November
21, 1997, or at such time on such later date as provided herein or as the
parties otherwise may agree in writing. (The date and time at which such actions
are taken are referred to herein as the "Effective Time of the Reorganization.")
To the extent any Fund Assets are, for any reason, not transferred at the
Effective Time of the Reorganization, Qualivest shall cause such Fund Assets to
be transferred in accordance with this Agreement at the earliest practicable
date thereafter. All acts taking place at the Closing shall be deemed to take
place simultaneously as of the Effective Time of the Reorganization unless
otherwise agreed to by the parties. The Closing shall be held at the offices of
Dorsey & Whitney LLP, 220 South Sixth Street, Minneapolis, Minnesota 55402, or
at such other place as the parties may agree.
(b) In the event the Effective Time of the Reorganization occurs on a day
on which (i) the Exchange or another primary trading market for portfolio
securities of the FASF Funds or the Qualivest Funds shall be closed to trading
or trading thereon shall be restricted, or (ii) trading or the reporting of
trading on the Exchange or elsewhere shall be disrupted so that accurate
appraisal of the value of the net assets of the FASF Funds or the Qualivest
Funds is impracticable, the Effective Time of the Reorganization shall be
postponed until the close of normal trading on the Exchange on the first
business day when trading shall have been fully resumed and reporting shall have
been restored.
<PAGE>
4. CERTAIN REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF QUALIVEST.
Qualivest, on behalf of itself and the Qualivest Funds, represents and warrants
to, and agrees with, FASF as follows, such representations, warranties and
agreements being made on behalf of each Qualivest Fund on a several (and not
joint, or joint and several) basis:
(a) It is a Massachusetts business trust duly created pursuant to its
Declaration of Trust for the purpose of acting as a management investment
company under the 1940 Act, and is validly existing under the laws of the
Commonwealth of Massachusetts. It is registered as an open-end management
investment company under the 1940 Act, and its registration with the SEC as an
investment company is in full force and effect.
(b) It has the power to own all of its properties and assets and, subject
to the approvals of shareholders referred to in Section 6, to carry out and
consummate the transactions contemplated herein, and has all necessary federal,
state and local authorizations to carry on its business as now being conducted
and, except as stated in Section 4(j), below, to consummate the transactions
contemplated by this Agreement.
(c) This Agreement has been duly authorized, executed and delivered by it,
and represents a valid and binding contract, enforceable in accordance with its
terms, subject as to enforcement to bankruptcy, insolvency, reorganization,
moratorium or other similar laws of general application relating to or
affecting creditors' rights and to the application of general principles of
equity. The execution and delivery of this Agreement does not, and, subject to
the approval of shareholders referred to in Section 6, the consummation of the
transactions contemplated by this Agreement will not, violate Qualivest's
Declaration of Trust or By-Laws or any agreement or arrangement to which it is
a party or by which it is bound.
(d) Each Qualivest Fund has elected to qualify and has qualified as a
regulated investment company under Part I of Subchapter M of Subtitle A,
Chapter 1, of the Internal Revenue Code of 1986, as amended (the "Code"), as of
and since its first taxable year; has been a regulated investment company under
such Part of the Code at all times since the end of its first taxable year when
it so qualified; and qualifies and shall continue to qualify as a regulated
investment company for its taxable year ending upon its liquidation.
(e) The audited financial statements for its fiscal period ended July 31,
1996, and the unaudited financial statements for the period ended January 31,
1997, copies of which have been previously furnished to FASF, present fairly
the financial position of the Qualivest Funds as of such dates and the results
of their operations and changes in their net assets for the periods indicated,
in conformity with generally accepted accounting principles applied on a
consistent basis. To the best of Qualivest's knowledge, there are no
liabilities of a material amount of any Qualivest Fund, whether accrued,
absolute, contingent or otherwise existing, other than: (i) as of January 31,
1997, liabilities disclosed or provided for in the unaudited financial
statements for the period ended January 31, 1997 and liabilities incurred in
the ordinary course of business subsequent to January 31, 1997 and (ii) as of
the Effective Time of the Reorganization, liabilities disclosed or provided for
in the statement of assets and liabilities of each Qualivest Fund that is
delivered to FASF pursuant to Section 8(b) of this Agreement and liabilities
incurred in the ordinary course of business.
(f) Since the end of its most recently concluded fiscal year, there have
been no material changes by any Qualivest Fund in accounting methods,
principles or practices, including those required by generally accepted
accounting principles, except as disclosed in writing to FASF.
(g) It has valued, and will continue to value, its portfolio securities
and other assets in accordance with applicable legal requirements.
(h) There are no material legal, administrative or other proceedings
pending or, to its knowledge, threatened, against it or the Qualivest Funds
which could result in liability on the part of Qualivest or the Qualivest Funds
and Qualivest knows of no facts that might form the basis of a legal,
administrative or other proceeding which, if adversely determined, would
materially and adversely affect any Qualivest Fund's financial condition or the
conduct of its business and Qualivest is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental body
that materially and
<PAGE>
adversely affects, or is reasonably likely to materially and adversely affect,
its business or its ability to consummate the transactions contemplated herein.
(i) At the Effective Time of the Reorganization, all federal and other tax
returns and reports of each Qualivest Fund required by law to have been filed by
such time shall have been filed, and all federal and other taxes shall have been
paid so far as due, or provision shall have been made for the payment thereof
and, to the best of Qualivest's knowledge, no such return or report shall be
currently under audit and no assessment shall have been asserted with respect to
such returns or reports.
(j) Subject to the approvals of shareholders referred to in Section 6, at
the Effective Time of the Reorganization, it shall have full right, power and
authority to sell, assign, transfer and deliver the Fund Assets and, upon
delivery and payment for the Fund Assets as contemplated herein, the FASF Funds
shall acquire good and marketable title thereto, subject to no restrictions on
the ownership or transfer thereof, except as imposed by federal or state
securities laws or as disclosed to FASF in writing prior to the Effective Time
of the Reorganization.
(k) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by it of the
transactions contemplated by this Agreement, except such as may be required
under the 1933 Act, the Securities Exchange Act of 1934, as amended (the "1934
Act"), the 1940 Act, the rules and regulations under those Acts, or state
securities laws, all of which shall have been received prior to the Effective
Time of the Reorganization, except for such consents, approvals, authorizations
or orders as may be required subsequent to the Effective Time of the
Reorganization.
(l) Insofar as the following relate to it, (i) the registration statement
filed by FASF on Form N-14 relating to the shares of the FASF Funds that will be
registered with the SEC pursuant to this Agreement, which shall include or
incorporate by reference the proxy statement of the Qualivest Funds and
prospectus of the FASF Funds with respect to the transactions contemplated by
this Agreement, and any supplement or amendment thereto or to the documents
contained or incorporated therein by reference (the "N-14 Registration
Statement"), and (ii) the proxy materials of Qualivest included in the N-14
Registration Statement and filed with the SEC pursuant to Section 14(a) of the
1934 Act and Section 20(a) of the 1940 Act with respect to the transactions
contemplated by this Agreement, and any supplement or amendment thereto or the
documents appended thereto (the "Reorganization Proxy Materials"), from their
respective effective and clearance dates with the SEC, through the time of the
shareholders meeting referred to in Section 6 and at the Effective Time of the
Reorganization: (i) shall comply in all material respects with the provisions of
the 1933 Act, 1934 Act and the 1940 Act, and the rules and regulations
thereunder, and (ii) shall not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; provided, that the representations
and warranties made by it in this subsection shall not apply to statements in or
omissions from the N-14 Registration Statement or the Reorganization Proxy
Materials made in reliance upon and in conformity with information furnished by
or on behalf of FASF for use therein as provided in Section 7. For these
purposes, information shall be considered to have been provided "on behalf" of
FASF if furnished by its investment adviser, administrator, custodian or
transfer agent, acting in their capacity as such.
(m) All of the issued and outstanding shares of each of the Qualivest Funds
have been validly issued and are fully paid and non-assessable (recognizing
that, under Massachusetts law, shareholders of the Qualivest Funds could, under
certain circumstances, be held personally liable for obligations of Qualivest),
and were offered for sale and sold in conformity with the registration
requirements of all applicable federal and state securities laws.
(n) It shall not sell or otherwise dispose of any shares of the FASF Funds
to be received in the transactions contemplated herein, except in distribution
to its shareholders as contemplated herein.
(o) It shall operate its business in the ordinary course between the date
hereof and the Effective Time of the Reorganization. It is understood that such
ordinary course of business will include the declaration and payment of
customary dividends and distributions and any other dividends and distributions
deemed advisable.
<PAGE>
(p) Any reporting responsibility of a Qualivest Fund is and shall remain
the responsibility of the Qualivest Fund for all periods before and including
the Effective Time of the Reorganization and such later date on which the
Qualivest Fund is terminated.
(q) Except for agreements or other arrangements relating to the purchase
and sale of portfolio securities, it has furnished FASF with copies or
descriptions of all contracts to which it is a party.
(r) Each Qualivest Fund shall provide a list of all portfolio securities
held by it to FASF at least fifteen days before the Effective Time of the
Reorganization and shall immediately notify FASF's investment adviser of any
portfolio security thereafter acquired or sold by the Qualivest Fund. At the
Effective Time of the Reorganization, no Qualivest Fund shall hold any portfolio
security that is impermissible under the investment policies, objectives and
limitations of the corresponding FAIF Fund.
5. CERTAIN REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF FASF. FASF, on
behalf of the FASF Funds, represents and warrants to, and agrees with, Qualivest
as follows, such representations, warranties and agreements being made on behalf
of each FASF Fund on a several (and not joint, or joint and several) basis:
(a) It is a Minnesota corporation duly created pursuant to its Articles of
Incorporation for the purpose of acting as a management investment company under
the 1940 Act, and is validly existing under the laws of the State of Minnesota.
It is registered as an open-end management investment company under the 1940 Act
and its registration with the SEC as an investment company is in full force and
effect.
(b) It has the power to own all of its properties and assets and to
consummate the transactions contemplated herein, and has all necessary federal,
state and local authorizations to carry on its business as now being conducted
and, except as stated in Section 5(j) below, to consummate the transactions
contemplated by this Agreement.
(c) This Agreement has been duly authorized, executed and delivered by it,
and represents a valid and binding contract, enforceable in accordance with its
terms, subject as to enforcement to bankruptcy, insolvency, reorganization,
moratorium or other similar laws of general application relating to or affecting
creditors' rights and to the application of general principles of equity. The
execution and delivery of this Agreement does not, and the consummation of the
transactions contemplated by this Agreement will not, violate FASF's Articles of
Incorporation or Bylaws or any agreement or arrangement to which it is a party
or by which it is bound.
(d) Each FASF Fund has elected to qualify and has qualified as a regulated
investment company under Part I of Subchapter M of Subtitle A, Chapter 1, of
the Code, as of and since its first taxable year; has been a regulated
investment company under such Part of the Code at all times since the end of
its first taxable year when it so qualified; and qualifies and shall continue
to qualify as a regulated investment company for its current taxable year.
(e) The unaudited financial statements for the period ended March 31, 1997,
copies of which have been previously furnished to Qualivest, present fairly the
financial position of the FASF Funds as of such dates and the results of their
operations for the periods indicated, in conformity with generally accepted
accounting principles applied on a consistent basis. To the best of FASF's
knowledge, there are no liabilities of a material amount of any FASF Fund,
whether accrued, absolute, contingent or otherwise existing, other than, as of
March 31, 1997, liabilities disclosed or provided for in the unaudited financial
statements for the period ended March 31, 1997, and liabilities incurred in the
ordinary course of business subsequent to March 31, 1997.
(f) It has valued, and will continue to value, its portfolio securities and
other assets in accordance with applicable legal requirements.
(g) There are no material contracts outstanding with respect to the FASF
Funds that have not been disclosed in FASF's current registration statement and
which under applicable law are required to be disclosed therein.
(h) At the Effective Time of the Reorganization, all federal and other tax
returns and reports of each FASF Fund required by law to have been filed by such
time shall have been filed, and all federal
<PAGE>
and other taxes shall have been paid so far as due, or provisions shall have
been made for the payment thereof and, to the best knowledge of each FASF Fund,
no such return or report shall be currently under audit and no assessment shall
have been asserted with respect to such returns or reports.
(i) There are no material legal, administrative or other proceedings
pending or, to its knowledge threatened, against it or the FASF Funds which
could result in liability on the part of FASF or the FASF Funds and FASF knows
of no facts that might form the basis of a legal, administrative or other
proceeding which, if adversely determined, would materially and adversely affect
any FASF Fund's financial condition or the conduct of its business and FASF is
not a party to or subject to the provisions of any order, decree or judgment of
any court or governmental body that materially and adversely affects, or is
reasonably likely to materially and adversely affect, its business or its
ability to consummate the transactions contemplated herein.
(j) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by FASF of the
transactions contemplated by this Agreement, except such as may be required
under the 1933 Act, the 1934 Act, the 1940 Act, the rules and regulations under
those Acts, or state securities laws, all of which shall have been received
prior to the Effective Time of the Reorganization, except for such consents,
approvals, authorizations or orders as may be required subsequent to the
Effective Time of the Reorganization.
(k) The N-14 Registration Statement and the Reorganization Proxy Materials,
from their respective effective and clearance dates with the SEC, through the
time of the shareholders meeting referred to in Section 6 and at the Effective
Time of the Reorganization, insofar as they relate to FASF (i) shall comply in
all material respects with the provisions of the 1933 Act, 1934 Act and the 1940
Act, and the rules and regulations thereunder, and (ii) shall not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements made therein not
misleading; provided, that the representations and warranties in this subsection
shall not apply to statements in or omissions from the N-14 Registration
Statement or the Reorganization Proxy Materials made in reliance upon and in
conformity with information furnished by or on behalf of Qualivest for use
therein as provided in Section 7. For those purposes, information shall be
considered to have been provided "on behalf" of Qualivest if furnished by its
investment adviser, administrator, custodian or transfer agent, acting in their
capacity as such.
(l) The shares of the FASF Funds to be issued and delivered to the
Qualivest Funds for the account of the shareholders of the Qualivest Funds,
pursuant to the terms hereof, shall have been duly authorized as of the
Effective Time of the Reorganization and, when so issued and delivered, shall be
duly and validly issued, fully paid and non-assessable, and no shareholder of
FASF shall have any preemptive right of subscription or purchase in respect
thereto.
(m) All of the issued and outstanding shares of each of the FASF Funds have
been validly issued and are fully paid and non-assessable, and were offered for
sale and sold in conformity with the registration requirements of all applicable
federal and state securities laws.
(n) It shall operate its business in the ordinary course between the date
hereof and the Effective Time of the Reorganization. It is understood that such
ordinary course of business will include the declaration and payment of
customary dividends and distributions and any other dividends and distributions
deemed advisable.
6. SHAREHOLDER ACTION. As soon as practicable after the effective date of
the N-14 Registration Statement and SEC clearance of the proxy solicitation
materials referred to in Section 7, but in any event prior to the Effective Time
of the Reorganization and as a condition thereto, the Board of Trustees of
Qualivest shall call, and Qualivest shall hold, a meeting of the shareholders of
all of its investment portfolios for the purpose of considering and voting upon:
(a) in the case of all Qualivest Funds, a proposal, in connection with
the merger between U.S. Bancorp and First Bank System, Inc., to ratify and
approve investment advisory agreements, on behalf of each Qualivest Fund,
between Qualivest and First Bank National Association;
(b) in the case of all Qualivest Funds, approval of this Agreement and
the transactions contemplated hereby; and
<PAGE>
(c) such other matters as may be determined by the Board of Trustees
of Qualivest and the Board of Directors of FASF.
7. REGULATORY FILINGS. FASF shall file an N-14 Registration Statement,
which shall include the Reorganization Proxy Materials of Qualivest, with
the SEC, and with the appropriate state securities commissions, relating to
the matters described in Section 6 as promptly as practicable. FASF and
Qualivest have cooperated and shall continue to cooperate with each other,
and have furnished and shall continue to furnish each other with the
information relating to itself that is required by the 1933 Act, the 1934
Act, the 1940 Act, and the rules and regulations under each of those Acts,
to be included in the N-1A Post-Effective Amendment, the N-14 Registration
Statement and the Reorganization Proxy Materials.
8. FASF CONDITIONS. The obligations of FASF hereunder shall be subject to
the following conditions precedent:
(a) This Agreement and the transactions contemplated by this Agreement
(which shall not be deemed to include, for these purposes, the matters described
in Section 6(a)) shall have been approved by the Board of Trustees of Qualivest
and by the shareholders of the Qualivest Funds in the manner required by law and
this Agreement.
(b) Qualivest shall have delivered to FASF a statement of assets and
liabilities of each Qualivest Fund, together with a list of the portfolio
securities of the Qualivest Fund showing the tax costs of such securities by lot
and the holding periods of such securities, as of the Effective Time of the
Reorganization, certified by the Treasurer or Assistant Treasurer of Qualivest
as having been prepared in accordance with generally accepted accounting
principles consistently applied.
(c) Qualivest shall have duly executed and delivered to FASF such bills of
sale, assignments, certificates and other instruments of transfer ("Transfer
Documents") as FASF may deem necessary or desirable to transfer all of each
Qualivest Fund's right, title and interest in and to the Fund Assets. Such Fund
Assets shall be accompanied by all necessary state stock transfer stamps or cash
for the appropriate purchase price therefor.
(d) All representations and warranties of Qualivest made in this Agreement
shall be true and correct in all material respects as if made at and as of the
Effective Time of the Reorganization.
(e) Qualivest shall have delivered to FASF a certificate executed in its
name by its President or Vice President and its Treasurer or Assistant
Treasurer, in a form reasonably satisfactory to FASF and dated as of the
Effective Time of the Reorganization, to the effect that the representations and
warranties of the Qualivest Funds made in this Agreement are true and correct at
and as of the Effective Time of the Reorganization, except as they may be
affected by the transactions contemplated by this Agreement.
(f) Qualivest shall have delivered to FASF Qualivest's written instructions
to the custodian for the Qualivest Funds, acknowledged and agreed to in writing
by such custodian, irrevocably instructing such custodian to transfer to each
FASF Fund all of the corresponding Qualivest Fund's portfolio securities, cash
and any other assets to be acquired by such FASF Fund pursuant to this
Agreement.
(g) Qualivest shall have delivered to FASF a certificate of Qualivest's
transfer agent stating that the records maintained by the transfer agent (which
shall be made available to FASF) contain the names and addresses of the
shareholders of each Qualivest Fund and the numbers and classes of the
outstanding shares of such Qualivest Fund owned by each such shareholder as of
the Effective Time of the Reorganization.
(h) At or prior to the Effective Time of the Reorganization, the expenses
incurred by each Qualivest Fund (or accrued up to the Effective Time of the
Reorganization) shall have been maintained by Qualivest Funds' investment
adviser or otherwise so as not to exceed any contractual expense limitations or
any expense limitations set forth in such Qualivest Fund's then current
prospectus.
(i) At or prior to the Effective Time of the Reorganization, appropriate
action shall have been taken by Qualivest Funds' investment adviser or
otherwise such that no unamortized organizational expenses shall be reflected
in any Qualivest Fund's statement of assets and liabilities delivered pursuant
to Section 8(b).
<PAGE>
(j) FASF shall have received an opinion of Dechert Price & Rhoads, counsel
to Qualivest, in form reasonably satisfactory to FASF and dated the Effective
Time of the Reorganization, substantially to the effect that (i) Qualivest is a
Massachusetts business trust duly established and validly existing under the
laws of the Commonwealth of Massachusetts; (ii) this Agreement and the Transfer
Documents have been duly authorized, executed and delivered by Qualivest and
represent legal, valid and binding contracts, enforceable in accordance with
their terms, subject as to enforcement to bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and other similar laws of
general application relating to or affecting creditors' rights and to the
application of general principles of equity; (iii) the execution and delivery of
this Agreement did not, and the consummation of the transactions contemplated by
this Agreement will not, violate the Declaration of Trust or By-Laws of
Qualivest or any material contract known to such counsel to which Qualivest is a
party or by which it is bound; (iv) the only Qualivest shareholder approvals
required with respect to the consummation of the transactions contemplated by
this Agreement are the approval of a majority of the shareholders of each
Qualivest Fund voting separately on a portfolio-by-portfolio basis; and (v) no
consent, approval, authorization or order of any court or governmental authority
is required for the consummation by Qualivest of the transactions contemplated
by this Agreement, except such as have been obtained under the 1933 Act, the
1934 Act, the 1940 Act, the rules and regulations under those Acts and such as
may be required under the state securities laws or such as may be required
subsequent to the Effective Time of the Reorganization. Such opinion may rely on
the opinion of other counsel to the extent set forth in such opinion, provided
such other counsel is reasonably acceptable to FASF.
(k) FASF shall have received an opinion of Dorsey & Whitney LLP addressed
to FASF and Qualivest in form reasonably satisfactory to them, and dated the
Effective Time of the Reorganization, substantially to the effect that, for
federal income tax purposes (i) the transfer by each Qualivest Fund of all of
its Fund Assets to the corresponding FASF Fund in exchange for shares of the
corresponding FASF Fund, and the distribution of such shares to the shareholders
of the Qualivest Fund, as provided in this Agreement, will constitute a
reorganization within the meaning of Section 368(a)(1)(C) or (D) of the Code;
(ii) no income, gain or loss will be recognized by the Qualivest Funds as a
result of such transactions; (iii) no income, gain or loss will be recognized by
the FASF Funds as a result of such transactions; (iv) no income, gain or loss
will be recognized by the shareholders of the Qualivest Funds on the
distribution to them by the Qualivest Funds of shares of the corresponding FASF
Funds in exchange for their shares of the Qualivest Funds (but shareholders of a
Qualivest Fund subject to taxation will recognize income upon receipt of any net
investment income or net capital gains of such Qualivest Fund which are
distributed by such Qualivest Fund prior to the Effective Time of the
Reorganization); (v) the tax basis of the FASF Fund shares received by each
shareholder of a Qualivest Fund will be the same as the tax basis of the
shareholder's Qualivest Fund shares exchanged therefor; (vi) the tax basis of
the Fund Assets received by each FASF Fund will be the same as the basis of such
Fund Assets in the hands of the corresponding Qualivest Fund immediately prior
to the transactions; (vii) a shareholder's holding period for FASF Fund shares
will be determined by including the period for which the shareholder held the
shares of the Qualivest Fund exchanged therefor, provided that the shareholder
held such shares of the Qualivest Fund as a capital asset at the Effective Time
of the Reorganization; (viii) the holding period of each FASF Fund with respect
to the Fund Assets will include the period for which such Fund Assets were held
by the corresponding Qualivest Fund provided that the Qualivest Fund held such
assets as capital assets; and (ix) each FASF Fund will succeed to and take into
account the earnings and profits, or deficit in earnings and profits, of the
corresponding Qualivest Fund as of the Effective Time of the Reorganization.
(l) The Fund Assets to be transferred to an FASF Fund under this Agreement
shall include no assets which such FASF Fund may not properly acquire pursuant
to its investment limitations or objectives or may not otherwise lawfully
acquire.
(m) The N-14 Registration Statement shall have become effective under the
1933 Act and no stop order suspending such effectiveness shall have been
instituted or, to the knowledge of FASF, contemplated by the SEC and the parties
shall have received all permits and other authorizations necessary under state
securities laws to consummate the transactions contemplated by this Agreement.
(n) No action, suit or other proceeding shall be threatened or pending
before any court or governmental agency in which it is sought to restrain or
prohibit or obtain damages or other relief in connection with this Agreement or
the transactions contemplated herein.
<PAGE>
(o) The SEC shall not have issued any unfavorable advisory report under
Section 25(b) of the 1940 Act nor instituted any proceeding seeking to enjoin
consummation of the transactions contemplated by this Agreement under Section
25(c) of the 1940 Act.
(p) Prior to the Effective Time of the Reorganization, each Qualivest Fund
shall have declared a dividend or dividends, with a record date and ex-dividend
date prior to the Effective Time of the Reorganization, which, together with all
previous dividends, shall have the effect of distributing to its shareholders
all of its net investment company taxable income, if any, for the taxable years
ending July 31, 1997 and for the taxable periods from said date to and including
the Effective Time of the Reorganization (computed without regard to any
deduction for dividends paid), and all of its net capital gain, if any, realized
in taxable years ending July 31, 1997, and in the taxable periods from said date
to and including the Effective Time of Reorganization.
(q) Qualivest shall have performed and complied in all material respects
with each of its agreements and covenants required by this Agreement to be
performed or complied with by it prior to or at the Effective Time of the
Reorganization.
(r) FASF shall have been furnished at the Effective Time of the
Reorganization with a certificate signed by an appropriate officer of BISYS
Group, Inc. ("BISYS") dated as of such date stating that all statistical and
research data, clerical, accounting and bookkeeping records, periodic reports to
the SEC and any state securities agencies, tax returns and other tax filings,
shareholder lists and other material shareholder data, complaint files and all
other information, books, records and documents maintained by BISYS (or any
affiliate of BISYS) and belonging to the Qualivest Funds, including those
required to be maintained by Section 31(a) of the 1940 Act and Rules 31a-1 to
31a-3 thereunder, have been delivered to FASF.
9. QUALIVEST CONDITIONS. The obligations of Qualivest hereunder shall be
subject to the following conditions precedent:
(a) This Agreement and the transactions contemplated by this Agreement
(which shall not be deemed, for these purposes, to include the matter described
in Section 6(a)) shall have been approved by the Board of Directors of FASF and
by the shareholders of the Qualivest Funds in the manner required by law and
this Agreement.
(b) All representations and warranties of FASF made in this Agreement
shall be true and correct in all material respects as if made at and as of the
Effective Time of the Reorganization.
(c) FASF shall have delivered to Qualivest a certificate executed in its
name by its President or Vice President and its Treasurer or Assistant
Treasurer, in a form reasonably satisfactory to Qualivest and dated as of the
Effective Time of the Reorganization, to the effect that the representations and
warranties of the FASF Funds made in this Agreement are true and correct at and
as of the Effective Time of the Reorganization, except as they may be affected
by the transactions contemplated by this Agreement and that, to its best
knowledge, the Fund Assets to be transferred to an FASF Fund under this
Agreement as set forth in Subsection 8(b) include only assets which such FASF
Fund may properly acquire under its investment policies, limitations and
objectives and may otherwise be lawfully acquired by such FASF Fund.
(d) Qualivest shall have received an opinion of Dorsey & Whitney LLP in
form reasonably satisfactory to Qualivest and dated the Effective Time of the
Reorganization, substantially to the effect that (i) FASF is a Minnesota
corporation duly incorporated and validly existing under the laws of the State
of Minnesota; (ii) the shares of the FASF Funds to be delivered to the Qualivest
Funds as provided for by this Agreement are duly authorized and upon delivery
will be validly issued, fully paid and non-assessable by FASF; (iii) this
Agreement has been duly authorized, executed and delivered by FASF, and
represents a legal, valid and binding contract, enforceable in accordance with
its terms, subject as to enforcement to bankruptcy, insolvency, reorganization,
moratorium or other similar laws of general application relating to or affecting
creditors' rights generally and to the application of general principles of
equity; (iv) the execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated by this Agreement will not,
violate the Articles of Incorporation or Bylaws of FASF or any material contract
known to such counsel to which FASF is a party or by which it is bound;
<PAGE>
and (v) no consent, approval, authorization or order of any court or
governmental authority is required for the consummation by FASF of the
transactions contemplated by this Agreement, except such as have been obtained
under the 1933 Act, the 1934 Act, the 1940 Act, the rules and regulations under
those Acts and such as may be required by state securities laws or such as may
be required subsequent to the Effective Time of the Reorganization. Such
opinion may rely on the opinion of other counsel to the extent set forth in
such opinion, provided such other counsel is reasonably acceptable to
Qualivest.
(e) Qualivest shall have received an opinion of Dorsey & Whitney LLP
addressed to FASF and Qualivest in form reasonably satisfactory to them, and
dated the Effective Time of Reorganization, with respect to the matters
specified in Subsection 8(k).
(f) The N-14 Registration Statement shall have become effective under the
1933 Act and no stop order suspending the effectiveness shall have been
instituted, or to the knowledge of FASF, contemplated by the SEC and the
parties shall have received all permits and other authorizations necessary
under state securities laws to consummate the transactions contemplated herein.
(g) No action, suit or other proceeding shall be threatened or pending
before any court or governmental agency in which it is sought to restrain or
prohibit, or obtain damages or other relief in connection with, this Agreement
or the transactions contemplated herein.
(h) The SEC shall not have issued any unfavorable advisory report under
Section 25(b) of the 1940 Act nor instituted any proceeding seeking to enjoin
consummation of the transactions contemplated by this Agreement under Section
25(c) of the 1940 Act.
(i) FASF shall have performed and complied in all material respects with
each of its agreements and covenants required by this Agreement to be performed
or complied with by it prior to or at the Effective Time of the Reorganization.
(j) Qualivest shall have received from FASF a duly executed instrument
whereby each FASF Fund assumes all of the liabilities of its corresponding
Qualivest Fund.
10. FURTHER ASSURANCES. Subject to the terms and conditions herein
provided, each of the parties hereto shall use its best efforts to take, or
cause to be taken, such action, to execute and deliver, or cause to be executed
and delivered, such additional documents and instruments and to do, or cause to
be done, all things necessary, proper or advisable under the provisions of this
Agreement and under applicable law to consummate and make effective the
transactions contemplated by this Agreement, including without limitation,
delivering and/or causing to be delivered to the other party hereto each of the
items required under this Agreement as a condition to such party's obligations
hereunder. In addition, Qualivest shall deliver or cause to be delivered to
FASF, each account, book, record or other document of the Qualivest Funds
required to be maintained by Section 31(a) of the 1940 Act and Rules 31a-1 to
31a-3 thereunder (regardless of whose possession they are in).
11. INDEMNIFICATION.
(a) FASF agrees to indemnify and hold harmless Qualivest and each of
Qualivest's trustees and officers from and against any and all losses, claims,
damages, liabilities or expenses (including, without limitation, the payment of
reasonable legal fees and reasonable costs of investigation) to which, jointly
or severally, Qualivest or any of its trustees or officers may become subject,
insofar as any such loss, claim, damage, liability or expense (or actions with
respect thereto) arises out of or is based on any breach by FASF of any of its
representations, warranties, covenants or agreements set forth in this
Agreement.
(b) Qualivest agrees to indemnify and hold harmless FASF and each of FASF's
directors and officers from and against any and all losses, claims, damages,
liabilities or expenses (including, without limitation, the payment of
reasonable legal fees and reasonable costs of investigation) to which, jointly
or severally, FASF or any of its directors or officers may become subject,
insofar as any such loss, claim, damage, liability or expense (or actions with
respect thereto) arises out of or is based on any breach by Qualivest of any of
its representation, warranties, covenants or agreements set forth in this
Agreement.
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the parties set forth in this Agreement shall survive the delivery
of the Fund Assets to the FASF Funds and the issuance of the shares of the FASF
Funds at the Effective Time of the Reorganization.
<PAGE>
13. TERMINATION OF AGREEMENT. This Agreement may be terminated by a party
at or, in the case of Subsections 13(c) or (d), below, at any time prior to,
the Effective Time of the Reorganization by a vote of a majority of its Board
of Directors/Trustees as provided below:
(a) by FASF if the conditions set forth in Section 8 are not satisfied
as specified in said Section;
(b) by Qualivest if the conditions set forth in Section 9 are not
satisfied as specified in said Section;
(c) by mutual consent of both parties; and
(d) by Qualivest or FASF if determined by its Board of Trustees or
Directors that proceeding with the transactions contemplated herein is
inadvisable.
14. AMENDMENT AND WAIVER. At any time prior to or (to the fullest extent
permitted by law) after approval of this Agreement by the shareholders of
Qualivest (a) the parties hereto may, by written agreement authorized by their
respective Boards of Directors/Trustees and with or without the further approval
of their shareholders, amend any of the provisions of this Agreement, and (b)
either party may waive any breach by the other party or the failure to satisfy
any of the conditions to its obligations (such waiver to be in writing and
authorized by the Board of Directors/Trustees of the waiving party with or
without the approval of such party's shareholders). Without limiting the
foregoing, in the event shareholder approval of the matters specified in Section
6 is obtained with respect to certain Qualivest Funds but not with respect to
the other Qualivest Funds, with the result that the transactions contemplated by
this Agreement may be consummated with respect to some but not all the Qualivest
Funds, the Board of Directors of FASF and the Board of Trustees of Qualivest
may, in the exercise of their reasonable business judgment, either abandon this
Agreement with respect to all of the Qualivest Funds or direct that the
Reorganization and other transactions described herein be consummated to the
degree the Boards deem advisable.
15. GOVERNING LAW. This Agreement and the transactions contemplated hereby
shall be governed, construed and enforced in accordance with the laws of the
State of Minnesota.
16. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
respective successors and permitted assigns of the parties hereto. This
Agreement and the rights, obligations and liabilities hereunder may not be
assigned by either party without the consent of the other party.
17. BENEFICIARIES. Nothing contained in this Agreement shall be deemed to
create rights in persons not parties hereto, other than the successors and
permitted assigns of the parties.
18. BROKERAGE FEES AND EXPENSES. FASF and Qualivest each represents and
warrants to the other that there are no brokers or finders entitled to receive
any payments in connection with the transactions provided for herein.
19. QUALIVEST LIABILITY. The Declaration of Trust for Qualivest, filed on
May 19, 1994, a copy of which, together with all amendments thereto, is on file
in the Office of the Secretary of the Commonwealth of Massachusetts, provides
(i) that the name "Qualivest Funds" refers to the trustees under the
Declaration of Trust collectively as trustees and not as individuals or
personally, (ii) that no shareholder shall be subject to any personal liability
whatsoever to any person in connection with trust property or the acts,
obligations or affairs of the trust, and (iii) that no trustee, officer,
employee or agent of the trust shall be subject to any personal liability
whatsoever to any person, other than to the trust or its shareholders, in
connection with trust property or the affairs of the trust, save only that
arising from bad faith, willful misfeasance, gross negligence or reckless
disregard of his duties with respect to such person; and all such persons shall
look solely to the trust property for satisfaction of claims of any nature
arising in connection with the affairs of the trust.
20. NOTICES. All notices required or permitted herein shall be in writing
and shall be deemed to be properly given when delivered personally or by
telefacsimile to the party entitled to receive the notice or when sent by
certified or registered mail, postage prepaid, or delivered to an
internationally recognized overnight courier service, in each case properly
addressed to the party entitled to receive
<PAGE>
such notice at the address or telefax number stated below or to such other
address or telefax number as may hereafter be furnished in writing by notice
similarly given by one party to the other party hereto:
If to FASF: First American Strategy Funds, Inc.
Oaks, Pennsylvania 19456
With copies to: Michael J. Radmer
Dorsey & Whitney LLP
Pillsbury Center South
220 South Sixth Street
Minneapolis, Minnesota 55402
Telefax Number: (612) 340-8738
If to Qualivest: Qualivest Funds
3435 Stelzer Road
Columbus, Ohio 43219-3035
With copies to: Marie J. Lilly, Esq.
Law Division
U.S. Bancorp
111 S.W. Fifth Avenue, Suite T-2
Portland, Oregon 97204
Telefax Number: (503) 275-5000
Jeffrey L. Steele, Esq.
Dechert Price & Rhoads
1500 K Street, N.W.
Washington, D.C. 20005
Telefax Number: (202) 626-3334
21. ANNOUNCEMENTS. Any announcement or similar publicity with respect to
this Agreement or the transactions contemplated herein shall be made only at
such time and in such manner as the parties shall agree; provided that nothing
herein shall prevent either party upon notice to the other party from making
such public announcements as such party's counsel may consider advisable in
order to satisfy the party's legal and contractual obligations in such regard.
22. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding of the parties hereto and supersedes any and all prior
agreements, arrangements and understandings relating to matters provided for
herein.
23. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when executed and delivered shall be deemed to be
an original, but all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their duly authorized officers designated below as of the date
first written above.
QUALIVEST FUNDS
ATTEST:
- ----------------------------------- -------------------------------------
Gregory T. Maddox Irimga McKay
TREASURER AND SECRETARY PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
FIRST AMERICAN INVESTMENT FUNDS, INC.
ATTEST:
- ----------------------------------- -------------------------------------
Michael J. Radmer David Lee
SECRETARY PRESIDENT
<PAGE>
APPENDIX IV
FEES AND EXPENSES OF THE QUALIVEST PORTFOLIOS
AND CORRESPONDING FASF FUNDS
The following tables compare the current fees and expenses for each
Qualivest Portfolio and its corresponding FASF Fund. FBNA has agreed that, for
the period commencing on the Closing and continuing until September 30, 1998,
it will waive fees and reimburse expenses to the FASF Funds to the extent
necessary to maintain FASF Fund total operating expenses at the levels provided
in the tables. Fee and expense information for the Qualivest Portfolios has
been annualized and is based on the six-month period ended January 31, 1997.
The purpose of these tables is to assist shareholders in understanding the
various costs and expenses that investors in these funds will bear as
shareholders. THE EXAMPLES CONTAINED IN THE TABLES SHOULD NOT BE CONSIDERED
REPRESENTATIONS OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.
QUALIVEST ALLOCATED CONSERVATIVE FUND/FASF STRATEGY INCOME FUND
<TABLE>
<CAPTION>
QUALIVEST ALLOCATED FASF STRATEGY
CONSERVATIVE FUND INCOME FUND
-------------------- -------------
CLASS A CLASS Y
------- --------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) ...................... 4.00% None None
Maximum Sales Charge Imposed on Reinvested
Dividends ................................................ None None None
Deferred Sales Charge (as a percentage of
redemption proceeds)(1) .................................. None None None
Redemption Fees ........................................... None None None
Exchange Fees ............................................. None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS) ..................
Investment Advisory Fees (after waivers)(2) ............... 0.05% 0.05% 0.00%
Rule 12b-1 Fees ........................................... 0.25% None None
Shareholder Servicing Fees ................................ 0.00% 0.00% 0.25%
Other Expenses (after waivers and reimbursements)(3) ...... 0.33% 0.34% 0.00%
Total Fund Operating Expenses (after waivers and
reimbursements)(4) ....................................... 0.63% 0.39% 0.25%
</TABLE>
- ------------------
1 For Class A shares of the Qualivest Portfolio, a 1% contingent deferred
sales charge ("CDSC") is imposed on purchases of $1 million or more that
were not subject to an initial sales charge. Such CDSC is imposed on shares
redeemed within 12 months of purchase.
2 Investment advisory fees for the FASF Fund reflect voluntary fee waivers by
FBNA. Absent voluntary waivers, current investment advisory fees for the
FASF Fund would be 0.25% of average daily net assets.
3 Other expenses for the FASF Fund reflect voluntary fee waivers and/or
expense reimbursements by the Fund's investment adviser and administrator.
Absent such voluntary waivers and reimbursements, other expenses for the
FASF Fund are estimated to be 1.78% of average daily net assets. The
Qualivest Portfolio has adopted, but not implemented, a plan under which up
to 0.25% of the Portfolio's average daily net assets attributable to Class
Y shares may be expended to procure shareholder services.
4 Absent any voluntary fee waivers or expense reimbursements, total fund
operating expenses are estimated to be 2.03% of average daily net assets
for the shares of the FASF Fund.
<PAGE>
Example:
An investor would pay the following expenses on a $1,000 investment,
assuming (1) the maximum applicable sales charge, (2) 5% annual return, and (3)
redemption at the end of each time period:
QUALIVEST
ALLOCATED FASF STRATEGY
CONSERVATIVE FUND INCOME FUND
------------------ -------------
CLASS A CLASS Y
--------- --------
1 year .......... $ 46 $ 4 $ 3
3 years ......... $ 59 $13 $ 8
5 years ......... $ 74 $22 $14
10 years ........ $115 $49 $32
In addition to the expenses set forth above, the investor will indirectly
bear their pro rata share of fees and expenses incurred by the Underlying
Funds. For an example of such expenses, see the expense tables in the Funds'
Prospectus, which accompanies this Proxy Statement/Prospectus.
QUALIVEST ALLOCATED BALANCED FUND/FAIF STRATEGY GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
FASF STRATEGY
QUALIVEST ALLOCATED GROWTH AND
BALANCED FUND INCOME FUND
-------------------- -------------
CLASS A CLASS Y
--------- --------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) ...................... 4.00% None None
Maximum Sales Charge Imposed on Reinvested
Dividends ................................................ None None None
Deferred Sales Charge (as a percentage of
redemption proceeds)(1) .................................. None None None
Redemption Fees ........................................... None None None
Exchange Fees ............................................. None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment Advisory Fees (after waivers)(2) ............... 0.05% 0.05% 0.00%
Rule 12b-1 Fees ........................................... 0.25% None None
Shareholder Servicing Fees ................................ 0.00% 0.00% 0.25%
Other Expenses (after waivers and reimbursements)(3) ...... 0.23% 0.20% 0.00%
Total Fund Operating Expenses (after waivers and
reimbursements)(4) ....................................... 0.53% 0.25% 0.25%
</TABLE>
- ------------------
1 For Class A shares of the Qualivest Portfolio, a 1% contingent deferred
sales charge ("CDSC") is imposed on purchases of $1 million or more that
were not subject to an initial sales charge. Such CDSC is imposed on shares
redeemed within 12 months of purchase.
2 Investment advisory fees for the FASF Fund reflect voluntary fee waivers by
FBNA. Absent voluntary waivers, current investment advisory fees for the
FASF Fund would be 0.25% of average daily net assets.
3 Other expenses for the FASF Fund reflect voluntary fee waivers and/or
expense reimbursements by the Fund's investment adviser and administrator.
Absent such voluntary waivers and reimbursements, other expenses for the
FASF Fund are estimated to be 1.78% of average daily net assets. The
Qualivest Portfolio has adopted, but not implemented, a plan under which up
to 0.25% of the Portfolio's average daily net assets attributable to Class
Y shares may be expended to procure shareholder services.
4 Absent any voluntary fee waivers or expense reimbursements, total fund
operating expenses are estimated to be 2.03% of average daily net assets
for the shares of the FASF Fund.
<PAGE>
Example:
An investor would pay the following expenses on a $1,000 investment,
assuming (1) the maximum applicable sales charge, (2) 5% annual return, and (3)
redemption at the end of each time period:
QUALIVEST FASF STRATEGY
ALLOCATED GROWTH AND
BALANCED FUND INCOME FUND
------------------ -------------
CLASS A CLASS Y
--------- --------
1 year .......... $ 45 $ 3 $ 3
3 years ......... $ 56 $ 8 $ 8
5 years ......... $ 68 $14 $14
10 years ........ $104 $32 $32
In addition to the expenses set forth above, the investor will indirectly
bear their pro rata share of fees and expenses incurred by the Underlying
Funds. For an example of such expenses, see the expense tables in the Funds'
Prospectus, which accompanies this Proxy Statement/Prospectus.
QUALIVEST ALLOCATED GROWTH FUND/FASF STRATEGY GROWTH FUND
<TABLE>
<CAPTION>
QUALIVEST ALLOCATED FASF STRATEGY
GROWTH FUND GROWTH FUND
-------------------- -------------
CLASS A CLASS Y
--------- --------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) ...................... 4.00% None None
Maximum Sales Charge Imposed on Reinvested
Dividends ................................................ None None None
Deferred Sales Charge (as a percentage of
redemption proceeds)(1) .................................. None None None
Redemption Fees ........................................... None None None
Exchange Fees ............................................. None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment Advisory Fees (after waivers)(2) ............... 0.05% 0.05% 0.00%
Rule 12b-1 Fees ........................................... 0.25% None None
Shareholder Servicing Fees ................................ 0.00% 0.00% 0.25%
Other Expenses (after waivers and reimbursements)(3) ...... 0.26% 0.24% 0.00%
Total Fund Operating Expenses (after waivers and
reimbursements)(4) ....................................... 0.56% 0.29% 0.25%
</TABLE>
- --------------------
1 For Class A shares of the Qualivest Portfolio, a 1% contingent deferred
sales charge ("CDSC") is imposed on purchases of $1 million or more that
were not subject to an initial sales charge. Such CDSC is imposed on shares
redeemed within 12 months of purchase.
2 Investment advisory fees for the FASF Fund reflect voluntary fee waivers by
FBNA. Absent voluntary waivers, current investment advisory fees for the
FASF Fund would be 0.25% of average daily net assets.
3 Other expenses for the FASF Fund reflect voluntary fee waivers and/or
expense reimbursements by the Fund's investment adviser and administrator.
Absent such voluntary waivers and reimbursements, other expenses for the
FASF Fund are estimated to be 1.78% of average daily net assets. The
Qualivest Portfolio has adopted, but not implemented, a plan under which up
to 0.25% of the Portfolio's average daily net assets attributable to Class
Y shares may be expended to procure shareholder services.
4 Absent any voluntary fee waivers or expense reimbursements, total fund
operating expenses are estimated to be 2.03% of average daily net assets
for the shares of the FASF Fund.
<PAGE>
Example:
An investor would pay the following expenses on a $1,000 investment,
assuming (1) the maximum applicable sales charge, (2) 5% annual return, and (3)
redemption at the end of each time period:
QUALIVEST
ALLOCATED FASF STRATEGY
GROWTH FUND GROWTH FUND
------------------ -------------
CLASS A CLASS Y
--------- --------
1 year .......... $ 45 $ 3 $ 3
3 years ......... $ 57 $ 9 $ 8
5 years ......... $ 70 $16 $14
10 years ........ $107 $37 $32
In addition to the expenses set forth above, the investor will indirectly
bear their pro rata share of fees and expenses incurred by the Underlying
Funds. For an example of such expenses, see the expense tables in the Funds'
Prospectus, which accompanies this Proxy Statement/Prospectus.
QUALIVEST ALLOCATED AGGRESSIVE FUND/FASF AGGRESSIVE GROWTH FUND
<TABLE>
<CAPTION>
QUALIVEST ALLOCATED FASF AGGRESSIVE
AGGRESSIVE FUND GRWOTH FUND
-------------------- ---------------
CLASS A CLASS Y
--------- --------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) ...................... 4.00% None None
Maximum Sales Charge Imposed on Reinvested
Dividends ................................................ None None None
Deferred Sales Charge (as a percentage of
redemption proceeds)(1) .................................. None None None
Redemption Fees ........................................... None None None
Exchange Fees ............................................. None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment Advisory Fees (after waivers)(2) ............... 0.05% 0.05% 0.00%
Rule 12b-1 Fees ........................................... 0.25% None None
Shareholder Servicing Fees ................................ 0.00% 0.00% 0.25%
Other Expenses (after waivers and reimbursements)(3) ...... 0.29% 0.27% 0.00%
Total Fund Operating Expenses (after waivers and
reimbursements)(4) ....................................... 0.59% 0.32% 0.25%
</TABLE>
- ------------------
1 For Class A shares of the Qualivest Portfolio, a 1% contingent deferred
sales charge ("CDSC") is imposed on purchases of $1 million or more that
were not subject to an initial sales charge. Such CDSC is imposed on shares
redeemed within 12 months of purchase.
2 Investment advisory fees for the FASF Fund reflect voluntary fee waivers by
FBNA. Absent voluntary waivers, current investment advisory fees for the
FASF Fund would be 0.25% of average daily net assets.
3 Other expenses for the FASF Fund reflect voluntary fee waivers and/or
expense reimbursements by the Fund's investment adviser and administrator.
Absent such voluntary waivers and reimbursements, other expenses for the
FASF Fund are estimated to be 1.78% of average daily net assets. The
Qualivest Portfolio has adopted, but not implemented, a plan under which up
to 0.25% of the Portfolio's average daily net assets attributable to Class
Y shares may be expended to procure shareholder services.
4 Absent any voluntary fee waivers or expense reimbursements, total fund
operating expenses are estimated to be 2.03% of average daily net assets
for the shares of the FASF Fund.
<PAGE>
Example:
An investor would pay the following expenses on a $1,000 investment,
assuming (1) the maximum applicable sales charge, (2) 5% annual return, and (3)
redemption at the end of each time period:
QUALIVEST
ALLOCATED FASF AGGRESSIVE
AGGRESSIVE FUND GROWTH FUND
------------------ ---------------
CLASS A CLASS Y
--------- --------
1 year .......... $ 46 $ 3 $ 3
3 years ......... $ 58 $10 $ 8
5 years ......... $ 72 $18 $14
10 years ........ $111 $41 $32
In addition to the expenses set forth above, the investor will indirectly
bear their pro rata share of fees and expenses incurred by the Underlying
Funds. For an example of such expenses, see the expense tables in the Funds'
Prospectus, which accompanies this Proxy Statement/Prospectus.
<PAGE>
APPENDIX V
COMPARISON OF INTERIM ADVISORY AGREEMENT AND
FASF INVESTMENT ADVISORY AGREEMENT
This Appendix summarizes and compares certain significant provisions of
the Interim Advisory Agreement (the "Interim Agreement") against corresponding
provisions of the FASF Investment Advisory Agreement (the "FASF Agreement").
Fees payable under the Agreements are set forth in Table III in the Combined
Proxy Statement/Prospectus.
ADVISORY SERVICES. The Interim Agreement provides that the adviser will
provide a continuous investment program for the Qualivest Portfolios, including
investment research and management with respect to all securities and
investments and cash equivalents in the Portfolios. The Interim Agreement
provides that the adviser will pay all expenses incurred by it in connection
with its activities under the Agreement other than the cost of securities
(including brokerage commissions, if any) purchased by the portfolios.
Similarly, the FASF Agreement provides that the adviser agrees to act as
the investment adviser for, and to manage the investment of the assets of, the
FASF Funds. Under the FASF Agreement the adviser is required, at its own
expense, to provide the FASF Funds with all necessary office space, personnel
and facilities necessary and incident to the performance of the adviser's
services under the Agreement. In addition, under the FASF Agreement, the
adviser is required to pay or be responsible for the payment of all
compensation to personnel of the FASF Funds and the officers and directors of
the FASF Funds who are affiliated with the adviser or any entity which
controls, is controlled by or is under common control with the adviser.
FEE AND EXPENSE LIMITATIONS. Each Agreement requires that if, in any
fiscal year, the aggregate expenses of any Fund or Portfolio exceed the expense
limitations imposed under the securities regulations of a state, the adviser
will reimburse the Fund or Portfolio. A portion of such reimbursement will be
paid by the administrator in the case of the Interim Agreement. Such
reimbursement shall not exceed the advisory fees paid to the adviser during the
year, unless otherwise required by the state and, in the case of the FASF
Agreement, unless the adviser agrees to be bound by such state requirement.
Under federal law, states may no longer impose expense limitations on mutual
funds.
STANDARD OF CARE. The Interim Agreement provides that the adviser shall
not be liable for any error of judgment or mistake of law or for any loss
suffered by the Portfolios in connection with the performance of the Interim
Agreement, except a loss resulting from a breach of fiduciary duty with respect
to the receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the adviser in the
performance of its duties or from reckless disregard by it of its obligations
and duties under the Interim Agreement.
The FASF Agreement provides that the adviser shall be liable to the Funds
and their shareholders or former shareholders for any negligence or willful
misconduct on the part of the adviser or any of its directors, officers,
employees, representatives or agents in connection with the responsibilities
assumed by it under the FASF Agreement, provided that the adviser shall not be
liable for any investments made by the adviser in accordance with the explicit
or implicit direction of the Board of Directors of FASF or the investment
objectives and policies of a Fund, and provided further that any liability of
the adviser resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services shall be limited to the period and amount
set forth in Section 36(b)(3) of the 1940 Act. In addition, the adviser agrees
in the FASF agreement to indemnify FASF and each Fund with respect to any loss,
liability, judgment, cost or penalty which FASF or any Fund may directly or
indirectly suffer or incur in any way arising out of or in connection with any
breach of the FASF Agreement by the adviser.
PORTFOLIO TRANSACTIONS. The Interim Agreement provides that the adviser
will place or cause to be placed orders for the Portfolios either directly with
the issuer or with any broker or dealer. The Interim Agreement requires that, in
placing orders with brokers and dealers, the adviser will attempt to obtain
prompt execution of orders in an effective manner at the most favorable price.
To the extent permitted by the 1940 Act, when the execution and price offered by
two or more brokers or dealers are
<PAGE>
comparable, the adviser may purchase and sell portfolio securities to and from
brokers and dealers who provide the adviser with research advice and other
services. The Interim Agreement provides that portfolio securities will not be
purchased from or sold to the administrator, the adviser, or any affiliated
person of the administrator, the adviser or Qualivest, except to the extent
permitted by the 1940 Act.
The FASF Agreement does not address the issue of the adviser placing Fund
portfolio transactions with brokers and dealers who provide research advice and
other services to the adviser. Such a practice is permitted, however, under the
current prospectuses for the FASF Funds. The FASF Agreement specifically
provides that the adviser may utilize the Funds' distributor or an affiliate of
the adviser as a broker in accordance with the 1940 Act and the Funds'
registration statement. The FASF Agreement also provides that allocation of
portfolio transactions shall be subject to such policies and supervision as
FASF's Board of Directors or any committee thereof deems appropriate and any
brokerage policy set forth in the then current registration statement of the
Funds.
<PAGE>
APPENDIX VI
SHAREHOLDER TRANSACTIONS AND SERVICES
This Appendix compares the shareholder transactions and services of the
Qualivest Portfolios and the corresponding FASF Funds. The following is
qualified in its entirety by the more detailed information included in the
prospectuses for the Qualivest Portfolios and the FASF Funds which are
incorporated by reference in this Combined Proxy Statement/Prospectus.
PURCHASE, EXCHANGE AND REDEMPTION PROCEDURES
PURCHASES OF FASF FUNDS SHARES AND QUALIVEST CLASS A SHARES. Class A
shares of the Qualivest Portfolios may be purchased at a public offering price
equal to their net asset value per share plus a sales charge equal to 4.00% of
the public offering price, which sales charge is reduced when the total
purchase amount is $50,000 or more. Shares of the FASF Funds are sold at net
asset value without any front-end or contingent deferred sales charge.
The minimum initial investment for Qualivest Portfolio Class A shares
generally is $500, with a $100 minimum for subsequent purchases. The minimum
initial investment for FASF Fund shares generally is $1,000, with a minimum of
$100 for subsequent purchases.
Class A Qualivest Portfolio shares may be purchased directly from the
Portfolios' distributor or through a broker-dealer who has established a dealer
agreement with the distributor. Such purchases may be made by mail, by
telephone or by wire. FASF Fund shares may be purchased through a financial
institution which has a sales agreement with the Funds' distributor, by mail
directly through the Funds' transfer agent, or by wire.
Both the FASF Fund shares and the Qualivest Portfolio Class A shares have
automatic investment programs which allow shareholders to make regular
purchases of shares through automatic deduction from their bank accounts and,
in the case of the FASF Funds, from the Prime Obligations Fund, a series of
First American Funds, Inc.
PURCHASES AT REDUCED OR NO SALES CHARGE. For the Class A shares of the
Qualivest Portfolios, various persons, entities and groups may qualify for
reduced sales charges, or for purchases at net asset value without a sales
charge. Ways in which the sales charge may be reduced or waived are set forth
in the prospectus for the Class A shares of the Qualivest Portfolios
incorporated herein by reference.
PURCHASES OF QUALIVEST PORTFOLIO CLASS Y SHARES. The Class Y shares of the
Qualivest Portfolios are offered at net asset value without any initial or
contingent deferred sales charges. Such shares are offered only to certain
institutional investors and bank trust departments purchasing shares on behalf
of fiduciary, advisory, agency, custody or other similar accounts maintained by
or on behalf of their customers. Such shares may be purchased through a
broker-dealer, bank or trust company that has established a dealer agreement
with the Portfolios' distributor and also may be purchased directly by mail, by
telephone or by wire.
EXCHANGES. Shares of a Qualivest Portfolio may be exchanged for shares of
the same class of any other Qualivest mutual fund (including the Underlying
Portfolios). Shares of an FASF Fund may be exchanged for shares of the other
FASF Funds or for the Class A shares of the Prime Obligations Fund. Shares of
the FASF Funds may not be exchanged for shares of the Underlying Funds (other
than the Class A shares of the Prime Obligations Fund).
REDEMPTIONS. Shares of the Qualivest Portfolios and the FASF Funds may be
redeemed by written request or by telephone. In addition, Class A Qualivest
Portfolio shareholders with an account balance of at least $500 and FASF Fund
shareholders with an account balance of at least $5,000 may elect to
participate in a systematic withdrawal program under which shares are redeemed
to provide for periodic withdrawal payments in an amount directed by the
shareholder.
DIVIDENDS AND DISTRIBUTIONS.
There are differences in the dividend and distribution policies of the
Qualivest Portfolios and the FASF Funds. For the Allocated Conservative Fund
and Allocated Balanced Fund, and for their
<PAGE>
corresponding FASF Funds, net income dividends are declared and paid monthly.
For the Qualivest Allocated Growth Fund and Allocated Aggressive Fund, which
invest in Underlying Portfolios that in turn invest primarily in equity
securities, net income dividends are declared and paid quarterly. For their
corresponding FASF Funds, however, such dividends are declared and paid
monthly. For all Funds and Portfolios, distributions of any net realized
long-term capital gains are made at least once annually. For both the FASF
Funds and the Qualivest Portfolios, all dividends and distributions are
automatically reinvested in shares of the Fund or Portfolio at net asset value
unless the shareholders elects to receive dividends or distributions in cash
or, in the case of the Class A shares of the Qualivest Portfolios, in the same
class of another Qualivest mutual fund.
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
DATED SEPTEMBER 15, 1997
PROPOSED ACQUISITION OF ASSETS OF
ALLOCATED CONSERVATIVE FUND, ALLOCATED BALANCED FUND,
ALLOCATED GROWTH FUND AND ALLOCATED AGGRESSIVE FUND
PORTFOLIOS OF
QUALIVEST FUNDS
3435 STELZER ROAD
COLUMBUS, OHIO 43219-3035
1-800-743-8637
BY AND IN EXCHANGE FOR SHARES OF
STRATEGY INCOME FUND, STRATEGY GROWTH FUND, STRATEGY GROWTH AND
INCOME FUND AND STRATEGY AGGRESSIVE GROWTH FUND
PORTFOLIOS OF
FIRST AMERICAN STRATEGY FUNDS, INC.
OAKS, PENNSYLVANIA 19456
1-800-637-2548
This Statement of Additional Information relates to the proposed
Agreement and Plan of Reorganization providing for (a) the acquisition of all of
the assets and the assumption of all liabilities of the Allocated Conservative
Fund, Allocated Balanced Fund, Allocated Growth Fund and Allocated Aggressive
Fund (the "Qualivest Portfolios"), each separately managed portfolios of
Qualivest Funds ("Qualivest"), by the Strategy Income Fund, Strategy Growth
Fund, Strategy Growth and Income Fund and Strategy Aggressive Growth Fund ("FASF
Funds"), each separately managed series of First American Strategy Funds, Inc.
("FASF"), in exchange for shares of capital stock of the FASF Funds having an
aggregate net asset value equal to the aggregate value of the assets acquired
(less the liabilities assumed) of the Qualivest Portfolios and (b) the
liquidation of the Qualivest Portfolios and the pro rata distribution of the
Qualivest Portfolio shares to FASF Fund shareholders. This Statement of
Additional Information consists of this cover page, and the following documents,
each of which is incorporated by reference herein:
1. Statement of Additional Information of FASF dated October 1,
1996, as supplemented January 31, 1997 and March 26, 1997.
2. Statement of Additional Information of Qualivest dated
December 1, 1996.
3. Semi-Annual report of FASF for the six months ended March 31,
1997.
4. Annual report of Qualivest for the fiscal year ended July 31,
1996.
5. Semi-Annual report of Qualivest for the six months ended
January 31, 1997.
6. Financial Statements required by Form N-14, Item 14 (to the
extent not included in Items 3, 4 and 5 above).
This Statement of Additional Information is not a prospectus. The
Prospectus/Proxy Statement dated the date hereof relating to the
above-referenced transaction may be obtained without charge by writing or
calling Qualivest or FASF at the addresses or telephone numbers noted above.
This Statement of Additional Information relates to, and should be read in
conjunction with, such Prospectus/Proxy Statement.
Note: In the SEC filing package, Item No. 3 referred to above is included in
Part A as materials to be delivered with the Prospectus/Proxy Statement. A copy
of Items No. 1, 2, 4 and 5 also will be delivered to any person requesting the
Statement of Additional Information.
<PAGE>
FIRST AMERICAN STRATEGY FUNDS, INC.
INTRODUCTION TO PRO FORMA COMBINING STATEMENTS
MARCH 31, 1997
The accompanying unaudited pro forma combining Statements of Assets and
Liabilities, Statements of Operations and Schedules of Investments, reflect the
accounts of Qualivest Allocated Conservative Fund, Qualivest Allocated Balanced
Fund, Qualivest Allocated Growth Fund and Qualivest Allocated Aggressive Fund
(the Qualivest Funds) by the corresponding First American Strategy Funds, Inc.
(the FASF Funds) which include the First American Strategy Income Fund, First
American Strategy Growth and Income Fund, First American Strategy Growth Fund
and First American Strategy Aggressive Growth Fund (collectively, the Funds).
These statements have been derived from the underlying accounting records for
the FASF Funds and Qualivest Funds used in calculating net asset values for the
periods ended March 31, 1997. The pro forma combining Statements of Operations
have been prepared based upon the fee and expense structure of the FASF Funds.
Under the proposed merger agreement and plan of reorganization, all outstanding
shares of each class of each Qualivest Fund will be issued in exchange for
shares of specified classes of the corresponding FASF Fund.
<PAGE>
<TABLE>
<CAPTION>
First American Strategy Funds, Inc.
Strategy Income Fund
Pro Forma Combining Statement of Assets and Liabilities
3/31/97
(Unaudited)
Pro Forma
Allocated Strategy Adjustments Pro Forma
Conservative Income (Note 2) Combined
(000) (000) (000) (000)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Assets:
Total Investments (Cost $10,830,
$12,368 and $23,198, respectively) $ 10,841 $ 12,185 $ - $ 23,026
Receivables:
Accrued Income 1 3 - 4
Capital Shares Sold 46 1,232 - 1,278
Other Assets 1 27 - 28
-------- -------- -------- --------
Total Assets 10,889 13,447 - 24,336
-------- -------- -------- --------
Liabilities:
Payables
Investment Securities Purchased - 133 - 133
Capital Shares Redeemed - 27 - 27
Accrued Expenses 4 8 - 12
Other Liabilities - 38 - 38
-------- -------- -------- --------
Total Liabilities 4 206 - 210
-------- -------- -------- --------
Net Assets applicable to:
Strategy Income
($.01 par value - 20 billion authorized)
based on 1,310,136 and 2,386,793
outstanding shares, respectively - 13,404 10,682 (a) 24,086
Allocated Conservative Class A based on
159,305 outstanding shares 1,656 - (1,656)(a) -
Allocated Conservative Class Y based on
897,392 outstanding shares 9,026 - (9,026)(a) -
Undistributed net investment income - (1) - (1)
Accumulated net realized gain/(loss)
on investments 192 21 - 213
Net unrealized appreciation/(depreciation)
of investments 11 (183) - (172)
-------- -------- -------- --------
Total Net Assets $ 10,885 $ 13,241 $ - $ 24,126
======== ======== ======== ========
Net Asset Value,
offering price and redemption price per share $ 10.11 $ 10.11
======== ========
Net Asset Value,
offering price and redemption price per share -
Class A $ 10.28
========
Net Asset Value,
offering price and redemption price per share -
Class Y $ 10.30
========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
First American Strategy Funds, Inc.
Strategy Growth and Income Fund
Pro Forma Combining Statement of Assets and Liabilities
3/31/97
(Unaudited)
Strategy Pro Forma
Allocated Growth and Adjustments Pro Forma
Balanced Income (Note 2) Combined
(000) (000) (000) (000)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Assets:
Total Investments (Cost $70,736,
$9,843 and $80,579, respectively) $ 71,391 $ 9,577 $ - $ 80,968
Receivables:
Accrued Income 7 3 - 10
Capital Shares Sold 87 653 - 740
Other Assets 7 27 - 34
-------- -------- -------- --------
Total Assets 71,492 10,260 - 81,752
-------- -------- -------- --------
Liabilities:
Payables
Investment Securities Purchased - 68 - 68
Capital Shares Redeemed - 68 - 68
Accrued Expenses 29 2 - 31
Other Liabilities 41 38 - 79
-------- -------- -------- --------
Total Liabilities 70 176 - 246
-------- -------- -------- --------
Net Assets applicable to:
Strategy Growth and Income
($.01 par value - 20 billion authorized)
based on 984,133 and 7,952,133
outstanding shares, respectively - 10,277 68,696 (a) 78,973
Allocated Balanced Class A based on
614,566 outstanding shares 6,526 - (6,526)(a) -
Allocated Balanced Class Y based on
6,215,385 outstanding shares 62,170 - (62,170)(a) -
Undistributed net investment income (1) (1) - (2)
Accumulated net realized gain/(loss)
on investments 2,072 74 - 2,146
Net unrealized appreciation/(depreciation)
of investments 655 (266) - 389
-------- -------- -------- --------
Total Net Assets $ 71,422 $ 10,084 $ - $ 81,506
======== ======== ======== ========
Net Asset Value,
offering price and redemption price per share $ 10.25 $ 10.25
======== ========
Net Asset Value,
offering price and redemption price per share -
Class A $ 10.54
========
Net Asset Value,
offering price and redemption price per share -
Class Y $ 10.45
========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
First American Strategy Funds, Inc.
Strategy Growth Fund
Pro Forma Combining Statement of Assets and Liabilities
3/31/97
(Unaudited)
Pro Forma
Allocated Strategy Adjustments Pro Forma
Growth Growth (Note 2) Combined
(000) (000) (000) (000)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Assets:
Total Investments (Cost $21,041,
$4,343 and $25,384, respectively) $ 21,214 $ 4,221 $ - $ 25,435
Receivables:
Accrued Income 2 1 - 3
Capital Shares Sold 206 96 - 302
Other Assets 2 27 - 29
-------- -------- -------- --------
Total Assets 21,424 4,345 - 25,769
-------- -------- -------- --------
Liabilities:
Payables
Investment Securities Purchased - 55 - 55
Capital Shares Redeemed - 36 - 36
Accrued Expenses 7 36 - 43
-------- -------- -------- --------
Total Liabilities 7 127 - 134
-------- -------- -------- --------
Net Assets applicable to:
Strategy Growth
($.01 par value - 20 billion authorized)
based on 414,704 and 2,520,604
outstanding shares, respectively - 4,284 20,598 (a) 24,882
Allocated Growth Class A based on
741,999 outstanding shares 8,053 - (8,053)(a) -
Allocated Growth Class Y based on
1,246,320 outstanding shares 12,545 - (12,545)(a) -
Undistributed net investment income 43 - - 43
Accumulated net realized gain/(loss)
on investments 603 56 - 659
Net unrealized appreciation/(depreciation)
of investments 173 (122) - 51
-------- -------- -------- --------
Total Net Assets $ 21,417 $ 4,218 $ - $ 25,635
======== ======== ======== ========
Net Asset Value,
offering price and redemption price per share $ 10.17 $ 10.17
======== ========
Net Asset Value,
offering price and redemption price per share -
Class A $ 10.85
========
Net Asset Value,
offering price and redemption price per share -
Class Y $ 10.73
========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
First American Strategy Funds, Inc.
Strategy Aggressive Growth Fund
Pro Forma Combining Statement of Assets and Liabilities
3/31/97
(Unaudited)
Strategy Pro Forma
Allocated Aggressive Adjustments Pro Forma
Aggressive Growth (Note 2) Combined
(000) (000) (000) (000)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Assets:
Total Investments (Cost $23,149, $3,869
and $27,018, respectively) $ 23,270 $ 3,733 $ - $ 27,003
Receivables:
Accrued Income 3 1 - 4
Capital Shares Sold 44 117 - 161
Other Assets 1 27 - 28
-------- -------- -------- --------
Total Assets 23,318 3,878 - 27,196
-------- -------- -------- --------
Liabilities:
Payables
Accrued Expenses 7 35 - 42
-------- -------- -------- --------
Total Liabilities 7 35 - 42
-------- -------- -------- --------
Net Assets applicable to:
Strategy Aggressive Growth
($.01 par value - 20 billion authorized)
based on 379,328 and 2,680,513
outstanding shares, respectively - 3,911 22,594 (a) 26,505
Allocated Aggressive Class A based on
428,298 outstanding shares 4,724 - (4,724)(a) -
Allocated Aggressive Class Y based on
1,716,449 outstanding shares 17,870 - (17,870)(a) -
Undistributed net investment income 6 - - 6
Accumulated net realized gain/(loss)
on investments 590 68 - 658
Net unrealized appreciation/(depreciation)
of investments 121 (136) - (15)
-------- -------- -------- --------
Total Net Assets $ 23,311 $ 3,843 $ - $ 27,154
======== ======== ======== ========
Net Asset Value,
offering price and redemption price per share $ 10.13 $ 10.13
======== ========
Net Asset Value,
offering price and redemption price per share -
Class A $ 10.88
========
Net Asset Value,
offering price and redemption price per share -
Class Y $ 10.84
========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
First American Strategy Funds, Inc.
Strategy Income Fund
Pro Forma Combining Statement of Operations
For the Period Ended March 31, 1997 (Note 3)
(Unaudited)
Pro Forma Adjustments
Strategy Allocated (Note 2) Pro Forma
Income Conservative Debit Credit Combined
(000) (000) (000) (000) (000)
----- ----- --------- --------- -----
<S> <C> <C> <C> <C> <C>
Investment Income:
Interest $ 9 $ 10 $ - $ - $ 19
Dividends 131 316 - - 447
----- ----- --------- --------- -----
Total investment income 140 326 - - 466
----- ----- --------- --------- -----
Expenses:
Investment advisory fees 7 4 20(b) 4(b) 27
Waiver of investment advisory fees (7) - - 20(b) (27)
Reimbursement of expenses by advisor (57) - - 40(b) (97)
Administrative fees 25 6 21(b) 6(b) 46
Transfer agent fees 7 1 1(c) 1(c) 8
Amortization of organizational costs 2 - - - 2
Custodian fees 1 - 2(b) - 3
Directors' fees - 1 1(c) 1(c) 1
Registration fees 13 6 4(c) 6(c) 17
Professional fees 11 10 1(c) 10(c) 12
Printing 5 1 1(c) 1(c) 6
Shareholder servicing fee 7 - 20(b) - 27
Distribution fees - Qualivest Class A - 1 - 1(b) -
Other 2 - - - 2
----- ----- --------- --------- -----
Total expenses after waivers and
reimbursements 16 30 71 90 27
----- ----- --------- --------- -----
Investment income (loss) - net 124 296 (71) (90) 439
----- ----- --------- --------- -----
Realized and Unrealized Gains (Losses) on Investments
and Foreign Currency Transactions - Net
Realized capital gain distributions from investments 11 - - - 11
Net realized gain (loss) on investments 10 196 - - 206
Net change in unrealized appreciation
(depreciation) of invesments (183) 10 - - (173)
----- ----- --------- --------- -----
Net Gain (Loss) on Investments (162) 206 - - 44
----- ----- --------- --------- -----
Net Increase (Decrease) in Net Assets
Resulting from Operations $ (38) $ 502 $ (71) $ (90) $ 483
===== ===== ========= ========= =====
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
First American Strategy Funds, Inc.
Strategy Growth and Income Fund
Pro Forma Combining Statement of Operations
For the Period Ended March 31, 1997(Note 3)
(Unaudited)
Pro Forma Adjustments
Strategy (Note 2)
Growth and Allocated Pro Forma
Income balanced Debit Credit Combined
(000) (000) (000) (000) (000)
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Investment Income:
Interest $ 7 $ 68 $ - $ - $ 75
Dividends 65 1,508 - - 1,573
------- ------- ------- ------- -------
Total investment income 72 1,576 - - 1,648
------- ------- ------- ------- -------
Expenses:
Investment advisory fees 5 26 130(b) 26(b) 135
Waiver of investment advisory fees (5) - - 130(b) (135)
Reimbursement of expenses by advisor (54) - - 87(b) (141)
Administrative fees 25 41 36(b) 41(b) 61
Transfer agent fees 7 26 10(c) 26(c) 17
Amortization of organizational costs 2 - - - 2
Custodian fees 1 3 15(b) 3(b) 16
Directors' fees - 2 1(c) 2(c) 1
Registration fees 13 14 10(c) 14(c) 23
Professional fees 9 12 5(c) 12(c) 14
Printing 4 4 1(c) 4(c) 5
Shareholder servicing fee 5 - 130(b) - 135
Distribution fees - Qualivest Class A - 4 - 4(b) -
Other 1 1 1(c) 1(c) 2
------- ------- ------- ------- -------
Total expenses after waivers and reimbursements 13 133 339 350 135
------- ------- ------- ------- -------
Investment income (loss) - net 59 1,443 (339) (350) 1,513
------- ------- ------- ------- -------
Realized and Unrealized Gains (Losses) on Investments
and Foreign Currency Transactions - Net
Realized capital gain distributions from investments 52 - - - 52
Net realized gain (loss) on investments 22 2,090 - - 2,112
Net change in unrealized appreciation
(depreciation) of investments (266) 655 - - 389
------- ------- ------- ------- -------
Net Gain (Loss) on Investments (192) 2,745 - - 2,553
------- ------- ------- ------- -------
Net Increase (Decrease) in Net Assets Resulting
from Operations $ (133) $ 4,188 $ (339) $ (350) $ 4,066
======= ======= ======= ======= =======
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
First American Strategy Funds, Inc.
Strategy Growth Fund
Pro Forma Combining Statement of Operations
For the Period Ended March 31, 1997 (Note 3)
(Unaudited)
Pro Forma Adjustments
Strategy Allocated (Note 2) Pro Forma
Growth Growth Debit Credit Combined
(000) (000) (000) (000) (000)
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Investment Income:
Interest $ 3 $ 17 $ - $ - $ 20
Dividends 23 237 - - 260
------ ------ ------ ------ ------
Total investment income 26 254 - - 280
------ ------ ------ ------ ------
EXPENSES:
Investment advisory fees 3 6 30(b) 6(b) 33
Waiver of investment advisory fees (3) - - 30(b) (33)
Reimbursement of expenses by advisor (47) - - 37(b) (84)
Administrative fees 25 10 21(b) 10(b) 46
Transfer agent fees 6 2 2(c) 2(c) 8
Amortization of organizational costs 2 - - - 2
Custodian fees - 1 4(b) 1(b) 4
Directors' fees - 1 1(c) 1(c) 1
Registration fees 10 7 2(c) 7(c) 12
Professional fees 4 9 2(c) 9(c) 6
Printing 2 1 1(c) 1(c) 3
Shareholder servicing fee 3 - 30(b) - 33
Distribution fees - Qualivest Class A - 5 - 5(b) -
Other 1 - - - 1
------ ------ ------ ------ ------
Total expenses after waivers and reimbursements 6 42 93 109 33
------ ------ ------ ------ ------
Investment income (loss) - net 20 212 (93) (109) 247
------ ------ ------ ------ ------
Realized and Unrealized Gains (Losses) on Investments
and Foreign Currency Transactions - Net
Realized capital gain distributions from investments 54 - - - 54
Net realized gain (loss) on investments 2 614 - - 616
Net change in unrealized appreciation
(depreciation) of investments (122) 173 - - 51
------ ------ ------ ------ ------
Net Gain (Loss) on Investments (66) 787 - - 721
------ ------ ------ ------ ------
Net Increase (Decrease) in Net Assets
Resulting from Operations $ (46) $ 999 $ (93) $ (109) $ 968
====== ====== ====== ====== ======
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
First American Strategy Funds, Inc.
Strategy Aggressive Growth Fund
Pro Forma Combining Statement of Operations
For the Period Ended March 31, 1997 (Note 3)
(Unaudited)
Pro Forma Adjustments
Strategy (Note 2)
Aggressive Allocated Pro Forma
Growth aggressive Debit Credit Combined
(000) (000) (000) (000) (000)
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Investment Income:
Interest $ 3 $ 16 - $ - $ 19
Dividends 15 102 - - 117
------ ------ ------ ------ ------
Total investment income 18 118 - - 136
------ ------ ------ ------ ------
Expenses:
Investment advisory fees 3 5 25(b) 5(b) 28
Waiver of investment advisory fees (3) - - 25(b) (28)
Reimbursement of expenses by advisor (46) - - 38(b) (84)
Administrative fees 25 9 21(b) 9(b) 46
Transfer agent fees 6 2 2(c) 2(c) 8
Amortization of organizational costs 2 - - - 2
Custodian fees - 1 3(b) 1(b) 3
Directors' fees - 1 1(c) 1(c) 1
Registration fees 10 6 2(c) 6(c) 12
Professional fees 4 9 2(c) 9(c) 6
Printing 2 1 2(c) 1(c) 4
Shareholder servicing fee 3 - 25(b) - 28
Distribution fees - Qualivest Class A - 3 - 3(b) -
Other - - 1(c) - 1
------ ------ ------ ------ ------
Total expenses after waivers and reimbursements 6 37 85 100 28
------ ------ ------ ------ ------
Investment income (loss) - net 12 81 (85) (100) 108
------ ------ ------ ------ ------
Realized and Unrealized Gains (Losses) on Investments
and Foreign Currency Transactions - Net
Realized capital gain distributions from investments 64 - - - 64
Net realized gain (loss) on investments 4 590 - - 594
Net change in unrealized appreciation
(depreciation) of investments (136) 121 - - (15)
------ ------ ------ ------ ------
Net Gain (Loss) on Investments (68) 711 - - 643
====== ====== ====== ====== ======
Net Increase (Decrease) in Net Assets Resulting
from Operations $ (56) $ 792 $ (85) $ (100) $ 751
====== ====== ====== ====== ======
See accompanying notes to financial statements
</TABLE>
<PAGE>
FIRST AMERICAN STRATEGY FUNDS, INC.
NOTES TO PRO FORMA STATEMENTS
(UNAUDITED)
1. BASIS OF COMBINATION
The unaudited pro forma combining Statements of Assets and Liabilities,
Statements of Operations and Schedules of Investments give effect to the
proposed acquisition of the Qualivest Allocated Conservative Fund (Allocated
Conservative), Qualivest Allocated Balanced Fund (Allocated Balanced), Qualivest
Allocated Growth Fund (Allocated Growth) and Qualivest Allocated Aggressive Fund
(Allocated Aggressive) (the Qualivest Funds) by the corresponding First American
Strategy Funds, Inc. (the FASF Funds) which include the First American Strategy
Income Fund (Strategy Income), First American Strategy Growth and Income Fund
(Strategy Growth and Income), First American Strategy Growth Fund (Strategy
Growth) and First American Strategy Aggressive Growth Fund (Strategy Aggressive
Growth) (collectively, the Funds). The proposed acquisition will be accounted
for by the method of accounting for tax free mergers of investment companies
(sometimes referred to as the pooling without restatement method). The
acquisition will be accomplished by an exchange of all outstanding shares of
each class for each Qualivest Fund in exchange for shares of specified classes
of the corresponding FASF Fund.
The pro forma combining statements should be read in conjunction with the
historical financial statements of the constituent funds and the notes thereto
incorporated by reference in the Statement of Additional Information.
Strategy Income Fund, Strategy Growth and Income Fund, Strategy Growth Fund and
Strategy Aggressive Growth Fund, are portfolios offered by First American
Investment Funds, Inc. (FASF) an open-end, management investment company
registered under the Investment Company Act of 1940, as amended. FASF presently
includes a series of four funds.
2. PRO FORMA ADJUSTMENTS
(a) The pro forma combining statements of assets and liabilities
assumes the issuance of additional shares of the Funds as if
the reorganization were to have taken place on March 31, 1997
and is based on the net asset value of the acquiring fund.
Transactions in shares of capital stock are as follows:
159,305, 614,566, 741,999, 428,298 Class A shares and 897,392,
6,215,385, 1,246,320, 1,716,449 Class Y shares of Allocated
Conservative Fund, Allocated Balanced Fund, Allocated Growth
Fund and Allocated Aggressive Fund, respectively, exchanged
for 1,076,657, 6,968,000,
<PAGE>
2,105,900, 2,301,185 Common shares (no class designation) of
Strategy Income Fund, Strategy Growth and Income Fund,
Strategy Growth Fund and Strategy Aggressive Growth Fund,
respectively.
(b) The pro forma adjustments to investment advisory fees
(including waivers), administrative fees, custodian fees and
distribution fees (including waivers) reflect the difference
in fees charged by the FASF Funds based upon the effective fee
schedule.
First Bank National Association (FBNA) has agreed to waive
fees and reimburse expenses through September 30, 1998, to the
extent necessary to maintain overall total proforma Fund
operating expense ratios at 0.25% of average daily net assets
for each Fund.
(c) The pro forma adjustments to transfer agent fees, directors'
fees, registration fees, professional fees, printing expenses
and other expenses reflect the expected savings due to the
combination of the funds.
(d) The pro forma adjustments to the Schedule of Investments
reflect a reorganization, subject to shareholder approval and
the satisfaction of certain conditions, of each of the
underlying portfolios into a series of either First American
Funds, Inc. or First American Investment Funds, Inc.
3. PRESENTATION PERIOD (STATEMENT OF OPERATIONS)
The FASF Funds commenced operations on October 1, 1996. The statements of
operations reflect the results of operations for the period from October 1, 1996
to March 31, 1997. The Qualivest Funds commenced operations May 1, 1996. The
statements of operations reflect the results of operations for the period from
May 1, 1996 to March 31, 1997. The proforma combining statements of operations
reflect the combined results of operations for the period from May 1, 1996 to
March 31, 1997.
4. INVESTMENT OBJECTIVES AND POLICIES
These statements do not reflect the effects of proposed differing investment
objectives and policies of the Funds, in regards to their investments and
allocations between underlying portfolios. To insure that the investments in the
underlying portfolios comply with each funds' allocation range, the FASF Funds
may alter the permissable ranges which would require the prospectus to be
amended or supplemented, or adjust the investments in the underlying portfolios.
Changes in investments may result in a realization of capital gains for the
Funds and shareholders.
<PAGE>
<TABLE>
<CAPTION>
First American Strategy Funds, Inc.
Strategy Income Fund
Pro Forma Combining Schedule of Investments
3/31/97
(Unaudited)
Shares Value
------ -----
Pro Forma
Pro Forma Allocated Strategy Adjustments Pro Forma
Allocated Strategy Adjustments Pro Forma Conservative Income (Note 2) Combined
Conservative Income (Note 2) Combined Security (000) (000) (000) (000)
- ------------ ------ --------- --------- -------- ------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EQUITY FUNDS - 29.2% (Percentages represent pro forma value of investments
compared to pro forma net assets)
18,602 - (18,602) (d) - QUALIVEST INTERNATIONAL OPPORTUNITIES $ 883 $ - $ (883)(d) $ -
96,294 - (96,294) (d) - QUALIVEST LARGE COMPANIES VALUE 1,263 - (1,263)(d) -
61,824 - (61,824) (d) - QUALIVEST OPTIMIZED STOCK 843 - (843)(d) -
35,817 - (35,817) (d) - QUALIVEST SMALL COMPANIES VALUE 535 - (535)(d) -
- - 81,602 (d) 81,602 FIRST AMERICAN INTERNATIONAL INDEX - - 883 (d) 883
- - 54,864 (d) 54,864 FIRST AMERICAN STOCK - - 1,263 (d) 1,263
- - 50,831 (d) 50,831 FIRST AMERICAN EQUITY INDEX - - 843 (d) 843
- - 35,817 (d) 35,817 FIRST AMERICAN SMALL CAP VALUE - - 535 (d) 535
- 220,041 - 220,041 FIRST AMERICAN EQUITY INCOME - 2,935 - 2,935
- 45,531 - 45,531 FIRST AMERICAN REAL ESTATE SECURITIES - 601 - 601
---------------------------------------
TOTAL EQUITY FUNDS 3,524 3,536 - 7,060
---------------------------------------
FIXED INCOME FUNDS - 62.2%
363,448 - (363,448) (d) - QUALIVEST DIVERSIFIED BOND 3,609 - (3,609)(d) -
349,969 - (349,969) (d) - QUALIVEST INTERMEDIATE BOND 3,475 - (3,475)(d) -
- 746,540 340,475 (d) 1,087,015 FIRST AMERICAN FIXED INCOME - 7,913 3,609 (d) 11,522
- - 355,701 (d) 355,701 FIRST AMERICAN INTERMEDIATE TERM INCOME - - 3,475 (d) 3,475
---------------------------------------
TOTAL FIXED INCOME FUNDS 7,084 7,913 - 14,997
---------------------------------------
MONEY MARKET FUNDS - 4.0%
233,291 - (233,291) (d) - QUALIVEST MONEY MARKET 233 - (233)(d) -
- 735,789 233,291 (d) 969,080 FIRST AMERICAN PRIME OBLIGATIONS - 736 233 (d) 969
---------------------------------------
TOTAL MONEY MARKET FUNDS 233 736 - 969
---------------------------------------
TOTAL INVESTMENTS (Cost $10,830,
$12,368 and $23,198, respectively) $10,841 $12,185 $ - $23,026
=======================================
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
First American Strategy Funds, Inc.
Strategy Growth and Income Fund
Pro Forma Combining Schedule of Investments
3/31/97
(Unaudited)
Shares Value
------ -----
Strategy Pro Forma
Strategy Pro Forma Allocated Growth Adjustments Pro Forma
Allocated Growth Adjustments Pro Forma Balance and Income (Note 2) Combined
Balance and Income (Note 2) Combined Security (000) (000) (000) (000)
- ------------ ----- ------------- --------- -------- -------- ----- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
EQUITY FUNDS - 57.7% (Percentages represent pro forma value of
investments compared to pro forma net assets)
1,023,893 - (1,023,893)(d) - QUALIVEST INTERNATIONAL OPPORTUNITIES $ 11,079 $ - $(11,079)(d) $ -
1,173,715 - (1,173,715)(d) - QUALIVEST LARGE COMPANIES VALUE 15,387 - (15,387)(d) -
717,629 - (717,629)(d) - QUALIVEST OPTIMIZED STOCK 9,788 - (9,788)(d) -
377,351 - (377,351)(d) - QUALIVEST SMALL COMPANIES VALUE 5,630 - (5,630)(d) -
- - 1,023,893 (d) 1,023,893 FIRST AMERICAN INTERNATIONAL INDEX - - 11,079 (d) 11,079
- 64,931 668,727 (d) 733,658 FIRST AMERICAN STOCK - 1,494 15,387 (d) 16,881
- - 590,022 (d) 590,022 FIRST AMERICAN EQUITY INDEX - - 9,788 (d) 9,788
- - 377,351 (d) 377,351 FIRST AMERICAN SMALL CAP VALUE - - 5,630 (d) 5,630
- 105,538 - 105,538 FIRST AMERICAN DIVERSIFIED GROWTH - 1,476 - 1,476
- 51,703 - 51,703 FIRST AMERICAN EMERGING GROWTH - 663 - 663
- 44,127 - 44,127 FIRST AMERICAN INTERNATIONAL - 482 - 482
- 28,960 - 28,960 FIRST AMERICAN REAL ESTATE SECURITIES - 382 - 382
- 38,774 - 38,774 FIRST AMERICAN REGIONAL EQUITY - 663 - 663
-----------------------------------------
TOTAL EQUITY FUNDS 41,884 5,160 - 47,044
-----------------------------------------
FIXED INCOME FUNDS - 39.1%
1,731,964 - (1,731,964)(d) - QUALIVEST DIVERSIFIED BOND 17,198 - (17,198)(d) -
1,084,651 - (1,084,651)(d) - QUALIVEST INTERMEDIATE BOND 10,771 - (10,771)(d) -
- 365,357 1,622,491 (d) 1,987,848 FIRST AMERICAN FIXED INCOME - 3,873 17,198 (d) 21,071
- - 1,102,414 (d) 1,102,414 FIRST AMERICAN INTERMEDIATE TERM INCOME - - 10,771 (d) 10,771
-----------------------------------------
TOTAL FIXED INCOME FUNDS 27,969 3,873 - 31,842
-----------------------------------------
MONEY MARKET FUNDS - 2.6%
1,537,885 - (1,537,885)(d) - QUALIVEST MONEY MARKET 1,538 - (1,538)(d) -
- 544,319 1,537,885 (d) 2,082,204 FIRST AMERICAN PRIME OBLIGATIONS - 544 1,538 (d) 2,082
-----------------------------------------
TOTAL MONEY MARKET FUNDS 1,538 544 - 2,082
-----------------------------------------
TOTAL INVESTMENTS (Cost $70,736,
$9,843 and $80,579, respectively) $ 71,391 $ 9,577 $ - $80,968
=========================================
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
First American Strategy Funds, Inc.
Strategy Growth Fund
Pro Forma Combining Schedule of Investments
3/31/97
(Unaudited)
Shares Value
------ -----
Pro Forma
Pro Forma Allocated Strategy Adjustments Pro Forma
Allocated Strategy Adjustments Pro Forma Growth Growth (Note 2) Combined
Growth Growth (Note 2) Combined Security (000) (000) (000) (000)
- ------------ ----- ----------- -------- --------- ------- ------ ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EQUITY FUNDS - 77.0% (Percentages represent pro forma value of
investments compared to pro forma net assets)
402,195 - (402,195)(d) - QUALIVEST INTERNATIONAL OPPORTUNITIES $ 4,352 $ - $(4,352)(d) $ -
444,865 - (444,865)(d) - QUALIVEST LARGE COMPANIES VALUE 5,832 - (5,832)(d) -
289,018 - (289,018)(d) - QUALIVEST OPTIMIZED STOCK 3,943 - (3,943)(d) -
183,050 - (183,050)(d) - QUALIVEST SMALL COMPANIES VALUE 2,731 - (2,731)(d) -
- - 402,195 (d) 402,195 FIRST AMERICAN INTERNATIONAL INDEX - - 4,352(d) 4,352
- 26,760 253,463 (d) 280,223 FIRST AMERICAN STOCK - 616 5,832(d) 6,448
- - 237,625 (d) 237,625 FIRST AMERICAN EQUITY INDEX - - 3,943(d) 3,943
- - 183,050 (d) 183,050 FIRST AMERICAN SMALL CAP VALUE - - 2,731(d) 2,731
- 43,495 - 43,495 FIRST AMERICAN DIVERSIFIED GROWTH - 608 - 608
- 32,460 - 32,460 FIRST AMERICAN EMERGING GROWTH - 416 - 416
- 38,788 - 38,788 FIRST AMERICAN INTERNATIONAL - 424 - 424
- 24,345 - 24,345 FIRST AMERICAN REGIONAL EQUITY - 416 - 416
- 21,179 - 21,179 FIRST AMERICAN SPECIAL EQUITY - 411 - 411
----------------------------------------
TOTAL EQUITY FUNDS 16,858 2,891 - 19,749
----------------------------------------
FIXED INCOME FUNDS - 19.2%
236,066 - (236,066)(d) - QUALIVEST DIVERSIFIED BOND 2,344 - (2,344)(d) -
152,165 - (152,165)(d) - QUALIVEST INTERMEDIATE BOND 1,511 - (1,511)(d) -
- 100,346 221,145 (d) 321,491 FIRST AMERICAN FIXED INCOME - 1,064 2,344(d) 3,408
- - 154,657 (d) 154,657 FIRST AMERICAN INTERMEDIATE TERM INCOME - - 1,511(d) 1,511
----------------------------------------
TOTAL FIXED INCOME FUNDS 3,855 1,064 - 4,919
----------------------------------------
MONEY MARKET FUNDS - 3.0%
501,260 - (501,260)(d) - QUALIVEST MONEY MARKET 501 - (501)(d) -
- 266,116 501,260 (d) 767,376 FIRST AMERICAN PRIME OBLIGATIONS - 266 501(d) 767
----------------------------------------
TOTAL MONEY MARKET FUNDS 501 266 - 767
----------------------------------------
TOTAL INVESTMENTS (Cost $21,041,
$4,343 and $25,384, respectively) $21,214 $ 4,221 $ - $25,435
========================================
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
First American Strategy Funds, Inc.
Strategy Aggressive Growth Fund
Pro Forma Combining Schedule of Investments
3/31/97
(Unaudited)
Shares Value
------------
Strategy Pro Forma
Strategy Pro Forma Allocated Aggressive Adjustments Pro Forma
Allocated Aggressive Adjustments Pro Forma Aggressive Growth (Note 2) Combined
Aggressive Growth (Note 2) Combined Security (000) (000) (000) (000)
- --------- ------ ----------- -------- -------- ------- ------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EQUITY FUNDS - 95.5% (Percentages represent pro forma value of
investments compared to pro forma net assets)
554,969 - (554,969)(d) - QUALIVEST INTERNATIONAL OPPORTUNITIES $6,005 $ - $(6,005)(d) $ -
563,174 - (563,174)(d) - QUALIVEST LARGE COMPANIES VALUE 7,383 - (7,383)(d) -
327,375 - (327,375)(d) - QUALIVEST OPTIMIZED STOCK 4,466 - (4,466)(d) -
328,846 - (328,846)(d) - QUALIVEST SMALL COMPANIES VALUE 4,906 - (4,906)(d) -
- - 554,969 (d) 554,969 FIRST AMERICAN INTERNATIONAL INDEX - - 6,005(d) 6,005
- 19,231 320,870 (d) 340,101 FIRST AMERICAN STOCK - 442 7,383(d) 7,825
- - 269,161 (d) 269,161 FIRST AMERICAN EQUITY INDEX - - 4,466(d) 4,466
- - 328,846 (d) 328,846 FIRST AMERICAN SMALL CAP VALUE - - 4,906(d) 4,906
- 28,654 - 28,654 FIRST AMERICAN DIVERSIFIED GROWTH - 401 - 401
- 37,927 - 37,927 FIRST AMERICAN EMERGING GROWTH - 486 - 486
- 15,354 - 15,354 FIRST AMERICAN HEALTH SCIENCES - 148 - 148
- 52,303 - 52,303 FIRST AMERICAN INTERNATIONAL - 572 - 572
- 28,442 - 28,442 FIRST AMERICAN REGIONAL EQUITY - 486 - 486
- 24,472 - 24,472 FIRST AMERICAN SPECIAL EQUITY - 480 - 480
- 10,226 - 10,226 FIRST AMERICAN TECHNOLOGY - 144 - 144
----------------------------------------------
TOTAL EQUITY FUNDS 22,760 3,159 - 25,919
----------------------------------------------
FIXED INCOME FUNDS - 1.4%
- 36,086 - 36,086 FIRST AMERICAN FIXED INCOME - 383 - 383
----------------------------------------------
MONEY MARKET FUNDS - 2.6%
510,032 - (510,032)(d) - QUALIVEST MONEY MARKET 510 - (510)(d) -
- 190,812 510,032 (d) 700,844 FIRST AMERICAN PRIME OBLIGATIONS - 191 510(d) 701
----------------------------------------------
TOTAL MONEY MARKET FUNDS 510 191 - 701
----------------------------------------------
TOTAL INVESTMENTS (Cost $23,149,
$3,869 and $27,018, respectively) $23,270 $ 3,733 $ - $27,003
==============================================
See accompanying notes to financial statements
</TABLE>
