1933 Act Registration No. 333-93883
1940 Act Registration No. 811-09765
As filed with the Securities and Exchange Commission on February 10, 2000
FORM N-1A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. 1 [X]
Post-Effective Amendment No. __ [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 [ ]
Amendment No. 1 [X]
FIRST AMERICAN INSURANCE PORTFOLIOS, 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
SEI Investments Company
Oaks, Pennsylvania 19456
Christopher O. Petersen
U.S. Bank National Association
601 2nd Avenue South, MPFP 2016
Minneapolis, Minnesota 55402
Approximate effective date of proposed offering: April 1, 2000.
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on (April 1, 2000) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
<PAGE>
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
April 1, 2000
INSURANCE PORTFOLIOS
Growth Equity Fund
Value Equity Fund
Technology Fund
International Fund
FIRST AMERICAN
INSURANCE PORTFOLIOS, INC.
PROSPECTUS
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.
FIRST AMERICAN(R)
THE POWER OF DISCIPLINED INVESTING(R)
1 PROSPECTUS - FIRST AMERICAN INSURANCE PORTFOLIOS
<PAGE>
TABLE OF
CONTENTS
INTRODUCTION
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FUND SUMMARIES
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Growth Equity Fund
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Value Equity Fund
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Technology Fund
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International Fund
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POLICIES & SERVICES
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Buying and Selling Shares
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Managing Your Investment
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ADDITIONAL INFORMATION
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Management
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More About The Funds
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Financial Highlights
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FOR MORE INFORMATION
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2 PROSPECTUS - FIRST AMERICAN INSURANCE PORTFOLIOS
<PAGE>
FUND SUMMARIES
INTRODUCTION
This section of the Prospectus describes the objectives of the funds in the
First American Insurance Portfolios, summarizes the main investment strategies
used by each fund in trying to achieve its objectives, and highlights the risks
involved with these strategies. (Note that individual investors cannot purchase
shares of the funds directly. Shares of the funds may be purchased only by the
separate accounts of participating insurance companies for the purpose of
funding variable annuity contracts or variable life insurance policies.)
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.
3 PROSPECTUS - FIRST AMERICAN INSURANCE PORTFOLIOS
<PAGE>
FUND SUMMARIES
GROWTH EQUITY FUND
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OBJECTIVE
Growth Equity Fund's objective is long-term growth of capital.
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MAIN INVESTMENT STRATEGIES
Under normal market conditions, Growth Equity 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; and
* 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.
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MAIN RISKS
The value of your investment in this fund will change daily, which means you
could lose money. The main risks of investing in this 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.
4 PROSPECTUS - FIRST AMERICAN INSURANCE PORTFOLIOS
<PAGE>
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.
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FUND PERFORMANCE
Growth Equity Fund is a newly organized fund and does not yet have its own
performance record. However, this fund has substantially the same investment
objectives, policies, strategies, and restrictions as the Large Cap Growth Fund
series of First American Investment Funds, Inc., another registered open-end
investment company managed by the investment advisor. Performance information
for Large Cap Growth Fund is presented on the next page to provide you with a
track record (performance and volatility) of the investment advisor in managing
a fund substantially similar to the Growth Equity Fund.
The performance illustrations are based on Large Cap Growth Fund Class Y
institutional shares. Of course, past performance does not guarantee future
results, and investors should not consider this data as a substitute for past
performance of Growth Equity Fund or an indication of future performance of
Growth Equity Fund.
The bar chart shows you how performance of Large Cap Growth Fund has varied from
year to year. The table compares Large Cap Growth Fund's performance over
different time periods to that of the fund's benchmark index, which is a broad
measure of market performance, is unmanaged and has no expenses. Both the chart
and the table assume that all distributions have been reinvested. Large Cap
Growth Fund's performance reflects fund fees and expenses (after waivers).
Fees and expenses for Growth Equity Fund will differ from those of Large Cap
Growth Fund. That is, the performance information presented for Large Cap Growth
Fund does not reflect the deduction of any separate account insurance fees or
charges that would have been imposed by participating insurance companies in
connection with their sale of variable life insurance policies or variable
annuity contracts to investors. Investors should refer to the participating
insurance companies' separate account prospectuses describing contract fees and
expenses. Any such fees and expenses will reduce the performance of Growth
Equity Fund.
5 PROSPECTUS - FIRST AMERICAN INSURANCE PORTFOLIOS
<PAGE>
FUND SUMMARIES
GROWTH EQUITY FUND (CONTINUED)
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LARGE CAP GROWTH FUND COMPARATIVE PERFORMANCE
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR
32.78% 23.23% 21.61% 24.05% 38.04%
- ------------------------------------------------------------
1995 1996 1997 1998 1999
BEST QUARTER:
Quarter ending: 12/31/99
Total return 22.71%
WORST QUARTER:
Quarter ending: 9/30/98
Total Return -14.09%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99 Date One Year Five Years Inception
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Large Cap Growth Fund 8/2/94 38.04% 27.79% 26.38%
- --------------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index(1) 21.04% 28.55% 25.95%
- --------------------------------------------------------------------------------------
</TABLE>
(1) An unmanaged index of large capitalization stocks. The since inception
performance of the index is calculated from 8/31/94. The S & P 500 Composite
Index will be the comparative benchmark for the Growth Equity Fund.
6 PROSPECTUS - FIRST AMERICAN INSURANCE PORTFOLIOS
<PAGE>
FUND SUMMARIES
VALUE EQUITY FUND
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OBJECTIVE
Value Equity Fund's primary objective is capital appreciation. Current income is
a secondary objective of the fund.
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MAIN INVESTMENT STRATEGIES
Under normal market conditions, Value Equity 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; and
* 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 value of your investment in this fund will change daily, which means you
could lose money. The main risks of investing in this 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.
7 PROSPECTUS - FIRST AMERICAN INSURANCE PORTFOLIOS
<PAGE>
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.
- --------------------------------------------------------------------------------
FUND PERFORMANCE
Value Equity Fund is a newly organized fund and does not yet have its own
performance record. However, this fund has substantially the same investment
objectives, policies, strategies, and restrictions as the Large Cap Value Fund
series of First American Investment Funds, Inc., another registered open-end
investment company managed by the investment advisor. Performance information
for Large Cap Value Fund is presented on the next page to provide you with a
track record (performance and volatility) of the investment advisor in managing
a fund substantially similar to the Value Equity Fund.
The performance illustrations are based on Large Cap Value Fund Class Y
institutional shares. Of course, past performance does not guarantee future
results, and investors should not consider this data as a substitute for past
performance of Value Equity Fund or an indication of future performance of Value
Equity Fund.
The bar chart shows you how performance of Large Cap Value Fund has varied from
year to year. The table compares Large Cap Value Fund's performance over
different time periods to that of the fund's benchmark index, which is a broad
measure of market performance, is unmanaged and has no expenses. Both the chart
and the table assume that all distributions have been reinvested. Large Cap
Value Fund's performance reflects fund fees and expenses (after waivers).
Fees and expenses for Value Equity Fund will differ from those of Large Cap
Value Fund. That is, the performance information presented for Large Cap Value
Fund does not reflect the deduction of any separate account insurance fees or
charges that would have been imposed by participating insurance companies in
connection with their sale of variable life insurance policies or variable
annuity contracts to investors. Investors should refer to the participating
insurance companies' separate account prospectuses describing contract fees and
expenses. Any such fees and expenses will reduce the performance of Value Equity
Fund.
8 PROSPECTUS - FIRST AMERICAN INSURANCE PORTFOLIOS
<PAGE>
FUND SUMMARIES
VALUE EQUITY FUND (CONTINUED)
- --------------------------------------------------------------------------------
LARGE CAP VALUE FUND COMPARATIVE PERFORMANCE
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR
32.23% 29.47% 22.80% 9.99% 8.20%
- ---------------------------------------------------------
1995 1996 1997 1998 1999
BEST QUARTER:
Quarter ending: 12/31/98
Total return 16.64%
WORST QUARTER:
Quarter ending: 9/30/98
Total Return -13.85%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99 Date One Year Five Years Inception
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Large Cap Value Fund 2/4/94 8.20% 20.13% 17.17%
- ----------------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index(1) 21.04% 28.55% 24.17%
- ----------------------------------------------------------------------------------------
</TABLE>
(1) An unmanaged index of large capitalization stocks. The since inception
performance of the index is calculated from 2/28/94. The S & P 500 Composite
Index will be the comparative benchmark for the Growth Value Fund.
9 PROSPECTUS - FIRST AMERICAN INSURANCE PORTFOLIOS
<PAGE>
FUND SUMMARIES
TECHNOLOGY FUND
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OBJECTIVE
Technology Fund has an objective of long-term growth of capital.
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MAIN INVESTMENT STRATEGIES
Under normal market conditions, Technology Fund invests primarily (at least 65%
of its total assets) in common stocks of companies which the fund's advisor
believes either have, or will develop, products, processes or services that will
provide or will benefit significantly from technological innovations, advances
and improvements. These may include:
* inexpensive computing power, such as personal computers;
* improved methods of communications, such as satellite transmission; and
* technology related services such as internet related marketing services.
The prime emphasis of the fund is to identify companies which the advisor
believes are positioned to benefit from technological advances in areas such as
semiconductors, computers, software, communications, and online services.
Companies in which the fund invests may include development stage companies
(companies that do not have significant revenues) and small capitalization
companies. The advisor will generally select companies that it believes exhibit
strong management teams, a strong competitive position, above average growth in
revenues and a sound balance sheet.
Under certain market conditions, the fund may frequently invest in companies at
the time of their initial public offering (IPO). By virtue of its size and
institutional nature, the advisor may have greater access than individual
investors have to IPOs, including access to so-called "hot issues" which are
generally traded in the aftermarket at prices in excess of the IPO price. IPOs
will frequently be sold within 12 months of purchase which may result in
increased short-term capital gains.
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.
10 PROSPECTUS - FIRST AMERICAN INSURANCE PORTFOLIOS
<PAGE>
- --------------------------------------------------------------------------------
MAIN RISKS
The value of your investment in this fund will change daily, which means you
could lose money. The main risks of investing in this 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.
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 will be in
the same or related economic sectors, the fund's portfolio securities may be
more susceptible to any single economic, technological or regulatory occurrence
than the portfolio securities of a diversified fund.
RISKS OF THE TECHNOLOGY SECTOR
Because the fund invests primarily in technology related stocks, it is
particularly susceptible to risks associated with the technology industry.
Competitive pressures may have a significant effect on the financial condition
of companies in that industry.
RISKS OF DEVELOPMENT STAGE AND SMALL CAP STOCKS
Stocks of development stage and small capitalization companies involve
substantial risk. These stocks historically have experienced greater price
volatility than stocks of more established and larger capitalization companies,
and they may be expected to do so in the future.
RISKS OF IPOS
Companies involved in IPOs generally have limited operating histories and
prospects for future profitability are uncertain. Prices of IPOs may also be
unstable due to the absence of a prior public market, the small number of shares
available for trading and limited investor information. IPOs will frequently be
sold within 12 months of purchase. This may result in increased short-term
capital gains, which will be taxable to shareholders as ordinary income.
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.
11 PROSPECTUS - FIRST AMERICAN INSURANCE PORTFOLIOS
<PAGE>
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.
- --------------------------------------------------------------------------------
FUND PERFORMANCE
Technology Fund is a newly organized series of First American Insurance
Portfolios, Inc. (FAIP Technology Fund), and does not yet have its own
performance record. However, this fund has substantially the same investment
objectives, policies, strategies, and restrictions as the Technology Fund series
of First American Investment Funds, Inc. (FAIF Technology Fund), another
registered open-end investment company managed by the investment advisor.
Performance information for FAIF Technology Fund is presented on the next page
to provide you with a track record (performance and volatility) of the
investment advisor in managing a fund substantially similar to the FAIP
Technology Fund.
The performance illustrations are based on FAIF Technology Fund Class Y
institutional shares. Of course, past performance does not guarantee future
results, and investors should not consider this data as a substitute for past
performance of FAIP Technology Fund or an indication of future performance of
FAIP Technology Fund.
The bar chart shows you how performance of FAIF Technology Fund has varied from
year to year. The table compares FAIF Technology Fund's performance over
different time periods to that of the fund's benchmark index, which is a broad
measure of market performance, is unmanaged and has no expenses. Both the chart
and the table assume that all distributions have been reinvested. FAIF
Technology Fund's performance reflects fund fees and expenses (after waivers).
Fees and expenses for FAIP Technology Fund will differ from those of FAIF
Technology Fund. That is, the performance information presented for FAIF
Technology Fund does not reflect the deduction of any separate account insurance
fees or charges that would have been imposed by participating insurance
companies in connection with their sale of variable life insurance policies or
variable annuity contracts to investors. Investors should refer to the
participating insurance companies' separate account prospectuses describing
contract fees and expenses. Any such fees and expenses will reduce the
performance of FAIP Technology Fund.
12 PROSPECTUS - FIRST AMERICAN INSURANCE PORTFOLIOS
<PAGE>
FUND SUMMARIES
TECHNOLOGY FUND (CONTINUED)
- --------------------------------------------------------------------------------
FAIF TECHNOLOGY FUND COMPARATIVE PERFORMANCE
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR(1)
41.02% 22.43% 7.31% 32.70% 192.59%
- ---------------------------------------------------------
1995 1996 1997 1998 1999
BEST QUARTER:
Quarter ending: 12/31/99
Total return 80.67%
WORST QUARTER:
Quarter ending: 9/30/98
Total Return -18.20%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99(1) Date One Year Five Years Inception
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FAIF Technology Fund 4/4/94 192.59% 48.38% 46.69%
- ----------------------------------------------------------------------------------
S & P Technology Composite Index(1) 75.21% 50.76% 47.34%
- ----------------------------------------------------------------------------------
</TABLE>
(1) FAIF Technology Fund's 1999 returns were primarily achieved buying IPOs and
technology related stocks in a period favorable for these investments. Of
course, such favorable returns involve accepting the risk of volatility, and
there is no assurance that the fund's future investment in IPOs and technology
stocks will have the same or a similar effect on performance as it did in 1999.
(2) An unmanaged index comprised of technology stocks in the S & P 500 (an
unmanaged index of large capitalization stocks). The S & P 500 Technology
Composite Index will be the comparative benchmark for FAIP Technology Fund.
13 PROSPECTUS - FIRST AMERICAN INSURANCE PORTFOLIOS
<PAGE>
FUND SUMMARIES
INTERNATIONAL FUND
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OBJECTIVE
International Fund has an objective of long-term growth of capital.
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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.
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.
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.
14 PROSPECTUS - FIRST AMERICAN INSURANCE PORTFOLIOS
<PAGE>
- --------------------------------------------------------------------------------
MAIN RISKS
The value of your investment in this fund will change daily, which means you
could lose money. The main risks of investing in this 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.
15 PROSPECTUS - FIRST AMERICAN INSURANCE PORTFOLIOS
<PAGE>
- --------------------------------------------------------------------------------
FUND PERFORMANCE
International Fund is a newly organized series of First American Insurance
Portfolios, Inc. (FAIP International Fund), and does not yet have its own
performance record. However, this fund has substantially the same investment
objectives, policies, strategies, and restrictions as the International Fund
series of First American Investment Funds, Inc. (FAIF International Fund),
another registered open-end investment company managed by the investment
advisor. Performance information for FAIF International Fund is presented on the
next page to provide you with a track record (performance and volatility) of the
investment advisor in managing a fund substantially similar to the FAIP
International Fund.
The performance illustrations are based on FAIF International Fund Class Y
institutional shares. Of course, past performance does not guarantee future
results, and investors should not consider this data as a substitute for past
performance of FAIP International Fund or an indication of future performance of
FAIP International Fund.
The bar chart shows you how performance of FAIF International Fund has varied
from year to year. The table compares FAIF International Fund's performance over
different time periods to that of the fund's benchmark index, which is a broad
measure of market performance, is unmanaged and has no expenses. Both the chart
and the table assume that all distributions have been reinvested. FAIF
International Fund's performance reflects fund fees and expenses (after
waivers).
Fees and expenses for FAIP International Fund will differ from those of FAIF
International Fund. That is, the performance information presented for FAIF
International Fund does not reflect the deduction of any separate account
insurance fees or charges that would have been imposed by participating
insurance companies in connection with their sale of variable life insurance
policies or variable annuity contracts to investors. Investors should refer to
the participating insurance companies' separate account prospectuses describing
contract fees and expenses. Any such fees and expenses will reduce the
performance of FAIP International Fund.
16 PROSPECTUS - FIRST AMERICAN INSURANCE PORTFOLIOS
<PAGE>
FUND SUMMARIES
INTERNATIONAL FUND (CONTINUED)
- --------------------------------------------------------------------------------
FAIF INTERNATIONAL FUND COMPARATIVE PERFORMANCE
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR
9.36% 8.13% 16.79% 26.11% 83.40%
- --------------------------------------------------------
1995 1996 1997 1998 1999
BEST QUARTER:
Quarter ending: 12/31/99
Total return 61.60%
WORST QUARTER:
Quarter ending: 9/30/98
Total return -14.16%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99 Date One Year Five Years Inception
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FAIF International Fund 4/04/94 83.40% 26.14% 20.84%
- ----------------------------------------------------------------------------------------------
Morgan Stanley Capital International Europe,
Australasia, Far East (EAFE) Index(1) 26.96% 12.83% 11.23%
- ----------------------------------------------------------------------------------------------
</TABLE>
(1) An unmanaged index including approximately 1,077 companies representing the
stock markets of 14 European countries, Australia, New Zealand, Japan, Hong Kong
and Singapore. The since inception performance of the index is calculated from
4/30/94. The EAFE Index will be the comparative benchmark for the FAIP
International Fund.
17 PROSPECTUS - FIRST AMERICAN INSURANCE PORTFOLIOS
<PAGE>
POLICIES & SERVICES
BUYING AND SELLING SHARES
Shares of the funds are only made available through separate investment accounts
of participating insurance companies as an underlying investment for your
variable annuity contract or variable life insurance policy. Individual
investors cannot obtain shares of the funds directly. Please refer to the
accompanying prospectus of the participating insurance company for more
information on how to select the funds as an investment option.
- --------------------------------------------------------------------------------
Your participating insurance company is the funds' designee for receipt of
purchase orders for your variable annuity contract or variable life insurance
policy. The funds do not impose any separate charge on the contract owners or
policy holders (contract owners) for the purchase or redemption of shares.
Participating insurance companies purchase or redeem shares for separate
accounts at net asset value (NAV) without any sales or redemption charge. Any
separate charges imposed by the participating insurance company are described in
the accompanying prospectus of the participating insurance company. A
participating insurance company may also impose certain restrictions or
limitations on the allocation of purchase payment or contract value to the funds
in a separate account. Prospective investors should consult the applicable
participating insurance company prospectus for information regarding fees and
expenses of the contract and separate account and any applicable restrictions or
limitations.
The share price that applies to a purchase or redemption order of fund shares is
based on the next calculation of the NAV per share that is made after the
participating insurance company receives such order from the contract owner on a
regular business day. See "Calculating Your Share Price" for more information.
Only the participating insurance companies that hold fund shares in their
separate accounts for the benefit of contract owners can place orders to
purchase or redeem shares. Contract owners should not directly contact the fund
to request a purchase or redemption of fund shares. Contract owners should refer
to the instructions in the participating insurance company prospectus for more
information.
- --------------------------------------------------------------------------------
CALCULATING YOUR SHARE PRICE
Your share price is based on the fund's NAV per share, which 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 market value of its investments and other assets,
less any liabilities, divided by the number of fund shares. 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.
Funds may hold portfolio securities that trade on weekends or other days when
the fund does not
18 PROSPECTUS - FIRST AMERICAN INSURANCE PORTFOLIOS
<PAGE>
price its shares. Therefore, the net asset value of a fund's shares may change
on days when shareholders will not be able to purchase or redeem their shares.
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POTENTIAL CONFLICTS OF INTEREST
Shares of the funds may serve as the underlying investments for both variable
annuity and variable life insurance contracts of various insurance companies.
Due to differences in tax treatment or other considerations, the interests of
various contract owners might at some time be in conflict. The funds currently
do not foresee any such conflict. However, the Board of Directors of the funds
intends to monitor events to identify any material conflicts that may arise and
determine what action, if any, should be taken in response to such conflicts. If
such a conflict were to occur, one or more participating insurance companies'
separate accounts might be required to withdraw its investments in the funds.
This might force the funds to sell securities at disadvantageous prices.
19 PROSPECTUS - FIRST AMERICAN INSURANCE PORTFOLIOS
<PAGE>
MANAGING YOUR INVESTMENT
DIVIDENDS AND DISTRIBUTIONS
Dividends from Growth Equity Fund's and Value Equity Fund's net investment
income are declared and paid monthly. Dividends from International Fund's and
Technology Fund's net investment income are declared and paid quarterly. The
funds have no fixed dividend rate and cannot guarantee that dividends will be
paid. Any capital gains are distributed at least once each year. Dividend and
capital gain distributions will be reinvested in additional shares of the fund
paying the distribution at NAV.
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TAXES
For a discussion of the tax status of a variable annuity contract or a variable
life insurance policy, please consult your tax professional or refer to the
accompanying prospectus of the participating insurance company. Because shares
of the funds may be purchased only through insurance company separate accounts
for variable annuity contracts and variable life insurance policies, dividends
paid by the fund from net investment income and distributions (if any) of net
realized short term and long term capital gains will be taxable, if at all, to
the participating insurance company.
Because everyone's tax situation is unique, always consult your tax professional
about federal, state and local tax consequences.
20 PROSPECTUS - FIRST AMERICAN INSURANCE PORTFOLIOS
<PAGE>
ADDITIONAL INFORMATION
MANAGEMENT
U.S. Bank National Association (U.S. Bank), acting through its First American
Asset Management division, is the funds' investment advisor. 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 pays the investment advisor a monthly fee for providing investment
advisory services, at the annual rate set forth in the table:
Advisory fee
as a % of
average daily
net assets
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GROWTH EQUITY FUND(1) _________%
VALUE EQUITY FUND(1) _________%
TECHNOLOGY FUND(1) _________%
INTERNATIONAL FUND(1) _________%
- --------------------------------------------------------------------------------
(1) The funds commenced operations as of the date of this Prospectus. The
contractual fee rate is shown in the table.
INVESTMENT ADVISOR
First American Asset Management
601 Second Avenue South
Minneapolis, Minnesota 55402
SUB-ADVISOR
Marvin & Palmer Associates, Inc.
1201 North Market Street, Suite 2300
Wilmington, Delaware 19801
Marvin & Palmer Associates (Marvin & Palmer) is the sub-advisor to International
Fund, and is responsible for the investment and reinvestment of those fund's
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
21 PROSPECTUS - FIRST AMERICAN INSURANCE PORTFOLIOS
<PAGE>
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
PORTFOLIO MANAGEMENT
Each fund's investments are managed by a team of persons associated with First
American Asset Management, or, in the case of International Fund, by a team of
persons associated with Marvin & Palmer.
ADDITIONAL INFORMATION
MORE ABOUT THE FUNDS
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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.
TEMPORARY INVESTMENTS
In an attempt to respond to adverse market, economic, political or other
conditions, each fund may temporarily invest without limit in cash and in U.S.
dollar-denominated high-quality money market instruments and other short-term
securities, including money market funds advised by the funds' advisor. Being
invested in these securities may keep a fund from participating in a market
upswing and prevent the fund from achieving its investment objectives.
PORTFOLIO TURNOVER
Portfolio managers for the funds may trade securities frequently, resulting,
from time to time, in an annual portfolio turnover rate of over 100%. Under
normal market conditions, annual
22 PROSPECTUS - FIRST AMERICAN INSURANCE PORTFOLIOS
<PAGE>
portfolio turnover for Technology Fund is expected to be high, often exceeding
100%. Trading of securities may produce capital gains, which are taxable to
shareholders when distributed. Active trading may also increase the amount of
commissions or mark-ups to broker-dealers that the fund pays when it buys and
sells securities.
- --------------------------------------------------------------------------------
RISKS
The main risks of investing in the funds are summarized in the "Fund Summaries"
section. More information about fund risks is presented below.
RISKS OF INVESTING IN COMMON STOCKS
MARKET RISK. All stocks are subject to price movements due to changes in general
economic conditions, the level of prevailing interest rates or investor
perceptions of the market. Prices also are affected by the outlook for overall
corporate profitability.
COMPANY RISK. Individual stocks can perform differently than the overall market.
This may be a result of specific factors such as changes in corporate
profitability due to the success or failure of specific products or management
strategies, or it may be due to changes in investor perceptions regarding a
company.
SECTOR RISK. The stocks of companies within specific industries or sectors of
the economy can periodically perform differently than the overall stock market.
This can be due to changes in such things as the regulatory or competitive
environment or to changes in investor perceptions of a particular industry or
sector.
RISKS OF THE TECHNOLOGY SECTOR
Technology Fund invests primarily in equity securities of companies which the
fund's advisor believes have, or will develop, products, processes or services
that will provide or benefit significantly from technological advances and
improvements. Competitive pressures may have a significant effect on the
financial condition of companies in the technology industry. For example, if
technology continues to advance at an accelerated rate and the number of
companies and product offerings continues to expand, these companies could
become increasingly sensitive to short product cycles and aggressive pricing.
RISKS OF DEVELOPMENT STAGE AND SMALL CAP STOCKS
Technology Fund may have significant investments in development stage and small
capitalization companies. Stocks of development stage and small capitalization
companies involve substantial risk. These companies may lack the management
expertise, financial resources, product diversification and competitive
strengths of larger companies. Their stock prices may be subject to more abrupt
or erratic movements than stock prices of larger, more established companies or
the market averages in general. In addition, the frequency and volume of their
trading may be less than is typical of larger companies, making them subject to
wider price fluctuations. In some cases, there could be difficulties in selling
the stocks of development
23 PROSPECTUS - FIRST AMERICAN INSURANCE PORTFOLIOS
<PAGE>
stage and small capitalization companies at the desired time and price.
RISKS OF IPOS
Technology Fund may frequently invest in companies at the time of their initial
public offering. Most IPOs involve a high degree of risk not normally associated
with offerings of more seasoned companies. Companies involved in IPOs generally
have limited operating histories, and their prospects for future profitability
are uncertain. These companies often are engaged in new and evolving businesses
and are particularly vulnerable to competition and to changes in technology,
markets and economic conditions. They may be dependent on certain key managers
and third parties, need more personnel and other resources to manage growth and
require significant additional capital. They may also be dependent on limited
product lines and uncertain property rights and need regulatory approvals.
Investors in IPOs can be affected by substantial dilution in the value of their
shares by sales of additional shares and by concentration of control in existing
management and principal shareholders. Stock prices of IPOs can also be highly
unstable, due to the absence of a prior public market, the small number of
shares available for trading and limited investor information.
FOREIGN SECURITY RISK
Growth Equity Fund, Value Equity Fund and Technology Fund may each invest up to
25% of its total assets in securities of foreign issuers which are either listed
on a United States stock exchange or represented by American Depositary
Receipts. 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. For certain foreign countries, political or
social instability or diplomatic developments could adversely affect the
securities. There is also the risk of loss due to governmental actions such as a
change in tax statutes or the modification of individual property rights. In
addition, individual foreign economies may differ favorably or unfavorably from
the U.S. economy.
RISKS OF INTERNATIONAL INVESTING
International Fund invests primarily in equity securities that trade in markets
other than the United States. International investing involves risks not
typically associated with U.S. investing. These risks include:
CURRENCY RISK. Because foreign securities often trade in currencies other than
the U.S. dollar, changes in currency exchange rates will affect International
Fund's net asset value, the value of dividends and interest earned, and gains
and losses realized on the sale of securities. A strong U.S. dollar relative to
these other currencies will adversely affect the value of the fund.
POLITICAL AND ECONOMIC RISKS. International investing is subject to the risk of
political, social or economic instability in the country of the issuer of a
security, the difficulty of predicting international trade patterns, the
possibility of the imposition of exchange controls, expropriation, limits on
removal of currency or other assets and nationalization of assets.
FOREIGN TAX RISK. International Fund's income from foreign issuers may be
subject to non-U.S.
24 PROSPECTUS - FIRST AMERICAN INSURANCE PORTFOLIOS
<PAGE>
withholding taxes. In some countries, the fund also may be subject to taxes on
trading profits and, on certain securities transactions, transfer or stamp
duties tax. To the extent foreign income taxes are paid by the fund, U.S.
shareholders may be entitled to a credit or deduction for U.S. tax purposes. See
the Statement of Additional Information for details.
RISK OF RESTRICTIONS. Some countries, particularly emerging markets, restrict
to varying degrees foreign investment in their securities markets. In some
circumstances, these restrictions may limit or preclude investment in certain
countries or may increase the cost of investing in securities of particular
companies.
FOREIGN SECURITIES MARKET RISK. Securities of many non-U.S. companies may be
less liquid and their prices more volatile than securities of comparable U.S.
companies. Securities of companies traded in many countries outside the U.S.,
particularly emerging markets countries, may be subject to further risks due to
the inexperience of local brokers and financial institutions, the possibility of
permanent or temporary termination of trading, and greater spreads between bid
and asked prices for securities. In addition, non-U.S. stock exchanges and
brokers are subject to less governmental regulation, and commissions may be
higher than in the United States. Also, there may be delays in the settlement of
non-U.S. stock exchange transactions.
INFORMATION RISK. Non-U.S. companies generally are not subject to uniform
accounting, auditing and financial reporting standards or to other regulatory
requirements that apply to U.S. companies. As a result, less information may be
available to investors concerning non-U.S. issuers. Accounting and financial
reporting standards in emerging markets may be especially lacking.
RISKS OF EURO CONVERSION. On January 1, 1999, the European Union introduced a
single currency, the Euro, which was adopted as the common legal currency for
participating member countries. Existing sovereign currencies of the
participating countries will remain legal tender in those countries, as
denominations of the Euro, until January 1, 2002. Participating countries are
Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the
Netherlands, Portugal and Spain.
Whether the Euro conversion will materially affect International Fund's
performance is uncertain. The fund may be affected by the Euro's impact on the
business or financial condition of European issuers held by the fund. The
ongoing process of establishing the Euro may result in market volatility. In
addition, the transition to the Euro and the elimination of currency risk among
participating countries may change the economic environment and behavior of
investors, particularly in European markets. To the extent International Fund
holds non-U.S. dollar (Euro or other) denominated securities, it will still be
exposed to currency risk due to fluctuations in those currencies versus the U.S.
dollar.
RISKS OF ACTIVE MANAGEMENT
Each fund is actively managed and their performance therefore will reflect in
part the advisor's or sub-advisor's ability to make investment decisions which
are suited to achieving the funds' respective investment objectives. Due to
their active management, the funds could underperform other mutual funds with
similar investment objectives.
25 PROSPECTUS - FIRST AMERICAN INSURANCE PORTFOLIOS
<PAGE>
RISKS OF SECURITIES LENDING
When a fund loans its portfolio securities, it will receive collateral equal to
at least 100% of the value of the loaned securities. Nevertheless, the fund
risks a delay in the recovery of the loaned securities, or even the loss of
rights in the collateral deposited by the borrower if the borrower should fail
financially. To reduce these risks, the funds enter into loan arrangements only
with institutions which the funds' advisor has determined are creditworthy under
guidelines established by the funds' board of directors.
26 PROSPECTUS - FIRST AMERICAN INSURANCE PORTFOLIOS
<PAGE>
ADDITIONAL INFORMATION
FINANCIAL HIGHLIGHTS
The funds had not commenced operations prior to the date of this prospectus.
27 PROSPECTUS - FIRST AMERICAN INSURANCE PORTFOLIOS
<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 will be 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.
28 PROSPECTUS - FIRST AMERICAN INSURANCE PORTFOLIOS
<PAGE>
FIRST AMERICAN INSURANCE PORTFOLIOS, INC.
STATEMENT OF ADDITIONAL INFORMATION
DATED APRIL 1, 2000
GROWTH EQUITY FUND
VALUE EQUITY FUND
TECHNOLOGY FUND
INTERNATIONAL FUND
This Statement of Additional Information relates to the funds named above (the
"Funds"), each of which is a series of First American Insurance Portfolios, Inc.
This Statement of Additional Information is not a prospectus, but should be read
in conjunction with the Funds' current Prospectuses dated April 1, 2000. This
Statement of Additional Information is incorporated into the Funds' Prospectuses
by reference. To obtain copies of the Prospectus, contact your participating
insurance company. Please retain this Statement of Additional Information for
future reference.
<PAGE>
TABLE OF CONTENTS
PAGE
----
GENERAL INFORMATION 1
ADDITIONAL INFORMATION CONCERNING FUND INVESTMENTS 2
Short-Term Investments 2
U.S. Government Securities 3
Repurchase Agreements 4
When-Issued and Delayed Delivery Transactions 4
Lending of Portfolio Securities 5
Options Transactions 5
Futures and Options on Futures 6
Fixed Income Securities 7
Foreign Securities 8
Foreign Currency Transactions 9
Debt Obligations Rated Less Than Investment Grade 10
Preferred Stock 11
CFTC Information 11
INVESTMENT RESTRICTIONS 11
DIRECTORS AND EXECUTIVE OFFICERS 12
Directors 12
Executive Officers 13
Compensation 14
INVESTMENT ADVISORY AGREEMENT AND OTHER SERVICES 15
Investment Advisory Agreement 15
Sub-Advisory Agreement For International Fund 16
Administration Agreement 16
Distributor 16
Custodian; Counsel; Auditors 17
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE 17
CAPITAL STOCK 19
NET ASSET VALUE AND PUBLIC OFFERING PRICE 19
FUND PERFORMANCE 19
TAXATION 21
RATINGS 24
Ratings of Corporate Debt Obligations and Municipal Bonds 24
Ratings of Preferred Stock 25
Ratings of Commercial Paper 26
FINANCIAL STATEMENTS 26
i
<PAGE>
GENERAL INFORMATION
First American Insurance Portfolios, Inc. ("FAIP") was incorporated in
the State of Minnesota on August 27, 1999. FAIP 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 objective and policies
(in essence, a separate mutual fund). The series of FAIP to which this Statement
of Additional Information relates are named on the cover. These series are
referred to in this Statement of Additional Information as the "Funds."
The Bylaws of FAIP 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.
Growth Equity Fund, Value Equity Fund and International Fund are each
diversified open-end management investment companies. Technology Fund is a
non-diversified open-end management investment company.
This Statement of Additional Information may also refer to affiliated
investment companies, including: First American Funds, Inc. ("FAF"); First
American Strategy Funds, Inc. ("FASF"); First American Investment Funds, Inc.
("FAIF"); 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").
1
<PAGE>
ADDITIONAL INFORMATION CONCERNING FUND INVESTMENTS
The main investment strategies of each Fund are set forth in the Funds'
Prospectus. Additional information concerning main investment strategies of the
Funds, and other investment strategies which may be used by the Funds, is set
forth below. The Funds have attempted to identify any investment strategies that
will be employed in pursuing each Fund's investment objective. However, in the
absence of an affirmative limitation, a Fund may utilize any strategy or
technique that is consistent with its investment objective. The Funds do not
anticipate that any such strategy or technique would exceed 5% of a Fund's
assets absent specific identification of that practice. Additional information
concerning the Funds' investment restrictions is set forth below under
"Investment Restrictions."
If a percentage limitation on investments by a Fund stated in this
Section or in "Investment Restrictions" below 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 borrowing. A Fund which is limited to investing in securities
with specified ratings is not required to sell a security if its rating is
reduced or discontinued after purchase, but the Fund may consider doing so.
However, in no event will more than 15% of any Fund's net assets be invested in
illiquid securities. Descriptions of the rating categories of Standard & Poor's
Ratings Services, a division of The McGraw-Hill Companies, Inc. ("Standard &
Poor's") and Moody's Investors Service, Inc. ("Moody's") are contained in
"Ratings" below.
SHORT-TERM INVESTMENTS
The Funds can invest in a variety of short-term instruments 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 a Fund; securities of other mutual funds that invest
primarily in debt obligations with remaining maturities of 13 months or less
(which investments also are subject to an advisory fee); and other similar
high-quality short-term United States dollar-denominated obligations. The other
mutual funds in which the Funds may so invest include money market funds advised
by U.S. Bank National Association, the Funds' investment advisor ("U.S. Bank" or
the "Advisor"), subject to certain restrictions contained in an exemptive order
issued by the Securities and Exchange Commission ("SEC") with respect thereto.
Short-term investments and repurchase agreements may be entered into on
a joint basis by the Funds and other funds advised by the Advisor to the extent
permitted by an exemptive order issued by the Securities and Exchange Commission
with respect to the Funds. A brief description of certain kinds of short-term
instruments follows:
COMMERCIAL PAPER. Commercial paper consists of unsecured promissory
notes issued by corporations. Issues of commercial paper normally have
maturities of less than nine months and fixed rates of return. The Funds may
purchase commercial paper consisting of issues rated at the time of purchase
within the two highest rating categories by Standard & Poor's or Moody's, or
which have been assigned an equivalent rating by another nationally recognized
statistical rating organization. The 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."
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 and the issuer, they are not normally traded. Although there is
no secondary market in the notes, a 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 International Fund's investment 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.
2
<PAGE>
VARIABLE RATE DEMAND OBLIGATIONS. Variable rate demand obligations
("VRDO") are securities in which the interest rate is adjusted at pre-designated
periodic intervals. VRDOs may include a demand feature which is a put that
entitles the holder to receive the principal amount of the underlying security
or securities and which may be exercised either at any time on no more than 30
days' notice or at specified intervals not exceeding 397 calendar days on no
more than 30 days' notice.
U.S. GOVERNMENT SECURITIES
The U.S. government securities in which the Funds may invest are either
issued or guaranteed by the U.S. government, its agencies or instrumentalities.
The U.S. government securities in which the Funds invest principally are:
* direct obligations of the U.S. Treasury, such as U.S. Treasury
bills, notes, and bonds;
* 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;
* notes, bonds, and discount notes of U.S. government agencies or
instrumentalities which receive or have access to federal funding;
and
* notes, bonds, and discount notes of other U.S. government
instrumentalities supported only by the credit of the
instrumentalities.
U.S. TREASURY INFLATION-PROTECTION SECURITIES. The Funds' investments
in U.S. Government securities may include in U.S. Treasury inflation-protection
securities, which are issued by the United States Department of Treasury
("Treasury") with a nominal return linked to the inflation rate in prices. The
index used to measure inflation is the non-seasonally adjusted U.S. City Average
All Items Consumer Price Index for All Urban Consumers ("CPI-U").
The value of the principal is adjusted for inflation, and pays interest
every six months. The interest payment is equal to a fixed percentage of the
inflation-adjusted value of the principal. The final payment of principal of the
security will not be less than the original par amount of the security at
issuance.
The principal of the inflation-protection security is indexed to the
non-seasonally adjusted CPI-U. To calculate the inflation-adjusted principal
value for a particular valuation date, the value of the principal at issuance is
multiplied by the index ratio applicable to that valuation date. The index ratio
for any date is the ratio of the reference CPI applicable to such date to the
reference CPI applicable to the original issue date. Semiannual coupon interest
is determined by multiplying the inflation-adjusted principal amount by one-half
of the stated rate of interest on each interest payment date.
Inflation-adjusted principal or the original par amount, whichever is
larger, is paid on the maturity date as specified in the applicable offering
announcement. If at maturity the inflation-adjusted principal is less than the
original principal value of the security, an additional amount is paid at
maturity so that the additional amount plus the inflation-adjusted principal
equals the original principal amount. Some inflation-protection securities may
be stripped into principal and interest components. In the case of a stripped
security, the holder of the stripped principal component would receive this
additional amount. The final interest payment, however, will be based on the
final inflation-adjusted principal value, not the original par amount.
The reference CPI for the first day of any calendar month is the CPI-U
for the third preceding calendar month. (For example, the reference CPI for
December 1 is the CPI-U reported for September of the same year, which is
released in October.) The reference CPI for any other day of the month is
calculated by a linear interpolation between the reference CPI applicable to the
first day of the month and the reference CPI applicable to the first day of the
following month.
Any revisions the Bureau of Labor Statistics (or successor agency)
makes to any CPI-U number that has been previously released will not be used in
calculations of the value of outstanding inflation-protection securities. In the
case that the CPI-U for a particular month is not reported by the last day of
the following month, the Treasury will announce
3
<PAGE>
an index number based on the last year-over-year CPI-U inflation rate available.
Any calculations of the Treasury's payment obligations on the
inflation-protection security that need that month's CPI-U number will be based
on the index number that the Treasury has announced. If the CPI-U is rebased to
a different year, the Treasury will continue to use the CPI-U series based on
the base reference period in effect when the security was first issued as long
as that series continues to be published. If the CPI-U is discontinued during
the period the inflation-protection security is outstanding, the Treasury will,
in consultation with the Bureau of Labor Statistics (or successor agency),
determine an appropriate substitute index and methodology for linking the
discontinued series with the new price index series. Determinations of the
Secretary of the Treasury in this regard are final.
Inflation-protection securities will be held and transferred in either
of two book-entry systems: the commercial book-entry system (TRADES) and
TREASURY DIRECT. The securities will be maintained and transferred at their
original par amount, i.e., not at their inflation-adjusted value. STRIPS
components will be maintained and transferred in TRADES at their value based on
the original par amount of the fully constituted security.
REPURCHASE AGREEMENTS
The Funds may invest in repurchase agreements. A repurchase agreement
involves the purchase by a 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 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 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),
a 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
International Fund, the Fund's investment sub-advisor, will monitor the
creditworthiness of the firms with which the Funds enter into repurchase
agreements.
The 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 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 Funds may purchase securities on a when-issued or delayed
delivery basis. When such a transaction is negotiated, the purchase price is
fixed at the time the purchase commitment is entered into but delivery of and
payment for the securities take place at a later date. A Fund will not accrue
income with respect to securities purchased on a when-issued or delayed delivery
basis prior to their stated delivery date. Pending delivery of the securities,
each Fund will maintain in a segregated account cash or liquid high-grade
securities in an amount sufficient to meet its purchase commitments.
The purchase of securities on a when-issued or delayed delivery basis
exposes a Fund to risk because the securities may decrease in value prior to
delivery. In addition, a Fund's purchase of securities on a when-issued or
delayed delivery basis while remaining substantially fully invested could
increase the amount of the 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 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 a Fund could prevent the
Fund from realizing a price or yield considered to be advantageous.
When a Fund agrees to purchase securities on a when-issued or delayed
delivery basis, the Fund's custodian will maintain in a segregated account cash
or liquid securities in an amount sufficient to meet the Fund's purchase
commitments. It may be expected that a 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 a Fund will set aside cash or
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liquid securities to satisfy its purchase commitments in the manner described
above, its liquidity and the ability of the Advisor or, in the case of
International Fund, the Fund's 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, a 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 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 Funds will only enter into loan
arrangements with broker-dealers, banks, or other institutions which the Advisor
or, in the case of International Fund, the Fund's sub-advisor has determined are
creditworthy under guidelines established by the Board of Directors. The Funds
will pay a portion of the income earned on the lending transaction to the
placing broker and may pay administrative and custodial fees (including fees to
the Advisor, acting as securities lending agent) in connection with these loans
which, in the case of U.S. Bank, are 40% of the Funds' income from such
securities lending transactions.
In these loan arrangements, the 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. This
collateral must be valued daily by the Advisor or, in the case of International
Fund, the Fund's sub-advisor and, if the market value of the loaned securities
increases, the borrower must furnish additional collateral to the lending Fund.
During the time portfolio securities are on loan, the borrower pays the lending
Fund any dividends or interest paid on the securities. Loans are subject to
termination at any time by the lending Fund or the borrower. While a 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.
U.S. Bank, the Funds' custodian and investment advisor, may act as
securities lending agent for the Funds and receive separate compensation for
such services, subject to compliance with conditions contained in an SEC
exemptive order permitting U.S. Bank to provide such services and receive such
compensation.
OPTIONS TRANSACTIONS
To the extent set forth below, the Funds may purchase put and call
options on equity securities, stock indices, interest rate indices and/or
foreign currencies. These transactions will be undertaken for the purpose of
reducing risk to the Funds; that is, for "hedging" purposes. Options on futures
contracts are discussed below under "-- Futures and Options on Futures."
OPTIONS ON SECURITIES. The Funds may purchase put and call options on
securities they own or have the right to acquire. A put option on a security
gives the purchaser of the option the right (but not the obligation) to sell,
and the writer of the option the obligation to buy, the underlying security at a
stated price (the "exercise price") at any time before the option expires. A
call option on a security gives the purchaser the right (but not the obligation)
to buy, and the writer the obligation to sell, the underlying security at the
exercise price at any time before the option expires. The purchase price for a
put or call option is the "premium" paid by the purchaser for the right to sell
or buy.
A Fund may purchase put options to hedge against a decline in the value
of its portfolio. By using put options in this way, a 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, a Fund may purchase call options to hedge against an increase in the
price of securities that the 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 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. The Funds may purchase put and call options
on stock indices. Options on stock indices are similar to options on individual
stocks except that, rather than the right to take or make delivery of stock at a
specified price, an option on a stock index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing value of
the stock index upon which the option is based is greater than, in the case of a
call, or
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lesser than, in the case of a put, the exercise price of the option. This amount
of cash is equal to the difference between the closing price of the index and
the exercise price of the option expressed in dollars times a specified multiple
(the "multiplier"). The writer of the option is obligated, in return for the
premium received, to make delivery of this amount. Unlike stock options, all
settlements for stock index options are in cash, and gain or loss depends on
price movements in the stock market generally (or in a particular industry or
segment of the market) rather than price movements in individual stocks. The
multiplier for an index option performs a function similar to the unit of
trading for a stock option. It determines the total dollar value per contract of
each point in the difference between the underlying stock index. A multiplier of
100 means that a one-point difference will yield $100. Options on different
stock indices may have different multipliers.
WRITING OF CALL OPTIONS. The Funds may write (sell) covered call
options. These transactions would be undertaken principally to produce
additional income. Depending on the Fund, these transactions may include the
writing of covered call options on equity securities or in the case of
International Fund, on foreign currencies. The Funds, other than International
Fund, may write (sell) covered call options covering up to 25% of the equity
securities owned by such Funds, and, in the case of International Fund, covering
up to 50% of the equity securities owned by such Fund.
When a 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 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 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. These Funds may also write
call options on stock indices the movements of which generally correlate with
those of the respective 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 Fund's portfolio securities.
The writer (seller) of a call option has no control over when the
underlying securities must be sold; the writer may be assigned an exercise
notice at any time prior to the termination of the option. If a call option is
exercised, the writer experiences a profit or loss from the sale of the
underlying security. The writer of a call option that wishes to terminate its
obligation may effect a "closing purchase transaction." This is accomplished by
buying an option on the same security as the option previously written. If a
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.
LIMITATIONS. None of the Funds, other than International Fund, will
invest more than 5% of the value of its total assets in purchased options,
provided that options which are "in the money" at the time of purchase may be
excluded from this 5% limitation. A call option is "in the money" if the
exercise price is lower than the current market price of the underlying security
or index, and a put option is "in the money" if the exercise price is higher
than the current market price. A 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 a Fund and the prices of options, and the risk of limited liquidity in
the event that a Fund seeks to close out an options position before expiration
by entering into an offsetting transaction.
FUTURES AND OPTIONS ON FUTURES
International Fund may engage in stock index futures contracts and
options thereon. International Fund may enter into contracts for the future
delivery of securities and options thereon, and may enter into contracts for the
future delivery of foreign currencies and options thereon.
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
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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 the 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, the 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 would provide or receive cash that reflects any decline or increase in the
contract's value. Futures transactions also involve brokerage costs and require
the Fund to segregate liquid assets, such as cash, United States Government
securities or other liquid high grade debt obligations equal to at least 100% of
its performance under such contracts.
International Fund may use futures contracts and options on futures in
an effort to hedge against market risks and as part of its management of foreign
currency transactions.
Aggregate initial margin deposits for futures contracts, and premiums
paid for related options, may not exceed 5% of the Fund's total assets, and the
value of securities that are the subject of such futures and options (both for
receipt and delivery) may not exceed 1/3 of the market value of the Fund's total
assets. Futures transactions will be limited to the extent necessary to maintain
the Fund's qualification as a regulated investment company under the Code.
Where the 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 the Fund's total assets. Where
the Fund is permitted to enter into futures contracts obligating it to purchase
securities, currency or an index in the future at a specified price, the 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 was permitted to enter. Where the Fund
is permitted to enter into futures contracts obligating it to sell securities or
currencies, its potential losses are unlimited if it does not own the securities
or currencies covered by the contracts and it is unable to close out the
contracts prior to the settlement date.
Futures transactions involve brokerage costs and require the Fund to
segregate assets to cover contracts that would require it to purchase securities
or currencies. The Fund may lose the expected benefit of futures transactions if
interest rates, exchange rates or securities prices move in an unanticipated
manner. Such unanticipated changes may also result in poorer overall performance
than if the Fund had not entered into any futures transactions. In addition, the
value of the Fund's futures positions may not prove to be perfectly or even
highly correlated with the value of its portfolio securities or foreign
currencies, limiting the Fund's ability to hedge effectively against interest
rate, exchange rate and/or market risk and giving rise to additional risks.
There is no assurance of liquidity in the secondary market for purposes of
closing out futures positions.
FIXED INCOME SECURITIES
The fixed income securities in which Growth Equity Fund, Value Equity
Fund, and Technology Fund 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. Investments in
nonconvertible preferred stocks and nonconvertible corporate debt securities
will be limited to securities which are rated at the time of purchase not less
than BBB by Standard & Poor's or Baa by Moody's (or equivalent short-term
ratings), or which have been assigned an equivalent rating by another nationally
recognized statistical rating organization, or which are of comparable quality
in the judgment of the Advisor. Obligations rated BBB, Baa or their equivalent,
although investment grade, have speculative characteristics and carry a somewhat
higher risk of default than obligations rated in the higher investment grade
categories.
In addition, each Fund, including International Fund, may invest up to
5% of its net assets in less than investment grade convertible debt obligations.
For a description of such obligations and the risks associated therewith, see
"-- Debt Obligations Rated Less Than Investment Grade."
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The fixed income securities specified above, are subject to (i)
interest rate risk (the risk that increases in market interest rates will cause
declines in the value of debt securities held by a Fund); (ii) credit risk (the
risk that the issuers of debt securities held by a 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 a Fund to reinvest the prepayment at a lower interest rate).
FOREIGN SECURITIES
GENERAL. Under normal market conditions International Fund invests
principally in foreign securities, and certain other Funds may invest lesser
proportions of their assets in securities of foreign issuers that are either
listed on a United States securities exchange or represented by American
Depositary Receipts. In addition, Growth Equity Fund, Value Equity Fund, and
Technology Fund each may invest up to 25% of its total assets in securities of
foreign issuers which are either listed on a United States securities exchange
or represented by American Depositary Receipts.
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. International Fund may invest in securities issued by
the governmental and corporate issuers that are located in emerging market
countries. Investing in securities of issuers in emerging market countries
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 nonexistent
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 issuers' stock, a Fund can avoid currency risks during the
settlement period for either purchases or sales. In general, there is a large,
liquid market in the United States for many American Depositary Receipts. The
information available for American Depositary Receipts is subject to the
accounting, auditing and financial reporting standards of the domestic market or
exchange on which they are traded, which standards are more uniform and more
exacting than those to which many foreign issuers may be subject. International
Fund also may invest in European Depositary Receipts, which are receipts
evidencing an arrangement with a European bank similar to that for American
Depositary Receipts and which are designed for use in the European securities
markets. European Depositary Receipts are not necessarily denominated in the
currency of the underlying security.
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Certain American Depositary Receipts and European Depositary Receipts,
typically those denominated as unsponsored, require the holders thereof to bear
most of the costs of the facilities while issuers of sponsored facilities
normally pay more of the costs thereof. The depository of an unsponsored
facility frequently is under no obligation to distribute shareholder
communications received from the issuer of the deposited securities or to pass
through the voting rights to facility holders in respect to the deposited
securities, whereas the depository of a sponsored facility typically distributes
shareholder communications and passes through voting rights.
FOREIGN 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 International Fund is
uninvested. In addition, settlement problems could cause such Funds 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 the Fund to obtain or
to enforce a judgment against the issuer.
FOREIGN CURRENCY TRANSACTIONS
International Fund invests in securities which are purchased and sold
in foreign currencies. The value of its assets as measured in United States
dollars therefore may be affected favorably or unfavorably by changes in foreign
currency exchange rates and exchange control regulations. International
Fundsalso will incur costs in converting United States dollars to local
currencies, and vice versa.
International Fund will conduct its foreign currency exchange
transactions either on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market, or through forward contracts to purchase
or sell foreign currencies. A forward foreign currency exchange contract
involves an obligation to purchase or sell an amount of a specific currency at a
specific price on a future date agreed upon by the parties. These forward
currency contracts are traded directly between currency traders (usually large
commercial banks) and their customers.
International Fund may enter into forward currency contracts in order
to hedge against adverse movements in exchange rates between currencies. The
Fund may engage in "transaction hedging" to protect against a change in the
foreign currency exchange rate between the date the Fund contracts to purchase
or sell a security and the settlement date, or to "lock in" the United States
dollar equivalent of a dividend or interest payment made in a foreign currency.
It also may engage in "portfolio hedging" to protect against a decline in the
value of its portfolio securities as measured in United States dollars which
could result from changes in exchange rates between the United States dollar and
the foreign currencies in which the portfolio securities are purchased and sold.
International Fund also may hedge foreign currency exchange rate risk by
engaging in currency futures and options transactions.
Although a foreign currency hedge may be effective in protecting the
Fund from losses resulting from unfavorable changes in exchanges rates between
the United States dollar and foreign currencies, it also would limit the gains
which might be realized by the Fund from favorable changes in exchange rates.
The 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, International Fund may realize losses on their foreign
currency transactions.
As stated above, International Fund may engage in a variety of foreign
currency transactions in connection with its investment activities. These
include forward foreign currency exchange contracts, foreign currency futures,
and foreign currency options.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
These contracts are traded directly between currency traders (usually large
commercial banks) and their customers. International Fund will not enter into
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such forward contracts or maintain a net exposure in such contracts where it
would be obligated to deliver an amount of foreign currency in excess of the
value of the Fund's securities or other assets denominated in that currency. The
Fund will comply with applicable SEC announcements requiring it to segregate
assets to cover its commitments with respect to such contracts. At the present
time, these announcements generally require a fund with a long position in a
forward foreign currency contract to establish with its custodian a segregated
account containing cash or liquid high grade debt securities equal to the
purchase price of the contract, and require a fund with a short position in a
forward foreign currency contract to establish with its custodian a segregated
account containing cash or liquid high grade debt securities that, when added to
any margin deposit, equal the market value of the currency underlying the
forward contract. These requirements will not apply where a forward contract is
used in connection with the settlement of investment purchases or sales or to
the extent that the position has been "covered" by entering into an offsetting
position. International Fund generally will not enter into a forward contract
with a term longer than one year.
FOREIGN CURRENCY FUTURES TRANSACTIONS. Unlike forward foreign currency
exchange contracts, foreign currency futures contracts and options on foreign
currency futures contracts are standardized as to amount and delivery period and
may be traded on boards of trade and commodities exchanges or directly with a
dealer which makes a market in such contracts and options. It is anticipated
that such contracts may provide greater liquidity and lower cost than forward
foreign currency exchange contracts. As part of its financial futures
transactions, International Fund may use foreign currency futures contracts and
options on such futures contracts. Through the purchase or sale of such
contracts, the Fund 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 buyer may close its
position during the option period in the secondary market for such options at
any time prior to expiration.
A foreign currency call option rises in value if the underlying
currency appreciates. Conversely, a foreign currency put option rises in value
if the underlying currency depreciates. While purchasing a foreign currency
option may protect International Fund against an adverse movement in the value
of a foreign currency, it would not limit the gain which might result from a
favorable movement in the value of the currency. For example, if the 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 Fund's gain would be offset in part by the premium paid for the
option. Similarly, if the 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 Fund would not need to exercise its call if the currency
instead depreciated in value. In such a case, the 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.
DEBT OBLIGATIONS RATED LESS THAN INVESTMENT GRADE
The "equity securities" in which the 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."
Each Fund may invest up to 5% of its net assets in less than investment grade
convertible debt obligations.
Participation in non-investment grade securities 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.
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In addition, the secondary trading market for less than investment
grade debt obligations may be less developed than the market for investment
grade obligations. Adverse publicity and investor perceptions, whether or not
based on fundamental analysis, may decrease the values and liquidity of less
than investment grade obligations, especially in a thin secondary trading
market.
Certain risks also are associated with the use of credit ratings as a
method for evaluating less than investment grade debt obligations. For example,
credit ratings evaluate the safety of principal and interest payments, not the
market value risk of such obligations. In addition, credit rating agencies may
not timely change credit ratings to reflect current events. Thus, the use of
less than investment grade convertible debt obligations may be more dependent on
the Advisor's or sub-advisor's own credit analysis than is the case with
investment grade obligations.
PREFERRED STOCK
The Funds 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.
CFTC INFORMATION
The Commodity Futures Trading Commission (the "CFTC"), a federal
agency, regulates trading activity pursuant to the Commodity Exchange Act, as
amended. The CFTC requires the registration of "commodity pool operators," which
are defined as any person engaged in a business which is of the nature of an
investment trust, syndicate or a similar form of enterprise, and who, in
connection therewith, solicits, accepts or receives from others funds,
securities or property for the purpose of trading in a commodity for future
delivery on or subject to the rules of any contract market. The CFTC has adopted
Rule 4.5, which provides an exclusion from the definition of commodity pool
operator for any registered investment company which (i) will use commodity
futures or commodity options contracts solely for bona fide hedging purposes
(provided, however, that in the alternative, with respect to each long position
in a commodity future or commodity option contract, an investment company may
meet certain other tests set forth in Rule 4.5); (ii) will not enter into
commodity futures and commodity options contracts for which the aggregate
initial margin and premiums exceed 5% of its assets; (iii) will not be marketed
to the public as a commodity pool or as a vehicle for investing in commodity
interests; (iv) will disclose to its investors the purposes of and limitations
on its commodity interest trading; and (v) will submit to special calls of the
CFTC for information. Any investment company desiring to claim this exclusion
must file a notice of eligibility with both the CFTC and the National Futures
Association. FAIP has made such notice filings with respect to those Funds which
may invest in commodity futures or commodity options contracts.
INVESTMENT RESTRICTIONS
In addition to the investment objectives and policies set forth in the
Prospectuses and under the caption "Additional Information Concerning Fund
Investments" above, each of the Funds is subject to the investment restrictions
set forth below. The investment restrictions set forth in paragraphs 1 through 6
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 Investment Company Act of 1940, as amended (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 Funds will:
1. Borrow money or issue senior securities, except as permitted
under the 1940 Act, as interpreted or modified from time to
time by any regulatory authority having jurisdiction. (As a
non-fundamental policy, no fund will make additional
investments while its borrowings exceed 5% of total assets.)
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2. Concentrate its investments in a particular industry, except
that Technology Fund will concentrate its investments in the
technology industry. For purposes of this limitation, the U.S.
Government, and state or municipal governments and their
political subdivisions, are not considered members of any
industry. Whether a Fund is concentrating in an industry shall
be determined in accordance with the 1940 Act, as interpreted
or modified from time to time by any regulatory authority
having jurisdiction.
3. Act as an underwriter of securities of other issuers, except
to the extent that, in connection with the disposition of
portfolio securities, it may be deemed an underwriter under
applicable laws.
4. Purchase or sell real estate unless as a result of ownership
of securities or other instruments, but this shall not prevent
the Funds from investing in securities or other instruments
backed by real estate or interest therein or in securities of
companies that deal in real estate or mortgages.
5. Purchase physical commodities or contracts relating to
physical commodities.
6. Make loans except as permitted under the 1940 Act, as
interpreted or modified from time to time by any regulatory
authority having jurisdiction.
The following restriction is non-fundamental and may be changed by
FAIP's Board of Directors without a shareholder vote: None of the Funds 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' Advisor is to determine whether certain types of securities
which may be held by the Funds are "liquid" and to report to the Board
concerning its determinations, including: (i) securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933; and (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.
For purposes of determining industry concentration for domestic equity
securities, the Funds use the North American Industry Classification System
(NAICS Manual).
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of FAIP 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 FAIP 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,
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<PAGE>
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
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.
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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
The First American Family of Funds, which includes FAIF, FAF, FASF,
FAIP 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 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 FAIP (i)
by FAIP (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 FAIF had aggregate compensation from FAIF 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
FUND REGISTRANT BENEFITS ACCRUED RETIREMENT FUND COMPLEX PAID
AS PART OF FUND TO DIRECTORS
EXPENSES
<S> <C> <C> <C> <C>
Robert J. Dayton, Director -0- -0- -0- $ 64,750.00
Roger A. Gibson, Director -0- -0- -0- 56,200.00
Andrew M. Hunter III, Director -0- -0- -0- 68,530.00
Leonard W. Kedrowski, Director -0- -0- -0- 62,200.00
Robert L. Spies, Director -0- -0- -0- 60,400.00
John M. Murphy, Jr., Director -0- -0- -0- -0-
Joseph D. Strauss, Director -0- -0- -0- 73,110.00
Virginia L. Stringer, Director -0- -0- -0- 80,052.00
</TABLE>
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<PAGE>
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
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 more than $77 billion, consolidated deposits of more
than $47 billion and shareholders' equity of more than $6 billion.
Pursuant to an Investment Advisory Agreement dated December 8, 1999
(the "Advisory Agreement") as amended, the Funds engage the Advisor to act as
investment Advisor for and to manage the investment of the assets of the Funds.
Each Fund, other than International Fund, pays the Advisor monthly fees
calculated on an annual basis equal to _______ of its average daily net assets.
International Fund pay the Advisor monthly fees calculated on an annual basis
equal to ______ of its respective average daily net assets. The Advisory
Agreement requires the Advisor to provide FAIP 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 FAIP and the officers and directors of FAIP, if
any, who are affiliated with the Advisor or any of its affiliates.
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. 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 Funds had not commenced operations prior to the date of this
Statement of Additional Information. The contractual fee rate is shown in the
following table:
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<PAGE>
ADVISORY FEE
Growth Equity Fund
Value Equity Fund
Technology Fund
International Fund
SUB-ADVISORY AGREEMENT FOR INTERNATIONAL FUND
Marvin & Palmer Associates, Inc., 1201 North Market Street, Suite 2300,
Wilmington, Delaware 19801 ("Marvin & Palmer") is sub-advisor for International
Fund under an agreement with the Advisor (the "Marvin & Palmer Sub-Advisory
Agreement"). 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 Agreement, Marvin & Palmer is
responsible for the investment and reinvestment of International Fund's assets
and the placement of brokerage transactions in connection therewith. Under the
Marvin & Palmer Sub-Advisory Agreement, 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 International
Fund to its respective investment objectives, policies and restrictions. The
Marvin & Palmer Sub-Advisory Agreement 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
Agreement.
For its services to International Fund under the Marvin & Palmer
Sub-Advisory Agreement, Marvin & Palmer is paid a monthly fee by the Advisor
calculated on an annual basis equal to _____% of the first $_____ million of
International Fund's average daily net assets, _____% of International Fund's
average daily net assets in excess of $______ million up to $_____ million,
______% of International Fund's average daily net assets in excess of $_____
million up to $______ million and ______% of International Fund's average daily
net assets in excess of $_____ million.
ADMINISTRATION AGREEMENT
In addition to acting as the advisor, U.S. Bank also serves as the
administrator (the "Administrator") for the Funds pursuant to an Administration
Agreement between it and the Funds. 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 the Administrator at
an annual rate, which is calculated daily and paid monthly, equal to each Fund's
pro rata share of an amount equal to _____% of the aggregate average daily
assets of all open-end mutual funds in the First American fund family up to
$____ billion, and _____% of the aggregate average daily net assets of all
open-end mutual funds in the First American fund family in excess of $ _____
billion. (For the purposes of this Agreement, the First American fund family
includes all series of FAF, FASF, FAIF, and FAIP.) In addition, the Funds pay
the Adminisrator annual fees of $________ per CUSIP, shareholder account fees of
$_____ per account and closed account fees of $_____ per account.
DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), Oaks PA 19456, serves as
the distributor for the Funds. The Distributor is a wholly-owned subsidiary of
SEI Investments Company. Distributor has agreed to perform all distribution
services and functions of the Funds to the extent such services and functions
are not provided to the Funds pursuant to another agreement.
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<PAGE>
Fund shares and other securities distributed by the Distributor are not
deposits or obligations of, or endorsed or guaranteed by, U.S. Bank or its
affiliates, and are not insured by the Bank Insurance Fund, which is
administered by the Federal Deposit Insurance Corporation.
The Distribution Agreement provides that it will continue in effect for
a period of more than one year from the date of its execution only so long as
such continuance is specifically approved at least annually by the vote of a
majority of the Board of Directors of FAIP and by the vote of the majority of
those Board members of FAIP who are not interested persons of FAIP.
CUSTODIAN; COUNSEL; AUDITORS
CUSTODIAN. U.S. Bank also acts as the custodian (the "Custodian"). U.S.
Bank's custodian operations are located at U.S. Bank Center, 180 East Fifth
Street, St. Paul, Minnesota 55101. All of the instruments representing the
investments of the Funds and all cash is held by the Custodian or, for
International Fund, by a sub-custodian. 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 FAIP'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 ______% (_____% in the case
of International Fund) of such Fund's average daily net assets. Sub-custodian
fees with respect to 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 FAIP.
COUNSEL. Dorsey & Whitney LLP, 220 South Sixth Street, Minneapolis,
Minnesota 55402, is independent counsel for the Funds.
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.
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE
Decisions with respect to placement of the Funds' portfolio
transactions are made by the Advisor or, in the case International Fund, its
respective investment sub-advisors. 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 or
applicable investment sub-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 or applicable investment sub-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. Many of the
portfolio transactions involve payment of a brokerage commission by the
appropriate Fund. In some cases, transactions are 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 deal with
market makers unless it appears that better price and execution are available
elsewhere.
While the Advisor and Marvin & Palmer, in the case of International
Fund, do 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 and Marvin & Palmer, in the case of
International Fund to posted commission rates as well as to other information
concerning the level of commissions charged on comparable transactions by other
qualified brokers.
It is expected that International Fund will purchase most foreign
equity securities in the over-the-counter markets or stock exchanges located in
the countries in which the respective principal offices of the issuers of the
various securities are located if that is the best available market. The fixed
commission paid in connection with most such
17
<PAGE>
foreign stock transactions generally is higher than negotiated commission on
United States transactions. There generally is less governmental supervision and
regulation of foreign stock exchanges than in the United States. Foreign
securities settlements may in some instances be subject to delays and related
administrative uncertainties.
Foreign equity securities may be held in the form of American
Depositary Receipts, or ADRs, European Depositary Receipts, or EDRs, or
securities convertible into foreign equity securities. ADRs and EDRs may be
listed on stock exchanges or traded in the over-the-counter markets in the
United States or overseas. The foreign and domestic debt securities and money
market instruments in which the Funds may invest are generally traded in the
over-the-counter markets.
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, or Marvin
& Palmer, may consider ability to provide supplemental performance, statistical
and other research information as well as computer hardware and software for
research purposes for consideration, analysis and evaluation by the staff of the
Advisor or Marvin & Palmer. 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 or Marvin &
Palmer would include advice, both directly and indirectly 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 or Marvin & Palmer to
supplement its own investment research activities and enable the Advisor or
Marvin & Palmer 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 or Marvin & Palmer 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 or Marvin & Palmer 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 or Marvin & Palmer in performing services for the
Funds. The Advisor or Marvin & Palmer determine the reasonableness of the
commissions paid in relation to their view of the value of the brokerage and
research services provided, considered in terms of the particular transactions
and their overall responsibilities with respect to all accounts as to which they
exercise investment discretion.
The Advisor or Marvin & Palmer have 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 or Marvin
& Palmer, except as noted below. The Advisor or Marvin & Palmer 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 or Marvin & Palmer with research
services, which the Advisor or Marvin & Palmer 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 or Marvin & Palmer 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 or Marvin & Palmer 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 or Marvin
& Palmer 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 commission 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
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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 or Marvin & Palmer 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
or Marvin & Palmer 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.
CAPITAL STOCK
Each share of each Fund's $______ 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 FAIP 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. An
example of such an issue would be a proposal to alter a fundamental investment
restriction pertaining to a Fund.
The Bylaws of FAIP 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 ____________ ___, 2000, [NAME] [ADDRESS], owned 100% of the
outstanding shares of each Fund. ____________ will be able to control all votes
of each Fund's shareholders until other purchase a number of shares of a Fund
sufficient to constitute a majority of such Fund's shares.
NET ASSET VALUE AND PUBLIC OFFERING PRICE
The public offering price of the shares of a Fund generally equals the
Fund's net asset value. On ___________, 2000, the net asset value per share for
each Fund was calculated as follows:
Net Asset Value
--------------------------
Growth Equity Fund
Value Equity Fund
Technology Fund
Bond Fund
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. To the
extent that the securities of a Fund are traded on days that the Fund is not
open for business, such Fund's net asset value per share may be affected on days
when investors may not purchase or redeem shares. This may occur, for example,
where International Fund holds securities which are traded in foreign markets.
FUND PERFORMANCE
Advertisements and other sales literature for the Funds may refer to a
Fund's "average annual total return" and "cumulative total return." In addition,
each Fund may provide yield calculations in advertisements and other sales
literature. All such yield and total return quotations are based on historical
earnings and are not intended to indicate
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future performance. The return on and principal value of an investment in any of
the Funds will fluctuate, so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
AVERAGE ANNUAL TOTAL RETURN. Average annual total return is the average
annual compounded rate of return on a hypothetical $1,000 investment made at the
beginning of the advertised period. Average annual total return figures are
computed 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 deducts the maximum sales charge from the initial hypothetical
$1,000 investment, assumes all dividends and capital gains distributions are
reinvested at net asset value on the appropriate reinvestment dates as described
in the applicable Prospectus, and includes all recurring fees, such as
investment advisory and management fees, charged to all shareholder accounts.
The Advisor and Distributor have waived a portion of their fees on a
voluntary basis, thereby increasing total return and yield. These fees may or
may not be waived in the future in the Advisor's or Distributor's discretion.
CUMULATIVE TOTAL RETURN. Cumulative total return is calculated by
subtracting a hypothetical $1,000 investment in a Fund from the redeemable value
of such investment at the end of the advertised period, dividing such difference
by $1,000 and multiplying the quotient by 100. Cumulative total return is
computed according to the following formula:
CTR = (ERV-P) 100
-----
P
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 assumes all dividends and capital gain distributions are
reinvested at net asset value on the appropriate reinvestment dates as described
in the applicable Prospectus and includes all recurring fees, such as investment
advisory and management fees, charged to all shareholder accounts.
YIELD. Yield is computed by dividing the net investment income per
share (as defined under Securities and Exchange Commission rules and
regulations) earned during the advertised period by the offering price per share
(including the maximum sales charge) on the last day of the period. The result
will then be "annualized" using a formula that provides for semi-annual
compounding of income. Yield is computed according to the following formula:
YIELD = 2[(a-b + 1)6 - 1
----
cd
Where: a = dividends and interest earned during the period;
b = expenses accrued for the period (net of
reimbursements);
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends;
and
d = the maximum offering price per share on the last day
of the period.
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TAXATION
Shares of the Funds are offered only to separate accounts that fund
variable annuity contracts and variable life insurance policies issued by
participating insurance companies. See the Prospectus of such contracts for a
discussion of the special taxation of insurance companies with respect to the
Separate Accounts, the variable annuity contracts, variable insurance policies,
and the holders thereof.
The following is a summary of the principal U.S. federal income, and
certain state and local, tax considerations regarding the purchase, ownership
and disposition of shares in each Fund of FAIP. This summary does not address
special tax rules applicable to certain classes of investors, such as tax-exempt
entities, insurance companies and financial institutions. Each prospective
shareholder is urged to consult his or her own tax adviser with respect to the
specific federal, state, local and foreign tax consequences of investing in each
Fund. The summary is based on the laws in effect on the date of this Statement
of Additional Information, which are subject to change.
GENERAL. The following is only a summary of certain additional tax
considerations generally affecting each Fund that are not described in the
Prospectus. The discussions below and in the Prospectus are not intended as
substitutes for careful tax planning.
The holders of variable life insurance policies or annuity contracts
should not be subject to tax with respect to distributions made on, or
redemptions of, Fund shares, assuming that the variable life insurance policies
and annuity contracts qualify under the Internal Revenue Code of 1986, as
amended (the "Code"), as life insurance or annuities, respectively, and that the
shareholders are treated as owners of the Fund shares. Thus, this summary does
not describe the tax consequences to a holder of a life insurance policy or
annuity contract as a result of the ownership of such policies or contracts.
Policy or contract holders must consult the prospectuses of their respective
policies or contracts for information concerning the federal income tax
consequences of owning such policies or contracts. This summary also does not
describe the tax consequences applicable to the owners of the Fund shares
because the Fund shares will be sold only to insurance companies. Thus,
purchasers of Fund shares must consult their own tax advisers regarding the
federal, state, and local tax consequences of owning Fund shares.
Each Fund intends to fulfill the requirements of Subchapter M of 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.
Qualification as a regulated investment company under the Code
requires, among other things, that (a) a Fund derive at least 90% of its gross
income for its taxable year from dividends, interest, payments with respect to
securities loans and gains from the sale or other disposition of stocks or
securities or foreign currencies, or other income (including but not limited to
gains from options, futures, and forward contracts) derived with respect to its
business of investing in such stock, securities or currencies (the "90% gross
income test"); and (b) such Fund diversify its holdings so that, at the close of
each quarter of its taxable year, (i) at least 50% of the market value of such
Fund's total (gross) assets is comprised of cash, cash items, U.S. Government
securities, securities of other regulated investment companies and other
securities limited in respect of any one issuer to an amount not greater in
value than 5% of the value of such Fund's total assets and to not more than 10%
of the outstanding voting securities of such issuer, and (ii) not more than 25%
of the value of its total (gross) assets is invested in the securities of any
one issuer (other than U.S. Government securities and securities of other
regulated investment companies) or two or more issuers controlled by the Fund
and engaged in the same, similar or related trades or businesses.
If a Fund complies with such provisions, then in any taxable year in
which such Fund distributes, in compliance with the Code's timing and other
requirements, at least 90% of its "investment company taxable income" (which
includes dividends, taxable interest, taxable accrued original issue discount
and market discount income, income from securities lending, any net short-term
capital gain in excess of net long-term capital loss, certain net realized
foreign exchange gains and any other taxable income other than "net capital
gain," as defined below, and is reduced by deductible expenses), and at least
90% of the excess of its gross tax-exempt interest income (if any) over certain
disallowed deductions, such Fund (but not its shareholders) will be relieved of
federal income tax on any income of the Fund, including long-term capital gains,
distributed to shareholders. However, if a Fund retains any investment company
taxable income or "net capital gain" (the excess of net long-term capital gain
over net short-term capital loss), it will be subject to a tax at regular
corporate rates on the amount retained. If the Fund retains any net capital
gain, the
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<PAGE>
Fund may designate the retained amount as undistributed capital gains in a
notice to its shareholders who, if subject to U.S. federal income tax on
long-term capital gains, (i) will be required to include in income for federal
income tax purposes, as long-term capital gain, their shares of such
undistributed amount, and (ii) will be entitled to credit their proportionate
shares of the tax paid by the Fund against their U.S. federal income tax
liabilities, if any, and to claim refunds to the extent the credit exceeds such
liabilities. For U.S. federal income tax purposes, the tax basis of shares owned
by a shareholder of the Fund will be increased by an amount equal under current
law to 65% of the amount of undistributed net capital gain included in the
shareholder's gross income. Each Fund intends to distribute for each taxable
year to its shareholders all or substantially all of its investment company
taxable income, net capital gain and any net tax-exempt interest.
If a Fund invests in U.S. Treasury inflation-protection securities, it
will be required to treat as original issue discount any increase in the
principal amount of the securities that occurs during the course of its taxable
year. If a Fund purchases such inflation-protection securities that are issued
in stripped form either as stripped bonds or coupons, it will be treated as if
it had purchased a newly issued debt instrument having original issue discount.
Generally, the original issue discount equals the difference between the "stated
redemption price at maturity" of the obligation and its "issue price" as those
terms are defined in the Code. A Fund holding an obligation with original issue
discount is required to accrue as ordinary income a portion of such original
issue discount even though it receives no cash currently as interest payment
corresponding to the amount of the original issue discount. Because each Fund is
required to distribute substantially all of its net investment income (including
accrued original issue discount) in order to be taxed as a regulated investment
company, it may be required to distribute an amount greater than the total cash
income it actually receives. Accordingly, in order to make the required
distributions, a Fund may be required to borrow or liquidate securities.
Some of the investment practices that may be employed by the Funds will
be subject to special provisions that, among other things, may defer the use of
certain losses of such Funds, affect the holding period of the securities held
by the Funds and, particularly in the case of transactions in or with respect to
foreign currencies, affect the character of the gains or losses realized. These
provisions may also require the Funds to mark-to-market some of the positions in
their respective Funds (i.e., treat them as closed out) or to accrue original
discount, both of which may cause such Funds to recognize income without
receiving cash with which to make distributions in amounts necessary to satisfy
the distribution requirements for qualification as a regulated investment
company and for avoiding income and excise taxes. Accordingly, in order to make
the required distributions, a Fund may be required to borrow or liquidate
securities. Each Fund will monitor its transactions and may make certain
elections in order to mitigate the effect of these rules and prevent
disqualification of the Funds as regulated investments companies.
It is expected that any net gain realized from the closing out of
futures contracts, options, or forward currency contracts will be considered
gain from the sale of securities or currencies and therefore qualifying income
for purposes of the 90% of gross income from qualified sources requirement, as
discussed above.
Pursuant to the Code, distributions of net investment income by a Fund
to a shareholder who is a foreign shareholder (as defined below) 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.
A foreign shareholder is any person who is not (i) a citizen or
resident of the United States, (ii) a corporation, partnership or other entity
organized in the United States or under the laws of the Untied States or a
political subdivision thereof, (iii) an estate whose income is includible in
gross income for U.S. federal income tax purposes or (iv) a trust whose
administration is subject to the primary supervision of the U.S. court and which
has one or more U.S. fiduciaries who have authority to control all substantial
decisions of the trust.
Each Fund intends to comply with the diversification requirements
imposed by Section 817(h) of the Code and the regulations thereunder. Under Code
Section 817(h), a variable life insurance or annuity contract will not be
22
<PAGE>
treated as a life insurance policy or annuity contract, respectively, under the
Code, unless the segregated asset account upon which such contract or policy is
based is "adequately diversified." A segregated asset account will be adequately
diversified if it satisfies one of two alternative tests set forth in the
Treasury Regulations. Specifically, the Treasury Regulations provide that,
except as permitted by the "safe harbor" discussed below, as of the end of each
calendar quarter (or within 30 days thereafter) no more than 55% of the
segregated asset account's total assets may be represented by any one
investment, no more than 70% by any two investments, no more than 80% by any
three investments and no more than 90% by any four investments. For this
purpose, all securities of the same issuer are considered a single investment,
and each U.S. Government agency and instrumentality is considered a separate
issuer. As a safe harbor, a segregated asset account will be treated as being
adequately diversified if the diversification requirements under Subchapter M
are satisfied and no more than 55% of the value of the account's total assets
are cash and cash items, U.S. Government securities and securities of other
regulated investment companies. In addition, a segregated asset account with
respect to a variable life insurance contract is treated as adequately
diversified to the extent of its investment in securities issued by the United
States Treasury.
For purposes of these alternative diversification tests, a segregated
asset account investing in shares of a regulated investment company will be
entitled to "look through" the regulated investment company to its pro rata
portion of the regulated investment company's assets, provided that the shares
of such regulated investment company are held only by insurance companies and
certain fund managers (a "Closed Fund").
If the segregated asset account upon which a variable contract is based
is not "adequately diversified" under the foregoing rules for each calendar
quarter, then (a) the variable contract is not treated as a life insurance
contract or annuity contract under the Code for all subsequent periods during
which such account is not "adequately diversified" and (b) the holders of such
contract must include as ordinary income the "income on the contract" for each
taxable year. Further, the income on a life insurance contract for all prior
taxable years is treated as received or accrued during the taxable year of the
policyholder in which the contract ceases to meet the definition of a "life
insurance contract" under the Code. The "income on the contract" is, generally,
the excess of (i) the sum of the increase in the net surrender value of the
contract during the taxable year and the cost of the life insurance protection
provided under the contract during the year, over (ii) the premiums paid under
the contract during the taxable year. In addition, if a Fund does not constitute
a Closed Fund, the holders of the contracts and annuities which invest in the
Fund through a segregated asset account may be treated as owners of Fund shares
and may be subject to tax on distributions made by the Fund.
In order to avoid a 4% federal excise tax, each Fund must distribute
(or be deemed to have distributed) by December 31 of each calendar year at least
98% of its taxable ordinary income for such year, at least 98% of the excess of
its capital gains over its capital losses (generally computed on the basis of
the one-year period ending on October 31 of such year), and all taxable ordinary
income and the excess of capital gains over capital losses for the previous year
that were not distributed for such year and on which the Fund paid no federal
income tax. For federal income tax purposes, dividends declared by a Fund in
October, November or December to shareholders of record on a specified date in
such a month and paid during January of the following year are taxable to such
shareholders as if received on December 31 of the year declared. The Funds
anticipate that they will generally make timely distributions of income and
capital gains in compliance with these requirements so that they will generally
not be required to pay the excise tax. For federal income tax purposes, each
Fund is permitted to carry forward a net capital loss in any year to offset its
own capital gains, if any, during the eight years following the year of the
loss.
Certain Funds will be subject to foreign taxes on their income
(possibly including, in some cases, capital gains) from foreign securities. Tax
conventions between certain countries and the U.S. may reduce or eliminate such
taxes in some cases.
STATE AND LOCAL. Each Fund may be subject to state or local taxes in
jurisdictions in which such Fund may be deemed to be doing business. In
addition, in those states or localities which have income tax laws, the
treatment of such Fund and its shareholders under such laws may differ from
their treatment under federal income tax laws, and investment in such Fund may
have tax consequences for shareholders different from those of a direct
investment in such Fund's securities.
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.
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<PAGE>
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 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
STANDARD & POOR'S
AAA: Securities rated AAA have the highest rating assigned by Standard
& Poor's to a debt obligation. Capacity to pay interest and repay
principal is extremely strong.
AA: Securities rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only to a
small degree.
A: Securities rated A have a strong capacity to pay interest and repay
principal, although they are somewhat more susceptible to adverse
effects of changes in circumstances and economic conditions than bonds
in higher rated categories.
BBB: Securities rated BBB are regarded as having an adequate capacity
to pay interest and repay principal. Although such securities normally
exhibit adequate protection standards, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity
to pay interest and repay principal for securities in this category
than for those in higher rated categories.
Debt rated BB, B, CCC, CC, and C by Standard & Poor's is regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
BB: Securities rated BB have less near-term vulnerability to default
than other speculative issues. However, they face major ongoing
uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to inadequate capacity to meet timely
interest and principal payments. The BB rating category is also used
for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating.
B: Securities rated B have a greater vulnerability to default but
currently have the capacity to meet interest payments and principal
repayments. Adverse business, financial, or economic conditions will
likely impair capacity or willingness to pay interest and repay
principal. The B rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied BB or BB- rating.
CCC: Securities rated CCC have a currently identifiable vulnerability
to default, and are dependent upon favorable business, financial, and
economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial, or economic
conditions, they are not likely to have the capacity to pay interest
and repay principal. The CCC rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied B or
B- rating.
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<PAGE>
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.
Securities rated SD or D are in selective default or default, respectively. Such
a rating is assigned when an obligor has failed to pay one or more of its
financial obligations (rated or unrated) when it came due.
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.
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.
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<PAGE>
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 or 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.
baa: An issue which is rated "baa" is considered to be medium grade,
neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any
great length of time.
RATINGS OF COMMERCIAL PAPER
STANDARD & POOR'S. Commercial paper ratings are graded into four
categories, ranging from "A" for the highest quality obligations to "D"
for the lowest. Issues assigned the A rating are regarded as having the
greatest capacity for timely payment. Issues in this category are
further refined with the designation 1, 2 and 3 to indicate the
relative degree of safety. The "A-1" designation indicates that the
degree of safety regarding timely payment is very strong. Those issues
determined to possess overwhelming safety characteristics will be
denoted with a plus (+) symbol designation. None of the Funds will
purchase commercial paper rated A-3 or lower.
MOODY'S. Moody's commercial paper ratings are opinions as to the
ability of the issuers to timely repay promissory obligations not
having an original maturity in excess of nine months. Moody's makes no
representation that such obligations are exempt from registration under
the Securities Act of 1933, and it does not represent that any specific
instrument is a valid obligation of a rated issuer or issued in
conformity with any applicable law. Moody's employs the following three
designations, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers:
PRIME-1: Superior capacity for repayment.
PRIME-2: Strong capacity for repayment.
PRIME-3: Acceptable capacity for repayment.
None of the Funds will purchase Prime-3 commercial paper.
[SEED MONEY BALANCE SHEET]
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FIRST AMERICAN INSURANCE PORTFOLIOS, INC.
PART C -- OTHER INFORMATION
ITEM 23. EXHIBITS
(a)(1) Amended and Restated Articles of Incorporation, as filed
August 27, 1999 (Filed with the Registration Statement,
December 30, 1999, File Nos. 333-93883 and 811-09765).
(a)(2) Certificate of Designation designating Series D, Class One
Shares, dated December 1999 (Filed with the Registration
Statement, December 30, 1999, File Nos. 333-93883 and
811-09765).
(b) By-laws of Registrant, as Amended through December 8, 1999
(Filed with the Registration Statement, December 30, 1999,
File Nos. 333-93883 and 811-09765).
(c) Not Applicable.
(d)(1) Investment Advisory Agreement between Registrant and U.S. Bank
National Association, dated December 8, 1999 (Filed with the
Registration Statement, December 30, 1999, File Nos. 333-93883
and 811-09765).
** (d)(2) Investment Sub-Advisory Agreement with Marvin & Palmer
Associates.
(e) Distribution Agreement between Registrant and SEI Investments
Management Co., dated December 8, 1999 (Filed with the
Registration Statement, December 30, 1999, File Nos. 333-93883
and 811-09765).
(f) Not Applicable.
(g)(1) Custodian Agreement between Registrant and U.S. Bank National
Association, dated December 8, 1999 (Filed with the
Registration Statement, December 30, 1999, File Nos. 333-93883
and 811-09765).
(g)(2) Compensation Agreement Dated as of December 8, 1999 Pursuant
to Custodian Agreement (Filed with the Registration Statement,
December 30, 1999, File Nos. 333-93883 and 811-09765).
(h)(1) Administration Agreement between Registrant and U.S. Bank
National Association, dated December 8, 1999 (with Schedule
attached) (Filed with the Registration Statement, December 30,
1999, File Nos. 333-93883 and 811-09765).
(h)(2) Form of Participation Agreement by and among Registrant, SEI
<PAGE>
Investments Distribution Co. and Insurance Company on Behalf
of Itself and its Separate Accounts and Distribution Company,
Inc. (Filed with the Registration Statement, December 30,
1999, File Nos. 333-93883 and 811-09765).
** (i) Legal Opinion. An opinion and consent of counsel regarding the
legality of the securities being registered, stating whether
the securities will, when sold, be legally issued, fully paid,
and non-assessable.
(j) Not Applicable.
(k) Not Applicable.
** (l) Initial Capital Agreements. Any agreements or understandings
made in consideration for providing the initial capital
between or among the Fund, the underwriter, adviser, promoter
or initial shareholders and written assurances from promoters
or initial shareholders that purchases were made for
investment purposes and not with the intention of redeeming or
reselling.
(m) Not Applicable.
(n) Not Applicable.
** To be filed by amendment.
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
<PAGE>
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
Information on the business of the Registrant's investment adviser,
U.S. Bank National Association (the "Advisor"), is described in the section the
Statement of Additional Information, filed as part of this Registration
Statement, entitled "Investment Advisory and Other Services." The directors and
officers of the Advisor are listed below, together with their principal
occupation or other positions of a substantial nature during the past two fiscal
years.
<PAGE>
<TABLE>
<CAPTION>
POSITIONS AND OFFICES OTHER POSITIONS AND OFFICES
NAME WITH THE ADVISOR 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-- Vice Chairman--Finance of U.S.
Finance 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 Executive Vice President and Chief
and Executive Vice President Credit Officer of U.S. Bancorp*
Lee R. Mitau Director, General Counsel, Executive Vice President,
Executive Vice President and Secretary, and General Counsel of
Secretary U.S. Bancorp*
Susan E. Lester Director, Executive Vice Executive Vice President and Chief
President and Chief Financial Financial Officer of U.S. Bancorp*
Officer
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
<PAGE>
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 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>
POSITIONS AND OFFICES POSITIONS AND OFFICES
NAME WITH UNDERWRITER 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 --
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
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 --
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>
<PAGE>
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.
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 the Securities Act of 1933, as amended, and has duly caused this
Registration Statement File Nos. 333-93883 and 811-09765, to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Oaks,
Commonwealth of Pennsylvania, on the 10th day of February, 2000
FIRST AMERICAN INSURANCE PORTFOLIOS, 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
<PAGE>
* 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
* Director **
- --------------------------
Virginia L. Stringer
* Director **
- --------------------------
Roger A. Gibson
* By: /s/ James R. Foggo
---------------------
James R. Foggo
Attorney-in-Fact
** February 10, 2000
