FIRST AMERICAN STRATEGY FUNDS INC, 485BPOS, 2000-01-28

FIRST AMERICAN STRATEGY FUNDS INC
485BPOS, 2000-01-28

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1933 Act Registration No. 333-7463
1940 Act Registration No. 811-7687

As filed with the Securities and Exchange Commission on January 28, 2000

FORM N-1A

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|

Pre-Effective Amendment No. | |
Post-Effective Amendment No. 7 |X|

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT |X|
COMPANY ACT OF 1940

Amendment No. 7

FIRST AMERICAN STRATEGY FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)

OAKS, PENNSYLVANIA 19456
(Address of Principal Executive Offices) (Zip Code)

(610) 676-2649
(Registrant's Telephone Number, including Area Code)

JAMES R. FOGGO
C/O SEI INVESTMENTS COMPANY, OAKS, PENNSYLVANIA 19456
(Name and Address of Agent for Service)

COPIES TO:
James R. Foggo Christopher O. Petersen
SEI Investments Company First American
Oaks, Pennsylvania 19456 601 2nd Avenue South, 20th Floor
Minneapolis, Minnesota 55402

It is proposed that this filing shall become effective (check appropriate box):

| | immediately upon filing pursuant to paragraph (b) of rule 485
|X| on January 31, 2000 pursuant to paragraph (b) of rule 485
| | 60 days after filing pursuant to paragraph (a)(1) of Rule 485
| | on February 1, 2000 pursuant to paragraph (a)(1) of Rule 485
| | 75 days after filing pursuant to paragraph (a)(2) of Rule 485
| | on (date) pursuant to paragraph (a)(2) of Rule 485

<PAGE>

JANUARY 31, 2000

ASSET CLASSES

* EQUITY FUNDS

(*) FUNDS OF FUNDS

* BOND FUNDS

* TAX FREE BOND FUNDS

* MONEY MARKET FUNDS

PROSPECTUS

FIRST AMERICAN STRATEGY FUNDS, INC.

FIRST AMERICAN

STRATEGY
FUNDS

AGGRESSIVE GROWTH FUND
GROWTH FUND
GROWTH AND INCOME FUND
INCOME FUND

AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THE SHARES OF THESE FUNDS, OR DETERMINED IF THE
INFORMATION IN THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY STATEMENT TO THE
CONTRARY IS A CRIMINAL OFFENSE.

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

<PAGE>

Table of
CONTENTS

FUND SUMMARIES

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Objectives and Main Investment Strategies 2
- --------------------------------------------------------------------------------
Main Risks 3
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Fund Performance 4
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Fees and Expenses 6
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POLICIES & SERVICES
- --------------------------------------------------------------------------------
Buying Shares 8
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Selling Shares 10
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Managing Your Investment 11
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ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
Management 13
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More About The Funds 15
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The Underlying Funds 16
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Financial Highlights 26
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FOR MORE INFORMATION Back Cover
- --------------------------------------------------------------------------------

<PAGE>

Fund Summaries
INTRODUCTION

This section of the prospectus describes the objectives of the First American
Strategy Funds, summarizes the main investment strategies used by each fund in
trying to achieve its objectives, and highlights the risks involved with these
strategies. It also provides you with information about the performance, fees,
and expenses of the funds.

AN INVESTMENT IN THE FUNDS IS NOT A DEPOSIT OF U.S. BANK NATIONAL ASSOCIATION
AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION
OR ANY OTHER GOVERNMENT AGENCY.

1
PROSPECTUS - First American Strategy Funds

<PAGE>

Fund Summaries
OBJECTIVES AND MAIN INVESTMENT STRATEGIES

Each of the funds described in this prospectus is a "fund of funds." The funds
are intended to provide differing balances between the objectives of current
income and growth of capital. Each fund seeks to achieve its objectives by
investing in a variety of other mutual funds which are also advised by the
funds' investment advisor.

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

STRATEGY AGGRESSIVE GROWTH FUND seeks a high level of capital growth.

STRATEGY GROWTH FUND seeks capital growth with a moderate level of current
income.

STRATEGY GROWTH AND INCOME FUND seeks both capital growth and current income.

STRATEGY INCOME FUND seeks a high level of current income consistent with
limited risk to capital.

- --------------------------------------------------------------------------------
MAIN INVESTMENT STRATEGIES

Each fund seeks to achieve its objectives by investing in a variety of other
mutual funds that are also advised by the funds' investment advisor. Strategy
Aggressive Growth Fund and Strategy Growth Fund seek their objectives by
providing high allocations to various equity categories, including small
company and international company equity securities, with relatively little
emphasis on fixed income securities. Strategy Growth and Income Fund takes a
more evenly balanced approach to equity securities and fixed income
investments. Strategy Income Fund provides a high allocation to fixed income
investments, but also has a limited equity component designed to help offset
inflation and provide a source for potential increases in income over time.

The underlying funds in which the Strategy Funds invest include the 11 equity
funds and two fixed income funds named in the table below and Prime Obligations
Fund, a money market fund. The funds' advisor allocates and reallocates each
fund's assets among the underlying funds within ranges designed to reflect the
funds' differing balances between the investment objectives of current income
and growth of capital. The following table illustrates these ranges, expressed
as percentages of the funds' net assets.

<TABLE>
<CAPTION>
Aggressive Growth and
Growth Fund Growth Fund Income Fund Income Fund
- ----------------------------------------------------------------------------------------------------------
MIN MAX MIN MAX MIN MAX MIN MAX
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EQUITY FUNDS AS A WHOLE 60% 100% 50% 90% 35% 75% 15% 45%
Equity Index Fund 0% 80% 0% 75% 0% 60% 0% 35%
Large Cap Growth Fund 5% 50% 5% 45% 5% 40% 0% 25%
Large Cap Value Fund 5% 50% 5% 45% 5% 40% 0% 25%
Mid Cap Growth Fund 0% 40% 0% 30% 0% 20% 0% 10%
Mid Cap Value Fund 0% 40% 0% 30% 0% 20% 0% 10%
Small Cap Growth Fund 0% 40% 0% 30% 0% 20% 0% 10%
Small Cap Value Fund 0% 40% 0% 30% 0% 20% 0% 10%
Equity Income Fund 0% 15% 0% 25% 0% 35% 0% 45%
Real Estate Securities Fund 0% 15% 0% 15% 0% 15% 0% 15%
Emerging Markets Fund 0% 15% 0% 15% 0% 10% 0% 5%
International Fund 0% 35% 0% 30% 0% 25% 0% 15%

FIXED INCOME FUNDS AS A WHOLE 0% 40% 10% 50% 25% 65% 55% 85%
Fixed Income Fund 0% 40% 0% 50% 10% 65% 25% 85%
Strategic Income Fund 0% 15% 0% 20% 0% 20% 0% 25%

PRIME OBLIGATIONS FUND 0% 35% 0% 35% 0% 35% 0% 35%
- ----------------------------------------------------------------------------------------------------------
</TABLE>

In addition to investing in Prime Obligations Fund, each fund also may invest
in cash, U.S. dollar-denominated high-quality money market instruments and
other short-term securities. Normally, each fund's aggregate investment in
these items and in Prime Obligations Fund will not exceed the maximum
percentage in the above table for Prime Obligations Fund. However, in an
attempt to respond to adverse market, economic, political or other conditions,
each fund may temporarily invest without limit in cash, U.S. dollar-denominated
high-quality money market instruments and other short-term securities.
Investing a significant percentage of a fund's assets in these securities may
prevent the fund from achieving its objectives.

2
PROSPECTUS - First American Strategy Funds
<PAGE>

Fund Summaries
MAIN RISKS

The value of your investment in a fund will change daily, which means you could
lose money. The main risks of investing in the funds include:

ACTIVE MANAGEMENT

Each fund is actively managed and its performance therefore will reflect in
part the advisor's ability to make asset allocation and other investment
decisions which are suited to achieving the fund's 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 an investment in one of the funds
involves additional expenses that would not be present in a direct investment
in the underlying funds.

RISKS ASSOCIATED WITH THE UNDERLYING FUNDS

The funds are subject to the risks of the underlying funds in which they
invest. These risks, some of which are discussed in more detail under "The
Underlying Funds," include:

* The underlying funds (other than Equity Index Fund) are actively managed and
therefore may underperform other mutual funds with similar investment
objectives.

* Each underlying fund 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, the
net asset values of funds which invest higher proportions of their assets in
equity funds may be more volatile than funds which are limited to lower
proportions.

* Small Cap Growth Fund, Small Cap Value Fund, Emerging Markets Fund and
International Fund are subject to the risks of investing in small
capitalization companies. These stocks historically have experienced greater
price volatility than stocks of larger capitalization companies.

* Mid Cap Growth Fund and Mid Cap Value Fund invest in stocks of mid
capitalization companies. Although these stocks may be slightly less volatile
than those of small capitalization companies, they still involve substantial
risk.

* Real Estate Securities Fund is subject to risks associated with
non-diversification and with concentrating its investments in the real estate
industry, and to the risks associated with direct investments in real estate
investment trusts.

* International Fund, Emerging Markets Fund and Strategic Income Fund are
subject to risks associated with investing in foreign securities, including
currency risk. These risks are particularly significant in emerging markets,
where Strategic Income Fund may invest and where Emerging Markets Fund
primarily invests. International Fund and Emerging Markets Fund are also
subject to the risks of entering into foreign currency hedging transactions.

* Most of the other equity funds invest a portion of their assets in foreign
securities which are dollar-denominated and publicly traded in the United
States, and which may involve risks not associated with the securities of
domestic issuers.

* Equity Index Fund is subject to risks associated with its use of options,
futures, contracts and options on futures contracts if securities prices do
not move in the direction anticipated by the fund's advisor when entering into
the options or the futures contracts.

* The fixed income funds are subject to interest rate risk (the risk that debt
securities held by a fund will decrease in value when interest rates rise),
income risk (the risk that a fund's income could decline due to falling market
interest rates), credit risk (the risk that the issuer of debt securities will
not make timely principal or interest payments on its securities), and call
risk (the risk that the issuer of debt securities will prepay those securities
before their stated maturity, requiring the fund to reinvest the prepayment at
a lower interest rate).

* The fixed income funds may invest in mortgage- and/or asset-backed securities.
These are subject to the risk that falling interest rates will cause faster
than expected prepayments of the obligations underlying the securities, which
must be reinvested at lower interest rates. They are also subject to the risk
that rising interest rates will cause prepayments to slow, extending the life
of mortgage- and asset-backed securities with lower interest rates.

* Each fixed income fund may invest up to 25% of its total assets in dollar roll
transactions, which could increase the volatility of the fund's share price
and possibly diminish the fund's investment performance.

* Most of the underlying funds lend their portfolio securities to
broker-dealers, banks and other institutions. These funds are subject to the
risk that the other party to the securities lending agreement will default on
its obligations.

* Strategic Income Fund may invest a significant portion of its assets in
non-investment grade debt obligations, which are commonly called "high-yield"
securities or "junk bonds." In addition, Equity Income Fund may invest in
non-investment grade convertible debt obligations. High yield securities
generally have more volatile prices and carry more risk to principal than
investment grade securities.

POSSIBLE CONFLICTS OF INTEREST

The funds and the underlying funds have the same officers, directors and
investment advisor. If situations arise in which the interests of the funds are
different from those of the underlying funds, these officers and directors and
the advisor could be subject to conflicts of interest. For example, the advisor
might determine that a fund should reduce its allocation of assets to a
particular underlying fund, thus requiring the fund to redeem shares of the
underlying fund, at a time when it is not in the best interests of the
underlying fund to sell portfolio securities in order to meet the redemption
request. The advisor will monitor the operations of the funds and the
underlying funds for potential conflicts of interest, and recommend to the
funds' board of directors the steps which it believes are necessary to avoid or
minimize adverse consequences to the funds and the underlying funds.

3
PROSPECTUS - First American Strategy Funds
<PAGE>

Fund Summaries
FUND PERFORMANCE

The charts and tables that follow provide you with information on each fund's
volatility and performance. Of course, past performance does not guarantee
future results.

Each fund's bar chart shows you how performance of the fund's shares has varied
from year to year.

The tables compare each fund's performance over different time periods to that
of the fund's benchmark indices, which are broad measures of market performance.
Each fund's performance reflects fund expenses; the benchmarks are unmanaged and
have no expenses.

Both the charts and the tables assume that all distributions have been
reinvested.

STRATEGY AGGRESSIVE GROWTH FUND

ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR

[BAR CHART]

18.01% 7.36% 26.49%
- ------------------------------------
1997 1998 1999

Best Quarter: Quarter ending December 31, 1999 20.43%
Worst Quarter: Quarter ending September 30, 1998 (14.93)%

AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99 Date One Year Inception(1)
- --------------------------------------------------------------------------------
Strategy Aggressive Growth Fund 10/1/96 26.49% 16.94%
- --------------------------------------------------------------------------------
Standard & Poor's Composite 500 Index(2) 21.04% 28.06%
- --------------------------------------------------------------------------------
Lehman Government/Corporate Bond Index(3) (2.15)% 5.48%
- --------------------------------------------------------------------------------

(1) The since inception performance of each index is calculated from 10/31/96.

(2) An unmanaged index of large capitalization stocks.

(3) An unmanaged index of Treasury securities, other securities issued by the
U.S. government or its agencies or instrumentalities, and investment grade
corporate debt securities.

STRATEGY GROWTH FUND

ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR

[BAR CHART]

16.36% 7.52% 19.13%
- ------------------------------------
1997 1998 1999

Best Quarter: Quarter ending December 31, 1999 14.91%
Worst Quarter: Quarter ending September 30, 1998 (11.92)%

AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99 Date One Year Inception(1)
- --------------------------------------------------------------------------------
Strategy Growth Fund 10/1/96 19.13% 14.42%
- --------------------------------------------------------------------------------
Standard & Poor's Composite 500 Index(2) 21.04% 28.06%
- --------------------------------------------------------------------------------
Lehman Government/Corporate Bond Index(3) (2.15)% 5.48%
- --------------------------------------------------------------------------------

(1) The since inception performance of each index is calculated from 10/31/96.

(2) An unmanaged index of large capitalization stocks.

(3) An unmanaged index of Treasury securities, other securities issued by the
U.S. government or its agencies or instrumentalities, and investment grade
corporate debt securities.

4
PROSPECTUS - First American Strategy Funds
<PAGE>

Fund Summaries

FUND PERFORMANCE CONTINUED

STRATEGY GROWTH AND INCOME FUND

ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR

[BAR CHART]

13.96% 8.20% 13.15%
- ------------------------------------
1997 1998 1999

Best Quarter: Quarter ending December 31, 1999 10.33%
Worst Quarter: Quarter ending September 30, 1998 (8.30)%

AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99 Date One Year Inception(1)
- --------------------------------------------------------------------------------
Strategy Growth and Income Fund 10/1/96 13.15% 12.51%
- --------------------------------------------------------------------------------
Standard & Poor's Composite 500 Index(2) 21.04% 28.06%
- --------------------------------------------------------------------------------
Lehman Government/Corporate Bond Index(3) (2.15)% 5.48%
- --------------------------------------------------------------------------------

(1) The since inception performance of each index is calculated from 10/31/96.

(2) An unmanaged index of large capitalization stocks.

(3) An unmanaged index of Treasury securities, other securities issued by the
U.S. government or its agencies or instrumentalities, and investment grade
corporate debt securities.

STRATEGY INCOME FUND

ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR

[BAR CHART]

12.72% 8.46% (0.39%)
- -------------------------------------
1997 1998 1999

Best Quarter: Quarter ending June 30, 1997 4.87%
Worst Quarter: Quarter ending September 30, 1999 (2.43)%

AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99 Date One Year Inception(1)
- --------------------------------------------------------------------------------
Strategy Income Fund 10/1/96 (0.39)% 7.21%
- --------------------------------------------------------------------------------
Standard & Poor's Composite 500 Index(2) 21.04% 28.06%
- --------------------------------------------------------------------------------
Lehman Government/Corporate Bond Index(3) (2.15)% 5.48%
- --------------------------------------------------------------------------------

(1) The since inception performance of each index is calculated from 10/31/96.

(2) An unmanaged index of large capitalization stocks.

(3) An unmanaged index of Treasury securities, other securities issued by the
U.S. government or its agencies or instrumentalities, and investment grade
corporate debt securities.

5
PROSPECTUS - First American Strategy Funds
<PAGE>

Fund Summaries
FEES AND EXPENSES

The following table describes the fees and expenses that you may pay if you buy
and hold shares of the funds. The funds do not impose any sales charges (loads)
when you buy, sell or exchange shares. Each fund imposes a redemption fee of 1%
if you redeem your shares within 12 months of purchase. See "Selling Shares --
How to Sell Shares -- Redemption Fee." In addition, when you hold shares of one
of the funds, you indirectly pay a portion of that fund's operating expenses.
The figures below are based on fund expenses during the fiscal year ended
September 30, 1999.(1) As illustrated in other tables under this caption, fund
shareholders also indirectly bear a portion of the underlying funds' expenses.

MAXIMUM DEFERRED SALES CHARGE (LOAD) None None None None

REDEMPTION FEE(2) AS A % OF AMOUNT REDEEMED 1.00% 1.00% 1.00% 1.00%

ANNUAL MAINTENANCE FEE(3)
ONLY CHARGED TO ACCOUNTS WITH BALANCES BELOW $500 $ 25 $ 25 $ 25 $ 25

ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
(expenses that are deducted from fund assets)
- --------------------------------------------------------------------------------------------------------------------
Management Fees 0.25% 0.25% 0.25% 0.25%
Distribution and Service (12b-1) Fees None None None None
Other Expenses
Shareholder Servicing Fee 0.25% 0.25% 0.25% 0.25%
Miscellaneous 0.36% 0.35% 0.29% 0.33%
TOTAL 0.86% 0.85% 0.79% 0.83%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary fee waivers and expense reimbursements by the advisor. See
"Additional Information -- Financial Highlights." THE ADVISOR INTENDS TO WAIVE
FEES AND REIMBURSE EXPENSES DURING THE CURRENT FISCAL YEAR SO THAT TOTAL
OPERATING EXPENSES FOR EACH FUND DO NOT EXCEED 0.30%. WAIVERS AND
REIMBURSEMENTS MAY BE DISCONTINUED AT ANY TIME.

(2) Payable if you redeem your shares within 12 months of purchase.

(3) The fund reserves the right to charge your account an annual maintenance fee
of $25 if your balance falls below $500 as a result of selling or exchanging
shares. See "Policies & Services -- Selling Shares, Accounts with Low
Balances."

RANGES OF COMBINED DIRECT AND INDIRECT EXPENSE RATIOS

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 lists the ranges of combined direct and indirect
expense ratios borne by fund shareholders, 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 listed under "Underlying
Fund Expense Ratios" below.

<TABLE>
<CAPTION>
RANGES OF COMBINED DIRECT
AND INDIRECT EXPENSE RATIOS Aggressive Growth and
AS A % OF AVERAGE NET ASSETS(1) Growth Fund Growth Fund Income Fund Income Fund
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1.64% to 2.12% 1.61% to 2.08% 1.54% to 1.94% 1.60% to 1.88%
- ----------------------------------------------------------------------------------------------------
</TABLE>

(1) The underlying funds' advisor intends to waive fees during the current
fiscal year so that expense ratios do not exceed certain levels, as set forth in
footnote 1 to the Underlying Fund Expense Ratios table below. In addition, the
funds' advisor intends to waive fees and reimburse expenses during the current
fiscal year so that total operating expenses for each fund do not exceed 0.30%.
Taking these waivers and reimbursements into account, the ranges of combined
direct and indirect expense ratios would be 0.71% to 1.43% for Aggressive Growth
Fund, 0.74% to 1.41% for Growth Fund, 0.74% to 1.34% for Growth and Income Fund,
and 0.85% to 1.24% for Income Fund. Waivers and reimbursements may be
discontinued at any time.

6
PROSPECTUS - First American Strategy Funds

<PAGE>

Fund Summaries
FEES AND EXPENSES CONTINUED

- --------------------------------------------------------------------------------
EXAMPLE This example is intended to help you compare the cost of investing in
the funds with the cost of investing in other mutual funds. It is based upon
the midpoint of the expense ranges set forth above, and assumes that you
invest $10,000 for the time periods indicated and then redeem all of your
shares at the end of those periods. The example also assumes that your
investment has a 5% return each year, and that each fund's operating expenses
remain the same. Although your actual costs and returns may differ, based on
these assumptions your cost would be:

Aggressive Growth and
Growth Fund Growth Fund Income Fund Income Fund
- --------------------------------------------------------------------------------
1 year $ 291 $ 287 $ 277 $ 277
3 years $ 590 $ 579 $ 549 $ 548
5 years $1,015 $ 997 $ 946 $ 944
10 years $2,199 $2,161 $2,056 $2,053

You would pay the following expenses if you did not redeem your shares:

Aggressive Growth and
Growth Fund Growth Fund Income Fund Income Fund
- --------------------------------------------------------------------------------
1 year $ 191 $ 187 $ 177 $ 177
3 years $ 590 $ 579 $ 549 $ 548
5 years $1,015 $ 997 $ 946 $ 944
10 years $2,199 $2,161 $2,056 $2,053

UNDERLYING FUND EXPENSE RATIOS

The table below lists the expense ratios of the underlying funds. 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 are based on
expenses during the fiscal year ended September 30, 1999.(1)

Underlying Fund Expense Ratio
- --------------------------------------------------------------------------------
Equity Index Fund 0.89%
Large Cap Growth Fund 0.89%
Large Cap Value Fund 0.90%
Mid Cap Growth Fund 0.96%
Mid Cap Value Fund 0.93%
Small Cap Growth Fund 0.91%
Small Cap Value Fund 0.89%
Equity Income Fund 0.88%
Real Estate Securities Fund 0.93%
International Fund 1.51%
Emerging Markets Fund 1.73%
Fixed Income Fund 0.89%
Strategic Income Fund 0.93%
Prime Obligations Fund 0.51%
- --------------------------------------------------------------------------------

(1) Actual expense ratios for the fiscal year were lower than those shown in the
table because of voluntary fee waivers by the advisor. The advisor intends to
waive fees during the current fiscal year so that expense ratios do not exceed
the following amounts: Equity Index Fund, 0.35%; Large Cap Growth Fund, 0.80%;
Large Cap Value Fund, 0.80%; Mid Cap Growth Fund, 0.90%; Mid Cap Value Fund,
0.90%; Small Cap Growth Fund, 0.90%; Small Cap Value Fund, 0.90%; Equity Income
Fund, 0.75%; Real Estate Securities Fund, 0.80%; International Fund, 1.35%;
Emerging Markets Fund, 1.45%; Fixed Income Fund, 0.70%; Strategic Income Fund,
0.90%; and Prime Obligations Fund, 0.45%. Fee waivers may be discontinued at any
time.

7
PROSPECTUS - First American Strategy Funds
<PAGE>

Policies & Services
BUYING SHARES

You may become a shareholder in any of the funds with an initial investment of
$1,000 or more ($250 for a retirement plan or a Uniform Gifts to Minors
Act/Uniform Transfers to Minors Act (UGMA/UTMA) account). Additional
investments can be made for as little as $100 ($25 for a retirement plan or an
UGMA/UTMA account). The funds have the right to waive these minimum investment
requirements for employees of the funds' advisor and its affiliates. The funds
also have the right to reject any purchase order.

- --------------------------------------------------------------------------------
CALCULATING YOUR SHARE PRICE

Your purchase price for fund shares will be their net asset value (NAV) --
there is no sales charge. The NAV of each fund's shares is generally calculated
as of the close of regular trading on the New York Stock Exchange (usually 3
p.m. Central time) every day the exchange is open.

A fund's NAV is equal to the value of its investments and other assets, less
any liabilities, divided by the number of fund shares. The assets of each fund
normally will consist primarily of shares of the underlying funds, which are
valued at their net asset values.

For the underlying funds, investments and other assets will be valued at their
market values. If market prices are not readily available for an investment or
if the advisor believes they are unreliable, fair value prices may be
determined in good faith using methods approved by the funds' board of
directors. Emerging Markets Fund, International Fund and Strategic Income Fund
will hold portfolio securities that trade on weekends or other days the funds
do not price their shares. Therefore, the net asset value of these underlying
funds' shares may change on days when you will not be able to purchase or
redeem your fund shares.

- --------------------------------------------------------------------------------
HOW TO BUY SHARES

You may buy shares on any day the New York Stock Exchange is open. However,
purchases of shares may be restricted in the event of an early or unscheduled
close of the New York Stock Exchange. Your shares will be priced at the next
NAV calculated after your order is accepted by the fund. To make sure that your
order is accepted, follow the directions for purchasing shares given below.

BY PHONE

You may purchase shares by calling your investment professional or financial
institution, if they have a sales agreement with the funds' distributor. In
many cases, your order will be effective that day if received by your
investment professional or financial institution by the close of regular
trading on the New York Stock Exchange. In some cases, however, you will have
to transmit your request by an earlier time in order for your purchase request
to be effective that day. This allows your investment professional or financial
institution time to process your request and transmit it to the fund. Some
financial institutions may charge a fee for helping you purchase shares.
Contact your investment professional or financial institution for more
information.

If you are paying by wire, you may purchase shares by calling 1-800-637-2548
before 3 p.m. Central time. All information will be taken over the telephone,
and your order will be placed when the funds' custodian receives payment by
wire. Wire federal funds as follows:

U.S. Bank National Association, Minneapolis, MN
ABA Number 091000022

For Credit to: DST Systems, Inc.:
Account Number 160234580266

For Further Credit to (investor name and fund name)

You cannot purchase shares by wire on days when federally chartered banks are
closed.

BY MAIL

To purchase shares by mail, simply complete and sign a new account form,
enclose a check made payable to the fund you wish to invest in, and mail both
to:

First American Funds
c/o DST Systems, Inc.
P.O. Box 219382
Kansas City, Missouri 64121-9382

After you have established an account, you may continue to purchase shares by
mailing your check to First American Funds at the same address.

Please note the following:

* all purchases must be made in U.S. dollars.

* third-party checks, credit cards, credit card checks, and cash are not
accepted.

* if a check does not clear your bank, the funds reserve the right to cancel
the purchase, and you could be liable for any losses or fees incurred.

8
PROSPECTUS - First American Strategy Funds
<PAGE>

Policies & Services
BUYING SHARES CONTINUED

- --------------------------------------------------------------------------------
INVESTING AUTOMATICALLY

To purchase shares as part of a savings discipline, you may add to your
investment on a regular basis by having $100 ($25 for a retirement plan or an
UGMA/UTMA account) or more automatically withdrawn from your bank account on a
periodic basis and invested in fund shares. You may also make automatic monthly
exchanges of your Class A shares of Prime Obligations Fund, a money market fund
in the First American family of funds.

You may apply for participation in this program through your investment
professional or financial institution or by calling 1-800-637-2548.

- --------------------------------------------------------------------------------
COMPENSATION TO BROKERS AND FINANCIAL INSTITUTIONS

Although there is no sales charge when you purchase fund shares, your investment
professional or financial institution may receive compensation in connection
with your purchase. Each fund pays the funds' distributor an annual shareholder
servicing fee equal to 0.25% of the fund's average daily net assets to
compensate the distributor for providing services to shareholders. The
distributor may use this fee to compensate your investment professional or
financial institution for providing ongoing services to your account. The
advisor, the administrator or the distributor may pay additional fees to
investment professionals and financial institutions, using their own assets, in
exchange for sales and/or administrative services performed on behalf of the
broker's or financial institution's customers. The advisor may pay its
affiliates, U.S. Bancorp Investments, Inc. and U.S. Bancorp Piper Jaffray Inc.,
an amount equal to up to 3% of the net asset value of fund shares sold through
them.

9
PROSPECTUS - First American Strategy Funds
<PAGE>

Policies & Services
SELLING SHARES

- --------------------------------------------------------------------------------
HOW TO SELL SHARES

You may sell your shares on any day when the New York Stock Exchange is open.
Your shares will be sold at the next NAV calculated after your order is
accepted by the fund, less any applicable redemption fee. To make sure that
your order is accepted, follow the directions for selling shares given below.

The proceeds from your sale normally will be mailed or wired within one day,
but in no event more than seven days, after your request is received in proper
form.

BY PHONE

If you purchased shares through a investment professional or financial
institution, simply call them to sell your shares. In many cases, your
redemption will be effective that day if received by your broker or financial
institution by the close of regular trading on the New York Stock Exchange. In
some cases, however, you will have to call by an earlier time in order for your
redemption to be effective that day. This allows your investment professional
or financial institution time to process your request and transmit it to the
fund. Contact your investment professional or financial institution directly
for more information.

If you did not purchase shares through a investment professional or financial
institution, you may sell your shares by calling 1-800-637-2548. Proceeds can
be wired to your bank account (if the proceeds are at least $1,000 and you have
previously supplied your bank account information to the transfer agent) or
sent to you by check. The funds reserve the right to limit telephone exchanges
to $50,000 per day.

If you recently purchased your shares by check or through the Automated
Clearing House (ACH), proceeds from the sale of those shares may not be
available until your check or ACH payment has cleared, which may take up to 10
calendar days from the date of purchase.

BY MAIL

To sell shares by mail, send a written request to your investment professional
or financial institution, or to the funds' transfer agent at the following
address:

First American Funds
c/o DST Systems, Inc.
P.O. Box 219382
Kansas City, Missouri 64121-9382

Your request should include the following information:

* Name of the fund

* Account number

* Dollar amount or number of shares redeemed

* Name on the account

* Signatures of all registered account owners

Signatures on a written request must be guaranteed if:

* you would like the proceeds from the sale to be paid to anyone other than to
the shareholder of record.

* you would like the check mailed to an address other than the address on the
funds' records.

* your redemption request is for $50,000 or more.

A signature guarantee assures that a signature is genuine and protects
shareholders from unauthorized account transfers. Banks, savings and loan
associations, trust companies, credit unions, broker-dealers and member firms
of a national securities exchange may guarantee signatures. Call your financial
institution to determine if it has this capability.

Proceeds from a written redemption request will be sent to you by check unless
otherwise specified in the request.

REDEMPTION FEE

Each fund imposes a redemption fee of 1% if you redeem your shares within 12
months of purchase. This fee, which is intended to discourage short-term
trading, is paid to the fund. The redemption fee will be based on the value of
your shares at the time of purchase or at the time of sale, whichever is less.
The charge does not apply to shares you acquired by reinvesting your dividend
or capital gain distributions. When you sell shares, they will be sold in the
order that minimizes your redemption fee.

The redemption fee will be waived for 401(k) plans and other institutional
accounts of the funds' advisor.

- --------------------------------------------------------------------------------
SYSTEMATIC WITHDRAWALS

If your account has a value of $5,000 or more, you may redeem a specific dollar
amount from your account on a regular basis. To set up systematic withdrawals,
contact your broker or financial institution.

- --------------------------------------------------------------------------------

ACCOUNTS WITH LOW BALANCES

Except for retirement plans and UGMA/UTMA accounts, if your account balance
falls below $500 as a result of selling or exchanging shares, the fund
reserves the right to either:

* Deduct a $25 annual account maintenance fee, which is intended to allocate
the costs of maintaining accounts more equitably among shareholders, or

* Close your account and send you the proceeds, less any applicable contingent
deferred sales charge.

Before taking any action, however, the fund will send you written notice of
the action it intends to take and give you 30 days to re-establish a minimum
account balance of $500.

10
PROSPECTUS - First American Strategy Funds
<PAGE>

Policies & Services
MANAGING YOUR INVESTMENT

- --------------------------------------------------------------------------------
EXCHANGING SHARES

If your investment goals or your financial needs change, you may move from one
Strategy Fund to another. Exchanges are made based on the net asset value per
share of each fund at the time of the exchange. There is no fee to exchange
shares. If you exchange shares held for less than 12 months you do not have to
pay a redemption fee. Instead, the time you held shares of the "old" fund will
be added to the time you hold the shares of the "new" fund for purposes of
determining when the 12 month redemption fee period expires.

Shares of the Strategy Funds may not be exchanged for shares of the underlying
funds.

Before exchanging into any fund, be sure to read its prospectus carefully. A
fund may change or cancel its exchange policies at any time. You will be
notified of any changes. The funds have the right to limit exchanges to four
times per year.

BY PHONE

You may exchange shares by calling your investment professional, your financial
institution, or the funds' transfer agent, provided that both funds have
identical shareholder registrations. To request an exchange through the funds'
transfer agent, call 1-800-637-2548. Your instructions must be received by the
funds' transfer agent before 3 p.m. Central time, or by the time specified by
your investment professional or financial institution, in order for shares to
be exchanged the same day.

BY MAIL

To exchange shares by written request, please follow the procedures under
"Selling Shares." Be sure to include the names of both funds involved in the
exchange.

- --------------------------------------------------------------------------------

TELEPHONE TRANSACTIONS

You may buy, sell or exchange shares by telephone, unless you elected on your
new account form to restrict this privilege. If you wish to reinstate this
option on an existing account, please call Investor Services at 1-800-637-2548
to request the appropriate form.

The funds and their agents will not be responsible for any losses that may
result from acting on wire or telephone instructions that they reasonably
believe to be genuine. The funds and their agents will each follow reasonable
procedures to confirm that instructions received by telephone are genuine,
which may include taping telephone conversations.

It may be difficult to reach the funds by telephone during periods of unusual
market activity. If you are unable to reach the funds or their agents by
telephone, please consider sending written instructions.

- --------------------------------------------------------------------------------
STAYING INFORMED

SHAREHOLDER REPORTS

Shareholder reports are mailed twice a year, in November and May. They include
financial statements, performance information, a message from your portfolio
managers, and, on an annual basis, the auditors' report.

In an attempt to reduce shareholder costs and help eliminate duplication, the
funds will try to limit their mailings to one report for each address that
lists one or more shareholders with the same last name. If you would like
additional copies, please call 1-800-637-2548.

STATEMENTS AND CONFIRMATIONS

Statements summarizing activity in your account are mailed at least quarterly.
Confirmations are mailed following each purchase or sale of fund shares.

- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS

Dividends from a fund's net investment income are declared and paid monthly.
Any capital gains are distributed at least once each year.

On the ex-dividend date for a distribution, a fund's share price is reduced by
the amount of the distribution. If you buy shares just before the ex-dividend
date, in effect, you "buy the dividend." You will pay the full price for the
shares and then receive a portion of that price back as a taxable distribution.

Dividend and capital gain distributions will be reinvested in additional shares
of the fund paying the distribution, unless you request that distributions be
reinvested in another First American fund or paid in cash. This request may be
made on your new account form or by writing to the fund. If you request that
your distributions be paid in cash but those distributions cannot be delivered
because of an incorrect mailing address, the undelivered distributions and all
future distributions will be reinvested in fund shares.

11
PROSPECTUS - First American Strategy Funds
<PAGE>

Policies & Services
MANAGING YOUR INVESTMENT CONTINUED

- --------------------------------------------------------------------------------
TAXES

Some of the tax consequences of investing in the funds are discussed below.
More information about taxes is in the Statement of Additional Information.
However, because everyone's tax situation is unique, always consult your tax
professional about federal, state and local tax consequences.

TAXES ON DISTRIBUTIONS

Each fund pays its shareholders dividends from its net investment income and
any net capital gains that it has realized. For most investors, fund dividends
and distributions are considered taxable whether they are reinvested or taken
in cash (unless your investment is in an IRA or other tax-advantaged account).

Dividends from a fund's net investment income and short-term capital gains are
taxable as ordinary income. Distributions of a fund's long-term capital gains
are taxable as long-term capital gains, regardless of how long you have held
your shares. The funds expect that, as a result of their investment objectives
and strategies, their distributions will consist primarily of ordinary income.

TAXES ON TRANSACTIONS

The sale or exchange of fund shares will be a taxable event for you and may
result in a capital gain or loss. The gain or loss will be considered long-term
if you have held your shares for more than one year. A gain or loss on shares
held for one year or less is considered short-term and is taxed at the same
rates as ordinary income.

12
PROSPECTUS - First American Strategy Funds
<PAGE>

Additional Information
MANAGEMENT

U.S. Bank National Association (U.S. Bank), acting through its First American
Asset Management division, is the investment advisor to the Strategy Funds and
the underlying funds. First American Asset Management provides investment
management services to individuals and institutions, including corporations,
foundations, pensions and retirement plans. As of December 31, 1999, it had
more than $78 billion in assets under management, including investment company
assets of more than $33 billion. As investment advisor, First American Asset
Management manages the funds' business and investment activities, subject to
the authority of the board of directors.

Each fund is required under its investment advisory agreement to pay the
investment advisor a monthly fee for providing investment advisory services
equal to, on an annual basis, 0.25% of the fund's average daily net assets.
During the fiscal year ended September 30, 1999, however, First American Asset
Management waived the payment of all investment advisory fees. First American
Asset Management also is the investment
advisor for each of the underlying funds.

INVESTMENT ADVISOR

First American Asset Management
601 Second Avenue South
Minneapolis, Minnesota 55402

UNDERLYING FUND SUB-ADVISORS

Federated Global Investment Management Corp.
175 Water Street
New York, New York 10038-4964

The above mentioned subsidiary of Federated Investors is sub-advisor to
Strategic Income Fund. The sub-advisor has been retained by the fund's
investment advisor and is paid a portion of the advisory fee.

Federated Global Investment Management Corp. manages the fund's investments in
investment grade and high-yield foreign government and foreign corporate debt
obligations. First American Asset Management manages the fund's investments in
U.S. government obligations, investment grade and high yield domestic debt
obligations and U.S. dollar denominated foreign corporate debt obligations and
determines how the fund's assets will be allocated among the three sectors in
which the fund invests.

The sub-advisor and other subsidiaries of Federated Investors serve as
investment advisors to a number of investment companies and private accounts.

Marvin & Palmer Associates, Inc.
1201 North Market Street, Suite 2300
Wilmington, Delaware 19801

Marvin & Palmer Associates (Marvin & Palmer) is the sub-advisor to Emerging
Markets Fund and International Fund, and is responsible for the investment and
reinvestment of those funds' assets and the placement of brokerage transactions
for those funds. Marvin & Palmer has been retained by the funds' investment
advisor and is paid a portion of the advisory fee.

A privately held company founded in 1986, Marvin & Palmer is engaged in the
management of global, non-United States, domestic and emerging markets equity
portfolios, principally for institutional accounts. As of December 31, 1999,
the sub-advisor managed a total of approximately $14 billion in investments.

DISTRIBUTOR

Sei Investments Distribution Co.
Oaks, Pennsylvania 19456

DIRECT FUND CORRESPONDENCE TO:

First American Funds
P.O. Box 1330
Minneapolis, MN 55440-1330

ADDITIONAL COMPENSATION

U.S. Bank 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. As
described above, U.S. Bank receives compensation for acting as the investment
advisor to the Strategy Funds and the underlying funds. U.S. Bank and its
affiliates also receive compensation in connection with the following:

CUSTODY SERVICES. U.S. Bank provides or compensates others to provide custody
services to the funds. U.S. Bank is paid monthly fees equal, on an annual
basis, to 0.03% of a fund's average daily net assets. In addition, U.S. Bank is
reimbursed for its out-of-pocket expenses incurred while providing custody
services to the funds. U.S. Bank also acts as custodian for the underlying
funds and is compensated for its services at the same rate (except that it
receives fees from Emerging Markets Fund and International Fund equal to 0.10%
of each fund's average daily net assets).

ADMINISTRATION SERVICES. U.S. Bank provides or compensates others to provide
administrative services to all open-end funds in the First American family of
funds. These services include general administrative and accounting services,
transfer agency and dividend disbursing services, and shareholder services.
U.S. Bank receives total fees equal, on an annual basis, to 0.12% of the
aggregate average daily net assets of all open-end mutual funds in the First
American fund family up to $8 billion and 0.105% of the aggregate average daily
net assets of all open-end mutual funds in the First American fund family in
excess of $8 billion. These fees are allocated among the funds in the First
American family of funds on the basis of their relative net asset values.
Additionally, the funds pay U.S. Bank fees based upon the number of funds and
accounts maintained.

13
PROSPECTUS - First American Strategy Funds
<PAGE>

Additional Information
MANAGEMENT CONTINUED

SECURITIES LENDING SERVICES. In connection with lending their portfolio
securities, the funds pay administrative and custodial fees to U.S. Bank which
are equal to 40% of the funds' income from these securities lending
transactions.

BROKERAGE TRANSACTIONS. When purchasing and selling portfolio securities for
the funds, the funds' investment advisor may place trades through its
affiliates, U.S. Bancorp Investments, Inc. and U.S. Bancorp Piper Jaffray Inc.,
which will earn commissions on these transactions.

SHAREHOLDER SERVICING FEES. To the extent that fund shares are held through U.S.
Bank or its broker-dealer affiliates, U.S. Bancorp Investments, Inc. and U.S.
Bancorp Piper Jaffray Inc., these entities may receive shareholder servicing
fees from the funds' distributor.

PORTFOLIO MANAGEMENT

Each fund's investments are managed by a team of persons associated with First
American Asset Management.

14
PROSPECTUS - First American Strategy Funds
<PAGE>

Additional Information
MORE ABOUT THE FUNDS

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

The funds' objectives, which are described in the "Fund Summaries" section, may
be changed without shareholder approval. If a fund's objectives change, you
will be notified at least 30 days in advance. Please remember: There is no
guarantee that any fund will achieve its objectives.

- --------------------------------------------------------------------------------
INVESTMENT STRATEGIES

The funds' main investment strategies are discussed in the "Fund Summaries"
section. These are the strategies that the funds' investment advisor believes
are most likely to be important in trying to achieve the funds' objectives. You
should be aware that each fund may also use strategies and invest in securities
that are not described in this prospectus, but that are described in the
Statement of Additional Information (SAI). For a copy of the SAI, call Investor
Services at 1-800-637-2548.

- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER

The funds' investment advisor expects to make asset re-allocation decisions on a
monthly basis, although it may make these decisions more frequently if warranted
by market conditions. Although the funds are expected to have low portfolio
turnover rates, the underlying funds may trade securities frequently, resulting,
from time to time, in an annual portfolio turnover rate of over 100%. Trading of
securities may produce capital gains, which are taxable to shareholders,
including the funds, when distributed. Active trading may also increase the
amount of commissions or mark-ups to broker-dealers that the underlying fund
pays when it buys and sells securities. The "Financial Highlights" section of
this prospectus shows each fund's historical portfolio turnover rate.

15
PROSPECTUS - First American Strategy Funds
<PAGE>

Additional Information
THE UNDERLYING FUNDS

The objectives, main investment strategies and main risks of the underlying
funds are summarized below. There is no assurance that any of the underlying
funds' investment objectives will be achieved. The investment objectives of the
underlying funds, except for Prime Obligations Fund, may be changed without
shareholder approval.

Additional information about the underlying funds is contained in their
prospectuses and statements of additional information. You can obtain copies of
these documents by writing to SEI Investments Distribution Co., Oaks,
Pennsylvania 19456, or by calling 1-800-637-2548.

- --------------------------------------------------------------------------------
EQUITY INDEX FUND

OBJECTIVE

Equity Index Fund's objective is to provide investment results that correspond
to the performance of the Standard & Poor's 500 Composite Index (S&P 500).

MAIN INVESTMENT STRATEGIES

Under normal market conditions, Equity Index Fund invests at least 90% of its
total assets in common stocks included in the S&P 500. The S&P 500 is a
market-value weighted index consisting of 500 stocks chosen for market size,
liquidity, and industry representation.

The fund's advisor believes that the fund's objective can best be achieved by
investing in common stocks of approximately 90% to 100% of the issues included
in the S&P 500, depending on the size of the fund. A computer program is used
to identify which stocks should be purchased or sold in order to replicate, as
closely as possible, the composition of the S&P 500.

Because the fund may not always hold all of the stocks included in the S&P 500,
and because the fund has expenses and the index does not, the fund will not
duplicate the index's performance precisely. However, the fund's advisor
believes there should be a close correlation between the fund's performance and
that of the S&P 500 in both rising and falling markets.

The fund will attempt to achieve a correlation between the performance of its
portfolio and that of the S&P 500 of at least 95%, without taking into account
expenses of the fund. A perfect correlation would be indicated by a figure of
100%, which would be achieved if the fund's net asset value, including the
value of its dividends and capital gains distributions, increased or decreased
in exact proportion to changes in the S&P 500. If the fund is unable to achieve
a correlation of 95% over time, the fund's board of directors will consider
alternative strategies for the fund.

The fund also may invest up to 10% of its total assets in stock index futures
contracts, options on stock indices, options on stock index futures and index
participation contracts based on the S&P 500. The fund makes these investments
to maintain the liquidity needed to meet redemption requests, to increase the
level of fund assets devoted to replicating the composition of the S&P 500 and
to reduce transaction costs.

To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.

MAIN RISKS

The main risks of investing in Equity Index Fund include:

* Risks of Common Stocks

Stocks may decline significantly in price over short or extended periods of
time. Price changes may affect the market as a whole, or they may affect
only a particular company, industry, or sector of the market.

* Failure to Match Performance of S&P 500
The fund's ability to replicate the performance of the S&P 500 may be
affected by, among other things, changes in securities markets, the manner
in which Standard & Poor's calculates the performance of the S&P 500, the
amount and timing of cash flows into and out of the fund, commissions, sales
charges (if any) and other expenses.

* Risks of Options and Futures
The fund will suffer a loss in connection with its use of options, futures
contracts and options on futures contracts if securities prices do not move
in the direction anticipated by the fund's advisor when entering into the
options or the futures contracts.

* Risks of Securities Lending
The fund is subject to the risk that the other party to a securities lending
agreement will default on its obligations.

- --------------------------------------------------------------------------------
LARGE CAP GROWTH FUND

OBJECTIVE

Large Cap Growth Fund's objective is long-term growth of capital.

MAIN INVESTMENT STRATEGIES

Under normal market conditions, Large Cap Growth Fund invests primarily (at
least 75% of its total assets) in common stocks of companies that have market
capitalizations of at least $5 billion at the time of purchase. The advisor
will select companies that it believes exhibit the potential for superior
growth based on factors such as:

* Above average growth in revenue and earnings

* Strong competitive position

* Strong management

* Sound financial condition

Up to 25% of the fund's total assets may be invested in securities of foreign
issuers which are either listed on a United States stock exchange or
represented by American Depositary Receipts.

16
PROSPECTUS - First American Strategy Funds
<PAGE>

Additional Information
THE UNDERLYING FUNDS CONTINUED

To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.

MAIN RISKS

The main risks of investing in Large Cap Growth Fund include:

* Risks of Common Stocks
Stocks may decline significantly in price over short or extended periods of
time. Price changes may occur in the market as a whole, or they may occur in
only a particular company, industry or sector of the market. In addition,
growth stocks and/or large capitalization stocks may underperform the market
as a whole.

* Foreign Security Risk
Securities of foreign issuers, even when dollar-denominated and publicly
traded in the United States, may involve risks not associated with the
securities of domestic issuers, including the risks of adverse currency
fluctuations and of political or social instability or diplomatic
developments that could adversely affect the securities.

* Risks of Securities Lending
The fund is subject to the risk that the other party to a securities lending
agreement will default on its obligations.

- --------------------------------------------------------------------------------
LARGE CAP VALUE FUND

OBJECTIVE

Large Cap Value Fund's primary objective is capital appreciation. Current
income is a secondary objective of the fund.

MAIN INVESTMENT STRATEGIES

Under normal market conditions, Large Cap Value Fund invests primarily (at
least 75% of its total assets) in common stocks of companies that cover a broad
range of industries and that have market capitalizations of at least $5 billion
at the time of purchase. In selecting stocks, the fund's advisor invests in
securities that it believes:

* are undervalued relative to other securities in the same industry or market.

* exhibit good or improving fundamentals.

* exhibit an identifiable catalyst that could close the gap between market value
and fair value over the next one to two years.

Up to 25% of the fund's total assets may be invested in securities of foreign
issuers which are either listed on a United States stock exchange or
represented by American Depositary Receipts.

To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.

MAIN RISKS

The main risks of investing in Large Cap Value Fund include:

* Risks of Common Stocks
Stocks may decline significantly in price over short or extended periods of
time. Price changes may occur in the market as a whole, or they may occur in
only a particular company, industry or sector of the market. In addition,
value stocks and/or large capitalization stocks may underperform the market
as a whole.

* Risks of Securities Lending
The fund is subject to the risk that the other party to a securities lending
agreement will default on its obligations.

- --------------------------------------------------------------------------------
MID CAP GROWTH FUND

OBJECTIVE

Mid Cap Growth Fund has an objective of growth of capital.

MAIN INVESTMENT STRATEGIES

Under normal market conditions, Mid Cap Growth Fund invests primarily (at least
75% of total assets) in common stocks of mid-capitalization companies, defined
as companies that have market capitalizations at the time of purchase within
the range of market capitalizations of companies constituting the Russell
Midcap Index. This index measures the performance of the 800 smallest companies
in the Russell 1000 Index (which is made up of the 1,000 largest U.S. companies
based on total market capitalization). As of the date of this prospectus,
market capitalizations of companies in the Russell Midcap Index ranged from
approximately $223 million to $37 billion.

The advisor will select companies that it believes exhibit the potential for
superior growth based on factors such as:

* Above average growth in revenue and earnings

* Strong competitive position

* Strong management

* Sound financial condition

Up to 25% of the fund's total assets may be invested in securities of foreign
issuers which are either listed on a United States stock exchange or
represented by American Depositary Receipts.

To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.

17
PROSPECTUS - First American Strategy Funds
<PAGE>

Additional Information
THE UNDERLYING FUNDS CONTINUED

MAIN RISKS

The main risks of investing in Mid Cap Growth Fund include:

* Risks of Common Stocks

Stocks may decline significantly in price over short or extended periods of
time. Price changes may occur in the market as a whole, or they may occur in
only a particular company, industry or sector of the market. In addition,
growth stocks and/or mid-cap stocks may underperform the market as a whole.

* Risks of Mid-Cap Stocks
While stocks of mid-cap companies may be slightly less volatile than those
of small-cap companies, they still involve substantial risk and their prices
may be subject to more abrupt or erratic movements than those of larger,
more established companies or the market averages in general.

* Risks of Securities Lending
The fund is subject to the risk that the other party to a securities lending
agreement will default on its obligations.

- --------------------------------------------------------------------------------
MID CAP VALUE FUND

OBJECTIVE

Mid Cap Value Fund has an objective of capital appreciation.

MAIN INVESTMENT STRATEGIES

Under normal market conditions, Mid Cap Value Fund invests primarily (at least
75% of total assets) in common stocks of mid capitalization companies, defined
as companies that have market capitalizations at the time of purchase within
the range of market capitalizations of companies constituting the Russell
Midcap Index. This index measures the performance of the 800 smallest companies
in the Russell 1000 Index (which is made up of the 1,000 largest U.S. companies
based on total market capitalization). As of the date of this prospectus,
market capitalizations of companies in the Russell Midcap Index ranged from
approximately $223 million to $37 billion.

In selecting stocks, the fund's advisor invests in securities it believes:

* are undervalued relative to other securities in the same industry or market.

* exhibit good or improving fundamentals.

* exhibit an identifiable catalyst that could close the gap between market value
and fair value over the next one to two years.

To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.

MAIN RISKS

The main risks of investing in Mid Cap Value Fund include:

* Risks of Common Stocks

Stocks may decline significantly in price over short or extended periods of
time. Price changes may occur in the market as a whole, or they may occur in
only a particular company, industry or sector of the market. In addition,
value stocks and/or mid-cap stocks may underperform the market as a whole.

* Risks of Securities Lending
The fund is subject to the risk that the other party to a securities lending
agreement will default on its obligations.

- --------------------------------------------------------------------------------
SMALL CAP GROWTH FUND

OBJECTIVE

Small Cap Growth Fund has an objective of growth of capital.

MAIN INVESTMENT STRATEGIES

Under normal market conditions, Small Cap Growth Fund invests primarily (at
least 75% of total assets) in common stocks of small-capitalization companies,
defined as companies that have market capitalizations at the time of purchase
within the range of market capitalizations of companies constituting the
Russell 2000 Index. This index measures the performance of the 2,000 smallest
companies in the Russell 3000 Index (which is made up of the 3,000 largest U.S.
companies based on total market capitalization). As of the date of this
prospectus, market capitalizations of companies in the Russell 2000 Index
ranged from approximately $11 million to $13 billion.

The advisor will select companies that it believes exhibit the potential for
superior growth based on factors such as:

* Above average growth in revenue and earnings

* Strong competitive position

* Strong management

* Sound financial condition

Up to 25% of the fund's total assets may be invested in securities of foreign
issuers which are either listed on a United States stock exchange or
represented by American Depositary Receipts.

To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.

18
PROSPECTUS - First American Strategy Funds
<PAGE>

Additional Information
THE UNDERLYING FUNDS CONTINUED

MAIN RISKS

The main risks of investing in Small Cap Growth Fund include:

* Risks of Common Stocks

Stocks may decline significantly in price over short or extended periods of
time. Price changes may occur in the market as a whole, or they may occur in
only a particular company, industry or sector of the market. In addition,
growth stocks and/or stocks of small-capitalization companies may
underperform the market as a whole.

* Risks of Small-Cap Stocks
Stocks of small-capitalization companies involve substantial risk. These
stocks historically have experienced greater price volatility than stocks of
larger-capitalization companies, and they may be expected to do so in the
future.

* Risks of Securities Lending
The fund is subject to the risk that the other party to a securities lending
agreement will default on its obligations.

- --------------------------------------------------------------------------------
SMALL CAP VALUE FUND

OBJECTIVE

Small Cap Value Fund has an objective of capital appreciation.

MAIN INVESTMENT STRATEGIES

Under normal market conditions, Small Cap Value Fund invests primarily (at
least 75% of total assets) in common stocks of small-capitalization companies,
defined as companies that have market capitalizations at the time of purchase
within the range of market capitalizations of companies constituting the
Russell 2000 Index. This index measures the performance of the 2,000 smallest
companies in the Russell 3000 Index (which is made up of the 3,000 largest U.S.
companies based on total market capitalization). As of the date of this
prospectus, market capitalizations of companies in the Russell 2000 Index
ranged from approximately $11 million to $13 billion.

In selecting stocks, the fund's advisor invests in securities it believes:

* are undervalued relative to other securities in the same industry or market.

* exhibit good or improving fundamentals.

* exhibit an identifiable catalyst that could close the gap between market value
and fair value over the next one to two years.

To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.

MAIN RISKS

The main risks of investing in Small Cap Value Fund include:

* Risks of Common Stocks

Stocks may decline significantly in price over short or extended periods of
time. Price changes may occur in the market as a whole, or they may occur in
only a particular company, industry or sector of the market. In addition,
value stocks and/or stocks of small-capitalization companies may
underperform the market as a whole.

* Risks of Securities Lending
The fund is subject to the risk that the other party to a securities lending
agreement will default on its obligations.

- --------------------------------------------------------------------------------
EQUITY INCOME FUND

OBJECTIVE

Equity Income Fund's objective is long-term growth of capital and income.

MAIN INVESTMENT STRATEGIES

Under normal market conditions, Equity Income Fund invests primarily (at least
65% of its total assets) in equity securities of companies which the fund's
investment advisor believes are characterized by:

* the ability to pay above average dividends.

* the ability to finance expected growth.

* strong management.

The fund will attempt to maintain a dividend that will grow quickly enough to
keep pace with inflation. As a result, higher-yielding equity securities will
generally represent the core holdings of the fund. However, the fund also may
invest in lower-yielding, higher growth equity securities if the advisor
believes they will help balance the portfolio. The fund's equity securities
include common stocks and preferred stocks and corporate debt securities which
are convertible into common stocks. All securities held by the fund will
provide current income at the time of purchase.

The fund invests in convertible debt securities in pursuit of both long-term
growth of capital and income. The securities' conversion features provide
long-term growth potential, while interest payments on the securities provide
income. The fund may invest in convertible debt securities without regard to
their ratings, and therefore may hold convertible debt securities which are
rated lower than investment grade.

Up to 25% of the fund's total assets may be invested in securities of foreign
issuers which are either listed on a United States stock exchange or
represented by American Depositary Receipts.

19
PROSPECTUS - First American Strategy Funds
<PAGE>

Additional Information
THE UNDERLYING FUNDS CONTINUED

To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.

MAIN RISKS

The main risks of investing in Equity Income Fund include:

* Interest Rate Risk
Debt securities typically decrease in value when interest rates rise. This
risk is usually greater for longer-term debt securities.

* Credit Risk
An issuer of debt securities may not make timely principal or interest
payments on its securities, or the other party to a contract (such as a
securities lending agreement) may default on its obligations.

* Risks of Non-Investment Grade Securities
The fund may invest in securities which are rated lower than investment
grade. These securities, which are commonly called "high-yield" securities
or "junk bonds," generally have more volatile prices and carry more risk to
principal than investment grade securities. High yield securities may be
more susceptible to real or perceived adverse economic conditions than
investment grade securities. In addition, the secondary trading market may
be less liquid.

- --------------------------------------------------------------------------------
REAL ESTATE SECURITIES FUND

OBJECTIVE

Real Estate Securities Fund's objective is to provide above average current
income and long-term capital appreciation.

MAIN INVESTMENT STRATEGIES

Under normal market conditions, Real Estate Securities Fund invests primarily
(at least 65% of its total assets) in income producing common stocks of
publicly traded companies engaged in the real estate industry. These companies
derive at least 50% of their revenues or profits from the ownership,
construction, management, financing or sale of real estate, or have at least
50% of the fair market value of their assets invested in real estate. The
advisor will select companies that it believes exhibit strong management teams,
a strong competitive position, above average growth in revenues and a sound
balance sheet.

A majority of the fund's total assets will be invested in real estate
investment trusts (REITs). REITs are publicly traded corporations or trusts
that acquire, hold and manage residential or commercia l real estate. REITs
generally can be divided into the following three types:

* equity REITs, which invest the majority of their assets directly in real
property and derive their income primarily from rents and capital gains or
real estate appreciation.

* mortgage REITs, which invest the majority of their assets in real estate
mortgage loans and derive their income primarily from interest payments.

* hybrid REITs, which combine the characteristics of equity REITs and mortgage
REITs.

The fund expects to emphasize investments in equity REITs, although it may
invest in all three kinds of REITs.

To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.

MAIN RISKS

The main risks of investing in Real Estate Securities Fund include:

* Risks of Common Stocks

* Risks of the Real Estate Industry
Because the fund invests primarily in the real estate industry, it is
particularly susceptible 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.

* Risk of REITs
There are 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. REITs are dependent on specialized management
skills which may affect their ability to generate cash flow for operating
purposes and to make distributions to shareholders or unitholders.

* Risks of Non-Diversification
The fund is non-diversified. This means that it may invest a larger portion
of its assets in a limited number of companies than a diversified fund.
Because a relatively high percentage of the fund's assets may be invested in
the securities of a limited number of issuers, and because those issuers
generally will be in the real estate industry, the fund's portfolio
securities may be more susceptible to any single economic or regulatory
occurrence than the portfolio securities of a diversified fund.

20
PROSPECTUS - First American Strategy Funds
<PAGE>

Additional Information
THE UNDERLYING FUNDS CONTINUED

* Risks of Securities Lending
The fund is subject to the risk that the other party to a securities lending
agreement will default on its obligations.

- --------------------------------------------------------------------------------
EMERGING MARKETS FUND

OBJECTIVE

Emerging Markets Fund has an objective of long-term growth of capital.

MAIN INVESTMENT STRATEGIES

Under normal market conditions, Emerging Markets Fund invests primarily (at
least 65% of its total assets) in equity securities from the world's emerging
markets. Normally, the fund will invest in securities traded in at least six
foreign countries.

A country is considered to have an "emerging market" if it has a relatively low
gross national product per capita compared to the world's major economies, and
the potential for rapid economic growth. Countries with emerging markets
include:

* those that have an emerging stock market (as defined by the International
Financial Corporation).

* those with low- to middle-income economies (according to the World Bank).

* those listed in World Bank publications as "developing."

In choosing investments for the fund, the fund's sub-advisor generally places
primary emphasis on country selection. This is followed by the selection of
industries or sectors within or across countries and the selection of
individual stocks within those industries or sectors. The fund is not subject
to any restrictions on the size of the companies in which it invests and it may
invest in smaller capitalization companies.

Equity securities in which the fund invests include common and preferred stock.
In addition, the fund may invest in securities representing underlying
international securities, such as American Depositary Receipts and European
Depositary Receipts, and in securities of other investment companies.

In order to hedge against adverse movements in currency exchange rates, the
fund may enter into forward foreign currency exchange contracts.

To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.

MAIN RISKS

The main risks of investing in Emerging Markets Fund include:

* Risks of Equity Securities
Equity securities may decline significantly in price over short or extended
periods of time. Price changes may occur in the world market as a whole, or
they may occur in only a particular country, company, industry or sector of
the world market.

* Risks of International Investing
International investing involves risks not typically associated with
domestic investing. Because of these risks, and because of the sub-advisor's
ability to invest substantial portions of the fund's assets in a small
number of countries, the fund may be subject to greater volatility than
mutual funds that invest principally in domestic securities. Risks of
international investing include adverse currency fluctuations, potential
political and economic instability, limited liquidity and volatile prices of
non-U.S. securities, limited availability of information regarding non-U.S.
companies, investment and repatriation restrictions, and foreign taxation.

* Risks of Emerging Markets
The risks of international investing are particularly significant in
emerging markets. Investing in emerging markets generally involves exposure
to economic structures that are less diverse and mature, and to political
systems that are less stable, than those of developed countries. In
addition, issuers in emerging markets typically are subject to a greater
degree of change in earnings and business prospects than are companies in
developed markets.

* Risks of Smaller Capitalization Companies
Stocks of smaller capitalization companies involve substantial risk and
their prices may be subject to more abrupt or erratic movements than those
of larger, more established companies or of market averages in general.

* Risks of Foreign Currency Hedging Transactions
If the sub-advisor's forecast of exchange rate movements is incorrect, the
fund may realize losses on its foreign currency transactions. In addition,
the fund's hedging transactions may prevent the fund from realizing the
benefits of a favorable change in the value of foreign currencies.

* Risks of Securities Lending
The fund is subject to the risk that the other party to a securities lending
agreement will default on its obligations.

- --------------------------------------------------------------------------------
INTERNATIONAL FUND

OBJECTIVE

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

MAIN INVESTMENT STRATEGIES

Under normal market conditions, International Fund invests primarily (at least
65% of its total assets) in equity securities that trade in markets other than
the United States. These securities generally are issued by companies:

* that are domiciled in countries other than the United States, or

* that derive at least 50% of either their revenues or their pre-tax income from
activities outside of the United States.

Normally, the fund will invest in securities traded in at least three foreign
countries.

21
PROSPECTUS - First American Strategy Funds
<PAGE>

Additional Information
THE UNDERLYING FUNDS CONTINUED

In choosing investments for the fund, the fund's sub-advisor generally places
primary emphasis on country selection. This is followed by the selection of
industries or sectors within or across countries and the selection of
individual stocks within those industries or sectors. Investments are expected
to be made primarily in developed markets and larger capitalization companies.
However, the fund also has the ability to invest in emerging markets and
smaller capitalization companies.

In order to hedge against adverse movements in currency exchange rates, the
fund may enter into forward foreign currency exchange contracts.

To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.

MAIN RISKS

The main risks of investing in International Fund include:

* Risks of Securities Lending
The fund is subject to the risk that the other party to a securities lending
agreement will default on its obligations.

- --------------------------------------------------------------------------------
FIXED INCOME FUND

OBJECTIVE

Fixed Income Fund's objective is to provide investors with high current income
consistent with limited risk to capital.

MAIN INVESTMENT STRATEGIES

Under normal market conditions, Fixed Income Fund invests in investment grade
debt securities, such as:

* U.S. government securities, (securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities), including zero coupon
securities.

* mortgage- and asset-backed securities.

* corporate debt obligations.

Fund managers select securities using a "top-down" approach, which begins with
the formulation of their general economic outlook. Following this, various
sectors and industries are analyzed and selected for investment. Finally, fund
managers select individual securities within these sectors or industries.

Debt securities in the fund will be rated investment grade at the time of
purchase or, if unrated, determined to be of comparable quality by the fund's
advisor. At least 65% of the fund's debt securities must be either U.S.
government securities or securities that have received at least an A or
equivalent rating. Unrated securities will not exceed 25% of the fund's total
assets.

At least 65% of the fund's total assets will be invested in fixed rate
obligations.The fund may invest up to 15% of its total assets in foreign
securities payable in U.S. dollars.

Under normal market conditions the fund attempts to maintain a weighted average
maturity for its portfolio securities of 15 years or less and an average
effective duration of three to eight years.

To generate additional income, the fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions. It also may invest up to 25% of total assets in dollar roll
transactions. In a dollar roll transaction, the fund sells mortgage-backed
securities for delivery in the current month while contracting with the same
party to repurchase similar securities at a future date.

22
PROSPECTUS - First American Strategy Funds
<PAGE>

Additional Information

THE UNDERLYING FUNDS CONTINUED

MAIN RISKS

The main risks of investing in Fixed Income Fund include:

* Interest Rate Risk
Debt securities typically decrease in value when interest rates rise. This
risk is usually greater for longer-term debt securities. One measure of
interest rate risk is effective duration which measures how much the value
of a security is expected to change with a given change in interest rates.
The longer a security's effective duration, the more sensitive its price to
changes in interest rates. For example, if interest rates were to increase
by one percentage point, the market value of a bond with an effective
duration of five years would decrease by 5%, with all other factors being
constant. However, all other facts are rarely constant. Effective duration
is based on assumptions and subject to a number of limitations. It is most
useful when interest rate changes are small, rapid and occur equally in
short-term and long-term securities. In addition, it is difficult to
calculate precisely for bonds with prepayment options, such as
mortgage-related securities, because the calculation requires assumptions
about prepayment rates. For these reasons, the effective durations of funds
which invest a significant portion of their assets in mortgage-related
securities can be greatly affected by changes in interest rates.

* Income Risk
The fund's income could decline due to falling market interest rates.

* Call Risk
During periods of falling interest rates, a bond issuer may "call" -- or
repay -- its high-yielding bonds before their maturity date. The fund would
then be forced to invest the unanticipated proceeds at lower interest rates,
resulting in a decline in the fund's income.

* Risks of Mortgage- and Asset-Backed Securities
Falling interest rates could cause faster than expected prepayments of the
obligations underlying mortgage- and asset-backed securities, which the fund
would have to invest at lower interest rates. On the other hand, rising
interest rates could cause prepayments of the obligations to decrease,
extending the life of mortgage- and asset-backed securities with lower
payment rates. For additional explanation, see "Prepayment Risk" and
"Extension Risk" in "More About The Funds -- Investment Strategies."

* Risks of Dollar Roll Transactions
The use of mortgage dollar rolls could increase the volatility of the fund's
share price. It could also diminish the fund's investment performance if the
advisor does not predict mortgage prepayments and interest rates correctly.

- --------------------------------------------------------------------------------
STRATEGIC INCOME FUND

OBJECTIVE

Strategic Income Fund's objective is to provide investors with a high level of
current income.

MAIN INVESTMENT STRATEGIES

Under normal market conditions, Strategic Income Fund invests primarily (at
least 65% of its total assets) in a combination of:

* securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities, including mortgage-backed securities, and investment grade
debt obligations issued by domestic issuers.

* high-yield (non-investment grade) debt obligations issued by domestic issuers.

* investment grade and high-yield debt obligations issued by foreign governments
and other foreign issuers.

Based upon historical returns, the fund's advisor expects these three
categories of investments to have different returns and risks under similar
market conditions. The advisor relies on the differences in the expected
performance of each category to manage risks by allocating the fund's portfolio
among the three categories above. The advisor also seeks to enhance the fund's
performance by allocating more of its portfolio to the category that the
advisor expects to offer the best balance between risk and return. Normally,
the fund's assets will be invested in each of these three categories, with no
more than 50% invested in any one category. However, the fund may from time to
time invest up to 100% of its total assets in any one category if the advisor
believes it will help the fund achieve its objective without undue risk to
principal.

The fund's foreign investments may include investments in emerging markets.

The fund's investments may include securities which do not pay interest
currently, such as zero coupon securities and delayed interest securities. The
fund also may invest in payment-in-kind bonds, where interest is paid in other
securities rather than cash.

In addition to debt obligations, the fund may invest in preferred stock,
convertible securities and equity securities, including common stock and
warrants. These investments may be denominated in U.S. dollars or foreign
currencies.

23
PROSPECTUS - First American Strategy Funds
<PAGE>

Additional Information
THE UNDERLYING FUNDS CONTINUED

There is no minimum rating requirement for securities in which the fund may
invest (which means that the fund may invest in lower-rated securities or
unrated securities of comparable quality, commonly referred to as "junk
bonds"). In addition, there is no limitation on the average maturity or average
effective duration of securities held by the fund.

MAIN RISKS

The main risks of investing in Strategic Income Fund include:

* Interest Rate Risk
Debt securities typically decrease in value when interest rates rise. This
risk is usually greater for longer-term debt securities.

* Risks of High-Yield Securities
A significant portion of the fund's portfolio may consist of lower-rated
debt obligations, which are commonly called "high-yield" securities or "junk
bonds." High-yield securities generally have more volatile prices and carry
more risk to principal than investment grade securities.

* Risks of Foreign Securities
Investing in foreign securities involves risks not typically associated with
U.S. investing. Risks of foreign investing include adverse currency
fluctuations, potential political and economic instability, limited
liquidity and volatile prices of non-U.S. securities, limited availability
of information regarding non-U.S. companies, investment and repatriation
restrictions and foreign taxation.

* Risks of Emerging Markets
The fund may invest in emerging markets, where the risks of foreign
investing are higher. Investing in emerging markets generally involves
exposure to economic structures that are less diverse and mature, and to
political systems that are less stable, than those of developed countries.
In addition, issuers in emerging markets typically are subject to a greater
degree of change in earnings and business prospects than are companies in
developed markets.

* Income Risk
The fund's income could decline due to falling market interest rates.

* Call Risk During periods of falling interest rates, a bond issuer may "call"
-- or repay -- its high-yielding bonds before their maturity date. The fund
would then be forced to invest the unanticipated proceeds at lower interest
rates, resulting in a decline in the fund's income.

* Risks of Common Stocks
The fund's investments may include common stock and warrants to purchase, or
securities convertible into, common stocks. Stocks may decline significantly
in price over short or extended periods of time. Price changes may occur in
the market as a whole, or they may occur in only a particular company,
industry or sector of the market.

24
PROSPECTUS - First American Strategy Funds
<PAGE>

Additional Information
THE UNDERLYING FUNDS CONTINUED

- --------------------------------------------------------------------------------
PRIME OBLIGATIONS FUND

OBJECTIVE

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

MAIN INVESTMENT STRATEGIES

Prime Obligations Fund invests in high-quality short-term debt obligations,
including:

* securities issued by the U.S. government or one of its agencies or
instrumentalities.

* U.S. dollar-denominated obligations of domestic and foreign banks with total
assets of at least $500 million (including fixed and variable rate
certificates of deposit, time deposits and bankers' acceptances).

* commercial paper.

* non-convertible corporate debt securities.

* loan participation interests.

* repurchase agreements for the securities in which the fund may invest.

When selecting securities for the fund, the portfolio managers use a "top-down"
approach, looking first at general economic factors and market conditions, then
at individual securities.

The fund may invest up to 25% of its total assets in dollar-denominated
obligations of U.S. branches of foreign banks which are subject to the same
regulation as U.S. banks. The fund also may invest up to 25% of its total
assets, collectively, in dollar-denominated obligations of foreign branches of
domestic banks, foreign banks and foreign corporations.

MAIN RISKS

The main risks of investing in Prime Obligations Fund include:

* Although the fund seeks to preserve the value of an investment at $1.00 per
share, it is possible to lose money by investing in the fund. A major change
in interest rates or a default on a security or repurchase agreement held by
the fund could cause the value of an investment in the fund to decline.

* The level of income a shareholder receives from the fund will be affected by
movements in short-term interest rates.

* Foreign securities in which the fund invests, although dollar denominated, may
present some additional risk. Political or social instability or diplomatic
developments could adversely affect the securities. There is also the risk of
possible withholding taxes, seizure of foreign deposits, currency controls,
interest limitations, or other governmental restrictions which might affect
the payment of principal or interest on securities owned by the fund. In
addition, there may be less public information available about foreign
corporations and foreign banks and their branches.

25
PROSPECTUS - First American Strategy Funds

<PAGE>

ADDITIONAL INFORMATION

FINANCIAL HIGHLIGHTS

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS

The tables that follow present performance information about the shares of each
fund. This information is intended to help you understand each fund's financial
performance for the past five years or, if shorter, the period of the fund's
operations. Some of this information reflects financial results for a single
fund share. Total returns in the tables represent the rate that you would have
earned or lost on an investment in a fund, assuming you reinvested all of your
dividends and distributions.

The information for the fiscal year ended September 30, 1999 has been audited
by Ernst & Young LLP, independent auditors, whose report, along with the funds'
financial statements, is included in the funds' annual report, which is
available upon request. The information for the fiscal years ended on or before
September 30, 1998, has been audited by other auditors.

AGGRESSIVE GROWTH FUND

<TABLE>
<CAPTION>
Fiscal year ended September 30,
1999 1998 1997(2)
- -------------------------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 11.11 $ 12.58 $ 10.00
------- ------- -------
Investment Operations:
Net Investment Income 0.14 0.20 0.11
Net Gains (Losses) on Investments
(both realized and unrealized) 2.05 (1.42) 2.58
------- ------- -------
Total From Investment Operations 2.19 (1.22) 2.69
------- ------- -------
Less Distributions:
Dividends (from Net Investment Income) (0.14) (0.20) (0.11)
Distributions (from Capital Gains) (0.80) (0.05) --
------- ------- -------
Total Distributions (0.94) (0.25) (0.11)
------- ------- -------
Net Asset Value, End of Period $ 12.36 $ 11.11 $ 12.58
======= ======= =======
Total Return 20.54% (9.85)% 27.06%

RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $67,013 $62,635 $13,725
Ratio of Expenses to Average Net Assets(1) 0.28% 0.25% 0.60%(3)
Ratio of Net Income to Average Net Assets 1.20% 1.66% 0.76%(3)
Ratio of Expenses to Average Net Assets (excluding waivers)(1) 0.86% 0.87% 2.85%(3)
Ratio of Net Income (Loss) to Average Net Assets
(excluding waivers) 0.62% 1.04% (1.49)%(3)
Portfolio Turnover Rate 39% 152% 7%
- -------------------------------------------------------------- ------- ------- -------
</TABLE>

(1) Expense ratios do not include expenses of the underlying funds.

(2) Commenced operations on October 1, 1996.

(3) Annualized.

26
PROSPECTUS - First American Strategy Funds
<PAGE>

Additional Information
FINANCIAL HIGHLIGHTS CONTINUED

GROWTH FUND

<TABLE>
<CAPTION>
Fiscal year ended September 30,
1999 1998 1997(2)
- -------------------------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 11.05 $ 12.12 $ 10.00
------- ------- -------
Investment Operations:
Net Investment Income 0.25 0.28 0.18
Net Gains (Losses) on Investments
(both realized and unrealized) 1.49 (0.98) 2.12
------- ------- -------
Total From Investment Operations 1.74 (0.70) 2.30
------- ------- -------
Less Distributions:
Dividends (from Net Investment Income) (0.25) (0.28) (0.18)
Distributions (from Capital Gains) (0.69) (0.09) --
------- ------- -------
Total Distributions (0.94) (0.37) (0.18)
------- ------- -------
Net Asset Value, End of Period $ 11.85 $ 11.05 $ 12.12
======= ======= =======
Total Return 16.31% (5.95)% 23.23%

RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $88,213 $65,656 $15,676
Ratio of Expenses to Average Net Assets(1) 0.28% 0.25% 0.60%(3)
Ratio of Net Income to Average Net Assets 2.05% 2.33% 1.61%(3)
Ratio of Expenses to Average Net Assets (excluding waivers)(1) 0.85% 0.89% 2.62%(3)
Ratio of Net Income (Loss) to Average Net Assets
(excluding waivers) 1.48% 1.69% (0.41)%(3)
Portfolio Turnover Rate 34% 143% 6%
- -------------------------------------------------------------- ------- ------- -------
</TABLE>

(1) Expense ratios do not include expenses of the underlying funds.

(2) Commenced operations on October 1, 1996.

(3) Annualized.

GROWTH AND INCOME FUND

<TABLE>
<CAPTION>
Fiscal year ended September 30,
1999 1998 1997(2)
- -------------------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 11.08 $ 11.76 $ 10.00
-------- -------- --------
Investment Operations:
Net Investment Income 0.32 0.35 0.26
Net Gains (Losses) on Investments
(both realized and unrealized) 1.05 (0.59) 1.76
-------- -------- --------
Total From Investment Operations 1.37 (0.24) 2.02
-------- -------- --------
Less Distributions:
Dividends (from Net Investment Income) (0.32) (0.35) (0.26)
Distributions (from Capital Gains) (0.62) (0.09) --
-------- -------- --------
Total Distributions (0.94) (0.44) (0.26)
-------- -------- --------
Net Asset Value, End of Period $ 11.51 $ 11.08 $ 11.76
======== ======== ========
Total Return 12.81% (2.18)% 20.47%

RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $209,229 $207,907 $ 27,565
Ratio of Expenses to Average Net Assets(1) 0.28% 0.25% 0.60%(3)
Ratio of Net Income to Average Net Assets 2.83% 3.05% 2.59%(3)
Ratio of Expenses to Average Net Assets (excluding waivers)(1) 0.79% 0.82% 2.10%(3)
Ratio of Net Income to Average Net Assets
(excluding waivers) 2.32% 2.48% 1.09%(3)
Portfolio Turnover Rate 41% 158% 37%
- -------------------------------------------------------------- -------- -------- --------
</TABLE>

(1) Expense ratios do not include expenses of the underlying funds.

(2) Commenced operations on October 1, 1996.

(3) Annualized.

27
PROSPECTUS - First American Strategy Funds
<PAGE>

Additional Information
FINANCIAL HIGHLIGHTS CONTINUED

INCOME FUND

<TABLE>
<CAPTION>
Fiscal year ended September 30,
1999 1998 1997(2)
- -------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
PER SHARE DATA
Net Asset Value, Beginning of Period $ 11.23 $ 10.82 $ 10.00
--------- --------- ---------
Investment Operations:
Net Investment Income 0.53 0.50 0.41
Net Gains (Losses) on Investments
(both realized and unrealized) (0.40) 0.43 0.82
--------- --------- ---------
Total From Investment Operations 0.13 0.93 1.23
--------- --------- ---------
Less Distributions:
Dividends (from Net Investment Income) (0.53) (0.50) (0.41)
Distributions (from Capital Gains) (0.35) (0.02) --
--------- --------- ---------
Total Distributions (0.88) (0.52) (0.41)
--------- --------- ---------
Net Asset Value, End of Period $ 10.48 $ 11.23 $ 10.82
========= ========= =========
Total Return 1.13% 8.72% 12.51%

RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 83,302 $ 116,779 $ 36,119
Ratio of Expenses to Average Net Assets(1) 0.28% 0.25% 0.60%(3)
Ratio of Net Income to Average Net Assets 4.83% 4.63% 4.39%(3)
Ratio of Expenses to Average Net Assets (excluding waivers)(1) 0.83% 0.84% 2.00%(3)
Ratio of Net Income to Average Net Assets
(excluding waivers) 4.28% 4.04% 2.99%(3)
Portfolio Turnover Rate 21% 106% 29%
- -------------------------------------------------------------- --------- --------- ---------
</TABLE>

(1) Expense ratios do not include expenses of the underlying funds.

(2) Commenced operations on October 1, 1996.

(3) Annualized.

28
PROSPECTUS - First American Strategy Funds
<PAGE>

- --------------------------------------------------------------------------------
FOR MORE INFORMATION

More information about the funds is available in the funds' Statement of
Additional Information and annual and semiannual reports.

- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION (SAI)

The SAI provides more details about the funds and their policies. A current SAI
is on file with the Securities and Exchange Commission (SEC) and is
incorporated into this prospectus by reference (which means that it is legally
considered part of this prospectus).

- --------------------------------------------------------------------------------
ANNUAL AND SEMIANNUAL REPORTS

Additional information about the funds' investments is available in the funds'
annual and semiannual reports to shareholders. In the funds' annual report, you
will find a discussion of the market conditions and investment strategies that
significantly affected the funds' performance during their last fiscal year.

You can obtain a free copy of the funds' SAI and/or free copies of the funds'
most recent annual or semiannual reports by calling Investor Services at
1-800-637-2548. The material you request will be sent by first-class mail or
other means designed to ensure equally prompt delivery, within three business
days of receipt of the request.

You can also obtain copies of this information, after paying a duplicating fee,
by electronic request at the following email address: [email protected], or by
writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. For
more information, call 1-202-942-8090.

Information about the funds is also available on the Internet. Text-only
versions of fund documents can be viewed online or downloaded from the EDGAR
Database on the SEC's Internet site at http://www.sec.gov.

FIRST AMERICAN FUNDS P.O. Box 1330, Minneapolis, MN 55440-1330

First American Asset Management, a division of U.S. Bank National Association,
serves as the investment advisor to the First American Funds.

First American Funds are distributed by SEI Investments Distribution Co. which
is located in Oaks, PA 19456 and is not an affiliate of U.S. Bank.

1/2000 3017-99

SEC file number: 811-05309

Supply Numbers

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

<PAGE>

FIRST AMERICAN STRATEGY FUNDS, INC.

STATEMENT OF ADDITIONAL INFORMATION

DATED JANUARY 31, 2000

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 Prospectuses dated
February 1, 2000. The financial statements include as part of the Funds' Annual
Report to shareholders for the fiscal year ended September 30, 1999 are
incorporated by reference into this Statement of Additional Information. This
Statement of Additional Information is incorporated into the Funds' Prospectuses
by reference. To obtain copies of Prospectuses or the Funds' Annual Report(s) at
no charge, write the Funds' distributor, SEI Investments Distribution Co., Oaks,
Pennsylvania 19456, or call Investor Services at 1-800-637-2548. Please retain
this Statement of Additional Information for future reference.

<PAGE>

TABLE OF CONTENTS

Page
----
GENERAL INFORMATION 1

INVESTMENT RESTRICTIONS OF THE FUNDS 2

ADDITIONAL INFORMATION CONCERNING INVESTMENTS
BY THE FUNDS AND THE UNDERLYING FUNDS 3
Short-Term Investments 3
Repurchase Agreements 4
When-Issued and Delayed Delivery Transactions 4
Lending of Portfolio Securities 5
Options Transactions 5
Futures and Options on Futures 7
Securities of Foreign Banks and Branches 8
Foreign Securities 9
Foreign Securities Exchanges 11
Foreign Currency Transactions 11
REIT Securities 12
Mortgage-Backed Securities 13
Asset-Backed Securities 16
Debt Obligations - Strategic Income Fund 16
Debt Obligations Rated Less Than Investment Grade 16
U.S. Government Securities 17
Zero Coupon Securities 17
Floating Rate Corporate Debt Obligations 17
Fixed Rate Corporate Debt Obligations 17
Participation Interests 18
Fixed Income Securities -- Equity Funds 18
Payment-In-Kind Debentures and Delayed Interest Securities 18
Preferred Stock 19
Loan Participations; Section 4(2) and Rule 144A Securities 19
Credit Enhancement Agreements 19
Money Market Funds 19

INVESTMENT RESTRICTIONS OF THE UNDERLYING FUNDS 20
Restrictions Applicable to the Equity Funds, Strategic Income
Fund and Fixed Income Fund 20
Restrictions Applicable to Prime Obligations Fund 21

DIRECTORS AND EXECUTIVE OFFICERS 23
Directors 23
Executive Officers 23
Compensation 24

INVESTMENT ADVISORY AND OTHER SERVICES FOR THE FUNDS 25
Investment Advisory Agreement 25
Administration Agreement 26
Distributor and Shareholder Service Plan and Agreement 27
Custodian; Counsel; Auditors 27

INVESTMENT ADVISORY SERVICES FOR THE UNDERLYING FUNDS 28
Investment Advisory Agreements of the Underlying Funds 28
Sub-Advisory Agreements for Emerging Markets Fund, International
Fund and Strategic Income Fund 29

PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE 30

i
<PAGE>

CAPITAL STOCK 31

NET ASSET VALUE AND PUBLIC OFFERING PRICE 33

FUND PERFORMANCE 33
SEC Standardized Performance Figures 33
Non-Standard Distribution Rates 34
Certain Performance Comparisons 35

TAXATION 35

ADDITIONAL INFORMATION ABOUT SELLING SHARES 36
By Telephone 36
By Mail 36
Redemption Before Purchase Instruments Clear 37

RATINGS 37
Ratings of Corporate Debt Obligations and Municipal Bonds 37
Ratings of Preferred Stock 39
Ratings of Commercial Paper 39

FINANCIAL STATEMENTS

ii
<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." Each
of the Funds are open-end diversified investment companies.

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, International Fund, Mid Cap Growth Fund, Emerging Markets Fund,
Strategic Income Fund and Fixed Income Fund, each of which is a series of First
American Investment Funds, Inc., and Prime Obligations Fund, which is a series
of First American Funds, Inc. 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.

This Statement of Additional Information may also refer to affiliated
investment companies, including: First American Funds, Inc. ("FAF"); First
American Investment Funds, Inc. ("FAIF"); First American Insurance Portfolios,
Inc. ("FAIP"); and eleven separate closed-end funds (American Strategic Income
Portfolio Inc., American Strategic Income Portfolio Inc.-II, American Strategic
Income Portfolio Inc.-III, American Municipal Income Portfolio Inc., Minnesota
Municipal Income Portfolio Inc., American Select Portfolio Inc., American
Municipal Term Trust Inc., American Municipal Term Trust Inc.-II, American
Municipal Term Trust Inc.-III, Minnesota Municipal Term Trust Inc., and
Minnesota Municipal Term Trust Inc.-II) collectively referred to as the First
American Closed-End Funds ("FACEF").

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," 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.

1
<PAGE>

None of the Funds will:

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

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

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

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

5. Make short sales of securities.

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

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

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

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

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

The following restriction is non-fundamental and may be changed by
FASF's Board of Directors without shareholder vote. None of the Funds will
invest more than 15% of its net assets in all forms of illiquid investments.

2
<PAGE>

ADDITIONAL INFORMATION CONCERNING INVESTMENTS
BY THE FUNDS AND THE UNDERLYING FUNDS

The main investment strategies of the Funds and the Underlying Funds
are set forth in such Funds' Prospectus. Additional information concerning such
main investment strategies and other investment strategies 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."

A percentage limitation on investments by an Underlying Fund stated in
this section or in "Investment Restrictions of the Underlying Funds" is adhered
to at the time of an investment, a later increase or decrease in percentage
resulting from changes in asset value will not be deemed to violate the
limitation except in the case of the limitations on illiquid investments and
borrowing. An Underlying Fund (except Strategic Income Fund and Equity Income
Fund to the extent it can buy convertibles) which is limited to investing in
securities with specified ratings is not required to sell a security if its
rating is reduced or discontinued after purchase, but the Underlying Fund may
consider doing so. However, 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
Services, Inc. ("Moody's") are contained in "Ratings" below.

SHORT-TERM INVESTMENTS

The Funds and the Underlying Funds can invest in a variety of
short-term instruments which are specified in their respective Prospectuses and
Statement of Additional Information. Short-term investments may be entered into
on a joint basis by the Funds, the Underlying Funds, and other funds advised by
the U.S. Bank National Association, the Fund's investment advisor ("U.S. Bank"
or the "Advisor"). These short-term investments include short-term obligations
such as rated commercial paper and variable amount master demand notes; United
states dollar-denominated time and savings deposits (including certificates of
deposit); bankers' acceptances; obligations of the United States Government or
its agencies or instrumentalities; repurchase agreements collateralized by
eligible investments of an Underlying Fund; securities of other mutual funds
which invest primarily in debt obligations with remaining maturities of 13
months or less (which investments also are subject to the advisory fee); and
other similar high-quality short-term United States dollar-denominated
obligations. The other mutual funds in which the Funds and the Underlying Funds
may so invest include money market funds advised by the Advisor, subject to
certain restrictions contained in an exemptive order issued by the Securities
and Exchange Commission ("SEC") with respect thereto.

The bank instruments in which Fixed Income Fund and Strategic Income
Fund invests may 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. In each instance, Fixed
Income Fund and Strategic 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.

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 their respective Prospectus and Statement of Additional
Information, 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.

3
<PAGE>

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 Emerging
Markets Fund, International Fund and Strategic Income Fund, their respective
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

Each of the Underlying Funds may enter into repurchase agreements. A
repurchase agreement involves the purchase by an Underlying Fund of securities
with the agreement that after a stated period of time, the original seller will
buy back the same securities ("collateral") at a predetermined price or yield.
Repurchase agreements involve certain risks not associated with direct
investments in securities. If the original seller defaults on its obligation to
repurchase as a result of its bankruptcy or otherwise, the purchasing Underlying
Fund will seek to sell the collateral, which could involve costs or delays.
Although collateral (which may consist of any fixed income security which is an
eligible investment for the Underlying Fund entering into the repurchase
agreement) will at all times be maintained in an amount equal to the repurchase
price under the agreement (including accrued interest), an Underlying Fund would
suffer a loss if the proceeds from the sale of the collateral were less than the
agreed-upon repurchase price. The Advisor or, in the case of Emerging Markets
Fund and International Fund, their respective sub-advisor will monitor the
creditworthiness of the firms with which the Underlying Funds enter into
repurchase agreements. In the case of Strategic Income Fund, the Advisor and the
Fund's investment sub-advisor will monitor the creditworthiness of the firms
with which such Underlying Fund enters into repurchase agreements.

The Underlying Funds' custodian will hold the securities underlying any
repurchase agreement, or the securities will be part of the Federal
Reserve/Treasury Book Entry System. The market value of the collateral
underlying the repurchase agreement will be determined on each business day. If
at any time the market value of the collateral falls below the repurchase price
under the repurchase agreement (including any accrued interest), the appropriate
Underlying Fund will promptly receive additional collateral (so the total
collateral is an amount at least equal to the repurchase price plus accrued
interest).

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

Each of the Underlying Funds (excluding Equity Index Fund) 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.

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.

4
<PAGE>

In connection with their ability to purchase securities on a
when-issued or delayed delivery basis, Fixed Income Fund and Strategic Income
Fund may enter into mortgage "dollar rolls" in which such Underlying 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 and Strategic Income
Fund give up the right to receive principal and interest paid on the securities
sold. However, these Underlying Funds 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 prepayments 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 and Strategic Income Fund compared
with what such performance would have been without the use of mortgage dollar
rolls. Fixed Income Fund and Strategic Income Fund will hold and maintain in
segregated accounts until the settlement date cash or liquid securities in an
amount equal to the forward purchase price.

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 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
investment advisor or sub-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 total 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 total assets.

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 Emerging Markets Fund,
International Fund and Strategic Income Fund, their respective investment
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. 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. 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.

OPTIONS TRANSACTIONS

PURCHASES OF PUT AND CALL OPTIONS. The Underlying Funds, other than
Prime Obligations Fund and Equity Index Fund, may purchase put and call options.
Each of the Underlying Funds, other than Prime Obligations Fund and Equity Index
Fund, may purchase put and call options on securities and stock indices.
Strategic Income Fund may purchase options on interest rate indices. Emerging
Markets Fund, International Fund and Strategic Income Fund may purchase options
on foreign currencies. Options on futures contracts are discussed below under
"-- Futures and Options on Futures."

OPTIONS ON SECURITIES. 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

5
<PAGE>

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.

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.

OPTIONS ON STOCK INDICES. Options on stock 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 a stock 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. In particular, 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.

OPTION 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.

WRITING OF CALL OPTIONS. The Underlying Funds, other than Prime
Obligations Fund and Equity Index Fund, may write (sell) covered call options to
the extent specified with respect to particular Underlying Funds as set forth
herein. 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
Emerging Markets Fund, International Fund and Strategic Income Fund) on foreign
currencies which an Underlying Fund owns or has the right to acquire or on
interest rate indices. These Underlying Funds (other than Emerging Markets Fund
and International Fund) may write (sell) covered call options covering up to 25%
of the equity securities owned by such Underlying Funds and, in the case of
Emerging Markets Fund and International Fund, covering up to 50% of the equity
securities owned by such Underlying Funds. Strategic Income Fund may write
(sell) covered call options on equity securities covering up to 25% of its net
assets.

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 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

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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.

The Equity Funds and Strategic Income Fund also may write call options
on indices, the movements of which generally correlate with those of such
respective Underlying 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 Underlying Fund's portfolio securities.

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

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

FUTURES AND OPTIONS ON FUTURES

Equity Index Fund, Fixed Income Fund, Emerging Markets Fund,
International Fund and Strategic Income Fund, may engage in futures transactions
and purchase options on futures. The Funds may purchase futures and options on
futures contracts on securities. Emerging Markets Fund, International Fund and
Strategic Income Fund may purchase futures and options on futures contracts on
securities, stock indices or foreign currencies.

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.

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.

The Funds may use futures contracts and options or futures in order to
remain effectively fully invested. These investment techniques may be used in
order to re-allocate assets among asset categories while minimizing transaction
costs; to maintain sufficient liquidity to meet redemption requests; 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 addition, Equity Index
Fund may use stock index futures and options on futures to increase the level of
Fund assets devoted to replicating the composition of the S&P 500 Composite
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.

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<PAGE>

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 of the market value
of Emerging Market Fund's and International Fund's total assets. Futures
transactions will be limited to the extent necessary to maintain each Fund's and
Underlying Fund's qualification as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code").

Where a Fund or an Underlying Fund is permitted to purchase options on
futures, its potential loss is limited to the amount of the premiums paid for
the options. As stated above, this amount may not exceed 5% of a Fund's or
Underlying Fund's total assets. Where a Fund or an Underlying Fund is permitted
to enter into futures contracts obligating it to purchase securities, currency
or an index in the future at a specified price, such Fund or Underlying Fund
could lose 100% of its net assets in connection therewith if it engaged
extensively in such transactions and if the market value or index value of the
subject securities, currency or index at the delivery or settlement date fell to
zero for all contracts into which a Fund or Underlying Fund was permitted to
enter. Where an Underlying Fund is permitted to enter into futures contracts
obligating it to sell securities or currencies (as is the case with respect only
to Emerging Markets Fund, International Fund and Strategic Income 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.

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

SECURITIES OF FOREIGN BANKS AND BRANCHES

Prime Obligations Fund may invest in obligations of foreign branches of
United States banks and United States branches of foreign banks. Various
provisions of federal law governing the establishment and operation of domestic
branches do not apply to foreign branches of domestic banks. Obligations of
United States branches of foreign banks may be general obligations of the parent
bank in addition to the issuing branch, or may be limited by the terms of a
specific obligation and by federal and state regulation as well as by
governmental action in the country in which the foreign bank has its head
office.

Because the portfolio of Prime Obligations Fund's investments in
taxable money market securities may contain securities of foreign branches of
domestic banks, foreign banks, and United States branches of foreign banks, such
Underlying Fund may be subject to additional investment risks that are different
in some respects from those incurred by a fund that invests only in debt
obligations of United States banks. These risks may include future unfavorable
political and economic developments and possible withholding taxes, seizure of
foreign deposits, currency controls, interest limitations, or other governmental
restrictions which might affect the payment of principal or interest on
securities owned by such Underlying Fund. Additionally, there may be less public
information available about foreign banks and their branches. The Advisor
carefully considers these factors when making investments. Prime Obligation Fund
has agreed that, in connection with investment in securities issued by foreign
banks, United States branches of foreign banks, and foreign branches of domestic
banks, consideration will be given to the domestic marketability of such
securities in light of these factors.

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FOREIGN SECURITIES

GENERAL. Under normal market conditions Emerging Markets Fund and
International Fund each invests at least 65% of its total assets in equity
securities which trade in markets other than the United States. Strategic Income
Fund normally invests a significant portion of its assets in foreign government
and foreign corporate debt obligations, and from time to time may invest up to
100% of its total assets in such obligations. 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 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 and Strategic
Income Fund also may invest in Eurodollar Certificates of Deposit, Eurodollar
Time Deposits and Yankee Certificates of Deposit as described under "--
Short-Term Instruments" above.

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.

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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.

EMERGING MARKETS. Emerging Markets Fund, Strategic Income Fund and, to
a lesser degree, International Fund, may invest in securities issued by
governmental and corporate issuers that are located in emerging market
countries. Investing in securities of issuers in emerging markets involves
exposure to economic infrastructures that are generally less diverse and mature
than, and to political systems that can be expected to have less stability than,
those of developed countries. Other characteristics of emerging market countries
that may affect investment in their markets include certain governmental
policies that may restrict investment by foreigners and the absence of developed
legal structures governing private and foreign investments and private property.
The typical small size of the markets for securities issued by issuers located
in emerging markets and the possibility of low or non-existent volume of trading
in those securities may also result in a lack of liquidity and in price
volatility of those securities. In addition, issuers in emerging market
countries are typically subject to a greater degree of change in earnings and
business prospects than are companies in developed markets.

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 securities, the Equity Funds or Strategic Income 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. Emerging Markets Fund, International Fund and Strategic
Income Fund also may invest in European Depositary Receipts, which are receipts
evidencing an arrangement with a European bank similar to that for American
Depositary Receipts and which are designed for use in the European securities
markets. European Depositary Receipts are not necessarily denominated in the
currency of the underlying security.

Certain American Depositary Receipts and European Depositary Receipts,
typically those denominated as unsponsored, require the holders thereof to bear
most of the costs of the facilities while issuers of sponsored facilities
normally pay more of the costs thereof. The depository of an unsponsored
facility frequently is under no obligation to distribute shareholder
communications received from the issuer of the deposited securities or to pass
through the voting rights to facility holders in respect to the deposited
securities, whereas the depository of a sponsored facility typically distributes
shareholder communications and passes through voting rights.

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FOREIGN SECURITIES EXCHANGES

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 Emerging Markets Fund, International Fund and Strategic Income Fund
may be uninvested. In addition, settlement problems could cause Emerging Markets
Fund, International Fund or Strategic Income 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 an Underlying Fund to obtain or
to enforce a judgment against the issuer.

FOREIGN CURRENCY TRANSACTIONS

Emerging Markets Fund, International Fund and Strategic Income Fund
invest in securities which are purchased and sold in foreign currencies. The
value of their 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. Emerging Markets Fund, International Fund and
Strategic Income Fund also will incur costs in converting United States dollars
to local currencies, and vice versa.

Emerging Markets Fund, International Fund and Strategic Income Fund
will conduct their 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 an amount of a specific currency at a specified price on a future date
agreed upon by the parties. These contracts are traded directly between currency
traders (usually large commercial banks) and their customers.

Emerging Markets Fund, International Fund and Strategic Income Fund may
enter into forward currency contracts in order to hedge against adverse
movements in exchange rates between currencies. These Underlying Funds may
engage in "transaction hedging" to protect against a change in the foreign
currency exchange rate between the date the Underlying 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. They 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. Emerging Markets fund, International Fund and Strategic
Income Fund also may hedge foreign currency exchange rate risk by engaging in
currency futures and options transactions.

Although a foreign currency hedge may be effective in protecting the
Underlying Fund from losses resulting from unfavorable changes in exchange rates
between the United States dollar and foreign currencies, it also would limit the
gains which might be realized by the Underlying Fund from favorable changes in
exchange rates. The applicable Underlying Fund's investment 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 their respective investment
sub-advisor's view regarding future exchange rates proves to have been
incorrect, Emerging Markets Fund, International Fund and Strategic Income Fund
may realize losses on their foreign currency transactions.

As stated above, Emerging Markets Fund, International Fund and
Strategic Income Fund may engage in a variety of foreign currency transactions
in connection with their 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. These Underlying Funds will not enter
into such forward contracts or maintain a net exposure in such contracts where
the Underlying Funds would be obligated to deliver an amount of foreign currency
in excess of the value of the Underlying Fund's securities or other assets
denominated in that currency. The Underlying Funds will comply with applicable
SEC announcements

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requiring them to segregate assets to cover the Underlying Fund's 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. The Underlying Funds
generally will not enter into a forward contract with a term longer than one
year except that Strategic Income Fund will not enter into a forward contract
with a term longer than six months.

FOREIGN CURRENCY FUTURES TRANSACTIONS. Unlike forward foreign currency
exchange contracts, foreign currency futures contracts and options on foreign
currency futures contracts are standardized as to amount and delivery period and
may be traded on boards of trade and commodities exchanges or directly with a
dealer which makes a market in such contracts and options. It is anticipated
that such contracts may provide greater liquidity and lower cost than forward
foreign currency exchange contracts. As part of their financial futures
transactions, Emerging Markets Fund, International Fund and Strategic Income
Fund may use foreign currency futures contracts and options on such futures
contracts. Through the purchase or sale of such contracts, these Underlying
Funds may be able to achieve many of the same objectives as through investing in
forward foreign currency exchange contracts.

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 buy 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 Emerging Markets Fund, International Fund or Strategic Income
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 an Underlying 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 the
Underlying Fund's gain would be offset in part by the premium paid for the
option. Similarly, if an Underlying 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, the Underlying Fund would not need to exercise
its call if the currency instead depreciated in value. In such a case, the
Underlying 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.

REIT SECURITIES

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.

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Because Real Estate Securities Fund invests primarily in the real
estate industry, it is particularly subject to risks associated with that
industry. The real estate industry has been subject to substantial fluctuations
and declines on a local, regional and national basis in the past and may
continue to be in the future. Real property values and incomes from real
property may decline due to general and local economic conditions, overbuilding
and increased competition, increases in property taxes and operating expenses,
changes in zoning laws, casualty or condemnation losses, regulatory limitations
on rents, changes in neighborhoods and in demographics, increases in market
interest rates, or other factors. Factors such as these may adversely affect
companies which own and operate real estate directly, companies which lend to
such companies, and companies which service the real estate industry. Although
Real Estate Securities Fund will operate as a non-diversified investment company
under the 1940 Act, it intends to conduct its operations so as to qualify as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(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, by
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.

MORTGAGE-BACKED SECURITIES

Fixed Income Fund and Strategic Income Fund may invest in
mortgage-backed securities which are Agency Pass-Through Certificates or
collateralized mortgage obligations ("CMOs"), as described below. In addition,
Strategic Income Fund may invest in private mortgage pass-through securities and
in Real Estate Mortgage Investment Conduits ("REMICs").

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 GNMA, FNMA
or 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 FHLMC's
operations or to assist FHLMC in any other manner.

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.

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

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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. 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.

Private mortgage pass-through securities ("Private Pass-Throughs") are
structured similarly to GNMA, FNMA and FHLMC mortgage pass-through securities
and are issued by originators of and investors in mortgage loans, including
savings and loan associations, mortgage bankers, commercial banks, investment
banks and special purpose subsidiaries of the foregoing. These securities
usually are backed by a pool of conventional fixed rate or adjustable loans.
Since Private Pass-Throughs typically are not guaranteed by an entity having the
credit status of GNMA, FNMA or FHLMC, such securities generally are structured
with one or more types of credit enhancement. Such credit support falls into two
categories: (i) liquidity protection and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provisions of advances, generally by the
entity administering the pool of assets, to ensure that the pass-through of
payments due on the underlying pool occurs in a timely fashion. Protection
against losses resulting from ultimate default enhances the likelihood of
ultimate payment of the obligations on at least a portion of the assets in the
pool. Such protection may be provided through guarantees, insurance policies or
letters of credit obtained by the issuer or sponsor from third parties, through
various means of structuring the transaction or through a combination of such
approaches. The Funds will not pay any additional fees for such credit support,
although the existence of credit support may increase the price of a security.

The ratings of securities for which third-party credit enhancement
provides liquidity protection or protection against losses from default are
generally dependent upon the continued creditworthiness of the enhancement
provider. The ratings of such securities could be subject to reduction in the
event of deterioration in the creditworthiness of the credit enhancement
provider even in cases where the delinquency and loss experience on the
underlying pool of assets is better than expected.

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. The applicable Underlying Funds 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 or applicable investment sub-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.
For instance, holders may hold interests in CMO tranches called Z-tranches which
defer interest and principal payments until one or other classes of the CMO have
been paid in full. In addition, for example:

o 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.

o 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

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<PAGE>

loans, thus providing a greater (but not absolute) degree of
certainty as to the schedule upon which principal will be
repaid.

o 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.

o 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.

o 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.

o A subordinated class of CMOs is subordinated in right of
payment to one or more other classes. Such a subordinated
class provides some or all of the credit support for the
classes that are senior to it by absorbing losses on the
underlying mortgage loans before the senior classes absorb any
losses. A subordinated class which is subordinated to one or
more classes but senior to one or more other classes is
sometimes referred to as a "mezzanine" class. A subordinated
class generally carries a lower rating than the classes that
are senior to it, but may still carry an investment grade
rating.

REMICs are offerings of multiple class real estate mortgage-backed
securities which qualify and elect treatment as such under provisions of the
Internal Revenue Code. Issuers of REMICs may take several forms, such as trusts,
partnerships, corporations, associations, or segregated pools of mortgages. Once
REMIC status is elected and obtained, the entity is not subject to federal
income taxation. Instead, income is passed through the entity and is taxed to
the person or persons who hold interests in the REMIC. A REMIC interest must
consist of one or more classes of "regular interests," some of which may offer
adjustable rates of interest (the type in which Strategic Income Fund primarily
invests), and a single class of "residual interests." To qualify as a REMIC,
substantially all the assets of the entity must be in assets directly or
indirectly secured principally by real property.

It generally is more difficult to predict the effect of changes in
market interest rates on the return on mortgage-backed securities than to
predict the effect of such changes on the return of a conventional fixed-rate
debt instrument, and the magnitude of such effects may be greater in some cases.
The return on interest-only and principal-only mortgage-backed securities is
particularly sensitive to changes in interest rates and prepayment speeds. When
interest rates decline and prepayment speeds increase, the holder of an
interest-only mortgage-backed security may not even recover its initial
investment. Similarly, the return on an inverse floating rate CMO is likely to
decline more sharply in periods of increasing interest rates than that of a
fixed-rate security. For these reasons, interest-only, principal-only and
inverse floating rate mortgage-backed securities generally have greater risk
than more conventional classes of mortgage-backed securities. None of the
applicable Underlying Funds will invest more than 10% of their total fixed
income assets in interest-only, principal-only, inverse interest only or inverse
floating rate mortgage-backed securities.

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<PAGE>

ASSET-BACKED SECURITIES

Fixed Income Fund and Strategic 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.

DEBT OBLIGATIONS - STRATEGIC INCOME FUND

Strategic Income Fund may invest in both investment grade and
non-investment grade (lower-rated) bonds (which may be denominated in U.S.
dollars or non-U.S. currencies) and other debt obligations issued by domestic
and foreign corporations and other private issuers. There are no minimum rating
requirements for these investments by the Fund. Strategic Income Fund's
investments may include U.S. dollar denominated debt obligations known as "Brady
Bonds," which are issued for the exchange of existing commercial bank loans to
foreign entities for new obligations that are generally collateralized by zero
coupon Treasury securities having the same maturity. From time to time,
Strategic Income Fund's portfolio may consist primarily of lower-rated (i.e.,
rated Ba or lower by Moody's, or BB or lower by Standard & Poor's) corporate
debt obligations, which are commonly referred to as "junk bonds." Certain debt
obligations in which the Fund invests may involve equity characteristics. The
Funds may, for example, invest in unit offerings that combine debt securities
and common stock equivalents such as warrants, rights and options. It is
anticipated that the majority of the value attributable to the unit will relate
to its debt component.

The prices and yields of non-investment grade securities generally
fluctuate more than investment grade securities, and such prices may decline
significantly.

DEBT OBLIGATIONS RATED LESS THAN INVESTMENT GRADE

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."

Participation in non-investment grade securities globally involves
greater returns in the form of higher average yields. 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

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<PAGE>

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.

U.S. GOVERNMENT SECURITIES

The U.S. government securities in which Fixed Income Fund and Strategic
Income Fund may invest are either issued or guaranteed by the U.S. government,
its agencies or instrumentalities. The U.S. government securities in which such
Underlying Funds invest principally are:

o direct obligations of the U.S. Treasury, such as U.S. Treasury
bills, notes, and bonds;

o notes, bonds, and discount notes issued and guaranteed by U.S.
government agencies and instrumentalities supported by the
full faith and credit of the United States;

o notes, bonds, and discount notes of U.S. government agencies
or instrumentalities which receive or have access to federal
funding; and

o notes, bonds, and discount notes of other U.S. government
instrumentalities supported only by the credit of the
instrumentalities.

The government securities in which Fixed Income Fund and Strategic
Income Fund may invest are backed in a variety of ways by the U.S. government or
its agencies or instrumentalities. Some of these securities such as GNMA
mortgage-backed securities are backed by the full faith and credit of the U.S.
government. Other securities, such as obligations of the FNMA or FHLMC are
backed by the credit of the agency or instrumentality issuing the obligations
but not the full faith and credit of the U.S. government.

ZERO COUPON SECURITIES

Fixed Income Fund and Strategic 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
securities of this type are subject to greater fluctuations than are the value
of securities that distribute income regularly and may be more speculative than
such securities. Accordingly, the values of these securities may be highly
volatile as interest rates rise or fall.

FLOATING RATE CORPORATE DEBT OBLIGATIONS

Strategic Income Fund expects to invest in floating rate corporate debt
obligations, including increasing rate securities. Floating rate securities are
generally offered at an initial interest rate which is at or above prevailing
market rates. The interest rate paid on these securities is then reset
periodically (commonly every 90 days) to an increment over some predetermined
interest rate index. Common utilized indices include the three-month Treasury
bill rate, the 180-day Treasury bill rate, the one-month or three-month London
Interbank Offered Rate (LIBOR), the prime rate of a bank, the commercial paper
rates, or the longer-term rates on U.S. Treasury securities.

FIXED RATE CORPORATE DEBT OBLIGATIONS

Fixed Income Fund and Strategic Income Fund will also invest in fixed
rate securities. Fixed Income Fund invests at least 65% of its total assets in
fixed rate obligations. Fixed rate securities tend to exhibit more price
volatility during times of rising or falling interest rates than securities with
floating rates of interest. This is because floating rate securities, as
described above, behave like short-term instruments in that the rate of interest
they pay is subject to periodic adjustments based on a designated interest rate
index. Fixed rate securities pay a fixed rate of interest and are

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<PAGE>

more sensitive to fluctuating interest rates. In periods of rising interest
rates the value of a fixed rate security is likely to fall. Fixed rate
securities with short-term characteristics are not subject to the same price
volatility as fixed rate securities without such characteristics. Therefore,
they behave more like floating rate securities with respect to price volatility.

PARTICIPATION INTERESTS

Strategic Income Fund may acquire participation interests in senior,
fully secured floating rate loans that are made primarily to U.S. companies.
Strategic Income Fund's investments in participation interests are subject to
its limitation on investments in illiquid securities. Strategic Income Fund may
purchase only those participation interests that mature in one year or less, or,
if maturing in more than one year, have a floating rate that is automatically
adjusted at least once each year according to a specified rate for such
investments, such as a published interest rate of interest rate index.
Participation interests are primarily dependent upon the creditworthiness of the
borrower for payment of interest and principal. Such borrowers may have
difficulty making payments and may have senior securities rated as low as C by
Moody's, or D by Standard & Poor's.

FIXED INCOME SECURITIES -- EQUITY FUNDS

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 "-- Short-Term Investments." 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
Equity Funds' investment 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.

The fixed income securities specified above are subject to (i) interest
rate risk (the risk that increases in market interest rates will cause declines
int he value of debt securities held by an Underlying Fund); (ii) credit risk
(the risk that the issuers of debt securities held by an Underlying Fund default
in making required payments); and (iii) call or prepayment risk (the risk that a
borrower may exercise the right to prepay a debt obligation before its stated
maturity, requiring an Underlying Fund to reinvest the prepayment at a lower
interest rate).

PAYMENT-IN-KIND DEBENTURES AND DELAYED INTEREST SECURITIES

Strategic Income Fund may invest in debentures the interest on which
may be paid in other securities rather than cash ("PIKs"). Typically, during a
specified term prior to the debenture's maturity, the issuer of a PIK may
provide for the option or the obligation to make interest payments in
debentures, common stock or other instruments (i.e., "in kind" rather than in
cash). The type of instrument in which interest may or will be paid would be
known by Strategic Income Fund at the time of investment. While PIKs generate
income for purposes of generally accepted accounting standards, they do not
generate cash flow and thus could cause Strategic Income Fund to be forced to
liquidate securities at an inopportune time in order to distribute cash, as
required by the Code.

Unlike PIKs, delayed interest securities do not pay interest for a
specified period. Because values of securities of this type are subject to
greater fluctuations than are the values of securities that distribute income
regularly, they may be more speculative than such securities. Accordingly, the
values of these securities may be highly volatile as interest rates rise or
fall.

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<PAGE>

PREFERRED STOCK

The Equity Funds and Strategic Income Fund may invest in preferred
stock. Preferred stock, unlike common stock, offers a stated dividend rate
payable from the issuer's earnings. Preferred stock dividends may be cumulative
or non-cumulative, participating, or auction rate. If interest rates rise, the
fixed dividend on preferred stocks may be less attractive, causing the price of
preferred stocks to decline. Preferred stock may have mandatory sinking fund
provisions, as well as call/redemption provisions prior to maturity, a negative
feature when interest rates decline.

Although Fixed Income Fund will not make direct purchases of common or
preferred stocks or rights to acquire common or preferred stocks, it may invest
in debt securities which are convertible into or exchangeable for, or which
carry warrants or other rights to acquire, such stocks. Equity interest 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.

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 Underlying Fund's investment 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 are deemed to be liquid. Consequently,
Prime Obligations Fund does not intend to subject such securities to the
limitation applicable to restricted securities.

CREDIT ENHANCEMENT AGREEMENTS

Prime Obligations Fund may arrange for guarantees, letters of credit,
or other forms of credit enhancement agreements (collectively, "Guarantees") for
the purpose of further securing the payment of principal and/or interest on
Prime Obligation Fund's investment securities. Although each investment
security, at the time it is purchased, must meet Prime Obligations Fund's
creditworthiness criteria, Guarantees sometimes are purchased from banks and
other institutions (collectively, "Guarantors") when Prime Obligations Fund's
investment 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.

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 investment advisor. Investments by the
Underlying 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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<PAGE>

INVESTMENT RESTRICTIONS OF THE UNDERLYING FUNDS

RESTRICTIONS APPLICABLE TO THE EQUITY FUNDS, STRATEGIC INCOME FUND 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, Strategic Income
Fund 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.

None of the Equity Funds, Strategic Income Fund or Fixed Income Fund
will:

1. 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 except that Strategic Income
Fund may borrow up to one-third of its total assets and pledge
up to 15% of its total assets to secure such borrowings. 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,
Emerging Markets Fund, International Fund and Strategic Income
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 and
Strategic Income Fund may invest in mortgage-backed
securities.

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<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 restriction is non-fundamental and may be changed by
FAIF's Board of Directors without shareholder vote. None of the Equity Funds,
Strategic Income Fund or Fixed Income Fund will invest more than 15% of its net
assets in all forms of illiquid investments.

The Board of Directors has adopted guidelines and procedures under
which the Funds' investment advisor is to determine whether the following types
of securities which may be held by certain Funds are "liquid" and to report to
the Board concerning its determinations: (i) securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933; (ii) commercial paper
issued in reliance on the "private placement" exemption from registration under
Section 4(2) of the Securities Act of 1933, whether or not it is eligible for
resale pursuant to Rule 144A; (iii) interest-only and principal-only
mortgage-backed securities; and (iv) municipal leases and securities that
represent interests in municipal leases.

For determining compliance with its investment restriction relating to
industry concentration, each 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 Advisor. For
example, an asset-backed security known as "Money Store 94-D 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
Underlying 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 "Fund Summaries"
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.

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<PAGE>

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

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

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

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

9. Lend money to others except through the purchase of debt
obligations of the type which Prime Obligations Fund is
permitted to purchase (see "Additional Information Concerning
Investments by the Funds and the Underlying Funds" above and
"Fund Summaries" in the 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.

In addition, Prime Obligations Fund is subject to the provisions of
Rule 2a-7 under the 1940 Act, which require, among other things, that the Fund
invest exclusively in securities that mature within 397 days from the date of
purchase as determined pursuant to Rule 2a-7, that it maintains an average
weighted maturity of not more than 90 days, and that it invests only in United
States dollar-denominated investments that meet specified credit quality
standards.

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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 FAF since December 1994 and of FAIF since September 1994, of FASF
since June 1996 and of FAIP since August 1999; Chairman (1989-1993) and Chief
Executive Officer (1993-present), Okabena Company (private family investment
office). Age: 56.

Roger A. Gibson, 1020 15th Street, Ste. 41A, Denver, Colorado 80202:
Director of FAF, FAIF and FASF since October 1997, and of FAIP since August
1999; 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 and the
Mountain Region in Denver, Colorado; employee at United Airlines since 1967.
Age: 52.

Andrew M. Hunter III, 537 Harrington Road, Wayzata, Minnesota 55391:
Director of FAIF, FAF and FASF since January 1997, and of FAIP since August
1999; Chairman of Hunter, Keith Industries, a diversified manufacturing and
services management company, since 1975. Age: 51.

Leonard W. Kedrowski, 16 Dellwood Avenue, Dellwood, Minnesota 55110:
Director of FAF and FAIF since November 1993, of FASF since June 1996, and of
FAIP since August 1999; Owner and President of Executive and Management
Consulting, Inc., a management consulting firm since 1992; 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: 57.

* John M. Murphy, Jr., 601 Second Avenue South, Minneapolis, Minnesota
55402; Director of FAIF, FAF and FASF since June 1999, and of FAIP since August
1999; Executive Vice President of U.S. Bancorp since January 1999; Chairman and
Chief Investment Officer of First American Asset Management and U.S. Bank Trust,
N.A., and Executive Vice President of U.S. Bancorp, from 1991 to 1999. Age 57.

* Robert L. Spies, 4715 Twin Lakes Avenue, Brooklyn Center, Minnesota
55429: Director of FAIF, FAF and FASF since January 31, 1997, and of FAIP since
August 1999; employed by U.S. Bancorp and subsidiaries from 1957 to January 31,
1997, most recently as Vice President, U.S. Bank National Association. Age: 65.

Joseph D. Strauss, 8617 Edenbrook Crossing, # 443, Brooklyn Park,
Minnesota 55443: Director of FAF since 1984 and of FAIF since April 1991, of
FASF since June 1996, and of FAIP since August 1999; 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: 58.

Virginia L. Stringer, 712 Linwood Avenue, St. Paul, Minnesota 55105:
Director of FAIF since August 1987, of FAF since April 1991, of FASF since June
1996, and of FAIP since August 1999; 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:
55.

EXECUTIVE OFFICERS

Mark Nagle, SEI Investments Company, Oaks, Pennsylvania 19456;
President of FAIF, FAF and FASF since September 1998, and of FAIP since
September 1999; President and Senior Vice President of Fund Accounting and
Administration of the Sub-Administrator since 1998; Vice President of Fund
Accounting and Administration of the Sub-Administrator from 1996 to 1998; Vice
President of the Distributor since December 1997; Vice President of Fund

23
<PAGE>

Accounting, BISYS Fund Services, Inc., from November 1995 to November 1996;
Senior Vice President, Fidelity Investments, prior to November 1995. Age: 41.

James F. Volk, SEI Investments Company, Oaks, Pennsylvania 19456;
Controller and Treasurer of FAIF, FAF, FASF and FAIP since September 1999;
Director, Investment Accounting Operations and Co-director, International Fund
Accounting Group, SEI Investments Mutual Funds Services since February 1996;
Assistant Chief Accountant, SEC's Division of Investment Management from 1993 to
1996; Senior Manager, Coopers & Lybrand, from 1984 to 1993. Age: 37.

Michael J. Radmer, 220 South Sixth Street, Minneapolis, Minnesota
55402; Secretary of FAIF since April 1991, and of FAF since 1981, and of FASF
since June 1996, and of FAIP since September 1999; Partner, Dorsey & Whitney
LLP, a Minneapolis-based law firm and general counsel of FAIF, FAF and FASF.
Age: 55.

James D. Alt, 220 South Sixth Street, Minneapolis, Minnesota 55402;
Assistant Secretary of FAF, FAIF and FASF since September 1998, and of FAIP
since September 1999; Partner, Dorsey & Whitney LLP, a Minneapolis-based law
firm. Age: 48.

Kathleen L. Prudhomme, 220 South Sixth Street, Minneapolis, Minnesota
55402; Assistant Secretary of FAF, FAIF and FASF since September 1998, and of
FAIP since September 1999; Partner, Dorsey & Whitney LLP, a Minneapolis-based
law firm. Age: 46.

Kevin P. Robins, SEI Investments Company, Oaks, Pennsylvania 19456:
Vice President and Assistant Secretary of FAIF and FAF since April 1994, and of
FASF since June 1996 and of FAIP since September 1999; Senior Vice President and
General Counsel of the Sub-Administrator and Distributor since 1994. Vice
President of the Administrator and Distributor from 1992 to 1994. Associate,
Morgan Lewis & Bockius from 1988 to 1992. Age: 37.

Todd Cipperman, SEI Investments Company, Oaks, Pennsylvania 19456: Vice
President and Assistant Secretary of FAIF, FAF and FASF since December 1996, and
of FAIP since September 1999; Vice President and Assistant Secretary of the
Sub-Administrator and the Distributor since 1995. Associate, Dewey Ballantine
from 1994 to 1995; Associate, Winston & Stawn from 1991 to 1994. Age: 33.

Lydia A. Gavalis, SEI Investments Company, Oaks, Pennsylvania 19456;
Vice President and Assistant Secretary of FAIF, FAF and FASF since January 1998,
and of FAIP since September 1999; Vice President and Assistant Secretary of the
Sub-Administrator and the Distributor each since January 1998. Assistant General
Counsel and Director of Arbitration, Philadelphia Stock Exchange from 1989 to
1998. Age: 37.

Lynda J. Streigel, SEI Investments Company, Oaks, Pennsylvania 19456;
Vice President and Assistant Secretary of FAIF, FAF and FASF since January 1998,
and of FAIP since September 1999; Vice President and Assistant Secretary of the
Sub-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: 53.

James R. Foggo, SEI Investments Company, Oaks, Pennsylvania 19456; Vice
President and Assistant Secretary of FAIF, FAF and FASF since September 1998,
and of FAIP since September 1999; Vice President and Assistant Secretary of the
Administrator and Distributor since September 1998; Associate Attorney, Paul,
Weiss, Rifkind, Wharton and Garrison from January 1998 to August 1998; Associate
Attorney, Baker & McKenzie from January 1995 to January 1998. Age: 36.

Edward T. Searle, SEI Investments Company, Oaks, Pennsylvania
19456;Vice President and Assistant Secretary of FAF, FAIF, FASF and FAIP since
September 1999; Vice President and Assistant Secretary of the Administrator and
Distributor since August 1999; Associate, Drinker, Biddle, and Reath, LLP from
1998 to 1999; Associate, Ballard, Spahr, Andrews and Ingersoll, LLP from 1995 to
1998. Age: 45.

COMPENSATION

24
<PAGE>

The First American Family of Funds, which includes FASF, FAIF, FAIP,
FAF and FACEF, currently pays only to directors of the funds who are not paid
employees or affiliates of the funds a fee of $27,000 per year ($40,500 in the
case of the Chair) plus $4,000 ($6,000 in the case of the Chair) per meeting of
the Board attended and $1,200 per committee meeting attended ($1,800 in the case
of a committee chair) and reimburses travel expenses of directors and officers
to attend Board meetings. In the event of telephonic Board or committee meetings
(other than Pricing Committee meetings for which the regular meeting schedule
applies), 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 $1,500 per day plus travel expenses when directors
travel out of town on Fund business. However, directors do not receive the
$1,500 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 FAIF, FAF,
FASF, FAIP and FACEF, James D. Alt, assistant secretary of of FAIF, FAF, FASF,
FAIP and FACEF, and Kathleen L. Prudhomme, assistant secretary of of FAIF, FAF,
FASF, FAIP and FACEF, are partners. The following table sets forth information
concerning aggregate compensation paid to each director of FASF (i) by FASF
(column 2), and (ii) by FAIF, FAF, FASF and FACEF collectively (column 5) during
the fiscal year ended September 30, 1999 (no fees were paid by FAIP during the
fiscal year ended September 30, 1999). 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)
NAME OF PERSON, POSITION AGGREGATE PENSION OR ESTIMATED ANNUAL TOTAL COMPENSATION
COMPENSATION RETIREMENT BENEFITS UPON FROM REGISTRANT AND
FROM REGISTRANT BENEFITS ACCRUED RETIREMENT FUND COMPLEX PAID
AS PART OF FUND TO DIRECTORS
EXPENSES
<S> <C> <C> <C> <C>
Robert J. Dayton, Director $ 904.87 -0- -0- $64,750.00
Roger A. Gibson, Director 785.38 -0- -0- 56,200.00
Andrew M. Hunter III, Director 957.69 -0- -0- 68,530.00
Leonard W. Kedrowski, Director 869.23 -0- -0- 62,200.00
Robert L. Spies, Director 844.07 -0- -0- 60,400.00
John M. Murphy, Jr., Director -0- -0- -0- -0-
Joseph D. Strauss, Director 1,021.69 -0- -0- 73,110.00
Virginia L. Stringer, Director 1,118.71 -0- -0- 80,052.00
</TABLE>

The directors may elect to defer payment of up to 100% of the fees they
receive in accordance with a Deferred Compensation Plan (the "Plan"). Under the
Plan, a director may elect to have his or her deferred fees treated as if they
had been invested in the shares of one or more funds and the amount paid to the
director under the Plan will be determined based on the performance of such
investments. Distributions may be taken in a lump sum or over a period years.
The Plan will remain unfunded for federal income tax purposes under the Internal
Revenue Code of 1986, as amended. Deferral of director fees in accordance with
the Plan will have a negligible impact on fund assets and liabilities and will
not obligate the funds to retain any director or pay any particular level of
compensation.

INVESTMENT ADVISORY AND OTHER SERVICES FOR THE FUNDS

INVESTMENT ADVISORY AGREEMENT

U.S. Bank National Association (the "Advisor"), 601 Second Avenue
South, Minneapolis, Minnesota 55480, 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 four banks and eleven trust companies with banking offices
in 16 contiguous states. USB also has various other subsidiaries engaged in
financial services. At September 30, 1999, USB and its consolidated subsidiaries
had consolidated assets of approximately $77 billion, consolidated deposits of
$47 billion and shareholders' equity of $6 billion.

25
<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 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 unless as
otherwise set forth in the Funds' Prospectus. 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 following table sets forth total advisory fees before waivers and
after waivers for each of the Funds for the fiscal years ended September 30,
1997, September 30, 1998 and September 30, 1999:

<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
September 30, 1997 September 30, 1998 September 30, 1999
------------------------------- ------------------------------- -----------------------------
Advisory Fee Advisory Fee Advisory Fee Advisory Fee Advisory Fee Advisory Fee
Before Waivers After Waivers* Before Waivers After Waivers* Before Waivers After Waivers
-------------- -------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>

Income Fund $ 33,068 $ 0 $ 213,285 $ 0 $ 269,050 $ 0
Growth and Income Fund 27,869 0 479,289 0 515,752 0
Growth Fund 13,262 0 135,724 0 209,013 0
Aggressive Growth Fund 11,316 0 140,018 0 171,202 0

</TABLE>

* Advisory fees for the period were voluntarily waived by the Advisor. In
addition, the Advisor reimbursed the Funds additional amounts during
this period to comply with total fund operating expense limitations as
previously agreed upon by the Funds and the Advisor.

ADMINISTRATION AGREEMENT

U.S. Bank National Association (the "Administrator"), 601
Second Avenue South, Minneapolis, Minnesota 55402, serves as the Administrator
for the Funds pursuant to an Administration Agreement between it and the Funds.
The Administrator is a subsidiary of USB. Under the Administration Agreement,
the Administrator is compensated to provide, or compensates other entities to
provide services to the Funds. These services include, various legal, oversight
and administrative services, accounting services, transfer agency and dividend
disbursing services and shareholder services. The funds pay U.S. Bank an
asset-based fee at an annual rate, which is calculated daily and paid monthly,
equal to each fund's pro rata share of an amount equal to 0.12% of the aggregate
average daily assets of all open-end mutual funds in the First American fund
family up to $8 billion, and 0.105% of the aggregate average daily net assets of
all open-end mutual funds in the First American fund family in excess of & 8
billion. (For the purposes of this Agreement, the First American fund family
includes all series of FAF, FAIF, FASF and FAIP.) In addition, the funds pay
U.S. Bank annual fees of $18,500 per CUSIP, shareholder account fees of $15 per
account and closed account fees of $3.50 per account.

26
<PAGE>

Prior to January 1, 2000, SEI Investments Management Corporation served
as the administrator for the Funds. SEI Investments Management Corporation is a
wholly-owned subsidiary of SEI Investments Company, which also owns the Funds'
Distrbutor. See "- Distributor and Distribution Plans" below. The Funds paid to
SEI Investment Management a fee equal to (i) 0.12% of each Fund's average daily
net assets until aggregate net assets of all Funds exceeded $8 billion and (ii)
0.105% to the extent aggregate net assets of all Funds exceeded $8 billion.

The following table sets forth total administrative fees, after
waivers, paid by each of the Funds for the fiscal years ended September 30,
1997, September 30, 1998 and September 30, 1999:

Year Ended Year Ended Year Ended
September 30, 1997 September 30, 1998 September 30, 1999
------------------------------- -------------------------------- ------------------------------
Administrative Administrative Administrative Administrative Administrative Administrative
Fee Fee Fee Fee Fee Fee
Before Waivers After Waivers* Before Waivers After Waivers* Before Waivers After Waivers
-------------- -------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Income Fund $ 44,990 $ 44,990 $ 93,890 $ 93,890 $ 117,044 $ 117,044
Growth and Income Fund 43,464 43,464 210,977 210,977 224,315 224,315
Growth Fund 40,308 40,308 59,748 59,748 90,930 90,930
Aggressive Growth Fund 39,740 39,740 61,662 61,662 74,491 74,491
</TABLE>

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 years ended September 30, 1997, September 30, 1998 and
September 30, 1999:

<TABLE>
<CAPTION>
Shareholder Servicing Fees
---------------------------------------
Year Ended September 30,
1997 1998 1999
----------- ------------ ------------
<S> <C> <C> <C>

Income Fund $33,069 $213,285 $269,050
Growth and Income Fund 27,869 479,289 515,752
Growth Fund 13,262 135,724 209,013
Aggressive Growth Fund 11,316 140,052 171,202

</TABLE>

The Distributor received no compensation from the Funds during the last
fiscal year other than shareholder servicing fees as set forth in the above
table. The Distributor also serves as distributor for the shares of the
Underlying Funds and receives compensation (but not with respect to the class of
shares purchased by the Funds) for such services.

CUSTODIAN; COUNSEL; AUDITORS

27
<PAGE>

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 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
or, for Emerging Markets Fund and International Fund, by a sub-custodian with
respect to such Fund. The Custodian or such sub-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% (0.10% in the case of
Emerging Markets Fund and International Fund) of such Fund's average daily net
assets. Sub-custodian fees with respect to Emerging Markets Fund and
International Fund are paid by the Custodian out of its fees from such Fund. 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.

COUNSEL. Dorsey & Whitney LLP, 220 South Sixth Street, Minneapolis,
Minnesota 55402, is independent counsel for the Funds.

AUDITORS. Ernst & Young LLP, 1400 Pillsbury Center, Minneapolis,
Minnesota 55402, serves as the Funds' independent auditors, providing audit
services, including audits of the annual financial statements and assistance and
consultation in connection with SEC filings for the year ended September 30,
1999.

KPMG LLP, 90 South Seventh Street, Minneapolis, Minnesota 55402, acted
as the Funds' independent auditors, providing audit services including audits of
the annual financial statements and assistance and consultation in connection
with SEC filings for the fiscal periods ended as of September 30, 1998.

INVESTMENT ADVISORY SERVICES FOR THE UNDERLYING FUNDS

INVESTMENT ADVISORY AGREEMENTS OF THE UNDERLYING FUNDS

U.S. Bank National Association, the investment 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") as amended, the Equity Funds, Strategic Income Fund
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 Funds. Each such
Underlying Fund other than Emerging Markets Fund and International Fund pays the
Advisor monthly fees calculated on an annual basis equal to 0.70% of its average
daily net assets. Emerging Markets Fund and International Fund pays the Advisor
monthly fees calculated on an annual basis equal to 1.25% of their respective
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.

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

28
<PAGE>

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 SEI Investments
Distribution Co., Oaks, Pennsylvania 19456, or calling Investor Services at
1-800-637-2548.

SUB-ADVISORY AGREEMENTS FOR EMERGING MARKETS FUND, INTERNATIONAL FUND AND
STRATEGIC INCOME FUND

Marvin & Palmer Associates, Inc., 1201 North Market Street, Suite 2300,
Wilmington, Delaware 19801 ("Marvin & Palmer") is sub-advisor for Emerging
Markets Fund and International Fund under agreements with the Advisor (the
"Marvin & Palmer Sub-Advisory Agreements"). Marvin & Palmer, a privately-held
company, was founded in 1986 by David F. Marvin and Stanley Palmer. Marvin &
Palmer is engaged in the management of global, non-United States, United States
and emerging markets equity portfolios principally for institutional accounts.
As of December 31, 1999, Marvin & Palmer managed a total of approximately, $14
billion in investments. Pursuant to Marvin & Palmer Sub-Advisory Agreements,
Marvin & Palmer is responsible for the investment and reinvestment of Emerging
Markets Fund's and International Fund's assets and the placement of brokerage
transactions in connection therewith. Under the Marvin & Palmer Sub-Advisory
Agreements, Marvin & Palmer is required, among other things, to report to the
Advisor or the 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 Emerging Markets Fund and International
Fund to their respective investment objectives, policies and restrictions. The
Marvin & Palmer Sub-Advisory Agreements also requires Marvin & Palmer to provide
all office space, personnel and facilities necessary and incident to Marvin &
Palmer's performance of its services under the Marvin & Palmer Sub-Advisory
Agreements.

For its services to International Fund under the Marvin & Palmer
Sub-Advisory Agreements, Marvin & Palmer 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.

For its services to Emerging Markets Fund under the Marvin & Palmer
Sub-Advisory Agreements, Marvin & Palmer is paid a monthly fee by the Advisor
calculated on an annual basis equal to 0.85% of the first $100 million of
Emerging Markets Fund's average daily net assets, 0.60% of Emerging Markets
Fund's average daily net assets in excess of $100 million up to $300 million,
0.55% of Emerging Markets Fund's average daily net assets in excess of $300
million up to $500 million, and 0.50% of Emerging Markets Fund's average daily
net assets in excess of $500 million.

Federated Global Investment Management Corp., 175 Water Street, New
York, New York 10038-4965 ("Federated Global"), a subsidiary of Federated
Investors ("Federated"), is a sub-advisor for Strategic Income Fund under an
agreement with the Advisor (the "Federated Sub-Advisory Agreement"). Federated
Global, which is a Delaware corporation, is a registered investment advisors
under the Investment Adviser's Act of 1940. As of September 30, 1999, Federated
Global. and such other subsidiaries of Federated rendered investment advice
regarding over $115.2 billion of assets. Pursuant to the Federated Sub-Advisory
Agreement, Federated Global is responsible for the investment of the
international portion of Strategic Income Fund's assets. Under the Federated
Sub-Advisory Agreement, Federated Global is required, among other things, to
report to the Advisor or the 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 Strategic Income Fund to its
investment objectives, policies and restrictions.

29
<PAGE>

The Federated Sub-Advisory Agreement also requires the Federated Global to
provide all office space, personnel and facilities necessary and incident to
Federated Global's performance of its services under the Federated Sub-Advisory
Agreement.

For its services under the Sub-Advisory Agreement, Federated Global is
paid a monthly fee by the Advisor calculated on an annual basis equal to 0.40%
of the first $25 million of Strategic Income Fund's average daily net assets,
0.33% of Strategic Income Fund's average daily net assets in excess of $25
million up to $50 million, 0.26% of Strategic Income Fund's average daily net
assets in excess of $50 million up to $100 million and 0.21% of Strategic Income
Fund's average daily net assets in excess of $100 million.

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 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
determines the reasonableness of the

30
<PAGE>

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.

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 SEI
Investments Distribution Co., Oaks, Pennsylvania 19456, or calling Investor
Services at 1-800-637-2548.

CAPITAL STOCK

Each share of each Fund's $.01 par value common stock 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.

As of November 9, 1998, the directors of FASF owned shares of FAIF,
FASF and FAF with an aggregate net asset value of $6 million. As of November 1,
1999, the directors and officers of FASF as a group owned less than one percent
of each Fund's outstanding shares. As of November 9, 1999, 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.

31
<PAGE>

PERCENTAGE OF SHARES OWNED
--------------------------
STRATEGY GROWTH & INCOME

Wachovia Bank NA
TRST US Bancorp Deferred Comp TR
DTD 8/1/97
PO Box 3073 20.42%
Winston Salem, NC 27150-0001

US Bank National Association Cust
Daily Valued Retirement Programs
Attn Reconciliation SPFT0401
180 East 5th St.
St. Paul, MN 55101-2667 19.06%

US Bank TR
US Bancorp CAP
U/A 01-01-1984
180 5th St. E SPEN0502
Saint Paul, MN 55101-2667 19.34%

Deltak Corp. Profit Sharing TR
PO Box 9496
Minneapolis, MN 55440 6.43%

STRATEGY AGGRESSIVE GROWTH

US Bank National Association Cust
Daily Valued Retirement Programs
Attn Reconciliation SPFT0401
180 East 5th St.
St. Paul, MN 55101-2667 54.41%

US Bank TR
US Bancorp CAP
U/A 01-01-1984
180 5th St. E SPEN0502
Saint Paul, MN 55101-2667 9.05%

STRATEGY INCOME

US Bank National Association Cust
Daily Valued Retirement Programs
Attn Reconciliation SPFT0401
180 East 5th St.
St. Paul, MN 55101-2667 11.50%

US Bank TR
US Bancorp CAP
U/A 01-01-1984
180 5th St. E SPEN0502
Saint Paul, MN 55101-2667 5.62%

STRATEGY GROWTH

US Bank National Association Cust
Daily Valued Retirement Programs
Attn Reconciliation SPFT0401
180 East 5th St.
St. Paul, MN 55101-2667 42.76%

US Bank TR
US Bancorp CAP
U/A 01-01-1984
180 5th St. E SPEN0502
Saint Paul, MN 55101-2667 10.50%

Linn Gear Co Inc.
PO Box 397
Lebanon, OR 97355 6.10%

32
<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 "Buying Shares." The net asset
value of each Fund's shares is determined on each day during which the New York
Stock Exchange (the "NYSE") is open for business. The NYSE is not open for
business on the following holidays (or on the nearest Monday or Friday if the
holiday falls on a weekend): New Year's Day, 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. The following sets forth
the net asset value of the Funds as of September 30, 1999.

Net Assets / Shares = Net
(In Dollars) Outstanding Asset Value
Per Share
(In Dollars)
---------------- ----------------- ----------------

Income Fund $ 83,302,184 $ 7,947,519 $ 10.48
Growth and Income Fund 209,229,452 18,176,816 11.51
Growth Fund 88,213,408 7,444,811 11.85
Aggressive Growth Fund 67,013,260 5,422,921 12.36

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, 1999, the yields for
the shares of the Funds were as follows:

Income Fund 5.20%
Growth and Income Fund 2.92%
Growth Fund 2.04%
Aggressive Growth Fund 1.08%

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

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

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

TOTAL RETURN. Total return measures both the net investment income
generated by, and the effect of any realized or unrealized appreciation or
depreciation of, the underlying investments in a Fund's portfolio. The Funds'

33
<PAGE>

average annual and cumulative total return figures are computed in accordance
with the standardized methods prescribed by the Securities and Exchange
Commission.

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

P(1 + T)n = ERV

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

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

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

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

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

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

Based on the foregoing, the average annual and cumulative total returns
for the shares of the Funds as of September 30, 1999 were as follows:

<TABLE>
<CAPTION>
Average Annual Return
as of September 30, 1999
---------------------------------------------------------------------
Cumulative Since One Five
Since Inception* Inception Year Years
--------------------- ------------- ----------- ------------
<S> <C> <C> <C>

Income Fund 23.70 % 7.35 % 1.13 % **
Growth and Income Fund 32.95 9.97 12.81 **
Growth Fund 34.80 10.48 16.31 **
Aggressive Growth Fund 38.08 11.37 20.54 **

</TABLE>

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

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, 1999, the historical distribution rates of the
shares of the Funds were as follows:

34
<PAGE>

Income Fund 5.85%
Growth and Income Fund 2.79%
Growth Fund 2.13%
Aggressive Growth Fund 1.18%

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, 1999 for the funds were as follows:

Income Fund 6.09%
Growth and Income Fund 2.96%
Growth Fund 2.02%
Aggressive Growth Fund 1.02%

CERTAIN PERFORMANCE COMPARISONS

In addition to advertising total return and yield, comparative
performance information may be used from time to time in advertising the Funds'
shares, including data from Lipper Analytical Services, Inc. ("Lipper"),
Morningstar, other industry publications and other entities or organizations
which track the performance of investment companies. The performance of each
Fund may be compared to that of its unmanaged benchmark index and to the
performance of similar funds as reported by Lipper and such other data services.

TAXATION

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.

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 "Managing
Your Investment -- Exchanging Shares" in the Prospectus), such exchange will be
considered a taxable sale of the shares being exchanged.

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.

35
<PAGE>

ADDITIONAL INFORMATION ABOUT SELLING SHARES

BY TELEPHONE

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

Shareholders who did not purchase their shares of a Fund through a
financial institution may redeem their shares by calling Investor Services at
1-800-637-2548. At the shareholder's request, redemption proceeds will be paid
by check mailed to the shareholder's address of record or wire transferred to
the shareholder's account at a domestic commercial bank that is a member of the
Federal Reserve System, normally within one business day, but in no event more
than seven days after the request. Wire instructions must be previously
established on the account or provided in writing. The minimum amount for a wire
transfer is $1,000. If at any time the Funds determine it necessary to terminate
or modify this method of redemption, shareholders will be promptly notified.

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

BY MAIL

Any shareholder may redeem Fund shares by sending a written request to
the Transfer Agent, shareholder servicing agent, or financial institution. The
written request should include the shareholder's name, the Fund name, the
account number, and the share or dollar amount requested to be redeemed, and
should be signed exactly as the shares are registered. Shareholders should call
the Fund, the 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 $50,000 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:

o 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");

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

o 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

36
<PAGE>

o 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.

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.

RATINGS

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

When a security has been rated by more than one service, the ratings
may not coincide, and each rating should be evaluated independently. Ratings are
based on current information furnished by the issuer or obtained by the rating
services from other sources which they consider reliable. Ratings may be
changed, suspended or withdrawn as a result of changes in or unavailability of
such information, or for other reasons. In general, the Underlying Funds are not
required to dispose of a security if its rating declines after it is purchased,
although they may consider doing so.

RATINGS OF CORPORATE DEBT OBLIGATIONS AND MUNICIPAL BONDS

STANDARD & POOR'S

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.

37
<PAGE>

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

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

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

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

MOODY'S

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

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

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

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

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

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

38
<PAGE>

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.

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.

39
<PAGE>

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.

FINANCIAL STATEMENTS

The financial statements of FASF included in its annual report to
shareholders dated September 30, 1999 is incorporated herein by reference.

40
<PAGE>

FIRST AMERICAN STRATEGY FUNDS, INC.
PART C -- OTHER INFORMATION

ITEM 23. EXHIBITS

(a) Amended and Restated Articles of Incorporation, as filed June
19, 1996 (Incorporated by reference to Exhibit (1) to initial
filing, filed on July 2, 1996 (File Nos. 333-7463, 811-7687)).

* (b) Bylaws of Registrant, as amended through February 23, 1999.

(d) Form of Investment Advisory Agreement between the Registrant
and First Bank National Association (Incorporated by reference
to Exhibit (5) to initial filing, filed on July 2, 1996 (File
Nos. 333-7463, 811-7687)).

(e) Form of Distribution Agreement between the Registrant and SEI
Financial Services Company (Incorporated by reference to
Exhibit (6) initial filing, filed on July 2, 1996 (File Nos.
333-7463, 811-7687)).

(f) Not applicable

(g)(1) Form of Custodian Agreement between the Registrant and First
Trust National Association including form of Compensation
Agreement pursuant thereto (Incorporated by reference to
Exhibit (8) to initial filing, filed on July 2, 1996 (File
Nos. 333-7463, 811-7687)).

(g)(2) Assignment of Custodian Agreements and Security Lending Agency
Agreement to U.S. Bank National Association, dated May 1, 1998
(Incorporated by reference to Exhibit (g)(2) to Post-Effective
Amendment No. 4, filed on July 2, 1996 (File Nos. 333-7463,
811-7687)).

* (g)(3) Supplement to Custodian Agreement dated December 8, 1999.

* (h)(1) Administration Agreement dated December 8, 1999, by and
between U.S. Bank National Association and First American
Investment Funds, Inc.

(i)(1) Opinion and Consent of Dorsey & Whitney, dated January 26,
[superseded] (Incorporated by reference to Exhibit (10) to
initial filing, filed on July 2, 1996 (File Nos. 333-7463,
811-7687)).

* (j)(1) Consent of Ernst & Young LLP.

* (j)(2) Consent of KPMG LLP.

(k) Not applicable

(l) Investment Letter for Initial Shares of the respective Series
(Incorporated by reference to Exhibit (13) to initial filing,
filed on July 2, 1996 (File Nos. 333-7463, 811-7687)).

(m) Not applicable

(n) Not applicable

* Filed herewith.

<PAGE>

ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

Not applicable.

ITEM 25. INDEMNIFICATION

The Registrant's Articles of Incorporation and Bylaws provide that the
Registrant shall indemnify such persons for such expenses and liabilities, in
such manner, under such circumstances, and to the full extent as permitted by
Section 302A.521 of the Minnesota Statutes, as now enacted or hereafter amended;
provided, however, that no such indemnification may be made if it would be in
violation of Section 17(h) of the Investment Company Act of 1940, as now enacted
or hereafter amended, and any rules, regulations, or releases promulgated
thereunder.

Section 302A.521 of the Minnesota Statutes, as now enacted, provides
that a corporation shall indemnify a person made or threatened to be made a
party to a proceeding by reason of the former or present official capacity of
the person against judgments, penalties, fines, settlements and reasonable
expenses, including attorneys' fees and disbursements, incurred by the person in
connection with the proceeding if, with respect to the acts or omissions of the
person complained of in the proceeding, the person has not been indemnified by
another organization for the same judgments, penalties, fines, settlements, and
reasonable expenses incurred by the person in connection with the proceeding
with respect to the same acts or omissions; acted in good faith, received no
improper personal benefit, and the Minnesota Statutes dealing with directors'
conflicts of interest, if applicable, have been satisfied; in the case of a
criminal proceeding, had no reasonable cause to believe that the conduct was
unlawful; and reasonably believed that the conduct was in the best interests of
the corporation or, in certain circumstances, reasonably believed that the
conduct was not opposed to the best interests of the corporation.

The Registrant undertakes that no indemnification or advance will be
made unless it is consistent with Sections 17(h) or 17(i) of the Investment
Company Act of 1940, as now enacted or hereafter amended, and Securities and
Exchange Commission rules, regulations, and releases (including, without
limitation, Investment Company Act of 1940 Release No. 11330, September 2,
1980).

Insofar as the indemnification for liability arising under the
Securities Act of 1933, as amended, may be permitted to directors, officers, and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in such Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer, or
controlling person of the Registrant in the successful defense of any action,
suit, or proceeding) is asserted by such director, officer, or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933, as amended, and will be governed by the final
adjudication of such issue.

ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

<PAGE>

Information on the business of the Registrant's investment adviser,
U.S. Bank National Association (the "Manager"), is described in the section of
each series' Statement of Additional Information, filed as part of this
Registration Statement, entitled "Investment Advisory and Other Services." The
directors and officers of the Manager are listed below, together with their
principal occupation or other positions of a substantial nature during the past
two fiscal years.

<TABLE>
<CAPTION>
POSITIONS AND OFFICES OTHER POSITIONS AND OFFICES
NAME WITH THE MANAGER AND PRINCIPAL BUSINESS ADDRESS
- --------------------- ---------------------------------- -----------------------------------------
<S> <C> <C>
John F. Grundhofer Chairman, President and Chief Chairman, President and Chief
Executive Officer Executive Officer of U.S. Bancorp*

Richard A. Zona Director and Vice Chairman-Finance Vice Chairman--Finance of U.S. Bancorp*

Philip G. Heasley Director and Vice Chairman Vice Chairman and Group Head of the
Retail Product Group of U.S. Bancorp*

J. Robert Hoffmann Director, Chief Credit Officer and Executive Vice President and Chief Credit
Executive Vice President Officer of U.S. Bancorp*

Lee R. Mitau Director, General Counsel, Executive Executive Vice President, Secretary, and
Vice President and Secretary General Counsel of U.S. Bancorp*

Susan E. Lester Director, Executive Vice President and Executive Vice President and Chief
Chief Financial Officer Financial Officer of U.S. Bancorp*

Robert D. Sznewajs Director and Vice Chairman Vice Chairman of U.S. Bancorp*

Gary T. Duim Director and Vice Chairman Vice Chairman of U.S. Bancorp*
</TABLE>

- ----------------------------------

* Address: 601 Second Avenue South, Minneapolis, Minnesota 55402.

ITEM 27. PRINCIPAL UNDERWRITERS:

(a) State the name of each investment company (other than the
Registrant) for which each principal underwriter currently distributing the
Registrant's securities also acts as a principal underwriter, distributor or
investment adviser:

Registrant's distributor, SEI Investments Distribution Co. (the
"Distributor") acts as distributor for SEI Liquid Asset Trust, SEI Daily Income
Trust, SEI Tax Exempt Trust, SEI Index Funds, SEI Institutional Managed Trust,
SEI Institutional International Trust, The Advisors' Inner Circle Fund, The
Pillar Funds, CUFund, STI Classic Funds, First American Funds, Inc., First
American Investment Funds, Inc., The Arbor Fund, Boston 1784 Funds, The PBHG
Funds, Inc., The Achievement Funds Trust, Bishop Street Funds, STI Classic
Variable Trust, ARK Funds, Huntington Funds, SEI Asset Allocation Trust, TIP
Funds, SEI Institutional Investments Trust, First American Strategy Funds, Inc.,
Highmark Funds, Armada Funds, PBHG Insurance Series Fund, Inc., Expedition
Funds, Alpha Select Funds, Oak Associates Funds, The Nevis Funds, Inc., The
Parkstone Group of Funds, CNI Charter Funds, The Parkstone Advantage Funds and

<PAGE>

Ameriund Funds, Inc. pursuant to distribution agreements dated November 29,
1982, July 15, 1982, December 3, 1982, July 10, 1985, January 22, 1987, August
30, 1988, November 14, 1991, February 28, 1992, May 1, 1992, May 29, 1992,
November 1, 1992, November 1, 1992, January 28, 1993, June 1, 1993, July 16,
1993, December 27, 1994, January 27, 1995, March 1, 1995, August 18, 1995,
November 1, 1995, January 11, 1996, April 1, 1996, April 28, 1996, June 14,
1996, October 1, 1996, February 15, 1997, March 8, 1997, April 1, 1997, June 9,
1997, January 1, 1998, February 27, 1998, June 29, 1998, September 14, 1998,
April 1, 1999, May 1, 1999 and July 13, 1999, respectively.

The Distributor provides numerous financial services to investment
managers, pension plan sponsors, and bank trust departments. These services
include portfolio evaluation, performance measurement, and consulting services
("Funds Evaluation") and automated execution, clearing and settlement of
securities transactions ("MarketLink").

(b) Provide the information required by the following table for each
director, officer, or partner of each principal underwriter named in the
response to Item 20. Unless otherwise noted, the business address of each
director or officer is One Freedom Valley Drive, Oaks, Pennsylvania 19456.

<TABLE>
<CAPTION>
NAME POSITIONS AND OFFICES WITH UNDERWRITER POSITIONS AND OFFICES WITH REGISTRANT
- --------------------- -------------------------------------- -------------------------------------
<S> <C> <C>
Alfred P. West, Jr. Director, Chairman & Chief Executive --
Officer
Richard B. Lieb Director, Executive Vice President --
Carmen V. Romeo Director --
Mark J. Held President & Chief Operating Officer --
Gilbert L. Beebower Executive Vice President --
Dennis J. McGonigle Executive Vice President --
Robert M. Silvestri Chief Financial Officer & Treasurer --
Leo J. Dolan, Jr. Senior Vice President --
Carl A. Guarino Senior Vice President --
Larry Hutchinson Senior Vice President --
Jack May Senior Vice President --
Hartland J. McKeown Senior Vice President --
Kevin P. Robins Senior Vice President & General Counsel Vice President & Assistant Secretary
Patrick K. Walsh Senior Vice President --
Ronert Aller Vice President --
Gordon W. Carpenter Vice President --
Todd Cipperman Vice President & Assistant Secretary --
S. Courtney E. Collier Vice President & Assistant Secretary Vice President & Assistant Secretary
Richard Deak Vice President & Assistant Secretary
Robert Crudup Vice President & Managing Director --
Barbara Doyne Vice President --
</TABLE>

<PAGE>

<TABLE>
<S> <C> <C>
Jeff Drennen Vice President --
James R. Foggo Vice President & Assistant Secretary --
Vic Galef Vice President & Managing Director --
Lydia A. Gavalis Vice President & Assistant Secretary Vice President & Assistant Secretary
Kathy Heilig Vice President --
Greg Gettinger Vice President & Assistant Secretary --
Jeff Jacobs Vice President --
Samuel King Vice President --
Kim Kirk Vice President & Managing Director --
John Krzeminski Vice President & Managing Director --
Carolyn McLaurin Vice President & Managing Director --
Mark Nagle Vice President President
Joanne Nelson Vice President --
Cynthia M. Parrish Vice President & Assistant Secretary --
Kim Rainey Vice President --
Rob Redecan Vice President --
Maria Rinehart Vice President --
Edward Searle Vice President & Assistant Secretary
Steve Smith Vice President --
Daniel Spaventa Vice President --
Kathryn L. Stanton Vice President & Assistant Secretary --
Lynda J. Striegel Vice President & Assistant Secretary Vice President & Assistant Secretary
Lori L. White Vice President & Assistant Secretary --
Wayne M. Withrow Vice President & Managing Director --
</TABLE>

ITEM 28. LOCATION OF ACCOUNTS AND RECORDS

All accounts, books, and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder are maintained by SEI Investments Distribution Co., Oaks,
Pennsylvania 19456.

ITEM 29. MANAGEMENT SERVICES

Not applicable.

ITEM 30. UNDERTAKINGS

Not applicable.

<PAGE>

SIGNATURES

As required by the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant certifies that it
meets all of the requirements for effectiveness of this Registration Statement
under Rule 485(b) of the Securities Act of 1933, as amended, and has duly caused
this Post-Effective Amendment to its Registration Statement No. 333-7463 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Oaks, Commonwealth of Pennsylvania, on the 28th day of January, 2000.

FIRST AMERICAN STRATEGY FUNDS, INC.

ATTEST: /s/ James Volk By: /s/ James R. Foggo
------------------------------- --------------------------------
James Volk James R. Foggo
Vice President

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed below by the
following persons in the capacity and on the dates indicated.

SIGNATURE TITLE DATE
--------- ----- ----

/s/ James Volk Controller (Principal **
- ----------------------------- Financial and Accounting Officer)
James Volk

* Director **
- -----------------------------
John M. Murphy, Jr.

* Director **
- -----------------------------
Robert J. Dayton

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

* Director **
- -----------------------------
Leonard W. Kedrowski

* Director **
- -----------------------------
Robert L. Spies

* Director **
- -----------------------------
Joseph D. Strauss

<PAGE>

* Director **
- -----------------------------
Virginia L. Stringer

* Director **
- -----------------------------
Roger A. Gibson

* By: /s/ James R. Foggo
------------------------
James R. Foggo
Attorney-in-Fact

** January 28, 2000

<PAGE>

EXHIBIT (b)

AMENDMENT TO SECTION 3.13 ADOPTED AT BOARD OF DIRECTORS MEETING HELD 2/23/99.

BYLAWS
OF
FIRST AMERICAN STRATEGY FUNDS, INC.

ARTICLE I.
SERIES NAMES, OFFICES, CORPORATE SEAL

Section 1.01. Names of Series. The names of the series
represented by the series of shares designated in the corporation's articles of
incorporation shall be as follows:

Series A, Class One: Income Fund.

Series B, Class One: Growth and Income Fund.

Series C, Class One: Growth Fund.

Series D, Class One: Aggressive Growth Fund.

Section 1.02. Registered Office. The registered office of the
corporation in Minnesota shall be that set forth in the Articles of
Incorporation or in the most recent amendment of the Articles of Incorporation
or resolution of the directors filed with the Secretary of State of Minnesota
changing the registered office.

Section 1.03. Other Offices. The corporation may have such
other offices, within or without the State of Minnesota, as the directors shall,
from time to time, determine.

Section 1.04. No Corporate Seal. The corporation shall have no
corporate seal.

ARTICLE II.
MEETINGS OF SHAREHOLDERS

Section 2.01. Place and Time of Meeting. Except as provided
otherwise by Minnesota Statutes Chapter 302A, meetings of the shareholders may
be held at any place, within or without the State of Minnesota, designated by
the directors and, in the absence of such designation, shall be held at the
registered office of the corporation in the State of Minnesota. The directors
shall designate the time of day for each meeting and, in the absence of such
designation, every meeting of shareholders shall be held at ten o'clock a.m.

- 1 -

<PAGE>

Section 2.02. Regular Meetings. Annual meetings of
shareholders are not required by these Bylaws. Regular meetings shall be held
only with such frequency and at such times and places as provided in and
required by Minnesota Statutes Section 302A.431 and the Investment Company Act
of 1940.

Section 2.03. Special Meetings. Special meetings of the
shareholders may be held at any time and for any purpose and may be called by
the Chairman of the Board, the President, any two directors, or by one or more
shareholders holding ten percent (10%) or more of the shares entitled to vote on
the matters to be presented to the meeting.

Section 2.04. Quorum, Adjourned Meetings. The holders of ten
percent (10%) of the shares outstanding and entitled to vote shall constitute a
quorum for the transaction of business at any regular or special meeting. In
case a quorum shall not be present at a meeting, those present in person or by
proxy shall adjourn the meeting to such day as they shall, by majority vote,
agree upon without further notice other than by announcement at the meeting at
which such adjournment is taken. If a quorum is present, a meeting may be
adjourned from time to time without notice other than announcement at the
meeting. At adjourned meetings at which a quorum is present, any business may be
transacted which might have been transacted at the meeting as originally
noticed. If a quorum is present, the shareholders may continue to transact
business until adjournment notwithstanding the withdrawal of enough shareholders
to leave less than a quorum.

Section 2.05. Voting. At each meeting of the shareholders,
every shareholder having the right to vote shall be entitled to vote either in
person or by proxy. Each shareholder, unless the Articles of Incorporation
provide otherwise, shall have one vote for each share having voting power
registered in his name on the books of the corporation. Except as otherwise
specifically provided by these Bylaws or as required by provisions of the
Investment Company Act of 1940 or other applicable laws, all questions shall be
decided by a majority vote of the number of shares entitled to vote and
represented at the meeting at the time of the vote. If the matter(s) to be
presented at a regular or special meeting relates only to particular series or
classes of the corporation, then only the shareholders of such series or classes
are entitled to vote on such matter(s).

Section 2.06. Voting - Proxies. The right to vote by proxy
shall exist only if the instrument authorizing such proxy to act shall have been
executed in writing by the shareholder himself or by his attorney thereunto duly
authorized in writing. No proxy shall be voted after eleven months from its date
unless it provides for a longer period. Proxies may be signed and transmitted by
any means permitted by Minnesota Statutes Section 302A.449, Subd. 1, or any
successor provision.

Section 2.07. Closing of Books. The Board of Directors may fix
a time, not exceeding sixty (60) days preceding the date of any meeting of
shareholders, as a record date for the determination of the shareholders
entitled to notice of, and to vote at, such

- 2 -
<PAGE>

meeting, notwithstanding any transfer of shares on the books of the corporation
after any record date so fixed. The Board of Directors may close the books of
the corporation against the transfer of shares during the whole or any part of
such period. If the Board of Directors fails to fix a record date for
determination of the shareholders entitled to notice of, and to vote at, any
meeting of shareholders, the record date shall be the thirtieth (30th) day
preceding the date of such meeting.

Section 2.08. Notice of Meetings. There shall be mailed to
each shareholder entitled to vote at a meeting, shown by the books of the
corporation to be a holder of record of voting shares, at his address as shown
by the books of the corporation, a notice setting out the date, time and place
of each regular meeting and each special meeting, except where the meeting is an
adjourned meeting and the date, time and place of the meeting were announced at
the time of adjournment, which notice shall be mailed within the period required
by law. Every notice of any special meeting shall state the purpose or purposes
for which the meeting has been called, pursuant to Section 2.03, and the
business transacted at all special meetings shall be confined to the purpose
stated in such notice.

Section 2.09. Waiver of Notice. Notice of any regular or
special meeting may be waived either before, at or after such meeting orally or
in a writing signed by each shareholder or representative thereof entitled to
vote the shares so represented. A shareholder, by his attendance at any meeting
of shareholders, shall be deemed to have waived notice of such meeting, except
where the shareholder objects at the beginning of the meeting to the transaction
of business because the item may not lawfully be considered at that meeting and
does not participate at that meeting in the consideration of the item at that
meeting.

Section 2.10. Written Action. Any action which might be taken
at a meeting of the shareholders may be taken without a meeting if done in
writing and signed by all of the shareholders entitled to vote on that action.
If the action to be taken relates to particular series or classes of the
corporation, then only shareholders of such series or classes are entitled to
vote on such action.

ARTICLE III.
DIRECTORS

Section 3.01. Number, Qualification and Term of Office. Until
the first meeting of shareholders, the number of directors shall be the number
named in the Articles of Incorporation. Thereafter, the number of directors
shall be established by resolution of the shareholders (subject to the authority
of the Board of Directors to increase or decrease the number of directors as
permitted by law). In the absence of such shareholder resolution, the number of
directors shall be the number last fixed by the shareholders, the Board of
Directors or the Articles of Incorporation. Directors need not be shareholders.
Each of the directors shall hold office until the regular meeting of
shareholders next held after his election and until his successor shall have
been elected

- 3 -
<PAGE>

and shall qualify, or until the earlier death, resignation, removal or
disqualification of such director.

Section 3.02. Election of Directors. Except as otherwise
provided in Sections 3.11 and 3.12 hereof, the directors shall be elected at the
regular shareholders' meeting. In the event that directors are not elected at a
regular shareholders' meeting, then directors may be elected at a special
shareholders' meeting, provided that the notice of such meeting shall contain
mention of such purpose. At each shareholders' meeting for the election of
directors, the directors shall be elected by a plurality of the votes validly
cast at such election. Each holder of shares of each series or class of stock of
the corporation shall be entitled to vote for directors and shall have equal
voting power for each share of each series or class of the corporation.
Section 3.03. General Powers.

(a) Except as otherwise permitted by statute, the property,
affairs and business of the corporation shall be managed by the Board of
Directors, which may exercise all the powers of the corporation except those
powers vested solely in the shareholders of the corporation by statute, the
Articles of Incorporation or these Bylaws, as amended.

(b) All acts done by any meeting of the directors or by any
person acting as a director, so long as his successor shall not have been duly
elected or appointed, shall, notwithstanding that it be afterwards discovered
that there was some defect in the election of the directors or such person
acting as aforesaid or that they or any of them were disqualified, be as valid
as if the directors or such other person, as the case may be, had been duly
elected and were or was qualified to be directors or a director of the
corporation.

Section 3.04. Power to Declare Dividends.

(a) The Board of Directors, from time to time as they may deem
advisable, may declare and pay or ratify dividends in cash or other property of
the corporation, out of any source available for dividends, to the shareholders
of each series or class of stock of the corporation according to their
respective rights and interests in the investment portfolio of the corporation
issuing such series or class of stock.

(b) The Board of Directors shall cause to be accompanied by a
written statement any dividend payment wholly or partly from any source other
than

(i) the accumulated and accrued undistributed net income of
each series or class (determined in accordance with generally accepted
accounting practice and the rules and regulations of the Securities and
Exchange Commission then in effect) and not including profits or losses
realized upon the sale of securities or other properties; or

- 4 -
<PAGE>

(ii) the net income of each series or class so determined for
the current or preceding fiscal year.

Such statement shall adequately disclose the source or sources of such payment
and the basis of calculation and shall be in such form as the Securities and
Exchange Commission may prescribe.

(c) Notwithstanding the above provisions of this
Section 3.04, the Board of Directors may at any time declare and distribute pro
rata among the shareholders of each series or class of stock a "stock dividend"
out of the authorized but unissued shares of stock of each series or class,
including any shares previously purchased by a series or class of the
corporation.

Section 3.05. Board Meetings. Meetings of the Board of
Directors may be held from time to time at such time and place within or without
the State of Minnesota as may be designated in the notice of such meeting.

Section 3.06. Calling Meetings, Notice. A director may call a
board meeting by giving two (2) days notice to all directors of the date, time
and place of the meeting; provided that if the day or date, time and place of a
board meeting have been announced at a previous meeting of the board, no notice
is required.

Section 3.07. Waiver of Notice. Notice of any meeting of the
Board of Directors may be waived by any director either before, at or after such
meeting orally or in a writing signed by such director. A director, by his
attendance and participation in the action taken at any meeting of the Board of
Directors, shall be deemed to have waived notice of such meeting, except where
the director objects at the beginning of the meeting to the transaction of
business because the item may not lawfully be considered at that meeting and
does not participate at that meeting in the consideration of the item at that
meeting.

Section 3.08. Quorum. A majority of the directors holding
office immediately prior to a meeting of the Board of Directors shall constitute
a quorum for the transaction of business at such meeting; provided however,
notwithstanding the above, if the Board of Directors is taking action pursuant
to the Investment Company Act of 1940, as now enacted or hereafter amended, a
majority of directors who are not "interested persons" (as defined by the
Investment Company Act of 1940, as now enacted or hereafter amended) of the
corporation shall constitute a quorum for taking such action.

Section 3.09. Advance Consent or Opposition. A director may
give advance written consent or opposition to a proposal to be acted on at a
meeting of the Board of Directors. If such director is not present at the
meeting, consent or opposition to a proposal does not constitute presence for
purposes of determining the existence of a quorum, but consent or opposition
shall be counted as a vote in favor of or against the proposal and shall be
entered in the minutes or other record of action at the meeting, if

- 5 -
<PAGE>

the proposal acted on at the meeting is substantially the same or has
substantially the same effect as the proposal to which the director has
consented or objected. This procedure shall not be used to act on any investment
advisory agreement or on any plan of distribution adopted under Rule 12b-1 of
the Investment Company Act of 1940, as amended.

Section 3.10. Conference Communications. Any or all directors
may participate in any meeting of the Board of Directors, or of any duly
constituted committee thereof, by any means of communication through which the
directors may simultaneously hear each other during such meeting. For the
purposes of establishing a quorum and taking any action at the meeting, such
directors participating pursuant to this Section 3.10 shall be deemed present in
person at the meeting, and the place of the meeting shall be the place of
origination of the conference communication. This procedure shall not be used to
act on any investment advisory agreement or on any plan of distribution adopted
under Rule 12b-1 of the Investment Company Act of 1940, as amended.
Section 3.11. Vacancies; Newly Created Directorships.
Vacancies in the Board of Directors of this corporation occurring by reason of
death, resignation, removal or disqualification shall be filled for the
unexpired term by a majority of the remaining directors of the Board although
less than a quorum; newly created directorships resulting from an increase in
the authorized number of directors by action of the Board of Directors as
permitted by Section 3.01 may be filled by a two-thirds (2/3) vote of the
directors serving at the time of such increase; and each person so elected shall
be a director until his successor is elected by the shareholders at their next
regular or special meeting; provided, however, that no vacancy can be filled as
provided above if prohibited by the provisions of the Investment Company Act of
1940.

Section 3.12. Removal. The entire Board of Directors or an
individual director may be removed from office, with or without cause, by a vote
of the shareholders holding a majority of the shares entitled to vote at an
election of directors. In the event that the entire Board or any one or more
directors be so removed, new directors shall be elected at the same meeting, or
the remaining directors may, to the extent vacancies are not filled at such
meeting, fill any vacancy or vacancies created by such removal. A director named
by the Board of Directors to fill a vacancy may be removed from office at any
time, with or without cause, by the affirmative vote of the remaining directors
if the shareholders have not elected directors in the interim between the time
of the appointment to fill such vacancy and the time of the removal.

Section 3.13. Committees. A resolution approved by the
affirmative vote of a majority of the Board of Directors may establish
committees having the authority of the Board in the management of the business
of the corporation to the extent provided in the resolution. A committee shall
consist of one or more persons, who need not be directors, appointed by
affirmative vote of a majority of the directors present. Committees are subject
to the direction and control of, and vacancies in the membership thereof shall
be filled by, the Board of Directors.

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<PAGE>

Except as provided in the following paragraph, a majority of
the members of the committee present at a meeting is a quorum for the
transaction of business, unless a larger or smaller proportion or number is
provided in a resolution approved by the affirmative vote of a majority of the
directors present.

If a Pricing Committee is appointed, a quorum of such
committee shall consist of one member of the committee.

Section 3.14. Written Action. Any action which might be taken
at a meeting of the Board of Directors, or any duly constituted committee
thereof, may be taken without a meeting if done in writing and signed by all of
the directors or committee members. Any action, other than an action requiring
shareholder approval, which might be taken at a meeting of the Board of
Directors, or any duly constituted committee thereof, may be taken without a
meeting if done in writing and signed by a majority of all of the directors or
committee members.

Section 3.15. Compensation. Directors shall receive such fixed
sum per meeting attended or such fixed annual sum as shall be determined, from
time to time, by resolution of the Board of Directors. All directors shall
receive their expenses, if any, of attendance at meetings of the Board of
Directors or any committee thereof. Nothing herein contained shall be construed
to preclude any director from serving this corporation in any other capacity and
receiving proper compensation therefor.

ARTICLE IV.
OFFICERS AND CHAIRMAN OF THE BOARD OF DIRECTORS

Section 4.01. Number. The officers of the corporation shall
consist of the President, one or more Vice Presidents (if desired by the Board),
a Secretary, a Treasurer and such other officers and agents as may, from time to
time, be elected by the Board of Directors. Any number of offices may be held by
the same person.

Section 4.02. Election, Term of Office and Qualifications. The
Board of Directors shall elect, from within or without their number, the
officers referred to in Section 4.01 of these Bylaws, each of whom shall have
the powers, rights, duties, responsibilities and terms in office provided for in
these Bylaws or a resolution of the Board not inconsistent therewith. The
President and all other officers who may be directors shall continue to hold
office until the election and qualification of their successors, notwithstanding
an earlier termination of their directorship.

Section 4.03. Resignation. Any officer (or the Chairman of the
Board of Directors) may resign his office at any time by delivering a written
resignation to the corporation. Unless otherwise specified therein, such
resignation shall take effect upon delivery.

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<PAGE>

Section 4.04. Removal and Vacancies. Any officer (or the
Chairman of the Board of Directors) may be removed from his office by a majority
of the Board of Directors with or without cause. Such removal, however, shall be
without prejudice to the contract rights of the person so removed. If there be a
vacancy among the officers (or the Chairman of the Board of Directors) of the
corporation by reason of death, resignation or otherwise, such vacancy shall be
filled for the unexpired term by the Board of Directors.

Section 4.05. Chairman of the Board. The Board of Directors
may elect one of its members as Chairman of the Board. The Chairman of the
Board, if one is elected, shall preside at all meetings of the shareholders and
directors and shall have such other duties as may be prescribed, from time to
time, by the Board of Directors. The Chairman of the Board of Directors will
under no circumstances be deemed to be an "officer" of the corporation, and an
individual serving as Chairman of the Board of Directors will not be deemed to
be an "affiliated person" with respect to the corporation (under the Investment
Company Act of 1940, as amended) solely by virtue of such person's position as
Chairman of the Board of Directors of the corporation.

Section 4.06. President. The President shall have general
active management of the business of the corporation. In the absence of the
Chairman of the Board, he shall preside at all meetings of the shareholders and
directors. He shall be the chief executive officer of the corporation and shall
see that all orders and resolutions of the Board of Directors are carried into
effect. He shall be ex officio a member of all standing committees. He may
execute and deliver, in the name of the corporation, any deeds, mortgages,
bonds, contracts or other instruments pertaining to the business of the
corporation and, in general, shall perform all duties usually incident to the
office of the President. He shall have such other duties as may, from time to
time, be prescribed by the Board of Directors.

Section 4.07. Vice President. Each Vice President shall have
such powers and shall perform such duties as may be specified in the Bylaws or
prescribed by the Board of Directors or by the President. In the event of
absence or disability of the President, Vice Presidents shall succeed to his
power and duties in the order designated by the Board of Directors.

Section 4.08. Secretary. The Secretary shall be secretary of,
and shall attend, all meetings of the shareholders and Board of Directors and
shall record all proceedings of such meetings in the minute book of the
corporation. He shall give proper notice of meetings of shareholders and
directors. He shall perform such other duties as may, from time to time, be
prescribed by the Board of Directors or by the President.

Section 4.09. Treasurer. The Treasurer shall be the chief
financial officer and shall keep accurate accounts of all money of the
corporation received or disbursed. He shall deposit all moneys, drafts and
checks in the name of, and to the credit of, the corporation in such banks and
depositories as a majority of the Board of Directors shall,

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<PAGE>

from time to time, designate. He shall have power to endorse, for deposit, all
notes, checks and drafts received by the corporation. He shall disburse the
funds of the corporation, as ordered by the Board of Directors, making proper
vouchers therefor. He shall render to the President and the directors, whenever
required, an account of all his transactions as Treasurer and of the financial
condition of the corporation, and shall perform such other duties as may, from
time to time, be prescribed by the Board of Directors or by the President.

Section 4.10. Assistant Secretaries. At the request of the
Secretary, or in his absence or disability, any Assistant Secretary shall have
power to perform all the duties of the Secretary, and, when so acting, shall
have all the powers of, and be subject to all restrictions upon, the Secretary.
The Assistant Secretaries shall perform such other duties as from time to time
may be assigned to them by the Board of Directors or the President.

Section 4.11. Assistant Treasurers. At the request of the
Treasurer, or in his absence or disability, any Assistant Treasurer shall have
power to perform all the duties of the Treasurer, and when so acting, shall have
all the powers of, and be subject to all the restrictions upon, the Treasurer.
The Assistant Treasurers shall perform such other duties as from time to time
may be assigned to them by the Board of Directors or the President.

Section 4.12. Compensation. The officers (and the Chairman of
the Board of Directors) of this corporation shall receive such compensation for
their services as may be determined, from time to time, by resolution of the
Board of Directors.

Section 4.13. Surety Bonds. The Board of Directors may require
any officer or agent of the corporation to execute a bond (including, without
limitation, any bond required by the Investment Company Act of 1940 and the
rules and regulations of the Securities and Exchange Commission) to the
corporation in such sum and with such surety or sureties as the Board of
Directors may determine, conditioned upon the faithful performance of his duties
to the corporation, including responsibility for negligence and for the
accounting of any of the corporation's property, funds or securities that may
come into his hands. In any such case, a new bond of like character shall be
given at least every six years, so that the dates of the new bond shall not be
more than six years subsequent to the date of the bond immediately preceding.

ARTICLE V.
SHARES AND THEIR TRANSFER AND REDEMPTION

Section 5.01. Certificate for Shares.

(a) The corporation may have certificated or uncertificated
shares, or both, as designated by resolution of the Board of Directors. Every
owner of certificated shares of the corporation shall be entitled to a
certificate, to be in such form as shall be

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<PAGE>

prescribed by the Board of Directors, certifying the number of shares of the
corporation owned by him. Within a reasonable time after the issuance or
transfer of uncertificated shares, the corporation shall send to the new
shareholder the information required to be stated on certificates. Certificated
shares shall be numbered in the order in which they shall be issued and shall be
signed, in the name of the corporation, by the President or a Vice President and
by the Secretary or an Assistant Secretary or by such officers as the Board of
Directors may designate. Such signatures may be by facsimile if authorized by
the Board of Directors. Every certificate surrendered to the corporation for
exchange or transfer shall be cancelled, and no new certificate or certificates
shall be issued in exchange for any existing certificate until such existing
certificate shall have been so cancelled, except in cases provided for in
Section 5.08.

(b) In case any officer, transfer agent or registrar who shall
have signed any such certificate, or whose facsimile signature has been placed
thereon, shall cease to be such an officer (because of death, resignation or
otherwise) before such certificate is issued, such certificate may be issued and
delivered by the corporation with the same effect as if he were such officer,
transfer agent or registrar at the date of issue.

Section 5.02. Issuance of Shares. The Board of Directors is
authorized to cause to be issued shares of the corporation up to the full amount
authorized by the Articles of Incorporation in such series or classes and in
such amounts as may be determined by the Board of Directors and as may be
permitted by law. No shares shall be allotted except in consideration of cash or
other property, tangible or intangible, received or to be received by the
corporation under a written agreement, of services rendered or to be rendered to
the corporation under a written agreement, or upon a share dividend. At the time
of such allotment of shares, the Board of Directors making such allotments shall
state, by resolution, their determination of the fair value to the corporation
in monetary terms of any consideration other than cash for which shares are
allotted. No shares of stock issued by the corporation shall be issued, sold or
exchanged by or on behalf of the corporation for any amount less than the net
asset value per share of the shares outstanding as determined pursuant to
Article X hereunder.

Section 5.03. Redemption of Shares. Upon the demand of any
shareholder, this corporation shall redeem any share of stock issued by it held
and owned by such shareholder at the net asset value thereof as determined
pursuant to Article X hereunder. The Board of Directors may suspend the right of
redemption or postpone the date of payment during any period when: (a) trading
on the New York Stock Exchange is restricted or such Exchange is closed for
other than weekends or holidays; (b) the Securities and Exchange Commission has
by order permitted such suspension; or (c) an emergency as defined by rules of
the Securities and Exchange Commission exists, making disposal of portfolio
securities or valuation of net assets of the corporation not reasonably
practicable.

If the value of such shareholder's interest in the corporation
falls below the required minimum investment, as may be set from time to time by
the Board of

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<PAGE>

Directors, the corporation's officers are authorized, in their discretion and on
behalf of the corporation, to redeem such shareholder's entire interest and
remit such amount, provided that such a redemption will only be effected by the
corporation following: (a) a redemption by a shareholder, which causes the value
of such shareholder's interest in the corporation to fall below the required
minimum investment; (b) the mailing by the corporation to such shareholder of a
"notice of intention to redeem"; and (c) the passage of at least sixty (60) days
from the date of such mailing, during which time the shareholder will have the
opportunity to make an additional investment in the corporation to increase the
value of such shareholder's account to at least the required minimum investment.

Section 5.04. Transfer of Shares. Transfer of shares on the
books of the corporation may be authorized only by the shareholder named in the
certificate, or the shareholder's legal representative, or the shareholder's
duly authorized attorney-in-fact, and upon surrender of the certificate or the
certificates for such shares or a duly executed assignment covering shares held
in unissued form. The corporation may treat as the absolute owner of shares of
the corporation the person or persons in whose name shares are registered on the
books of the corporation.

Section 5.05. Registered Shareholders. The corporation shall
be entitled to treat the holder of record of any share or shares of stock as the
holder in fact thereof and accordingly shall not be bound to recognize any
equitable or other claim to or interest in such share on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise expressly provided by the laws of Minnesota.

Section 5.06. Transfer of Agents and Registrars. The Board of
Directors may from time to time appoint or remove transfer agents and/or
registrars of transfers of shares of stock of the corporation, and it may
appoint the same person as both transfer agent and registrar. Upon any such
appointment being made all certificates representing shares of capital stock
thereafter issued shall be countersigned by one of such transfer agents or by
one of such registrars of transfers or by both and shall not be valid unless so
countersigned. If the same person shall be both transfer agent and registrar,
only one countersignature by such person shall be required.

Section 5.07. Transfer Regulations. The shares of stock of the
corporation may be freely transferred, and the Board of Directors may from time
to time adopt rules and regulations with reference to the method of transfer of
shares of stock of the corporation.

Section 5.08. Lost, Stolen, Destroyed and Mutilated
Certificates. The holder of any stock of the corporation shall immediately
notify the corporation of any loss, theft, destruction or mutilation of any
certificate therefor, and the Board of Directors may, in its discretion, cause
to be issued to him a new certificate or certificates of stock, upon the
surrender of the mutilated certificate or in case of loss, theft or destruction
of the certificate upon satisfactory proof of such loss, theft or destruction. A
new certificate or certificates of stock will be issued to the owner of the
lost, stolen or

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<PAGE>

destroyed certificate only after such owner, or his legal representatives, gives
to the corporation and to such registrar or transfer agent as may be authorized
or required to countersign such new certificate or certificates a bond, in such
sum as they may direct, and with such surety or sureties, as they may direct, as
indemnity against any claim that may be made against them or any of them on
account of or in connection with the alleged loss, theft or destruction of any
such certificate.

ARTICLE VI.
DIVIDENDS

Section 6.01. The net investment income of each series or
class of the corporation will be determined, and its dividends shall be declared
and made payable at such time(s), as the Board of Directors shall determine;
dividends shall be payable to shareholders of record as of the date specified or
ratified by the Board of Directors.

It shall be the policy of each series or class of the
corporation to qualify for and elect the tax treatment applicable to regulated
investment companies under the Internal Revenue Code, so that such series or
class will not be subjected to federal income tax on such part of its income or
capital gains as it distributes to shareholders.

ARTICLE VII.
BOOKS AND RECORDS, AUDIT, FISCAL YEAR

Section 7.01. Share Register. The Board of Directors of the
corporation shall cause to be kept at its principal executive office, or at
another place or places within the United States determined by the Board:

(1) a share register not more than one year old,
containing the names and addresses of the
shareholders and the number and series or class of
shares held by each shareholder; and

(2) a record of the dates on which certificates or
transaction statements representing shares were
issued.

Section 7.02. Other Books and Records. The Board of Directors
shall cause to be kept at its principal executive office, or, if its principal
executive office is not in Minnesota, shall make available at its registered
office within ten days after receipt by an officer of the corporation of a
written demand for them made by a shareholder or other person authorized by
Minnesota Statutes Section 302A.461, originals or copies of

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<PAGE>

the documents required by Minnesota Statutes Section 302A.461, Subd. 2, as the
same may be amended from time to time, or any successor provision.

Section 7.03. Audit; Accountant.

(a) The Board of Directors shall cause the records and books
of account of the corporation to be audited at least once in each fiscal year
and at such other times as it may deem necessary or appropriate.

(b) The corporation shall employ an independent public
accountant or firm of independent public accountants as its Accountant to
examine the accounts of the corporation and to sign and certify financial
statements filed by the corporation. The Accountant's certificates and reports
shall be addressed both to the Board of Directors and to the shareholders.

(c) A majority of the members of the Board of Directors shall
select the Accountant annually within a reasonable period before or after the
beginning of the corporation's fiscal year. Such selection shall be submitted
for ratification or rejection at the next succeeding regular shareholders'
meeting. If such meeting shall reject such selection, the Accountant shall be
selected by majority vote, either at the meeting at which the rejection occurred
or at a subsequent meeting of shareholders called for the purpose.

(d) Any vacancy occurring between annual meetings, due to the
death, resignation or otherwise of the Accountant, may be filled by the Board of
Directors.

Section 7.04. Fiscal Year. The fiscal year of the corporation
shall be determined by the Board of Directors.

ARTICLE VIII.
INDEMNIFICATION OF CERTAIN PERSONS

Section 8.01. The corporation shall indemnify such persons,
for such expenses and liabilities, in such manner, under such circumstances, and
to such extent as permitted by Section 302A.521 of the Minnesota Statutes, as
now enacted or hereafter amended, provided, however, that no such
indemnification may be made if it would be in violation of Section 17(h) of the
Investment Company Act of 1940, as now enacted or hereinafter amended.

ARTICLE IX.
VOTING OF STOCK HELD

Section 9.01. Unless otherwise provided by resolution of the
Board of Directors, the President, any Vice President, the Secretary or the
Treasurer, may from time to time appoint an attorney or attorneys or agent or
agents of the corporation, in

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<PAGE>

the name and on behalf of the corporation, to cast the votes which the
corporation may be entitled to cast as a stockholder or otherwise in any other
corporation or association, any of whose stock or securities may be held by the
corporation, at meetings of the holders of the stock or other securities of any
such other corporation or association, or to consent in writing to any action by
any such other corporation or association, and may instruct the person or
persons so appointed as to the manner of casting such votes or giving such
consent, and may execute or cause to be executed on behalf of the corporation,
such written proxies, consents, waivers or other instruments as it may deem
necessary or proper; or any of such officers may themselves attend any meeting
of the holders of stock or other securities of any such corporation or
association and thereat vote or exercise any or all other rights of the
corporation as the holder of such stock or other securities of such other
corporation or association, or consent in writing to any action by any such
other corporation or association.

ARTICLE X.
VALUATION OF NET ASSET VALUE

10.01. The net asset value per share of each series or class
of stock of the corporation shall be determined in good faith by or under
supervision of the officers of the corporation as authorized by the Board of
Directors as often and on such days and at such time(s) as the Board of
Directors shall determine, or as otherwise may be required by law, rule,
regulation or order of the Securities and Exchange Commission.

ARTICLE XI.
CUSTODY OF ASSETS

Section 11.01. All securities and cash owned by this
corporation shall, as hereinafter provided, be held by or deposited with a bank
or trust company having (according to its last published report) not less than
Two Million Dollars ($2,000,000) aggregate capital, surplus and undivided
profits (the "Custodian").

This corporation shall enter into a written contract with the
custodian regarding the powers, duties and compensation of the Custodian with
respect to the cash and securities of this corporation held by the Custodian.
Said contract and all amendments thereto shall be approved by the Board of
Directors of this corporation. In the event of the Custodian's resignation or
termination, the corporation shall use its best efforts promptly to obtain a
successor Custodian and shall require that the cash and securities owned by this
corporation held by the Custodian be delivered directly to such successor
Custodian.

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<PAGE>

ARTICLE XII.
AMENDMENTS

Section 12.01. These Bylaws may be amended or altered by a
vote of the majority of the Board of Directors at any meeting provided that
notice of such proposed amendment shall have been given in the notice given to
the directors of such meeting. Such authority in the Board of Directors is
subject to the power of the shareholders to change or repeal such bylaws by a
majority vote of the shareholders present or represented at any regular or
special meeting of shareholders called for such purpose, and the Board of
Directors shall not make or alter any Bylaws fixing a quorum for meetings of
shareholders, prescribing procedures for removing directors or filling vacancies
in the Board of Directors, or fixing the number of directors or their
classifications, qualifications or terms of office, except that the Board of
Directors may adopt or amend any Bylaw to increase or decrease their number.

ARTICLE XIII.
MISCELLANEOUS

Section 13.01. Interpretation. When the context in which words
are used in these Bylaws indicates that such is the intent, singular words will
include the plural and vice versa, and masculine words will include the feminine
and neuter genders and vice versa.

Section 13.02. Article and Section Titles. The titles of
Articles and Sections in these Bylaws are for descriptive purposes only and will
not control or alter the meaning of any of these Bylaws as set forth in the
text.

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<PAGE>

EXHIBIT (g)(3)

SUPPLEMENT TO CUSTODIAN AGREEMENT

FIRST AMERICAN STRATEGY FUNDS, INC.

U.S. BANK NATIONAL ASSOCIATION

WHEREAS, First American Strategy Funds, Inc., a mutual fund organized
as a Minnesota corporation (hereinafter called the "Fund"), and First Trust
National Association, a national banking association organized and existing
under the laws of the United States of America, previously entered into that
Custodian Agreement dated September 20, 1993. (the "Custodian Agreement"); and

WHEREAS, First Trust National Association, with the consent of the
Fund, assigned its rights and obligations under the Custodian Agreement to U.S.
Bank National Association, a national banking association organized and existing
under the laws of the United States of America (the "Custodian") by an
Assignment and Assumption Agreement dated as of May 1, 1998; and

WHEREAS, the Fund and the Custodian wish to supplement the Custodian
Agreement as set forth herein.

NOW, THEREFORE, the Fund and the Custodian hereby agree that:

1. Custodian shall hold harmless and indemnify Fund from and
against any claims, loss, liability or expense (collectively a
"Claim") arising out of Custodian's failure to comply with the
terms of this Agreement or arising out of Custodian's
negligence, willful misconduct, or bad faith. Custodian shall
not be liable for consequential, special or punitive damages.
Custodian may reasonably request and obtain the advice and
opinion of counsel for Fund, or of its own counsel with
respect to questions or matters of law, and it shall be
without liability to Fund for any action taken or omitted by
it in good faith, in conformity with such advice or opinion.

2. The Fund agrees to indemnify and hold the Custodian harmless
from and against any Claim arising from the Custodian's
performance of its duties hereunder or its actions taken at
the direction of the Fund, provided that the Custodian shall
not be indemnified for any Claim arising out of Custodian's
failure to comply with the terms of this Agreement or arising
out of Custodian's negligence, bad faith or willful
misconduct. Fund shall not be liable for consequential,
special or punitive damages.

3. Custodian may rely upon the advice of Fund and upon statements
of Fund's accountants and other persons believed by it in good
faith, to be experts in matters upon which they are consulted,
and Custodian shall not be liable for any actions taken, in
good faith without negligence in reliance upon such
statements.

<PAGE>

4. If Fund requires Custodian in any capacity to take, with
respect to any securities, any action which involves the
payment of money by it, or which in Custodian's opinion might
make it or its nominee liable for payment of monies or in any
other way, Custodian, upon notice to Fund given prior to such
actions, shall be and be kept indemnified by Fund in an amount
and form satisfactory to Custodian against any liability on
account of such action.

5. Custodian shall be entitled to receive, and Fund agrees to pay
to Custodian, on demand, reimbursement for such cash
disbursements, costs and expenses as may be agreed upon from
time to time by Custodian and Fund.

6. Custodian shall be protected in acting as custodian hereunder
upon any instructions, advice, notice, request, consent,
certificate or other instrument or paper reasonably appearing
to it to be genuine and to have been properly executed and
shall, unless otherwise specifically provided herein, be
entitled to receive as conclusive proof of any fact or matter
required to be ascertained from Fund hereunder, a certificate
signed by the Fund's President, or other officer specifically
authorized for such purpose.

7. Without limiting the generality of the foregoing, Custodian
shall be under no duty or obligation to inquire into, and
shall not be liable for:

a. The validity of the issue of any securities purchased
by or for Fund, the legality of the purchase thereof
or evidence of ownership required by Fund to be
received by Custodian, or the propriety of the
decision to purchase or amount paid therefore; or

b. The legality of the sale of any securities by or for
Fund, or the propriety of the amount for which the
same are sold.

8. Custodian shall not be liable for any loss or diminution of
securities by reason of investment experience or for its
actions taken in reliance upon an instruction from Fund.

9. Custodian shall not be liable for, or considered to be
Custodian of, any money represented by any check, draft, wire
transfer, clearing house funds, uncollected funds, or
instrument for the payment or money received by it on behalf
of Fund, until Custodian actually receives such money,
provided only that it shall advise Fund promptly if it fails
to receive any such money in the ordinary course of business,
and use its best efforts and cooperate with Fund toward the
end that such money shall be received.

10. Custodian shall not be responsible for loss occasioned by the
acts, neglect, defaults or insolvency of any broker, bank
trust company, or any other person with whom Custodian may
deal in the absence of negligence, or bad faith on the part of
Custodian.

2
<PAGE>

IN WITNESS WHEREOF, the parties have caused this Supplement to be duly
executed and delivered as of December 8, 1999.

FIRST AMERICAN STRATEGY FUNDS,
INC.

By
---------------------------------------
Its
------------------------------------

U.S. BANK NATIONAL ASSOCIATION

By
---------------------------------------
Its
------------------------------------

3
<PAGE>

EXHIBIT (h)(1)

ADMINISTRATION AGREEMENT

THIS AGREEMENT, made as of this 1st day of January 2000, by and
between First American Strategy Funds, Inc., a Minnesota corporation (the
"Fund"), and U.S. Bank National Association, a national banking association
organized and existing under the laws of the United States of America (the
"Administrator").

WHEREAS, the Fund is an open-end diversified management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"), consisting of several series of shares of Common Stock; and

WHEREAS, the Fund desires the Administrator to provide, and the
Administrator is willing to provide, administrative and other services as set
forth herein to such portfolios of the Fund as the Fund and the Administrator
may agree ("Portfolios") and as listed on the schedules attached hereto
("Schedules") and made a part of this Agreement, on the terms and conditions
hereinafter set forth;

NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Fund and the Administrator hereby agree as follows:

ARTICLE 1. Retention of the Administrator. The Fund hereby retains
the Administrator to act as the administrator of the Portfolios and to furnish
the Portfolios with the administrative and other services set forth in Article 2
below. The Administrator hereby accepts such employment to perform the duties
set forth below.

The Administrator shall, for all purposes herein, be deemed to be an
independent contractor and, unless otherwise expressly provided or authorized,
shall have no authority to act for or represent the Fund in any way and shall
not be deemed an agent of the Fund.

ARTICLE 2. Administrative Services. The Administrator shall perform,
or supervise the performance by others of, administrative and other services as
set forth herein in connection with the operations of the Portfolios. The
Administrator is authorized to appoint and compensate from its resources one or
more other entities to perform such services on a subcontracted basis in
connection with the operations of the Portfolios and, on behalf of the Fund,
will investigate, assist in the selection of and conduct relations with
custodians, depositories, accountants, legal counsel, underwriters, brokers and
dealers, corporate fiduciaries, insurers, banks and persons in any other
capacity deemed to be necessary or desirable for the Portfolios' operations. If
the Administrator appoints one or more other entities to perform services called
for by this Agreement on a subcontracted basis as aforesaid, the Administrator
nevertheless shall remain liable to the Fund and the Portfolios for the acts and
omissions of such other entities as if the Administrator itself performed such
services.

(A) Administrative and Accounting Services. The Administrator shall
provide the Fund with regulatory reporting, fund accounting and related
portfolio accounting services, all necessary office space, equipment, personnel,
compensation and facilities (including facilities for Shareholders' and
Directors' meetings) for handling the affairs of the Portfolios and such other

<PAGE>

services as the Administrator shall, from time to time, determine to be
necessary to perform its obligations under this Agreement. In addition, at the
request of the Board of Directors, the Administrator shall make reports to the
Fund's Directors concerning the performance of its obligations hereunder
including such activities as are set forth on Exhibit A hereto, as amended by
agreement of the parties from time to time.

Without limiting the generality of the foregoing, the Administrator shall:

(a) calculate Fund expenses and control all disbursements for the
Fund, and as appropriate compute the Fund's yields, total
return, expense ratios, portfolio turnover rate and, if
required, portfolio average dollar-weighted maturity;

(b) assist outside Fund counsel with preparation of prospectuses,
statements of additional information, registration statements
and proxy materials;

(c) prepare such reports, applications and documents (including
reports regarding the sale and redemption of shares as may be
required in order to comply with Federal and state securities
law) as may be necessary or desirable to register the Fund's
shares with state securities authorities, monitor sale of Fund
shares for compliance with state securities laws, and file
with the appropriate securities authorities the registration
statements and reports for the Fund and the Fund's shares and
all amendments thereto, as may be necessary or convenient to
register and keep effective the Fund and the Fund's shares
with state securities authorities to enable the Fund to make a
continuous offering of its shares;

(d) develop and prepare communications to shareholders, including
the annual report to shareholders, coordinate mailing
prospectuses, notices, proxy statements, proxies and other
reports to Fund shareholders, and supervise and facilitate the
solicitation of proxies solicited by the Fund for all
shareholder meetings, including the tabulation process for
shareholder meetings;

(e) prepare, negotiate, and administer contracts on behalf of the
Fund with, among others, the Fund's distributor, subject to
any approvals or reapprovals by the Fund's Board of Directors
required by applicable law or Board procedures;

(f) maintain the Fund's general ledger and prepare the Fund's
financial statements, including expense accruals and payments,
determine the net asset value of the Fund's assets and of the
Fund's shares, and provide for the payment of dividends and
other distributions to shareholders;

(g) calculate performance data of the Fund and the Portfolios for
dissemination to information services covering the investment
company industry;

(h) coordinate and supervise the preparation and filing of the
Fund's tax returns;

2
<PAGE>

(i) examine and review the operations and performance of the
various organizations providing services to the Fund or any
Portfolio directly or on a subcontracted basis as provided for
herein including, without limitation, the Fund's distributor,
transfer agent, accounting services agent, outside Fund
counsel and independent public accountants, and at the request
of the Board of Directors, report to the Board on the
performance of such organizations;

(j) provide for and coordinate the layout and printing of publicly
disseminated prospectuses and the Fund's semi-annual and
annual reports to shareholders;

(k) provide internal legal and administrative services as
requested by the Fund from time to time;

(l) provide for and coordinate the design, development, and
operation of the Fund, including new portfolio and class
investment objectives, policies and structure;

(m) provide individuals reasonably acceptable to the Fund's Board
of Directors for nomination, appointment, or election as
officers of the Fund, who will be responsible for the
management of certain of the Fund's affairs as determined by
the Fund's Board of Directors;

(n) advise the Fund and its Board of Directors on matters
concerning the Fund and its affairs;

(o) obtain and keep in effect fidelity bonds and directors and
officers/errors and omissions insurance policies for the Fund
in accordance with the requirements of Rules 17g-1 and
17d-1(7) under the 1940 Act as such bonds and policies are
approved by the Fund's Board of Directors;

(p) monitor and advise the Fund and the Portfolios on their
registered investment company status under the Internal
Revenue Code of 1986, as amended;

(q) perform all administrative services and functions required for
the operation of the Fund and each Portfolio to the extent
such administrative services and functions are not provided to
the Fund or such Portfolio pursuant to the Fund's or such
Portfolio's investment advisory agreement, distribution
agreement and custodian agreement;

(r) furnish advice and recommendations with respect to other
aspects of the business and affairs of the Portfolios as the
Fund and the Administrator shall determine desirable; and

(s) prepare and file with the SEC the semi-annual reports for the
Fund on Form N-SAR and all required notices pursuant to Rule
24f-2.

3
<PAGE>

Also, the Administrator will perform other services for the Fund as agreed from
time to time at the request of the Board of Directors, including, but not
limited to, performing internal audit examinations; mailing annual reports of
the Portfolios; preparing a list of shareholders; and mailing notices of
shareholders' meetings, proxies and proxy statements, for all of which the Fund
will pay the Administrator's out-of-pocket expenses.

(B) Transfer Agency and Dividend Disbursing Services. The
Administrator agrees to perform the usual and ordinary services of transfer
agent and dividend disbursing agent including, without limitation, the
following: maintaining all shareholder accounts; preparing shareholder meeting
lists; mailing shareholder reports and prospectuses; tracking shareholder
accounts for Blue Sky and Rule 12b-1 purposes; withholding taxes on non-resident
alien and foreign corporation accounts; preparing and mailing checks for
disbursement of income dividends and capital gains distributions; preparing and
filing U.S. Treasury Department Form 1099 for all shareholders; preparing and
mailing confirmation forms to shareholders and dealers with respect to all
purchases, exchanges and liquidations of Fund shares and other transactions in
shareholder accounts for which confirmations are required; recording
reinvestments of dividends and distributions in Fund shares; recording
redemptions and Fund shares; and preparing and mailing checks for payments upon
redemption and for disbursements to withdrawal plan holders. The Administrator
has and will maintain all registrations required under applicable law in order
for it to perform such transfer agency services and maintains and will maintain
such records as are required under applicable law in connection with the
provision of such services.

(C) Shareholder Services. The Administrator may provide the Fund
with other services to shareholders not otherwise the subject of this Article 2.
These shareholder services may include personal services provided to
shareholders, such as answering shareholder inquiries regarding a Portfolio and
providing reports and other information and services related to the maintenance
of shareholder accounts. The Fund hereby also authorizes the Administrator to
contract with qualifying broker-dealers, financial institutions and other such
entities for the provision of such services to Fund shareholders. Any such
arrangements shall be outside any shareholder servicing plans or agreements
entered into by the Fund, and the Administrator shall pay the amounts due to
such qualifying broker-dealers, financial institutions and other entities under
any such arrangements from the Administrator's own resources.

ARTICLE 3. Allocation of Charges and Expenses.

(A) The Administrator. The Administrator shall furnish at its own
expense the executive, supervisory and clerical personnel necessary to perform
its obligations under this Agreement. The Administrator shall also provide the
items which it is obligated to provide under this Agreement, and shall pay all
compensation, if any, of officers of the Fund as well as all Directors of the
Fund who are officers or employees of the Administrator or any affiliated
corporation of the Administrator; provided, however, that unless otherwise
specifically provided, the Administrator shall not be obligated to pay the
compensation of any employee of the Fund retained by the Directors of the Fund
to perform services on behalf of the Fund.

4
<PAGE>

(B) The Fund. The Fund assumes and shall pay or cause to be paid all
other expenses of the Fund not otherwise allocated herein, including, without
limitation, organizational costs, taxes, expenses for outside Fund counsel and
independent auditing services, the expenses of preparing (including
typesetting), printing and mailing reports, prospectuses, statements of
additional information, proxy solicitation material and notices to existing
shareholders, all expenses incurred in connection with issuing and redeeming
shares, the costs of custodial services, reasonable disbursements in connection
with providing transfer agency services including, without limitation, postage
and telephone communications expense, the cost of initial and ongoing
registration of the shares under Federal and state securities laws, fees and
out-of-pocket expenses of Directors who are not affiliated officers or employees
of the Administrator or any affiliated corporation of the Administrator,
insurance, interest, brokerage costs, dues and other expenses incident to the
Fund's membership in the Investment Company Institute and other like
associations, shareholder meetings, corporate reports and reports and notices to
shareholders, litigation and other extraordinary or nonrecurring expenses, and
all fees and charges of investment advisers to the Fund. The Administrator shall
provide such information to the Board at such times as the Board may reasonably
request to enable the Board to monitor such Fund expenses.

ARTICLE 4. Compensation of the Administrator.

(A) Administration Fee. For the services to be rendered, the
facilities furnished and the expenses assumed by the Administrator pursuant to
this Agreement, the Fund shall pay to the Administrator compensation at an
annual rate specified in the Schedule. Such compensation shall be calculated and
accrued daily, and paid to the Administrator monthly. The Fund shall also
reimburse the Administrator for its reasonable out-of-pocket expenses including
the travel and lodging expenses incurred by officers and employees of the
Administrator in connection with attendance at Board meetings.

If this Agreement becomes effective subsequent to the first day of a
month or terminates before the last day of a month, the Administrator's
compensation for that part of the month in which this Agreement is in effect
shall be prorated in a manner consistent with the calculation of the fees as set
forth above. Payment of the Administrator's compensation for the preceding month
shall be made promptly.

(B) Compensation from Transactions. The Fund hereby authorizes any
entity or person associated with the Administrator which is a member of a
national securities exchange to effect any transaction on the exchange for the
account of the Fund which is permitted by Section 11(a) of the Securities
Exchange Act of 1934 and Rule 11a2-2(T) thereunder, and the Fund hereby consents
to the retention of compensation for such transactions in accordance with Rule
11a2-2(T)(a)(2)(iv).

(C) Survival of Compensation Rates. All rights of compensation under
this Agreement for services performed as of the termination date shall survive
the termination of this Agreement.

5
<PAGE>

ARTICLE 5. Limitation of Liability of the Administrator. The duties
of the Administrator shall be confined to those expressly set forth herein, and
no implied duties are assumed by or may be asserted against the Administrator
hereunder. The Administrator shall not be liable for any error of judgment or
mistake of law or for any loss arising out of any investment or for any act or
omission in carrying out its duties hereunder, except a loss resulting from
willful misfeasance, bad faith or negligence in the performance of its duties,
or by reason of reckless disregard of its obligations and duties hereunder,
except as may otherwise be provided under provisions of applicable law which
cannot be waived or modified hereby. (As used in this Article 5, the term
"Administrator" shall include directors, officers, employees and other corporate
agents of the Administrator as well as that corporation itself.)

So long as the Administrator acts in good faith and with due
diligence and without negligence, the Fund assumes full responsibility and shall
indemnify the Administrator and hold it harmless from and against any and all
actions, suits and claims, whether groundless or otherwise, and from and against
any and all losses, damages, costs, charges, reasonable counsel fees and
disbursements, payments, expenses and liabilities (including reasonable
investigation expenses) arising directly or indirectly out of said
administration, transfer agency, and dividend disbursing relationships to the
Fund or any other service rendered to the Fund hereunder. The indemnity and
defense provisions set forth herein shall indefinitely survive the termination
of this Agreement.

The rights hereunder shall include the right to reasonable advances
of defense expenses in the event of any pending or threatened litigation with
respect to which indemnification hereunder may ultimately be merited; provided,
however, that in the event that it is ultimately determined that indemnification
is not warranted, any such amounts advanced hereunder shall be repaid. In order
that the indemnification provision contained herein shall apply, however, it is
understood that if in any case the Fund may be asked to indemnify or hold the
Administrator harmless, the Fund shall be fully and promptly advised of all
pertinent facts concerning the situation in question, and it is further
understood that the Administrator will use all reasonable care to identify and
notify the Fund promptly concerning any situation which presents or appears
likely to present the probability of such a claim for indemnification against
the Fund, but failure to do so in good faith shall not affect the rights
hereunder.

The Fund shall be entitled to participate at its own expense or, if
it so elects, to assume the defense of any suit brought to enforce any claims
subject to this indemnity provision. If the Fund elects to assume the defense of
any such claim, the defense shall be conducted by counsel chosen by the Fund and
satisfactory to the Administrator, whose approval shall not be unreasonably
withheld. In the event that the Fund elects to assume the defense of any suit
and retain counsel, the Administrator shall bear the fees and expenses of any
additional counsel retained by it. If the Fund does not elect to assume the
defense of a suit, it will reimburse the Administrator for the reasonable fees
and expenses of any counsel retained by the Administrator.

The Administrator may apply to the Fund at any time for instructions
and may consult outside counsel for the Fund or its own counsel and with
accountants and other experts with respect to any matter arising in connection
with the Administrator's duties, and the Administrator

6
<PAGE>

shall not be liable or accountable for any action taken or omitted by it in good
faith in accordance with such instruction or with the opinion of such counsel,
accountants or other experts.

Also, the Administrator shall be protected in acting upon any
document which it reasonably believes to be genuine and to have been signed or
presented by the proper person or persons.

ARTICLE 6. Activities of the Administrator. The services of the
Administrator rendered to the Fund are not to be deemed to be exclusive. The
Administrator is free to render such services to others and to have other
businesses and interests. It is understood that directors, officers, employees
and shareholders of the Fund are or may be or become interested in the
Administrator, as directors, officers, employees and shareholders or otherwise
and that directors, officers, employees and shareholders of the Administrator
are or may be or become similarly interested in the Fund, and that the
Administrator may be or become interested in the Fund as a shareholder or
otherwise.

ARTICLE 7. Duration of this Agreement. The Term of this Agreement
shall be as specified in the Schedule.

This Agreement shall not be assignable by either party without the
written consent of the other party.

ARTICLE 8. Amendments. This Agreement may be amended by the parties
hereto only if such amendment is specifically approved (i) by the vote of a
majority of the Directors of the Fund, and (ii) by the vote of a majority of the
Directors of the Fund who are not parties to this Agreement or interested
persons of any such party, cast in person at a Board of Directors meeting called
for the purpose of voting on such approval.

ARTICLE 9. Certain Records. The Administrator shall maintain
customary records in connection with its duties as specified in this Agreement.
Any records required to be maintained and preserved pursuant to Rules 31a-1 and
31a-2 under the 1940 Act which are prepared or maintained by the Administrator
on behalf of the Fund shall be prepared and maintained at the expense of the
Administrator, but shall be the property of the Fund and will be made available
to or surrendered promptly to the Fund on request.

In case of any request or demand for the inspection of such records
by another party, the Administrator shall notify the Fund and follow the Fund's
instructions as to permitting or refusing such inspection; provided that the
Administrator may exhibit such records to any person in any case where it is
advised by its counsel that it may be held liable for failure to do so, unless
(in cases involving potential exposure only to civil liability) the Fund has
agreed to indemnify the Administrator against such liability.

ARTICLE 10. Definitions of Certain Terms. The terms "interested
person" and "affiliated person", when used in this Agreement, shall have the
respective meanings specified in the 1940 Act and the rules and regulations
thereunder, subject to such exemptions as may be granted by the Securities and
Exchange Commission.

7
<PAGE>

ARTICLE 11. Notice. Any notice required or permitted to be given by
either party to the other shall be deemed sufficient if sent by registered or
certified mail, postage prepaid, addressed by the party giving notice to the
other party (a) in the case of notice to the Fund, to the Chair of the Board of
Directors of the Fund at the last address furnished by such person or, if the
Chair is an affiliated person or interested person of the Administrator, to the
Directors of the Fund who are not such affiliated persons or interested persons
at the last addresses furnished by such persons, and (b) in the case of notice
to the Administrator, to the last address furnished by the Administrator for
such purpose.

ARTICLE 12. Governing Law. This Agreement shall be construed in
accordance with the laws of the State of Minnesota and the applicable provisions
of the 1940 Act. To the extent that the applicable laws of the State of
Minnesota, or any of the provisions herein, conflict with the applicable
provisions of the 1940 Act, the latter shall control.

ARTICLE 13. Multiple Originals. This Agreement may be executed in
two or more counterparts, each of which when so executed shall be deemed to be
an original, but such counterparts shall together constitute but one and the
same instrument.

IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the day and year first above written.

FIRST AMERICAN STRATEGY FUNDS, INC.

By
---------------------------------------
Its
------------------------------------

U.S. BANK NATIONAL ASSOCIATION

By
---------------------------------------
Its
------------------------------------

8
<PAGE>

SCHEDULE TO THE
ADMINISTRATION AGREEMENT
DATED AS OF JANUARY 1, 2000
BETWEEN
FIRST AMERICAN STRATEGY FUNDS, INC.
AND
U.S. BANK NATIONAL ASSOCIATION

Portfolios: This Agreement shall apply to all Portfolios of First
American Strategy Funds, Inc., either now or hereafter
created (collectively, the "Portfolios").

Fees: Pursuant to Article 4, the Fund shall pay the
Administrator compensation for services rendered to the
Portfolios at an annual rate, which is calculated daily
and paid monthly, equal to such Portfolio's pro rata
share of an amount equal to (i) .07% of the aggregate
average daily net assets of all mutual funds in the
First American family of funds ("First American Fund
Family") up to $8 billion, and (ii) .055% of the
aggregate average daily net assets of the First American
Fund Family in excess of $8 billion. For the purposes of
this provision, the First American Fund Family includes
all series of First American Funds, Inc., First American
Investment Funds, Inc., First American Strategy Funds,
Inc., and First American Insurance Portfolios, Inc.

In addition, the Fund shall pay the Administrator the
following fees for transfer agency and dividend
disbursing services:

Annual CUSIP Fee: $18,500/CUSIP/year

Open Account Fee:
* Internal Accounts $15.00/account/year
* Third Party/External Accounts $15.00/account/year
* IRA Accounts $15.00/account/year
* Certificate Processing N/A

Closed Account Fee:
* Internal Accounts N/A
* Third Party/External Accounts $3.50/account/year

Term: Pursuant to Article 7, the term of this Agreement,
unless sooner terminated as specified under the heading
"Termination" below, shall commence on January 1, 2000
and shall remain in effect through December 31, 2002
("Initial Term") and the Initial Term shall be
automatically extended on January 1, 2002 for one
successive two-year period (i.e., through December 31,
2004) if the Administrator has met or exceeded the
written service level standards set forth on Exhibit A
to this Agreement (the "Service Standards") on no less
than 90% of such Service Standards on a cumulative basis
during the period commencing January 1, 2000 and ending
on December 31, 2001. The Initial Term (as

S-1
<PAGE>

extended) shall thereafter be automatically extended on
January 1 of each year commencing with January 1, 2004,
(the "Extension Date") for successive one-year periods
(e.g., in the instance where the Extension Date is
January 1, 2004, through December 31, 2005) if the
Administrator has met or exceeded at least 90% of the
Service Standards on a cumulative basis during the prior
two-year period ending on the applicable Extension Date.
Calculation of compliance with the Service Standards
will be measured monthly, and reported to the Board of
Directors of First American Strategy Funds, Inc.
quarterly, as a fraction, the numerator of which is the
number of Service Standard events that were met in such
month and the denominator of which is the number of
Service Standard events to be completed for such month
("Service Level Percentage"). The Administrator will
calculate the compliance percentage, and Ernst & Young
will review such calculation, on a quarterly basis. Any
disagreements will be reported to the Board of Directors
of the First American Strategy Funds, Inc. for
resolution, in the Board's good faith judgment.

Termination: The Administration Agreement will be terminable by the
Portfolios by delivery to the Administrator of written
notice: (i) for any reason on six months prior written
notice to the Administrator; (ii) in the event of the
Administrator's bankruptcy or insolvency; (iii) in the
event of a conviction of the Administrator for corporate
criminal activity; (iv) if in any consecutive six-month
period the average cumulative Service Level Percentage
is less than 50%; or (v) if the Administrator has
materially failed to perform its responsibilities as
administrator under this Agreement, and such material
failure has not been cured within 45 days after written
notice is received by the Administrator specifying the
nature of the failure. The Administration Agreement will
be terminable by the Administrator by delivery to the
Portfolios of written notice of termination delivered no
less than 180 days prior to the end of the Initial Term
(as extended if applicable).

Agreed to and accepted Agreed to and accepted
FIRST AMERICAN STRATEGY FUNDS, INC. U.S. BANK NATIONAL ASSOCIATION

By By
------------------------------------ ------------------------------------
Its Its
--------------------------------- ---------------------------------
Dated: January 1, 2000 Dated: January 1, 2000

S-2

<PAGE>

EXHIBIT (j)(1)

CONSENT OF Ernst & Young LLP, INDEPENDENT AUDITORS

We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectus and "Custodian; Counsel; Auditors" in the
Statement of Additional Information and to the incorporation by reference in
this Post-Effective Amendment Number 7 to the Registration Statement (Form
N-1A)(Nos. 333-7463/811-7687) of First American Strategy Funds, Inc. of our
report dated November 2, 1999, included in the 1999 Annual Report to
shareholders.

/s/ Ernst & Young LLP

Minneapolis, Minnesota
January 24, 2000

<PAGE>

EXHIBIT (j)(2)

Independent Auditors' Consent

The Board of Directors
First American Strategy Funds, Inc.:

We consent to the use of our report dated November 13, 1998, included herein,
and to the reference to our Firm under the heading "Custodian; Counsel;
Auditors" in Part B of the Registration Statement.

KPMG LLP

Minneapolis, Minnesota
January 24, 2000

<PAGE>

Independent Auditors' Report

The Board of Directors and Shareholders
First American Strategy Funds, Inc.

We have audited the statements of changes in net assets of Strategy Aggressive
Growth Fund, Strategy Growth Fund, Strategy Growth and Income Fund and Strategy
Income Fund for the year ended September 30, 1998 and the financial highlights
for each of the years in the two-year period ended September 30, 1998. These
financial statements and the financial highlights are the responsibility of the
funds' management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Investment securities held in custody are confirmed to us by the
custodian. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the statements of changes in net assets and the financial
highlights referred to above present fairly, in all material respects, the
changes in net assets and the financial highlights of the Strategy Aggressive
Growth Fund, Strategy Growth Fund, Strategy Growth and Income Fund and Strategy
Income Fund for each of the periods described above, in conformity with
generally accepted accounting principles.

KPMG LLP
Minneapolis, Minnesota
November 13, 1998