FIRST AMERICAN STRATEGY FUNDS INC, 497, 1998-05-15

FIRST AMERICAN STRATEGY FUNDS INC
497, 1998-05-15

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January 31, 1998 as supplemented on May 15, 1998

STRATEGY FUNDS

Strategy Income Fund
Strategy Growth and Income Fund
Strategy Growth Fund
Strategy Aggressive Growth Fund

FIRST AMERICAN
STRATEGY FUNDS, INC.

PROSPECTUS

[LOGO] FIRST AMERICAN
THE POWER OF DISCIPLINED INVESTING(R)

<PAGE>

TABLE OF CONTENTS

Summary 2
............................................
Fees and Expenses 5
............................................
Financial Highlights 8
............................................
The Funds 10
............................................
Investment Objectives and Policies 10
............................................
The Underlying Funds 14
............................................
Management 24
............................................
Distributor 28
............................................
Investing in the Funds 29
............................................
Redeeming Shares 31
............................................
Determining the Price of Shares 33
............................................
Federal Income Taxes 34
............................................
Fund Shares 35
............................................
Calculation of Performance Data 35
............................................
Special Investment Methods 37
............................................
Information Concerning Compensation Paid
to U.S. Bank National Association and
Other Affiliates 46
............................................

<PAGE>

FIRST AMERICAN STRATEGY FUNDS, INC.

PROSPECTUS

The shares described in this Prospectus represent interests in First
American Strategy Funds, Inc., which consists of the following mutual
funds (the "Funds"):

* INCOME FUND

* GROWTH AND INCOME FUND

* GROWTH FUND

* AGGRESSIVE GROWTH FUND

As described in this Prospectus, the Funds' investment objectives are
intended to provide differing balances between the objectives of current
income and of growth of capital. Each Fund seeks to achieve its investment
objectives by investing primarily in a variety of other mutual funds which
are also advised by the Funds' investment adviser, U.S. Bank National
Association acting through its First American Asset Management group. In
managing the Funds, the investment advisor will allocate and re-allocate
the Funds' assets among such other mutual funds within predetermined
ranges, expressed as percentages of the Funds' net assets.

SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
ANY BANK, INCLUDING U.S. BANK NATIONAL ASSOCIATION AND ANY OF ITS
AFFILIATES, NOR ARE THEY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. AN INVESTMENT
IN THE FUNDS INVOLVES INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF
PRINCIPAL, DUE TO FLUCTUATIONS IN EACH FUND'S NET ASSET VALUE.

This Prospectus concisely sets forth information about the Funds that a
prospective investor should know before investing. It should be read and
retained for future reference.

A Statement of Additional Information dated January 31, 1998 as supplemented
on May 15, 1998, for the Funds has been filed with the Securities and
Exchange Commission ("SEC") and is incorporated in its entirety by reference
in this Prospectus. To obtain copies of the Statement of Additional
Information at no charge, or to obtain other information or make inquiries
about the Funds, call (888) 997-8728 or write SEI Investments Distribution
Co., Oaks, Pennsylvania 19456. The SEC maintains a World Wide Web site that
contains reports and information regarding issuers that file electronically
with the SEC. The address of such site is "http://www.sec.gov."

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

The date of this Prospectus is January 31, 1998 as supplemented on May 15,
1998.

<PAGE>

SUMMARY

First American Strategy Funds, Inc. ("FASF") is an open-end investment
company which offers shares in four different mutual funds (the "Funds").
The Funds' investment objectives are intended to provide differing
balances between the objectives of current income and of growth of
capital. These investment objectives are as follows:

INCOME FUND seeks to provide a high level of current income consistent
with limited risk to capital. The Fund's limited equity component is
designed to help offset inflation and provide a source for potential
increases in income over time.

GROWTH AND INCOME FUND seeks to provide both capital growth and current
income through a balanced approach to equity securities and fixed-income
investments.

GROWTH FUND seeks to provide capital growth with a moderate level of
current income. The Fund provides high allocations to various equity
categories including small company and international company equity
securities.

AGGRESSIVE GROWTH FUND seeks to provide a high level of capital growth.
The Fund provides high allocations to various equity categories including
small company and international company equity securities and may include
high allocations to technology and health care company equity securities.

Each Fund seeks to achieve its investment objectives by investing primarily
in a variety of other mutual funds (the "Underlying Funds") which are also
advised by the Funds' investment advisor. In managing the Funds, the
investment advisor will allocate and re-allocate the Funds' assets among the
Underlying Funds within predetermined ranges, expressed as percentages of
the Funds' net assets. These ranges, and the investment advisor's
allocations within the ranges, are intended to reflect the Funds' differing
balances between the investment objectives of current income and of growth
of capital.

The Underlying Funds include ten equity funds, one fixed income fund, and
one money market fund. The equity funds and the fixed income fund comprise
separate series of First American Investment Funds, Inc. ("FAIF"), and the
money market fund comprises a separate series of First American Funds,
Inc. ("FAF"). The predetermined ranges within which the Funds' assets may
be allocated are set forth below under the caption "Investment Objectives
and Policies," and detailed information concerning the Underlying Funds is
set forth below under the caption "The Underlying Funds." Each of the
Funds is a non-diversified investment company, as defined in the
Investment Company Act of 1940 (the "1940 Act").

INVESTMENT ADVISOR. U.S. Bank National Association (the "Advisor") or "U.S.
Bank", acting through its First American Asset Management group, serves as
investment advisor to each of the Funds. See "Management."

DISTRIBUTOR; ADMINISTRATOR. SEI Investments Distribution Co. (the
"Distributor") serves as the distributor of the Funds' shares. SEI
Investments Management Corporation (the "Administrator") serves as the
administrator of the Funds. See "Management" and "Distributor."

OFFERING PRICES; EXPENSES. Shares of the Funds are sold at net asset value
without any front-end or deferred sales charges. Shares of each Fund are
subject to a shareholder servicing fee computed at an annual rate of 0.25%
of average daily net assets. See "Investing in the Funds" and
"Distributor."

Investors in the Funds will bear their proportionate share of the expenses
of the Funds (including operating costs, administrative fees and, to the
extent not waived, investment advisory fees) and, in addition, will
indirectly bear similar expenses of the Underlying Funds. Some investors
(primarily certain institutional investors which are eligible to purchase
the "no load" class of Underlying Fund shares) might be able to realize
lower aggregate charges and expenses by investing directly in the Underlying
Funds, rather than investing indirectly in the Underlying Funds by
purchasing Fund shares. An investor who chooses to invest directly in the
Underlying Funds rather than purchasing Fund shares would, however, forego
the asset allocation services provided by

<PAGE>

the Advisor in its management of the Funds. See "Fees and Expenses --
Information Concerning Fees and Expenses."

MINIMUM INITIAL AND SUBSEQUENT INVESTMENTS. The minimum initial investment
is $1,000 ($250 for IRAs) for each Fund. Subsequent investments must be $100
or more. Regular investment in the Funds is simplified through the
Systematic Investment Program through which monthly purchases of $100 or
more are possible. See "Investing in the Funds -- Minimum Investment
Required" and "-- Systematic Investment Program."

EXCHANGES. Shares of any Fund may be exchanged for shares of any other
Fund at the shares' respective net asset values with no additional charge.
Shares of the Funds may not be exchanged for shares of the Underlying
Funds, other than Class A Shares of FAF's Prime Obligations Fund. See
"Investing in the Funds -- Exchange Privilege."

REDEMPTIONS. Shares of each Fund may be redeemed at any time at their net
asset value next determined after receipt of a redemption request by the
Funds' transfer agent. Each Fund may, upon 60 days written notice, redeem
an account if the account's net asset value falls below $500. See
"Investing in the Funds" and "Redeeming Shares."

RISKS TO CONSIDER. An investment in any of the Funds involves certain
risks. These include the following:

ACTIVE MANAGEMENT. The performance of the Funds will reflect in part the
ability of the Advisor to make asset allocation and other investment
decisions which are suited to achieving the Funds' investment objectives.
Due to their active management, the Funds could underperform other mutual
funds with similar investment objectives.

ADDITIONAL EXPENSES. Investing in the Underlying Funds through the Funds
involves certain additional expenses that would not be present in a direct
investment in the Underlying Funds. See "Fees and Expenses -- Information
Concerning Fees and Expenses."

RISKS ASSOCIATED WITH THE UNDERLYING FUNDS. The risks associated with the
Underlying Funds are discussed in greater detail under "The Underlying
Funds." These risks include, among others:

* The Underlying Funds are actively managed, and therefore may
underperform other mutual funds with similar investment objectives.

* Each of the Underlying Funds is subject to the risk of generally adverse
markets. In general, the market prices of equity securities frequently
are subject to greater volatility than the prices of fixed income
securities. Therefore, it may be expected that the net asset values of
Underlying Funds which are permitted to invest higher proportions of
their assets in equity funds may be more volatile than Underlying Funds
which are limited to lower proportions.

* Certain of the Underlying Funds may (i) invest in small-capitalization
companies; (ii) concentrate their investments in a single or related
economic sectors; (iii) invest in real estate investment trusts; (iv)
invest in securities of foreign issuers; (v) in the case of one
Underlying Fund, invest a significant portion of its assets in less than
investment grade debt securities; and (vi) engage (but not for
speculative purposes) in options and futures transactions.

* The Underlying Fund which invests primarily in debt securities is
subject to interest rate risk, credit risk, call risk, and certain risks
associated with investing in mortgage-backed securities. In addition, to
the limited extent to which several other Underlying Funds may invest in
fixed-rate debt securities, they also are subject to interest rate risk,
credit risk, and call risk.

<PAGE>

POSSIBLE CONFLICTS OF INTEREST AND RECEIPT OF SECURITIES. It is possible
that situations could arise in which the interests of the Funds diverge
from those of the Underlying Funds. Since the Funds and the Underlying
Funds have a common investment advisor and common officers and directors,
such situations could place these persons in a position in which their
duties to the Funds conflict with their duties to the Underlying Funds. In
order to resolve some types of conflicts, an Underlying Fund could
determine to meet a redemption request by a Fund by distributing
securities from its portfolio to the Fund rather than by paying cash. Any
securities received by a Fund as a result of such an in-kind redemption
would be held by the Fund until the Advisor determines that it is
appropriate to dispose of such securities. See "Investment Objectives and
Policies -- Possible Conflicts of Interest and Receipt of Securities."

SHAREHOLDER INQUIRIES. Any questions or communications regarding the Funds
or a shareholder account should be directed to the Distributor by calling
(888) 997-8728, or to the financial institution which holds shares on an
investor's behalf.

<PAGE>

FEES AND EXPENSES

The following tables set forth the shareholder transaction expenses and the
direct annual operating expenses that a shareholder bears in connection with
an investment in the Funds' shares. As illustrated in the other tables under
this caption, Fund shareholders also indirectly bear their proportionate
share of the Underlying Funds' expenses.

<TABLE>
<CAPTION>
GROWTH
AND AGGRESSIVE
INCOME INCOME GROWTH GROWTH
FUND FUND FUND FUND
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on purchases None None None None
Maximum sales load imposed on reinvested dividends None None None None
Deferred sales load None None None None
Redemption fees None None None None
Exchange fees None None None None
- --------------------------------------------------------------------------------------------------------------

DIRECT ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment advisory fee (after voluntary
fee waivers and reimbursements)(1) 0.00% 0.00% 0.00% 0.00%
Rule 12b-1 fees None None None None
Other expenses (after voluntary fee waivers and
reimbursements)(1):
Shareholder servicing fee 0.25% 0.25% 0.25% 0.25%
Miscellaneous(1) 0.00% 0.00% 0.00% 0.00%
Total other expenses 0.25% 0.25% 0.25% 0.25%
Total fund operating expenses
(after voluntary fee waivers and reimbursements)(1) 0.25% 0.25% 0.25% 0.25%
- --------------------------------------------------------------------------------------------------------------

</TABLE>

(1) THE ADVISOR INTENDS TO WAIVE A PORTION OF ITS FEES AND/OR REIMBURSE
EXPENSES ON A VOLUNTARY BASIS, AND THE AMOUNTS SHOWN REFLECT THIS WAIVER
AND REIMBURSEMENT AS OF THE DATE OF THIS PROSPECTUS. THE ADVISOR INTENDS
TO MAINTAIN SUCH WAIVER AND REIMBURSEMENT IN EFFECT FOR THE CURRENT FISCAL
YEAR BUT RESERVES THE RIGHT TO DISCONTINUE THEM AT ANY TIME IN ITS SOLE
DISCRETION. ABSENT ANY WAIVERS, INVESTMENT ADVISORY FEES AS AN ANNUALIZED
PERCENTAGE OF AVERAGE DAILY NET ASSETS WOULD BE 0.25% FOR EACH OF THE
FUNDS; OTHER EXPENSES CALCULATED ON SUCH BASIS WOULD BE 1.75% FOR INCOME
FUND; 1.85% FOR GROWTH AND INCOME FUND; 2.37% FOR GROWTH FUND AND 2.60%
FOR AGGRESSIVE GROWTH FUND; AND TOTAL FUND OPERATING EXPENSES CALCULATED
ON SUCH BASIS WOULD BE 2.00% FOR INCOME FUND; 2.10% FOR GROWTH AND INCOME
FUND; 2.62% FOR GROWTH FUND AND 2.85% FOR AGGRESSIVE GROWTH FUND. "OTHER
EXPENSES" INCLUDES AN ADMINISTRATION FEE AND IS BASED ON ESTIMATED AMOUNTS
FOR THE CURRENT FISCAL YEAR.

<PAGE>

FEES AND EXPENSES (continued)

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RANGES OF COMBINED DIRECT AND INDIRECT EXPENSE RATIOS

(AS A PERCENTAGE OF AVERAGE NET ASSETS)

As noted above, in addition to the Funds' direct expenses, Fund shareholders
also indirectly bear their proportionate share of the Underlying Funds'
expenses. The following table sets forth the ranges of combined direct and
indirect expense ratios borne by Fund shareholders after voluntary fee
waivers and reimbursements, taking into account Underlying Fund expenses
indirectly borne by Fund shareholders. Ranges are presented because the
Underlying Funds' expense ratios differ from one another, so that the actual
combined direct and indirect expense ratios of the Funds will depend on the
allocation of Fund assets among the Underlying Funds. Information concerning
the Underlying Funds' expense ratios is set forth under "-- Underlying Fund
Expense Ratios" below.

RANGES OF COMBINED DIRECT AND INCOME GROWTH AND GROWTH AGGRESSIVE
INDIRECT EXPENSE RATIOS FUND INCOME FUND FUND GROWTH FUND
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
0.91% to 0.92% to 0.97% to 1.02% to
0.98% 1.14% 1.21% 1.25%

- ------------------------------------------------------------------------------------------
</TABLE>

EXAMPLE(2)

Using the midpoint of the ranges set forth above, you would pay the
following expenses on a $1,000 investment, assuming (i) a 5% annual return
and (ii) redemption at the end of each time period:

<TABLE>
<CAPTION>
INCOME GROWTH AND GROWTH AGGRESSIVE
FUND INCOME FUND FUND GROWTH FUND
- --------------------------------------------------------------
<S> <C> <C> <C> <C>
1 year $ 10 $ 11 $ 11 $ 12
3 years $ 30 $ 33 $ 35 $ 36
5 years $ 53 $ 57 $ 60 $ 63
10 years $117 $126 $133 $139
- --------------------------------------------------------------
</TABLE>

(2) ABSENT THE FEE WAIVERS AND REIMBURSEMENTS REFERRED TO IN (1) ABOVE, THE
DOLLAR AMOUNTS FOR THE 1, 3, 5 AND 10-YEAR PERIODS WOULD BE AS FOLLOWS:
INCOME FUND, $27, $84, $143 AND $303; GROWTH AND INCOME FUND, $29, $89, $152
AND $320; GROWTH FUND, $35, $106, $180 AND $379; AND AGGRESSIVE GROWTH FUND,
$38, $114, $193 AND $398.

<PAGE>

--------------------------------------------------------------------------
UNDERLYING FUND EXPENSE RATIOS

Based on information as of September 30, 1997, the expense ratios of the
Underlying Funds in which the respective Funds may invest are as set forth
in the table below. The information in the table is for Class Y Shares of
the Underlying Funds, which is the only class in which the Funds will
invest. The ratios presented reflect existing voluntary fee waiver and
reimbursement arrangements with respect to the Underlying Funds. These
arrangements may be discontinued at any time, in which event the Underlying
Funds' expense ratios would be higher.

<TABLE>
<CAPTION>
EXPENSE
UNDERLYING FUND RATIO(3)
- -------------------------------------------------
<S> <C>

Real Estate Securities Fund(4)(5) 0.80%
Equity Income Fund(4)(5)(6) 0.75%
Large Cap Value Fund(7) 0.80%
Large Cap Growth Fund(7) 0.80%
Mid Cap Value Fund(6)(7) 0.89%
Small Cap Growth Fund(7) 0.90%
Small Cap Value Fund 0.90%
International Fund(7) 1.35%
Health Sciences Fund(4)(6)(7) 0.90%
Technology Fund(4)(6)(7) 0.90%
Fixed Income Fund 0.70%
Prime Obligations Fund 0.45%
- -------------------------------------------------

</TABLE>

(3) ABSENT VOLUNTARY FEE WAIVER AND REIMBURSEMENT ARRANGEMENTS, THESE EXPENSE
RATIOS WOULD BE AS FOLLOWS: REAL ESTATE SECURITIES FUND, 1.05%; EQUITY
INCOME FUND, 0.92%; LARGE CAP VALUE FUND, 0.89%; LARGE CAP GROWTH FUND,
0.89%; MID CAP VALUE FUND, 0.90%; SMALL CAP GROWTH FUND, 0.91%; SMALL CAP
VALUE FUND, 0.90%; INTERNATIONAL FUND, 1.67%; HEALTH SCIENCES FUND, 1.04%;
TECHNOLOGY FUND, 0.92%; FIXED INCOME FUND, 0.88%; AND PRIME OBLIGATIONS
FUND, 0.52%.
(4) GROWTH FUND IS NOT PERMITTED TO INVEST IN THIS UNDERLYING FUND.
(5) AGGRESSIVE GROWTH FUND IS NOT PERMITTED TO INVEST IN THIS UNDERLYING FUND.
(6) GROWTH AND INCOME FUND IS NOT PERMITTED TO INVEST IN THIS UNDERLYING FUND.
(7) INCOME FUND IS NOT PERMITTED TO INVEST IN THIS UNDERLYING FUND.

---------------------------------------------------------------------------
INFORMATION CONCERNING FEES AND EXPENSES

The purpose of the preceding tables is to assist the investor in
understanding the various costs and expenses that an investor in a Fund may
bear directly or indirectly. THE EXAMPLES CONTAINED IN THE TABLES SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN.

<PAGE>

FINANCIAL HIGHLIGHTS

The following financial highlights should be read in conjunction with the
Funds' financial statements, the related notes thereto and the independent
auditors' report of KPMG Peat Marwick LLP appearing in FASF's annual report
to shareholders for the year ended September 30, 1997. Further information
about the Funds' performance is contained in such annual report to
shareholders, which may be obtained without charge by calling (888) 997-8728
or by writing SEI Investments Distribution Co., Oaks, Pennsylvania 19456.

For the period ended September 30, 1997
For a share outstanding throughout the period.

<TABLE>
<CAPTION>
REALIZED
NET ASSET AND DIVIDENDS
VALUE NET UNREALIZED FROM NET
BEGINNING INVESTMENT GAINS ON INVESTMENT
OF PERIOD INCOME INVESTMENTS INCOME
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCOME FUND (1) $ 10.00 $ 0.41 $ 0.82 $ (0.41)
GROWTH AND INCOME FUND (1) $ 10.00 $ 0.26 $ 1.76 $ (0.26)
GROWTH FUND (1) $ 10.00 $ 0.18 $ 2.12 $ (0.18)
AGGRESSIVE GROWTH FUND (1) $ 10.00 $ 0.11 $ 2.58 $ (0.11)
- --------------------------------------------------------------------------------------
</TABLE>

+ RETURNS ARE FOR THE PERIODS INDICATED AND HAVE NOT BEEN ANNUALIZED.
(1) COMMENCED OPERATIONS ON OCTOBER 1, 1996. ALL RATIOS FOR THE PERIOD HAVE
BEEN ANNUALIZED.
(2) EXPENSE RATIOS DO NOT INCLUDE EXPENSES OF THE UNDERLYING FUNDS.

<PAGE>

RATIO OF
RATIO OF NET EXPENSES TO
NET ASSET RATIO OF INVESTMENT AVERAGE
VALUE NET ASSETS EXPENSES TO INCOME TO NET ASSETS
END OF TOTAL END OF AVERAGE AVERAGE (EXCLUDING PORTFOLIO
PERIOD RETURN PERIOD (000) NET ASSETS NET ASSETS WAIVERS) TURNOVER
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 10.82 12.51%+ $36,119 0.60%(2) 4.39% 2.00%(2) 29%
$ 11.76 20.47%+ $27,565 0.60%(2) 2.59% 2.10%(2) 37%
$ 12.12 23.23%+ $15,676 0.60%(2) 1.61% 2.62%(2) 6%
$ 12.58 27.06%+ $13,725 0.60%(2) 0.76% 2.85%(2) 7%
- -------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

THE FUNDS

FASF is an open-end management investment company which offers shares in
several different mutual funds, each of which evidences an interest in a
separate and distinct investment portfolio. FASF was incorporated under
the laws of the State of Minnesota in 1996, and its principal offices are
located at Oaks, Pennsylvania 19456. The Board of Directors of FASF may
authorize additional series or classes of common stock in the future. Each
of the Funds pays its expenses, including the fees of its service
providers, audit and legal expenses, expenses of preparing prospectuses,
proxy solicitation materials and reports to shareholders, costs of
custodial services and registering shares under federal and state
securities laws, pricing, insurance expenses, brokerage costs, interest
charges, taxes, directors' fees and organization expenses.

INVESTMENT OBJECTIVES
AND POLICIES

---------------------------------------------------------------------------
OBJECTIVES

The investment objectives of the Funds are as follows:

GROWTH AND INCOME FUND seeks to provide both capital growth and current
income through a balanced approach to equity securities and fixed-income
investments.

There is no assurance that any of these objectives will be achieved. The
investment objectives of the Funds are not fundamental and therefore may
be changed without a vote of shareholders. Such changes could result in a
Fund having investment objectives different from those which shareholders
considered appropriate at the time of their investment in a Fund.
Shareholders will receive written notification at least 30 days prior to a
change in a Fund's investment objectives.

<PAGE>

---------------------------------------------------------------------------
INVESTMENT POLICIES

Each Fund seeks to achieve its investment objectives by investing in a
variety of the Underlying Funds. The Underlying Funds include the ten Equity
Funds named in the table below, Fixed Income Fund and Prime Obligations Fund
(a money market fund). In managing the Funds, the Advisor will allocate and
re-allocate their assets among the Underlying Funds within the following
ranges, expressed as percentages of the Funds' net assets:

<TABLE>
<CAPTION>
GROWTH AND AGGRESSIVE
INCOME FUND INCOME FUND GROWTH FUND GROWTH FUND
--------------------- --------------------- --------------------- --------------------
UNDERLYING FUNDS MINIMUM MAXIMUM MINIMUM MAXIMUM MINIMUM MAXIMUM MINIMUM MAXIMUM
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>

EQUITY FUNDS AS A WHOLE 20% 40% 40% 70% 55% 85% 65% 95%
Real Estate Securities Fund 0% 10% 0% 10% 0% 0% 0% 0%
Equity Income Fund 20% 40% 0% 0% 0% 0% 0% 0%
Large Cap Value Fund 0% 0% 10% 30% 10% 35% 10% 40%
Large Cap Growth Fund 0% 0% 10% 30% 10% 35% 10% 40%
Mid Cap Value Fund 0% 0% 0% 15% 5% 25% 10% 40%
Small Cap Growth Fund 0% 0% 0% 15% 5% 25% 10% 40%
Small Cap Value Fund 0% 0% 0% 15% 5% 25% 10% 40%
International Fund 0% 0% 0% 15% 5% 25% 10% 30%
Health Sciences Fund 0% 0% 0% 0% 0% 0% 0% 20%
Technology Fund 0% 0% 0% 0% 0% 0% 0% 20%
FIXED INCOME FUND 60% 80% 30% 60% 15% 45% 5% 35%
PRIME OBLIGATIONS FUND 0% 20% 0% 30% 0% 30% 0% 30%
- ------------------------------------------------------------------------------------------------------------------------------

</TABLE>

The ranges set forth above, and the Advisor's allocations within the
ranges, are intended to reflect the Funds' differing balances between the
investment objectives of current income and of growth of capital. The
Funds may make alterations to the ranges and the Underlying Funds set
forth above without shareholder approval, provided that this Prospectus is
appropriately amended or supplemented. Detailed information concerning the
Underlying Funds is set forth below under the caption "The Underlying
Funds."

In addition to Prime Obligations Fund, the Funds also may hold cash or
invest in cash items of the kinds described under "Special Investment
Methods -- Cash Items." Under normal circumstances, the aggregate
investments of the Funds in Prime Obligations Fund and such cash and cash
items will not exceed the maximum percentages set forth in the table above
for Prime Obligations Fund. However, for temporary defensive purposes, the
Funds may, without limitation, hold shares of Prime Obligations Fund and
such cash and cash items.

The Funds are permitted to invest in futures contracts and options on
futures in order to remain effectively fully invested in proportions
consistent with their current asset allocation strategy in a cost
effective manner; to re-allocate assets among asset categories while
minimizing transaction costs; to maintain cash reserves while simulating
full investment; to facilitate trading; or to seek higher investment
returns when a futures contract is priced more attractively than the
underlying security or index. For information about these investment
methods, restrictions on their use, and certain associated risks, see
"Special Investment Methods -- Futures and Options on Futures."

---------------------------------------------------------------------------
RISKS TO CONSIDER

An investment in any of the Funds involves certain risks. These include
the following:

ACTIVE MANAGEMENT. All of the Funds are actively managed. The performance
of the Funds therefore will reflect in part the ability of the Advisor to
make asset allocation and other

<PAGE>

investment decisions which are suited to achieving the Funds' investment
objectives. Due to their active management, the Funds could underperform
other mutual funds with similar investment objectives.

YEAR 2000. Like other mutual funds, financial and business organizations,
the Funds and Underlying Funds could be adversely affected if the computer
systems used by the Advisor, the Administrator and other service providers
and entities with computer systems that are linked to Fund or Underlying
Fund records do not properly process and calculate date-related information
and data from and after January 1, 2000. This is commonly known as the "Year
2000 issue." The Funds and Underlying Funds have undertaken a Year 2000
program that is believed by the Advisor to be reasonably designed to assess
and monitor the steps being taken by the Funds' and Underlying Funds'
service providers to address the Year 2000 issue with respect to the
computer systems they use. However, there can be no assurance that these
steps will be sufficient to avoid any adverse impact on the Funds or the
Underlying Funds.

RISKS ASSOCIATED WITH THE UNDERLYING FUNDS. The risks associated with the
Underlying Funds are discussed in greater detail under "The Underlying
Funds." These risks include, among others:

* The Underlying Funds are actively managed, and therefore may
underperform other mutual funds with similar investment objectives.

* Each of the Underlying Funds is subject to the risk of generally adverse
markets. In general, the market prices of equity securities frequently
are subject to greater volatility than the prices of fixed income
securities. Therefore, it may be expected that the net asset values of
Funds which are permitted to invest higher proportions of their assets
in the Equity Funds may be more volatile than Funds which are limited to
lower proportions.

* With respect to the Equity Funds, (i) certain of these funds are subject
to risks associated with investing in small-capitalization companies;
(ii) Real Estate Securities Fund, Health Sciences Fund, and Technology
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 Depositary
Receipts; and (vii) certain Underlying Funds may engage (but not for
speculative purposes) in options and futures transactions.

* Fixed Income Fund (i) is subject to interest rate risk (the risk that
increases in market interest rates will cause declines in the value of
the debt securities held by the fund), credit risk (the risk that the
issuers of debt securities held by the fund default in making required
payments), and call or prepayment risk (the risk that a borrower may
exercise the right to prepay a debt obligation before its stated
maturity, requiring the fund to reinvest the prepayment at a lower
interest rate); (ii) may invest in mortgage-backed securities which are
subject to certain additional risks; and (iii) may, in order to attempt
to reduce risk, invest in exchange traded put and call option on
interest rate futures contracts and on interest rate indices. In
addition, to the limited extent to which the Equity Funds may invest in
fixed-rate debt securities, they also are subject to interest rate risk,
credit risk and call risk.

POSSIBLE CONFLICTS OF INTEREST. As discussed below under "-- Possible
Conflicts of Interest and

<PAGE>

Receipt of Securities," it is possible that situations could arise in which
the interests of the Funds diverge from those of the Underlying Funds.

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PORTFOLIO TURNOVER

Each Fund's portfolio turnover rate is not expected to exceed 25%
annually. It is expected that the Advisor will make asset re-allocation
decisions for the Funds on a monthly basis. However, the Advisor may
re-allocate assets more frequently if it determines that market conditions
so warrant. The Funds will purchase and sell shares of the Underlying
Funds and other permitted investments (i) to maintain or modify the
allocation of the Funds' assets in the Underlying Funds within the
percentage ranges set forth above under "-- Investment Policies;" (ii) to
accommodate purchases and redemptions of the Funds' shares; and (iii) in
response to market or other economic conditions. It should be noted that
the portfolio turnover rates of the Underlying Funds can be higher than
the Funds' portfolio turnover rates. High portfolio turnover rates (100%
or more) in the Underlying Funds generally would result in higher
transaction costs and could result in additional tax consequences to the
Underlying Funds' shareholders, including the Funds.

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INVESTMENT RESTRICTIONS

The fundamental and nonfundamental investment restrictions of the Funds
are set forth in full in the Funds' Statement of Additional Information.
The fundamental restrictions include the following:

* None of the Funds will invest more than 25% of its total assets in any
one industry, except for investment companies which are part of the
"same group of investment companies" (as defined in Rule 11a-3 under the
1940 Act) as the Funds.

* None of the Funds will borrow money, except from banks for temporary or
emergency purposes. The amount of such borrowing may not exceed 10% of
the borrowing Fund's total assets. None of the Funds will borrow money
for leverage purposes. For the purpose of this investment restriction,
the use of options and futures transactions shall not be deemed the
borrowing of money. If a Fund engages in borrowing, its share price may
be subject to greater fluctuation, and the interest expense associated
with the borrowing may reduce the Fund's net income.

* None of the Funds will mortgage, pledge or hypothecate its assets,
except in an amount not to exceed 15% of the value of its total assets
to secure temporary or emergency borrowing.

* None of the Funds will make short sales of securities.

* None of the Funds will purchase any securities on margin except to
obtain such short-term credits as may be necessary to for the clearance
of transactions.

A fundamental policy or restriction, including those stated above, cannot be
changed without an affirmative vote of the holders of a "majority" of the
outstanding shares of the applicable Fund, as defined in the 1940 Act.

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POSSIBLE CONFLICTS OF INTEREST AND RECEIPT OF SECURITIES

The officers and directors of FASF also serve as officers and directors of
FAIF and FAF. In addition, the Advisor to the Funds also serves as
investment advisor to the Underlying Funds. It is possible that situations
could arise in which the interests of the Funds diverge from those of the
Underlying Funds, so that these officers and directors and the Advisor
could be subject to conflicts of interest. For example, the Advisor might
determine that a particular Fund should reduce its allocation of assets to
a particular Underlying Fund, thus requiring it to redeem shares of such
Underlying Fund, at a time when it is not in the best interests of such
Underlying Fund to sell portfolio securities in order to meet such a
redemption request. Other types of conflicts of interest between the Funds

<PAGE>

and the Underlying Funds may arise as well. The Advisor intends to monitor
the operations of the Funds and of the Underlying Funds for potential
conflicts of interest and to take and recommend to the directors such steps
as it believes are necessary in order to avoid or minimize, to the extent
possible, adverse consequences to the Funds or the Underlying Funds from
such conflicts of interest.

In order to resolve some types of conflicts of interest, the Advisor might
determine that an Underlying Fund should meet a redemption request by a
Fund by distributing securities from its portfolio to the Fund rather than
by paying cash to the Fund. For example, where an Underlying Fund would
incur sizeable brokerage commissions in disposing of portfolio securities
in order to pay a Fund's redemption request in cash, the Underlying Fund
might instead distribute portfolio securities to the Fund so that the Fund
alone, and not the Underlying Fund and its other shareholders, would bear
the brokerage commissions associated with disposing of such securities. If
a Fund receives securities as a result of such in-kind distributions, it
may hold such securities until the Advisor determines that it is
appropriate to dispose of them, and the receipt and holding of such
securities will not be deemed to violate the Fund's investment policies.

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EXEMPTIVE ORDER

Each Fund seeks to achieve its investment objectives by investing in the
Underlying Funds within the percentage ranges set forth above under "--
Investment Policies." The Funds operate under an exemptive order from the
Securities and Exchange Commission permitting them to invest up to 100% of
their assets in shares of other mutual funds which are part of the "same
group of investment companies" as the Funds within the meaning of Rule 11a-3
under the 1940 Act, subject to certain conditions.

THE UNDERLYING FUNDS

This section sets forth information concerning the investment objectives,
policies, and restrictions of the Underlying Funds. There is no assurance
that any of the Underlying Funds' investment objectives will be achieved.
Each of the Underlying Funds is a separate series of FAIF except for Prime
Obligations Fund, which is a separate series of FAF. The Advisor also acts
as investment advisor for each of the Underlying Funds. The Advisor has
retained a sub-advisor with respect to International Fund. See
"Management."

Additional information concerning the Underlying Funds is contained in
their Prospectuses and Statements of Additional Information, copies of
which can be obtained by writing SEI Investments Distribution Co., Oaks,
Pennsylvania 19456, or by calling (888) 997-8728.

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GENERAL

Except with respect to Prime Obligations Fund, the Underlying Funds'
investment objectives are not fundamental and therefore may be changed
without a vote of shareholders. Each of the Underlying Funds except Real
Estate Securities Fund, Health Sciences Fund and Technology Fund is a
diversified investment company, as defined in the 1940 Act. Real Estate
Securities Fund, Health Sciences Fund and Technology Fund are
non-diversified companies under the 1940 Act.

If a percentage limitation on investments by an Underlying Fund stated below
is adhered to at the time of an investment, a later increase or decrease in
percentage resulting from changes in asset values will not be deemed to
violate the limitation except in the case of the limitations on illiquid
investments and borrowing. Similarly, if an Underlying Fund is required or
permitted to invest a stated percentage of its assets in companies with no
more or no less than a stated market capitalization, deviations from the
stated percentages which result from changes in companies' market
capitalizations after the Underlying Fund purchases their shares will not be
deemed to violate the limitation. An Underlying Fund which is limited to
investing in securities with specified ratings is not required to sell a
security if its rating is reduced or discontinued after purchase, but the
Underlying

<PAGE>

Fund may consider doing so. However, except in the case of Equity Income
Fund, in no event will more than 5% of any Underlying Fund's net assets be
invested in non-investment grade securities. Descriptions of the rating
categories of Standard & Poor's Rating Services, a division of The
McGraw-Hill Companies, Inc. ("Standard & Poor's") and Moody's Investors
Service, Inc. ("Moody's") are contained in the Statement of Additional
Information.

When the term "equity securities" is used in the following sections, it
refers to common stock and securities which are convertible into or
exchangeable for, or which carry warrants or other rights to acquire,
common stock.

In addition to the investment policies described under the specific Equity
Funds' captions below, the Equity Funds also are subject to the investment
policies described below under the caption "-- Policies Common to
Underlying Equity Funds." Certain fundamental investment restrictions of
the Underlying Funds are described under "Special Investment Methods --
Investment Restrictions of the Underlying Funds."

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REAL ESTATE SECURITIES FUND

OBJECTIVE. Real Estate Securities Fund has an objective of providing above
average current income and long-term capital appreciation by investing
primarily in equity securities of real estate companies.

INVESTMENT POLICIES. Under normal market conditions, Real Estate Securities
Fund invests at least 65% of its total assets in income producing equity
securities of publicly traded companies principally engaged in the real
estate industry. For this purpose, a company is deemed to be "principally
engaged" in the real estate industry if (i) it derives at least 50% of its
revenues or profits from the ownership, construction, management, financing
or sale of residential, commercial or industrial real estate or (ii) has at
least 50% of the fair market value of its assets invested in such real
estate. Real Estate Securities Fund seeks to invest in equity securities
that provide a dividend yield that exceeds the composite dividend yield of
the securities included in the S&P 500.

A majority of Real Estate Securities Fund's total assets will be invested
in securities of real estate investment trusts ("REITs"). REITs are
publicly traded corporations or trusts that specialize in acquiring,
holding, and managing residential, commercial or industrial real estate. A
REIT is not taxed at the entity level on income distributed to its
shareholders or unitholders if it distributes to shareholders or
unitholders at least 95% of its taxable income for each taxable year and
complies with regulatory requirements relating to its organization,
ownership, assets and income.

REITs generally can be classified as Equity REITs, Mortgage REITs, and
Hybrid REITs. An Equity REIT invests the majority of its assets directly
in real property and derives its income primarily from rents and from
capital gains on real estate appreciation which are realized through
property sales. A Mortgage REIT invests the majority of its assets in real
estate mortgage loans and derives its income primarily from interest
payments. A Hybrid REIT combines the characteristics of an Equity REIT and
a Mortgage REIT. Although Real Estate Securities Fund can invest in all
three kinds of REITs, its emphasis is expected to be on investments in
Equity REITs.

Real Estate Securities Fund also may invest up to 35% of its total assets
in fixed income securities of the kinds described under "Special
Investment Methods -- Fixed Income Securities."

Because Real Estate Securities Fund invests primarily in the real estate
industry, it is particularly subject to risks associated with that
industry. The real estate industry has been subject to substantial
fluctuations and declines on a local, regional and national basis in the
past and may continue to be in the future. Real property values and
incomes from real property may decline due to general and local economic
conditions, overbuilding and increased competition, increases in property
taxes and operating expenses, changes in zoning laws, casualty or
condemnation losses, regulatory

<PAGE>

limitations on rents, changes in neighborhoods and in demographics,
increases in market interest rates, or other factors. Factors such as these
may adversely affect companies which own and operate real estate directly,
companies which lend to such companies, and companies which service the real
estate industry. Although Real Estate Securities Fund will operate as a
non-diversified investment company under the 1940 Act, it intends to conduct
its operations so as to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code").

Because Real Estate Securities Fund may invest a substantial portion of its
assets in REITs, it also is subject to risks associated with direct
investments in REITs. Equity REITs will be affected by changes in the values
of and incomes from the properties they own, while Mortgage REITs may be
affected by the credit quality of the mortgage loans they hold. In addition,
REITs are dependent on specialized management skills and on their ability to
generate cash flow for operating purposes and to make distributions to
shareholders or unitholders. REITs may have limited diversification and are
subject to risks associated with obtaining financing for real property, as
well as to the risk of self-liquidation. REITs also can be adversely
affected by their failure to qualify for tax-free pass-through treatment of
their income under the Code or their failure to maintain an exemption from
registration under the 1940 Act. By investing in REITs indirectly through
Real Estate Securities Fund, a shareholder of Real Estate Securities Fund
bears not only a proportionate share of the expenses of Real Estate
Securities Fund, but also may indirectly bear similar expenses of some of
the REITs in which it invests.

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EQUITY INCOME FUND

OBJECTIVE. Equity Income Fund has an objective of long-term growth of
capital and income.

INVESTMENT POLICIES. Under normal market conditions, Equity Income Fund
invests at least 65% of its total assets in equity securities of issuers
believed by its advisor to be characterized by sound management, the
ability to finance expected growth and the ability to pay above average
dividends.

Equity Income Fund invests in equity securities that have relatively high
dividend yields and which, in the advisor's opinion, will result in a
relatively stable fund dividend with a growth rate sufficient to maintain
the purchasing power of the income stream. Although the advisor
anticipates that higher yielding equity securities will generally
represent the core holdings of Equity Income Fund, Equity Income Fund may
invest in lower yielding but higher growth equity securities to the extent
that the advisor believes such investments are appropriate to achieve
portfolio balance. All securities held by Equity Income Fund will provide
current income consistent with its investment objective.

The "equity securities" in which Equity Income Fund may invest include
corporate debt obligations which are convertible into common stock. These
convertible debt obligations may include obligations rated at the time of
purchase as low as CCC by Standard & Poor's or Caa by Moody's, or which
have been assigned an equivalent rating by another nationally recognized
statistical rating organization, or which are of comparable quality in the
judgment of the advisor. Debt obligations rated less than BBB by Standard
& Poor's or Baa by Moody's are considered to be less than "investment
grade" and are sometimes referred to as "junk bonds." Obligations rated
CCC by Standard & Poor's or Caa by Moody's are considered to be of poor
standing and are predominantly speculative. Descriptions of Standard &
Poor's and Moody's rating categories are contained in the Statement of
Additional Information. If the rating of an obligation is reduced below
the categories set forth above after purchase or is discontinued, Equity
Income Fund is not required to sell the obligation but may consider doing
so.

Purchases of less than investment grade convertible debt obligations are
intended to advance Equity Income Fund's objective of long-term growth of

<PAGE>

capital through the "upside" potential of the obligations' conversion
features and to advance Equity Income Fund's objective of income through
receipt of interest payable on the obligations. Equity Income Fund will not
invest more than 25% of its total assets in convertible debt obligations
which are rated less than investment grade or which are of comparable
quality in the judgment of the advisor. At September 30, 1997, the following
percentages of Equity Income Fund's total assets were invested in
convertible and nonconvertible debt obligations with the indicated Standard
& Poor's ratings or their equivalents: AAA, 0%; AA, 0%; A, 0%; BBB, 1%; BB,
0%; B, 1%; and CCC, 0%.

Debt obligations which are rated less than investment grade generally are
subject to greater market fluctuations and greater risk of loss of income
and principal due to default by the issuer than are higher-rated
obligations. The value of these obligations tends to reflect short-term
corporate, economic, interest rate and market developments and investor
perceptions of the issuer's credit quality to a greater extent than
investment grade obligations. In addition, since the market for these
obligations is relatively new and does not have as many participants as
the market for higher-rated obligations, it may be more difficult to
dispose of or to determine the value of these obligations. In the case of
a convertible debt obligation, these risks may be present in a greater
degree where the principal amount of the obligation is greater than the
current market value of the common stock into which it is convertible.

Equity Income Fund also may invest up to 35% of its total assets in fixed
income securities of the kinds described under "Special Investment Methods
-- Fixed Income Securities."

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LARGE CAP VALUE FUND

OBJECTIVES. Large Cap Value Fund (formerly known as Stock Fund) has a
primary objective of capital appreciation. A secondary objective of Large
Cap Value Fund is to provide current income.

INVESTMENT POLICIES. Under normal market conditions, Large Cap Value Fund
invests at least 65% of its total assets in common stocks diversified among
a broad range of industries and among companies that have a market
capitalization of at least $1 billion at the time of purchase. In selecting
equity securities, the Fund's advisor employs a value-based selection
discipline, investing in equity securities it believes are undervalued
relative to other securities in the same industry or market at the time of
purchase. In assessing relative value, the advisor will consider factors
such as ratios of market price to earnings, market price to book value,
market price to assets, estimated earnings growth rate, cash flow and
liquidation value.

Large Cap Value Fund also may invest up to 35% of its total assets in the
aggregate in equity securities of issuers with a market capitalization of
less than $1 billion and in fixed income securities of the kinds described
under "Special Investment Methods -- Fixed Income Securities."

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LARGE CAP GROWTH FUND

OBJECTIVES. Large Cap Growth Fund (formerly known as Diversified Growth
Fund) has a primary objective of long-term growth of capital. A secondary
objective of Large Cap Growth Fund is to provide current income.

INVESTMENT POLICIES. Under normal market conditions, Large Cap Growth Fund
invests at least 65% of its total assets in equity securities of companies
with market capitalizations of at least $1 billion at the time of purchase
that, in the Fund's advisor's judgment, exhibit a combination of above
average growth in revenue and earnings, strong management and sound and
improving financial condition.

Large Cap Growth Fund also may invest up to 35% of its total assets in
fixed income securities of the kinds described under "Special Investment
Methods -- Fixed Income Securities."

<PAGE>

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MID CAP VALUE FUND

OBJECTIVE. Mid Cap Value Fund (formerly known as Special Equity Fund) has an
objective of capital appreciation.

INVESTMENT POLICIES. Under normal market conditions, Mid Cap Value Fund
invests at least 65% of its total assets in equity securities of
mid-capitalization companies. For these purposes, mid-capitalization
companies are deemed those with market capitalizations from $1 billion to $5
billion at the time of purchase. In selecting equity securities, the Fund's
advisor employs a value-based selection discipline, investing in equity
securities it believes are undervalued relative to other securities in the
same industry or market at the time of purchase. In assessing relative
value, the Advisor will consider factors such as ratios of market price to
earnings, market price to book value, market price to assets, estimated
earnings growth rate, cash flow and liquidation value. Mid Cap Value Fund
also may invest up to 35% of its total assets in fixed income securities of
the kinds described under "Special Investment Methods -- Fixed Income
Securities."

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SMALL CAP GROWTH FUND

OBJECTIVE. Small Cap Growth Fund (formerly known as Emerging Growth Fund)
has an objective of growth of capital.

INVESTMENT POLICIES. Under normal market conditions, Small Cap Growth Fund
invests at least 65% of its total assets in equity securities of
small-capitalization companies that exhibit, in its advisor's opinion,
outstanding potential for superior growth. For these purposes,
small-capitalization companies are deemed those with market capitalizations
of less than $1 billion at the time of purchase. Companies that participate
in sectors that are identified by the Fund's advisor as having long-term
growth potential generally are expected to make up a substantial portion of
Small Cap Growth Fund's holdings. These companies often have established a
market niche or have developed unique products or technologies that are
expected by the Fund's advisor to produce superior growth in revenues and
earnings.

Small Cap Growth Fund also may invest up to 35% of its total assets in the
aggregate in equity securities of issuers with a market capitalization of
$1 billion or more and in fixed income securities of the kinds described
under "Special Investment Methods -- Fixed Income Securities."

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SMALL CAP VALUE FUND

OBJECTIVE. Small Cap Value Fund has an objective of capital appreciation.

INVESTMENT POLICIES. Under normal market conditions, Small Cap Value Fund
invests at least 65% of its total assets in equity securities of
small-capitalization companies. For these purposes, small-capitalization
companies are deemed those with market capitalizations of less than $1
billion at the time of purchase. In selecting equity securities, Small Cap
Value Fund's advisor employs a value-based selection discipline, investing
in equity securities it believes are undervalued relative to other
securities in the same market or industry at the time of purchase. In
assessing relative value, Small Cap Value Fund's advisor will consider
such factors as ratios of market price to earnings, market price to book
value, and market price to assets, estimated earnings growth rate, cash
flow and liquidation value.

Small Cap Value also may invest up to 35% of its total assets in the
aggregate in equity securities of issuers with a market capitalization of
$1 billion or more and in fixed income securities of the kinds described
under "Special Investment Methods -- Fixed Income Securities."

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INTERNATIONAL FUND

OBJECTIVE. International Fund has an objective of long-term growth of
capital.

<PAGE>

INVESTMENT POLICIES. Under normal market conditions, International Fund
invests at least 65% of its total assets in an internationally diversified
portfolio of equity securities which trade in markets other than the United
States. Generally these securities are issued by companies (i) domiciled in
countries other than the United States or (ii) that derive at least 50% of
either their revenues or their pre-tax income from activities outside of the
United States. The securities in which International Fund invests include
common and preferred stock, securities (bonds and preferred stock)
convertible into common stock, warrants and securities representing
underlying international securities such as American Depositary Receipts and
European Depositary Receipts. International Fund also may hold securities of
other investment companies (which investments are also subject to the
advisory fee) and depositary or custodial receipts representing beneficial
interests in any of the foregoing securities.

International Fund may invest in securities of issuers in, but not limited
to, Argentina, Australia, Austria, Belgium, Brazil, Canada, Chile, China,
Colombia, the Czech Republic, Denmark, Finland, France, Germany, Greece,
Hong Kong, Hungary, India, Indonesia, Ireland, Israel, Italy, Japan, Korea,
Luxembourg, Malaysia, Mexico, the Netherlands, New Zealand, Norway,
Pakistan, Peru, the Philippines, Poland, Portugal, Singapore, South Africa,
Spain, Sri Lanka, Sweden, Switzerland, Taiwan, Thailand, Turkey, the United
Kingdom and Venezuela. Normally, International Fund will invest at least 65%
of its total assets in securities traded in at least three foreign
countries, including the countries listed above. It is possible, although
not currently anticipated, that up to 35% of International Fund's assets
could be invested in United States companies.

In investing International Fund's assets, the Fund's sub-advisor expects to
place primary emphasis on country selection, followed by selection of
industries or sectors within or across countries and by selection of
individual stocks corresponding to the industries or sectors selected.
Investments are expected to be made primarily in developed markets and
larger capitalization companies. However, International Fund also may invest
in emerging markets where smaller capitalization companies are the norm.

In addition, International Fund may (i) enter into repurchase agreements;
(ii) in order to attempt to reduce risk, purchase put and call options on
equity securities and on stock indices; (iii) write covered call options
covering up to 50% of the equity securities owned by International Fund and
write call options on stock indices related to such equity securities; (iv)
purchase securities on a when-issued or delayed delivery basis; (v) engage
in the lending of portfolio securities; (vi) engage in foreign currency
transactions; (vii) in order to attempt to reduce risk, purchase put and
call options on foreign currencies; (viii) write covered call options on
foreign currencies owned by International Fund; and (ix) enter into
contracts for the future purchase or delivery of securities, foreign
currencies, and indices, purchase or sell options on any such futures
contracts and engage in related closing transactions. For information about
these investment methods, restrictions on their use, and certain associated
risks, see the related headings under "Special Investment Methods."

Under normal market conditions, it is expected that International Fund
will be fully invested in equity securities and related hedging
instruments (except for short-term investments of cash for liquidity
purposes and pending investment). However, for temporary defensive
purposes, International Fund may, without limitation, hold cash or invest in
cash items of the kinds described under "Special Investment Methods --
Cash Items." The Fund also may invest not more than 35% of its total
assets in cash and cash items in order to utilize assets awaiting normal
investment.

International Fund is subject to special risks associated with investing in
foreign securities and to declines in net asset value resulting from changes
in exchange rates between the United States dollar and foreign currencies.
These risks are discussed under "Special Investment Methods -- Foreign

<PAGE>

Securities" and "-- Foreign Currency Transactions" elsewhere here. Because
of the special risks associated with foreign investing and the Fund's
sub-advisor's ability to invest substantial portions of International Fund's
assets in a small number of countries, International Fund may be subject to
greater volatility than most mutual funds which invest principally in
domestic securities.

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HEALTH SCIENCES FUND

OBJECTIVE. Health Sciences Fund has an objective of long-term growth of
capital.

INVESTMENT POLICIES. Under normal market conditions, Health Sciences Fund
invests at least 65% of its total assets in equity securities of companies
which its advisor considers to be principally engaged in the development,
production or distribution of products or services connected with health
care or medicine. Examples of these products and services include
pharmaceuticals, health care services and administration, diagnostics,
medical equipment and supplies, medical technology, and medical research
and development. The advisor anticipates investing in companies that have
the potential for above average growth in revenue and earnings as a result
of new or unique products, processes or services, increasing demand for a
company's products or services, established market leadership, or
exceptional management. A company will be deemed "principally engaged" in
the health sciences industries if at the time of investment the advisor
determines that at least 50% of its assets, revenues or profits are
derived from those industries.

Health Sciences Fund also may invest up to 35% of its total assets in
fixed income securities of the kinds described under "Special Investment
Methods -- Fixed Income Securities."

Health Sciences Fund operates as a non-diversified investment company, as
defined in the 1940 Act, but intends to conduct its operations so as to
qualify as a regulated investment company for purposes of the Code. Since a
relatively high percentage of the assets of Health Sciences Fund may be
invested in the securities of a limited number of issuers which will be in
the same or related economic sectors, Health Sciences Fund's portfolio
securities may be more susceptible to any single economic, technological or
regulatory occurrence than the portfolio securities of diversified
investment companies. Many products and services in the health sciences
industries may become rapidly obsolete due to technological and scientific
advances. In addition, the health sciences industries generally are subject
to greater governmental regulation than many other industries, so that
changes in governmental policies may have a material effect on the demand
for products and services in these industries. Regulatory approvals
generally are required before new drugs, medical devices or medical
procedures can be introduced and before health care providers can acquire
additional facilities or equipment.

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TECHNOLOGY FUND

OBJECTIVE. Technology Fund has an objective of long-term growth of
capital.

INVESTMENT POLICIES. Under normal market conditions, Technology Fund invests
at least 65% of its total assets in equity securities of companies which its
advisor believes have, or will develop, products, processes or services that
will provide or will benefit significantly from technological advances and
improvements. The description of the technology sector is interpreted
broadly by the advisor and may include such products or services as
inexpensive computing power, such as personal computers; improved methods of
communications, such as satellite transmission; or labor saving machines or
instruments, such as computer-aided design equipment. The prime emphasis of
Technology Fund is to identify those companies positioned, in the advisor's
opinion, to benefit from technological advances in areas such as
semiconductors, minicomputers and peripheral equipment, scientific
instruments, computer software, communications, and future automation trends
in both office and factory settings.

<PAGE>

Technology Fund also may invest up to 35% of its total assets in fixed
income securities of the kinds described under "Special Investment Methods
-- Fixed Income Securities."

Technology Fund operates as a non-diversified investment company, as defined
in the 1940 Act, but intends to conduct its operations so as to qualify as a
regulated investment company for purposes of the Code. Since a relatively
high percentage of the assets of Technology Fund may be invested in the
securities of a limited number of issuers which will be in the same or
related economic sectors, Technology Fund's portfolio securities may be more
susceptible to any single economic, technological or regulatory occurrence
than the portfolio securities of diversified investment companies. In
addition, competitive pressures may have a significant effect on the
financial condition of companies in the technology industry. For example, if
technology continues to advance at an accelerated rate, and the number of
companies and product offerings continue to expand, these companies could
become increasingly sensitive to short product cycles and aggressive
pricing.

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POLICIES COMMON TO UNDERLYING EQUITY FUNDS

Subject to the limitations stated under their respective captions above,
each of Real Estate Securities Fund, Equity Income Fund, Large Cap Value
Fund, Large Cap Growth Fund, Mid Cap Value Fund, Small Cap Growth Fund,
Small Cap Value Fund, Technology Fund and Health Sciences Fund may invest up
to 25% of its total assets in securities of foreign issuers which are either
listed on a United States stock exchange or represented by American
Depositary Receipts. For information about these kinds of investments and
certain associated risks, see "Special Investment Methods -- Foreign
Securities."

Each of Real Estate Securities Fund, Equity Income Fund, Large Cap Value
Fund, Large Cap Growth Fund, Mid Cap Value Fund, Small Cap Growth Fund,
Small Cap Value Fund, Technology Fund and Health Sciences Fund may (i) enter
into repurchase agreements; (ii) in order to attempt to reduce risk,
purchase put and call options on equity securities and on stock indices;
(iii) write covered call options covering up to 25% of the equity securities
owned by such Underlying Fund and write call options on stock indices
related to such securities; (iv) purchase securities on a when-issued or
delayed delivery basis; and (v) engage in the lending of portfolio
securities. For information about these investment methods, restrictions on
their use, and certain associated risks, see the related headings under
"Special Investment Methods." International Fund may engage in these and
certain additional activities to the extent described under its caption
above.

Each of Real Estate Securities Fund, Equity Income Fund, Large Cap Value
Fund, Large Cap Growth Fund, Mid Cap Value Fund, Small Cap Growth Fund,
Small Cap Value Fund, Technology Fund and Health Sciences Fund may, for
temporary defensive purposes, without limitation hold cash or invest in
cash items of the kinds described under "Special Investment Methods --
Cash Items." Each such Underlying Fund also may invest not more than 35%
of its total assets in cash and cash items in order to utilize assets
awaiting normal investment.

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FIXED INCOME FUND

OBJECTIVE. Fixed Income Fund has an objective of providing a high level of
current income consistent with limited risk to capital.

INVESTMENT POLICIES. Fixed Income Fund invests in investment grade debt
securities, at least 65% of which are United States Government obligations
and corporate debt obligations and mortgage-backed and asset-backed
securities rated at least A by Standard & Poor's or Moody's or which have
been assigned an equivalent rating by another nationally recognized
statistical rating organization. Under normal market conditions,

<PAGE>

the weighted average maturity of the securities held by Fixed Income Fund
will not exceed 15 years.

Fixed Income Fund's permitted investments include notes, bonds and discount
notes of United States Government agencies or instrumentalities (including
zero coupon securities); domestic issues of corporate debt obligations
having floating or fixed rates of interest and rated at least BBB by
Standard & Poor's or Baa by Moody's, or which have been assigned an
equivalent rating by another nationally recognized statistical rating
organization, or which are of comparable quality in the judgment of the
advisor; other fixed income securities, including mortgage-backed
securities, which are rated in one of the four highest categories by a
nationally recognized statistical rating organization or which are of
comparable quality in the judgment of the advisor; and commercial paper
which is rated A-1 by Standard & Poor's or P-1 by Moody's or which has been
assigned an equivalent rating by another nationally recognized statistical
rating organization. At least 65% of the total assets of Fixed Income Fund
will be invested in fixed rate obligations.

Subject to the foregoing limitations, Fixed Income Fund may invest in the
following kinds of securities, as described under the related headings
under "Special Investment Methods:" (i) mortgage-backed securities
(provided that Fixed Income Fund will not invest more than 10% of its
total assets in the aggregate in interest-only, principal-only, inverse
floating rate or inverse interest-only mortgage-backed securities); (ii)
asset-backed securities; and (iii) bank instruments.

In addition, Fixed Income Fund may (i) invest up to 15% of its total assets
in foreign securities payable in United States dollars; (ii) enter into
repurchase agreements; (iii) in order to attempt to reduce risk, invest in
exchange traded put and call options on interest rate futures contracts and
on interest rate indices; (iv) in order to attempt to reduce risk, invest in
exchange traded interest rate futures and interest rate index futures
contracts; (v) purchase securities on a when-issued or delayed delivery
basis; (vi) invest up to 25% of its total assets in mortgage dollar roll
transactions; and (vii) engage in the lending of portfolio securities. For
information about these investment methods, restrictions on their use, and
certain associated risks, see the related headings under "Special Investment
Methods."

Although Fixed Income Fund will not make direct purchases of common or
preferred stocks or rights to acquire common or preferred stocks, Fixed
Income Fund may invest in debt securities which are convertible into or
exchangeable for, or which carry warrants or other rights to acquire, such
stocks. Equity interests acquired through conversion, exchange or exercise
of rights to acquire stock will be disposed of by Fixed Income Fund as
soon as practicable in an orderly manner.

For temporary defensive purposes, Fixed Income Fund may without limitation
hold cash or invest in cash items. Fixed Income Fund also may invest not
more than 35% of its total assets in cash and cash items in order to
utilize assets awaiting normal investment. Cash items may include
short-term obligations such as rated commercial paper and variable amount
master demand notes; time and savings deposits (including certificates of
deposit); bankers' acceptances; obligations of the United States
Government or its agencies or instrumentalities; and repurchase agreements
collateralized by eligible investments. Fixed Income Fund also may invest
in securities of other mutual funds which invest primarily in debt
obligations with remaining maturities of 13 months or less.

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PRIME OBLIGATIONS FUND

OBJECTIVE. Prime Obligations Fund seeks to achieve maximum current income
to the extent consistent with the preservation of capital and the
maintenance of liquidity.

INVESTMENT POLICIES. Prime Obligations Fund seeks to maintain a constant
dollar price of $1.00 per share and holds itself out as a "money market
fund." As such, Prime Obligations Fund is subject

<PAGE>

to the provisions of Rule 2a-7 under the 1940 Act, which require, among
other things, that the fund invest exclusively in securities that mature
within 397 days from the date of purchase as determined pursuant to Rule
2a-7, that it maintain an average weighted maturity of not more than 90
days, and that it invest only in United States dollar-denominated
investments that meet specified credit quality standards. There is no
assurance that Prime Obligations Fund will be able to maintain a constant
dollar price of $1.00 per share.

In seeking to achieve its objective, Prime Obligations Fund invests in
money market instruments, including marketable securities issued or
guaranteed by the United States Government or its agencies or
instrumentalities; United States dollar-denominated obligations (including
bankers' acceptances, time deposits, and certificates of deposit,
including variable rate certificates of deposit) of banks (including
commercial banks, savings banks, and savings and loan associations)
organized under the laws of the United States or any state, foreign banks,
United States branches of foreign banks, and foreign branches of United
States banks, if such banks have total assets of not less than $500
million; and certain corporate and other obligations, including high grade
commercial paper, non-convertible corporate debt securities, and loan
participation interests with no more than 397 days remaining to maturity
as determined pursuant to Rule 2a-7. For more information on these types
of securities, see "Special Investment Methods" below. Under Rule 2a-7,
securities which are subject to certain types of demand or put features
may be deemed to mature at the next demand or put date although they have
a longer stated maturity.

Prime Obligations Fund may also (i) engage in repurchase agreements with
respect to any of its portfolio securities, (ii) purchase credit
enhancement agreements to enhance the creditworthiness of its portfolio
securities, (iii) lend securities from its portfolio, or (iv) purchase the
securities described above on a when-issued or delayed delivery basis. See
"Special Investment Methods" below.

Prime Obligations Fund may invest (i) up to 25% of its total assets in
dollar-denominated obligations of United States branches of foreign banks
which are subject to the same regulation as United States banks, and (ii) up
to 25% of its total assets collectively in dollar-denominated obligations of
foreign branches of domestic banks, foreign banks, and foreign corporations.
Prime Obligations Fund may invest in United States dollar-denominated
obligations of foreign corporations if the obligations satisfy the same
quality standards set forth above for domestic corporations. See "Special
Investment Methods" for a discussion of the risks relating to investments in
such securities.

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RISKS TO CONSIDER WITH RESPECT TO THE UNDERLYING FUNDS

An investment in the Underlying Funds involves certain risks in addition
to those noted above with respect to particular funds. These include the
following:

EQUITY SECURITIES GENERALLY. Market prices of equity securities generally,
and of particular companies' equity securities, frequently are subject to
greater volatility than prices of fixed income securities. Market prices
of equity securities as a group have dropped dramatically in a short
period of time on several occasions in the past, and they may do so again
in the future. Each of the Equity Funds is subject to the risk of
generally adverse equity markets.

SMALL-CAPITALIZATION COMPANIES. Small Cap Growth Fund and Small Cap Value
Fund emphasize investments in companies with small market capitalizations,
and the remaining Equity Funds are permitted to invest in equity
securities of such companies. The equity securities of such companies
frequently have experienced greater price volatility in the past than
those of larger-capitalization companies, and they may be expected to do
so in the future. To the extent that the Equity Funds invest in small
companies, they are subject to this risk of greater volatility.

INTEREST RATE, CREDIT, AND CALL RISK. Fixed Income Fund is subject to
interest rate, credit, and

<PAGE>

call risk, as are the Equity Funds to the extent that they are permitted to
invest limited portions of their assets in fixed-rate securities:

* INTEREST RATE RISK is the risk that the value of a fixed-rate debt
security will decline due to changes in market interest rates. In
general, when interest rates rise, the value of a fixed-rate debt
security declines. Conversely, when interest rates decline, the value of
a fixed-rate debt

security generally increases. In general, the value of fixed-rate debt
securities with longer maturities is more sensitive to changes in
market interest rates than the value of such securities with shorter
maturities. Thus, the net asset value of a fund which invests in
securities with longer weighted average maturities, such as Fixed
Income Fund, should be expected to have greater volatility in periods
of changing market interest rates than that of a fund which invests in
securities with shorter weighted average maturities.

* CREDIT RISK is the risk that the issuer of a debt security will fail to
make payments on the security when due. Fixed Income Fund can invest in
debt securities rated as low as BBB by Standard & Poor's or Baa by
Moody's, or which have been assigned an equivalent rating by another
nationally recognized statistical rating organization, or which are of
comparable quality in the judgment of the fund's advisor. Although these
rating categories are investment grade, obligations with these ratings
are viewed as having speculative characteristics and carry a somewhat
higher risk of default than obligations rated in the higher investment
grade categories.

* CALL RISK is the risk that a corporate bond will be called for
redemption at the option of its issuer at a price specified in the
indenture or other investment pursuant to which it was issued. In
general, it is advantageous for an issuer to call its bonds if they can
be refinanced through the issuance of new bonds which bear a lower
interest rate than that of the called bonds. If a bond is called during
a period of declining interest rates, its holder probably will have to
reinvest the proceeds received by it at a lower interest rate than that
borne by the called bond, thus resulting in a decrease in income.

ACTIVE MANAGEMENT. All of the Underlying Funds are actively managed by
their advisor or, in the case of International Fund, its sub-advisor.
Their performance therefore will reflect in part the ability of the
advisor or sub-advisor to select securities which are suited to achieving
their investment objectives. Due to their active management, the
Underlying Funds could underperform other mutual funds with similar
investment objectives or the market generally.

FOREIGN SECURITIES. International Fund is subject to special risks
associated with investing in foreign securities and to declines in net
asset value resulting from changes in exchange rates between the United
States dollar and foreign securities. These risks are discussed under
"Special Investment Methods -- Foreign Securities" elsewhere herein.
Because of the special risks associated with foreign investing, the Fund
may be subject to greater volatility than most mutual funds which invest
principally in domestic securities.

OTHER. Investors also should review "Special Investment Methods" for
information concerning risks associated with certain investment techniques
which may be utilized by Underlying Funds.

MANAGEMENT

The Board of Directors of FASF has the primary responsibility for overseeing
the overall management and electing the officers of FASF. Subject to the
overall direction and supervision of the Board of Directors, the Advisor
acts as investment advisor for and manages the investment portfolios of
FASF.

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INVESTMENT ADVISOR TO THE FUNDS

U.S. Bank National Association, 601 Second Avenue South, Minneapolis,
Minnesota 55402, acts as the Funds' investment advisor through its

<PAGE>

First American Asset Management group. The Advisor has acted as an
investment advisor to FASF since its inception in 1996. The Advisor also has
acted as investment advisor to FAIF since 1987 and to FAF since 1982. As of
September 30, 1997, the Advisor was managing accounts with an aggregate
value of approximately $55 billion, including mutual fund assets of
approximately $20 billion. U.S. Bancorp, 601 Second Avenue South,
Minneapolis, Minnesota 55402, is the holding company for the Advisor.

Each of the Funds has agreed to pay the Advisor monthly fees calculated on
an annual basis equal to 0.25% of its average daily net assets. The
Advisor may, at its option, waive any or all of its fees, or reimburse
expenses, with respect to any Fund from time to time. Any such waiver or
reimbursement is voluntary and may be discontinued at any time. The
Advisor also may absorb or reimburse expenses of the Funds from time to
time, in its discretion, while retaining the ability to be reimbursed by
the Funds for such amounts prior to the end of the fiscal year. This
practice would have the effect of lowering a Fund's overall expense ratio
and of increasing yield to investors, or the converse, at the time such
amounts are absorbed or reimbursed, as the case may be.

The Glass-Steagall Act generally prohibits banks from engaging in the
business of underwriting, selling or distributing securities and from being
affiliated with companies principally engaged in those activities. In
addition, administrative and judicial interpretations of the Glass-Steagall
Act prohibit bank holding companies and their bank and nonbank subsidiaries
from organizing, sponsoring or controlling registered open-end investment
companies that are continuously engaged in distributing their shares. Bank
holding companies and their bank and nonbank subsidiaries may serve,
however, as investment advisors to registered investment companies, subject
to a number of terms and conditions.

Although the scope of the prohibitions and limitations imposed by the
Glass-Steagall Act has not been fully defined by the courts or the
appropriate regulatory agencies, the Funds believe that the Advisor is not
prohibited from performing the investment advisory services described
above, and that broker-dealers affiliated with the Advisor are not
prohibited from entering into a sales agreement with the Distributor as
described herein. In the event of changes in federal or state statutes or
regulations or judicial and administrative interpretations or decisions
pertaining to permissible activities of bank holding companies and their
bank and nonbank subsidiaries, the Advisor and affiliated broker-dealers
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.

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PORTFOLIO MANAGEMENT OF THE FUNDS

Asset allocation decisions for the Funds are made by a committee comprised
of Mr. Bren, Mr. Cline, Mr. Doak, Mr. Dubiak, Mr. Jones, Mr. Murphy, Mr.
Rovner, Mr. Stanley, and Mr. Ulrey, whose backgrounds are set forth below.

GERALD C. BREN joined the Advisor in 1972 as an investment analyst. Mr.
Bren received his master's degree in business administration from the
University of Chicago. He is a Chartered Financial Analyst. He also
participates in the management of certain of the Equity Funds.

DAVID CLINE is a member of the Advisor's asset allocation committee and is
responsible for quantitative analysis. He joined the Advisor in 1994 and has
nine years of investment industry experience. Prior to joining the Advisor,
he was a portfolio manager at Marquette Bank, N.A. Mr. Cline received his
bachelor's degree from Indiana University and his master's degree in
business administration from the University of Minnesota.

JAMES DOAK joined the Advisor in 1982 after serving for two years as vice
president of INA Capital Advisors and ten years as Vice President of
Loomis-Sayles & Co. He has managed assets for individual and institutional
clients, specializing

<PAGE>

in equity investment. Mr. Doak received his bachelor's degree from Brown
University and his master's degree in business administration from the
Wharton School of Business. He is a Chartered Financial Analyst. He also
participates in the management of certain of the Equity Funds.

ALBIN S. DUBIAK began his investment career as a security trader with The
First National Bank of Chicago in 1963 before joining the Advisor as an
investment analyst in 1969. Mr. Dubiak received his bachelor's degree from
Indiana University and his master's degree in business administration from
the University of Arizona. He also participates in the management of
certain of the Equity Funds.

MARTIN L. JONES heads the Fixed Income Group of the Advisor and has over
20 years of investment experience. Formerly with Harris Trust & Savings
Bank, Dillon, Read & Co., and Loeb Rhoades & Co., Mr. Jones received his
bachelor's degree from Texas Tech University, his master's degree from
University of Texas, and his master's degree in business administration
from the University of Chicago. He also is portfolio manager of Fixed
Income Fund.

JOHN M. MURPHY, JR. is Chief Investment Officer of the Advisor's First
American Asset Management group, having joined the Advisor in 1984. He has
more than 30 years in the investment management field and served with
Investment Advisers, Inc. and Blyth, Eastman, Dillon & Co. before joining
the Advisor. He received his bachelor's degree from Regis College. He also
participates in the management of certain of the Equity Funds.

JAMES S. ROVNER joined the Advisor in 1986 and has managed assets for
institutional and individual clients for over 15 years, specializing in
equity and balanced investment strategies. Mr. Rovner received his
bachelor's degree and his master's degree in business administration from
the University of Wisconsin. He is a Chartered Financial Analyst. He also
participates in the management of certain of the Equity Funds.

RICHARD W. STANLEY joined the Advisor in 1986 and has 39 years of
investment industry experience. Prior to joining the Advisor, Mr. Stanley
was with Heritage Investment Advisors and Smith Barney, Inc. Mr. Stanley
received his bachelor's degree from Dartmouth College and his master's
degree in business administration from Cornell University. He is a
Chartered Financial Analyst. He also participates in the management of
certain tax-exempt funds offered by FAIF.

JOSEPH M. ULREY III is a member of the Advisor's asset allocation
committee. He joined the Advisor in 1991 and has 16 years of investment
industry experience. Prior to joining the Advisor, Mr. Ulrey spent 10
years overseeing various functions in the Treasury and Finance Divisions
of U.S. Bancorp. Mr. Ulrey received his bachelor's degree in
mathematics/economics from Macalester College and his master's degree in
business administration from the University of Chicago. He also
participates in the management of Prime Obligations Fund.

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INVESTMENT ADVISOR AND SUB-ADVISOR TO THE UNDERLYING FUNDS

U.S. Bank, the advisor to the Funds, also acts as investment advisor to each
of the Underlying Funds through its First American Asset Management group.
Each of the Equity Funds other than International Fund has agreed to pay the
Advisor monthly fees calculated on an annual basis equal to 0.70% of its
daily average assets. International Fund pays the Advisor a monthly fee
calculated on the same basis equal to 1.25% of its average daily net assets,
out of which the Advisor pays that fund's sub-advisor's fees. Fixed Income
Fund and Prime Obligations Fund pay the Advisor monthly fees calculated on
the same basis equal to 0.70% and 0.40%, respectively, of their average
daily net assets. The Advisor may, at its option, waive any or all of such
fees, or reimburse expenses, with respect to any Underlying Fund from time
to time and may discontinue any such waiver or reimbursement at any time.

Marvin & Palmer Associates, Inc., 1201 North Market Street, Suite 2300,
Wilmington, Delaware

<PAGE>

19801, is sub-advisor to International Fund under an agreement with the
Advisor. The sub-advisor is responsible for the investment and reinvestment
of International Fund's assets and the placement of brokerage transactions
in connection therewith. For its services, the sub-advisor is paid a monthly
fee by the Advisor calculated on an annual basis equal to 0.75% of the first
$100 million of International Fund's average daily net assets, 0.50% of
International Fund's average daily net assets in excess of $100 million up
to $300 million, 0.45% of International Fund's average daily net assets in
excess of $300 million up to $500 million and 0.40% of International Fund's
average daily net assets in excess of $500 million.

The sub-advisor, a privately held company, was founded in 1986 by David F.
Marvin and Stanley Palmer. The stock of the sub-advisor is owned by Mr.
Marvin, Mr. Palmer and several other holders. The sub-advisor is engaged
in the management of global, non-United States and emerging markets equity
portfolios for institutional accounts. At January 1, 1998, the sub-advisor
managed a total of $4.6 billion in investments for 53 institutional
investors.

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CUSTODIAN

The Custodian of the Funds' assets is U.S. Bank National Association (the
"Custodian"), U.S. Bank Center, 180 East Fifth Street, St. Paul, Minnesota
55101. The Custodian is a subsidiary of U.S. Bancorp.

As compensation for its services to the Funds, the Custodian is paid
monthly fees equal to 0.03% of the average daily net assets of each Fund.
In addition, the Custodian is reimbursed for its out-of-pocket expenses
incurred while providing its services to the Funds. The Custodian also
acts as custodian of the Underlying Funds' assets and receives
compensation for such services.

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ADMINISTRATOR

The administrator for the Funds is SEI Investments Management Corporation,
Oaks, Pennsylvania 19456. The Administrator, a wholly-owned subsidiary of
SEI Investments Company, provides the Funds with certain administrative
services necessary to operate the Funds. These services include shareholder
servicing and certain accounting and other services. The Administrator
provides these services for a fee calculated at an annual rate of 0.12% of
each Fund's average daily net assets, provided that to the extent that the
aggregate net assets of all First American Funds exceed $8 billion, the
percentage stated above is reduced to 0.105%. From time to time, the
Administrator may voluntarily waive its fees or reimburse expenses with
respect to any of the Funds. Any such waivers or reimbursements may be made
at the Administrator's discretion and may be terminated at any time. The
Administrator also acts as administrator for the Underlying Funds and
receives compensation for such services. U.S. Bank assists the Administrator
and provides sub-administration services for the Funds. For these services,
the Administrator compensates the sub-administrator at an annual rate of up
to 0.05% of each Fund's average daily assets.

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TRANSFER AGENT

DST Systems, Inc. (the "Transfer Agent") serves as the transfer agent and
dividend disbursing agent for the Funds. The address of the Transfer Agent
is 330 West Ninth Street, Kansas City, Missouri 64105. The Transfer Agent
is not affiliated with the Distributor, the Administrator or the Advisor.
The Transfer Agent also serves as transfer agent and dividend disbursing
agent for the Underlying Funds and receives compensation for such
services.

Effective October 1, 1998, FASF has appointed U.S. Bank as servicing agent
to perform certain transfer agent and dividend disbursing agent services
with respect to the shares of the Funds held through accounts at U.S. Bank
and its affiliates. The Funds pay U.S. Bank an annual fee of $15 per account
for such services.

<PAGE>

DISTRIBUTOR

SEI Investments Distribution Co. is the principal distributor for shares
of the Funds. The Distributor is a Pennsylvania corporation and is the
principal distributor for a number of investment companies. The
Distributor, which is not affiliated with the Advisor, is a wholly-owned
subsidiary of SEI Investments Company and is located at Oaks, Pennsylvania
19456.

Shares of the Funds are distributed through the Distributor and securities
firms, financial institutions (including, without limitation, banks) and
other industry professionals which enter into sales agreements with the
Distributor.

FASF has adopted and entered into a shareholder service plan and agreement
(the "Service Agreement") pursuant to which the Distributor agrees to
provide, or to enter into written agreements with service providers to
provide, one or more specified shareholder services to beneficial owners of
shares of the Funds. In consideration of the services and facilities to be
provided by the Distributor or any service provider, each Fund will pay to
the Distributor a shareholder servicing fee at an annual rate of 0.25% of
the average net asset value of all shares of each Fund, which fee will be
computed daily and paid monthly. The shareholder servicing fee is intended
to compensate the Distributor for the provision of shareholder services and
may be used by the Distributor to provide compensation to institutions
through which shareholders hold their shares for ongoing service and/or
maintenance of shareholder accounts. Such shareholder services may include
maintaining accounts relating to beneficial owners that invest in shares;
providing information periodically to beneficial owners showing their
positions in shares; arranging for bank wires; responding to inquiries from
beneficial owners relating to the services performed by the Distributor or
any service provider; responding to inquiries from beneficial owners
concerning their investments in shares; forwarding shareholder
communications from the Funds (such as proxies, shareholder reports, annual
and semi-annual financial statements and dividend, distribution and tax
notices) to beneficial owners; processing purchase, exchange and redemption
requests from beneficial owners and placing such orders with the Funds or
its service providers; assisting beneficial owners in changing dividend
options, account designations, and addresses; providing subaccounting with
respect to shares beneficially owned; processing dividend payments from the
Funds on behalf of beneficial owners; and providing such other similar
services as the Funds may reasonably request to the extent that the
Distributor and/or the service provider is permitted to do so under
applicable laws or regulations. To the extent that shares are held through
broker-dealer affiliates of the Advisor, such as U.S. Bancorp Investments,
Inc.("USBI"), or U.S. Bancorp Piper Jaffray Inc.("Piper"), those entities
may receive shareholder servicing fees from the Distributor. The shareholder
servicing fee is intended to be a "service fee" as defined in Section 2830
of the NASD Conduct Rules.

The Advisor, the Administrator, the Distributor, and any institution which
has entered into a sales agreement with the Distributor may in their
discretion use their own assets to pay for certain additional costs of
distributing Fund shares or servicing shareholder accounts. Any such
arrangement may be commenced or discontinued by any of these persons at any
time, and any sales promotion arrangement offered by the Advisor, the
Administrator or the Distributor will be offered on a uniform basis to all
entities distributing Fund shares or servicing Fund shareholders unless
otherwise disclosed herein. USBI and Piper have each entered into a sales
agreement with the Distributor. The Advisor may pay USBI and Piper an amount
equal to up to 3% of the net asset value of Fund shares sold through them.

Institutions through which Fund shareholders hold shares may impose
additional charges on such shareholders in connection with services
provided by them, provided that such charges are disclosed to such
shareholders.

The Distributor also acts as the principal distributor for the Underlying
Funds and receives

<PAGE>

compensation (but not for distribution of the class of shares in which the
Funds invest) for such services.

INVESTING IN THE FUNDS

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SHARE PURCHASES

Shares of the Funds are sold at their net asset value, next determined
after an order is received, without any sales charge, on days on which
both the New York Stock Exchange and federally-chartered banks are open
for business. Shares may be purchased as described below. The Funds
reserve the right to reject any purchase request.

Net asset value is determined as of the close of normal trading on the New
York Stock Exchange (3:00 p.m. Central time) Monday through Friday except on
(i) days on which there are not sufficient changes in the value of a Fund's
portfolio securities that its net asset value might be materially affected;
(ii) days during which no shares are tendered for redemption and no orders
to purchase shares are received; and (iii) days in which the New York Stock
Exchange or federally-chartered banks are closed including, but not limited
to, the following federal holidays: New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day. In addition, net asset value will not
be calculated on Good Friday.

THROUGH A FINANCIAL INSTITUTION. Shares may be purchased through a
financial institution which has a sales agreement with the Distributor. An
investor may call his or her financial institution to place an order.
Purchase orders must be received by the financial institution by the time
specified by the institution to be assured same day processing, and
purchase orders must be transmitted to and received by the Funds by 3:00
p.m. Central time in order for shares to be purchased at that day's price.
It is the financial institution's responsibility to transmit orders
promptly.

Certain financial institutions assist their clients in the purchase or
redemption of shares and charge a fee for this service.

BY MAIL. An investor may place an order to purchase shares of the Funds
directly through the Transfer Agent. Orders by mail will be executed upon
receipt of payment by the Transfer Agent. If an investor's check does not
clear, the purchase will be cancelled and the investor could be liable for
any losses or fees incurred. Third-party checks, credit cards, credit card
checks and cash will not be accepted. When purchases are made by check,
the proceeds of redemptions of the shares purchased are not available
until the Transfer Agent is reasonably certain that the purchase payment
has cleared, which could take up to ten calendar days from the purchase
date.

In order to purchase shares by mail, an investor must:

* complete and sign the new account form;

* enclose a check made payable to (Fund name); and

* mail both to DST Systems, Inc., P.O. Box 419382, Kansas City, Missouri
64141-6382.

After an account is established, an investor can purchase shares by mail
by enclosing a check and mailing it to DST Systems, Inc. at the above
address.

BY WIRE. To purchase shares of a Fund by wire, call (888) 997-8728 before
3:00 p.m. Central time. All information needed will be taken over the
telephone, and the order will be considered placed when the Custodian
receives payment by wire. If the Custodian does not receive the wire by 3:00
p.m. Central time, the order will be executed the next business day. Federal
funds should be wired as follows: U.S. Bank National Association,
Minneapolis, Minnesota, ABA Number 091000022; For Credit to: DST Systems,
Inc.: Account Number 160234580266; For Further Credit To: (Investor Name and
Fund Name). Shares cannot be purchased by Federal Reserve wire on days on
which the New York Stock Exchange or federally-chartered banks are closed.

<PAGE>

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MINIMUM INVESTMENT REQUIRED

The minimum initial investment for each Fund is $1,000 unless the
investment is in a retirement plan, in which case the minimum investment
is $250. The minimum subsequent investment is $100. The Funds reserve the
right to waive the minimum investment requirement for employees of the
Advisor and its affiliates.

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SYSTEMATIC EXCHANGE PROGRAM

Shares of a Fund may also be purchased through automatic monthly deductions
from a shareholder's account in the Class A Shares of Prime Obligations Fund
of FAF. Under a systematic exchange program, a shareholder enters an
agreement to purchase shares of one or more Funds over a specified period of
time, and initially purchases Prime Obligations Fund shares in an amount
equal to the total amount of the investment. On a monthly basis a specified
dollar amount of shares of Prime Obligations Fund is exchanged for shares of
the Funds specified. The systematic exchange program of investing a fixed
dollar amount at regular intervals over time has the effect of reducing the
average cost per share of the Funds. This effect also can be achieved
through the systematic investment program described below. A shareholder may
apply for participation in this program through his or her financial
institution or by calling (888) 997-8728.

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SYSTEMATIC INVESTMENT PROGRAM

Once a Fund account has been opened, shareholders may add to their
investment on a regular basis in a minimum amount of $100. Under this
program, funds may be automatically withdrawn periodically from the
shareholder's checking account and invested in Fund shares at the net
asset value next determined after an order is received, plus any
applicable sales charge. A shareholder may apply for participation in this
program through his or her financial institution or by calling (888)
997-8728.

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CERTIFICATES AND CONFIRMATIONS

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

Confirmations of each purchase and redemption are sent to each
shareholder. In addition, monthly confirmations are sent to report all
transactions and dividends paid during that month for the Funds.

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DIVIDENDS AND DISTRIBUTIONS

Dividends are declared and paid monthly with respect to the Funds.
Distributions of any net realized long-term capital gains will be made at
least once every 12 months. Dividends and distributions are automatically
reinvested in additional shares of the Fund paying the dividend on payment
dates at the ex-dividend date net asset value without a sales charge,
unless shareholders request cash payments on the new account form or by
writing to the Fund.

All shareholders on the record date are entitled to the dividend. If
shares are purchased before a record date for a dividend or a distribution
of capital gains, a shareholder will pay the full price for the shares and
will receive some portion of the purchase price back as a taxable dividend
or distribution (to the extent, if any, that the dividend or distribution
is otherwise taxable to holders of Fund shares). If shares are redeemed or
exchanged before the record date for a dividend or distribution or are
purchased after the record date, those shares are not entitled to the
dividend or distribution.

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EXCHANGE PRIVILEGE

Shares of a Fund, whether acquired by direct purchase, reinvestment of
dividends on such shares, or otherwise, may be exchanged for shares of the
other Funds without the payment of any sales charge (i.e., at net asset
value). Exchanges of shares among the Funds must meet any applicable
minimum investment of the Fund for which shares are being exchanged.

<PAGE>

Shares of the Funds may not be exchanged for shares of the Underlying
Funds, other than Class A Shares of FAF's Prime Obligations Fund.

The ability to exchange shares of the Funds does not constitute an
offering or recommendation of shares of one Fund by another Fund. This
privilege is available to shareholders resident in any state in which the
Fund shares being acquired may be sold. Exchanges may be accomplished by a
written request, or by telephone if a preauthorized exchange authorization
is on file with the Transfer Agent, shareholder servicing agent, or
financial institution.

Written exchange requests must be signed exactly as shown on the
authorization form, and the signatures may be required to be guaranteed as
for a redemption of shares by an entity described below under "Redeeming
Shares." None of the Funds, the Distributor, the Transfer Agent, any
shareholder servicing agent, nor any financial institution will be
responsible for further verification of the authenticity of the exchange
instructions.

Telephone exchange instructions made by an investor may be carried out only
if a telephone authorization form completed by the investor is on file with
the Transfer Agent, shareholder servicing agent or financial institution.
Shares may be exchanged between two Funds by telephone only if both Funds
have identical shareholder registrations.

Telephone exchange instructions may be recorded and will be binding upon
the shareholder. Telephone instructions must be received by the Transfer
Agent before 3:00 p.m. Central time, or by a shareholder's shareholder
servicing agent or financial institution by the time specified by it, in
order for shares to be exchanged the same day. Neither the Transfer Agent
nor any Fund will be responsible for the authenticity of exchange
instructions received by telephone if it reasonably believes those
instructions to be genuine. The Funds and the Transfer Agent will each
employ reasonable procedures to confirm that telephone instructions are
genuine, and they may be liable for losses resulting from unauthorized or
fraudulent telephone instructions if they do not employ these procedures.

Shareholders of the Funds may have difficulty in making exchanges by
telephone through brokers and other financial institutions during times of
drastic economic or market changes. If a shareholder cannot contact his or
her broker or financial institution by telephone, it is recommended that
an exchange request be made in writing and sent by overnight mail to DST
Systems, Inc., 330 West Ninth Street, Kansas City, Missouri 64105. The
exchange privilege should not be used to take advantage of short-term
swings in the securities markets. The Funds reserve the right to limit or
terminate exchange privileges as to any shareholder who makes exchanges
more than four times a year (other than through the Systematic Exchange
Program or similar periodic investment programs). The Funds may modify or
revoke the exchange privilege for all shareholders upon 60 days' prior
written notice or without notice in times of drastic economic or market
changes.

There are currently no additional fees or charges for the exchange service.
The Funds do not contemplate establishing such fees or charges, but they
reserve the right to do so. Shareholders will be notified of any additional
fees or charges.

REDEEMING SHARES

Each Fund redeems shares at their net asset value next determined after the
Transfer Agent receives the redemption request, without deduction of any
redemption fee or deferred sales charge. Redemptions will be made on days on
which the Fund computes its net asset value. Redemption requests can be made
as described below and must be received in proper form.

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BY TELEPHONE

A shareholder may redeem shares of a Fund, if he or she elects the
privilege on the initial shareholder

<PAGE>

application, by calling his or her financial institution to request the
redemption. Shares will be redeemed at the net asset value next determined
after the Fund receives the redemption request from the financial
institution. Redemption requests must be received by the financial
institution by the time specified by the institution in order for shares to
be redeemed at that day's net asset value, and redemption requests must be
transmitted to and received by the Funds by 3:00 p.m. Central time in order
for shares to be redeemed at that day's net asset value. Pursuant to
instructions received from the financial institution, redemptions will be
made by check or by wire transfer. It is the financial institution's
responsibility to transmit redemption requests promptly.

Shareholders who did not purchase their shares of a Fund through a financial
institution may redeem their shares by telephoning (888) 997-8728. At the
shareholder's request, redemption proceeds will be paid by check mailed to
the shareholder's address of record or wire transferred to the shareholder's
account at a domestic commercial bank that is a member of the Federal
Reserve System, normally within one business day, but in no event more than
seven days after the request. Wire instructions must be previously
established on the account or provided in writing. The minimum amount for a
wire transfer is $1,000. If at any time the Funds determine it necessary to
terminate or modify this method of redemption, shareholders will be promptly
notified.

In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming shares by telephone. If this should
occur, another method of redemption should be considered. Neither the
Transfer Agent nor any Fund will be responsible for any loss, liability,
cost or expense for acting upon wire instructions or upon telephone
instructions that it reasonably believes to be genuine. The Transfer Agent
and the Funds will each employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. These procedures may
include the taping of telephone conversations. To ensure authenticity of
redemption or exchange instructions received by telephone, the Transfer
Agent examines each shareholder request by verifying the account number
and/or tax identification number at the time such request is made. The
Transfer Agent subsequently sends confirmations of both exchange sales and
exchange purchases to the shareholder for verification. If reasonable
procedures are not employed, the Transfer Agent and the Funds may be
liable for any losses due to unauthorized or fraudulent telephone
transactions.

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BY MAIL

Any shareholder may redeem Fund shares by sending a written request to the
Transfer Agent, shareholder servicing agent, or financial institution. The
written request should include the shareholder's name, the Fund name, the
account number, and the share or dollar amount requested to be redeemed,
and should be signed exactly as the shares are registered. Shareholders
should call the Fund, shareholder servicing agent or financial institution
for assistance in redeeming by mail. A check for redemption proceeds
normally is mailed within one business day, but in no event more than
seven days, after receipt of a proper written redemption request.

Shareholders requesting a redemption of $5,000 or more, a redemption of
any amount to be sent to an address other than that on record with the
Fund, or a redemption payable other than to the shareholder of record,
must have signatures on written redemption requests guaranteed by:

* a trust company or commercial bank the deposits of which are insured by
the Bank Insurance Fund, which is administered by the Federal Deposit
Insurance Corporation ("FDIC");

* a member firm of the New York, American, Boston, Midwest, or Pacific
Stock Exchanges or of the National Association of Securities Dealers;

* a savings bank or savings and loan association the deposits of which are
insured by the Savings Association Insurance Fund, which is administered
by the FDIC; or

<PAGE>

* any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.

The Funds do not accept signatures guaranteed by a notary public.

The Funds and the Transfer Agent have adopted standards for accepting
signature guarantees from the above institutions. The Funds may elect in
the future to limit eligible signature guarantees to institutions that are
members of a signature guarantee program. The Funds and the Transfer Agent
reserve the right to amend these standards at any time without notice.

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BY SYSTEMATIC WITHDRAWAL PROGRAM

Shareholders whose account value is at least $5,000 may elect to
participate in the Systematic Withdrawal Program. Under this program, Fund
shares are redeemed to provide for periodic withdrawal payments in an
amount directed by the shareholder. A shareholder may apply to participate
in this program through his or her financial institution.

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REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR

When shares are purchased by check or with funds transmitted through the
Automated Clearing House, the proceeds of redemptions of those shares are
not available until the Transfer Agent is reasonably certain that the
purchase payment has cleared, which could take up to ten calendar days
from the purchase date.

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ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, a Fund may
redeem shares in any account, except retirement plans, and pay the
proceeds to the shareholder if the account balance falls below the
required minimum value of $500. Shares will not be redeemed in this
manner, however, if the balance falls below $500 because of changes in a
Fund's net asset value. Before shares are redeemed to close an account,
the shareholder will be notified in writing and allowed 60 days to
purchase additional shares to meet the minimum account requirement.

DETERMINING THE PRICE OF SHARES

Shares of the Funds are sold at net asset value, without any sales charge.
Shares are redeemed at net asset value, without deduction of any
redemption fee or deferred sales charge.

The net asset value per share is determined as of the close of normal
trading on the New York Stock Exchange (3:00 p.m. Central time) on each
day the New York Stock Exchange and federally-chartered banks are open for
business, provided that net asset value need not be determined on days
when no Fund shares are tendered for redemption and no order for that
Fund's shares is received and on days on which changes in the value of
portfolio securities will not materially affect the current net asset
value of the Fund's shares. The price per share for purchases or
redemptions is such value next computed after the Transfer Agent receives
the purchase order or redemption request.

It is the responsibility of investors' financial institutions promptly to
forward purchase and redemption orders to the Transfer Agent. In the case of
redemptions and repurchases of shares owned by corporations, trusts or
estates, the Transfer Agent or Fund may require additional documents to
evidence appropriate authority in order to effect the redemption, and the
applicable price will be that next determined following the receipt of the
required documentation.

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DETERMINING NET ASSET VALUE

The net asset value per share for each of the Funds is determined by
dividing the value of the securities owned by the Fund plus any cash and
other assets (including interest accrued and dividends declared

<PAGE>

but not collected), less all liabilities, by the number of Fund shares
outstanding. The assets of each Fund are expected to consist primarily of
shares of the Underlying Funds, which are valued at their respective net
asset values. For the purpose of determining the aggregate net assets of the
Funds, cash and receivables will be valued at their face amounts. Interest
will be recorded as accrued and dividends will be recorded on the
ex-dividend date.

Security valuations of investments in the Underlying Funds are furnished
by an independent pricing service that has been approved by the Board of
Directors. Securities listed on a securities exchange or an automated
quotation system for which quotations are readily available, including
securities traded over the counter, are valued at the last quoted sale
price on the principal exchange on which they are traded on the valuation
date, or, if there is no such reported sale on the valuation date, at the
most recently quoted bid price.

Debt obligations with remaining maturities in excess of sixty days are
valued at the most recently quoted bid price. For such debt obligations the
pricing service may employ methods that utilize actual market transactions,
broker-dealer valuations, or other electronic data processing techniques.
These techniques generally consider such factors as security prices, yields,
maturities, call features, ratings and developments relating to specific
securities in arriving at security valuations. Debt obligations with
remaining maturities of sixty days or less may be valued at their amortized
cost which approximates market value. If a security price cannot be obtained
from an independent pricing service a bid price may be obtained from an
independent broker who makes a market in the security.

Foreign securities owned by the Underlying Funds are valued at the closing
prices on the principal exchange on which they trade.

If the value for a security cannot be obtained from the sources described
above, the security's value may be determined pursuant to the fair value
procedures established by the applicable Board of Directors.

Financial futures held by the Underlying Funds are valued at the
settlement price established each day by the board of exchange on which
they are traded. Portfolio securities underlying actively traded options
are valued at their market price as determined above. The current market
value of any exchange traded options held or written by an Underlying Fund
is valued at the closing bid price for a long position or the closing ask
price for a short position.

Foreign currency forward contracts held by the Underlying Funds are valued
at the current day's interpolated foreign exchange rate, as calculated
using the current day's exchange rate, and the thirty, sixty, ninety and
one-hundred eighty day forward rates provided by the Reuters system.

FEDERAL INCOME TAXES

Each Fund intends to qualify as a regulated investment company under
Subchapter M of the Code, during its current taxable year in order to be
relieved of payment of federal income taxes on amounts of taxable income it
distributes to shareholders.

Dividends paid from each Fund's net investment income and net short-term
capital gains will be taxable to shareholders as ordinary income, whether
or not the shareholder elects to have such dividends automatically
reinvested in additional shares. Dividends paid by the Funds attributable
to investments by the Underlying Funds in the securities of foreign
issuers, debt securities, or REITs will not be eligible for the 70%
deduction for dividends received by corporations.

Dividends paid from the net capital gains of each Fund and designated as
capital gain dividends will be taxable to shareholders as long-term capital
gains, regardless of the length of time for which they have held their
shares in the Fund. In the case of shareholders who are individuals,
estates, or trusts, each Fund will designate the portion of each capital
gain dividend that must be treated as mid-term capital gain and the portion
that must be treated as long-term capital gain.

<PAGE>

Gain or loss realized upon the sale of shares in the Funds will be treated
as capital gain or loss, provided that the shares represented a capital
asset in the hands of the shareholder. For corporate shareholders, such
gain or loss will be long-term gain or loss if the shares were held for
more than one year. For shareholders who are individuals, estates, or
trusts the gain or loss will be considered long-term if the shareholder
has held the shares for more than 18 months and mid-term if the
shareholder has held the shares for more than one year but not more than
18 months.

Investment income received by the Funds from sources within foreign
countries may be subject to foreign income taxes withheld at the source.
The Funds will not be able to treat shareholders as having paid their
proportionate share of such taxes for foreign tax credit purposes.

Each Fund is required by federal law to withhold 31% of reportable payments
(including dividends, capital gain distributions, and redemptions) paid to
certain accounts whose owners have not complied with IRS regulations. In
order to avoid this withholding requirement, each shareholder will be asked
to certify on the shareholder's account application that the social security
or taxpayer identification number provided is correct and that the
shareholder is not subject to backup withholding for previous underreporting
to the IRS.

This is a general summary of the federal tax laws applicable to the Funds
and their shareholders as of the date of this Prospectus. See the
Statement of Additional Information for further details. Before investing
in the Funds, an investor should consult his or her tax advisor about the
consequences of state and local tax laws.

FUND SHARES

Each share of a Fund is fully paid, nonassessable, and transferable.
Shares may be issued as either full or fractional shares. Fractional
shares have pro rata the same rights and privileges as full shares. Shares
of the Funds have no preemptive or conversion rights.

Each share of a Fund has one vote. On some issues, such as the election of
directors, all shares of all FASF Funds vote together as one series. The
shares do not have cumulative voting rights. Consequently, the holders of
more than 50% of the shares voting for the election of directors are able
to elect all of the directors if they choose to do so. On issues affecting
only a particular Fund, the shares of that Fund will vote as a separate
series. Examples of such issues would be proposals to alter a fundamental
investment restriction pertaining to a Fund or to approve, disapprove or
alter a distribution plan.

The Bylaws of FASF provide that annual shareholders meetings are not
required and that meetings of shareholders need only be held with such
frequency as required under Minnesota law and the 1940 Act.

CALCULATION OF PERFORMANCE DATA

From time to time, any of the Funds may advertise information regarding its
performance. Each Fund may publish its "yield," its "cumulative total
return," its "average annual total return" and its "distribution rate."
Distribution rates may only be used in connection with sales literature and
shareholder communications preceded or accompanied by a Prospectus. Each of
these performance figures is based upon historical results and is not
intended to indicate future performance, and, except for "distribution
rate," is standardized in accordance with Securities and Exchange Commission
regulations.

"Yield" for the Funds is computed by dividing the net investment income per
share (as defined in applicable SEC regulations) earned during a 30-day
period (which period will be stated in the advertisement) by the maximum
offering price per share on the last day of the period. Yield is an
annualized figure, in that it assumes that the same level of net investment
income is generated over a

<PAGE>

one year period. The yield formula annualizes net investment income by
providing for semi-annual compounding.

"Total return" is based on the overall dollar or percentage change in
value of a hypothetical investment in a Fund assuming reinvestment of
dividend distributions and deduction of all expenses. "Cumulative total
return" reflects a Fund's performance over a stated period of time.
"Average annual total return" reflects the hypothetical annually
compounded rate that would have produced the same cumulative total return
if performance had been constant over the entire period. Because average
annual returns tend to smooth out variations in a Fund's performance, they
are not the same as actual year-by-year results.

A Fund's "distribution rate" is determined by dividing the income
dividends per share for a stated period by the maximum offering price per
share on the last day of the period. All distribution rates published for
the Funds are measures of the level of income dividends distributed during
a specified period. Thus, these rates differ from yield (which measures
income actually earned by a Fund) and total return (which measures actual
income, plus realized and unrealized gains or losses of a Fund's
investments). Consequently, distribution rates alone should not be
considered complete measures of performance.

In reports or other communications to shareholders and in advertising
material, the performance of each Fund may be compared to recognized
unmanaged indices or averages of the performance of similar securities and
to composites of such indices and averages. Also, the performance of each
Fund may be compared to that of other funds of similar size and objectives
as listed in the rankings prepared by Lipper Analytical Services, Inc. or
similar independent mutual fund rating services, and each Fund may include
in such reports, communications and advertising material evaluations
published by nationally recognized independent ranking services and
publications. For further information regarding the Funds' performance,
see "Fund Performance" in the Statement of Additional Information.

SPECIAL INVESTMENT METHODS

This section provides additional information concerning the securities in
which the Funds and the Underlying Funds may invest and related topics.
Further information concerning these matters is contained in the Statement
of Additional Information.

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CASH ITEMS

The "cash items" in which the Funds and the Equity Funds may invest, as
described under "Investment Objectives and Policies" and "The Underlying
Funds," include short-term obligations such as rated commercial paper and
variable amount master demand notes; United States dollar-denominated time
and savings (including certificates of deposit); bankers' acceptances;
obligations of the United States Government or its agencies or
instrumentalities; repurchase agreements collateralized by eligible
investments of an Underlying Fund; securities of other mutual funds which
invest primarily in debt obligations with remaining maturities of 13
months or less (which investments also are subject to the advisory fee);
and other similar high-quality short-term United States dollar-denominated
obligations.

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REPURCHASE AGREEMENTS

Each of the Underlying Funds may enter into repurchase agreements. A
repurchase agreement involves the purchase by an Underlying Fund of
securities with the agreement that after a stated period of time, the
original seller will buy back the same securities ("collateral") at a
predetermined price or yield. Repurchase agreements involve certain risks
not associated with direct investments in securities. If the original seller
defaults on its obligation to repurchase as a result of its bankruptcy or
otherwise, the purchasing Underlying Fund will seek to sell the collateral,
which could involve costs or delays. Although collateral (which may consist
of any fixed income security which is an eligible investment for the

<PAGE>

Underlying Fund entering into the repurchase agreement) will at all times be
maintained in an amount equal to the repurchase price under the agreement
(including accrued interest), an Underlying Fund would suffer a loss if the
proceeds from the sale of the collateral were less than the agreed-upon
repurchase price. The advisor of an Underlying Fund or, in the case of
International Fund, its sub-advisor will monitor the creditworthiness of the
firms with which the Underlying Funds enter into repurchase agreements.

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WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

Each of the Underlying Funds may purchase securities on a when-issued or
delayed delivery basis. When such a transaction is negotiated, the
purchase price is fixed at the time the purchase commitment is entered,
but delivery of and payment for the securities take place at a later date.
An Underlying Fund will not accrue income with respect to securities
purchased on a when-issued or delayed delivery basis prior to their stated
delivery date. Pending delivery of the securities, each Underlying Fund
will maintain in a segregated account cash or liquid high-grade securities
in an amount sufficient to meet its purchase commitments.

The purchase of securities on a when-issued or delayed delivery basis
exposes an Underlying Fund to risk because the securities may decrease in
value prior to delivery. In addition, an Underlying Fund's purchase of
securities on a when-issued or delayed delivery basis while remaining
substantially fully invested could increase the amount of the Underlying
Fund's total assets that are subject to market risk, resulting in increased
sensitivity of net asset value to changes in market prices. However, the
Underlying Funds will engage in when-issued and delayed delivery
transactions only for the purpose of acquiring portfolio securities
consistent with their investment objectives, and not for the purpose of
investment leverage. A seller's failure to deliver securities to an
Underlying Fund could prevent the Underlying Fund from realizing a price or
yield considered to be advantageous. Prime Obligations Fund will not
purchase securities on a when-issued or delayed delivery basis if, as a
result thereof, more than 15% of its net assets would be so invested.

In connection with its ability to purchase securities on a when-issued or
delayed delivery basis, Fixed Income Fund may enter into mortgage "dollar
rolls" in which the Fund sells securities and simultaneously contracts with
the same counterparty to repurchase similar (same type, coupon and maturity)
but not identical securities on a future date. In a mortgage dollar roll,
Fixed Income Fund gives up the right to receive principal and interest paid
on the securities sold. However, the Fund would benefit to the extent of any
difference between the price received for the securities sold and the lower
forward price for the future purchase plus any fee income received. Unless
such benefits exceed the income, capital appreciation and gain or loss due
to mortgage repayments that would have been realized on the securities sold
as part of the mortgage dollar roll, the use of this technique will diminish
the investment performance of Fixed Income Fund compared with what such
performance would have been without the use of mortgage dollar rolls. The
Fund will hold and maintain in a segregated account until the settlement
date cash or liquid securities in an amount equal to the forward purchase
price.

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ZERO COUPON SECURITIES

Fixed Income Fund may invest in zero coupon, fixed income securities. Zero
coupon securities pay no cash income to their holders until they mature and
are issued at substantial discounts from their value at maturity. When held
to maturity, their entire return comes from the difference between their
purchase price and their maturity value. Because interest on zero coupon
securities is not paid on a current basis, the values of the securities of
this type are subject to greater fluctuations than are the value of
securities that distribute income regularly and may be more

<PAGE>

speculative than such securities. Accordingly, the values of these
securities may be highly volatile as interest rates rise or fall.

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LENDING OF PORTFOLIO SECURITIES

In order to generate additional income, each of the Underlying Funds may
lend portfolio securities representing up to one-third of the value of its
total assets to broker-dealers, banks or other institutional borrowers of
securities. As with other extensions of credit, there may be risks of delay
in recovery of the securities or even loss of rights in the collateral
should the borrower of the securities fail financially. However, the
Underlying Funds will only enter into loan arrangements with broker-dealers,
banks or other institutions which its advisor or, in the case of
International Fund, its sub-advisor has determined are creditworthy under
guidelines established by the Board of Directors. In these loan
arrangements, the Underlying Funds will receive collateral in the form of
cash, United States Government securities or other high-grade debt
obligations equal to at least 100% of the value of the securities loaned.
Collateral is marked to market daily. The Underlying Funds will pay a
portion of the income earned on the lending transaction to the placing
broker and may pay administrative and custodial fees (including fees paid to
an affiliate of the Advisor) in connection with these loans which, in the
case of U.S. Bank, are 40% of the Funds' income from such securities lending
transactions.

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OPTIONS TRANSACTIONS

PURCHASES OF PUT AND CALL OPTIONS. The Underlying Funds, other than Prime
Obligations Fund, may purchase put and call options. These transactions
will be undertaken only for the purpose of reducing risk to the Underlying
Funds; that is, for "hedging" purposes. Depending on the Underlying Fund,
these transactions may include the purchase of put and call options on
equity securities, on stock indices, on interest rate indices, or (only in
the case of International Fund) on foreign currencies. Options on futures
contracts are discussed below under "Futures and Options on Futures."

A put option on a security gives the purchaser of the option the right
(but not the obligation) to sell, and the writer of the option the
obligation to buy, the underlying security at a stated price (the
"exercise price") at any time before the option expires. A call option on
a security gives the purchaser the right (but not the obligation) to buy,
and the writer the obligation to sell, the underlying security at the
exercise price at any time before the option expires. The purchase price
for a put or call option is the "premium" paid by the purchaser for the
right to sell or buy.

Options on indices are similar to options on securities except that,
rather than the right to take or make delivery of a specific security at a
stated price, an option on an index gives the holder the right to receive,
upon exercise of the option, a defined amount of cash if the closing value
of the index upon which the option is based is greater than, in the case
of a call, or less than, in the case of a put, the exercise price of the
option.

None of the Underlying Funds other than International Fund will invest
more than 5% of the value of its total assets in purchased options,
provided that options which are "in the money" at the time of purchase may
be excluded from this 5% limitation. A call option is "in the money" if
the exercise price is lower than the current market price of the
underlying security or index, and a put option is "in the money" if the
exercise price is higher than the current market price. An Underlying
Fund's loss exposure in purchasing an option is limited to the sum of the
premium paid and the commission or other transaction expenses associated
with acquiring the option.

The use of purchased put and call options involves certain risks. These
include the risk of an imperfect correlation between market prices of
securities held by an Underlying Fund and the prices of options, and the
risk of limited liquidity in the event that an Underlying Fund seeks to
close out

<PAGE>

an options position before expiration by entering into an offsetting
transaction.

WRITING OF CALL OPTIONS. The Underlying Funds may write (sell) covered
call options to the extent specified with respect to particular Underlying
Funds under "The Underlying Funds." These transactions would be undertaken
principally to produce additional income. Depending on the Underlying
Fund, these transactions may include the writing of covered call options
on equity securities or (only in the case of International Fund) on
foreign currencies which an Underlying Fund owns or has the right to
acquire or on interest rate indices.

When an Underlying Fund sells a covered call option, it is paid a premium
by the purchaser. If the market price of the security covered by the
option does not increase above the exercise price before the option
expires, the option generally will expire without being exercised, and the
Underlying Fund will retain both the premium paid for the option and the
security. If the market price of the security covered by the option does
increase above the exercise price before the option expires, however, the
option is likely to be exercised by the purchaser. In that case the
Underlying Fund will be required to sell the security at the exercise
price, and it will not realize the benefit of increases in the market
price of the security above the exercise price of the option.

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

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FUTURES AND OPTIONS ON FUTURES

The Funds, as well as Fixed Income Fund and International Fund, may engage
in futures transactions and purchase options on futures as described with
respect to the Funds under "Investment Objectives and Policies --
Investment Policies" and with respect to such Underlying Funds under "The
Underlying Funds." In addition, International Fund may enter into
contracts for the future delivery of securities or foreign currencies and
futures contracts based on a specific security, class of securities, or
foreign currency.

A futures contract on a security obligates one party to purchase, and the
other to sell, a specified security at a specified price on a date certain
in the future. A futures contract on an index obligates the seller to
deliver, and entitles the purchaser to receive, an amount of cash equal to
a specific dollar amount times the difference between the value of the
index at the expiration date of the contract and the index value specified
in the contract. The acquisition of put and call options on futures
contracts will, respectively, give a fund the right (but not the
obligation), for a specified exercise price, to sell or to purchase the
underlying futures contract at any time during the option period.

The Funds may use futures contracts and options on futures for the
purposes specified under "Investment Objectives and Policies -- Investment
Policies." An Underlying Fund may use futures contracts and options on
futures in an effort to hedge against market risks and, in the case of
International Fund, as part of its management of foreign currency
transactions.

Aggregate initial margin deposits for futures contracts, and premiums paid
for related options, may not exceed 5% of a Fund's or Underlying Fund's
total assets, and the value of securities that are the subject of such
futures and options (both for receipt and delivery) may not exceed 1/3 of
the market value of International Fund's total assets. Futures transactions
will be limited to the extent necessary to maintain each Fund's and
Underlying Fund's qualification as a regulated investment company under the
Code, as amended.

Where a Fund or an Underlying Fund is permitted to purchase options on
futures, its potential loss is limited to the amount of the premiums paid
for

<PAGE>

the options. As stated above, this amount may not exceed 5% of a Fund's or
Underlying Fund's total assets. Where a Fund or an Underlying Fund is
permitted to enter into futures contracts obligating it to purchase
securities, currency or an index in the future at a specified price, such
Fund or Underlying Fund could lose 100% of its net assets in connection
therewith if it engaged extensively in such transactions and if the market
value or index value of the subject securities, currency or index at the
delivery or settlement date fell to zero for all contracts into which a Fund
or Underlying Fund was permitted to enter. Where an Underlying Fund is
permitted to enter into futures contracts obligating it to sell securities
or currencies (as is the case with respect only to International Fund), its
potential losses are unlimited if it does not own the securities or
currencies covered by the contracts and it is unable to close out the
contracts prior to the settlement date.

Futures transactions involve brokerage costs and require a Fund or
Underlying Fund to segregate assets to cover contracts that would require it
to purchase securities or currencies. A Fund or Underlying Fund may lose the
expected benefit of futures transactions if interest rates, exchange rates
or securities prices move in an unanticipated manner. Such unanticipated
changes may also result in poorer overall performance than if the Fund or
Underlying Fund had not entered into any futures transactions. In addition,
the value of a Fund's or Underlying Fund's futures positions may not prove
to be perfectly or even highly correlated with the value of its portfolio
securities or foreign currencies, limiting the Fund's or Underlying Fund's
ability to hedge effectively against interest rate, exchange rate and/or
market risk and giving rise to additional risks. There is no assurance of
liquidity in the secondary market for purposes of closing out futures
positions.

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FIXED INCOME SECURITIES

The fixed income securities in which the Equity Funds may invest include
securities issued or guaranteed by the United States Government or its
agencies or instrumentalities, nonconvertible preferred stocks,
nonconvertible corporate debt securities, and short-term obligations of
the kinds described above under "-- Cash Items." Investments in
nonconvertible preferred stocks and nonconvertible corporate debt
securities will be limited to securities which are rated at the time of
purchase not less than BBB by Standard & Poor's or Baa by Moody's (or
equivalent short-term ratings), or which have been assigned an equivalent
rating by another nationally recognized statistical rating organization,
or which are of comparable quality in the judgment of the advisor.
Obligations rated BBB, Baa or their equivalent, although investment grade,
have speculative characteristics and carry a somewhat higher risk of
default than obligations rated in the higher investment grade categories.

In addition, Equity Income Fund may invest up to 25% of its total assets,
and each of the other Equity Funds may invest up to 5% of its net assets,
in less than investment grade convertible debt obligations. For a
description of such obligations and the risks associated therewith, see
"The Underlying Funds -- Equity Income Fund."

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FOREIGN SECURITIES

GENERAL. Under normal market conditions International Fund invests at
least 65% of its total assets in equity securities which trade in markets
other than the United States. In addition, the other Equity Funds may
invest lesser proportions of their assets in securities of foreign issuers
which are either listed on a United States securities exchange or
represented by American Depositary Receipts.

Fixed Income Fund may invest up to 15% of its total assets in foreign
securities payable in United States dollars. These securities may include
securities issued or guaranteed by (i) the government of Canada, any
Canadian province, or any instrumentality or political subdivision thereof;
(ii) any other foreign government, agency or instrumentality; (iii) foreign
subsidiaries of
<PAGE>

United States corporations; and (iv) foreign banks having total capital and
surplus at the time of investment of at least $1 billion. Such foreign bank
or corporate securities must be rated by at least one major United States
rating agency as having a quality not less than that which would be required
for comparable domestic securities. In addition, Fixed Income Fund also may
invest in Eurodollar Certificates of Deposit, Eurodollar Time Deposits and
Yankee Certificates of Deposit as described under "-- Bank Instruments"
below.

Prime Obligations Fund may invest in United States dollar-denominated
obligations of foreign banks, United States branches of foreign banks, and
foreign branches of United States banks, subject to the limitations
described under "The Underlying Funds -- Prime Obligations Fund" above.

Investment in foreign securities is subject to special investment risks that
differ in some respects from those related to investments in securities of
United States domestic issuers. These risks include political, social or
economic instability in the country of the issuer, the difficulty of
predicting international trade patterns, the possibility of the imposition
of exchange controls, expropriation, limits on removal of currency or other
assets, nationalization of assets, foreign withholding and income taxation,
and foreign trading practices (including higher trading commissions,
custodial charges and delayed settlements). Foreign securities also may be
subject to greater fluctuations in price than securities issued by United
States corporations. The principal markets on which these securities trade
may have less volume and liquidity, and may be more volatile, than
securities markets in the United States.

In addition, there may be less publicly available information about a
foreign company than about a United States domiciled company. Foreign
companies generally are not subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to United
States domestic companies. There is also generally less government
regulation of securities exchanges, brokers and listed companies abroad
than in the United States. Confiscatory taxation or diplomatic
developments could also affect investment in those countries. In addition,
foreign branches of United States banks, foreign banks and foreign issuers
may be subject to less stringent reserve requirements and to different
accounting, auditing, reporting, and recordkeeping standards than those
applicable to domestic branches of United States banks and United States
domestic issuers.

AMERICAN DEPOSITARY RECEIPTS AND EUROPEAN DEPOSITARY RECEIPTS. For many
foreign securities, United States dollar-denominated American Depositary
Receipts, which are traded in the United States on exchanges or over-the-
counter, are issued by domestic banks. American Depositary Receipts
represent the right to receive securities of foreign issuers deposited in
a domestic bank or a correspondent bank. American Depositary Receipts do
not eliminate all the risk inherent in investing in the securities of
foreign issuers. However, by investing in American Depositary Receipts
rather than directly in foreign issuers' stock, an Equity Fund can avoid
currency risks during the settlement period for either purchases or sales.
In general, there is a large, liquid market in the United States for many
American Depositary Receipts. The information available for American
Depositary Receipts is subject to the accounting, auditing and financial
reporting standards of the domestic market or exchange on which they are
traded, which standards are more uniform and more exacting than those to
which many foreign issuers may be subject. International Fund also may
invest in European Depositary Receipts, which are receipts evidencing an
arrangement with a European bank similar to that for American Depositary
Receipts and which are designed for use in the European securities
markets. European Depositary Receipts are not necessarily denominated in
the currency of the underlying security.

Certain American Depositary Receipts and European Depositary Receipts,
typically those denominated as unsponsored, require the holders thereof to
bear most of the costs of the facilities while issuers of sponsored
facilities normally pay
<PAGE>

more of the costs thereof. The depository of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited securities or to pass through the
voting rights to facility holders in respect to the deposited securities,
whereas the depository of a sponsored facility typically distributes
shareholder communications and passes through voting rights.

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FOREIGN CURRENCY TRANSACTIONS

International Fund invests in securities which are purchased and sold in
foreign currencies. The value of its assets as measured in United States
dollars therefore may be affected favorably or unfavorably by changes in
foreign currency exchange rates and exchange control regulations.
International Fund also will incur costs in converting United States
dollars to local currencies, and vice versa.

International Fund will conduct its foreign currency exchange transactions
either on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market, or through forward contracts to purchase
or sell foreign currencies. A forward foreign currency exchange contract
involves an obligation to purchase or sell a specific currency at a future
date certain at a specified price. These forward currency contracts are
traded directly between currency traders (usually large commercial banks)
and their customers.

International Fund may enter into forward currency contracts in order to
hedge against adverse movements in exchange rates between currencies. It may
engage in "transaction hedging" to protect against a change in the foreign
currency exchange rate between the date International Fund contracts to
purchase or sell a security and the settlement date, or to "lock in" the
United States dollar equivalent of a dividend or interest payment made in a
foreign currency. It also may engage in "portfolio hedging" to protect
against a decline in the value of its portfolio securities as measured in
United States dollars which could result from changes in exchange rates
between the United States dollar and the foreign currencies in which the
portfolio securities are purchased and sold. International Fund also may
hedge its foreign currency exchange rate risk by engaging in currency
financial futures and options transactions.

Although a foreign currency hedge may be effective in protecting
International Fund from losses resulting from unfavorable changes in
exchanges rates between the United States dollar and foreign currencies,
it also would limit the gains which might be realized by International
Fund from favorable changes in exchange rates. The sub-advisor's decision
whether to enter into currency hedging transactions will depend in part on
its view regarding the direction and amount in which exchange rates are
likely to move. The forecasting of movements in exchange rates is
extremely difficult, so that it is highly uncertain whether a hedging
strategy, if undertaken, would be successful. To the extent that the
sub-advisor's view regarding future exchange rates proves to have been
incorrect, International Fund may realize losses on its foreign currency
transactions.

International Fund does not intend to enter into forward currency
contracts or maintain a net exposure in such contracts where it would be
obligated to deliver an amount of foreign currency in excess of the value
of its portfolio securities or other assets denominated in that currency.

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MORTGAGE-BACKED SECURITIES

Fixed Income Fund may invest in mortgage-backed securities which are
Agency Pass-Through Certificates or collateralized mortgage obligations
("CMOs"), as described below.

Agency Pass-Through Certificates are mortgage pass-through certificates
representing undivided interests in pools of residential mortgage loans.
Distribution of principal and interest on the mortgage loans underlying an
Agency

Pass-Through Certificate is an obligation of or guaranteed by Government
National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA"), or the Federal Home Loan Mortgage Corporation
("FHLMC").

<PAGE>

The obligation of GNMA with respect to such certificates is backed by the
full faith and credit of the United States, while the obligations of FNMA
and FHLMC with respect to such certificates rely solely on the assets and
credit of those entities. The mortgage loans underlying GNMA certificates
are partially or fully guaranteed by the Federal Housing Administration or
the Veterans Administration, while the mortgage loans underlying FNMA
certificates and FHLMC certificates are conventional mortgage loans which
are, in some cases, insured by private mortgage insurance companies. Agency
Pass-Through Certificates may be issued in a single class with respect to a
given pool of mortgage loans or in multiple classes.

CMOs are debt obligations typically issued by a private special-purpose
entity and collateralized by residential or commercial mortgage loans or
Agency Pass-Through Certificates. Fixed Income Fund will invest only in CMOs
which are rated in one of the four highest rating categories by a nationally
recognized statistical rating organization or which are of comparable
quality in the judgment of the advisor. Because CMOs are debt obligations of
private entities, payments on CMOs generally are not obligations of or
guaranteed by any governmental entity, and their ratings and
creditworthiness typically depend, among other factors, on the legal
insulation of the issuer and transaction from the consequences of a
sponsoring entity's bankruptcy. CMOs generally are issued in multiple
classes, with holders of each class entitled to receive specified portions
of the principal payments and prepayments and/or of the interest payments on
the underlying mortgage loans. These entitlements can be specified in a wide
variety of ways, so that the payment characteristics of various classes may
differ greatly from one another. Examples of the more common classes are
provided in the Statement of Additional Information. The CMOs in which the
Fixed Income Fund may invest include classes which are subordinated in right
of payment to other classes, as long as they have the required rating
referred to above.

It generally is more difficult to predict the effect of changes in market
interest rates on the return on mortgaged-backed securities than to predict
the effect of such changes on the return of a conventional fixed-rate debt
instrument, and the magnitude of such effects may be greater in some cases.
The return on interest-only and principal-only mortgage-backed securities is
particularly sensitive to changes in interest rates and prepayment speeds.
When interest rates decline and prepayment speeds increase, the holder of an
interest-only mortgage-backed security may not even recover its initial
investment. Similarly, the return on an inverse floating rate or inverse
interest-only CMO is likely to decline more sharply in periods of increasing
interest rates than that of a fixed-rate security. For these reasons,
interest-only, principal-only, inverse floating rate and inverse
interest-only mortgage-backed securities generally have greater risk than
more conventional classes of mortgage-backed securities. Fixed Income Fund
will not invest more than 10% of its total assets in interest-only,
principal-only, inverse floating rate or inverse interest-only mortgage
backed securities.

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ASSET-BACKED SECURITIES

Fixed Income Fund may invest in asset-backed securities. Asset-backed
securities generally constitute interests in, or obligations secured by, a
pool of receivables other than mortgage loans, such as automobile loans and
leases, credit card receivables, home equity loans and trade receivables.
Asset-backed securities generally are issued by a private special-purpose
entity. Their ratings and creditworthiness typically depend on the legal
insulation of the issuer and transaction from the consequences of a
sponsoring entity's bankruptcy, as well as on the credit quality of the
underlying receivables and the amount and credit quality of any third-party
credit enhancement supporting the underlying receivables or the asset-backed
securities. Asset-backed securities and their underlying receivables
generally are not issued or guaranteed by any governmental entity.

<PAGE>

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BANK INSTRUMENTS

The bank instruments in which Fixed Income Fund may invest include time and
savings deposits, deposit notes and bankers acceptances (including
certificates of deposit) in commercial or savings banks. They also include
Eurodollar Certificates of Deposit issued by foreign branches of United
States or foreign banks; Eurodollar Time Deposits, which are United States
dollar-denominated deposits in foreign branches of United States or foreign
banks; and Yankee Certificates of Deposit, which are United States
dollar-denominated certificates of deposit issued by United States branches
of foreign banks and held in the United States. For a description of certain
risks of investing in foreign issuers' securities, see "-- Foreign
Securities" above. In each instance, Fixed Income Fund may only invest in
bank instruments issued by an institution which has capital, surplus and
undivided profits of more than $100 million or the deposits of which are
insured by the Bank Insurance Fund or the Savings Association Insurance
Fund.

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LOAN PARTICIPATIONS; SECTION 4(2) AND RULE 144A SECURITIES

The loan participation interests in which Prime Obligations Fund may invest
represent pro rata undivided interests in an underlying bank loan.
Participation interests, like the underlying loans, may have fixed,
floating, or variable rates of interest. The bank selling a participation
interest generally acts as a mere conduit between its borrower and the
purchasers of interests in the loan. The purchaser of an interest generally
does not have recourse against the bank in the event of a default on the
underlying loan. Therefore, the credit risk associated with such instruments
is governed by the creditworthiness of the underlying borrowers and not by
the banks selling the interests. Loan participation interests that can be
sold within a seven-day period are deemed by the advisor to be liquid
investments. If a loan participation interest is restricted from being sold
within a seven-day period, then it, as a fundamental policy, will be
limited, together with other illiquid investments, to not more than 10% of
Prime Obligations Fund's total assets. Commercial paper issued in reliance
on the exemption from registration afforded by Section 4(2) of the
Securities Act of 1933 and corporate obligations qualifying for resale to
certain "qualified institutional buyers" pursuant to Rule 144A under the
Securities Act of 1933 meet the criteria for liquidity established by the
Board of Directors and are quite liquid. Consequently, Prime Obligations
Fund does not intend to subject such securities to the limitation applicable
to restricted securities.

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CREDIT ENHANCEMENT AGREEMENTS

Prime Obligations Fund may arrange for guarantees, letters of credit, or
other forms of credit enhancement agreements (collectively, "Guarantees")
for the purpose of further securing the payment of principal and/or
interest on Prime Obligation Fund's investment securities. Although each
investment security, at the time it is purchased, must meet Prime
Obligations Fund's creditworthiness criteria, Guarantees sometimes are
purchased from banks and other institutions (collectively, "Guarantors")
when the advisor, through yield and credit analysis, deems that credit
enhancement of certain of Prime Obligations Fund's securities is
advisable. As a non-fundamental policy, Prime Obligations Fund will limit
the value of all investment securities issued or guaranteed by each
Guarantor to not more than 10% of the value of Prime Obligations Fund's
total assets.

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MONEY MARKET FUNDS

When an Underlying Fund is permitted to invest a portion of its assets in
securities of other mutual funds which invest primarily in debt obligations
with remaining maturities of 13 months or less (i.e., in money market
funds), the other funds in which it is permitted to invest include money
market funds advised by the Underlying Fund's

<PAGE>

advisor. Investments by the Underlying Funds in money market funds advised
by such advisor are subject to certain restrictions contained in an
exemptive order issued by the SEC with respect thereto. Where Prime
Obligations Fund invests in other money market funds, the permitted
investments of such other money market funds must constitute permitted
investments of Prime Obligations Fund.

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INVESTMENT RESTRICTIONS OF THE UNDERLYING FUNDS

The fundamental and nonfundamental investment restrictions of the
Underlying Funds are set forth in full in their Statements of Additional
Information. The fundamental restrictions include the following:

* None of the Equity Funds or Fixed Income Fund will borrow money, except
from banks for temporary or emergency purposes. The amount of such
borrowing may not exceed 10% of the borrowing Underlying Fund's total
assets.

* None of such Underlying Funds will borrow money for leverage purposes.
For the purpose of this investment restriction, the use of options and
futures transactions and the purchase of securities on a when-issued or
delayed delivery basis shall not be deemed the borrowing of money. If an
Underlying Fund engages in borrowing, its share price may be subject to
greater fluctuation, and the interest expense associated with the
borrowing may reduce the Underlying Fund's net income.

* None of the Underlying Funds will make short sales of securities.

* None of the Underlying Funds will purchase any securities on margin
except, in the case of the Equity Funds and Fixed Income Fund, to obtain
such short-term credits as may be necessary for the clearance of
transactions and except, in the case of Small Cap Growth Fund,
Technology Fund and International Fund as may be necessary to make
margin payments in connection with foreign currency futures and other
derivative transactions.

* Prime Obligations Fund will not purchase a security if, as a result: (i)
more than 10% of its net assets would be in illiquid assets including
time deposits and repurchase agreements maturing in more than seven
days; or (ii) 25% or more of its total assets would be in any single
industry, except that there is no limitation on the purchase of
obligations of domestic commercial banks (excluding, for this purpose,
foreign branches of domestic commercial banks). Limitation (ii) does not
apply to obligations issued or guaranteed by the United States or its
agencies or instrumentalities.

* Prime Obligations Fund will not borrow money except from banks for
temporary or emergency purposes for the purpose of meeting redemption
requests which might otherwise require the untimely disposition of
securities. Borrowing in the aggregate may not exceed 10% of the value
of Prime Obligations Fund's total assets (including the amount borrowed)
valued at the lesser of cost or market less liabilities (not including
the amount borrowed) at the time the borrowing is made. The borrowings
will be repaid before any additional investments are made. However, even
with such authority to borrow money, there is no assurance that Prime
Obligations Fund will not have to dispose of securities on an untimely
basis to meet redemption requests.

A fundamental policy or restriction, including those stated above, cannot
be changed without an affirmative vote of the holders of a "majority" of
the outstanding shares of the applicable Underlying Fund, as defined in
the 1940 Act.

<PAGE>

INFORMATION CONCERNING COMPENSATION PAID TO U.S. BANK NATIONAL ASSOCIATION
AND OTHER AFFILIATES

U.S. Bank National Association and other affiliates of U.S. Bancorp may
act as fiduciary with respect to plans subject to the Employee Retirement
Income Security Act of 1974 ("ERISA") and other trust and agency accounts
that invest in the Funds. These U.S. Bancorp affiliates may receive
compensation from the Funds for the services they provide to the Funds, as
described more fully in the following sections of this Prospectus:

Investment advisory services -- see "Management-Investment Advisor to the
Funds"

Custodian services -- see "Management-Custodian"

Sub-administration services -- see "Management-Administrator"

Shareholder servicing -- see "Distributor"

Securities lending -- see "Special Investment Methods-Lending of Portfolio
Securities"

Transfer agent services -- see "Management-Transfer Agent"

<PAGE>

FIRST AMERICAN STRATEGY FUNDS, INC.
Oaks, Pennsylvania 19456

Investment Advisor
U.S. BANK NATIONAL ASSOCIATION
601 Second Avenue South
Minneapolis, Minnesota 55402

Custodian
U.S. BANK NATIONAL ASSOCIATION
180 East Fifth Street
St. Paul, Minnesota 55101

Distributor
SEI INVESTMENTS DISTRIBUTION CO.
Oaks, Pennsylvania 19456

Administrator
SEI INVESTMENTS MANAGEMENT CORPORATION
Oaks, Pennsylvania 19456

Transfer Agent
DST SYSTEMS, INC.
330 West Ninth Street
Kansas City, Missouri 64105

Independent Auditors
KPMG PEAT MARWICK LLP
90 South Seventh Street
Minneapolis, Minnesota 55402

Counsel
DORSEY & WHITNEY LLP
220 South Sixth Street
Minneapolis, Minnesota 55402

FASF-3000 (5/98)

<PAGE>

FIRST AMERICAN STRATEGY FUNDS, INC.

STATEMENT OF ADDITIONAL INFORMATION
DATED JANUARY 31, 1998
AS SUPPLEMENTED ON MAY 15, 1998

INCOME FUND
GROWTH FUND
GROWTH AND INCOME FUND
AGGRESSIVE GROWTH FUND

This Statement of Additional Information relates to the funds named
above (the "Funds"), each of which is a series of First American Strategy Funds,
Inc. ("FASF"). This Statement of Additional Information is not a prospectus, but
should be read in conjunction with the Funds' current Prospectus dated January
31, 1998 as supplemented on May 15, 1998. This Statement of Additional
Information is incorporated into the Funds' Prospectus by reference. To obtain
copies of the Prospectus, write or call the Funds' distributor SEI Investments
Distribution Co., Oaks, Pennsylvania 19456, telephone: (888) 997-8728. Please
retain this Statement of Additional Information for future reference.

TABLE OF CONTENTS

PAGE

General Information........................... 2

Investment Restrictions of the Funds.......... 3

Additional Information Concerning
Investments by the Funds and the
Underlying Funds.............................. 5
Short-Term Investments..................... 5
Repurchase Agreements...................... 5
When-Issued and Delayed Delivery
Transactions............................ 6
Lending of Portfolio Securities............ 6
Options Transactions....................... 6
Futures and Options on Futures............. 7
Foreign Securities......................... 8
Foreign Currency Transactions.............. 8
Mortgage-Backed Securities................. 9
Debt Obligations Rated Less Than
Investment Grade........................ 11

Investment Restrictions of the Underlying
Funds ........................................12
Restrictions Applicable to the Equity
Funds and Fixed Income Fund............. 12
Restrictions Applicable to Prime Obligations
Fund.................................... 14

Directors and Executive Officers.............. 16
Directors.................................. 16
Executive Officers......................... 16
Compensation............................... 17

Investment Advisory and Other Services
for the Funds................................. 18
Investment Advisory Agreement.............. 18
Administration Agreement................... 19

Distributor and Shareholder Service
Plan and Agreement...................... 20
Custodian; Transfer Agent; Counsel;
Accountants............................. 21

Investment Advisory Services for the
Underlying Funds.............................. 21
Investment Advisory Agreements of
the Underlying Funds.................... 21
Sub-advisory Agreement for International
Fund.................................... 22
Portfolio Managers for the Underlying
Funds................................... 23

Portfolio Transactions and Allocation
of Brokerage................................. 25

Capital Stock................................. 27

Net Asset Value and Public Offering
Price........................................ 29

Fund Performance.............................. 29
SEC Standardized Performance Figures....... 29
Non-Standard Distribution Rates............ 31
Certain Performance Comparisons............ 31

Taxation...................................... 32

Ratings....................................... 33
Ratings of Corporate Debt Obligations
and Municipal Bonds..................... 34
Ratings of Preferred Stock................. 35
Ratings of Commercial Paper................ 36
Best's Rating System for Insurance ........
Companies ................................. 36
Financial Statements.......................... 37

<PAGE>

GENERAL INFORMATION

First American Strategy Funds, Inc. ("FASF") was incorporated in the State of
Minnesota on June 19, 1996. FASF is organized as a series fund and currently
issues its shares in four series. Each series of shares represents a separate
investment portfolio with its own investment objectives and policies (in
essence, a separate mutual fund). The series of FASF to which this Statement of
Additional Information relates are named on the cover hereof. These series are
referred to in this Statement of Additional Information as the "Funds."

As described in the Funds' Prospectus, each Fund seeks to achieve its
investment objectives by investing primarily in a variety of other mutual funds
which are also advised by the Funds' investment Advisor. These other mutual
funds include Real Estate Securities Fund, Equity Income Fund, Large Cap Value
Fund, Large Cap Growth Fund, Mid Cap Value Fund, Small Cap Growth Fund, Small
Cap Value Fund, Technology Fund, International Fund, Health Sciences Fund and
Fixed Income Fund, each of which is a series of First American Investment Funds,
Inc. ("FAIF"), and Prime Obligations Fund, which is a series of First American
Funds, Inc. ("FAF"). These other funds are referred to herein and in the
Prospectus collectively as the "Underlying Funds." The first ten funds named
above are referred to herein and in the Prospectus collectively as the "Equity
Funds."

The Bylaws of FASF provide that annual shareholders meetings are not required
and that meetings of shareholders need only be held with such frequency as
required under Minnesota law and the Investment Company Act of 1940 (the "1940
Act"). Minnesota law provides that if a regular meeting of shareholders has not
been held during the immediately preceding 15 months, a shareholder or
shareholders holding 3% or more of the voting power of all shares entitled to
vote may demand a regular meeting of shareholders. Minnesota law further
provides that a special meeting of shareholders may be called by a shareholder
or shareholders holding 10% or more of the voting power of all shares entitled
to vote, except that a special meeting for the purpose of considering any action
to facilitate or effect a business combination, including any action to change
or otherwise affect the composition of the board of directors for that purpose,
must be called by 25% or more of the voting power of all shares entitled to
vote. The 1940 Act requires a shareholder vote for all amendments to fundamental
investment policies and restrictions, for approval of all investment advisory
agreements, and for the adoption of, and material increases in amounts payable
under, Rule 12b-1 distribution plans.

<PAGE>

INVESTMENT RESTRICTIONS OF THE FUNDS

In addition to the investment objectives and policies set forth in the
Prospectus and under the caption "Additional Information Concerning Investments
by the Funds and the Underlying Funds" below, each of the Funds is subject to
the investment restrictions set forth below. The investment restrictions set
forth in paragraphs 1 through 10 below are fundamental and cannot be changed
with respect to a Fund without approval by the holders of a majority of the
outstanding shares of that Fund as defined in the 1940 Act, i.e., by the lesser
of the vote of (a) 67% of the shares of the Fund present at a meeting where more
than 50% of the outstanding shares are present in person or by proxy, or (b)
more than 50% of the outstanding shares of the Fund.

None of the investment restrictions set forth below shall be deemed to
restrict any Fund from holding securities of investment companies which engage
in the activities described in such investment restrictions. None of the
investment restrictions set forth below shall be deemed to restrict any Fund
from receiving, holding, and disposing of any securities received as a result of
an in-kind redemption by an investment company whose shares are held by such
Fund.

None of the Funds will:

1. Invest more than 25% of its total assets in any one industry, except
for investment companies which are part of the "same group of
investment companies" (as defined in Rule 11a-3 under the 1940 Act) as
the Funds.

2. Issue any senior securities (as defined in the 1940 Act), other than
as set forth in restriction number 3 below and except to the extent
that using options may be deemed to constitute issuing a senior
security.

3. Borrow money, except from banks for temporary or emergency purposes.
The amount of such borrowing may not exceed 10% of the borrowing
Fund's total assets. None of the Funds will borrow money for leverage
purposes. For the purpose of this investment restriction, the use of
options and futures transactions shall not be deemed the borrowing of
money. (As a non-fundamental policy, no Fund will make additional
investments while its borrowings exceed 5% of total assets.)

4. Mortgage, pledge or hypothecate its assets, except in an amount not
exceeding 15% of the value of its total assets to secure temporary or
emergency borrowing.

5. Make short sales of securities.

6. Purchase any securities on margin except to obtain such short-term
credits as may be necessary for the clearance of transactions.

7. Purchase or sell physical commodities (including, by way of example
and not by way of limitation, grains, oilseeds, livestock, meat, food,
fiber, metals, petroleum, petroleum-based products or natural gas) or
futures or options contracts with respect to physical commodities.
This restriction shall not restrict any Fund from purchasing or
selling any financial contracts or instruments which may be deemed
commodities (including, by way of example and not by way of
limitation, options, futures and options on futures with respect, in
each case, to interest rates, currencies, stock indices, bond indices
or interest rate indices) or any security which is collateralized or
otherwise backed by physical commodities.

8. Purchase or sell real estate or real estate mortgage loans, except
that the Funds may invest in securities secured by real estate or
interests therein or issued by companies that invest in or hold real
estate or interests therein, and in mortgage-backed securities.
<PAGE>

9. Act as an underwriter of securities of other issuers, except to the
extent a Fund may be deemed to be an underwriter, under Federal
securities laws, in connection with the disposition of portfolio
securities.

10. Lend any of its assets, except portfolio securities representing up to
one-third of the value of its total assets.

The following restrictions are non-fundamental and may be changed by
FASF's Board of Directors without shareholder vote. None of the Funds will:

11. Invest more than 15% of its net assets in all forms of illiquid
investments.

12. Invest in any securities, if as a result more than 5% of the value of
its total assets is invested in the securities of any issuers, other
than registered investment companies and series thereof, which, with
their predecessors, have a record of less than three years continuous
operation. (Securities of any of such issuers will not be deemed to
fall within this limitation if they are guaranteed by an entity which
has been in continuous operation for more than three years.)

13. Invest for the purpose of exercising control or management.

14. Purchase or sell real estate limited partnership interests, or oil,
gas or other mineral leases, rights or royalty contracts, except that
the Funds may purchase or sell securities of companies which invest in
or hold the foregoing.

15. Purchase securities of any other registered investment company (as
defined in the 1940 Act), except, subject to 1940 Act limitations, (a)
each of the Funds may, as part of its investment in cash items, invest
in securities of other mutual funds which invest primarily in debt
obligations with remaining maturities of 13 months or less, (b) all
Funds may purchase securities as part of a merger, consolidation,
reorganization or acquisition of assets, and (c) all Funds may invest
in securities of other registered investment companies to the extent
permitted by applicable Securities and Exchange Commission exemptive
relief, no-action letters, or rules or pursuant to the 1940 Act.

<PAGE>

ADDITIONAL INFORMATION CONCERNING INVESTMENTS
BY THE FUNDS AND THE UNDERLYING FUNDS

The investment objectives, policies and restrictions of the Funds and
the Underlying Funds are set forth in such Funds' Prospectus. Additional
information concerning the investments which may be made by the Funds and the
Underlying Funds is set forth under this caption. Additional information
concerning the Funds' investment restrictions is set forth above under the
caption "Investment Restrictions of the Funds," and additional information
concerning the Underlying Funds' investment restrictions is set forth below
under the caption "Investment Restrictions of the Underlying Funds."

SHORT-TERM INVESTMENTS

The Funds and the Underlying Funds can invest in a variety of
short-term instruments which are specified in the Prospectus. Short-term
investments may be entered into on a joint basis by the Funds, the Underlying
Funds, and other funds advised by the Advisor, and repurchase agreements may be
entered into on a joint basis by the Underlying Funds and other funds advised by
the Advisor, in each case to the extent permitted by Securities and Exchanges
Commission exemptive order. A brief description of certain kinds of short-term
instruments follows:

COMMERCIAL PAPER. Commercial paper consists of unsecured promissory
notes issued by corporations. Issues of commercial paper normally have
maturities of less than nine months and fixed rates of return. Subject to the
limitations described in the Prospectus, the Funds and the Underlying Funds may
purchase commercial paper consisting of issues rated at the time of purchase
within the two highest rating categories by Standard & Poor's Rating Services, a
division of The McGraw-Hill Companies, Inc. ("Standard & Poor's") or Moody's
Investors Service, Inc. ("Moody's"), or which have been assigned an equivalent
rating by another nationally recognized statistical rating organization. The
Funds and the Underlying Funds also may invest in commercial paper that is not
rated but that is determined by the Advisor to be of comparable quality to
instruments that are so rated. For a description of the rating categories of
Standard & Poor's and Moody's, see "Ratings" herein.

BANKERS' ACCEPTANCES. Bankers' acceptances are credit instruments
evidencing the obligation of a bank to pay a draft drawn on it by a customer.
These instruments reflect the obligation both of the bank and of the drawer to
pay the full amount of the instrument upon maturity.

VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand
notes are unsecured demand notes that permit the indebtedness thereunder to vary
and provide for periodic adjustments in the interest rate according to the terms
of the instrument. Because master demand notes are direct lending arrangements
between a Fund or an Underlying Fund and the issuer, they are not normally
traded. Although there is no secondary market in the notes, a Fund or an
Underlying Fund may demand payment of principal and accrued interest at any
time. While the notes are not typically rated by credit rating agencies, issuers
of variable amount master demand notes (which are normally manufacturing,
retail, financial, and other business concerns) must satisfy the same criteria
as set forth above for commercial paper. The Advisor or, in the case of
International Fund, its sub-advisor will consider the earning power, cash flow,
and other liquidity ratios of the issuers of such notes and will continuously
monitor their financial status and ability to meet payment on demand.

REPURCHASE AGREEMENTS

The Underlying Funds may invest in repurchase agreements to the extent
specified in the Prospectus. The Underlying Funds' custodian will hold the
securities underlying any repurchase agreement, or the securities will be part
of the Federal Reserve/Treasury Book Entry System. The market value of the
collateral underlying the repurchase agreement will be determined on each
business day. If at any time the market value of the collateral falls below the
repurchase price

<PAGE>

under the repurchase agreement (including any accrued interest), the appropriate
Underlying Fund will promptly receive additional collateral (so the total
collateral is an amount at least equal to the repurchase price plus accrued
interest).

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
When an Underlying Fund agrees to purchase securities on a when-issued
or delayed delivery basis, its custodian will maintain in a segregated account
cash or liquid securities in an amount of sufficient to meet its purchase
commitments. It may be expected that an Underlying Fund's net assets will
fluctuate to a greater degree when it sets aside securities to cover such
purchase commitments than when it sets aside cash. In addition, because an
Underlying Fund will set aside cash or liquid securities to satisfy its purchase
commitments in the manner described above, its liquidity and the ability of its
Advisor to manage it might be affected in the event its commitments to purchase
when-issued or delayed delivery securities ever exceeded 25% of the value of its
assets. Under normal market conditions, however, an Underlying Fund's
commitments to purchase when-issued or delayed delivery securities will not
exceed 25% of the value of its assets.

LENDING OF PORTFOLIO SECURITIES

When an Underlying Fund lends portfolio securities, it must receive
100% collateral as described in the Prospectus. This collateral must be valued
daily by the Underlying Fund's Advisor or sub-advisor and, if the market value
of the loaned securities increases, the borrower must furnish additional
collateral to the lending Underlying Fund. During the time portfolio securities
are on loan, the borrower pays the lending Underlying Fund any dividends or
interest paid on the securities. Loans are subject to termination by the lending
Underlying Fund or the borrower at any time. While an Underlying Fund does not
have the right to vote securities on loan, it would terminate the loan and
regain the right to vote if that were considered important with respect to the
investment.

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

OPTIONS TRANSACTIONS

OPTIONS ON SECURITIES. To the extent specified in the Prospectus,
Underlying Funds may purchase put and call options on securities and may write
covered call options on securities which they own or have the right to acquire.
An Underlying Fund may purchase put options to hedge against a decline in the
value of its portfolio. By using put options in this way, an Underlying Fund
would reduce any profit it might otherwise have realized in the underlying
security by the amount of the premium paid for the put option and by transaction
costs. In similar fashion, an Underlying Fund may purchase call options to hedge
against an increase in the price of securities that the Underlying Fund
anticipates purchasing in the future. The premium paid for the call option plus
any transaction costs will reduce the benefit, if any, realized by the
Underlying Fund upon exercise of the option, and, unless the price of the
underlying security rises sufficiently, the option may expire unexercised.

The writer (seller) of a call option has no control over when the
underlying securities must be sold; the writer may be assigned an exercise
notice at any time prior to the termination of the option. If a call option is
exercised, the writer experiences a profit or loss from the sale of the
underlying security. The writer of a call option that wishes to terminate its
obligation may effect a "closing purchase transaction." This is accomplished by
buying an option on the same security as the option previously written. If an
Underlying Fund was unable to effect a closing purchase transaction in a
secondary market, it would not be able to sell the underlying security until the
option expires or it delivers the underlying security upon exercise.

<PAGE>

OPTIONS ON STOCK INDICES. Options on stock indices are similar to
options on individual stocks except that, rather than the right to take or make
delivery of stock at a specified price, an option on a stock index gives the
holder the right to receive, upon exercise of the option, an amount of cash if
the closing value of the stock index upon which the option is based is greater
than, in the case of a call, or lesser than, in the case of a put, the exercise
price of the option. This amount of cash is equal to the difference between the
closing price of the index and the exercise price of the option expressed in
dollars times a specified multiple (the "multiplier"). The writer of the option
is obligated, in return for the premium received, to make delivery of this
amount. Unlike stock options, all settlements for stock index options are in
cash, and gain or loss depends on price movements in the stock market generally
(or in a particular industry or segment of the market) rather than price
movements in individual stocks. The multiplier for an index option performs a
function similar to the unit of trading for a stock option. It determines the
total dollar value per contract of each point in the difference between the
underlying stock index. A multiplier of 100 means that a one-point difference
will yield $100. Options on different stock indices may have different
multipliers.

OPTIONS ON INTEREST RATE INDICES. An option on an interest rate index
gives the holder the right to receive, upon exercise of the option, an amount of
cash if the closing value of the interest rate index upon which the option is
based is greater than, in the case of a call, or lesser than, in the case of a
put, the exercise price of the option. This amount of cash is equal to the
difference between the closing price of the index and the exercise price of the
option expressed in dollars times a specified multiple (the "multiplier"). The
writer of the option is obligated, for the premium received, to make delivery of
this amount. Unlike interest rate futures options contracts, settlements for
interest rate index options are always in cash. Gain or loss depends on price
movements in the interest rate movements with respect to specific financial
instruments. As with stock index options, the multiplier for interest rate index
options determines the total dollar value per contract of each point in the
difference between the exercise price of an option and the current value of the
underlying interest rate index. Options on different interest rate indices may
have different multipliers.

FUTURES AND OPTIONS ON FUTURES

As discussed in the Prospectus, the Funds and certain of the Underlying
Funds may enter into futures contracts and may purchase options on futures
contracts of various types. In the case of the Funds, these investment
techniques may be used in order to remain effectively fully invested in
proportions consistent with their current asset allocation strategy in a cost
effective manner; to re-allocate assets among asset categories while minimizing
transaction costs; to maintain cash reserves while simulating full investment;
to facilitate trading; or to seek higher investment returns when a futures
contract is priced more attractively than the underlying security or index. In
the case of the Underlying Funds, these investment techniques are designed
primarily to hedge against anticipated future changes in market conditions or
foreign exchange rates which otherwise might adversely affect the value of
securities which an Underlying Fund holds or intends to purchase. The types of
futures and options on futures which the Funds and particular Underlying Funds
may utilize are described in the Prospectus.

At the same time a futures contract is purchased or sold, a Fund or
Underlying Fund generally must allocate cash or securities as a deposit payment
("initial deposit"). It is expected that the initial deposit would be
approximately 1-1/2% to 5% of a contract's face value. Daily thereafter, the
futures contract is valued and the payment of "variation margin" may be
required, since each day the Fund or Underlying Fund would provide or receive
cash that reflects any decline or increase in the contract's value. Futures
transactions also involve brokerage costs and require a Fund or Underlying Fund
to segregate liquid assets, such as cash, United States Government securities or
other liquid high grade debt obligations, to cover its performance under such
contracts.

A Fund or Underlying Fund may lose the expected benefit of futures
transactions if interest rates, securities prices or foreign exchange rates move
in an unanticipated manner. Such unanticipated changes may also result in poorer
overall performance than if the Fund or Underlying

<PAGE>

Fund had not entered into any futures transactions. In addition, the value of an
Underlying Fund's futures positions may not prove to be perfectly or even highly
correlated with the value of its portfolio securities and foreign currencies,
limiting the Fund's or Underlying Fund's ability to hedge effectively against
interest rate, foreign exchange rate and/or market risk and giving rise to
additional risks. Because of the low margin requirements in the futures markets,
they may be subject to market forces, including speculative activity, which do
not affect the cash markets. There also is no assurance of liquidity in the
secondary market for purposes of closing out futures positions.

FOREIGN SECURITIES

As described in the Prospectus, under normal market conditions
International Fund invests principally in foreign securities. In addition, the
other Equity Funds (excluding Real Estate Securities Fund) may invest lesser
proportions of their assets in securities of foreign issuers which are either
listed on a United States securities exchange or represented by American
Depositary Receipts, and Fixed Income Fund and Prime Obligations Fund may invest
in securities of foreign issuers in the manner and to the extent described in
the Prospectus.

Fixed commissions on foreign securities exchanges are generally higher
than negotiated commissions on United States exchanges. Foreign markets also
have different clearance and settlement procedures, and in some markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
Delays in settlement could result in temporary periods when a portion of the
assets of International Fund is uninvested. In addition, settlement problems
could cause International Fund to miss attractive investment opportunities or to
incur losses due to an inability to sell or deliver securities in a timely
fashion. In the event of a default by an issuer of foreign securities, it may be
more difficult for a Fund to obtain or to enforce a judgment against the issuer.

FOREIGN CURRENCY TRANSACTIONS

As described in the Prospectus, International Fund may engage in a
variety of foreign currency transactions in connection with its investment
activities. These include forward foreign currency exchange contracts, foreign
currency futures, and foreign currency options.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
These contracts are traded directly between currency traders (usually large
commercial banks) and their customers. International Fund will not enter into
such forward contracts or maintain a net exposure in such contracts where
International Fund would be obligated to deliver an amount of foreign currency
in excess of the value of its securities or other assets denominated in that
currency. International Fund will comply with applicable Securities and Exchange
Commission announcements requiring it to segregate assets to cover its
commitments with respect to such contracts. At the present time, these
announcements generally require a fund with a long position in a forward foreign
currency contract to establish with its custodian a segregated account
containing cash or liquid high grade debt securities equal to the purchase price
of the contract, and require a fund with a short position in a forward foreign
currency contract to establish with its custodian a segregated account
containing cash or liquid high grade debt securities that, when added to any
margin deposit, equal the market value of the currency underlying the forward
contract. These requirements will not apply where a forward contract is used in
connection with the settlement of investment purchases or sales or where the
position has been "covered" by entering into an offsetting position.
International Fund generally will not enter into a forward contract with a term
longer than one year.

FOREIGN CURRENCY FUTURES TRANSACTIONS. Unlike forward foreign currency
exchange contracts, foreign currency futures contracts and options on foreign
currency futures contracts are standardized as to amount and delivery period and
may be traded on boards of trade and commodities exchanges or

<PAGE>

directly with a dealer which makes a market in such contracts and options. It is
anticipated that such contracts may provide greater liquidity and lower cost
than forward foreign currency exchange contracts. As part of its financial
futures transactions, International Fund may use foreign currency futures
contracts and options on such futures contracts. Through the purchase or sale of
such contracts, International Fund may be able to achieve many of the same
objectives as through forward foreign currency exchange contracts more
effectively and possibly at a lower cost.

FOREIGN CURRENCY OPTIONS. A foreign currency option provides the option
buyer with the right to buy or sell a stated amount of foreign currency at the
exercise price at a specified date or during the option period. A call option
gives its owner the right, but not the obligation, to buy the currency, while a
put option gives its owner the right, but not the obligation, to sell the
currency. The option seller (writer) is obligated to fulfill the terms of the
option sold if it is exercised. However, either seller or buyer may close its
position during the option period in the secondary market for such options at
any time prior to expiration.

A foreign currency call option rises in value if the underlying
currency appreciates. Conversely, a foreign currency put option rises in value
if the underlying currency depreciates. While purchasing a foreign currency
option may protect International Fund against an adverse movement in the value
of a foreign currency, it would not limit the gain which might result from a
favorable movement in the value of the currency. For example, if International
Fund were holding securities denominated in an appreciating foreign currency and
had purchased a foreign currency put to hedge against a decline in the value of
the currency, it would not have to exercise its put. In such an event, however,
the amount of International Fund's gain would be offset in part by the premium
paid for the option. Similarly, if International Fund entered into a contract to
purchase a security denominated in a foreign currency and purchased a foreign
currency call to hedge against a rise in the value of the currency between the
date of purchase and the settlement date, International Fund would not need to
exercise its call if the currency instead depreciated in value. In such a case,
International Fund could acquire the amount of foreign currency needed for
settlement in the spot market at a lower price than the exercise price of the
option.

MORTGAGE-BACKED SECURITIES

As described in the Prospectus, Fixed Income Fund may invest in
mortgage-backed securities. Fixed Income Fund will invest only in
mortgage-backed securities which are Agency Pass-Through Certificates or
collateralized mortgage obligations ("CMOs"), as defined and described in the
Prospectus.

Agency Pass-Through Certificates are issued or guaranteed by the
Government National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA"), or the Federal Home Loan Mortgage Corporation ("FHLMC").
GNMA is a wholly-owned corporate instrumentality of the United States within the
Department of Housing and Urban Development. The guarantee of GNMA with respect
to GNMA certificates is backed by the full faith and credit of the United
States, and GNMA is authorized to borrow from the United States Treasury in an
amount which is at any time sufficient to enable GNMA, with no limitation as to
amount, to perform its guarantee.

FNMA is a federally chartered and privately owned corporation organized
and existing under federal law. Although the Secretary of the Treasury of the
United States has discretionary authority to lend funds to FNMA, neither the
United States nor any agency thereof is obligated to finance FNMA's operations
or to assist FNMA in any other manner.

FHLMC is a federally chartered corporation organized and existing under
federal law, the common stock of which is owned by the Federal Home Loan Banks.
Neither the United States nor any agency thereof is obligated to finance FNMA's
operations or to assist FNMA in any other manner.

<PAGE>

The residential mortgage loans evidenced by Agency Pass-Through
Certificates and upon which CMOs are based generally are secured by first
mortgages on one- to four-family residential dwellings. Such mortgage loans
generally have final maturities ranging from 15 to 30 years and provide for
monthly payments in amounts sufficient to amortize their original principal
amounts by the maturity dates. Thus, each monthly payment on such mortgage loans
generally includes both an interest component and a principal component, so that
the holder of the mortgage loans receives both interest and a partial return of
principal in each monthly payment. In general, such mortgage loans can be
prepaid by the borrowers at any time without any prepayment penalty. In
addition, many such mortgage loans contain a "due-on-sale" clause requiring the
loans to be repaid in full upon the sale of the property securing the loans.
Because residential mortgage loans generally provide for monthly amortization
and may be prepaid in full at any time, the weighted average maturity of a pool
of residential mortgage loans is likely to be substantially shorter than its
stated final maturity date. The rate at which a pool of residential mortgage
loans is prepaid may be influenced by many factors and is not predictable with
precision.

As stated in the Prospectus, CMOs generally are issued in multiple
classes, with holders of each class entitled to receive specified portions of
the principal payments and prepayments and/or of the interest payments on the
underlying mortgage loans. These entitlements can be specified in a wide variety
of ways, so that the payment characteristics of various classes may differ
greatly from one another. For example:

* In a sequential-pay CMO structure, one class is entitled to receive all
principal payments and prepayments on the underlying mortgage loans
(and interest on unpaid principal) until the principal of the class is
repaid in full, while the remaining classes receive only interest; when
the first class is repaid in full, a second class becomes entitled to
receive all principal payments and prepayments on the underlying
mortgage loans until the class is repaid in full, and so forth.

* A planned amortization class ("PAC") of CMOs is entitled to receive
principal on a stated schedule to the extent that it is available from
the underlying mortgage loans, thus providing a greater (but not
absolute) degree of certainty as to the schedule upon which principal
will be repaid.

* An accrual class of CMOs provides for interest to accrue and be added
to principal (but not be paid currently) until specified payments have
been made on prior classes, at which time the principal of the accrual
class (including the accrued interest which was added to principal) and
interest thereon begins to be paid from payments on the underlying
mortgage loans.

* As discussed above with respect to Agency Pass-Through Certificates, an
interest-only class of CMOs entitles the holder to receive all of the
interest and none of the principal on the underlying mortgage loans,
while a principal-only class of CMOs entitles the holder to receive all
of the principal payments and prepayments and none of the interest on
the underlying mortgage loans.

* A floating rate class of CMOs entitles the holder to receive interest
at a rate which changes in the same direction and magnitude as changes
in a specified index rate. An inverse floating rate class of CMOs
entitles the holder to receive interest at a rate which changes in the
opposite direction from, and in the same magnitude as or in a multiple
of, changes in a specified index rate. Floating rate and inverse
floating rate classes also may be subject to "caps" and "floors" on
adjustments to the interest rates which they bear.

* A subordinated class of CMOs is subordinated in right of payment to one
or more other classes. Such a subordinated class provides some or all
of the credit support for the classes that are senior to it by
absorbing losses on the underlying mortgage loans before the senior

<PAGE>

classes absorb any losses. A subordinated class which is subordinated
to one or more classes but senior to one or more other classes is
sometimes referred to as a "mezzanine" class. A subordinated class
generally carries a lower rating than the classes that are senior to
it, but may still carry an investment grade rating.

DEBT OBLIGATIONS RATED LESS THAN INVESTMENT GRADE

As described in the Prospectus, the "equity securities" in which
certain Underlying Funds may invest include corporate debt obligations which are
convertible into common stock. These convertible debt obligations may include
obligations rated as low as CCC by Standard & Poor's or Caa by Moody's or which
have been assigned an equivalent rating by another nationally recognized
statistical rating organization. Debt obligations rated BB, B or CCC by Standard
& Poor's or Ba, B or Caa by Moody's are considered to be less than "investment
grade" and are sometimes referred to as "junk bonds." The limitations on
investments by the Underlying Funds in less than investment grade convertible
debt obligations are set forth in the Prospectus.

Purchases of less than investment grade corporate debt obligations
generally involve greater risks than purchases of higher rated obligations. Less
than investment grade debt obligations are especially subject to adverse changes
in general economic conditions and to changes in the financial condition of
their issuers. During periods of economic downturn or rising interest rates,
issuers of such obligations may experience financial stress that could adversely
affect their ability to make payments of principal and interest and increase the
possibility of default.

Yields on less than investment grade debt obligations will fluctuate
over time. The prices of such obligations have been found to be less sensitive
to interest rate changes than higher rated obligations, but more sensitive to
adverse economic changes or individual corporate developments. Also, during an
economic downturn or period of rising interest rates, highly leveraged issuers
may experience financial stress which could adversely affect their ability to
service principal and interest payment obligations, to meet projected business
goals, and to obtain additional financing. In addition, periods of economic
uncertainty and changes can be expected to result in increased volatility of
market prices of less than investment grade debt obligations.

In addition, the secondary trading market for less than investment
grade debt obligations may be less developed than the market for investment
grade obligations. This may make it more difficult for an Underlying Fund to
value and dispose of such obligations. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of less than investment grade obligations, especially in a
thin secondary trading market.

Certain risks also are associated with the use of credit ratings as a
method for evaluating less than investment grade debt obligations. For example,
credit ratings evaluate the safety of principal and interest payments, not the
market value risk of such obligations. In addition, credit rating agencies may
not timely change credit ratings to reflect current events. Thus, the success of
a Fund's use of less than investment grade convertible debt obligations may be
more dependent on its Advisor's own credit analysis than is the case with
investment grade obligations.

<PAGE>

INVESTMENT RESTRICTIONS OF THE UNDERLYING FUNDS

RESTRICTIONS APPLICABLE TO THE EQUITY FUNDS AND FIXED INCOME FUND

In addition to the investment objectives and policies set forth in the
Prospectus and under the caption "Additional Information Concerning Investments
by the Funds and the Underlying Funds" above, the Equity Funds and Fixed Income
Fund are subject to the investment restrictions set forth below. The investment
restrictions set forth in paragraphs 1 through 9 below are fundamental and
cannot be changed with respect to any of these Underlying Funds without approval
by the holders of a majority of the outstanding shares of the applicable
Underlying Fund as defined in the 1940 Act. See "Investment Restrictions of the
Funds" above.

None of the Equity Funds or Fixed Income Fund will:

1. Except for Technology Fund and Health Sciences Fund, invest in any
securities if, as a result, 25% or more of the value of its total
assets would be invested in the securities of issuers conducting their
principal business activities in any one industry, except that Real
Estate Securities Fund will invest without restriction in issuers
principally engaged in the real estate industry. This restriction does
not apply to securities of the United States Government or its
agencies and instrumentalities or repurchase agreements relating
thereto.

2. Issue any senior securities (as defined in the 1940 Act), other than
as set forth in restriction number 3 below and except to the extent
that using options or purchasing securities on a when-issued basis may
be deemed to constitute issuing a senior security.

3. Borrow money, except from banks for temporary or emergency purposes.
The amount of such borrowing may not exceed 10% of the borrowing
Fund's total assets. None of these Underlying Funds will borrow money
for leverage purposes. For the purpose of this investment restriction,
the use of options and futures transactions and the purchase of
securities on a when-issued or delayed-delivery basis shall not be
deemed the borrowing of money. (As a non-fundamental policy, no such
Underlying Fund will make additional investments while its borrowings
exceed 5% of total assets.)

4. Make short sales of securities.

5. Purchase any securities on margin except to obtain such short-term
credits as may be necessary for the clearance of transactions and
except, in the case of Small Cap Growth Fund, International Fund and
Technology Fund, as may be necessary to make margin payments in
connection with foreign currency futures and other derivative
transactions.

6. Purchase or sell physical commodities (including, by way of example
and not by way of limitation, grains, oilseeds, livestock, meat, food,
fiber, metals, petroleum, petroleum-based products or natural gas) or
futures or options contracts with respect to physical commodities.
This restriction shall not restrict any of these Underlying Funds from
purchasing or selling any financial contracts or instruments which may
be deemed commodities (including, by way of example and not by way of
limitation, options, futures and options on futures with respect, in
each case, to interest rates, currencies, stock indices, bond indices
or interest rate indices) or any security which is collateralized or
otherwise backed by physical commodities.

7. Purchase or sell real estate or real estate mortgage loans, except
that these Underlying Funds may invest in securities secured by real
estate or interests therein or issued by companies that invest in or
hold real estate or interests therein, and except that Fixed Income
Fund, Real Estate Securities Fund, Small Cap Growth Fund,
International Fund, Health Sciences Fund and Technology Fund may
invest in mortgage-backed securities.
<PAGE>

8. Act as an underwriter of securities of other issuers, except to the
extent such an Underlying Fund may be deemed to be an underwriter,
under Federal securities laws, in connection with the disposition of
portfolio securities.
9. Lend any of its assets, except portfolio securities representing up to
one-third of the value of their total assets.

The following restrictions are non-fundamental and may be changed by
FAIF's Board of Directors without shareholder vote. None of the Equity Funds or
Fixed Income Fund will:

10. Invest more than 15% of its net assets in all forms of illiquid
investments.

11. Invest in any securities, if as a result more than 5% of the value of
its total assets is invested in the securities of any issuers (other
than, in the case of Real Estate Securities Fund, publicly traded real
estate investment trusts) which, with their predecessors, have a
record of less than three years continuous operation. (Securities of
any of such issuers will not be deemed to fall within this limitation
if they are guaranteed by an entity which has been in continuous
operation for more than three years.)

12. Invest for the purpose of exercising control or management.

13. Purchase or sell real estate limited partnership interests (other
than, in the case of Real Estate Securities Fund, publicly traded real
estate limited partnership interests), or oil, gas or other mineral
leases, rights or royalty contracts, except that these Underlying
Funds may purchase or sell securities of companies which invest in or
hold the foregoing.

14. Purchase securities of any other registered investment company (as
defined in the 1940 Act), except, subject to 1940 Act limitations, (a)
International Fund may purchase shares of open-end investment
companies which invest in permitted investments for such Underlying
Fund; (b) each of Real Estate Securities Fund, Equity Income Fund,
Large Cap Value Fund, Large Cap Growth Fund, Mid Cap Value Fund, Small
Cap Growth Fund, Small Cap Value Fund, International Fund, Health
Sciences Fund, Technology Fund, and Fixed Income Fund may, as part of
its investment in cash items, invest in securities of other mutual
funds which invest primarily in debt obligations with remaining
maturities of 13 months or less; and (c) all such Underlying Funds may
purchase securities as part of a merger, consolidation, reorganization
or acquisition of assets.

15. Invest in foreign securities, except that (a) Fixed Income Fund each
may invest up to 15% of its total assets in foreign securities payable
in United States Dollars; (b) Real Estate Securities Fund, Equity
Income Fund, Large Cap Value Fund, Large Cap Growth Fund, Mid Cap
Value Fund, Small Cap Growth Fund, Health Sciences Fund and Technology
Fund each may invest may invest up to 25% of its total assets in
securities of foreign issuers which are either listed on a United
States stock exchange or represented by American Depositary Receipts;
and (c) International Fund may invest in foreign securities without
limitation.

16. Except for International Fund, invest in warrants; provided, that the
other of such Underlying Funds may invest in warrants in an amount not
exceeding 5% of such Underlying Fund's net assets. No more than 2% of
this 5% may be warrants which are not listed on the New York Stock
Exchange.

For determining compliance with its investment restriction relating to
industry concentration, each such Underlying Fund classifies asset-backed
securities in its portfolio in separate industries based upon a combination of
the industry of the issuer or sponsor and the type of collateral. The industry
of the issuer or sponsor and the type of collateral will be determined by the
Underlying

<PAGE>

Fund's Advisor. For example, an asset-backed security known as "Money Store 94D
A2" would be classified as follows: the issuer or sponsor of the security is The
Money Store, a personal finance company, and the collateral underlying the
security is automobile receivables. Therefore, the industry classification would
be Personal Finance Companies -- Automobile. Similarly, an asset-backed security
known as "Midlantic Automobile Grantor Trust 1992-1 B" would be classified as
follows: the issuer or sponsor of the security is Midlantic National Bank, a
banking organization, and the collateral underlying the security is automobile
receivables. Therefore, the industry classification would be Banks --
Automobile. Thus, an issuer or sponsor may be included in more than one
"industry" classification, as may a particular type of collateral.

RESTRICTIONS APPLICABLE TO PRIME OBLIGATIONS FUND

In addition to the investment objectives and policies set forth in the
Prospectus and under the caption "Additional Information Concerning Investments
by the Funds and the Underlying Funds" above, Prime Obligations Fund is subject
to the investment restrictions set forth below. The investment restrictions set
forth in paragraphs 1 through 12 below are fundamental and cannot be changed
without approval by the holders of a majority of the outstanding shares of Prime
Obligations Fund as defined in the 1940 Act. See "Investment Restrictions of the
Funds" above.

Prime Obligations Fund may not:

1. Purchase common stocks, preferred stocks, warrants, other equity
securities, corporate bonds or debentures, state bonds, municipal
bonds, or industrial revenue bonds (except through the purchase of
obligations referred to under "Investment Objectives and Policies" in
Prime Obligations Fund's Prospectus).

2. Borrow money except from banks for temporary or emergency purposes for
the purpose of meeting redemption requests which might otherwise
require the untimely disposition of securities. Borrowing in the
aggregate may not exceed 10% of the value of Prime Obligations Fund's
total assets (including the amount borrowed) valued at the lesser of
cost or market less liabilities (not including the amount borrowed) at
the time the borrowing is made. The borrowings will be repaid before
any additional investments are made. However, even with such authority
to borrow money, there is no assurance that Prime Obligations Fund
will not have to dispose of securities on an untimely basis to meet
redemption requests.

3. Pledge, hypothecate, mortgage or otherwise encumber its assets, except
in an amount up to 15% of the value of its total assets but only to
secure borrowings for temporary or emergency purposes.

4. Sell securities short or purchase securities on margin.

5. Write or purchase put or call options, except that Prime Obligations
Fund may write or purchase put or call options in connection with the
purchase of variable rate certificates of deposit described below.

6. Underwrite the securities of other issuers except to the extent Prime
Obligations Fund may be deemed to be an underwriter, under federal
securities laws, in connection with the disposition of portfolio
securities, or purchase securities with contractual or other
restrictions on resale.

7. Invest more than 10% of its net assets in illiquid assets, including,
without limitation, time deposits and repurchase agreements maturing in
more than seven days.

8. Purchase or sell real estate, real estate investment trust securities,
commodities or commodity contracts, or oil and gas interests.
<PAGE>

9. Lend money to others except through the purchase of debt obligations of
the type which Prime Obligations Fund is permitted to purchase (see
"Investment Objective and Policies" in Prime Obligations Fund's
Prospectus).

10. Invest 25% or more of its assets in the securities of issuers in any
single industry; provided that there shall be no limitation on the
purchase of obligations issued or guaranteed by the United States, its
agencies or instrumentalities, or obligations of domestic commercial
banks, excluding for this purpose, foreign branches of domestic
commercial banks. As to utility companies, gas, electric, water, and
telephone companies are considered as separate industries. As to
finance companies, the following two categories are each considered a
separate industry: (A) business credit institutions, such as Honeywell
Finance Corporation and General Electric Credit Corp., and (B) personal
credit institutions, such as Sears Roebuck Acceptance Corp. and
Household Finance Corporation.
11. Invest in companies for the purpose of exercising control.

12. Purchase or retain the securities of any issuer if any of the officers
or directors of Prime Obligations Fund or its investment Advisor owns
beneficially more than 1/2 of 1% of the securities of such issuer and
together own more than 5% of the securities of such issuer.

In connection with Prime Obligations Fund's purchase of variable rate
certificates of deposit ("CDs"), it may enter into agreements with banks or
dealers allowing Prime Obligations Fund to resell the certificates to the bank
or dealer, at Prime Obligations Fund's option. Time deposits which may be
purchased by Prime Obligations Fund are deposits held in foreign branches of
United States banks which have a specified term or maturity. Prime Obligations
Fund purchases CDs from only those domestic savings and loan institutions which
are regulated by the Office of Thrift Supervision and the Federal Deposit
Insurance Corporation ("FDIC"), and whose deposits are insured by either the
Savings Association Insurance Fund or the Bank Insurance Fund, each of which is
administered by the FDIC. However, because Prime Obligations Fund purchases
large denomination CDs, it does not expect to benefit materially from such
insurance. The policies described in this paragraph are non-fundamental and may
be changed by FAF's Board of Directors.

<PAGE>

DIRECTORS AND EXECUTIVE OFFICERS

The directors and executive officers of FASF are listed below, together
with their business addresses and their principal occupations during the past
five years. Directors who are "interested persons" (as that term is defined in
the 1940 Act) of FASF are identified with an asterisk.

DIRECTORS

Robert J. Dayton, 5140 Norwest Center, Minneapolis, Minnesota 55402:
Director of FASF since June 1996, of FAIF since September 1994 and of FAF since
December 1994; Chairman (1989-1993) and Chief Executive Officer (1993-present),
Okabena Company (private family investment office). Age: 54.

Roger A. Gibson, 1020 15th Street, Suite 41A, Denver, Colorado 80202:
Director of FAIF, FAF and FASF since October 1997; Vice President, North America
- - Mountain Region for United Airlines since June 1995; prior to his current
position, served most recently as Vice President, Customer Service for United
Airlines in the West Region in San Francisco, California and the Mountain Region
in Denver, Colorado; employed at United Airlines since 1967. Age: 51.

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

Leonard W. Kedrowski, 16 Dellwood Avenue, Dellwood, Minnesota 55110:
Director of FASF since June 1996, of FAIF and FAF since November 1993; President
and owner of Executive and Management Consulting, Inc., a management consulting
firm; Vice President, Chief Financial Officer, Treasurer, Secretary and Director
of Anderson Corporation, a large privately-held manufacturer of wood windows,
from 1983 to October 1992. Age: 55.

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

Joseph D. Strauss, 8617 Edenbrook Crossing, # 443, Brooklyn Park,
Minnesota 55443: Director of FASF since June 1996, of FAF since 1984 and of FAIF
since April 1991; Chairman of FAF's and FAIF's Boards from 1993 to September
1997 and of FASF's Board from June 1996 to September 1997; President of FAF and
FAIF from June 1989 to November 1989; Owner and President, Strauss Management
Company, since 1993; Owner and President, Community Resource Partnerships, Inc.,
a community business retention survey company, since 1992; attorney-at-law. Age:
56.

Virginia L. Stringer, 712 Linwood Avenue, St. Paul, Minnesota 55105:
Director of FASF since June 1996, of FAIF since August 1987 and of FAF since
April 1991; Chair of FAIF's, FAF's and FASF's Boards since September 1997; Owner
and President, Strategic Management Resources, Inc. since 1993; formerly
President and Director of The Inventure Group, a management consulting and
training company, President of Scott's, Inc., a transportation company, and Vice
President of Human Resources of The Pillsbury Company. Age: 52.

EXECUTIVE OFFICERS

Kathryn Stanton, SEI Investments Company, Oaks, Pennsylvania 19456:
Vice President and Assistant Secretary of FASF since June 1996 and of FAIF and
FAF since April 1994; Vice President and Assistant Secretary of the
Administrator and the Distributor since April 1994; Associate, Morgan, Lewis &
Bockius, from 1989 to 1994. Age: 38.

<PAGE>

Carmen V. Romeo, SEI Investments Company, Oaks, Pennsylvania 19456:
Treasurer and Assistant Secretary of FASF since June 1996 and of FAIF and FAF
beginning November 1992; Director, Executive Vice President, Chief Financial
Officer and Treasurer of SEI Investments Company ("SEI"), SEI Investments
Management Corporation (the "Administrator") and the Distributor since 1981.
Age: 53.

Kevin P. Robins, SEI Investments Company, Oaks, Pennsylvania 19456:
Vice President and Assistant Secretary of FASF since June 1996 and of FAIF and
FAF since April 1994; Senior Vice President, Assistant Secretary and General
Counsel of the Administrator and the Distributor. Age: 37.

Sandra K. Orlow, SEI Investments Company, Oaks, Pennsylvania 19456:
Vice President and Assistant Secretary of FASF since June 1996 and of FAIF and
FAF since 1992; Vice President and Assistant Secretary of the Administrator and
the Distributor since 1983. Age: 41.

Todd Cipperman, SEI Investments Company, Oaks, Pennsylvania 19456: Vice
President and Assistant Secretary of FAIF, FAF and FASF since December 1996;
Vice President and Assistant Secretary of SEI, the Administrator and the
Distributor since 1995. Associate, Dewey Ballantine from 1994 to 1995;
Associate, Winston & Strawn from 1991 to 1994. Age: 31.

Joseph M. O'Donnell, Vice President and Assistant Secretary of FAIF,
FAF and FASF beginning in February 1998; Vice President and Assistant Secretary
of the Administrator and Distributor since January 1998; Vice President and
General Counsel, FPS Services, Inc. from 1993 to 1997; Staff Counsel and
Secretary, Provident Mutual Family of Funds from 1990 to 1993. Age: 43.

Michael G. Beattie, SEI Investments Company, Oaks, Pennsylvania 19456:
Controller of FAIF, FAF and FASF since December 1997; Associate Director, Funds
Accounting, SEI Investments Company since July 1997; prior to his current
position, served most recently as Fund Accounting Manager of SEI (1993-1997);
Registered Representative, First Investors, from 1988 to 1990. Age: 32.

Lydia A. Gavalis, SEI Investments Company, Oaks, Pennsylvania 19456;
Vice President and Assistant Secretary of FAIF, FAF and FASF, and Vice President
and Assistant Secretary of the Administrator and the Distributor each since
January 1998. Assistant General Counsel and Director of Arbitration,
Philadelphia Stock Exchange from 1989 to 1998. Age: 33

Lynda J. Streigel, SEI Investments Company, Oaks, Pennsylvania 19456;
Vice President and Assistant Secretary of FAIF, FAF and FASF, and Vice President
and Assistant Secretary of the Administrator and the Distributor since January
1998; Senior Asset Management Counsel, Barnett Banks, Inc. from 1993 to 1997;
Partner, Groom and Nordberg, Chartered from 1996 to 1997; and Associate General
Counsel, Riggs Bank, N.A. from 1992 to 1995. Age: 49

Kathy Heilig, SEI Investments Company, Oaks, Pennsylvania 19456; Vice
President and Assistant Secretary of FAIF, FAF and FASF, and Treasurer of SEI
Investments Company since 1997; Assistant Controller of SEI Investments Company
from 1995 to 1997; and Vice President of SEI Investments Company from 1991 to
1995. Age: 39.

Michael J. Radmer, 220 South Sixth Street, Minneapolis, Minnesota
55402: Secretary of FASF since June 1996 and of FAIF since April 1991 and of FAF
since 1981; Partner, Dorsey & Whitney LLP, a Minneapolis-based law firm and
general counsel of FASF, FAIF and FAF. Age: 52.

COMPENSATION

The First American Family of Funds, which includes FASF, FAIF and FAF,
currently pays only to directors of the funds who are not paid employees or
affiliates of the funds a fee of $15,000 per year ($22,500 in the case of the
Chair) plus $2,500 ($3,750 in the case of the Chair) per meeting of the Board
attended and $800 per committee meeting attended ($1,600 in the case of a
committee chair) and reimburses travel expenses of directors and officers to
attend Board meetings. In the event

<PAGE>

of telephonic Board or committee meetings, each director receives a fee of $500
per Board or committee meeting ($750 in the case of the Chair or a committee
chair). In addition, directors may receive a per diem fee of $1,000 per day plus
travel expenses when directors travel out of town on Fund business. However,
directors do not receive the $1,000 per diem amount plus the foregoing Board or
committee fee for an out of town committee or Board meeting but instead receive
the greater of the total per diem fee or meeting fee. Legal fees and expenses
are also paid to Dorsey & Whitney LLP, the law firm of which Michael J. Radmer,
secretary of FASF, FAIF and FAF, is a partner. The following table sets forth
information concerning aggregate compensation paid to each director of FASF (i)
by FASF (column 2), and (ii) by FASF, FAIF and FAF collectively (column 5)
during the fiscal year ended September 30, 1997. No executive officer or
affiliated person of FASF had aggregate compensation from FASF in excess of
$60,000 during such fiscal year:
<TABLE>
<CAPTION>

(1) (2) (3) (4) (5)

Total Compensation
Aggregate Pension or Retirement Estimated From Registrant and
Name of Compensation Benefits Accrued as Annual Benefits Fund Complex
Person, Position (1) From Registrant Part of Fund Expenses Upon Retirement Paid to Directors

<S> <C> <C> <C> <C>
Robert J. Dayton, Director $66 - 0 - - 0 - $33,500

Roger A. Gibson * -0- - 0 - - 0 - - 0 -

Andrew M. Hunter III, Director $59 -0- -0- $23,250

Leonard W. Kedrowski, Director $62 - 0 - - 0 - $32,700

Robert L. Spies, Director $59 -0- -0- $24,050

Joseph D. Strauss, Director $73 - 0 - - 0 - $39,925

Virginia L. Stringer, Director $90 - 0 - - 0 - $39,925

</TABLE>

* Not a director during the fiscal year ended September 30, 1997.

(1) Gae B. Veit resigned as a director of FAIF, FASF and FAF on September 12,
1997.

INVESTMENT ADVISORY AND OTHER SERVICES FOR THE FUNDS

INVESTMENT ADVISORY AGREEMENT

U.S. Bank National Association (the "Advisor"), 601 Second Avenue
South, Minneapolis, Minnesota 55402, serves as the investment Advisor and
manager of the Funds through its First American Asset Management group. The
Advisor is a national banking association that has professionally managed
accounts for individuals, insurance companies, foundations, commingled accounts,
trust funds, and others for over 75 years. The Advisor is a subsidiary of U.S.
Bancorp ("USB"), 601 Second Avenue South, Minneapolis, Minnesota 55480, which is
a regional multi-state bank holding company headquartered in Minneapolis,
Minnesota that primarily serves the Midwestern, Rocky Mountain and Northwestern
states. USB operates five banks and eleven trust companies with offices in 17
contiguous states from Illinois to Washington. USB also has various other
subsidiaries engaged in financial services. At December 31, 1997, on a pro forma
combined basis, USB and its consolidated subsidiaries had consolidated assets of
approximately $71 billion, consolidated deposits of $48 billion and
shareholders' equity of $6 billion.

<PAGE>

Pursuant to an Investment Advisory Agreement dated as of October 1,
1996 (the "Advisory Agreement"), the Funds engage the Advisor to act as
investment Advisor for and to manage the investment of the assets of the Funds.
Each Fund pays the Advisor monthly fees calculated on an annual basis equal to
0.25% of its average daily net assets.

The Advisory Agreement requires the Advisor to provide FASF with all
necessary office space, personnel and facilities necessary and incident to the
Advisor's performance of its services thereunder. The Advisor is responsible for
the payment of all compensation to personnel of FASF and the officers and
directors of FASF, if any, who are affiliated with the Advisor or any of its
affiliates. The Advisory Agreement provides that each Fund will be reimbursed by
the Advisor, in an amount not in excess of the advisory fees payable by such
Fund, for excess fund expenses as may be required by the laws of certain states
in which the Fund's shares may be offered for sale. As of the date of this
Statement of Additional Information, the most restrictive state limitation in
effect requires that "aggregate annual expenses" (which include the investment
advisory fee and other operating expenses but exclude interest, taxes, brokerage
commissions, Rule 12b-1 fees and certain other expenses) shall not exceed 2-1/2%
of the first $30 million of average net assets, 2% of the next $70 million of
average net assets and 1-1/2% of the remaining average net assets of a Fund for
any fiscal year.

In addition to the investment advisory fee, each Fund pays all its
expenses that are not expressly assumed by the Advisor or any other organization
with which the Fund may enter into an agreement for the performance of services.
Each Fund is liable for such nonrecurring expenses as may arise, including
litigation to which the Fund may be a party, and it may have an obligation to
indemnify its directors and officers with respect to such litigation.

The following table sets forth total advisory fees before waivers and
after waivers for each of the Funds for the fiscal year ended September 30,
1997:

Year Ended
September 30, 1997

Advisory Fee Advisory Fee
Before Waivers After Waivers

Income Fund $33,069 $0
Growth and Income Fund 27,869 0
Growth Fund 13,262 0
Aggressive Growth Fund 11,316 0

ADMINISTRATION AGREEMENT

SEI Investments Management Corporation (the "Administrator") serves as
administrator for the Funds pursuant to an Administration Agreement between it
and the Funds. The Administrator is a wholly-owned subsidiary of SEI Investments
Company, which also owns the Funds' distributor. See "-- Distributor and
Shareholder Service Plan and Agreement" below. Under the Administration
Agreement, the Administrator provides administrative personnel and services to
the Funds for a fee as described in the Funds' Prospectus. These services
include, among others, regulatory reporting, fund and portfolio accounting,
shareholder reporting services, and compliance monitoring services. The
Administrator also serves as administrator for the Underlying Funds and receives
compensation for such services. The Underlying Funds have approved the
appointment of USB as a sub-administrator (the "Sub-Administrator") effective
January 1, 1998. It is contemplated that the Sub-Administrator will assist the
Administrator in the performance of administrative services for the Underlying
Funds.

<PAGE>

The following table sets forth administrative fees, paid by each of the
Funds for the fiscal year ended September 30, 1997:

Year Ended
September 30, 1997

Income Fund $44,990
Growth and Income Fund 43,464
Growth Fund 40,308
Aggressive Growth Fund 39,740

DISTRIBUTOR AND SHAREHOLDER SERVICE PLAN AND AGREEMENT

SEI Investments Distribution Co. (the "Distributor") serves as the
distributor for the shares of each Fund. The Distributor is a wholly-owned
subsidiary of SEI Investments Company, which also owns the Funds' Administrator.
See "-- Administration Agreement" above.

The Distributor serves as distributor for the shares of the Funds
pursuant to a Distribution Agreement dated as of October 1, 1996 (the
"Distribution Agreement") between itself and the Funds. Under the Distribution
Agreement, the Distributor has agreed to perform all distribution services and
functions of the Funds. The Distributor may enter into sub-distribution
agreements with securities firms, financial institutions (including, without
limitation, banks) and other industry professionals. The Distributor receives no
separate compensation for distribution of the Funds' Shares.

The Funds also have entered into a Shareholder Service Plan and
Agreement with the Distributor pursuant to which the Distributor agrees to
provide, or to enter into written agreements with service providers to provide,
one or more specified shareholder services to beneficial owners of shares of the
Funds. The Distributor has agreed that the services provided pursuant to the
Shareholder Service Plan and Agreement will in no event be primarily intended to
result in the sale of Fund shares. Pursuant to the Shareholder Service Plan and
Agreement, the Funds have agreed to pay the Distributor a fee at an annual rate
of 0.25% of the average net asset value of the shares of the Funds, computed
daily and paid monthly. The Distributor is to pay any shareholder service
providers with which it enters into written agreements out of this amount.

The following table sets forth shareholder servicing fees, paid by each
of the Funds for the fiscal year ended September 30, 1997:

Year Ended
September 30, 1997

Income Fund $33,069
Growth and Income Fund 27,869
Growth Fund 13,262
Aggressive Growth Fund 11,316

The Distributor also serves as distributor for the shares of the
Underlying Funds and receives compensation (but not with respect to the class of
shares purchased by the Funds) for such services.

<PAGE>

CUSTODIAN; TRANSFER AGENT; COUNSEL; ACCOUNTANTS

The custodian of the Funds' assets is U.S. Bank National Association
(the "Custodian"), U.S. Bank Center, 180 East Fifth Street, St. Paul, Minnesota
55101. The Custodian is a subsidiary of USB.

The Custodian takes no part in determining the investment policies of
the Funds or in deciding which securities are purchased or sold by the Funds.
All of the instruments representing the investments of the Funds and all cash is
held by the Custodian. The Custodian delivers securities against payment upon
sale and pays for securities against delivery upon purchase. The Custodian also
remits Fund assets in payment of Fund expenses, pursuant to instructions of
FASF's officers or resolutions of the Board of Directors.

As compensation for its services to the Funds, the Custodian is paid a
monthly fee calculated on an annual basis equal to 0.03% of each Fund's average
daily net assets. In addition, the Custodian is reimbursed for its out-of-pocket
expenses incurred while providing its services to the Funds. The Custodian
continues to serve so long as its appointment is approved at least annually by
the Board of Directors including a majority of the directors who are not
interested persons (as defined under the 1940 Act) of FASF. The Custodian also
serves as custodian of the Underlying Funds' assets and receives compensation
for such services. In addition, the Custodian may serve as securities lending
agent for the Underlying Funds in connection with securities lending
transactions undertaken by the Underlying Funds, and it may receive compensation
for its provision of services as such securities lending agent.

DST Systems, Inc., 330 West Ninth Street, Kansas City, Missouri 64105,
is transfer agent and dividend disbursing agent for the shares of the Funds. DST
Systems, Inc. also serves as transfer agent and dividend disbursing agent for
the Underlying Funds.

Dorsey & Whitney LLP, 220 South Sixth Street, Minneapolis, Minnesota
55402, is independent General Counsel for the Funds. Dorsey & Whitney LLP also
serves as independent General Counsel for the Underlying Funds.

KPMG Peat Marwick LLP, 90 South Seventh Street, Minneapolis, Minnesota
55402, acts as the Funds' independent auditors, providing audit services
including audits of the annual financial statements and assistance and
consultation in connection with SEC filings. KPMG Peat Marwick LLP also acts as
the Underlying Funds' independent auditors.

INVESTMENT ADVISORY SERVICES FOR THE UNDERLYING FUNDS

INVESTMENT ADVISORY AGREEMENTS OF THE UNDERLYING FUNDS

U.S. Bank National Association (the "Advisor"), the Advisor of the
Funds, also serves as investment Advisor and manager of each of the Underlying
Funds through its First American Asset Management group. For information
concerning U.S. Bank, see "Investment Advisory and Other Services for the Funds
- -- Investment Advisory Agreement" above.

Pursuant to an Investment Advisory Agreement dated April 2, 1991 (the
"FAIF Advisory Agreement"), the Equity Funds and Fixed Income Fund engaged the
Advisor to act as investment Advisor for and to manage the investment of the
assets of each such Underlying Fund. Each such Underlying Fund other than
International Fund pays the Advisor monthly fees calculated on an annual basis
equal to 0.70% of its average daily net assets. International Fund pays the
Advisor monthly fees calculated on an annual basis equal to 1.25% of its average
daily net assets.

Pursuant to an Investment Advisory Agreement effective as of January
20, 1995 (the "FAF Advisory Agreement"), Prime Obligations Fund engaged the
Advisor to act as investment Advisor for and to manage the investment of the
assets of Prime Obligations Fund. Prime Obligations Fund pays the Advisor
monthly fees calculated on an annual basis equal to 0.40% of its average daily
net assets.

<PAGE>

The FAIF Advisory Agreement and the FAF Advisory Agreement require the
Advisor to provide FAIF and FAF with all necessary office space, personnel and
facilities necessary and incident to the Advisor's performance of its services
thereunder. The Advisor is responsible for the payment of all compensation to
personnel of FAIF and FAF and the officers and directors of FAIF and FAF, if
any, who are affiliated with the Advisor or any of its affiliates. The FAIF
Advisory Agreement and the FAF Advisory Agreement provide that each Underlying
Fund will be reimbursed by the Advisor, in an amount not in excess of the
advisory fees payable by such Underlying Fund, for excess fund expenses as may
be required by the laws of certain states in which the Underlying Fund's shares
may be offered for sale. As of the date of this Statement of Additional
Information, the most restrictive state limitation in effect requires that
"aggregate annual expenses" (which include the investment advisory fee and other
operating expenses but exclude interest, taxes, brokerage commissions, Rule
12b-1 fees and certain other expenses) shall not exceed 2-1/2% of the first $30
million of average net assets, 2% of the next $70 million of average net assets
and 1-1/2% of the remaining average net assets of an Underlying Fund for any
fiscal year.

In addition to the investment advisory fee, each Underlying Fund pays
all its expenses that are not expressly assumed by the Advisor or any other
organization with which the Underlying Fund may enter into an agreement for the
performance of services. Each Underlying Fund is liable for such nonrecurring
expenses as may arise, including litigation to which the Underlying Fund may be
a party, and it may have an obligation to indemnify its directors and officers
with respect to such litigation.

Information concerning advisory fees paid by the Underlying Funds
during their three most recent fiscal years is set forth in their Statements of
Additional Information, which may be obtained by writing or calling SEI
Investments Distribution Co., Oaks, Pennsylvania 19456, telephone: (888)
997-8728.

SUB-ADVISORY AGREEMENT FOR INTERNATIONAL FUND

Marvin & Palmer Associates, Inc., 1201 North Market Street, Suite 2300,
Wilmington, Delaware 19801, is sub-advisor for International Fund under an
agreement with the Advisor (the "Sub-advisory Agreement"). The sub-advisor, a
privately-held company, was founded in 1986 by David F. Marvin and Stanley
Palmer. The sub-advisor is engaged in the management of global, non-United
States and emerging markets equity portfolios for institutional accounts. At
January 1, 1998, the sub-advisor managed a total of $4.6 billion in investments
for 53 institutional investors. Pursuant to the Sub-advisory Agreement, the
sub-advisor is responsible for the investment and reinvestment of International
Fund's assets and the placement of brokerage transactions in connection
therewith. Under the Sub-advisory Agreement, the sub-advisor is required, among
other things, to report to the Advisor or the FAIF Board regularly at such times
and in such detail as the Advisor or the Board may from time to time request in
order to permit the Advisor and the Board to determine the adherence of
International Fund to its investment objectives, policies and restrictions. The
Sub-advisory Agreement also requires the sub-advisor to provide all office
space, personnel and facilities necessary and incident to the sub-advisor's
performance of its services under the Sub-advisory Agreement.

For its services under the Sub-advisory Agreement, the sub-advisor is
paid a monthly fee by the Advisor calculated on an annual basis equal to 0.75%
of the first $100 million of International Fund's average daily net assets;
0.50% of International Fund's average daily assets in excess of $100 million up
to $300 million; 0.45% of International Fund's average daily net assets in
excess of $300 million up to $500 million; and 0.40% of International Fund's
average daily assets in excess of $500 million.

<PAGE>

PORTFOLIO MANAGERS FOR THE UNDERLYING FUNDS

Large Cap Value Fund is managed by a committee comprised of Mr. Doak,
Mr. Murphy, Mr. Rovner, Mr. Dubiak, Mr. Whitcomb, Mr. Shields, and Mr. Twele.
Equity Income Fund and Large Cap Diversified Growth Fund are managed by a
committee comprised of Mr. Bren, Mr. Doak, Mr. Dubiak, Ms. Johnson, Mr. Murphy,
Mr. Whitcomb, and Mr. Glenn Johnson. Small Cap Growth Fund, Small Cap Value Fund
and Health Sciences Fund are managed by a committee comprised of Mr. Dubiak, Mr.
Bren, Mr. Rose, Mr. Buss, Mr. Hipple and Mr. Magdlen. The remaining Underlying
Funds are managed or co-managed as indicated below.

James Doak and John M. Murphy, Jr. are members of the committees which
manage three of the Underlying Funds, as set forth above. Their biographies are
set forth in the Funds' Prospectus under the caption "Management -- Portfolio
Management of the Funds."

James S. Rovner is a member of the committee which manages one of the
Underlying Funds, as set forth above, and he is portfolio manager for Special
Equity Fund. His biography is set forth in the Funds' Prospectus under the
caption "Management -- Portfolio Management of the Funds."

Gerald C. Bren is a member of the committee which manages two of the
Underlying Funds, as set forth above, and he is portfolio co-manager for Small
Cap Growth Fund and Health Sciences Fund. His biography is set forth in the
Funds' Prospectus under the caption "Management -- Portfolio Management of the
Funds."

Albin S. Dubiak is a member of the committees which manage three of the
Underlying Funds, as set forth above, and he is portfolio co-manager for Small
Cap Growth Fund, Small Cap Value Fund, and Health Sciences Fund. His biography
is set forth in the Funds' Prospectus under the caption "Management -- Portfolio
Management of the Funds."

Cori B. Johnson is a member of the committee which manages two of the
Underlying Funds, as set forth above, and she is portfolio manager for Real
Estate Securities Fund. She joined the Advisor in 1991 as a securities analyst.
Ms. Johnson received her bachelor's degree from Concordia College and her
master's degree in business administration from the University of Minnesota. She
is a Chartered Financial Analyst.

Roland P. Whitcomb, Jr. is a member of the committees which manage
three of the Underlying Funds, as set forth above, and he is portfolio
co-manager for Small Cap Value Fund and Technology Fund. Mr. Whitcomb joined the
Advisor in 1986 after serving as an account executive with Smith Barney & Co.
since 1979. He received his bachelor's degree from the University of Chicago and
is a Chartered Financial Analyst.

Kevin Shields is a member of the committee which manages one of the
Underlying Funds, as set forth above. Mr. Shields joined the Advisor in 1993 and
has five years of investment industry experience. Mr. Shields has analytic
responsibilities for the banking, financial services and insurance industries.
Mr. Shields received his bachelor's degree from Marquette University and his
master's degree from the Applied Security and Analysis Program at the University
of Wisconsin.

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

Douglas K. Rose is a member of the committee which manages three of the
Underlying Funds. Mr. Rose joined the Advisor in 1996 and has ten years of
investment industry experience. Mr. Rose has analytic responsibilities for the
business services, environmental services, leisure and restaurant/lodging
industries. He holds a bachelor's degree from the University of Nebraska, and

<PAGE>

master's degree in business administration from the University of Minnesota. He
is a member of the Twin Cities Society of Security Analysts and is a Chartered
Financial Analyst.

Robert L. Buss is a member of the committee which manages three of the
Underlying Funds.8 Mr. Buss joined the Advisor in 1989 and has nine years of
investment industry experience. In 1996, Mr. Buss began analytical work in the
equity research area covering electric equipment, machinery and diversified
manufacturing. He holds a bachelor's degree in Economics from the University of
Minnesota.

Anthony W. Hipple is a member of the committee which manages three of
the Underlying Funds. Mr. Hipple is primarily responsible for portfolio
analytics and screening. Mr. Hipple joined the Advisor in 1996 and has four
years of investment industry experience. He holds a bachelor's degree from the
University of Northern Iowa and a master's degree in business administration
from the University of Iowa.

Frank G. Magdlen is a member of the committee which manages three of
the Underlying Funds. He joined the Advisor in 1979 and has 24 years of
investment industry experience. Prior to joining the Advisor, he was with First
Interstate and Farmers Group. Mr. Magdlen received his bachelor's degree from
the University of Portland and his master's degree in business administration
from the University of Southern California. He is a Chartered Financial Analyst
and past president of the Portland Society of Financial Analysts.

Glenn E. Johnson is a member of the committee which manages two of the
Underlying Funds. He joined the Advisor in 1989 and has 13 years of investment
industry experience. Prior to joining the Advisor, he was an analyst with Piper
Jaffray Inc. Mr. Johnson received his bachelor's degree and his master's degree
in business administration from the University of Minnesota and is a Chartered
Financial Analyst.

David Johnson is a co-manager of Real Estate Securities Fund. He joined
the Advisor in 1997 and has four years of investment industry experience. He has
analytic responsibilities for REITs, business services, printing and publishing,
and advertising. Prior to joining the Advisor, he was with the State of
Wisconsin Investment Board. He received his bachelor's degree from St. Lawrence
University and his master's degree in business administration from the
University of Connecticut.

Martin L. Jones is portfolio co-manager for Fixed Income Fund. His
biography is set forth in the Funds' Prospectus under the caption "Management --
Portfolio Management of the Funds."

Lucille C. Rehkamp is co-manager for Fixed Income Fund. Her biography
is set forth in the Fund's Prospectus under the caption "Management -- Portfolio
Management of the Funds.

Mark M. Green is co-manager for Fixed Income Fund. His biography is set
forth in the Fund's Prospectus under the caption "Management -- Portfolio
Management of the Funds.
Joseph M. Ulrey III is portfolio co-manager for Prime Obligations Fund.
His biography is set forth in the Funds' Prospectus under the caption
"Management -- Portfolio Management of the Funds."

Jim Palmer is portfolio co-manager for Prime Obligations Fund. Mr.
Palmer joined the Advisor in 1992 and has over seven years of investment
industry experience. Prior to joining the Advisor, Mr. Palmer was a securities
lending trader and senior master trust accountant with U.S. Bank Trust National
Association. He received his bachelor's degree from the University of Wisconsin
- -- LaCrosse and his master's degree in business administration from the
University of Minnesota.

A committee comprised of the following seven individuals shares the
management of International Fund on behalf of its sub-advisor:

<PAGE>

David F. Marvin is Chairman of the sub-advisor and founded the firm
together with Mr. Palmer in 1986. Before founding the sub-advisor, Mr. Marvin
was Vice President in charge of DuPont Corporation's $10 billion
internally-managed pension fund. Prior to that Mr. Marvin was Associate
Portfolio Manager, and then Head Portfolio Manager, for Investors Diversified
Services' IDS Stock Fund. Mr. Marvin started in the investment business in 1965
as a securities analyst for Chicago Title & Trust. He received his bachelor's
degree from the University of Illinois and his master's degree in business
administration from Northwestern University. He is a Chartered Financial Analyst
and a member of the Financial Analysts Federation.

Stanley Palmer is Vice-Chairman and President of the sub-advisor and
co-founder of the firm. Mr. Palmer was Equity Portfolio Manager for DuPont
Corporation from 1978 through 1986, an analyst and portfolio manager at
Investors Diversified Services from 1971 through 1978, and an analyst at Harris
Trust & Savings Bank from 1964 through 1971. He received his bachelor's degree
from Gustavus Adolphus College and his master's degree in business
administration from the University of Iowa. He is a Chartered Financial Analyst
and a member of the Financial Analysts Federation.

Terry B. Mason is a Senior Vice President and portfolio manager of the
sub-advisor. Before joining the sub-advisor, Mr. Mason was employed for 14 years
by DuPont Corporation, the last five as international equity analyst and
international trader. He received his bachelor's degree from Glassboro State
College and his master's degree in business administration from Widener
University.

Jay F. Middleton is a Senior Vice President and portfolio manager for
the sub-advisor and joined the firm in 1989. He received his bachelor's degree
from Wesleyan University.

Todd D. Marvin is a Senior Vice President and portfolio manager for the
sub-advisor and joined the firm in 1991. Before joining the sub-advisor, Mr.
Marvin was employed by Oppenheimer & Company as an analyst in investment
banking. Mr. Marvin received his bachelor's degree from Wesleyan University.

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

Stephen D. Marvin is a Vice President and portfolio manager for the
sub-advisor and joined the sub-advisor in 1994. Before joining the sub-advisor,
Mr. Marvin was employed by Bear, Stearns & Company as a corporate financial
analyst. Mr. Marvin received his bachelor's degree from Carleton College.

PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE

It anticipated that the majority of the Funds' portfolio transactions
will consist of purchases and sales of shares of the Underlying Funds. These
purchases and sales will be made directly with the Underlying Funds. The class
of shares of the Underlying Funds in which the Funds will invest is not subject
to any front-end or deferred sales charges, any Rule 12b-1 distribution fees or
any shareholder servicing fees.

To the extent that the Funds may purchase or sell securities other than
shares of the Underlying Funds, decisions with respect to placement of the
Funds' portfolio transactions are made by the Advisor. The Funds' policy is to
seek to place portfolio transactions with brokers or dealers who will execute
transactions as efficiently as possible and at the most favorable price. The
Advisor may, however, select a broker or dealer to effect a particular
transaction without communicating with all brokers or dealers who might be able
to effect such transaction because of the volatility of

<PAGE>

the market and the desire of the Advisor to accept a particular price for a
security because the price offered by the broker or dealer meets guidelines for
profit, yield or both. Some portfolio transactions may involve payment of a
brokerage commission by the appropriate Fund. In some cases, transactions may be
with dealers or issuers who act as principal for their own accounts and not as
brokers. Transactions effected on a principal basis are made without the payment
of brokerage commissions but at net prices, which usually include a spread or
markup. In effecting transactions in over-the-counter securities, the Funds
expect to deal with market makers unless it appears that better price and
execution are available elsewhere.

While the Advisor does not deem it practicable and in the Funds' best
interest to solicit competitive bids for commission rates on each transaction,
consideration will regularly be given by the Advisor to posted commission rates
as well as to other information concerning the level of commissions charged on
comparable transactions by other qualified brokers.

Subject to the policy of seeking favorable price and execution for the
transaction size and risk involved, in selecting brokers and dealers other than
the Distributor and determining commissions paid to them, the Advisor may
consider ability to provide supplemental performance, statistical and other
research information as well as computer hardware and software for research
purpose for consideration, analysis and evaluation by the staff of the Advisor.
In accordance with this policy, the Funds do not execute brokerage transactions
solely on the basis of the lowest commission rate available for a particular
transaction. Subject to the requirements of favorable price and efficient
execution, placement of orders by securities firms for the purchase of shares of
the Funds may be taken into account as a factor in the allocation of portfolio
transactions.

Research services that may be received by the Advisor would include
advice, both directly and in writing, as to the value of securities, the
advisability of investing in, purchasing, or selling securities, and the
availability of securities or purchasers or sellers of securities, as well as
analyses and reports concerning issuers, industries, securities, economic
factors and trends, portfolio strategy, and the performance of accounts. The
research services may allow the Advisor to supplement its own investment
research activities and enable the Advisor to obtain the views and information
of individuals and research staffs of many different securities firms prior to
making investment decisions for the Funds. To the extent portfolio transactions
are effected with brokers and dealers who furnish research services, the Advisor
would receive a benefit, which is not capable of evaluation in dollar amounts,
without providing any direct monetary benefit to the Funds from these
transactions. Research services furnished by brokers and dealers used by the
Funds for portfolio transactions may be utilized by the Advisor in connection
with investment services for other accounts and, likewise, research services
provided by brokers and dealers used for transactions of other accounts may be
utilized by the Advisor in performing services for the Funds. The Advisor
determine the reasonableness of the commissions paid in relation to their view
of the value of the brokerage and research services provided, considered in
terms of the particular transactions and their overall responsibilities with
respect to all accounts as to which they exercise investment discretion.

The Advisor has not entered into any formal or informal agreements with
any broker or dealer, and do not maintain any "formula" that must be followed in
connection with the placement of Fund portfolio transactions in exchange for
research services provided to the Advisor, except as noted below. The Advisor
may, from time to time, maintain an informal list of brokers and dealers that
will be used as a general guide in the placement of Fund business in order to
encourage certain brokers and dealers to provide the Advisor with research
services, which the Advisor anticipates will be useful to it. Any list, if
maintained, would be merely a general guide, which would be used only after the
primary criteria for the selection of brokers and dealers (discussed above) had
been met, and, accordingly, substantial deviations from the list could occur.
The Advisor would authorize the Funds to pay an amount of commission for
effecting a securities transaction in excess of the amount of commission another
broker or dealer would have charged only if the Advisor determined in good faith
that the amount of such commission was reasonable in relation to the value of
the brokerage and research services provided by such broker or dealer, viewed in
terms of either that particular transaction or the overall responsibilities of
the Advisor with respect to the Funds.

<PAGE>

The Funds do not effect any brokerage transactions in their portfolio
securities with any broker or dealer affiliated directly or indirectly with the
Advisor or the Distributor unless such transactions, including the frequency
thereof, the receipt of commissions payable in connection therewith, and the
selection of the affiliated broker or dealer effecting such transactions are not
unfair or unreasonable to the shareholders of the Funds, as determined by the
Board of Directors. Any transactions with an affiliated broker or dealer must be
on terms that are both at least as favorable to the Funds as the Funds can
obtain elsewhere and at least as favorable as such affiliated broker or dealer
normally gives to others.

When two or more clients of the Advisor are simultaneously engaged in
the purchase or sale of the same security, the prices and amounts are allocated
in accordance with a formula considered by the Advisor to be equitable to each
client. In some cases, this system could have a detrimental effect on the price
or volume of the security as far as each client is concerned. In other cases,
however, the ability of the clients to participate in volume transactions may
produce better executions for each client.

The policies of the Underlying Funds with respect to portfolio
transactions and the allocation of brokerage, and the brokerage commissions paid
by them during their three most recent fiscal years, are set forth in their
Statements of Additional Information, which may be obtained by writing or
calling SEI Investments Distribution Co., Oaks, Pennsylvania 19456, telephone:
(888) 997-8728.

CAPITAL STOCK

As of December 1, 1997, the directors of FASF owned shares of FAIF,
FASF and FAF with an aggregate net asset value of $3,596,000. As of January 14,
1998, the directors and officers of FASF as a group owned less than one percent
of each Fund's outstanding shares. As of that date, the Funds were aware that
the following persons owned of record five percent or more of the outstanding
shares of each class of stock of the Funds.

PERCENTAGE OF
SHARES OWNED
INCOME FUND
NFSC FEBO # BJF-001643............................. 7.99%
Fleet Wholesale Supply Co.
Etal Retirement Plans
c/o Tom Green
P. O. Box 5055
Brainerd, MN 56401-5055

U.S. Bank National Association..................... 7.38%
As Fiduciary For First Retirement
Attn: Reconciliation SPFT0401
180 East 5th Street
St. Paul, MN 55101-1631

VAR & Co........................................... 7.38%
P. O. Box 64482
St. Paul, MN 55164-0482

Unit & Co.......................................... 7.32%
Attn: Trust Mutual Funds
P. O. Box 3168
Portland, OR 97208-3168

<PAGE>

GROWTH AND INCOME FUND
Unit & Co.......................................... 25.72%
Attn: Trust Mutual Funds
P. O. Box 3168
Portland, OR 97208-3168

VAR & Co. ......................................... 20.27%
P. O. Box 64482
St. Paul, MN 55164-0482

Telco ............................................. 15.14%
Attn: Trust Mutual Funds
P. O. Box 3168
Portland, OR 97208-3168

Wachovia Bank NA................................... 13.86%
Trust US Bancorp Deferred Comp. Trust
DTD 8/1/97
P. O. Box 3073
Winston Salem, NC 27150

GROWTH FUND
Unit & Co.......................................... 19.50%
Attn: Trust Mutual Funds
P. O. Box 3168
Portland, OR 97208-3168

VAR & Co........................................... 8.94%
P. O. Box 64482
St. Paul, MN 55164-0482

AGGRESSIVE GROWTH FUND
Unit & Co.......................................... 39.22%
Attn: Trust Mutual Funds
P. O. Box 3168
Portland, OR 97208-3168

VAR & Co........................................... 12.33%
P. O. Box 64482
St. Paul, MN 55164-0482

U.S. Bank National Association..................... 6.84%
As Fiduciary For First Retirement
Attn: Reconciliation SPFT0401
180 East 5th Street
St. Paul, MN 55101-1631

<PAGE>

NET ASSET VALUE AND PUBLIC OFFERING PRICE

The method for determining the public offering price of the shares of
the Funds is summarized in the Prospectus under the caption "Investing in the
Funds." The net asset value of each Fund's shares is determined on each day
during which the New York Stock Exchange (the "NYSE") and federally-chartered
banks are open for business. The NYSE is not open for business on the following
holidays (or on the nearest Monday or Friday if the holiday falls on a weekend):
New Year's Day, Martin Luther King, Jr. Day, Washington's Birthday (observed),
Good Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving
Day and Christmas Day. Each year the NYSE may designate different dates for the
observance of these holidays as well as designate other holidays for closing in
the future.

<TABLE>
<CAPTION>
Net
Asset Value
Net Assets Shares Per Share
(In Dollars) / Outstanding = (In Dollars)

<S> <C> <C> <C>
Income Fund $36,118,011 $3,337,762 $10.82

Growth and Income Fund 27,565,392 2,343,810 11.76

Growth Fund 15,675,513 1,293,419 12.12

Aggressive Growth Fund 13,724,705 1,909,679 12.58

</TABLE>

FUND PERFORMANCE

SEC STANDARDIZED PERFORMANCE FIGURES

YIELD FOR THE FUNDS. Yield for the Funds is a measure of the net
investment income per share (as defined) earned over a 30-day period expressed
as a percentage of the maximum offering price of a Fund's shares at the end of
the period.

Based upon the 30-day period ended September 30, 1997, the yields for
the shares of the Funds were as follows:

Income Fund 4.18%
Growth and Income Fund 2.21
Growth Fund 1.34
Aggressive Growth Fund 0.65

Such yield figures are determined by dividing the net investment income
per share earned during the specified 30-day period by the maximum offering
price per share on the last day of the period, according to the following
formula:

6
Yield = 2 [((a - b) / cd) + 1) - 1]

Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of
reimbursements)
c = average daily number of shares outstanding during the
period that were
entitled to receive dividends
d = maximum offering price per share on the last day of
the period

<PAGE>

TOTAL RETURN. Total return measures both the net investment income
generated by, and the effect of any realized or unrealized appreciation or
depreciation of, the underlying investments in a Fund's portfolio. The Funds'
average annual and cumulative total return figures are computed in accordance
with the standardized methods prescribed by the Securities and Exchange
Commission.

AVERAGE ANNUAL TOTAL RETURN. Average annual total return figures are
computed by determining the average annual compounded rates of return over the
periods indicated in the advertisement, sales literature or shareholders'
report, that would equate the initial amount invested to the ending redeemable
value, according to the following formula:

n
P(1 + T) = ERV

Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of
the period of a hypothetical $1,000
payment made at the beginning of such
period

This calculation (i) assumes all dividends and distributions are reinvested at
net asset value on the appropriate reinvestment dates as described in the
Prospectus, and (ii) deducts all recurring fees, such as advisory fees, charged
as expenses to all shareholder accounts.

CUMULATIVE TOTAL RETURN. Cumulative total return is computed by finding
the cumulative compounded rate of return over the period indicated in the
advertisement that would equate the initial amount invested to the ending
redeemable value, according to the following formula:

CTR = ((ERV - P) / P ) 10

Where: CTR = cumulative total return
ERV = ending redeemable value at the end of,
the period of a hypothetical $1,000
payment made at the beginning of such
period; and
P = initial payment of $1,000

This calculation (i) assumes all dividends and distributions are reinvested at
net asset value on the appropriate reinvestment dates as described in the
Prospectuses, and (ii) deducts all recurring fees, such as advisory fees,
charged as expenses to all shareholder accounts.

Based on the foregoing, the average annual and cumulative total returns
for the shares of the Funds were as follows:

<TABLE>
<CAPTION>
Average Annual

Cumulative Since One Five
Since Inception* Inception Year Years

<S> <C> <C> <C> <C>
Income Fund 12.51% 12.51% ** **
Growth and Income Fund 20.47 20.47 ** **
Growth Fund 23.23 23.23 ** **
Aggressive Growth Fund 27.06 27.06 ** **

</TABLE>

* Inception date of October 1, 1996.
** Not in operation for the entire period.

<PAGE>

NON-STANDARD DISTRIBUTION RATES

HISTORICAL DISTRIBUTION RATES. The Funds' historical annualized
distribution rates are computed by dividing the income dividends of a Fund for a
stated period by the maximum offering price on the last day of such period. For
the one year period ended September 30, 1997, the historical distribution rates
of the shares of the Funds were as follows:

Income Fund 3.75%
Growth and Income Fund 2.21
Growth Fund 1.47
Aggressive Growth Fund 0.85

ANNUALIZED CURRENT DISTRIBUTION RATES. The Funds' annualized current
distribution rates are computed by dividing a Fund's income dividends for a
specified month by the number of days in that month and multiplying by 365, and
dividing the resulting figure by the maximum offering price on the last day of
the specified period. The annualized current distribution rates for the one
month period ended September 30, 1997 for the funds were as follows:

Income Fund 4.57%
Growth and Income Fund 2.43
Growth Fund 1.23
Aggressive Growth Fund 0.46

CERTAIN PERFORMANCE COMPARISONS

The Funds may compare their performance to that of certain published or
otherwise widely disseminated indices or averages compiled by third parties.
These indices and averages are as follows, among others:

STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS ("S&P
500") is a composite index of common stocks in industrial, transportation, and
financial and public utility companies. The S&P 500 index assumes reinvestment
of all dividends paid by stocks listed in its index. Taxes due on any of these
distributions are not included, nor are brokerage or other fees calculated in
Standard & Poor's figures.

RUSSELL 2000 INDEX is a broadly diversified index consisting of
approximately 2,000 small capitalization common stocks that can be used to
compare to the total returns of funds whose portfolios are invested primarily in
small capitalization common stocks.

RUSSELL MID-CAP INDEX is an index that measures the performance of the
800 smallest companies in the Russell 1000 Index, which represents approximately
35% of the total market capitalization of the Russell 1000 Index.

LIPPER BALANCED FUNDS AVERAGE is an average of funds whose primary
objective is to conserve principal by maintaining at all times a balanced
portfolio of both stocks and bonds.

LIPPER FLEXIBLE PORTFOLIO FUNDS AVERAGE is an average of funds which
allocate investments across various asset classes, including domestic common
stocks, bonds and money market instruments, with a focus on total return.

LIPPER INTERNATIONAL FUNDS AVERAGE is an average of funds which invest
primarily in equity securities whose primary trading markets are outside the
United States.

<PAGE>

LIPPER GENERAL EQUITY FUNDS AVERAGE is an average of the Lipper Capital
Appreciation Average, Lipper Growth Average, Lipper Mid-Cap Average, Lipper
Small Company Growth Average, Lipper Growth & Income Average, Lipper Standard &
Poor's 500 Index Objective Average and Lipper Standard & Poor's Equity Income
Average.

LIPPER GENERAL BOND FUNDS AVERAGE is an average of funds which invest
primarily in corporate and government debt issues without quality or maturity
restrictions.

LIPPER INCOME FUNDS AVERAGE is an average of funds which normally seek
a high level of current income through investing in income producing stocks,
bonds and money market instruments.

LIPPER GROWTH & INCOME FUNDS AVERAGE is an average of funds which
combine a growth of earnings orientation and an income requirement for level
and/or rising dividends.

LIPPER MONEY MARKET INSTRUMENT FUNDS AVERAGE is an average of money
market funds which invest in high financial instruments rated in the top two
grades.

MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE, AUSTRALIA AND FAR EAST
("EAFE") INDEX is an aggregate of 15 individual country indices that
collectively represent many of the major markets of the world, excluding the
United States and Canada.

LEHMAN GOVERNMENT/CORPORATE (TOTAL) INDEX is a market weighted index
comprised of all public obligations of the U.S. Treasury, excluding flower bonds
and foreign-targeted issues; all publicly issued debt of U.S. Government
agencies and quasi-federal corporations, and corporate debt guaranteed by the
U.S. Government; and all publicly issued, fixed rate, nonconvertible investment
grade dollar-denominated SEC-registered corporate debt.

SALOMON BROTHERS 3-MONTH U.S. TREASURY BILL INDEX represents monthly
return equivalents of yield averages which are not marked to market.

WILSHIRE 5000 EQUITY INDEX measures the performance of all United
States headquartered equity securities with readily available price data and is
adjusted using over 7,000 capitalization weighted security returns.

In addition, the Funds may compare their performance to composites
constructed from the foregoing indices and averages.

TAXATION

The tax status of the Funds and the distributions that the Funds will
make to shareholders are summarized in the Prospectus in the section entitled
"Federal Income Taxes." Each Fund intends to fulfill the requirements of
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), as a
regulated investment company. If so qualified, each Fund will not be liable for
federal income taxes to the extent it distributes its taxable income to its
shareholders.

To qualify under Subchapter M for tax treatment as a regulated
investment company, each Fund must, among other things: (1) derive at least 90%
of its gross income from dividends, interest, and certain other types of
payments related to its investment in stock or securities; (2) distribute to its
shareholders at least 90% of its investment company taxable income (as that term
is defined in the Code determined without regard to the deduction for dividends
paid) and 90% of its net tax-exempt income; and (3) diversify its holdings so
that, at the end of each fiscal quarter of the Fund, (a) at least 50% of the
market value of the Fund's assets is represented by cash, cash items, U.S.
Government securities and securities of other regulated investment companies,
and other securities, with these other securities limited, with respect to any
one issuer, to an amount no greater than 5% of the Fund's total assets and no
greater than 10% of the outstanding voting securities of such

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issuer, and (b) not more than 25% of the market value of the Fund's total assets
is invested in the securities of any one issuer (other than U.S. Government
securities or securities of other regulated investment companies).

Each Fund is subject to a nondeductible excise tax equal to 4% of the
excess, if any, of the amount required to be distributed for each calendar year
over the amount actually distributed. For this purpose, any amount on which the
Fund is subject to corporate-level income tax is considered to have been
distributed. In order to avoid the imposition of this excise tax, each Fund must
declare and pay dividends representing 98% of its net investment income for that
calendar year and 98% of its capital gains (both long-term and short-term) for
the twelve-month period ending October 31 of the calendar year.

Any loss on the sale or exchange of shares of a Fund generally will be
disallowed to the extent that a shareholder acquires or contracts to acquire
shares of the same Fund within 30 days before or after such sale or exchange.
Furthermore, if Fund shares with respect to which a long-term capital gain
distribution has been made are held for less than six months, any loss on the
sale or exchange of such shares will be treated as a long-term capital loss to
the extent of such long-term capital gain distribution.

For federal tax purposes, if a shareholder exchanges shares of a Fund
for shares of any other Fund pursuant to the exchange privilege (see "Investing
in the Funds -- Exchange Privilege" in the Prospectus), such exchange will be
considered a taxable sale of the shares being exchanged.

Dividends generally are taxable to shareholders at the time they are
paid. However, dividends declared in October, November and December, made
payable to shareholders of record in such a month and actually paid in January
of the following year are treated as paid and are thereby taxable to
shareholders as of December 31.

Pursuant to the Code, distributions of net investment income by a Fund
to a shareholder who, as to the United States, is a nonresident alien
individual, nonresident alien fiduciary of a trust or estate, foreign
corporation, or foreign partnership (a "foreign shareholder") will be subject to
U.S. withholding tax (at a rate of 30% or lower treaty rate). Withholding will
not apply if a dividend paid by a Fund to a foreign shareholder is "effectively
connected" with a U.S. trade or business of such shareholder, in which case the
reporting and withholding requirements applicable to U.S. citizens or domestic
corporations will apply. Distributions of net long-term capital gains are not
subject to tax withholding but, in the case of a foreign shareholder who is a
nonresident alien individual, such distributions ordinarily will be subject to
U.S. income tax at a rate of 30% if the individual is physically present in the
U.S. for more than 182 days during the taxable year. Each Fund will report
annually to its shareholders the amount of any withholding.

The foregoing relates only to federal income taxation and is a general
summary of the federal tax law in effect as of the date of this Statement of
Additional Information.

RATINGS

A rating of a rating service represents that service's opinion as to
the credit quality of the rated security. However, such ratings are general and
cannot be considered absolute standards of quality or guarantees as to the
creditworthiness of an issuer. A rating is not a recommendation to purchase,
sell or hold a security, because it does not take into account market value or
suitability for a particular investor. Markets values of debt securities may
change as a result of a variety of factors unrelated to credit quality,
including changes in market interest rates.

When a security has been rated by more than one service, the ratings
may not coincide, and each rating should be evaluated independently. Ratings are
based on current information furnished by the issuer or obtained by the rating
services from other sources which they consider reliable. Ratings may be
changed, suspended or withdrawn as a result of changes in or unavailability of
such

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information, or for other reasons. In general, the Underlying Funds are not
required to dispose of a security if its rating declines after it is purchased,
although they may consider doing so.

RATINGS OF CORPORATE DEBT OBLIGATIONS AND MUNICIPAL BONDS

STANDARD & POOR'S

AAA: Securities rated AAA have the highest rating assigned by Standard
& Poor's to a debt obligation. Capacity to pay interest and repay
principal is extremely strong.

AA: Securities rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only to a
small degree.

A: Securities rated A have a strong capacity to pay interest and repay
principal, although they are somewhat more susceptible to adverse
effects of changes in circumstances and economic conditions than bonds
in higher rated categories.

BBB: Securities rated BBB are regarded as having an adequate capacity
to pay interest and repay principal. Although such securities normally
exhibit adequate protection standards, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity
to pay interest and repay principal for securities in this category
than for those in higher rated categories.

Debt rated BB, B, CCC, CC, and C by Standard & Poor's is regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.

BB: Securities rated BB have less near-term vulnerability to default
than other speculative issues. However, they face major ongoing
uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to inadequate capacity to meet timely
interest and principal payments. The BB rating category is also used
for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating.

B: Securities rated B have a greater vulnerability to default but
currently have the capacity to meet interest payments and principal
repayments. Adverse business, financial, or economic conditions will
likely impair capacity or willingness to pay interest and repay
principal. The B rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied BB or BB- rating.

CCC: Securities rated CCC have a currently identifiable vulnerability
to default, and are dependent upon favorable business, financial, and
economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial, or economic
conditions, they are not likely to have the capacity to pay interest
and repay principal. The CCC rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied B or
B- rating.

The ratings from AA to CCC may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories.

MOODY'S

Aaa: Securities which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are protected
by a large or exceptionally stable margin and principal is secure.
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While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

Aa: Securities which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group, they comprise what are
generally known as high grade securities. They are rated lower than the
best securities because margins of protection may not be as large as in
Aaa securities, or fluctuation of protective elements may be of greater
magnitude, or there may be other elements present which make the
long-term risks appear somewhat greater than in Aaa securities.

A: Securities which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future.

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

Ba: An issue which is rated Ba is judged to have speculative elements;
its future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes issues in this class.

B: An issue which is rated B generally lacks characteristics of the
desirable investment. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of
time may be small.

Caa: An issue which is rated Caa is of poor standing. Such an issue may
be in default or there may be present elements of danger with respect
to principal or interest.

Those securities in the Aa, A and Baa groups which Moody's believes possess the
strongest investment attributes are designated by the symbols Aa-1, A-1 and
Baa-1. Other Aa, A and Baa securities comprise the balance of their respective
groups. These rankings (1) designate the securities which offer the maximum in
security within their quality groups, (2) designate securities which can be
bought for possible upgrading in quality, and (3) additionally afford the
investor an opportunity to gauge more precisely the relative attractiveness of
offerings in the marketplace.

RATINGS OF PREFERRED STOCK

STANDARD & POOR'S. Standard & Poor's ratings for preferred stock have
the following definitions:

AAA: An issue rated "AAA" has the highest rating that may be assigned
by Standard & Poor's to a preferred stock issue and indicates an
extremely strong capacity to pay the preferred stock obligations.

AA: A preferred stock issue rated "AA" also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations
is very strong, although not as overwhelming as for issues rated "AAA."

A: An issue rated "A" is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more susceptible
to the adverse effects of changes in circumstances and economic
conditions.

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BBB: An issue rated "BBB" is regarded as backed by an adequate capacity
to pay the preferred stock obligations. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to make
payments for a preferred stock in this category than for issues in the
category.

MOODY'S. Moody's ratings for preferred stock include the following:

aaa: An issue which is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the
least risk of dividend impairment within the universe of preferred
stocks.

aa: An issue which is rated "aa" is considered a high grade preferred
stock. This rating indicates that there is reasonable assurance that
earnings and asset protection will remain relatively well maintained in
the foreseeable future.

a: An issue which is rate "a" is considered to be an upper medium grade
preferred stock. While risks are judged to be somewhat greater than in
the "aaa" and "aa" classifications, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.

baa: An issue which is rated "baa" is considered to be medium grade,
neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any
great length of time.

RATINGS OF COMMERCIAL PAPER

STANDARD & POOR'S. Commercial paper ratings are graded into four
categories, ranging from "A" for the highest quality obligations to "D" for the
lowest. Issues assigned the A rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designation 1, 2 and 3 to indicate the relative degree of safety. The "A-1"
designation indicates that the degree of safety regarding timely payment is very
strong. Those issues determined to possess overwhelming safety characteristics
will be denoted with a plus (+) symbol designation. None of the Funds or the
Underlying Funds will purchase commercial paper rated A-3 or lower.

MOODY'S. Moody's commercial paper ratings are opinions as to the
ability of the issuers to timely repay promissory obligations not having an
original maturity in excess of nine months. Moody's makes no representation that
such obligations are exempt from registration under the Securities Act of 1933,
and it does not represent that any specific instrument is a valid obligation of
a rated issuer or issued in conformity with any applicable law. Moody's employs
the following three designations, all judged to be investment grade, to indicate
the relative repayment capacity of rated issuers:

PRIME-1: Superior capacity for repayment.

PRIME-2: Strong capacity for repayment .

PRIME-3: Acceptable capacity for repayment .

None of the Funds or the Underlying Funds will purchase Prime-3 commercial
paper.

BEST'S RATING SYSTEM FOR INSURANCE COMPANIES

The objective of Best's Rating System is to evaluate the various
factors affecting the overall performance of an insurance company in order to
provide an opinion as to the company's relative

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financial strength and ability to meet its contractual obligations. The
procedure includes both a quantitative and qualitative review of the company.

The quantitative evaluation is based on an analysis of the company's
financial condition and operating performance utilizing a series of financial
tests. These tests measure a company's performance in the three critical areas
of Profitability, Leverage and Liquidity in comparison to the norms established
by the A.M. Best Company. These norms are based on an evaluation of the actual
performance of the insurance industry.

Best's review also includes a qualitative evaluation of the adequacy
and soundness of a company's reinsurance, the adequacy of its reserves and the
experience of its management. In addition, various other factors of importance
are considered such as the composition of the company's book of business and the
quality and diversification of its assets.

Upon completion of analysis, Best's Ratings are assigned to those
companies that meet the qualifications for rating. The Best's Rating
classifications are A+ (Superior); A & A- (Excellent); B+ (Very Good); B & B-
(Good); C+ (Fairly Good); and C & C- (Fair). Those not qualifying for a current
Best's Rating are classified in the "Not Assigned" category that has ten
classifications which identify why a company is not eligible for a Best's
Rating. Care should be exercised in the use of Best's Ratings without further
reference to additional Best's publications.

FINANCIAL STATEMENTS

The financial statements of FASF included in its annual report to
shareholders dated September 30, 1997 are incorporated herein by reference. Such
annual report to shareholders accompanies this Statement of Additional
Information.