1933 Act Registration No.
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 8, 1997
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. ___ [ ]
Post-Effective Amendment No. ___ [ ]
(Check appropriate box or boxes)
Exact name of Registrant as Specified in Charter:
FIRST AMERICAN FUNDS, INC.
Area Code and Telephone Number:
(610) 254-1924
Address of Principal Executive Offices:
Oaks, Pennsylvania 19456
Name and Address of Agent for Service:
David G. Lee
c/o SEI Investments Company
Oaks, Pennsylvania 19456
COPIES TO:
Kathryn L. Stanton, Esq. Kathleen L. Prudhomme, Esq.
SEI Investments Company Dorsey & Whitney LLP
Oaks, Pennsylvania 19456 220 South Sixth Street
Minneapolis, Minnesota 55402
It is proposed that this filing become effective on September 7, 1997
(30 days after filing) pursuant to Rule 488.
No filing fee is required because an indefinite number of shares have previously
been registered pursuant to Rule 24f-2 under the Investment Company Act of 1940.
Registrant is filing as an exhibit to this Registration Statement a copy of its
earlier declaration under Rule 24f-2. Registrant filed its Rule 24f-2 Notice on
November 25, 1996 for its fiscal year ended September 30, 1996.
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FIRST AMERICAN FUNDS, INC.
REGISTRATION STATEMENT ON FORM N-14
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 481(a))
PART A OF FORM N-14 PROSPECTUS/PROXY STATEMENT CAPTION
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1 Beginning of Registration Statement
and Outside Front Cover Page of Prospectus ........... Cross Reference Sheet and Cover Page
2. Beginning and Outside Back Cover Page
of Prospectus......................................... Table of Contents
3. Fee Table, Synopsis Information and
Risk Factors ......................................... Summary; Principal Risk Factors, Appendix V, Appendix VII
4. Information about the Transaction..................... Summary; Information Relating to the Interim Advisory Agreement;
Information Relating to the Proposed Reorganization; Comparison of
FAF and Qualivest
5. Information about the Registrant...................... Inside Front Cover (Incorporation by Reference); Comparison of
FAF and Qualivest; Additional Information about FAF; Appendix IV;
Appendix VIII; Appendix IX
6. Information about the Company Being
Acquired.............................................. Inside Front Cover (Incorporation by Reference); Comparison of FAF
and Qualivest; Additional Information about Qualivest; Appendix IV
7. Voting Information.................................... Summary; Information about the Reorganization; Information Relating to
Voting Matters
8. Interest of Certain Persons and Experts .............. Information Relating to Voting
9. Additional Information................................ Not Applicable
STATEMENT OF ADDITIONAL
PART B OF FORM N-14 INFORMATION CAPTION
10. Cover Page............................................ Cover Page
11. Table of Contents..................................... Not Applicable
12. Additional Information about the Registrant .......... Cover Page (Incorporation by Reference); Appendix A to Statement of
Additional Information
13. Additional Information about the Company
Being Acquired........................................ Cover Page (Incorporation by Reference)
14. Financial Statements.................................. Cover Page (Incorporation by Reference); Pro Forma Financial Statements
PART C OF FORM N-14
Information required to be included in Part C is set forth under the appropriate
item in Part C of this Registration Statement.
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FIRST AMERICAN FUNDS, INC.
REGISTRATION STATEMENT ON FORM N-14
PART A
PRESIDENT'S LETTER
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
PROSPECTUS/PROXY STATEMENT
<PAGE>
QUALIVEST FUNDS
3435 STELZER ROAD
COLUMBUS, OHIO 43219-3035
, 1997
Dear Qualivest Shareholder:
On behalf of the Board of Trustees of Qualivest Funds ("Qualivest"), we are
pleased to invite you to a special meeting of shareholders on _______ , 1997
(the "Meeting"), that has been called to consider matters that are important to
you. At the Meeting, you will be asked to consider (1) the approval of an
interim advisory agreement with First Bank National Association ("FBNA"), which
became effective on August 1, 1997 (when U.S. Bancorp merged with First Bank
System, Inc., as discussed below), and (2) a proposed reorganization of three
funds of Qualivest (the "Qualivest Portfolios") into three corresponding funds
of First American Funds, Inc. ("FAF") (the "FAF Funds"). FBNA currently acts as
the investment adviser to the FAF Funds.
As a result of the merger of U.S. Bancorp and First Bank System, Inc.,
representatives of U.S. Bancorp and First Bank System, Inc. recommended to the
Board of Trustees of Qualivest that the Trustees consider and approve combining
the Qualivest Portfolios with the FAF Funds. This recommendation was made
because the representatives of the two banking institutions believed that
combining the Qualivest Portfolios and the FAF Funds would offer a number of
potential benefits to the shareholders of the two mutual fund groups.
QUALIVEST'S BOARD OF TRUSTEES RECOMMENDS THAT YOU VOTE TO APPROVE BOTH THE
INTERIM ADVISORY AGREEMENT AND THE PROPOSED REORGANIZATION.
BACKGROUND. On August 1, 1997, U.S. Bancorp, the ultimate parent company of
Qualivest Capital Management, Inc. ("Qualivest Capital"), merged with First Bank
System, Inc. ("FBS"), the parent company of FBNA, and the name of FBS was
changed to U.S. Bancorp. By law, this merger resulted in the automatic
termination of the Qualivest Portfolios' then current investment advisory
agreement with Qualivest Capital. Because a number of Qualivest investment
personnel were expected to leave the employ of Qualivest Capital as a result of
the merger, Qualivest's Board of Trustees approved an interim investment
advisory agreement with FBNA, effective August 1, 1997, in order to provide, to
the extent practicable, continuity of management and to avoid harm to the
Qualivest Portfolios. At the upcoming meeting, you will be asked to ratify and
approve this interim advisory agreement, including the receipt of investment
advisory fees by FBNA for the period from August 1, 1997 forward.
In addition, at the upcoming meeting, you will be asked to approve a
reorganization of your Qualivest Portfolio into a corresponding FAF Fund. Each
FAF Fund is a series of FAF, an open-end investment company advised by FBNA. If
all approvals are obtained, the Qualivest Portfolios are expected to be
reorganized into the corresponding FAF Funds on or about November 28, 1997, when
your Qualivest Portfolio shares will be exchanged for shares of the
corresponding FAF Fund of equal value. Shareholders of the ten other investment
portfolios of Qualivest (Small Companies Value Fund, Large Companies Value Fund,
Optimized Stock Fund, Intermediate Bond Fund, Diversified Bond Fund,
International Opportunities Fund, Allocated Conservative Fund, Allocated
Balanced Fund, Allocated Growth Fund and Allocated Aggressive Fund) are being
asked to approve the reorganizations of such portfolios into investment
portfolios of First American Investment Funds, Inc. and First American Strategy
Funds, Inc. These proposed reorganizations are covered by two additional sets of
proxy materials. The reorganization that you are being asked to approve should
benefit shareholders by:
* facilitating investment management, administration and marketing by
combining the Qualivest Portfolios and the FAF Funds;
* improving efficiency, including the potential for economies of scale;
* eliminating duplicative costs; and
* making available to shareholders a greater number of investment
portfolio options.
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In considering these matters, you should note:
* IDENTICAL TERMS AND FEES
The terms of the interim advisory agreement with FBNA are
substantially identical to the terms of the Qualivest Portfolios'
previous advisory agreement with Qualivest Capital. The fee rates are
unchanged.
* SIMILAR OBJECTIVES AND POLICIES
One of the three Qualivest Portfolios will merge into a new FAF Fund
that has been created for purposes of the merger, and the remaining
two Qualivest Portfolios will merge into operating FAF Funds. The
objectives and policies of each FAF Fund are generally similar to
those of its corresponding Qualivest Portfolio. There are some
differences, however, which are discussed in the enclosed Combined
Proxy Statement/Prospectus, and you should consider these differences
carefully.
* SIMILAR ACCESS ARRANGEMENTS
You will enjoy access to the FAF Funds through distribution,
transaction and shareholder servicing arrangements that are
substantially similar to the Qualivest Portfolios' current
arrangements.
* SAME VALUE OF SHARES
The total value of the FAF Fund shares that you receive in the
reorganization will be the same as the total value of the Qualivest
Portfolio shares that you hold immediately before the reorganization.
* LOWER OPERATING EXPENSE RATIOS
The annual fund operating expense ratio (after waivers) for the
corresponding FAF Fund after the reorganization is expected to be less
than the annual fund operating expense ratio of your Qualivest
Portfolio through at least September 30, 1998, except for Class Y
shares of U.S. Treasury Money Market Fund.
The formal Notice of Special Meeting, a Combined Proxy Statement/Prospectus and
a Proxy Ballot are enclosed. If you own shares in more than one Qualivest
Portfolio, more than one Proxy Ballot accompanies these proxy materials. You
will receive additional proxy materials if you are a shareholder of one or more
of the ten other investment portfolios of Qualivest.
YOUR VOTE IS VERY IMPORTANT TO US. WHETHER OR NOT YOU PLAN TO ATTEND THE
SPECIAL MEETING, PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY BALLOT
PROMPTLY, USING THE ENCLOSED POSTAGE-PAID ENVELOPE.
The interim investment advisory arrangements with FBNA, the proposed
reorganization and the reasons for the Qualivest Board of Trustees'
recommendation are discussed in detail in the enclosed materials, which you
should read carefully. If you have any questions about the new investment
advisory arrangements or the reorganization, please do not hesitate to call
____________________ toll free at 1-800-___-_____.
Very truly yours,
Irimga McKay
President
<PAGE>
QUALIVEST FUNDS
3435 STELZER ROAD
COLUMBUS, OHIO 43219-3035
NOTICE OF SPECIAL SHAREHOLDERS MEETING
TO BE HELD ON , 1997
NOTICE IS HEREBY GIVEN THAT a Special Meeting of the Shareholders of U.S.
Treasury Money Market Fund, Tax-Free Money Market Fund and Money Market Fund
(each a "Qualivest Portfolio"), series of QUALIVEST FUNDS ("Qualivest"), will be
held at the offices of ____________ on _____________ , 1997, at ______ A.M. Time
for the purpose of considering and voting upon:
1. A proposal to ratify and approve an interim investment advisory agreement
between Qualivest, on behalf of each Qualivest Portfolio, and First Bank
National Association ("FBNA") and the receipt of investment advisory fees by
FBNA for the period from August 1, 1997 forward.
2. A proposal to approve an Agreement and Plan of Reorganization providing for
the transfer of the assets and liabilities of each Qualivest Portfolio to a
corresponding fund of First American Funds, Inc. ("FAF") in exchange for shares
of designated classes of the corresponding FAF fund.
3. Such other business as may properly come before the Special Meeting or any
adjournment(s).
The proposals are described in the attached Combined Proxy Statement/Prospectus.
YOUR TRUSTEES RECOMMEND THAT YOU VOTE IN FAVOR OF EACH OF THESE PROPOSALS.
Shareholders of record as of the close of business on ______________ , 1997 are
entitled to notice of, and to vote at, the Special Meeting or any adjournment(s)
thereof.
SHAREHOLDERS ARE REQUESTED TO MARK, DATE, SIGN AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE THE ACCOMPANYING PROXY CARD, WHICH IS BEING SOLICITED BY
THE QUALIVEST BOARD OF TRUSTEES. THIS IS IMPORTANT TO ENSURE A QUORUM AT THE
MEETING. PROXIES MAY BE REVOKED AT ANY TIME BEFORE THEY ARE EXERCISED BY
SUBMITTING TO QUALIVEST A WRITTEN NOTICE OF REVOCATION OR A SUBSEQUENTLY
EXECUTED PROXY OR BY ATTENDING THE MEETING AND VOTING IN PERSON. HOWEVER,
ATTENDANCE AT THE MEETING WILL NOT BY ITSELF SERVE TO REVOKE A PROXY.
Gregory T. Maddox
Secretary
, 1997
<PAGE>
COMBINED PROXY STATEMENT/PROSPECTUS
DATED , 1997
QUALIVEST FUNDS
3435 STELZER ROAD
COLUMBUS, OHIO 43219-3035
1-800-743-8637
FIRST AMERICAN FUNDS, INC.
OAKS, PENNSYLVANIA 19456
1-800-637-2548
This Combined Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies by the Board of Trustees of Qualivest Funds
("Qualivest") in connection with a Special Meeting of Shareholders of U.S.
Treasury Money Market Fund, Tax-Free Money Market Fund and Money Market Fund
(the "Qualivest Portfolios" or the "Portfolios") to be held at ______ A.M. Time
on ________, 1997 at the offices of ______________. At the meeting, shareholders
will be asked (i) to ratify and approve an interim investment advisory agreement
with First Bank National Association ("FBNA") and the receipt of investment
advisory fees by FBNA for the period from August 1, 1997 forward, and (ii) to
approve a proposed Agreement and Plan of Reorganization dated _______, 1997 (the
"Reorganization Agreement") between Qualivest and First American Funds, Inc.
("FAF"). Copies of the interim investment advisory agreement and the
Reorganization Agreement are attached as Appendices I and III, respectively.
Qualivest and FAF are open-end management investment companies (mutual funds)
that offer their shares in a number of different investment portfolios, or
"funds." The Reorganization Agreement provides for the transfer of the assets
and liabilities of the three Qualivest Portfolios to corresponding investment
portfolios of FAF (the "FAF Funds" or the "Funds") in exchange for shares of
designated classes of the FAF Funds having an equal aggregate value (the
"Reorganization"). As a result of the Reorganization, shareholders of the
Qualivest Portfolios will become shareholders of the FAF Funds. Table I, under
"Information Relating to the Proposed Reorganization--Description of the
Reorganization Agreement," shows each class of each Qualivest Portfolio and the
corresponding class of each corresponding FAF Fund. It also has been proposed
that the ten other investment portfolios of Qualivest (Small Companies Value
Fund, Large Companies Value Fund, Optimized Stock Fund, Intermediate Bond Fund,
Diversified Bond Fund, International Opportunities Fund, Allocated Conservative
Fund, Allocated Balanced Fund, Allocated Growth Fund and Allocated Aggressive
Fund) be reorganized into investment portfolios of First American Investment
Funds, Inc. or First American Strategy Funds, Inc. These proposed
reorganizations are not covered by this Combined Proxy Statement/Prospectus.
This Combined Proxy Statement/Prospectus sets forth concisely the information
that a Qualivest Portfolio shareholder should know before voting, and should be
retained for future reference. For shareholders of the Qualivest Portfolios that
will be reorganized into the FAF Treasury Obligations Fund and Prime Obligations
Fund (the "Existing FAF Funds"), this Combined Proxy Statement/Prospectus is
accompanied by the following additional documents: (i) the 1996 Annual Report
and the 1997 Semi-Annual Report for the Existing FAF Funds and (ii) the current
Prospectus(es) for the Existing FAF Funds, each dated January 31, 1997, as
supplemented through the date hereof. There is no Annual or Semi-Annual Report
or Prospectus for the FAF Tax Free Obligations Fund (the "New FAF Fund"), which
has been created for purposes of the reorganization and has not yet commenced
operations, or a Prospectus for the Class A shares of the FAF Treasury
Obligations Fund, which shares are being offered for the first time pursuant to
the Reorganization. However, information regarding the Class A and Class C
shares of the New FAF Fund and the Class A shares of the FAF Treasury
Obligations Fund is set forth in the preliminary prospectuses, which are
attached hereto as Appendix VIII and Appendix IX. Additional information
relating to this Combined Proxy Statement/Prospectus is set forth in the
Statement of Additional Information, dated the date hereof, which is
incorporated herein by reference, and in the Prospectuses dated December 1,
1996, as supplemented through the date hereof, for the Qualivest Portfolios.
Each of these documents is on file with the Securities and Exchange Commission
(the "SEC"), and is available without charge by calling or writing Qualivest or
FAF at the respective telephone numbers or addresses stated above. The
information contained in the Existing FAF Fund Prospectuses and the Prospectuses
for the Qualivest Portfolios is incorporated by reference into this Combined
Proxy Statement/Prospectus.
<PAGE>
This Combined Proxy Statement/Prospectus is expected to be first sent to
shareholders on or about ______________ , 1997.
THE SECURITIES OF THE FAF FUNDS OFFERED HEREBY HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS COMBINED
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS COMBINED PROXY
STATEMENT/PROSPECTUS AND IN THE MATERIALS EXPRESSLY INCORPORATED HEREIN BY
REFERENCE AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY QUALIVEST, FAF OR THEIR
RESPECTIVE ADVISERS AND DISTRIBUTORS.
SHARES OF QUALIVEST AND FAF ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FIRST BANK NATIONAL ASSOCIATION, THE UNITED STATES NATIONAL BANK OF
OREGON OR ANY OTHER BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. MUTUAL
FUND SHARES INVOLVE CERTAIN INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
An investment in an FAF Fund is neither insured nor guaranteed by the U.S.
Government. There can be no assurance that the FAF Funds will be able to
maintain a stable net asset value of $1.00 per share.
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TABLE OF CONTENTS
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SUMMARY ........................................................................ 5
Interim Advisory Agreement ................................................... 5
Qualivest Board Considerations ............................................... 6
Proposed Reorganization ...................................................... 6
Overview of FAF and Qualivest ................................................ 6
Qualivest and FAF Board Considerations ....................................... 7
Voting Information ........................................................... 8
PRINCIPAL RISK FACTORS ......................................................... 8
Common Risks ................................................................. 8
INFORMATION RELATING TO THE INTERIM ADVISORY AGREEMENT ......................... 9
The Merger of U.S. Bancorp into First Bank System, Inc. ...................... 9
The Interim Advisory Agreement ............................................... 10
Information About FBNA ....................................................... 11
Payments to FBNA Affiliates .................................................. 12
Affiliated Broker Commissions ................................................ 12
Section 15(f) of the 1940 Act ................................................ 12
Approval of Qualivest's Board of Trustees .................................... 12
INFORMATION RELATING TO THE PROPOSED REORGANIZATION ............................ 13
Description of the Reorganization Agreement .................................. 14
Table I -- Portfolios and Corresponding Funds ................................ 14
Qualivest Board Considerations ............................................... 15
Capitalization ............................................................... 16
Table II -- Pro Forma Capitalization (as of June 30, 1997) ................... 17
Federal Income Tax Treatment ................................................. 18
COMPARISON OF FAF AND QUALIVEST ................................................ 19
Investment Objectives and Policies ........................................... 19
Investment Advisory Fees and Total Expense Ratios ............................ 19
Table III -- Investment Advisory And Total Expense Information ............... 20
FAF Funds' Investment Advisory Agreement ..................................... 20
Information About FBNA and Other Service Providers ........................... 20
Share Structure .............................................................. 21
Distribution Plans ........................................................... 22
Shareholder Transactions and Services ........................................ 22
INFORMATION RELATING TO VOTING MATTERS ......................................... 23
General Information .......................................................... 23
Shareholder and Board Approvals .............................................. 23
Table IV(A) -- Qualivest Portfolios -- 5% Ownership as of , 1997 . 24
Table IV(B) -- FAF Funds -- 5% Ownership as of , 1997 .......... 24
Quorum ....................................................................... 25
Annual Meetings .............................................................. 25
Interests of Certain Persons ................................................. 25
ADDITIONAL INFORMATION ABOUT FAF ............................................... 25
ADDITIONAL INFORMATION ABOUT QUALIVEST ......................................... 26
FINANCIAL STATEMENTS ........................................................... 26
OTHER BUSINESS ................................................................. 26
SHAREHOLDER INQUIRIES .......................................................... 27
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APPENDICES I -- INTERIM FIRST BANK NATIONAL ASSOCIATION INVESTMENT ADVISORY
AGREEMENT
II -- PRINCIPAL EXECUTIVE OFFICER AND DIRECTORS OF FIRST BANK
NATIONAL ASSOCIATION
III -- AGREEMENT AND PLAN OF REORGANIZATION
IV -- COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND
RESTRICTIONS
V -- EXPENSE SUMMARIES
VI -- COMPARISON OF QUALIVEST AND FAF ADVISORY AGREEMENTS
VII -- SHAREHOLDER TRANSACTIONS AND SERVICES
VIII -- PRELIMINARY PROSPECTUS OF TAX FREE OBLIGATIONS FUND AND
TREASURY OBLIGATIONS FUND -- RETAIL CLASS SHARES
IX -- PRELIMINARY PROSPECTUS OF TAX FREE OBLIGATIONS --
INSTITUTIONAL CLASS SHARES
<PAGE>
SUMMARY
The following is a summary of certain information relating to the interim
investment advisory agreement and the proposed Reorganization, and is qualified
by reference to the more complete information contained elsewhere in this
Combined Proxy Statement/Prospectus, the Prospectuses and Statements of
Additional Information of the Qualivest Portfolios and the FAF Funds, and the
Appendices attached hereto.
INTERIM ADVISORY AGREEMENT. On August 1, 1997, pursuant to an Agreement and
Plan of Merger, U.S. Bancorp merged with and into First Bank System, Inc.
("FBS") and the name of FBS was changed to U.S. Bancorp ("New U.S. Bancorp")
(the "Holding Company Merger"). As a result of the Holding Company Merger,
Qualivest Capital Management, Inc. ("Qualivest Capital"), the investment
adviser to the Qualivest Portfolios at that time, became an indirect
wholly-owned subsidiary of FBS. In accordance with the terms of the then
current investment advisory agreement between Qualivest Capital and
Qualivest, on behalf of the Qualivest Portfolios (the "Old Advisory
Agreement"), and consistent with the requirements of the Investment Company
Act of 1940, as amended (the "1940 Act"), this change in control of Qualivest
Capital resulted in the automatic and immediate termination of the Old
Advisory Agreement.
To better ensure that the Holding Company Merger and this automatic termination
would not disrupt the investment advisory services provided to the Qualivest
Portfolios, Qualivest, Qualivest Capital and FBNA obtained an exemptive order
from the SEC (the "Order") permitting FBNA to act as investment adviser to the
Qualivest Portfolios after the termination of the Old Advisory Agreement, but
prior to obtaining shareholder approval, under a new, interim investment
advisory agreement with Qualivest on behalf of the Portfolios (the "Interim
Advisory Agreement"). In accordance with the Order, the Interim Advisory
Agreement is subject to ratification and approval by the shareholders of the
Qualivest Portfolios at a meeting to be held within 120 days after August 1,
1997 (the "Interim Period").
The Trustees of Qualivest now are proposing that the shareholders of each
Qualivest Portfolio ratify and approve the Interim Advisory Agreement. The
Interim Advisory Agreement became effective on August 1, 1997, the effective
date of the Holding Company Merger. Pending the ratification and approval of the
Interim Advisory Agreement, all fees payable under the Agreement are being held
in escrow. Any escrowed fees relating to a Qualivest Portfolio will be received
by FBNA only if the Interim Advisory Agreement is ratified and approved by the
shareholders of such Qualivest Portfolio.
The terms of the Interim Advisory Agreement are substantially identical to the
terms of the Old Advisory Agreement, except for (i) the change in the investment
adviser, (ii) the effective date, (iii) the termination date, and (iv) inclusion
of a provision requiring that all fees payable by each Qualivest Portfolio under
the Interim Advisory Agreement be held in escrow until the Agreement is approved
by such Portfolio's Shareholders. The advisory fee rates payable under the
Interim Advisory Agreement are identical to those previously payable under the
Old Advisory Agreement. A description of FBNA, the Interim Advisory Agreement
and the services provided by FBNA thereunder is set forth below under the
heading Information Relating to the "Interim Advisory Agreement." A copy of the
Interim Advisory Agreement is attached to this Combined Proxy
Statement/Prospectus as Appendix I. The description of the Interim Advisory
Agreement is qualified in its entirety by reference to the copy of the Interim
Advisory Agreement attached hereto.
If ratified and approved, the Interim Advisory Agreement will continue in effect
with respect to the Qualivest Portfolios either (i) for successive one year
terms, subject to certain annual approval requirements, or (ii) until the
Reorganization is completed (which, subject to various conditions described
herein, is expected to occur on or about November 21, 1997) (the "Closing"),
whichever occurs earlier. It is expected that after the Closing, FBNA will serve
as investment adviser to each of the FAF Funds. In the event that the Interim
Advisory Agreement is not ratified and approved with respect to a Qualivest
Portfolio, the fees held in escrow with respect to that Portfolio will be
returned to the Portfolio, and Qualivest's Board of Trustees will consider what
actions should be taken with respect to management of the assets of the
Qualivest Portfolio until a new investment advisory agreement is approved by the
shareholders of the Portfolio or the Reorganization occurs.
<PAGE>
QUALIVEST BOARD CONSIDERATIONS. In approving the Interim Advisory Agreement and
recommending its ratification and approval to the shareholders of the Qualivest
Portfolios, Qualivest's Board of Trustees reviewed the qualifications of FBNA to
serve as investment adviser to the Qualivest Portfolios and considered that a
number of Qualivest investment personnel could leave the employ of Qualivest
Capital as a result of the Holding Company Merger. In light of this fact, the
board determined that doubt existed as to whether the remaining personnel of
Qualivest Capital, acting alone, would be able to provide the appropriate scope
and quality of advisory services to the Qualivest portfolios following the
Holding Company Merger. It was proposed that certain Qualivest investment
personnel would become employees of FBNA at the effective date of the Holding
Company Merger and that FBNA would then assume management of the Qualivest
portfolios pursuant to the Interim Advisory Agreement. The Board of Trustees
determined that this arrangement would serve Qualivest shareholders better than
any available alternatives. The Board also considered, among other things, that
the provisions of the Interim Advisory Agreement were substantially similar, and
advisory fee rates were exactly the same, as those of the Old Advisory
Agreement. See "Information Relating to the Interim Advisory Agreement --
Approval of Qualivest's Board of Trustees." QUALIVEST'S BOARD OF TRUSTEES
RECOMMENDS THAT QUALIVEST SHAREHOLDERS RATIFY AND APPROVE THE INTERIM ADVISORY
AGREEMENT AND THE RECEIPT OF INVESTMENT ADVISORY FEES BY FBNA FOR THE PERIOD
FROM AUGUST 1, 1997 FORWARD.
PROPOSED REORGANIZATION. The Reorganization Agreement provides for: (i) the
transfer of all of the assets and liabilities of each of the three Qualivest
Portfolios to FAF in exchange for shares of designated classes of the
corresponding FAF Funds; and (ii) the distribution of these FAF Fund shares to
the shareholders of the Qualivest Portfolios in liquidation of the Qualivest
Portfolios. The Reorganization is subject to a number of conditions with respect
to each Qualivest Portfolio, including the shareholder approvals described
below. Following the Reorganization (and the reorganization of the ten other
investment portfolios of Qualivest into investment portfolios of First American
Investment Funds, Inc. and First American Strategy Funds, Inc.), it is
contemplated that there will be a winding up of Qualivest's affairs, including
the deregistration of Qualivest as an investment company under the 1940 Act.
As a result of the proposed Reorganization, each shareholder of a Qualivest
Portfolio will become a shareholder of the corresponding FAF Fund and will hold,
immediately after the Closing, shares of the designated class of the
corresponding FAF Fund having a total value equal to the total value of the
shares of the Qualivest Portfolio the shareholder holds immediately before the
Closing. Table I, under "Information Relating to the Proposed Reorganization --
Description of the Reorganization Agreement," shows each class of each Qualivest
Portfolio and the corresponding class of each corresponding FAF Fund.
The Reorganization Agreement provides that the Reorganization may be abandoned
at any time prior to the Closing upon the mutual consent of both Qualivest and
FAF, among other reasons. For further information, see "Information Relating to
the Proposed Reorganization."
OVERVIEW OF FAF AND QUALIVEST. The investment objectives, policies and
restrictions of the Qualivest Portfolios are, in general, similar to those of
their corresponding FAF Funds. Each Fund is subject to the restrictions of Rule
2a-7 of the 1940 Act. There are, however, differences. The FAF Prime Obligations
Fund may engage in repurchase agreements, purchase credit enhanced agreements,
purchase securities on a when-issued or delayed delivery basis, and lend
securities from its portfolio, whereas the Qualivest Money Market Fund may
engage in repurchase agreements, purchase securities on a when-issued or delayed
delivery basis and enter reverse repurchase agreements, but it may not lend
securities from its portfolios.
Besides investing in short-term U.S. Treasury obligations, the Qualivest U.S.
Treasury Money Market Fund may invest up to 35% of its total assets in other
types of money market instruments including short-term asset-backed and
mortgage-related securities, bankers' acceptances, certificates of deposits and
time deposits, commercial paper, securities issued by other money market
investment companies, debt obligations with remaining maturities of 397 calendar
days or less, taxable obligations issued by municipalities, Guaranteed
Investment Contracts, repurchase and reverse repurchase agreements and
<PAGE>
dollar roll agreements. The FAF Treasury Obligations Fund invests only in U.S.
Treasury Obligations and repurchase and reverse repurchase agreements related to
such securities.
Additional information is provided below under "Comparison of FAF and Qualivest
- -- Investment Objectives and Policies" and in Appendix IV to this Combined Proxy
Statement/Prospectus, which sets forth the investment objectives and certain
significant investment policies and limitations of the FAF Funds and the
Qualivest Portfolios.
As discussed under "Comparison of FAF and Qualivest -- Investment Advisory Fees
and Total Expense Ratios," FBNA currently serves as the investment adviser to
each Existing FAF Fund, and will serve as the investment adviser to the New FAF
Fund. Table III thereunder shows the investment advisory fees paid by the
Qualivest Portfolios during their latest fiscal year and the investment advisory
fees that would be paid after consummation of the Reorganization. Table III also
shows that in all cases, except with respect to the Class Y shares of Qualivest
U.S. Treasury Money Market Fund, the overall expense ratios of the FAF Funds,
after waivers, are expected to be less than the overall expense ratios of the
corresponding Qualivest Portfolios. In addition, in this regard, FBNA has agreed
that for the period commencing on the Closing and continuing until September 30,
1998, FBNA will waive fees and reimburse expenses to the FAF Funds to the extent
necessary to maintain overall total Fund operating expense ratios at the pro
forma expense levels provided in Table III. The Qualivest Portfolios and FAF
Funds have different administrators, distributors, transfer agents, independent
auditors and trustees/directors, as discussed under "Comparison of FAF and
Qualivest -- Information about FBNA and Other Service Providers." Appendix V to
this Combined Proxy Statement/Prospectus provides additional information about
the fees and expenses for each of the FAF Funds and corresponding Qualivest
Portfolios.
As discussed under "Comparison of FAF and Qualivest -- Share Structure," the FAF
Funds will issue Class A shares and Class C shares in connection with the
Reorganization. The FAF Funds also offer Class B shares (with respect to the
Prime Obligations Fund only) and Class D shares. Class A shares of the FAF Funds
are sold to the general public as well as to customers of banks and other
institutions. Class B shares are only available pursuant to an exchange from a
mutual fund in the First American family of funds that assesses a contingent
deferred sales charge. Class A shares are sold at a net asset value without any
front-end or contingent deferred sales charge. Class B shares are sold at net
asset value, but are subject to a contingent deferred sales charge if sold
during the first six years after purchase. In addition, Class B shares are
subject to higher Rule 12b-1 fees than the Class A shares. Class C shares are
offered through banks and certain other institutions for the investment of their
own funds and funds for which they act in a fiduciary, agency or custodial
capacity. Such shares are offered at net asset value without any front-end or
contingent deferred sales charge and are not subject to any Rule 12b-1 fees.
Class D shares are offered to corporations and certain governmental entities.
Such shares are offered at net asset value without any front-end or contingent
deferred sales charge, but are subject to Rule 12b-1 fees. Rule 12b-1 fees for
the Class C and D shares are lower than those for the Class A and B shares. Each
of the Qualivest Portfolios offers Class A, Class Q and Class Y shares. Similar
to FAF Class A shares, Class A shares of the Qualivest Funds are sold to the
general public as well as to customers of banks and other institutions and are
sold at a net asset value without any front-end or contingent deferred sales
charge, but are subject to Rule 12b-1 fees. Class Y shares of the Qualivest
Portfolios are similar to Class C shares of the FAF Funds. Such shares are
offered at net asset value without any front-end or contingent deferred sales
charge and are not subject to any Rule 12b-1 fees. Class Q shares of the
Qualivest Portfolios are offered at net asset value without any front-end or
contingent deferred sales charge. In addition, Class Q shares are subject to
Rule 12b-1 fees, which are less than the Rule 12b-1 fees for Class A shares.
However, Qualivest Money Market Fund currently is not paying any Rule 12b-1 fees
with respect to its Class Q shares.
With certain exceptions, the purchase, redemption, dividend and other policies
and procedures of the FAF Funds and the Qualivest Portfolios are generally
similar. Additional information concerning these policies and procedures for the
Qualivest Portfolios and the FAF Funds is discussed further under "Comparison of
FAF and Qualivest -- Shareholder Transactions and Services" and in Appendix VII
to this Combined Proxy Statement/Prospectus.
QUALIVEST AND FAF BOARD CONSIDERATIONS. In reviewing the proposed
Reorganization, the Boards of Qualivest and FAF considered, among other things:
(i) the terms and conditions of the Reorga-
<PAGE>
nization Agreement, including provisions intended to avoid the dilution of
shareholder interests; (ii) the investment management capabilities of FBNA;
(iii) the systems capabilities of FBNA to provide shareholder servicing,
reporting and systems integration with related bank programs for Qualivest
Portfolio shareholders; (iv) the similarity of the distribution channels used by
the FAF Funds and the Qualivest Portfolios; (v) the investment objectives,
policies and limitations of the Portfolios and the Funds; (vi) the historical
investment performance of the Portfolios and the Funds; (vii) the historical and
projected operating expenses of the Portfolios and the Funds; and (viii) the
anticipated tax treatment of the Reorganization. See "Information Relating to
the Proposed Reorganization -- Board Considerations."
Based upon their evaluations of the information presented to them, and in light
of their fiduciary duties under federal and state law, the Board of Trustees of
Qualivest and the Board of Directors of FAF, including all of the members of
each Board who are not interested persons, as that term is defined in the 1940
Act, of Qualivest or FAF, have determined that the proposed Reorganization is in
the best interests of the shareholders of each Qualivest Portfolio and each FAF
Fund, respectively, and that the interests of the shareholders of the respective
Portfolios and Funds will not be diluted as a result of the Reorganization.
QUALIVEST'S BOARD OF TRUSTEES RECOMMENDS THAT THE QUALIVEST SHAREHOLDERS APPROVE
THE REORGANIZATION AGREEMENT.
VOTING INFORMATION. This Combined Proxy Statement/Prospectus is being furnished
in connection with the solicitation of proxies by Qualivest's Board of Trustees
for a Special Meeting of Shareholders to be held at the offices of on ________ ,
1997 at _______ A.M. _______ Time. (This special meeting and any adjournment(s)
thereof are referred to as the "Meeting.") Only shareholders of record at the
close of business on ________ , 1997 will be entitled to vote at the Meeting.
Shares are entitled to one vote for each dollar of value invested and a
proportionate fractional vote for any fraction of a dollar invested. Shares
represented by a properly executed proxy will be voted in accordance with the
instructions thereon or, if no specification is made, the persons named as
proxies will vote in favor of each proposal set forth in the Notice of Meeting.
Proxies may be revoked at any time before they are exercised by submitting to
Qualivest a written notice of revocation or a subsequently executed proxy or by
attending the Meeting and voting in person. However, attendance at the Meeting
will not by itself serve to revoke a proxy. For additional information,
including a description of the shareholder votes required for approval of the
Interim Advisory Agreements and the Reorganization Agreement, see "Information
Relating to Voting Matters."
PRINCIPAL RISK FACTORS
COMMON RISKS. Because of the similarities of the investment objectives, policies
and restrictions of the Qualivest Portfolios and their corresponding FAF Funds,
management believes that an investment in an FAF Fund involves risks that are
generally similar to those of the corresponding Qualivest Portfolio. The Funds
and Portfolios are each subject to the investment restrictions of Rule 2a-7
under the 1940 Act. Pursuant to Rule 2a-7, each Fund is required to invest
exclusively in securities that mature within 397 days from the date of purchase
and to maintain an average weighted maturity of not more than 90 days. Rule 2a-7
also requires that all investments by each Fund or Portfolio be limited to
United States dollar-denominated investments that (a) present "minimal credit
risk" and (b) are at the time of acquisition "Eligible Securities." Eligible
Securities include, among others, securities that are rated by two Nationally
Recognized Statistical Rating Organizations in one of the two highest categories
for short-term debt obligations.
The Funds and Portfolios have elected to operate under the provisions of Rule
2a-7 in order to maintain a constant price of $1.00 per share. Operating under
these provisions helps to minimize any price fluctuations that might result from
rising or declining interest rates. However, there is no assurance that the
Funds or the Portfolios will be able to maintain a stable net asset value of
$1.00 per share. All money market instruments, including United States
Government securities, can change in value when interest rates or an issuer's
creditworthiness changes. The value of the securities in the portfolios of the
Funds and the Portfolios can be expected to vary inversely with changes in
prevailing interest rates, with
<PAGE>
the amount of such variation depending primarily upon the period of time
remaining to maturity of the security. If the security is held to maturity, no
gain or loss will be realized as a result of interest rate fluctuations.
The securities in which the Funds and Portfolios invest may not yield as high a
level of current income as longer term or lower grade securities. These other
securities, however, may have less stability of principal, be less liquid, and
fluctuate more in value than the securities in which the Funds and the
Portfolios invest.
The Qualivest Portfolios and the FAF Funds other than Treasury Obligations Fund
may purchase securities of foreign branches of domestic banks, foreign banks and
United States branches of foreign banks. As a result, such Portfolios and Funds
may be subject to additional investment risks that are different in some
respects from those incurred by a fund that invests only in debt obligations of
United States banks. These risks may include future unfavorable political and
economic developments and possible withholding taxes, seizure of foreign
deposits, currency controls, interest limitations, or other governmental
restrictions which might affect the payment of principal or interest on
securities owned by the Fund or Portfolio. Additionally, there may be less
public information available about foreign banks and their branches.
OTHER. The Portfolios and Funds may engage in certain investment techniques to
the extent set forth in their respective prospectuses. These techniques include
entering into repurchase agreements, reverse repurchase agreements and dollar
roll agreements (the Qualivest Portfolios only), purchasing securities on a
when-issued or delayed-delivery basis and lending portfolio securities (the FAF
Funds only). These techniques involve certain risks, as described in the
prospectuses for the Existing FAF Funds and the Qualivest Portfolios which are
incorporated by reference in this Combined Proxy Statement/Prospectus, and in
the preliminary prospectuses for the Class A and Class C Shares of the New FAF
Fund and the Class A Shares of the FAF Treasury Obligations Fund which are
attached to this Combined Proxy Statement/Prospectus as Appendix VIII and
Appendix IX.
INFORMATION RELATING TO THE INTERIM ADVISORY AGREEMENT
THE MERGER OF U.S. BANCORP INTO FIRST BANK SYSTEM, INC. On August 1, 1997,
pursuant to an Agreement and Plan of Merger, U.S. Bancorp merged with and into
FBS and the name of FBS was changed to U.S. Bancorp ("New U.S. Bancorp"). As a
result of this Holding Company Merger, Qualivest Capital, the investment adviser
to the Qualivest Portfolios, became an indirect wholly-owned subsidiary of New
U.S. Bancorp. In accordance with the terms of the Old Advisory Agreement and
consistent with the requirements of the 1940 Act, this change in control of
Qualivest Capital resulted in the automatic and immediate termination of the Old
Advisory Agreement. The Old Advisory Agreement, dated July 29, 1994, was adopted
by the sole shareholder of each Qualivest Portfolio prior to commencement of
operations, and was last approved by the Qualivest Board of Trustees on June 17,
1997. Table III, under "Comparison of FAF and Qualivest -- Investment Advisory
Fees and Total Expense Ratios," shows for their latest fiscal year the advisory
fees actually paid to Qualivest Capital by the Qualivest Portfolios after
waivers, the effective rate of such payments and the contractual rate that
Qualivest Capital was entitled to receive.
To better ensure that this automatic termination would not disrupt the
investment advisory services provided to the Qualivest Portfolios, Qualivest,
Qualivest Capital and FBNA filed an exemptive application with the SEC on May
12, 1997 and an amendment on June 12, 1997. This application requested that the
SEC permit FBNA to act as investment adviser to the Qualivest Portfolios after
the termination of the Old Advisory Agreement, but prior to obtaining the
approval of the shareholders of the Qualivest Portfolios of the Interim Advisory
Agreement. In this connection, this application also requested that the SEC
permit FBNA to receive fees during the Interim Period from each Qualivest
Portfolio, under the Interim Advisory Agreement, subject to approval by
Qualivest's shareholders at a meeting to be held no later than November 28,
1997. In connection with this application, FBNA agreed to take steps to ensure
that the scope and quality of the investment advisory services will be the same
during the Interim Period as previously provided to Qualivest by Qualivest
Capital. The requested Order was granted by the SEC on July 29, 1997.
<PAGE>
THE INTERIM ADVISORY AGREEMENT. As a result of the automatic termination of the
Old Advisory Agreement as described above, the Trustees are proposing that the
shareholders of the Qualivest Portfolios ratify and approve the Interim Advisory
Agreement. The Interim Advisory Agreement became effective on August 1, 1997,
the effective time of the Holding Company Merger. Pending such ratification and
approval, in accordance with the conditions of the Order, all fees payable by
the Qualivest Portfolios under the Interim Advisory Agreement are being held in
escrow. Such escrowed fees attributable to a Qualivest Portfolio will be
received by FBNA only if the Interim Advisory Agreement is ratified and approved
by the shareholders of such Portfolio. If ratified and approved, the Interim
Advisory Agreement will continue in effect for successive one year terms,
subject to certain annual approval requirements, or until the Closing (which,
subject to various conditions described herein, is expected to occur on or about
November 21, 1997), whichever occurs earlier. In the event the Interim Advisory
Agreement is not ratified and approved with respect to a Qualivest Portfolio, in
accordance with the conditions of the Order, the escrowed fees payable by that
Portfolio will be returned to the Portfolio and Qualivest's Board of Trustees
will consider what actions should be taken with respect to management of the
assets of the Qualivest Portfolio until a new investment advisory agreement is
approved by the shareholders of the Portfolio or the Reorganization occurs.
As more fully described below, the terms of the Interim Advisory Agreement are
substantially identical to the terms of the Old Advisory Agreement, except for
(i) the change in the investment adviser, (ii) the effective date and (iii) the
termination date and (iv) inclusion of a provision requiring that all fees
payable by each Qualivest Portfolio under the Interim Advisory Agreement be held
in escrow until the Agreement is approved by such Portfolio's shareholders. The
advisory fee rates payable under the Interim Advisory Agreement are identical to
those payable under the Old Advisory Agreement. A copy of the Interim Advisory
Agreement is attached to this Combined Proxy Statement/Prospectus as Appendix I.
Pursuant to the Interim Advisory Agreement, FBNA agrees to provide, subject to
the supervision of Qualivest's Board of Trustees, a continuous investment
program for the Qualivest Portfolios, including investment research and
management with respect to all securities and investments and cash equivalents
in the Portfolios. FBNA will determine from time to time what securities and
other investments will be purchased, retained or sold by Qualivest with respect
to the Portfolios, and will provide the services under the Interim Advisory
Agreement in accordance with each Portfolio's investment objectives, policies
and restrictions. Responsibilities under the Interim Advisory Agreement also
include placing or causing to be placed orders for the Portfolios, either
directly with the issuer or with any broker or dealer; maintaining books and
records with respect to each Qualivest Portfolio's securities transactions;
providing to Qualivest's Board of Trustees such periodic and special reports as
the Board may request; and using its best efforts to obtain and provide to
Qualivest's fund accountant price information with respect to any security held
by a Portfolio, when requested to do so by the Qualivest's accountant. The
Interim Advisory Agreement provides that FBNA will pay its own expenses incurred
in connection with its activities under the Interim Advisory Agreement other
than the cost of securities (including brokerage commissions, if any) purchased
for the Portfolios.
Pursuant to the Interim Advisory Agreement, FBNA agrees that in placing orders
with brokers and dealers it will attempt to obtain prompt execution of orders in
an effective manner at the most favorable price. The Interim Advisory Agreement
authorizes FBNA, consistent with such obligation and to the extent permitted by
the 1940 Act, to purchase and sell portfolio securities to and from brokers and
dealers who provide FBNA with research advice and other services when the
execution and price offered by two or more brokers or dealers are comparable.
Such research advice might consist of reports and statistics on specific
companies or industries, general summaries of groups of stocks or bonds and
their comparative earnings and yields, or broad overviews of the securities
markets and the economy.
Supplementary research information so received is in addition to, and not in
lieu of, services required to be performed by FBNA and does not reduce the
advisory fees payable to FBNA by the Qualivest Portfolios. It is possible that
certain of the supplementary research or other services received will primarily
benefit one or more other investment companies or other accounts for which FBNA
exercises investment discretion. Conversely, a Qualivest Portfolio may be the
primary beneficiary of the research or services received as a result of
portfolio transactions effected for such other investment company or account.
<PAGE>
Portfolio securities will not be purchased from or sold to FBNA, Qualivest's
distributor or any affiliated person (as defined in the 1940 Act) of the
foregoing companies except to the extent permitted by an SEC exemptive order or
by applicable law. FBNA may, however, cause the Qualivest Portfolios to pay
brokerage commissions to an affiliate of FBNA or of Qualivest's distributor on
securities acquired by the Qualivest Portfolios.
The Interim Advisory Agreement provides that FBNA will not be liable for any
error of judgment or mistake of law or for any loss suffered by Qualivest in
connection with the performance of the Interim Advisory Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith or gross negligence on FBNA's part in the performance of its duties or
from reckless disregard by FBNA of its obligations and duties under the Interim
Advisory Agreement. Qualivest agrees in the Interim Advisory Agreement to
indemnify FBNA to the full extent permitted by Qualivest's Declaration of Trust.
The Interim Advisory Agreement provides that, unless sooner terminated, it will
continue in effect with respect to the Qualivest Portfolios for an initial
period of 120 days and thereafter for successive annual terms, provided that
such successive terms are specifically approved at least annually (a) by a vote
of a majority of those members of Qualivest's Board of Trustees who are not
parties to the Agreement or "interested persons" (as defined in the 1940 Act) of
any party to the Agreement, cast in person at a meeting called for the purpose
of voting on such approval, and (b) by the vote of a majority of the Board of
Trustees of Qualivest or, with respect to a particular Qualivest Portfolio, a
vote of a majority of the outstanding shares of such Portfolio.
The Interim Advisory Agreement provides that it will terminate immediately in
the event of its assignment and that it is terminable with respect to a
Qualivest Portfolio at any time without penalty by Qualivest (either by vote of
the Trustees or by vote of a majority of the outstanding shares of such
Portfolio), or by FBNA, on 60 days' written notice. To the extent required by
the 1940 Act, the Interim Advisory Agreement may not be amended as to a
Qualivest Portfolio without the approval of the shareholders of such Portfolio.
INFORMATION ABOUT FBNA. FBNA is a national banking association that has
professionally managed accounts for individuals, insurance companies,
foundations, commingled accounts, trust funds and others for over 75 years. FBNA
acts as the investment adviser to the Qualivest Portfolios through its First
Asset Management group. FBNA is a subsidiary of New U.S. Bancorp, 601 Second
Avenue South, Minneapolis, Minnesota 55480, which is a regional, multi-state
bank holding company headquartered in Minneapolis, Minnesota.
In addition to serving as the investment adviser to the Qualivest Portfolios,
FBNA acts as the investment advisor to a number of other mutual funds, including
the following series of FAF that have investment objectives similar to those of
one or more of the Qualivest Portfolios. FBNA is entitled to receive advisory
fees from such series as follows:
CURRENT
CONTRACTUAL ADVISORY
NET ASSETS AS OF ADVISORY FEE RATE
NAME OF FAF SERIES JUNE 30, 1997 FEE RATE AFTER WAIVERS
Government Obligations Fund $1,175,274,283 0.40% 0.32%
Prime Obligations Fund $3,766,294,049 0.40% 0.31%
Treasury Obligations Fund $3,727,459,707 0.40% 0.30%
As of June 30, 1997, FBNA was managing accounts with an aggregate value of
approximately $42 billion, including mutual fund assets in excess of $14
billion. FBNA's main offices are located at 601 Second Avenue South,
Minneapolis, Minnesota 55480. Appendix II identifies the principal executive
officer and the directors of FBNA.
No officer or Trustee of Qualivest is an officer, employee, director, general
partner or shareholder of FBNA or any of its affiliates. In addition, no Trustee
of Qualivest has any material interest in any material transaction in which FBNA
or its affiliates is a party.
<PAGE>
PAYMENTS TO FBNA AFFILIATES. Entities which, as a result of the Holding Company
Merger, are affiliates of FBNA have served as custodian for all Qualivest
Portfolios during the fiscal year ended July 31, 1996 and have received fees
pursuant to certain distribution and shareholder service plans that have been in
effect during such year. The table below sets forth the amounts of the payments
made to such affiliates by the Qualivest Portfolios.
DISTRIBUTION AND SHAREHOLDER
QUALIVEST PORTFOLIO CUSTODY FEES SERVICE PLAN FEES
U.S. Treasury Money Market Fund $ 33,876 $ 409,266
Tax-Free Money Market Fund $ 11,228 $ 144,983
Money Market Fund $120,160 $1,141,269
It is expected that affiliates of FBNA will continue to receive custody,
distribution and shareholder servicing fees from the Qualivest Portfolios until
the Reorganization.
AFFILIATED BROKER COMMISSIONS. During the fiscal year ended July 31, 1996, the
Qualivest Portfolios paid no brokerage commissions in connection with purchases
and sales of portfolio securities to any parties that would be treated as an
affiliated broker as defined in Item 22(a)(1)(ii) of Schedule 14A under the
Securities Exchange Act of 1934, as amended.
SECTION 15(f) OF THE 1940 ACT. FBNA has agreed to use its best efforts to meet
the requirements for the statutory exemption offered by Section 15(f) of the
1940 Act to an investment adviser that receives "any amount or benefit" in
connection with the sale of interests that constitute a "change in control" of
the adviser. The statutory exemption under Section 15(f) is available provided
two conditions are satisfied: (1) for a three-year period following the
transaction, Qualivest or its successor (which, assuming the Reorganization is
consummated, may include FAF) maintains a Board of Trustees or Directors at
least 75% of whose members are not "interested persons," as that term is defined
in the 1940 Act, of the predecessor or successor investment adviser (the "75%
Standard"), and (2) no "unfair burden" is imposed on Qualivest as a result of
the transaction. As defined in the 1940 Act, an "unfair burden" includes any
arrangement during the two-year period after the change in control whereby the
investment adviser (or predecessor or successor adviser), or any interested
person of such adviser, receives or is entitled to receive any compensation
directly or indirectly, from the investment company or its security holders
(other than fees for bona fide investment advisory or other services), or from
any person in connection with the purchase or sale of securities or other
property to, from, or on behalf of, the investment company (other than fees for
bona fide principal underwriting services provided to the investment company).
No such prohibited compensation arrangements are contemplated in connection with
either the Holding Company Merger or the Reorganization.
APPROVAL OF QUALIVEST'S BOARD OF TRUSTEES. As described above, the Old Advisory
Agreement that was previously in effect for the Qualivest Portfolios
automatically terminated on August 1, 1997 as a result of the Holding Company
Merger. In anticipation of this termination, and in order to minimize any
potential disruption of the advisory services provided to the Qualivest
Portfolios, on May 8, 1997 the Qualivest Board of Trustees authorized the filing
of the exemptive application described above with the SEC in order to permit
FBNA to act as investment adviser to the Qualivest Portfolios on and after
August 1, 1997 but prior to obtaining shareholder approval. At such meeting the
Board concluded that retaining FBNA would be the most appropriate means for the
Qualivest Portfolios to receive after the Holding Company Merger advisory
services of comparable scope and quality to the services they received before
such Merger. In addition, at such meeting, Qualivest's Board of Trustees,
including all of the Trustees who are not interested persons (as that term is
defined in the 1940 Act) of Qualivest or FBNA (the "Non-Interested Trustees"),
approved the Interim Advisory Agreement with FBNA that became effective upon the
consummation of the Holding Company Merger on August 1, 1997. If approved by
shareholders at the Meeting, this agreement will continue in effect for the
remainder of the Interim Period and terminate, with respect to the Qualivest
Portfolios, upon the consummation of the Reorganization, at which point it will
no longer be needed since all Qualivest Portfolios will have been combined with
FAF Funds.
In considering whether to approve the Interim Advisory Agreement and submit it
to shareholders for their approval, the Board of Trustees considered that a
number of Qualivest investment personnel
<PAGE>
were expected to leave the employ of Qualivest Capital by or shortly after the
effective date of the Holding Company Merger. In light of this, the Board of
Trustees determined that doubt existed whether the remaining personnel of
Qualivest Capital, acting alone, would be able to provide an appropriate scope
and quality of advisory services to the Qualivest Portfolios after the Holding
Company Merger. Accordingly, it was necessary for the Board to consider
arrangements that would avoid the harm to the Portfolios that would result if
Qualivest Capital's services proved to be inadequate following the Holding
Company Merger. In order to provide, to the extent practicable, continuity of
portfolio management and to avoid harm to the Portfolios, FBNA proposed that
certain Qualivest investment personnel become employees of FBNA at the effective
date of the Holding Company Merger. These individuals, together with the large
and experienced group of investment professionals already employed by FBNA, then
would assume management of the Portfolios at the effective date of the Holding
Company Merger pursuant to the Interim Advisory Agreement.
The Board of Trustees determined that entering into the Interim Advisory
Agreement with FBNA would serve Portfolio shareholders better than any available
alternatives, in that it would (i) provide that the Portfolios would, to the
extent possible under the circumstances, continue to be managed by the same
individuals who managed them prior to the Holding Company Merger; (ii) ensure
that, to the extent portfolio managers of the Qualivest Portfolios departed
Qualivest Capital, the affected Portfolios would be managed after the Holding
Company Merger by a group of investment professionals which the Board had
determined could provide the appropriate scope and quality of advisory services;
and (iii) avoid the need for the Board to consider on an emergency, AD HOC basis
how to proceed if and to the extent additional portfolio managers decided to
leave Qualivest Capital.
The Board of Trustees also considered the following factors: (i) FBNA's
representations that it would provide investment advisory and other services to
the Qualivest Portfolios of a scope and quality comparable, in the Board's
judgment, to the scope and quality of services previously provided to the
Portfolios by Qualivest Capital; (ii) the substantially similar terms and
conditions contained in the Interim Advisory Agreement as compared to the Old
Advisory Agreement; and (iii) FBNA's representation that in the event of any
material change in personnel providing services under the Interim Advisory
Agreement during the Interim Period, the Board of Trustees of Qualivest would be
consulted for the purpose of assuring themselves that the services provided
would not be diminished in scope or quality.
Based on the foregoing factors, the Trustees concluded that approval of the
Interim Advisory Agreement was in the best interests of the Qualivest Portfolios
and their shareholders. The Board of Trustees further concluded that entering
into the Interim Advisory Agreement would be appropriate and fair considering
that (i) the fees to be paid, and the services to be provided therefor, would be
unchanged from the Old Advisory Agreement; (ii) the fees would be maintained in
an interest-bearing escrow account until payment was approved or disapproved by
shareholders of the Qualivest Portfolios; (iii) because of the relatively short
period for the consummation of the Holding Company Merger, there was
insufficient time to seek prior shareholder approval of the Interim Advisory
Agreement; and (iv) the non-payment of investment advisory fees during the
Interim Period would be an unduly harsh result to FBNA in view of the services
provided by FBNA to the Qualivest Portfolios, and the expenses incurred in
connection with such services, under the Interim Advisory Agreement.
Each Qualivest Portfolio will vote separately on a portfolio-by-portfolio basis
with respect to the approval of the Interim Advisory Agreement. QUALIVEST'S
BOARD OF TRUSTEES RECOMMENDS THAT QUALIVEST SHAREHOLDERS RATIFY AND APPROVE THE
INTERIM ADVISORY AGREEMENT AND THE RECEIPT OF INVESTMENT ADVISORY FEES BY FBNA
FOR THE PERIOD FROM AUGUST 1, 1997 FORWARD.
INFORMATION RELATING TO THE PROPOSED REORGANIZATION
The terms and conditions of the Reorganization are set forth in the
Reorganization Agreement. Significant provisions of the Reorganization Agreement
are summarized below; however, this summary is qualified in its entirety by
reference to the Reorganization Agreement, a copy of which is attached as
Appendix III to this Combined Proxy Statement/Prospectus.
<PAGE>
DESCRIPTION OF THE REORGANIZATION AGREEMENT. The Reorganization Agreement
provides that at the Closing the assets and liabilities of the Qualivest
Portfolios will be transferred to corresponding FAF Funds in exchange for full
and fractional shares of the FAF Funds as shown in the following table.
TABLE I
PORTFOLIOS AND CORRESPONDING FUNDS
QUALIVEST PORTFOLIO/SHARE CLASS CORRESPONDING FAF FUND/SHARE CLASS
U.S. Treasury Money Market Fund -- Treasury Obligations Fund --
Class A Shares Class A Shares
Class Q Shares Class C Shares
Class Y Shares Class C Shares
Tax-Free Money Market Fund -- Tax Free Obligations Fund --
Class A Shares Class A Shares
Class Q Shares Class C Shares
Class Y Shares Class C Shares
Money Market Fund -- Prime Obligations Fund --
Class A Shares Class A Shares
Class Q Shares Class C Shares
Class Y Shares Class C Shares
The shares issued by each FAF Fund in the Reorganization will have an aggregate
value equal to the aggregate value of the shares of the respective Qualivest
Portfolio that are outstanding immediately before the Closing. Immediately after
the Closing, the Qualivest Portfolios will distribute the shares of the FAF
Funds received in the Reorganization to their shareholders in liquidation of the
Qualivest Portfolios. Each shareholder owning shares of a particular Qualivest
Portfolio at the Closing will receive shares of the designated class of the
corresponding FAF Fund (as specified in the foregoing table) of equal value, and
will receive any unpaid dividends or distributions that were declared before the
Closing on their Qualivest Portfolio shares. FAF will establish an account for
each former shareholder of the Qualivest Portfolios reflecting the appropriate
number of FAF Fund shares distributed to the shareholder. These accounts will be
identical to the accounts currently maintained by Qualivest for each
shareholder. Shares of the FAF Funds are in uncertificated form.
Upon completion of the Reorganization, all outstanding shares of the Qualivest
Portfolios will be redeemed and canceled in exchange for shares of the FAF Funds
distributed. Thereafter, assuming that the ten investment portfolios Qualivest
that are not parties to the Reorganization have been reorganized into investment
portfolios of First American Investment Funds, Inc. or First American Strategy
Funds, Inc., Qualivest will wind up its affairs and be deregistered as an
investment company under the 1940 Act. The stock transfer books of the Qualivest
Portfolios will be permanently closed as of the Closing. Exchange or redemption
requests received thereafter will be deemed to be exchange or redemption
requests for shares of the FAF Funds distributed to the former shareholders of
the Qualivest Portfolios.
The Reorganization is subject to a number of conditions, including approval of
the Reorganization Agreement by Qualivest Portfolio shareholders; the receipt of
certain legal opinions described in the Reorganization Agreement (which include
an opinion of counsel to FAF that the FAF Fund shares issued in the
Reorganization will be validly issued, fully paid and non-assessable); the
receipt of certain certificates from the parties concerning the continuing
accuracy of the representations and warranties in the Reorganization Agreement;
and the parties' performance in all material respects of their respective
agreements and undertakings in the Reorganization Agreement. Assuming
satisfaction of the conditions in the Reorganization Agreement, the Closing will
be effective on November 21, 1997 or such other date as agreed to by the
parties. The Reorganization Agreement also provides that if the difference
between the per share net asset value of a Qualivest Portfolio and its
corresponding FAF Fund equals or exceeds $.0025 at the close of business on the
day preceding the time at which the Reorganization is to be effective, as
computed using the market values of such portfolios' assets, either party may
postpone the Closing with respect to such portfolios until such time as the per
share difference is less than $.0025.
<PAGE>
FBNA has undertaken to bear any Reorganization expenses incurred by the
Qualivest Portfolios and FAF Funds, including the costs associated with this
Combined Proxy Statement/Prospectus and the Meeting, but not including share
registration expenses.
The Reorganization may be abandoned at any time prior to the Closing upon the
mutual consent of both Qualivest and FAF, or by either Qualivest or FAF if
determined by the Board of Trustees or Directors that proceeding with the
Reorganization is inadvisable. The Reorganization Agreement provides further
that at any time before or (to the extent permitted by law) after approval of
the agreement by the shareholders of Qualivest (i) the parties may, by written
agreement authorized by their respective Boards of Trustees/Directors and with
or without the approval of their shareholders, amend any of the provisions of
the Reorganization Agreement and (ii) either party may waive any default by the
other party or the failure to satisfy any of the conditions to its obligations
(the waiver to be in writing and authorized by the Board of Trustees/Directors
of the waiving party with or without the approval of such party's shareholders).
QUALIVEST BOARD CONSIDERATIONS. At its May 8, 1997 meeting at which the Interim
Advisory Agreement described above was approved, the Qualivest Board of Trustees
was advised that FBNA was also considering the possibility of consolidating the
Qualivest Portfolios with the FAF Funds following the Holding Company Merger.
Following that meeting, FBNA provided information requested by the Board
relating to the possible consolidation of the two fund groups. This information
was reviewed in detail by the independent trustees of Qualivest at a meeting
held on June 16, 1997 and by the full Qualivest Board of Trustees at a meeting
held June 17, 1997, at which the proposal that the Qualivest Portfolios be
reorganized into the FAF Funds, as set forth in the Reorganization Agreement,
was approved by the Board of Trustees of Qualivest.
During its deliberations, Qualivest's Board of Trustees (with the advice and
assistance of independent counsel) reviewed, among other things: (i) the
potential effect of the Reorganization on the shareholders of the Qualivest
Portfolios; (ii) the investment management capabilities of FBNA; (iii) the
systems capabilities of FBNA to provide shareholder servicing, reporting and
systems integration with related bank programs for Qualivest Portfolio
shareholders; (iv) the similarity of the distribution channels used by the FAF
Funds and the Qualivest Portfolios; (v) the investment advisory and other fees
paid by the FAF Funds, and the historical and projected expense ratios of the
FAF Funds as compared to those of the Qualivest Portfolios; (vi) the potential
economies of scale that may result from the Reorganization given the fact that
each of the Existing FAF Funds is larger than its corresponding Qualivest
Portfolio; (vii) the expected cost-savings for certain of the Qualivest
Portfolios as a result of the Reorganization; (viii) the investment objectives,
policies and limitations of the FAF Funds and their relative compatibility with
those of the Qualivest Portfolios as discussed further in this Combined Proxy
Statement/Prospectus; (ix) the historical investment performance records of the
Qualivest Portfolios and the Existing FAF Funds; (x) the terms and conditions of
the Reorganization Agreement, including those provisions that were intended to
avoid dilution of the interests of Qualivest's shareholders; (xi) the sales load
structure applicable to the FAF Funds as compared to the sales loads applicable
to the Qualivest Portfolios; (xii) the greater number of investment portfolio
options that would be available to shareholders after the Reorganization; and
(xiii) the anticipated tax treatment of the Reorganization for the respective
Qualivest Portfolios and their shareholders.
In connection with the foregoing, Qualivest's Board of Trustees noted that FAF
had undertaken to create the New FAF Fund that has an investment objective and
investment policies similar to those of the corresponding Qualivest Portfolio.
Qualivest's Board of Trustees also noted FBNA's offer to pay the expenses
incurred by Qualivest and FAF in connection with the Reorganization and to
continue, at FBNA's expense, the Board of Trustees' liability coverage currently
carried by Qualivest. In addition, Qualivest's Board of Trustees considered
FBNA's written commitment that it would waive fees and reimburse expenses to the
extent necessary so that after the Closing and until September 30, 1998, the
total fund operating expense ratios of the FAF Funds (excluding interest, taxes,
brokerage commissions, litigation expenses and extraordinary expenses) do not
exceed the pro forma expense ratios set forth in Appendix V to this Combined
Proxy Statement/Prospectus. These ordinary operating expense ratios are lower
than those currently applicable
<PAGE>
to the respective Qualivest Portfolios, other than the Class Y shares of
Qualivest U.S. Treasury Money Market Fund. FBNA has also committed that, from
October 1, 1998 through September 30, 1999, it will waive fees and reimburse
expenses to the extent necessary so that no FAF Fund will have total fund
operating expense ratios in excess of those currently applicable to its
corresponding Qualivest Portfolio (other than Qualivest U.S. Treasury Money
Market Fund), as set forth in Appendix V. With respect to the Qualivest U.S.
Treasury Money Market Fund, FBNA has committed to maintain the total fund
operating expense ratio of the Class A and Class C Shares of the corresponding
FAF Treasury Obligations Fund at 0.70% and 0.45% (annualized), respectively,
through September 30, 1999. The current total operating expense ratios of the
Class A, Class Q and Class Y shares of the U.S. Treasury Money Market Fund are
0.72%, 0.51% and 0.31%, respectively. In considering this commitment,
Qualivest's Board of Trustees noted that the investment advisory fee for the
Qualivest U.S. Treasury Money Market Fund was currently being waived; that
without this waiver the annualized total fund operating expense ratio of the
Qualivest U.S. Treasury Money Market Fund would be approximately 1.07%, 0.86%
and 0.66% for Class A, Class Q and Class Y Shares, respectively; and that, in
the absence of the Reorganization, this waiver could be terminated at any time
after July 31, 1997.
After consideration of all of the factors described above, the Qualivest Board
of Trustees determined that the Reorganization Agreement was in the best
interests of the shareholders of each Qualivest Portfolio, and that the
interests of the shareholders of the respective Portfolios would not be diluted
as a result of the Reorganization.
BISYS Fund Services has asserted that consummation of the Reorganization would
cause certain amounts to become payable to it under its administration and fund
accounting agreements with Qualivest. The Qualivest Board of Trustees' approval
of the Reorganization is conditioned upon FBNA and BISYS Fund Services reaching
agreement as to the amount, if any, which is so payable and FBNA's payment of
such amount. Discussions between BISYS Fund Services and FBNA regarding this
matter are under way.
CAPITALIZATION. Two of the Qualivest Portfolios will be reorganized into the two
Existing FAF Funds, and one of the Qualivest Portfolios will be reorganized into
a Fund that is being created by FAF and will have nominal assets and liabilities
at the Closing. The following table sets forth, as of June 30, 1997, (i) the
capitalization of each of the two Qualivest Portfolios that will be reorganized
into Existing FAF Funds; (ii) the capitalization of each of the corresponding
Existing FAF Funds involved; and (iii) the pro forma capitalization of each of
the Existing FAF Funds as adjusted to give effect to the Reorganization of the
foregoing Portfolios. The capitalization of each Qualivest Portfolio and
Existing FAF Fund is likely to be different at the Closing as a result of daily
share purchase and redemption activity in the Portfolios and the Funds as well
as the effects of the Portfolios' and the Funds' other ongoing operations.
Because the other Qualivest Portfolio is to be reorganized into the New FAF
Fund, which will have nominal assets and liabilities before the Reorganization,
information on the capitalization of the other Portfolio and Fund is not
presented.
<PAGE>
TABLE II
PRO FORMA CAPITALIZATION (AS OF JUNE 30, 1997)
QUALIVEST U.S. TREASURY MONEY MARKET FUND/FAF TREASURY OBLIGATIONS FUND
<TABLE>
<CAPTION>
QUALIVEST
PORTFOLIO FAF FUND PRO FORMA
<S> <C> <C> <C>
Class A Shares(1)
Net assets $113,810,823 -- $ 113,810,823
Net asset value per share $ 1.00 -- $ 1.00
Shares outstanding 113,810,788 -- 113,810,788
Class Q Shares(3)
Net assets $ 29,811,506 -- --
Net asset value per share $ 1.00 -- --
Shares outstanding 29,811,495 -- --
Institutional Class Shares(4)
Net assets $ 3,770,827 $ 803,349,310 $ 836,931,643
Net asset value per share $ 1.00 $ 1.00 $ 1.00
Shares outstanding 3,770,827 803,344,558 836,926,880
Class D (Corporate Trust)
Shares(2)
Net assets -- $2,924,110,396 $2,924,110,396
Net asset value per share -- $ 1.00 $ 1.00
Shares outstanding -- 2,924,071,431 2,924,071,431
Total Net Assets $147,393,156 $3,727,459,706 $3,874,852,862
</TABLE>
(1) The FAF Treasury Obligations Fund will offer Class A shares for the first
time pursuant to the Reorganization.
(2) Not offered by Qualivest.
(3) Not offered by FAF.
(4) Class Y Shares of Qualivest, Class C Shares of FAF
<PAGE>
QUALIVEST MONEY MARKET FUND/FAF PRIME OBLIGATIONS FUND
<TABLE>
<CAPTION>
QUALIVEST
PORTFOLIO FAF FUND PRO FORMA
<S> <C> <C> <C>
Class A Shares
Net assets $252,850,511 $ 175,014,654 $ 427,865,165
Net asset value per share $ 1.00 $ 1.00 $ 1.00
Shares outstanding 252,851,873 175,014,138 427,866,011
Class B Shares(1)
Net assets -- $ 2,027,894 $ 2,027,894
Net asset value per share -- $ 1.00 $ 1.00
Shares outstanding -- 2,030,132 2,030,132
Class Q Shares(2)
Net assets $146,758,320 -- --
Net asset value per share $ 1.00 -- --
Shares outstanding 146,756,400 -- --
Institutional Class Shares(3)
Net assets $160,652,622 $3,365,419,716 $3,672,830,658
Net asset value per share $ 1.00 $ 1.00 $ 1.00
Shares outstanding 160,652,990 3,365,414,347 3,672,823,737
Class D (Corporate Trust)
Shares(1)
Net assets -- $ 223,831,785 $ 223,831,785
Net asset value per share -- $ 1.00 $ 1.00
Shares outstanding -- 223,830,864 223,830,864
Total Net Assets $560,261,453 $3,766,294,049 $4,326,555,502
</TABLE>
(1) Not offered by Qualivest.
(2) Not offered by FAF.
(3) Class Y Shares of Qualivest, Class C Shares of FAF
FEDERAL INCOME TAX TREATMENT. Consummation of the Reorganization with respect to
each Qualivest Portfolio is subject to the condition that Qualivest and FAF
receive an opinion from Dorsey & Whitney LLP, counsel to FAF, to the effect
that, for federal income tax purposes: (i) the transfer of all of the assets and
liabilities of each Qualivest Portfolio to its corresponding FAF Fund in
exchange for shares of the FAF Fund and the distribution of these FAF shares to
shareholders of the Qualivest Portfolio, as described in the Reorganization
Agreement, will constitute a reorganization within the meaning of Section
368(a)(1)(C), Section 368(a)(1)(D) or Section 368(a)(1)(F) of the Internal
Revenue Code of 1986, as amended (the "Code"); (ii) no income, gain or loss will
be recognized by the Qualivest Portfolios as a result of these transactions;
(iii) no income, gain or loss will be recognized by the FAF Funds as a result of
these transactions; (iv) no income, gain or loss will be recognized by the
shareholders of each Qualivest Portfolio on the distribution to them of shares
of the corresponding FAF Fund in exchange for their shares of the Qualivest
Portfolio (but shareholders of a Qualivest Portfolio subject to taxation will
recognize income upon receipt of any net investment income or net capital gains
of such Qualivest Portfolio which are distributed by such Qualivest Portfolio
prior to the Closing); (v) the tax basis of FAF Fund shares received by a
shareholder of a Qualivest Portfolio will be the same as the tax basis of the
shareholder's Qualivest Portfolio shares immediately before the Reorganization;
(vi) the tax basis to each FAF Fund of the assets of the corresponding Qualivest
Portfolio received pursuant to the Reorganization will be the same as the tax
basis of the assets in the hands of the Qualivest Portfolio immediately before
the Reorganization; (vii) a shareholder's holding period for FAF Fund shares
will be determined by including the period for which the shareholder held the
Qualivest Portfolio shares exchanged therefor, provided the shareholder held the
Qualivest Portfolio shares as a capital asset; (viii) each FAF Fund's holding
period with respect to the assets received in the Reorganization will include
the period for which the assets were held by the corresponding Qualivest
Portfolio, provided that each corresponding Qualivest Portfolio held such
Portfolio assets as capital assets; and (ix) each FAF
<PAGE>
Fund will succeed to and take into account the earnings and profits, or deficit
in earnings and profits, of the corresponding Qualivest Portfolios immediately
before the Reorganization.
FAF and Qualivest have not sought, and do not intend to seek, a ruling from the
Internal Revenue Service ("IRS") concerning the tax treatment of the
Reorganization. The opinion of counsel is not binding on the IRS and does not
preclude the IRS from adopting a contrary position. Shareholders may wish to
consult their own tax advisors concerning the potential tax consequences to
them, including state and local income tax consequences.
COMPARISON OF FAF AND QUALIVEST
INVESTMENT OBJECTIVES AND POLICIES. The investment objectives, policies and
restrictions of the FAF Funds are, in general, similar to those of the Qualivest
Portfolios. There are, however, certain differences, as noted above under
"Summary -- Overview of FAF and Qualivest." Other differences in the investment
objectives, and in certain significant investment policies and restrictions, are
discussed in Appendix IV to this Combined Proxy Statement/Prospectus.
Additional information with respect to the investment policies and restrictions
of the two Existing FAF Funds and of the Qualivest Portfolios is included in
their respective Prospectuses, which have been incorporated herein by reference.
Additional information with respect to the investment policies and restrictions
of the FAF Tax Free Obligations Fund is included in the preliminary prospectuses
for the Class A and Class C Shares of such Fund attached as Appendix VIII and
Appendix IX to this Combined Proxy Statement/Prospectus.
INVESTMENT ADVISORY FEES AND TOTAL EXPENSE RATIOS. Currently, FBNA serves as the
investment adviser for each of the Existing FAF Funds, and, after the
Reorganization, FBNA will serve as the investment adviser to the New FAF Fund,
at the fee rates stated in Table III below. FBNA is also providing investment
advisory services to the Qualivest Portfolios under the Interim Advisory
Agreement.
Table III shows (i) the advisory fees in dollars actually paid by the Qualivest
Portfolios for their latest fiscal year after waivers; (ii) the effective rate
of advisory fees for the Qualivest Portfolios for their latest fiscal year after
waivers; (iii) the current contractual advisory fee rates payable with respect
to the Qualivest Portfolios; (iv) the post-Reorganization contractual advisory
fees payable with respect to the corresponding FAF Funds; (v) the current total
expense ratio of the Qualivest Portfolios after waivers; and (vi) the pro forma
total expense ratio of the corresponding FAF Funds based upon the fee
arrangements, including waivers and reimbursements, that will be in place upon
consummation of the Reorganization. All fee rates are annualized, and are
computed daily and payable monthly based on a Portfolio's or Fund's average
daily net assets. Table III shows that while the contractual investment advisory
fee rates of the FAF Funds are higher than the contractual rates for the
corresponding Qualivest Portfolios, in all cases except with respect to the
Class Y shares of Qualivest U.S. Treasury Money Market Fund, the total expense
ratios of the FAF Funds, after waivers, are expected to be less than the total
expense ratios of the corresponding Qualivest Portfolios. In this regard, FBNA
has agreed that for the period commencing on the Closing and continuing until
September 30, 1998 (September 30, 1999 with respect to FAF Tax Free Obligations
Fund), FBNA will waive fees and reimburse expenses to the FAF Funds to the
extent necessary to maintain the total expense ratios at the pro forma expense
levels provided in Table III. In addition, FBNA has agreed that, from October 1,
1998 through September 30, 1999, it will waive fees and reimburse expenses to
the extent necessary so that no FAF Fund (other than FAF Tax Free Obligations
Fund) will have ordinary expense ratios in excess of those currently applicable
to its corresponding Qualivest Portfolio as set forth in Appendix V. Detailed
pro forma expense information for each proposed reorganization is included in
Appendix V to this Combined Proxy Statement/Prospectus.
<PAGE>
TABLE III
INVESTMENT ADVISORY AND TOTAL EXPENSE INFORMATION
<TABLE>
<CAPTION>
EFFECTIVE RATE
OF ADVISORY POST-
ADVISORY FEES FEES FOR FISCAL CURRENT REORGANIZATION CURRENT TOTAL PRO FORMA
FOR FISCAL YEAR YEAR CONTRACTUAL CONTRACTUAL FUND OPERATING FUND OPERATING
ENDED 7/31/96 ENDED 7/31/96 ADVISORY ADVISORY EXPENSES EXPENSES
NAME OF QUALIVEST PORTFOLIO (AFTER WAIVERS) (AFTER WAIVERS) FEE RATE FEE RATE (AFTER WAIVERS)* (AFTER WAIVERS)
<S> <C> <C> <C> <C> <C> <C>
Qualivest Money $1,401,855 0.25% 0.35% 0.40% 0.91% 0.70%
Market (Class A) (Class A)
Fund 0.51% 0.45%
(Class Q) (Class C)
0.51% 0.45%
(Class Y) (Class C)
Qualivest U. S. $ 395,220 0.00% 0.35% 0.40% 0.72% 0.70%
Treasury Money (Class A) (Class A)
Market Fund 0.51% 0.45
(Class Q) (Class C)
0.31% 0.45
(Class Y) (Class C)
Qualivest Tax-Free $ 130,991 0.00% 0.35% 0.40% 0.89% 0.70%
Money Market Fund (Class A) (Class A)
0.72% 0.45%
(Class Q) (Class C)
0.41% 0.45%
(Class Y) (Class C)
</TABLE>
* As of January 31, 1997
FAF FUNDS' INVESTMENT ADVISORY AGREEMENT. After the Closing, FBNA will serve as
the investment adviser for each investment portfolio of FAF, including the New
FAF Fund, pursuant to the FAF Funds' Investment Advisory Agreement. As set forth
in Table III, the contractual fee rates of the FAF Funds differ from those of
the corresponding Qualivest Portfolios. In addition, there are certain
differences between the Interim Advisory Agreement and the FAF Funds' Investment
Advisory Agreement. The significant differences between these Agreements are
summarized and compared in Appendix VI to this Combined Proxy
Statement/Prospectus.
INFORMATION ABOUT FBNA AND OTHER SERVICE PROVIDERS. FBNA acts as the
investment adviser to the FAF Funds through its First Asset Management group.
FBNA has acted as an investment adviser to FAF since its inception in 1982
and has acted as investment adviser to First American Investment Funds, Inc.
since 1987 and to First American Strategy Funds, Inc. since 1996. Additional
information about FBNA is set forth above under "Information Relating to the
Interim Advisory Agreement -- Information About FBNA."
The Glass-Steagall Act generally prohibits banks from engaging in the business
of underwriting, selling or distributing securities and from being affiliated
with companies principally engaged in those activities. In addition,
administrative and judicial interpretations of the Glass-Steagall Act prohibit
bank holding companies and their bank and nonbank subsidiaries from organizing,
sponsoring or controlling registered open-end investment companies that are
continuously engaged in distributing their shares. Bank holding companies and
their bank and nonbank subsidiaries may serve, however, as investment advisers
to registered investment companies, subject to a number of terms and conditions.
Although the scope of the prohibitions and limitations imposed by the
Glass-Steagall Act has not been fully defined by the courts or the appropriate
regulatory agencies, FAF has received an opinion from its counsel that FBNA and
its affiliates are not prohibited from performing the services contemplated by
the FAF Funds' Investment Advisory Agreement and the prospectuses for the FAF
Funds. In the event of changes in federal or state statutes or regulations or
judicial and administrative interpretations or decisions pertaining to
permissible activities of bank holding companies and their bank and nonbank
subsidiaries, FBNA and its affiliates might be prohibited from continuing these
<PAGE>
arrangements. In that event, it is expected that the Board of Directors would
make other arrangements and that shareholders would not suffer adverse financial
consequences.
The other service providers for the Qualivest Portfolios and the FAF Funds are
different, as set forth in the following table.
OTHER SERVICE PROVIDERS
FOR QUALIVEST PORTFOLIOS AND FAF FUNDS
<TABLE>
<CAPTION>
QUALIVEST PORTFOLIOS FAF FUNDS
<S> <C> <C>
Distributor BISYS Fund Services SEI Investments Distribution Co.
Administrator BISYS Fund Services SEI Investments Management Corporation
Transfer Agent BISYS Fund Services Ohio, Inc. DST Systems, Inc.
Custodian United States National Bank First Trust National Association
of Oregon
Independent Auditors Deloitte & Touche LLP KPMG Peat Marwick LLP
</TABLE>
BISYS Fund Services, a division of BISYS Group, Inc., maintains offices at 3435
Stelzer Road, Columbus, Ohio 43219-3035. SEI Investments Distribution Co. and
SEI Investments Management Corporation, wholly owned subsidiaries of SEI
Investments Company, are located in Oaks, Pennsylvania 19456.
SHARE STRUCTURE. Both Qualivest and FAF are registered as open-end management
investment companies under the 1940 Act. Each offers its shares in a number
of separate investment portfolios, or "funds."
Qualivest is organized as a Massachusetts business trust and is subject to the
provisions of its Declaration of Trust and By-Laws. Qualivest is authorized to
issue an unlimited number of units of beneficial interest (referred to herein as
shares), without par value, which may be divided into separate portfolios and
separate classes of shares. FAF is organized as a corporation under the laws of
the State of Minnesota and is subject to the provisions of its Amended and
Restated Articles of Incorporation, as amended and supplemented, and Bylaws. FAF
is authorized to issue 10 trillion shares, par value $.01 per share, which may
be divided into separate funds and separate classes of shares. Although the
rights of shareholders of a Minnesota corporation vary in certain respects from
the rights of shareholders of a Massachusetts business trust, the attributes of
a share of common stock in FAF are comparable to those of a share of beneficial
interest in Qualivest, except that there are differences with respect to voting
rights. Shares of the FAF Funds are entitled to one vote for each share held and
fractional votes for fractional shares held. Shares of the Qualivest Portfolios
are entitled to one vote for each dollar of value invested and a proportionate
fractional vote for any fraction of a dollar invested. Shareholders of both the
Qualivest Portfolios and the FAF Funds will vote in the aggregate and not by
portfolio or class except as otherwise required by law or when portfolio or
class voting is permitted by their Board of Trustees/Directors. Shares of both
the Qualivest Portfolios and the FAF Funds have noncumulative voting rights. In
addition, shares of the FAF Funds have no pre-exemptive or conversion rights and
shares of the Qualivest Portfolios have only such conversion rights, exchange
rights and preemptive rights as the Board of Trustees of Qualivest may grant in
its discretion. When issued for payment or in accordance with their dividend
reinvestment plans, as described in their respective prospectuses, FAF Fund
shares and Qualivest Portfolio shares are fully paid and non-assessable except,
with respect to the Qualivest Portfolios, as required under Massachusetts law.
Under Minnesota law, FAF Fund shareholders have no personal liability for FAF's
acts or obligations. Under Massachusetts law, shareholders of Qualivest could,
under certain circumstances, be held personally liable for the obligations of
Qualivest. However, Qualivest's Declaration of Trust provides that shareholders
shall not be subject to any personal liability for the obligations of Qualivest.
The Declaration of Trust also provides for indemnification out of the property
of a Qualivest Portfolio of any shareholder held personally liable by reason of
being or having been a shareholder of the Portfolio. Thus, the risk of a
shareholder incurring a financial loss on account of shareholder liability is
limited to circumstances in which a Qualivest Portfolio itself would be unable
to meet its obligations.
<PAGE>
The FAF Funds offer separate share classes in order to allocate certain
expenses, such as distribution payments, shareholder servicing fees and other
"class" expenses, to the different shareholder groups for which the fees and
expenses are incurred. In this regard, FAF's Board of Directors has authorized
the issuance of four classes of shares in each of the FAF Funds (Class A, Class
B, Class C (Institutional Class) and Class D (Corporate Trust) shares). No
Qualivest Portfolio shareholders will receive Class B or Class D shares in the
Reorganization. Each share of a class of an FAF Fund represents an equal
proportionate interest in the Fund with other shares of the same class and is
entitled to cash dividends and distributions earned on such shares as are
declared in the discretion of the FAF Board of Directors.
Shares of each class of an FAF Fund bear a pro rata portion of all operating
expenses paid by the Fund except for distribution payments and/or shareholder
servicing fees paid on Class A, Class B or Class D Shares and other certain
"class" expenses that are allocated to a particular share class. Class C shares
do not have a distribution or shareholder servicing plan.
Additional information concerning the attributes of the shares issued by
Qualivest and the Existing FAF Funds is included in their respective
Prospectuses, as supplemented to the date hereof, which are incorporated herein
by reference. Additional information concerning the attributes of the shares
issued by the New FAF Fund and the Class A shares of the FAF Treasury
Obligations Fund are included in their preliminary prospectuses attached as
Appendix VIII and Appendix IX to this Combined Proxy Statement/Prospectus.
Shareholders may obtain copies of FAF's Amended and Restated Articles of
Incorporation and Bylaws and Qualivest's Declaration of Trust and By-Laws from
FAF upon written request at its principal office.
DISTRIBUTION PLANS. FAF and Qualivest have adopted distribution plans pursuant
to Rule 12b-1 under the 1940 Act. The FAF Funds maintain a Distribution Plan for
their Class A shares. There is no Distribution Plan for the Class C shares of
the FAF Funds. Pursuant to the Distribution Plan adopted for the Class A shares,
each FAF Fund pays the distributor of the Fund's shares a shareholder servicing
fee monthly at an annual rate of 0.25% of the average daily net assets of the
Fund's Class A shares. The shareholder servicing fee is intended to compensate
the distributor for ongoing servicing and/or maintenance of shareholder accounts
and may be used by the distributor to provide compensation to institutions
through which shareholders hold their shares for ongoing servicing and/or
maintenance of shareholder accounts. The FAF Funds also maintain Distribution
Plans for their Class B and Class D shares, which are not being issued in the
Reorganization.
Qualivest has adopted Distribution and Shareholder Service Plans with respect to
the Class A shares (the "Class A Plans") and the Class Q shares (the "Class Q
Plans") of each Qualivest Portfolio. The Class Y shares of the Qualivest
Portfolios are not subject to a Distribution and Shareholder Service Plan.
However, each Portfolio has adopted, but not implemented, a plan under which up
to 0.25% of its average daily net assets attributable to Class Y shares may be
expended to procure shareholder services.
Pursuant to Qualivest's Class A Plans and Class Q Plans, each Portfolio is
authorized to pay or reimburse the distributor of the Class A or Class Q shares
for certain expenses incurred in connection with shareholder and distribution
services. Payments under the Class A Plans and Class Q Plans are calculated
daily and paid monthly at an annual rate not to exceed 0.40% and 0.25% of the
average daily net assets of the Class A and Class Q shares, respectively.
Payments to the distributor of Qualivest Portfolio shares pursuant to
Qualivest's Class A and Class Q Plans are used (i) to compensate banks,
broker-dealers and other institutions for providing distribution assistance
relating to Qualivest Portfolio shares; (ii) for promotional activities intended
to result in the sales of Qualivest Portfolio shares, such as to pay for the
preparation, printing and distribution of prospectuses to other than current
Qualivest Portfolio shareholders; and (iii) to compensate banks, broker-dealers
and other institutions for providing shareholder services with respect to their
customers who are, from time to time, beneficial and record holders of shares of
the Portfolios.
Fees paid pursuant to the Plans are accrued daily and paid monthly, and are
charged as expenses of Class A and Class Q shares, as accrued.
SHAREHOLDER TRANSACTIONS AND SERVICES. The respective purchase, redemption,
exchange, dividend and other policies and procedures of the FAF Funds and the
corresponding Qualivest Portfolios are
<PAGE>
generally similar. These policies and procedures are more fully set forth in
Appendix VII to this Combined Proxy Statement/Prospectus.
Class A and Class C Shares of the FAF Funds, and Class A, Class Q and Class Y
Shares of the Qualivest Portfolios are sold at net asset value without any
front-end or contingent deferred sales charge. Purchase, redemption and exchange
procedures for the Qualivest Portfolios are generally similar to those for the
FAF Funds. However, the minimum purchase amount is lower for the Class A and
Class C shares of the Qualivest Portfolios than for the Class A shares of the
FAF Funds. The minimum purchase required to open an account generally is $500
for the Class A shares of the Qualivest Portfolios and $1,000 for the Class A
shares of the FAF Funds. Subsequent purchases generally require a minimum
payment of $100 in both instances.
The dividend policies of the Qualivest Portfolios and the FAF Funds are the
same. Net income dividends are declared daily and paid monthly and distributions
of net realized long-term capital gains, if any, are made at least once
annually.
INFORMATION RELATING TO VOTING MATTERS
GENERAL INFORMATION. This Combined Proxy Statement/Prospectus is being furnished
in connection with the solicitation of proxies for the Meeting by the Board of
Trustees of Qualivest. It is expected that the solicitation of proxies will be
primarily by mail. Officers and service contractors of Qualivest and FAF also
may solicit proxies by telephone, telegraph or personal interview. In this
connection, Qualivest has retained _______ to assist in the solicitation of
proxies for the Reorganization. The cost of solicitation is estimated to be
_______ and will be borne by FBNA. Shareholders may vote by marking, signing,
dating and returning the enclosed Proxy Ballot in the enclosed postage-paid
envelope. Any shareholder giving a proxy may revoke it at any time before it is
exercised by submitting to Qualivest a written notice of revocation or a
subsequently executed proxy or by attending the Meeting and voting in person.
Only shareholders of record at the close of business on , 1997 will be
entitled to vote at the Meeting. On that date, the following shares of the
Qualivest Portfolios were outstanding and entitled to be voted:
NAME OF PORTFOLIO AND CLASS SHARES ENTITLED TO VOTE
U.S. Treasury Money Market Fund --
Class A Shares
Class Q Shares
Class Y Shares
Tax Free Money Market Fund --
Class A Shares
Class Q Shares
Class Y Shares
Money Market Fund --
Class A Shares
Class Q Shares
Class Y Shares
Shares are entitled to one vote for each dollar of value invested and a
proportionate fractional vote for any fraction of a dollar invested.
If the accompanying proxy is executed and returned in time for the Meeting, the
shares covered thereby will be voted in accordance with the proxy on all matters
that may properly come before the Meeting.
SHAREHOLDER AND BOARD APPROVALS. Pursuant to the Application, and the conditions
under which the Order was granted by the SEC, the Interim Advisory
<PAGE>
Agreement is being submitted for the ratification and approval of the
shareholders of each of the Qualivest Portfolios. The Interim Advisory Agreement
must be ratified and approved by a majority of the outstanding shares of a
Qualivest Portfolio in order to remain effective with respect to such Portfolio.
In the event the Interim Advisory Agreement is not ratified and approved with
respect to a Qualivest Portfolio, the Interim Advisory Agreement will terminate,
the investment advisory fees accrued under such Agreement and held in escrow
with respect to that Portfolio will be returned to the Portfolio, and
Qualivest's Board of Trustees will consider what actions should be taken with
respect to management of the assets of the Qualivest Portfolio until a new
investment advisory agreement is approved by the shareholders of that Portfolio
or the Reorganization occurs.
The Reorganization Agreement is being submitted for approval at the Meeting by
the shareholders of each of the Qualivest Portfolios pursuant to the provisions
of Qualivest's Declaration of Trust. The Reorganization Agreement must be
approved by a majority of the outstanding shares of the Qualivest Portfolios
voting separately on a portfolio-by-portfolio basis. The Reorganization
Agreement provides that in the event the Reorganization Agreement is approved
with respect to some but not all of the Qualivest Portfolios, the Board of
Directors of FAF and the Board of Trustees of Qualivest may, in the exercise of
their reasonable business judgment, either abandon the Reorganization Agreement
with respect to all of the Qualivest Portfolios or direct that the
Reorganization and the other transactions described in the Reorganization
Agreement be consummated to the extent they deem advisable.
The term "majority of the outstanding shares" of a particular Qualivest
Portfolio means the lesser of (i) 67% of the shares of the Portfolio present at
the Meeting if the holders of more than 50% of the outstanding shares of such
Portfolio are present or (ii) more than 50% of the outstanding shares of the
Portfolio, as applicable. The vote of the shareholders of the FAF Funds is not
being solicited, since their approval or consent is not necessary for the
Reorganization.
The approval of the Reorganization Agreement by the Board of Trustees of
Qualivest is discussed above under "Information Relating to the Proposed
Reorganization -- Board Considerations." The Reorganization Agreement was
unanimously approved by the Board of Directors of FAF at a meeting held on
[August 14], 1997.
As of ______ , 1997, the officers and Trustees of Qualivest as a group owned
less than 1% of each Qualivest Portfolio. As of _____________ , 1997, the
officers and Directors of FAF as a group owned less than 1% of each FAF Fund.
Table IV(A) shows the name, address and share ownership of each person known to
Qualivest to have beneficial or record ownership with respect to 5% or more of a
class of a Portfolio as of ______ , 1997. Table IV(B) shows the name, address
and share ownership of each person known to FAF to have beneficial or record
ownership with respect to 5% or more of a class of a Fund as of , 1997.
TABLE IV(A)
QUALIVEST PORTFOLIOS -- 5% OWNERSHIP AS OF , 1997
<TABLE>
<CAPTION>
CLASS AND AMOUNT OF PERCENTAGE
NAME AND SHARES OWNED AND PERCENTAGE PERCENTAGE OF PORTFOLIO
QUALIVEST PORTFOLIO ADDRESS TYPE OF OWNERSHIP OF CLASS OF PORTFOLIO POST-CLOSING
<S> <C> <C> <C> <C> <C>
</TABLE>
TABLE IV(B)
FAF FUNDS -- 5% OWNERSHIP AS OF , 1997
<TABLE>
<CAPTION>
CLASS AND AMOUNT OF PERCENTAGE
NAME AND SHARES OWNED AND PERCENTAGE PERCENTAGE OF PORTFOLIO
FAF FUND ADDRESS TYPE OF OWNERSHIP OF CLASS OF PORTFOLIO POST-CLOSING
<S> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
For purposes of the 1940 Act, any person who owns directly or through one or
more controlled companies more than 25% of the voting securities of a company is
presumed to "control" such company. Under this definition, _____________ and its
affiliates may be deemed to be controlling persons of each of the FAF Funds and
Qualivest Portfolios.
QUORUM. In the event that a quorum is not present at the Meeting, or in the
event that a quorum is present at the Meeting but sufficient votes to approve
the Interim Advisory Agreement or the Reorganization Agreement are not received
with respect to one or more of the Qualivest Portfolios, the persons named as
proxies may propose one or more adjournments of the Meeting to permit further
solicitation of proxies. Any such adjournment(s) will require the affirmative
vote of a majority of those shares affected by the adjournment(s) that are
represented at the Meeting in person or by proxy. If a quorum is present, the
persons named as proxies will vote those proxies which they are entitled to vote
FOR the particular proposal for which a quorum exists in favor of such
adjournment(s), and will vote those proxies required to be voted AGAINST such
proposal against any adjournment(s). A shareholder vote may be taken with
respect to one or more Qualivest Portfolios (but not the other Qualivest
Portfolios) on some or all matters before any such adjournment(s) if sufficient
votes have been received for approval. A quorum is constituted with respect to a
Qualivest Portfolio by the presence in person or by proxy of the holders of more
than 50% of the outstanding shares of the Portfolio entitled to vote at the
Meeting. For purposes of determining the presence of a quorum for transacting
business at the Meeting, abstentions will be treated as shares that are present
at the Meeting but which have not been voted. Abstentions will have the effect
of a "no" vote for purposes of obtaining the requisite approvals. Broker
"non-votes" (that is, proxies from brokers or nominees indicating that such
persons have not received instructions from the beneficial owners or other
persons entitled to vote shares on a particular matter with respect to which the
brokers or nominees do not have discretionary power) will not be treated as
shares that are present at the Meeting and, accordingly, could make it more
difficult to obtain the requisite approvals.
ANNUAL MEETINGS. Shareholder meetings are not required by Qualivest's
Declaration of Trust or other authority except, under certain circumstances, to
elect Trustees, amend the Declaration of Trust, approve an investment advisory
agreement and to satisfy certain other requirements. Qualivest will call a
special shareholder meeting for purposes of considering the removal of one or
more Trustees upon the written request of shareholders holding not less than 10%
of the outstanding votes of Qualivest. Similarly, the Bylaws of FAF provide that
annual shareholders' meetings are not required and that meetings of shareholders
need be held only with such frequency as required under Minnesota law and the
1940 Act.
INTERESTS OF CERTAIN PERSONS. The following receive payments from the FAF Funds
for services rendered pursuant to contractual arrangements with the Funds: FBNA,
as the adviser of each Fund, receives payments for its investment advisory and
management services; SEI Investments Distribution Co., as the distributor for
each Fund, receives payments for providing distribution services; SEI
Investments Management Corporation, in its capacity as the administrator for
each Fund, receives payments for providing shareholder servicing, legal and
accounting and other administrative personnel and services; DST Systems, Inc.,
in its capacity as transfer and dividend disbursing agent for each Fund,
receives payments for providing transfer agency and dividend disbursing
services; and First Trust National Association, a subsidiary of New U.S.
Bancorp, receives payments for providing custodial services for each Fund, and
may also act as securities lending agent in connection with the Funds'
securities lending transactions and receive, as compensation for such securities
lending services, fees based on a percentage of the Funds' income from such
securities lending transactions.
ADDITIONAL INFORMATION ABOUT FAF
Additional information about the Existing FAF Funds is included in Prospectuses
and a Statement of Additional Information dated January 31, 1997, as
supplemented through the date hereof, copies of which, to the extent not
included herewith, may be obtained without charge by writing to FAF, c/o SEI
Investments Distribution Co., Oaks, Pennsylvania 19456, or by calling
1-800-637-2548. FAF is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and the 1940 Act,
<PAGE>
and in accordance therewith it files reports, proxy materials and other
information with the SEC. Reports and other information filed by FAF can be
inspected and copied at the Public Reference Facilities maintained by the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549. In addition, these materials can
be inspected and copied at the SEC's Regional Offices at 7 World Trade Center,
Suite 1300, New York, New York 10048, and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
also can be obtained from the Public Reference Branch, Office of Consumer
Affairs and Information Services, Securities and Exchange Commission,
Washington, D.C. 20549, at prescribed rates.
Information included in this Combined Proxy Statement/Prospectus concerning FAF
was provided by FAF.
ADDITIONAL INFORMATION ABOUT QUALIVEST
Additional information about the Qualivest Portfolios is included in the
Prospectuses, dated December 1, 1996, as supplemented through the date hereof,
which have been filed with the SEC. Copies of these Prospectuses and the related
Statement of Additional Information may be obtained without charge by writing to
Qualivest Funds, c/o BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
43219-3035 or by calling 1-800-743-8637. Reports and other information filed by
Qualivest can be inspected and copied at the Public Reference Facilities
maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the offices of Qualivest Funds listed above. In addition, these materials can be
inspected and copied at the SEC's Regional Offices at 7 World Trade Center,
Suite 1300, New York, New York 10048, and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
also can be obtained from the Public Reference Branch, Office of Consumer
Affairs and Information Services, Securities and Exchange Commission,
Washington, D.C. 20549, at prescribed rates.
Information included in this Combined Proxy Statement/Prospectus concerning
Qualivest was provided by Qualivest.
FINANCIAL STATEMENTS
The audited statements of assets and liabilities, including the schedules of
investments in securities, of the Qualivest Portfolios as of July 31, 1996, and
of the Existing FAF Funds as of September 30, 1996, and the related statements
of operations for the respective years then ended, the statements of changes in
net assets for each of the periods indicated therein, and the financial
highlights for the periods indicated therein, as included in the July 31, 1996
Annual Report of Qualivest and the September 30, 1996 Annual Report for FAF have
been incorporated by reference into this Combined Proxy Statement/Prospectus in
reliance on the respective reports of Deloitte & Touche LLP, independent
auditors for Qualivest, and KPMG Peat Marwick LLP, independent auditors for FAF,
given on the authority of such firms as experts in accounting and auditing. In
addition, the unaudited January 31, 1997 financial statements of Qualivest
Portfolios and the unaudited March 31, 1997 financial statements of the Existing
FAF Funds, as included in the January 31, 1997 Semi-Annual Report of Qualivest
and the March 31, 1997 Semi-Annual Report of FAF, are incorporated herein by
reference.
OTHER BUSINESS
Qualivest's Board of Trustees knows of no other business to be brought before
the Meeting. However, if any other matters come before the Meeting, it is the
intention that proxies which do not contain specific restrictions to the
contrary will be voted on such matters in accordance with the judgment of the
persons named in the enclosed form of proxy.
<PAGE>
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to Qualivest Funds or to First American
Funds, Inc. in writing at the appropriate addresses on the cover page of this
Combined Proxy Statement/Prospectus or by telephoning Qualivest at
1-800-743-8637 or FAF at 1-800-637-2548.
* * *
SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE MEETING ARE REQUESTED TO
MARK, SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE.
NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. SHAREHOLDERS ALSO MAY
RETURN PROXIES BY TELEFAX OR VOTE BY TELEPHONE.
QUALIVEST FUNDS WILL FURNISH, WITHOUT CHARGE, COPIES OF ITS JULY 31, 1996 ANNUAL
SHAREHOLDERS REPORT AND ITS JANUARY 31, 1997 SEMI-ANNUAL SHAREHOLDERS REPORT TO
ANY SHAREHOLDER UPON REQUEST ADDRESSED TO 3435 STELZER ROAD, COLUMBUS, OHIO
43219 OR BY TELEPHONE AT 1-800-743-8637.
<PAGE>
APPENDIX I
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this day 1st of August, 1997, between QUALIVEST FUNDS (the
"Trust"), a Massachusetts business trust having its principal place of business
at 3435 Stelzer Road, Columbus, Ohio 43219-3035, and FIRST BANK NATIONAL
ASSOCIATION (the "Investment Adviser"), a national banking association, having
its principal place of business at First Bank Place, 601 Second Avenue South,
Minneapolis, Minnesota 55402.
WHEREAS, the Trust is registered as an open-end, management investment company
under the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Trust desires to retain the Investment Adviser to furnish
investment advisory and administrative services to newly created investment
portfolios of the Trust and may retain the Investment Adviser to serve in such
capacity with respect to certain additional investment portfolios of the Trust,
all as now or hereafter may be identified in Schedule A hereto as such Schedule
may be amended from time to time (individually referred to herein as a "Fund"
and collectively referred to herein as the "Funds") and the Investment Adviser
represents that it is willing and possesses legal authority to so furnish such
services without violation of applicable laws and regulations;
NOW, THEREFORE, in consideration of the premises and mutual covenants herein
contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Trust hereby appoints the Investment Adviser to act as
investment adviser to the Funds for the period and on the terms set forth in
this Agreement. The Investment Adviser accepts such appointment and agrees to
furnish the services herein set forth for the compensation herein provided.
Additional investment portfolios may from time to time be added to those covered
by this Agreement by the parties executing a new Schedule A which shall become
effective upon its execution and shall supersede any Schedule A having an
earlier date.
2. DELIVERY OF DOCUMENTS. The Trust has furnished the Investment Adviser with
copies properly certified or authenticated of each of the following:
(a) the Trust's Agreement and Declaration of Trust, dated as of May 19,
1994, and any and all amendments thereto or restatements thereof (such
Declaration, as presently in effect and as it shall from time to time
be amended or restated, is herein called the "Declaration of Trust");
(b) the Trust's By-Laws and any amendments thereto;
(c) resolutions of the Trust's Board of Trustees authorizing the
appointment of the Investment Adviser and approving this Agreement;
(d) the Trust's Notification of Registration on Form N-8A under the 1940
Act as filed with the Securities and Exchange Commission (the
"Commission") on May 20, 1994, and all amendments thereto;
(e) the Trust's Registration Statement on Form N-1A under the Securities
Act of 1933, as amended (the "1933 Act"), and under the 1940 Act as
filed with the Commission and all amendments thereto (the
"Registration Statement"); and
(f) the most recent Prospectus and Statement of Additional Information of
each of the Funds (such Prospectus and Statement of Additional
Information, as presently in effect, and all amendments and
supplements thereto, are herein collectively called the "Prospectus").
The Trust will furnish the Investment Adviser from time to time with copies of
all amendments of or supplements to the foregoing.
3. MANAGEMENT. Subject to the supervision of the Trust's Board of Trustees, the
Investment Adviser will provide a continuous investment program for the Funds,
including investment research and management with respect to all securities and
investments and cash equivalents in the Funds. The Investment Adviser will
determine from time to time what securities and other investments will be
<PAGE>
purchased, retained or sold by the Trust with respect to the Funds. The
Investment Adviser will provide the services under this Agreement in accordance
with each of the Fund's investment objectives, policies, and restrictions as
stated in the Prospectus and resolutions of the Trust's Board of Trustees. The
Investment Adviser further agrees that it:
(a) will use the same skill and care in providing such services as it
uses in providing services to fiduciary accounts for which it has
investment responsibilities;
(b) will conform with all applicable Rules and Regulations of the
Commission under the 1940 Act and in addition will conduct its
activities under this Agreement in accordance with any applicable
regulations of any governmental authority pertaining to the
investment advisory activities of the Investment Adviser;
(c) will not make loans to any person to purchase or carry units of
beneficial interest ("shares") in the Trust or make loans to the
Trust;
(d) will place or cause to be placed orders for the Funds either
directly with the issuer or with any broker or dealer. In placing
orders with brokers and dealers, the Investment Adviser will
attempt to obtain prompt execution of orders in an effective
manner at the most favorable price. Consistent with this
obligation and to the extent permitted by the 1940 Act, when the
execution and price offered by two or more brokers or dealers are
comparable, the Investment Adviser may, in its discretion,
purchase and sell portfolio securities to and from brokers and
dealers who provide the Investment Adviser with research advice
and other services. In no instance will portfolio securities be
purchased from or sold to BISYS Fund Services, the Investment
Adviser, or any affiliated person of the Trust, BISYS Fund
Services or the Investment Adviser, except to the extent
permitted by the 1940 Act and the Commission;
(e) will maintain all books and records with respect to the
securities transactions of the Funds and will furnish the Trust's
Board of Trustees with such periodic and special reports as the
Board may request;
(f) will treat confidentially and as proprietary information of the
Trust all records and other information relative to the Trust and
the Funds and prior, present or potential shareholders, and will
not use such records and information for any purpose other than
performance of its responsibilities and duties hereunder, except
after prior notification to and approval in writing by the Trust,
which approval shall not be unreasonably withheld and may not be
withheld where the Investment Adviser may be exposed to civil or
criminal contempt proceedings for failure to comply, when
requested to divulge such information by duly constituted
authorities, or when so requested by the Trust;
(g) will maintain its policy and practice of conducting its fiduciary
functions independently. In making investment recommendations for
the Funds, the Investment Adviser's personnel will not inquire or
take into consideration whether the issuers of securities
proposed for purchase or sale for the Trust's account are
customers of the Investment Adviser or of its parent or its
subsidiaries or affiliates. In dealing with such customers, the
Investment Adviser and its parent, subsidiaries, and affiliates
will not inquire or take into consideration whether securities of
those customers are held by the Trust;
(h) will promptly review all (1) current security reports, (2)
summary reports of transactions and (3) current cash position
reports upon receipt thereof from the Trust and will report any
errors or discrepancies in such reports to the Trust or its
designee within three (3) business days; and
(i) will use its best efforts to obtain and provide to the Trust's
fund accountant (1) dealer quotations, (2) prices from a pricing
service, (3) matrix prices, or (4) any other price information
believed to be reliable by the Investment Adviser with respect to
any security held by a Fund, when requested to do so by the
Trust's fund accountant.
4. SERVICES NOT EXCLUSIVE. The investment management services furnished by the
Investment Adviser hereunder are not to be deemed exclusive, and the Investment
Adviser shall be free to furnish similar services to others so long as its
services under this Agreement are not impaired thereby.
5. BOOKS AND RECORDS. In compliance with the requirements of Rule 31a-3 under
the 1940 Act, the Investment Adviser hereby agrees that all records which it
maintains for the Funds are the property of the Trust and further agrees to
surrender promptly to the Trust any of such records upon the Trust's
<PAGE>
request. The Investment Adviser further agrees to preserve for the periods
prescribed by Rule 31a-2 under the 1940 Act the following records: (a) completed
trade tickets for all portfolio transactions, (b) broker confirmations for
individual and block trades, (c) credit files relating to (i) money market
securities and their issuers, (ii) repurchase agreement counterparties and (iii)
letter of credit providers, (d) transaction records indicating the method of
allocation with respect to the selection of brokers, and (e) such other records
that may be deemed necessary and appropriate by the parties to this Agreement.
6. EXPENSES. During the term of this Agreement, the Investment Adviser will
pay all expenses incurred by it in connection with its activities under this
Agreement other than the cost of securities (including brokerage commissions,
if any) purchased for the Funds.
7. COMPENSATION. For the services provided and the expenses assumed pursuant to
this Agreement, each of the Funds will pay the Investment Adviser and the
Investment Adviser will accept as full compensation therefor a fee as set forth
on Schedule A hereto. The obligation of each Fund to pay the above-described fee
to the Adviser will begin as of the date of the initial public sale of shares in
such Fund. The fee attributable to each Fund shall be the obligation of that
Fund and not of any other Fund.
Pursuant to the terms of an order of exemption granted by the Commission in
QUALIVEST FUNDS, ET AL., Investment Company Act Rel. No. 22771 (July 29, 1997),
all fees payable under this Agreement by any Fund shall be payable to an
independent escrow agent to be maintained in an interest-bearing escrow account
until this Agreement is approved by shareholders in accordance with the
provisions of Section 9 of this Agreement. If shareholders of any Fund fail to
approve this Agreement, the escrow agent will pay to the Fund the applicable
escrow amounts (including interest earned). The escrow agent will release the
escrow funds only upon receipt of a certificate from officers of the Trust
stating whether the escrowed funds are to be delivered to the Investment Adviser
or to the Fund.
If in any fiscal year the aggregate expenses of any of the Funds (as defined
under the securities regulations of any state having jurisdiction over the
Trust) exceed the expense limitations of any such state, the Investment Adviser
will reimburse the Fund for a portion of such excess expenses equal to such
excess times the ratio of the fees otherwise payable by the Fund to the
Investment Adviser hereunder to the aggregate fees otherwise payable by the Fund
to the Investment Adviser hereunder and to BISYS Fund Services under the
Management and Administration Agreement between BISYS Fund Services and the
Trust. The obligation of the Investment Adviser to reimburse the Funds hereunder
is limited in any fiscal year to the amount of its fee hereunder for such fiscal
year, provided, however, that notwithstanding the foregoing, the Investment
Adviser shall reimburse the Funds for such proportion of such excess expenses
regardless of the amount of fees paid to it during such fiscal year to the
extent that the securities regulations of any state having jurisdiction over the
Trust so require. Such expense reimbursement, if any, will be estimated daily
and reconciled and paid on a monthly basis.
8. LIMITATION OF LIABILITY. The Investment Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Funds in
connection with the performance of this Agreement, except a loss resulting from
a breach of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Investment Adviser in the performance of its
duties or from reckless disregard by it of its obligations and duties under this
Agreement. It is further agreed that the Investment Adviser shall have no
responsibility or liability for the accuracy or completeness of the Trust's
Registration Statement under the 1940 Act and the 1933 Act, except for
information supplied by the Investment Adviser for inclusion therein or
information known by the Investment Adviser to be false or misleading. The Trust
agrees to indemnify the Investment Adviser to the full extent permitted by the
Trust's Declaration of Trust.
9. DURATION AND TERMINATION. This Agreement will become effective with respect
to each Fund listed on Schedule A as of the date first written above (or, if a
particular Fund is not in existence on that date, on the date a registration
statement relating to that Fund becomes effective with the Commission), and,
unless sooner terminated as provided herein, shall continue in effect for an
initial period of 120 days, provided that this Agreement is approved by a
majority of the outstanding voting securities of the applicable Fund.
Thereafter, if not terminated, this Agreement shall continue in effect as to a
particular Fund for successive one-year terms, only so long as such continuance
is specifically approved at least
<PAGE>
annually (a) by the vote of a majority of those members of the Trust's Board of
Trustees who are not parties to this Agreement or interested persons of any
party to this Agreement, cast in person at a meeting called for the purpose of
voting on such approval, and (b) by the vote of a majority of the Trust's Board
of Trustees or by the vote of a majority of all votes attributable to the
outstanding shares of such Fund. Notwithstanding the foregoing, this Agreement
may be terminated as to a particular Fund at any time on sixty days' written
notice, without the payment of any penalty, by the Trust (by vote of the Trust's
Board of Trustees or by vote of a majority of the outstanding voting securities
of such Fund) or by the Investment Adviser. This Agreement will immediately
terminate in the event of its assignment. (As used in this Agreement, the terms
"majority of the outstanding voting securities", "interested persons" and
"assignment" shall have the same meanings as ascribed to such terms in the 1940
Act.)
10. INVESTMENT ADVISER'S REPRESENTATIONS. The Investment Adviser hereby
represents and warrants that it is willing and possesses all requisite legal
authority to provide the services contemplated by this Agreement without
violation of applicable laws and regulations.
11. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument
in writing signed by the party against which enforcement of the change,
waiver, discharge or termination is sought.
12. GOVERNING LAW. This Agreement shall be governed by and its provisions
shall be construed in accordance with the laws of the Commonwealth of
Massachusetts.
13. MISCELLANEOUS. It is expressly agreed that the obligations of the Trust
hereunder shall not be binding upon any of the Trustees, shareholders, nominees,
officers, agents or employees of the Trust personally, but shall bind only the
trust property of the Trust. The execution and delivery of this Agreement have
been authorized by the Trustees, and this Agreement has been signed and
delivered by an authorized officer of the Trust, acting as such, and neither
such authorization by the Trustees nor such execution and delivery by such
officer shall be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but shall bind only the trust
property of the Trust as provided in the Trust's Agreement and Declaration of
Trust.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
[SEAL] QUALIVEST FUNDS
By: /s/ Irimga McKay
------------------------------
Title: Chairman
---------------------------
[SEAL] FIRST BANK NATIONAL ASSOCIATION
By: /s/ Jeffrey M. Wilson
------------------------------
Title: Vice President
---------------------------
<PAGE>
Dated: August 1, 1997
SCHEDULE A
TO THE INVESTMENT ADVISORY AGREEMENT
BETWEEN QUALIVEST FUNDS AND
FIRST BANK NATIONAL ASSOCIATION
<TABLE>
<CAPTION>
NAME OF FUND COMPENSATION
<S> <C>
1. Qualivest U.S. Treasury Money Market Fund Annual rate of thirty five one-hundredths of one percent
(.35%) of the average daily net assets of such Fund.
2. Qualivest Money Market Fund Annual rate of thirty five one-hundredths of one percent
(.35%) of the average daily net assets of such Fund.
3. Qualivest Tax-Free Money Market Fund Annual rate of thirty five one-hundredths of one percent
(.35%) of the average daily net assets of such Fund.
4. Qualivest Intermediate Bond Fund Annual rate of sixty one-hundredths of one percent (.60%)
of the average daily net assets of such Fund.
5. Qualivest Diversified Bond Fund Annual rate of sixty one-hundredths of one percent (.60%)
of the average daily net assets of such Fund.
6. Qualivest Tax-Free National Bond Fund Annual rate of fifty-one hundredths of one percent (.50%)
of the average daily net assets of such Fund.
7. Qualivest Large Companies Growth Fund Annual rate of one percent (1.00%) of the average daily
net assets of such Fund.
8. Qualivest Micro Cap Value Fund Annual rate of one percent (1.00%) of the average daily
net assets of such Fund.
9. Qualivest Small Companies Value Fund Annual rate of eighty one-hundredths of one percent (.80%)
of the average daily net assets of such Fund.
10. Qualivest Large Companies Value Fund Annual rate of seventy five one-hundredths of one percent (.75%)
of the average daily net assets of such Fund.
11. Qualivest Income Equity Value Fund Annual rate of sixty one-hundredths of one percent (60%)
of the average daily net assets of such Fund.
12. Qualivest International Opportunities Fund Annual rate of sixty one-hundredths of one percent (.60%)
of the average daily net assets of such Fund.
<PAGE>
NAME OF FUND COMPENSATION
13. Qualivest Optimized Stock Fund Annual rate of fifty one-hundredths of one percent (.50%)
of the average daily net assets of such Fund.
14. Qualivest Allocated Conservative Fund Annual rate of five one-hundredths of one percent (.05%)
of the average daily net assets of such Fund.
15. Qualivest Allocated Balanced Fund Annual rate of five one-hundredths of one percent (.05%)
of the average daily net assets of such Fund.
16. Qualivest Allocated Growth Fund Annual rate of five one-hundredths of one percent (.05%)
of the average daily net assets of such Fund.
17. Qualivest Allocated Aggressive Fund Annual rate of five one-hundredths of one percent (.05%)
of the average daily net assets of such Fund.
</TABLE>
All fees are computed daily and paid monthly.
QUALIVEST FUNDS
By: /s/ Irimga McKay
------------------------------
Name: Irimga McKay
---------------------------
Title: Senior Vice President
---------------------------
FIRST BANK NATIONAL ASSOCIATION
By: /s/ Jeffrey M. Wilson
------------------------------
Name: Jeffrey M. Wilson
---------------------------
Title: Vice President
---------------------------
<PAGE>
APPENDIX II
PRINCIPAL EXECUTIVE OFFICER AND DIRECTORS OF
FIRST BANK NATIONAL ASSOCIATION
The directors and the principal executive officer of FBNA are listed below,
together with their addresses and principal occupations.
<TABLE>
<CAPTION>
OTHER POSITIONS AND OFFICES
NAME POSITIONS AND OFFICES WITH FBNA AND PRINCIPAL BUSINESS ADDRESS
<S> <C> <C>
John F. Grundhofer Chairman, President and Chief Executive President and Chief Executive
Officer Officer of U.S. Bancorp*
Richard A. Zona Director and Vice Chairman--Finance Vice Chairman Finance of U.S. Bancorp*
Philip G. Heasley Director and Vice Chairman Vice Chairman and Group Head of the
Retail Product Group of U.S. Bancorp*
J. Robert Hoffman Director, Executive Vice President and Executive Vice President and Chief
Chief Credit Officer Credit Officer of U.S. Bancorp*
Lee R. Mitau Director, Executive Vice President, Executive Vice President, General
General Counsel and Secretary Counsel and Secretary of U.S. Bancorp*
Susan E. Lester Director, Executive Vice President and Executive Vice President and Chief
Chief Financial Officer Financial Officer of U.S. Bancorp*
Robert D. Sznewajs Director and Vice Chairman Vice Chairman of U.S. Bancorp*
Gary T. Duim Director and Vice Chairman Vice Chairman of U.S. Bancorp*
</TABLE>
* Address: 601 Second Avenue South, Minneapolis, Minnesota 55402.
<PAGE>
APPENDIX III
AGREEMENT AND PLAN OF REORGANIZATION
BY AND BETWEEN
FIRST AMERICAN FUNDS, INC.
AND
QUALIVEST FUNDS
DATED: AS OF , 1997
TABLE OF CONTENTS
SECTION PAGE
1. CONVEYANCE OF ASSETS OF QUALIVEST FUNDS ......................... 2
2. LIQUIDATION OF QUALIVEST FUNDS .................................. 3
3. EFFECTIVE TIME OF THE REORGANIZATION ............................ 3
4. CERTAIN REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF
QUALIVEST ...................................................... 4
5. CERTAIN REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF FAF ....... 6
6. SHAREHOLDER ACTION .............................................. 8
7. REGULATORY FILINGS .............................................. 8
8. FAF CONDITIONS .................................................. 8
9. QUALIVEST CONDITIONS ............................................ 11
10. FURTHER ASSURANCES .............................................. 12
11. INDEMNIFICATION ................................................. 12
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES ...................... 12
13. TERMINATION OF AGREEMENT ........................................ 12
14. AMENDMENT AND WAIVER ............................................ 12
15. GOVERNING LAW ................................................... 13
16. SUCCESSORS AND ASSIGNS .......................................... 13
17. BENEFICIARIES ................................................... 13
18. BROKERAGE FEES AND EXPENSES ..................................... 13
19. QUALIVEST LIABILITY ............................................. 13
20. NOTICES ......................................................... 13
21. ANNOUNCEMENTS ................................................... 14
22. ENTIRE AGREEMENT ................................................ 14
23. COUNTERPARTS ....................................................
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of this
day of _______ , 1997 by and between Qualivest Funds ("Qualivest"), a
Massachusetts business trust consisting of multiple investment portfolios
including, among others, Money Market Fund, U. S. Treasury Money Market Fund and
Tax-Free Money Market Fund (the "Qualivest Funds") and First American Funds,
Inc. ("FAF"), a Minnesota corporation consisting of multiple investment
portfolios including, among others, Prime Obligations Fund, Treasury Obligations
Fund, and Tax Free Obligations Fund (the "FAF Funds").
WHEREAS, each of Qualivest and FAF is an open-end management investment company
registered with the Securities and Exchange Commission (the "SEC") under the
Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the parties desire that the assets and liabilities of each Qualivest
Fund be conveyed to, and be acquired and assumed by, the respective FAF Fund
corresponding thereto, as stated herein, in exchange for shares of specified
classes of the corresponding FAF Fund which shall thereafter promptly be
distributed by Qualivest to the shareholders of the corresponding classes of the
Qualivest Fund in connection with its liquidation as described in this Agreement
(the "Reorganization");
<PAGE>
WHEREAS, the parties intend that FAF Tax Free Obligations Fund shall have
nominal assets and liabilities before the Reorganization and shall continue the
investment operations of the corresponding Qualivest Tax Free Money Market Fund
thereafter, and that in this regard certain actions shall be taken as described
in this Agreement;
WHEREAS, FAF also maintains one additional investment portfolio, the Government
Obligations Fund, that is not a party to the Reorganization; and
WHEREAS, Qualivest also maintains ten additional investment portfolios that have
commenced operations -- Small Companies Value Fund, Large Companies Value Fund,
Optimized Stock Fund, Intermediate Bond Fund, Diversified Bond Fund,
International Opportunities Fund, Allocated Conservative Fund, Allocated
Balanced Fund, Allocated Growth Fund and Allocated Aggressive Fund -- that are
not parties to the Reorganization but that are being reorganized into series of
First American Investment Funds, Inc. or First American Strategy Funds, Inc.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth and subject to the terms and conditions hereof, the
parties hereto, intending to be legally bound, agree as follows:
1. CONVEYANCE OF ASSETS OF QUALIVEST FUNDS. (a) At the Effective Time of the
Reorganization, as defined in Section 3, all assets of every kind, and all
interests, rights, privileges and powers of each of the Qualivest Funds, subject
to all liabilities of such Portfolios, whether accrued, absolute, contingent or
otherwise existing as of the Effective Time of the Reorganization, which
liabilities shall include any obligation of the Qualivest Funds to indemnify
Qualivest's trustees and officers acting in their capacities as such to the
fullest extent permitted by law and Qualivest's Declaration of Trust as in
effect on the date hereof (such assets subject to such liabilities are herein
referred to as the "Fund Assets"), shall be transferred and conveyed by each
Qualivest Fund to the corresponding FAF Fund (as set forth below) and shall be
accepted and assumed by such FAF Fund as more particularly set forth in this
Agreement, such that at and after the Effective Time of the Reorganization: (i)
all assets of the Qualivest Funds shall become and be the assets of the
respective corresponding FAF Funds; and (ii) all liabilities of the Qualivest
Funds shall attach to the respective corresponding FAF Funds as aforesaid and
may thenceforth be enforced against the respective FAF Funds to the same extent
as if incurred by them.
(b) Without limiting the generality of the foregoing, it is understood that the
Fund Assets shall include all property and assets of any nature whatsoever,
including, without limitation, all cash, cash equivalents, securities, claims
(whether absolute or contingent, known or unknown, accrued or unaccrued) and
receivables (including dividend and interest receivables) owned by each
Qualivest Fund, and any deferred or prepaid expenses shown as an asset on each
Qualivest Fund's books, at the Effective Time of the Reorganization, and all
goodwill, all other intangible property and all books and records belonging to
the Qualivest Funds. Notwithstanding anything herein to the contrary, FAF shall
not be deemed to have assumed any liability of Qualivest to FAF that arises as a
result of the breach of any of the representations, warranties and agreements of
Qualivest set forth in Section 4, hereof.
(c) In particular, the Fund Assets of each Qualivest Fund shall be transferred
and conveyed to the corresponding FAF Fund, as set forth below:
QUALIVEST FUND CORRESPONDING FAF FUND
Money Market Fund Prime Obligations Fund
U. S. Treasury Money Market Fund Treasury Obligations Fund
Tax-Free Money Market Fund Tax Free Obligations Fund*
* The FAF Fund shall be a new investment portfolio with nominal assets and
liabilities prior to the Effective Time of the Reorganization.
(d) In exchange for the transfer of the Fund Assets, each FAF Fund shall
simultaneously issue to each corresponding Qualivest Fund at the Effective Time
of the Reorganization full and fractional shares of common stock in the FAF Fund
of the classes set forth in the table below having an aggregate net asset value
equal to the net value of the Fund Assets so conveyed, all determined and
adjusted as provided in this Section 1. In particular, each FAF Fund shall
deliver to the corresponding Qualivest
<PAGE>
Fund the number of shares of each of its share classes set forth in the table,
including fractional shares, determined by dividing the value of the Fund Assets
of the corresponding Qualivest Fund that are so conveyed and are attributable to
each of the FAF Fund's respective share classes set forth in the table, computed
in the manner and as of the time and date set forth in this Section, by the net
asset value of one FAF Fund share of the particular share class that is to be
delivered with respect thereto, computed in the manner and as of the time and
date set forth in this Section.
(e) The net asset value of shares to be delivered by the FAF Funds, and the net
value of the Fund Assets to be conveyed by the Qualivest Funds, shall, in each
case, be determined as of the Effective Time of the Reorganization. The net
asset value of shares of the FAF Funds shall be based on the amortized cost
valuation procedures that have been adopted by the Board of Trustees of
Qualivest; provided that if the difference between the per share net asset
values of a Qualivest Fund and its corresponding FAF Fund equals or exceeds
$.0025 at the Valuation Time, as computed by using market values in accordance
with the policies and procedures established by FAF (or as otherwise mutually
determined by the Board of Trustees of Qualivest and the Board of Directors of
FAF), either party shall have the right to postpone the Effective Time of the
Reorganization with respect to such Qualivest Fund until such time as the per
share difference is less than $.0025.
(f) The shares of each FAF Fund that will be delivered in the Reorganization are
as follows:
QUALIVEST CORRESPONDING FAF
PORTFOLIO/SHARE CLASS FUND/SHARE CLASS
Money Market Fund -- Prime Obligations Fund --
Class A Shares Class A Shares
Class Q Shares Class C Shares
Class Y Shares Class C Shares
U. S. Treasury Money Market Fund -- Treasury Obligations Fund --
Class A Shares Class A Shares
Class Q Shares Class C Shares
Class Y Shares Class C Shares
Tax-Free Money Market Fund -- Tax Free Obligations Fund --
Class A Shares Class A Shares
Class Q Shares Class C Shares
Class Y Shares Class C Shares
2. LIQUIDATION OF QUALIVEST FUNDS. At the Effective Time of the Reorganization,
each of the Qualivest Funds shall make a liquidating distribution to its
shareholders as follows. Shareholders of record of each Qualivest Fund shall be
credited with full and fractional shares of the class of common stock that is
issued by the corresponding FAF Fund in connection with the Reorganization with
respect to the shares that are held of record by the shareholder. In addition,
each shareholder of record of a Qualivest Fund shall have the right to receive
any unpaid dividends or other distributions which were declared before the
Effective Time of the Reorganization with respect to the shares of such
Qualivest Fund that are held by the shareholder at the Effective Time of the
Reorganization. In accordance with instructions it receives from Qualivest, FAF
shall record on its books the ownership of the respective FAF Fund shares by the
shareholders of record of the Qualivest Funds. All of the issued and outstanding
shares of the Qualivest Funds at the Effective Time of the Reorganization shall
be redeemed and canceled on the books of Qualivest at such time. After the
Effective Time of the Reorganization, Qualivest shall wind up the affairs of the
Qualivest Funds and shall file any final regulatory reports, including but not
limited to any Form N-SAR and Rule 24f-2 filings with respect to the Qualivest
Funds and, assuming the ten other investment portfolios of Qualivest have been
reorganized into series of First American Investment Funds, Inc. or First
American Strategy Funds, Inc., an application pursuant to Section 8(f) of the
1940 Act for an order declaring that Qualivest has ceased to be an investment
company.
3. EFFECTIVE TIME OF THE REORGANIZATION. (a) Delivery of the Fund Assets and the
shares of the FAF Funds to be issued pursuant to Section 1 and the liquidation
of the Qualivest Funds pursuant to Section 2 (the "Closing") shall occur as of
the close of normal trading on the New York Stock Exchange
<PAGE>
(the "Exchange") (currently, 4:00 p.m. Eastern time), and after the declaration
of any dividends or distributions on such date, on November 28, 1997, or at such
time on such later date as provided herein or as the parties otherwise may agree
in writing. (The date and time at which such actions are taken are referred to
herein as the "Effective Time of the Reorganization.") To the extent any Fund
Assets are, for any reason, not transferred at the Effective Time of the
Reorganization, Qualivest shall cause such Fund Assets to be transferred in
accordance with this Agreement at the earliest practicable date thereafter. All
acts taking place at the Closing shall be deemed to take place simultaneously as
of the Effective Time of the Reorganization unless otherwise agreed to by the
parties. The Closing shall be held at the offices of Dorsey & Whitney LLP, 220
South Sixth Street, Minneapolis, Minnesota 55402, or at such other place as the
parties may agree.
(b) In the event the Effective Time of the Reorganization occurs on a day on
which (i) the Exchange or another primary trading market for portfolio
securities of the FAF Funds or the Qualivest Funds shall be closed to trading or
trading thereon shall be restricted, or (ii) trading or the reporting of trading
on the Exchange or elsewhere shall be disrupted so that accurate appraisal of
the value of the net assets of the FAF Funds or the Qualivest Funds is
impracticable, the Effective Time of the Reorganization shall be postponed until
the close of normal trading on the Exchange on the first business day when
trading shall have been fully resumed and reporting shall have been restored.
4. CERTAIN REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF QUALIVEST. Qualivest,
on behalf of itself and the Qualivest Funds, represents and warrants to, and
agrees with, FAF as follows, such representations, warranties and agreements
being made on behalf of each Qualivest Fund on a several (and not joint, or
joint and several) basis:
(a) It is a Massachusetts business trust duly created pursuant to its
Declaration of Trust for the purpose of acting as a management investment
company under the 1940 Act, and is validly existing under the laws of the
Commonwealth of Massachusetts. It is registered as an open-end management
investment company under the 1940 Act, and its registration with the SEC as
an investment company is in full force and effect.
(b) It has the power to own all of its properties and assets and,
subject to the approvals of shareholders referred to in Section 6, to carry
out and consummate the transactions contemplated herein, and has all
necessary federal, state and local authorizations to carry on its business
as now being conducted and, except as stated in Section 4(j), below, to
consummate the transactions contemplated by this Agreement.
(c) This Agreement has been duly authorized, executed and delivered by
it, and represents a valid and binding contract, enforceable in accordance
with its terms, subject as to enforcement to bankruptcy, insolvency,
reorganization, moratorium or other similar laws of general application
relating to or affecting creditors' rights and to the application of general
principles of equity. The execution and delivery of this Agreement does not,
and, subject to the approval of shareholders referred to in Section 6, the
consummation of the transactions contemplated by this Agreement will not,
violate Qualivest's Declaration of Trust or By-Laws or any agreement or
arrangement to which it is a party or by which it is bound.
(d) Each Qualivest Fund has elected to qualify and has qualified as a
regulated investment company under Part I of Subchapter M of Subtitle A,
Chapter 1, of the Internal Revenue Code of 1986, as amended (the "Code"), as
of and since its first taxable year; has been a regulated investment company
under such Part of the Code at all times since the end of its first taxable
year when it so qualified; and qualifies and shall continue to qualify as a
regulated investment company for its taxable year ending upon its
liquidation.
(e) The audited financial statements for its fiscal year ended July 31,
1996, and the unaudited financial statements for the period ended January
31, 1997, copies of which have been previously furnished to FAF, present
fairly the financial position of the Qualivest Funds as of such dates and
the results of their operations and changes in their net assets for the
periods indicated, in conformity with generally accepted accounting
principles applied on a consistent basis. To the best of Qualivest's
knowledge, there are no liabilities of a material amount of any Qualivest
Fund, whether accrued, absolute, contingent or otherwise existing, other
than: (i) as of January 31, 1997, liabilities
<PAGE>
disclosed or provided for in the unaudited financial statements for the
period ended January 31, 1997 and liabilities incurred in the ordinary
course of business subsequent to January 31, 1997 and (ii) as of the
Effective Time of the Reorganization, liabilities disclosed or provided for
in the statement of assets and liabilities of each Qualivest Fund that is
delivered to FAF pursuant to Section 8(b) of this Agreement and liabilities
incurred in the ordinary course of business.
(f) Since the end of its most recently concluded fiscal year, there have
been no material changes by any Qualivest Fund in accounting methods,
principles or practices, including those required by generally accepted
accounting principles, except as disclosed in writing to FAF.
(g) It has valued, and will continue to value, its portfolio securities
and other assets in accordance with applicable legal requirements.
(h) There are no material legal, administrative or other proceedings
pending or, to its knowledge, threatened, against it or the Qualivest Funds
which could result in liability on the part of Qualivest or the Qualivest
Funds and Qualivest knows of no facts that might form the basis of a legal,
administrative or other proceeding which, if adversely determined, would
materially and adversely affect any Qualivest Fund's financial condition or
the conduct of its business and Qualivest is not a party to or subject to
the provisions of any order, decree or judgment of any court or governmental
body that materially and adversely affects, or is reasonably likely to
materially and adversely affect, its business or its ability to consummate
the transactions contemplated herein.
(i) At the Effective Time of the Reorganization, all federal and other
tax returns and reports of each Qualivest Fund required by law to have been
filed by such time shall have been filed, and all federal and other taxes
shall have been paid so far as due, or provision shall have been made for
the payment thereof and, to the best of Qualivest's knowledge, no such
return or report shall be currently under audit and no assessment shall have
been asserted with respect to such returns or reports.
(j) Subject to the approvals of shareholders referred to in Section 6, at
the Effective Time of the Reorganization, it shall have full right, power
and authority to sell, assign, transfer and deliver the Fund Assets and,
upon delivery and payment for the Fund Assets as contemplated herein, the
FAF Funds shall acquire good and marketable title thereto, subject to no
restrictions on the ownership or transfer thereof, except as imposed by
federal or state securities laws or as disclosed to FAF in writing prior to
the Effective Time of the Reorganization.
(k) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by it of the
transactions contemplated by this Agreement, except such as may be
required under the Securities Act of 1933, as amended (the "1933 Act"), the
Securities Exchange Act of 1934, as amended (the "1934 Act"), the 1940 Act,
the rules and regulations under those Acts, or state securities laws, all of
which shall have been received prior to the Effective Time of the
Reorganization, except for such consents, approvals, authorizations or
orders as may be required subsequent to the Effective Time of the
Reorganization.
(l) Insofar as the following relate to it, (i) the registration statement
filed by FAF on Form N-14 relating to the shares of the FAF Funds that will
be registered with the SEC pursuant to this Agreement, which shall include
or incorporate by reference the proxy statement of the Qualivest Funds and
prospectuses of the FAF Funds with respect to the transactions contemplated
by this Agreement, and any supplement or amendment thereto or to the
documents contained or incorporated therein by reference (the "N-14
Registration Statement"), and (ii) the proxy materials of Qualivest included
in the N-14 Registration Statement and filed with the SEC pursuant to
Section 14(a) of the 1934 Act and Section 20(a) of the 1940 Act with respect
to the transactions contemplated by this Agreement, and any supplement or
amendment thereto or the documents appended thereto (the "Reorganization
Proxy Materials"), from their respective effective and clearance dates with
the SEC, through the time of the shareholders meeting referred to in Section
6 and at the Effective Time of the Reorganization: (i) shall comply in all
material respects with the provisions of the 1933 Act, 1934 Act and the 1940
Act, and the rules and regulations thereunder, and (ii) shall not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading; provided, that the
<PAGE>
representations and warranties made by it in this subsection shall not apply
to statements in or omissions from the N-14 Registration Statement or the
Reorganization Proxy Materials made in reliance upon and in conformity with
information furnished by or on behalf of FAF for use therein as provided in
Section 7. For these purposes, information shall be considered to have been
provided "on behalf" of FAF if furnished by its investment adviser,
administrator, custodian or transfer agent, acting in their capacity as
such.
(m) All of the issued and outstanding shares of each of the Qualivest
Funds have been validly issued and are fully paid and non-assessable
(recognizing that, under Massachusetts law, shareholders of the Qualivest
Funds could, under certain circumstances, be held personally liable for
obligations of Qualivest), and were offered for sale and sold in conformity
with the registration requirements of all applicable federal and state
securities laws.
(n) It shall not sell or otherwise dispose of any shares of the FAF Funds
to be received in the transactions contemplated herein, except in
distribution to its shareholders as contemplated herein.
(o) It shall operate its business in the ordinary course between the date
hereof and the Effective Time of the Reorganization. It is understood that
such ordinary course of business will include the declaration and payment of
customary dividends and distributions and any other dividends and
distributions deemed advisable.
(p) Any reporting responsibility of a Qualivest Fund is and shall remain
the responsibility of the Qualivest Fund for all periods before and
including the Effective Time of the Reorganization and such later date on
which the Qualivest Fund is terminated.
(q) Except for agreements or other arrangements relating to the purchase
and sale of portfolio securities, it has furnished FAF with copies or
descriptions of all contracts to which it is a party.
(r) Each Qualivest Fund shall provide a list of all portfolio securities
held by it to FAF at least fifteen days before the Effective Time of the
Reorganization and shall immediately notify FAF's investment adviser of any
portfolio security thereafter acquired or sold by the Qualivest Fund. At the
Effective Time of the Reorganization, no Qualivest Fund shall hold any
portfolio security that is impermissible under the investment policies,
objectives and limitations of the corresponding FAF Fund.
5. CERTAIN REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF FAF. FAF, on behalf of
the FAF Funds, represents and warrants to, and agrees with, Qualivest as
follows, such representations, warranties and agreements being made on behalf of
each FAF Fund on a several (and not joint, or joint and several) basis:
(a) It is a Minnesota corporation duly created pursuant to its Articles
of Incorporation for the purpose of acting as a management investment
company under the 1940 Act, and is validly existing under the laws of the
State of Minnesota and its registration with the SEC as an investment
company is in full force and effect.
(b) It has the power to own all of its properties and assets and to
consummate the transactions contemplated herein, and has all necessary
federal, state and local authorizations to carry on its business as now
being conducted and, except as stated in Section 5(j) below, to consummate
the transactions contemplated by this Agreement.
(c) This Agreement has been duly authorized, executed and delivered by
it, and represents a valid and binding contract, enforceable in accordance
with its terms, subject as to enforcement to bankruptcy, insolvency,
reorganization, moratorium or other similar laws of general application
relating to or affecting creditors' rights and to the application of general
principles of equity. The execution and delivery of this Agreement does not,
and the consummation of the transactions contemplated by this Agreement will
not, violate FAF's Articles of Incorporation or By-Laws or any agreement or
arrangement to which it is a party or by which it is bound.
(d) Each FAF Fund intends to qualify as a regulated investment company
under Part I of Subchapter M of the Code, and with respect to each FAF Fund
that has conducted operations prior to the Effective Time of the
Reorganization, has elected to qualify and has qualified as a regulated
<PAGE>
investment company under Part I of Subchapter M of Subtitle A, Chapter 1, of
the Code, as of and since its first taxable year; has been a regulated
investment company under such Part of the Code at all times since the end of
its first taxable year when it so qualified; and qualifies and shall
continue to qualify as a regulated investment company for its current
taxable year.
(e) The audited financial statements for its fiscal year ended September
30, 1996, and the unaudited financial statements for the period ended March
31, 1997, copies of which have been previously furnished to Qualivest,
present fairly the financial position of the FAF Funds as of such dates and
the results of their operations for the periods indicated, in conformity
with generally accepted accounting principles applied on a consistent basis.
To the best of FAF's knowledge, there are no liabilities of a material
amount of any FAF Fund, whether accrued, absolute, contingent or otherwise
existing, other than, as of March 31, 1997, liabilities disclosed or
provided for in the unaudited financial statements for the period ended
March 31, 1997, and liabilities incurred in the ordinary course of business
subsequent to March 31, 1997.
(f) It has valued, and will continue to value, its portfolio securities
and other assets in accordance with applicable legal requirements.
(g) There are no material contracts outstanding with respect to the FAF
Funds that have not been disclosed in FAF's current registration statement
and which under applicable law are required to be disclosed therein.
(h) At the Effective Time of the Reorganization, all federal and other
tax returns and reports of each FAF Fund required by law to have been filed
by such time shall have been filed, and all federal and other taxes shall
have been paid so far as due, or provisions shall have been made for the
payment thereof and, to the best knowledge of each FAF Fund, no such return
or report shall be currently under audit and no assessment shall have been
asserted with respect to such returns or reports.
(i) There are no material legal, administrative or other proceedings
pending or, to its knowledge threatened, against it or the FAF Funds which
could result in liability on the part of FAF or the FAF Funds and FAF knows
of no facts that might form the basis of a legal, administrative or other
proceeding which, if adversely determined, would materially and adversely
affect any FAF Fund's financial condition or the conduct of its business and
FAF is not a party to or subject to the provisions of any order, decree or
judgment of any court or governmental body that materially and adversely
affects, or is reasonably likely to materially and adversely affect, its
business or its ability to consummate the transactions contemplated herein.
(j) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by FAF of the
transactions contemplated by this Agreement, except such as may be required
under the 1933 Act, the 1934 Act, the 1940 Act, the rules and regulations
under those Acts, or state securities laws, all of which shall have been
received prior to the Effective Time of the Reorganization, except for such
consents, approvals, authorizations or orders as may be required subsequent
to the Effective Time of the Reorganization.
(k) The N-14 Registration Statement and the Reorganization Proxy
Materials, from their respective effective and clearance dates with the SEC,
through the time of the shareholders meeting referred to in Section 6 and at
the Effective Time of the Reorganization, insofar as they relate to FAF (i)
shall comply in all material respects with the provisions of the 1933 Act,
the 1934 Act and the 1940 Act, and the rules and regulations thereunder, and
(ii) shall not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements made therein not misleading; provided, that the representations
and warranties in this subsection shall not apply to statements in or
omissions from the N-14 Registration Statement or the Reorganization Proxy
Materials made in reliance upon and in conformity with information furnished
by or on behalf of Qualivest for use therein as provided in Section 7. For
those purposes, information shall be considered to have been provided "on
behalf" of Qualivest if furnished by its investment adviser, administrator,
custodian or transfer agent, acting in their capacity as such.
<PAGE>
(l) The shares of the FAF Funds to be issued and delivered to the
Qualivest Funds for the account of the shareholders of the Qualivest Funds,
pursuant to the terms hereof, shall have been duly authorized as of the
Effective Time of the Reorganization and, when so issued and delivered,
shall be duly and validly issued, fully paid and non-assessable, and no
shareholder of FAF shall have any preemptive right of subscription or
purchase in respect thereto.
(m) All of the issued and outstanding shares of each of the FAF Funds
have been validly issued and are fully paid and non-assessable, and were
offered for sale and sold in conformity with the registration requirements
of all applicable federal and state securities laws.
(n) It shall operate its business in the ordinary course between the date
hereof and the Effective Time of the Reorganization. It is understood that
such ordinary course of business will include the declaration and payment of
customary dividends and distributions and any other dividends and
distributions deemed advisable.
6. SHAREHOLDER ACTION. As soon as practicable after the effective date of the
N-14 Registration Statement and SEC clearance of the proxy solicitation
materials referred to in Section 7, but in any event prior to the Effective Time
of the Reorganization and as a condition thereto, the Board of Trustees of
Qualivest shall call, and Qualivest shall hold, a meeting of the shareholders of
all of its investment portfolios for the purpose of considering and voting upon:
(a) in the case of all Qualivest Funds, a proposal, in connection with
the merger between U.S. Bancorp and First Bank System, Inc., to ratify and
approve investment advisory agreements, on behalf of each Qualivest Fund,
between Qualivest and First Bank National Association;
(b) in the case of all Qualivest Funds, approval of this Agreement and
the transactions contemplated hereby; and
(c) such other matters as may be determined by the Board of Trustees of
Qualivest and the Board of Directors of FAF.
7. REGULATORY FILINGS. FAF shall file a post-effective amendment (the "N-1A
Post-Effective Amendment") to its registration statement on Form N-1A (File Nos.
2-74747;811-3313) with the SEC as promptly as practicable so that all FAF Funds
and their shares are registered under the 1933 Act and 1940 Act and shall take
all required actions to qualify such shares for sale in the appropriate states.
In addition, FAF shall file an N-14 Registration Statement, which shall include
the Reorganization Proxy Materials of Qualivest, with the SEC, and with the
appropriate state securities commissions, relating to the matters described in
Section 6 as promptly as practicable. FAF and Qualivest have cooperated and
shall continue to cooperate with each other, and have furnished and shall
continue to furnish each other with the information relating to itself that is
required by the 1933 Act, the 1934 Act, the 1940 Act, and the rules and
regulations under each of those Acts, to be included in the N-1A Post-Effective
Amendment, the N-14 Registration Statement and the Reorganization Proxy
Materials.
8. FAF CONDITIONS. The obligations of FAF hereunder shall be subject to the
following conditions precedent:
(a) This Agreement and the transactions contemplated by this Agreement
(which shall not be deemed to include, for these purposes, the matters
described in Section 6(a)) shall have been approved by the Board of Trustees
of Qualivest and by the shareholders of the Qualivest Funds in the manner
required by law and this Agreement.
(b) Qualivest shall have delivered to FAF a statement of assets and
liabilities of each Qualivest Fund, together with a list of the portfolio
securities of the Qualivest Fund showing the tax costs of such securities by
lot and the holding periods of such securities, as of the Effective Time of
the Reorganization, certified by the Treasurer or Assistant Treasurer of
Qualivest as having been prepared in accordance with generally accepted
accounting principles consistently applied.
(c) Qualivest shall have duly executed and delivered to FAF such bills of
sale, assignments, certificates and other instruments of transfer ("Transfer
Documents") as FAF may deem necessary or desirable to transfer all of each
Qualivest Fund's right, title and interest in and to the Fund
<PAGE>
Assets. Such Fund Assets shall be accompanied by all necessary state stock
transfer stamps or cash for the appropriate purchase price therefor.
(d) All representations and warranties of Qualivest made in this
Agreement shall be true and correct in all material respects as if made at
and as of the Effective Time of the Reorganization.
(e) Qualivest shall have delivered to FAF a certificate executed in its
name by its President or Vice President and its Treasurer or Assistant
Treasurer, in a form reasonably satisfactory to FAF and dated as of the
Effective Time of the Reorganization, to the effect that the representations
and warranties of the Qualivest Funds made in this Agreement are true and
correct at and as of the Effective Time of the Reorganization, except as
they may be affected by the transactions contemplated by this Agreement.
(f) Qualivest shall have delivered to FAF Qualivest's written
instructions to the custodian for the Qualivest Funds, acknowledged and
agreed to in writing by such custodian, irrevocably instructing such
custodian to transfer to each FAF Fund all of the corresponding Qualivest
Fund's portfolio securities, cash and any other assets to be acquired by
such FAF Fund pursuant to this Agreement.
(g) Qualivest shall have delivered to FAF a certificate of Qualivest's
transfer agent stating that the records maintained by the transfer agent
(which shall be made available to FAF) contain the names and addresses of
the shareholders of each Qualivest Fund and the numbers and classes of the
outstanding shares of such Qualivest Fund owned by each such shareholder as
of the Effective Time of the Reorganization.
(h) At or prior to the Effective Time of the Reorganization, the expenses
incurred by each Qualivest Fund (or accrued up to the Effective Time of the
Reorganization) shall have been maintained by Qualivest Funds' investment
adviser or otherwise so as not to exceed any contractual expense limitations
or any expense limitations set forth in such Qualivest Fund's then current
prospectus.
(i) At or prior to the Effective Time of the Reorganization, appropriate
action shall have been taken by Qualivest Funds' investment adviser or
otherwise such that no unamortized organizational expenses shall be
reflected in any Qualivest Fund's statement of assets and liabilities
delivered pursuant to Section 8(b).
(j) FAF shall have received an opinion of Dechert Price & Rhoads, counsel
to Qualivest, in form reasonably satisfactory to FAF and dated the Effective
Time of the Reorganization, substantially to the effect that (i) Qualivest
is a Massachusetts business trust duly established and validly existing
under the laws of the Commonwealth of Massachusetts; (ii) this Agreement and
the Transfer Documents have been duly authorized, executed and delivered by
Qualivest and represent legal, valid and binding contracts, enforceable in
accordance with their terms, subject as to enforcement to bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance and other
similar laws of general application relating to or affecting creditors'
rights and to the application of general principles of equity; (iii) the
execution and delivery of this Agreement did not, and the consummation of
the transactions contemplated by this Agreement will not, violate the
Declaration of Trust or By-Laws of Qualivest or any material contract known
to such counsel to which Qualivest is a party or by which it is bound; (iv)
the only Qualivest shareholder approvals required with respect to the
consummation of the transactions contemplated by this Agreement are the
approval of a majority of the shareholders of each Qualivest Fund voting
separately on a portfolio-by-portfolio basis; and (v) no consent, approval,
authorization or order of any court or governmental authority is required
for the consummation by Qualivest of the transactions contemplated by this
Agreement, except such as have been obtained under the 1933 Act, the 1934
Act, the 1940 Act, the rules and regulations under those Acts and such as
may be required under the state securities laws or such as may be required
subsequent to the Effective Time of the Reorganization. Such opinion may
rely on the opinion of other counsel to the extent set forth in such
opinion, provided such other counsel is reasonably acceptable to FAF.
(k) FAF shall have received an opinion of Dorsey & Whitney LLP addressed
to FAF and Qualivest in form reasonably satisfactory to them, and dated the
Effective Time of the Reorga-
<PAGE>
nization, substantially to the effect that, for federal income tax purposes
(i) the transfer by each Qualivest Fund of all of its Fund Assets to the
corresponding FAF Fund in exchange for shares of the corresponding FAF Fund,
and the distribution of such shares to the shareholders of the Qualivest
Fund, as provided in this Agreement, will constitute a reorganization within
the meaning of Section 368(a)(1)(C), (D) or (F) of the Code; (ii) no income,
gain or loss will be recognized by the Qualivest Funds as a result of such
transactions; (iii) no income, gain or loss will be recognized by the FAF
Funds as a result of such transactions; (iv) no income, gain or loss will be
recognized by the shareholders of the Qualivest Funds on the distribution to
them by the Qualivest Funds of shares of the corresponding FAF Funds in
exchange for their shares of the Qualivest Funds (but shareholders of a
Qualivest Fund subject to taxation will recognize income upon receipt of any
net investment income or net capital gains of such Qualivest Fund which are
distributed by such Qualivest Fund prior to the Effective Time of the
Reorganization); (v) the tax basis of the FAF Fund shares received by each
shareholder of a Qualivest Fund will be the same as the tax basis of the
shareholder's Qualivest Fund shares exchanged therefor; (vi) the tax basis
of the Fund Assets received by each FAF Fund will be the same as the basis
of such Fund Assets in the hands of the corresponding Qualivest Fund
immediately prior to the transactions; (vii) a shareholder's holding period
for FAF Fund shares will be determined by including the period for which the
shareholder held the shares of the Qualivest Fund exchanged therefor,
provided that the shareholder held such shares of the Qualivest Fund as a
capital asset at the Effective Time of the Reorganization; (viii) the
holding period of each FAF Fund with respect to the Fund Assets will include
the period for which such Fund Assets were held by the corresponding
Qualivest Fund provided that the Qualivest Fund held such assets as capital
assets; and (ix) each FAF Fund will succeed to and take into account the
earnings and profits, or deficit in earnings and profits, of the
corresponding Qualivest Fund as of the Effective Time of the Reorganization.
(l) The Fund Assets to be transferred to FAF Fund under this Agreement
shall include no assets which such FAF Fund may not properly acquire
pursuant to its investment limitations or objectives or may not otherwise
lawfully acquire.
(m) The N-1A Post-Effective Amendment and the N-14 Registration Statement
shall have become effective under the 1933 Act and no stop order suspending
such effectiveness shall have been instituted or, to the knowledge of FAF,
contemplated by the SEC and the parties shall have received all permits and
other authorizations necessary under state securities laws to consummate the
transactions contemplated by this Agreement.
(n) No action, suit or other proceeding shall be threatened or pending
before any court or governmental agency in which it is sought to restrain or
prohibit or obtain damages or other relief in connection with this Agreement
or the transactions contemplated herein.
(o) The SEC shall not have issued any unfavorable advisory report under
Section 25(b) of the 1940 Act nor instituted any proceeding seeking to
enjoin consummation of the transactions contemplated by this Agreement under
Section 25(c) of the 1940 Act.
(p) Prior to the Effective Time of the Reorganization, each Qualivest
Fund shall have declared a dividend or dividends, with a record date and
ex-dividend date prior to the Effective Time of the Reorganization, which,
together with all previous dividends, shall have the effect of distributing
to its shareholders all of its net investment company taxable income, if
any, for the taxable years ending July 31, 1997 and for the taxable periods
from said date to and including the Effective Time of the Reorganization
(computed without regard to any deduction for dividends paid), and all of
its net capital gain, if any, realized in taxable years ending July 31,
1997, and in the taxable periods from said date to and including the
Effective Time of Reorganization; provided, however, that Qualivest Tax-Free
Money Market Fund shall not be required to distribute net investment company
taxable income for, and net capital gain realized in, the period from July
31, 1997 to and including the Effective Time of the Reorganization.
(q) Qualivest shall have performed and complied in all material respects
with each of its agreements and covenants required by this Agreement to be
performed or complied with by it prior to or at the Effective Time of the
Reorganization.
<PAGE>
(r) FAF shall have been furnished at the Effective Time of the
Reorganization with a certificate signed by an appropriate officer of BISYS
Group, Inc. ("BISYS") dated as of such date stating that all statistical and
research data, clerical, accounting and bookkeeping records, periodic
reports to the SEC and any state securities agencies, tax returns and other
tax filings, shareholder lists and other material shareholder data,
complaint files and all other information, books, records and documents
maintained by BISYS (or any affiliate of BISYS) and belonging to the
Qualivest Funds, including those required to be maintained by Section 31(a)
of the 1940 Act and Rules 31a-1 to 31a-3 thereunder, have been delivered to
FAF.
9. QUALIVEST CONDITIONS. The obligations of Qualivest hereunder shall be
subject to the following conditions precedent:
(a) This Agreement and the transactions contemplated by this Agreement
(which shall not be deemed, for these purposes, to include the matter
described in Section 6(a)) shall have been approved by the Board of
Directors of FAF and by the shareholders of the Qualivest Funds in the
manner required by law and this Agreement.
(b) All representations and warranties of FAF made in this Agreement
shall be true and correct in all material respects as if made at and as of
the Effective Time of the Reorganization.
(c) FAF shall have delivered to Qualivest a certificate executed in its
name by its President or Vice President and its Treasurer or Assistant
Treasurer, in a form reasonably satisfactory to Qualivest and dated as of
the Effective Time of the Reorganization, to the effect that the
representations and warranties of the FAF Funds made in this Agreement are
true and correct at and as of the Effective Time of the Reorganization,
except as they may be affected by the transactions contemplated by this
Agreement and that, to its best knowledge, the Fund Assets to be transferred
to an FAF Fund under this Agreement as set forth in Subsection 8(b) include
only assets which such FAF Fund may properly acquire under its investment
policies, limitations and objectives and may otherwise be lawfully acquired
by such FAF Fund.
(d) Qualivest shall have received an opinion of Dorsey & Whitney LLP in
form reasonably satisfactory to Qualivest and dated the Effective Time of
the Reorganization, substantially to the effect that (i) FAF is a Minnesota
corporation duly incorporated and validly existing under the laws of the
State of Minnesota; (ii) the shares of the FAF Funds to be delivered to the
Qualivest Funds as provided for by this Agreement are duly authorized and
upon delivery will be validly issued, fully paid and non-assessable by FAF;
(iii) this Agreement has been duly authorized, executed and delivered by
FAF, and represents a legal, valid and binding contract, enforceable in
accordance with its terms, subject as to enforcement to bankruptcy,
insolvency, reorganization, moratorium or other similar laws of general
application relating to or affecting creditors' rights generally and to the
application of general principles of equity; (iv) the execution and delivery
of this Agreement did not, and the consummation of the transactions
contemplated by this Agreement will not, violate the Articles of
Incorporation or By-Laws of FAF or any material contract known to such
counsel to which FAF is a party or by which it is bound; and (v) no consent,
approval, authorization or order of any court or governmental authority is
required for the consummation by FAF of the transactions contemplated by
this Agreement, except such as have been obtained under the 1933 Act, the
1934 Act, the 1940 Act, the rules and regulations under those Acts and such
as may be required by state securities laws or such as may be required
subsequent to the Effective Time of the Reorganization. Such opinion may
rely on the opinion of other counsel to the extent set forth in such
opinion, provided such other counsel is reasonably acceptable to Qualivest.
(e) Qualivest shall have received an opinion of Dorsey & Whitney LLP
addressed to FAF and Qualivest in form reasonably satisfactory to them, and
dated the Effective Time of Reorganization, with respect to the matters
specified in Subsection 8(k).
(f) The N-1A Post-Effective Amendment and the N-14 Registration Statement
shall have become effective under the 1933 Act and no stop order suspending
the effectiveness shall have been instituted, or to the knowledge of FAF,
contemplated by the SEC and the parties shall have received all permits and
other authorizations necessary under state securities laws to consummate the
transactions contemplated herein.
<PAGE>
(g) No action, suit or other proceeding shall be threatened or pending
before any court or governmental agency in which it is sought to restrain or
prohibit, or obtain damages or other relief in connection with, this
Agreement or the transactions contemplated herein.
(h) The SEC shall not have issued any unfavorable advisory report under
Section 25(b) of the 1940 Act nor instituted any proceeding seeking to
enjoin consummation of the transactions contemplated by this Agreement under
Section 25(c) of the 1940 Act.
(i) FAF shall have performed and complied in all material respects with
each of its agreements and covenants required by this Agreement to be
performed or complied with by it prior to or at the Effective Time of the
Reorganization.
(j) Qualivest shall have received from FAF a duly executed instrument
whereby each FAF Fund assumes all of the liabilities of its corresponding
Qualivest Fund.
10. FURTHER ASSURANCES. Subject to the terms and conditions herein provided,
each of the parties hereto shall use its best efforts to take, or cause to be
taken, such action, to execute and deliver, or cause to be executed and
delivered, such additional documents and instruments and to do, or cause to be
done, all things necessary, proper or advisable under the provisions of this
Agreement and under applicable law to consummate and make effective the
transactions contemplated by this Agreement, including without limitation,
delivering and/or causing to be delivered to the other party hereto each of the
items required under this Agreement as a condition to such party's obligations
hereunder. In addition, Qualivest shall deliver or cause to be delivered to FAF,
each account, book, record or other document of the Qualivest Funds required to
be maintained by Section 31(a) of the 1940 Act and Rules 31a-1 to 31a-3
thereunder (regardless of whose possession they are in).
11. INDEMNIFICATION. (a) FAF agrees to indemnify and hold harmless Qualivest and
each of Qualivest's trustees and officers from and against any and all losses,
claims, damages, liabilities or expenses (including, without limitation, the
payment of reasonable legal fees and reasonable costs of investigation) to
which, jointly or severally, Qualivest or any of its trustees or officers may
become subject, insofar as any such loss, claim, damage, liability or expense
(or actions with respect thereto) arises out of or is based on any breach by FAF
of any of its representations, warranties, covenants or agreements set forth in
this Agreement.
(b) Qualivest agrees to indemnify and hold harmless FAF and each of FAF's
directors and officers from and against any and all losses, claims, damages,
liabilities or expenses (including, without limitation, the payment of
reasonable legal fees and reasonable costs of investigation) to which, jointly
or severally, FAF or any of its directors or officers may become subject,
insofar as any such loss, claim, damage, liability or expense (or actions with
respect thereto) arises out of or is based on any breach by Qualivest of any of
its representation, warranties, covenants or agreements set forth in this
Agreement.
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the parties set forth in this Agreement shall survive the
delivery of the Fund Assets to the FAF Funds and the issuance of the shares
of the FAF Funds at the Effective Time of the Reorganization.
13. TERMINATION OF AGREEMENT. This Agreement may be terminated by a party at
or, in the case of Subsections 13(c) or (d), below, at any time prior to, the
Effective Time of the Reorganization by a vote of a majority of its Board of
Directors/Trustees as provided below:
(a) by FAF if the conditions set forth in Section 8 are not satisfied
as specified in said Section;
(b) by Qualivest if the conditions set forth in Section 9 are not
satisfied as specified in said Section;
(c) by mutual consent of both parties; and
(d) by Qualivest or FAF if determined by its Board of Trustees or
Directors that proceeding with the transactions contemplated herein is
inadvisable.
14. AMENDMENT AND WAIVER. At any time prior to or (to the fullest extent
permitted by law) after approval of this Agreement by the shareholders of
Qualivest (a) the parties hereto may, by written agreement authorized by their
respective Boards of Directors/Trustees and with or without the further
<PAGE>
approval of their shareholders, amend any of the provisions of this Agreement,
and (b) either party may waive any breach by the other party or the failure to
satisfy any of the conditions to its obligations (such waiver to be in writing
and authorized by the Board of Directors/Trustees of the waiving party with or
without the approval of such party's shareholders). Without limiting the
foregoing, in the event shareholder approval of the matters specified in Section
6 is obtained with respect to certain Qualivest Funds but not with respect to
the other Qualivest Funds, with the result that the transactions contemplated by
this Agreement may be consummated with respect to some but not all the Qualivest
Funds, the Board of Directors of FAF and the Board of Trustees of Qualivest may,
in the exercise of their reasonable business judgment, either abandon this
Agreement with respect to all of the Qualivest Funds or direct that the
Reorganization and other transactions described herein be consummated to the
degree the Boards deem advisable.
15. GOVERNING LAW. This Agreement and the transactions contemplated hereby
shall be governed, construed and enforced in accordance with the laws of the
State of Minnesota.
16. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
respective successors and permitted assigns of the parties hereto. This
Agreement and the rights, obligations and liabilities hereunder may not be
assigned by either party without the consent of the other party.
17. BENEFICIARIES. Nothing contained in this Agreement shall be deemed to
create rights in persons not parties hereto, other than the successors and
permitted assigns of the parties.
18. BROKERAGE FEES AND EXPENSES. FAF and Qualivest each represents and
warrants to the other that there are no brokers or finders entitled to
receive any payments in connection with the transactions provided for herein.
19. QUALIVEST LIABILITY. The Declaration of Trust for Qualivest, filed on May
19, 1994, a copy of which, together with all amendments thereto, is on file in
the Office of the Secretary of the Commonwealth of Massachusetts, provides (i)
that the name "Qualivest Funds" refers to the trustees under the Declaration of
Trust collectively as trustees and not as individuals or personally, (ii) that
no shareholder shall be subject to any personal liability whatsoever to any
person in connection with trust property or the acts, obligations or affairs of
the trust, and (iii) that no trustee, officer, employee or agent of the trust
shall be subject to any personal liability whatsoever to any person, other than
to the trust or its shareholders, in connection with trust property or the
affairs of the trust, save only that arising from bad faith, willful
misfeasance, gross negligence or reckless disregard of his duties with respect
to such person; and all such persons shall look solely to the trust property for
satisfaction of claims of any nature arising in connection with the affairs of
the trust.
20. NOTICES. All notices required or permitted herein shall be in writing and
shall be deemed to be properly given when delivered personally or by
telefacsimile to the party entitled to receive the notice or when sent by
certified or registered mail, postage prepaid, or delivered to an
internationally recognized overnight courier service, in each case properly
addressed to the party entitled to receive such notice at the address or telefax
number stated below or to such other address or telefax number as may hereafter
be furnished in writing by notice similarly given by one party to the other
party hereto:
If to FAF: First American Funds, Inc.
Oaks, Pennsylvania 19456
With copies to: Michael J. Radmer
Dorsey & Whitney LLP
Pillsbury Center South
220 South Sixth Street
Minneapolis, Minnesota 55402
Telefax Number: (612) 340-8738
If to Qualivest: Qualivest Funds
3435 Stelzer Road
Columbus, Ohio 43219-3035
<PAGE>
With copies to: Marie J. Lilly, Esq.
Law Division
U.S. Bancorp
111 S.W. Fifth Avenue, Suite T-2
Portland, Oregon 97204
Telefax Number: (503) 275-5000
Jeffrey L. Steele, Esq.
Dechert Price & Rhoads
1500 K Street, N.W.
Washington, D.C. 20005
Telefax Number: (202) 626-3334
21. ANNOUNCEMENTS. Any announcement or similar publicity with respect to this
Agreement or the transactions contemplated herein shall be made only at such
time and in such manner as the parties shall agree; provided that nothing herein
shall prevent either party upon notice to the other party from making such
public announcements as such party's counsel may consider advisable in order to
satisfy the party's legal and contractual obligations in such regard.
22. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding of the parties hereto and supersedes any and all prior
agreements, arrangements and understandings relating to matters provided for
herein.
23. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when executed and delivered shall be deemed to be
an original, but all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their duly authorized officers designated below as of the date first
written above.
QUALIVEST FUNDS
ATTEST:
______________________ ___________________________
Gregory T. Maddox Irimga McKay
TREASURER AND SECRETARY PRESIDENT AND CHIEF EXECUTIVE OFFICER
FIRST AMERICAN FUNDS, INC.
ATTEST:
______________________ ___________________________
Michael J. Radmer David Lee
SECRETARY PRESIDENT
<PAGE>
APPENDIX IV
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
This Appendix compares the investment objectives and certain investment policies
and restrictions of the FAF Funds and their corresponding Qualivest Portfolios.
The following is qualified in its entirety by the more detailed information
included in the prospectuses for the Existing FAF Funds and the Qualivest
Portfolios which are incorporated by reference in this Combined Proxy
Statement/Prospectus, and to the preliminary prospectuses for the Class A, Class
C and Class D shares of FAF Tax Free Obligations Fund, which are attached to
this Combined Proxy Statement/Prospectus as Appendix VIII and Appendix IX.
QUALIVEST MONEY MARKET FUND/FAF PRIME OBLIGATIONS FUND
INVESTMENT OBJECTIVES
The investment objective of the Qualivest Money Market Fund is to seek current
income consistent with liquidity and stability of principal.
The investment objective of the FAF Prime Obligations Fund is to achieve maximum
current income to the extent consistent with the preservation of capital and the
maintenance of liquidity.
INVESTMENT POLICIES AND RESTRICTIONS
PRINCIPAL INVESTMENTS
The Qualivest Money Market Fund will invest in high quality (i.e. rated within
the top two rating categories for short-term debt obligations by a nationally
recognized statistical rating organization ("NRSRO")) money market instruments
and other money market instruments that, although not rated, are deemed to be
comparable high quality by Qualivest pursuant to guidelines adopted by the Board
of Trustees. These money market instrument include short-term obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities,
short-term asset-backed and mortgage-related securities, bankers' acceptances,
certificates of deposits and time deposits, commercial paper and securities
issued by other money market investment companies, Guaranteed Investment
Contracts, debt obligations with remaining maturities of 397 calendar days or
less, and taxable obligations issued by municipalities. Investments in
certificates of deposit and time deposits may include U.S. dollar denominated
obligations of offices of foreign and domestic banks located outside the U.S.,
foreign branches of U.S. or foreign banks and U.S. branches of foreign banks, if
such banks have total assets of not less than $100 million.
The FAF Prime Obligations Fund invests in money market instruments, including
marketable securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities; U.S. dollar-denominated obligations (including
bankers' acceptances, time deposits, and certificates of deposit, including
variable rate certificates of deposit) of banks (including commercial banks,
savings banks and savings and loan associations) organized under the laws of the
U.S. or any state, foreign banks, U.S. branches of foreign banks and foreign
branches of U.S. banks, if such banks have total assets of not less than $500
million; and certain corporate and other obligations, including high grade
commercial paper, non-convertible corporate debt securities, and loan
participation interests with no more than 397 days remaining to maturity as
determined pursuant to Rule 2a-7 under the 1940 Act. The FAF Prime Obligations
Fund may also invest in U.S. dollar-denominated obligations of foreign
corporations if the obligations satisfy the same quality standards set forth for
domestic corporations.
INVESTMENT TECHNIQUES
Qualivest Money Market Fund and FAF Prime Obligations Fund may engage in the
following investment techniques to the extent indicated.
REPURCHASE AGREEMENTS. Both Funds may invest in repurchase agreements.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLL AGREEMENTS. The Qualivest Money
Market Fund may borrow funds by entering into reverse repurchase agreements and
dollar roll agreements. FAF Prime Obligations Fund may not enter into such
agreements.
<PAGE>
CREDIT ENHANCEMENT AGREEMENTS. The FAF Prime Obligations Fund may arrange for
guarantees, letters of credit, or other forms of credit enhancement
agreements for the purpose of further securing the payment of principal
and/or interest on the Fund's investment securities. The Qualivest Money
Market Fund may not enter such agreements.
GUARANTEED INVESTMENT CONTRACTS. The Qualivest Money Market Fund may invest in
Guaranteed Investment Contracts issued by insurance companies whose outstanding
debt securities are rated in the first two rating categories by an NRSRO. The
FAF Prime Obligations Fund may not invest in such contracts.
LOAN PARTICIPATION INTERESTS. The FAF Prime Obligations Fund may invest in
loan participation interests. The Qualivest Money Market Fund may not invest
in loan participation interests.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS. Each Fund may purchase securities
on a when-issued or delayed-delivery basis.
LENDING OF PORTFOLIO SECURITIES. The FAF Prime Obligation Fund 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.
The Qualivest Money Market Fund may not lend portfolio securities.
MONEY MARKET FUNDS. The FAF Prime Obligations Fund may invest, to the extent
permitted by the 1940 Act, in securities issued by other money market funds. The
Qualivest Money Market Fund may invest up to 25% of its total assets in shares
of money market mutual funds for cash management purposes.
INVESTMENT RESTRICTIONS
RESTRICTIONS UNDER RULE 2A-7. Each FAF Fund and Qualivest Portfolio is subject
to the investment restrictions of Rule 2a-7 under the 1940 Act ("Rule 2a-7").
Pursuant to Rule 2a-7, each Fund is required to invest exclusively in securities
that mature within 397 days from the date of purchase and to maintain an average
weighted maturity of not more than 90 days. Under Rule 2a-7, securities which
are subject to certain types of demand or put features may be deemed to mature
at the next demand or put date although they have a longer stated maturity. Rule
2a-7 also required that all investments by a fund be limited to U.S.
dollar-denominated investments that (a) present "minimal credit risk" and (b)
are at the time of acquisition "Eligible Securities." Eligible Securities
include, among other things, securities that are rated by two NRSRO's in one of
the two highest categories for short-term debt obligations, such as A-1 or A-2
by Standard & Poor's Corporation ("Standard & Poor's"), or Prime-1 or Prime-2 by
Moody's Investors Service, Inc. ("Moody's"). Rule 2a-7 requires, among other
things, that a non-tax-exempt money market fund may not invest, other than in
U.S. "Government Securities" (as defined in the 1940 Act), more than 5% of its
total assets in securities of a single issuer; provided that the fund may invest
in First Tier Securities (i.e. Eligible Securities that are rated by two NRSRO's
in the highest category such as A-1 and Prime-1) in excess of that limitation
for a period of up to three business days after the purchase thereof, provided
that the fund may not make more than one such investment at any time. Rule 2a-7
also requires that a non-tax-exempt money market fund may not invest, other than
in U.S. Government securities, (a) more than 5% of its total assets in Second
Tier Securities (i.e. Eligible Securities that are not rated by two NRSRO's in
the highest category such as A-1 and Prime-1) and (b) more than the greater of
1% of its total assets or $1,000,000 in Second Tier Securities of any one
issuer.
ADDITIONAL RESTRICTIONS. The FAF Prime Obligations Fund will not purchase a
security if, as a result: (a) more than 10% of its net assets would be in
illiquid assets including time deposits and repurchase agreements maturing in
more than seven days; or (b) 25% or more of its assets would be in any single
industry, except that there is no limitation on the purchase of obligations of
domestic commercial banks (excluding, for this purpose, foreign branches of
domestic commercial banks).
Similarly, the Qualivest Money Market Fund will not invest more than 10% of its
net assets in securities that are deemed to be illiquid at the time of purchase.
In addition, the Qualivest Money Market Fund will not purchase any securities
which would cause more than 25% of the value of its assets at the time of
purchase to be invested in securities of one or more issuers conducting their
<PAGE>
business activities in the same industry, provided that there is no limitation
with respect to obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities, domestic bank certificates of deposit or bankers'
acceptances issued by U.S. branches of domestic banks, and repurchase agreements
secured by obligations of the U.S. Government or its agencies or
instrumentalities.
QUALIVEST U.S. TREASURY MONEY MARKET FUND/FAF TREASURY OBLIGATIONS FUND
INVESTMENT OBJECTIVES
The investment objective of the Qualivest U.S. Treasury Money Market Fund
("Qualivest U.S. Treasury Fund") is to seek current income consistent with
liquidity and stability of principal.
The investment objective of the FAF Treasury Obligations Fund ("FAF Treasury
Obligations Fund") is to seek to achieve maximum current income to the extent
consistent with the preservation of capital and the maintenance of liquidity.
INVESTMENT POLICIES AND RESTRICTIONS
PRINCIPAL INVESTMENTS
The Qualivest U.S. Treasury Fund invests at least 65% of its total assets in
short-term U.S. Treasury bills, notes, and bonds and in other obligations backed
by the full faith and credit of the U.S. Treasury. The Qualivest U.S. Treasury
Fund may invest up to 35% of its total assets in other types of high quality
rated money market instruments and money market instruments that, although not
rated, are deemed to be of comparable high quality as determined by Qualivest
pursuant to guidelines adopted by the Board of Trustees.
The FAF Treasury Obligations Fund invests U.S. Treasury obligations maturing
within 397 days or less as determined pursuant to Rule 2a-7 under the 1940 Act.
The Fund does not invest in any other types of money market securities.
INVESTMENT TECHNIQUES
Qualivest U.S. Treasury Fund and FAF Treasury Obligations Fund may engage in the
following investment techniques to the extent indicated.
REPURCHASE AGREEMENTS. The FAF Treasury Obligations Fund may invest in
repurchase agreements. The Qualivest U.S. Treasury Fund may not invest in
repurchase agreements.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLL AGREEMENTS. The Qualivest U.S.
Treasury Fund may borrow funds by entering into reverse repurchase agreements
and dollar roll agreements. The FAF Treasury Obligations Fund may enter into
reverse repurchase agreements, but only for temporary or emergency purposes, for
the purpose of meeting redemption requests which might otherwise require the
untimely disposition of assets.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS. The Qualivest U.S. Treasury
Fund and the FAF Treasury Obligations Fund may purchase securities on a
when-issued or delayed-delivery basis.
GUARANTEED INVESTMENT CONTRACTS. The Qualivest U.S. Treasury Fund may invest
in Guaranteed Investment Contracts issued by insurance companies whose
outstanding debt securities are rated in the first two rating categories by a
NRSRO. The FAF Treasury Obligations Fund may not invest in such contracts.
LENDING OF PORTFOLIO SECURITIES. The FAF Treasury Obligations Fund 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. The Qualivest U.S. Treasury Fund may not lend portfolio
securities.
MONEY MARKET FUNDS. The FAF Treasury Obligations Fund may invest, to the extent
permitted by the 1940 Act, in securities issued by other money market funds that
invest in securities which constitute permitted investments for the FAF Treasury
Obligations Fund. The Qualivest U.S. Treasury Fund may invest up to 25% of its
total assets in shares of money market mutual fund for cash management purposes,
but expects to make such purchases only in money market funds that restrict
their investments to U.S. Government securities.
<PAGE>
INVESTMENT RESTRICTIONS
RESTRICTIONS UNDER RULE 2A-7. Similar to the Qualivest Money Market Fund and FAF
Prime Obligations Fund, the Qualivest U.S. Treasury Fund and FAF Treasury
Obligations Fund are each subject to the investment restrictions of Rule 2a-7.
For a complete description of such restrictions, see the corresponding section
in the comparison of the Qualivest Money Market Fund and the FAF Prime
Obligations Fund.
OTHER RESTRICTIONS. The FAF Treasury Obligations Fund will not invest more than
10% of its net assets in securities that are deemed to be illiquid at the time
of purchase, including time deposits and repurchase agreements maturing in more
than seven days.
Similarly, the Qualivest U.S. Treasury Money Market Fund will not invest more
than 10% of its net assets in securities that are deemed to be illiquid at the
time of purchase. In addition, the Qualivest Money Market Fund will not purchase
any securities which would cause more than 25% of the value of its assets at the
time of purchase to be invested in securities of one or more issuers conducting
their business activities in the same industry, provided that there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, domestic bank certificates of
deposit or bankers' acceptances issued by U.S. branches of domestic banks, and
repurchase agreements secured by obligations of the U.S. Government or its
agencies or instrumentalities.
QUALIVEST TAX-FREE MONEY MARKET FUND/FAF TAX FREE OBLIGATIONS FUND
INVESTMENT OBJECTIVES
The investment objective of the Qualivest Tax-Free Money Market Fund is to seek
current income, free from federal income tax, consistent with liquidity and
stability of principal.
The investment objective of the FAF Tax-Free Obligations Fund is to seek to
achieve maximum current income exempt from federal income taxes to the extent
consistent with the preservation of capital and the maintenance of liquidity.
INVESTMENT POLICIES AND RESTRICTIONS
PRINCIPAL INVESTMENTS
The Qualivest Tax-Free Money Market Fund invests primarily in high quality money
market obligations issued by or on behalf of states (including the District of
Columbia), territories, and possessions of the United States and their
respective authorities, agencies, instrumentalities, and political subdivisions,
the interest on which is both exempt from federal income tax and not treated as
a preference item for purposes of the federal alternative minimum tax, and
similar tax-exempt money market instruments that, although not rated, are deemed
to be of comparable high quality as determined by Qualivest pursuant to
guidelines adopted by the Board of Trustees ("Municipal Securities"). As a
matter of fundamental policy, under normal market conditions, at least 80% of
the Qualivest Tax-Free Money Market net assets will be invested in short-term
Municipal Securities. The Qualivest Tax-Free Money Market Fund may invest up to
20% of its net assets in taxable obligations, the interest on which is either
subject to federal income tax or treated as a preference item for purposes of
the federal alternative minimum tax. At times, Qualivest may determine that,
because of unstable conditions in the markets for Municipal Securities, pursuing
the Qualivest Tax-Free Money Market Fund's basic investments strategies is
inconsistent with the best interests of the shareholders of the Fund. At such
times, Qualivest may use temporary defensive strategies differing from those
designed to achieve the Qualivest Tax-Free Money Market Fund's investment
objective by increasing the Fund's holdings in taxable obligations to over 20%
(and up to 100%) of the Fund's net assets and by holding uninvested cash
reserves pending investment. Taxable obligations may include obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities (some
of which may be subject to repurchase agreements), certificates of deposit and
bankers' acceptances of selected banks, and commercial paper meeting the
Qualivest Tax-Free Money Market Fund's quality standards for tax-exempt
commercial paper.
The FAF Tax Free Obligations Fund invests at least 80% of its total assets in
municipal obligations, the income from which is exempt from federal income tax
and is not an item of tax preference for the purpose of federal alternative
minimum tax. The Fund may invest up to 20% of its total assets
<PAGE>
collectively in taxable money market securities including certain U.S. dollar
denominated obligations (including bankers' acceptances, time deposits, and
certificates of deposits, including variable rate certificate of deposit) of
banks (including commercial banks, savings banks, and savings and loan
associations) organized under the laws of the United States or any state,
foreign banks, U.S. branches of foreign banks, if such banks have total assets
of not less than $500 million, and certain corporate and other obligations,
including high grade commercial paper, non-convertible corporate debt
securities, and loan participation interests with no more than 397 days
remaining to maturity as determined pursuant to Rule 2a-7 under the 1940 Act.
INVESTMENT TECHNIQUES
Qualivest Tax-Free Money Market Fund and the FAF Tax Free Obligations Fund may
engage in the following investment techniques to the extent indicated.
REPURCHASE AGREEMENTS. Each of the Funds may invest in repurchase agreements.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLL AGREEMENTS. The Qualivest Tax-Free
Money Market Fund may borrow funds by entering into reverse repurchase
agreements and dollar roll agreements. The FAF Tax Free Obligations Fund may not
enter into reverse repurchase agreements.
CREDIT ENHANCEMENT AGREEMENTS. The FAF Tax Free Obligations Fund may arrange
for guarantees, letters of credit, or other forms of credit enhancement
agreements for the purpose of further securing the payment of principal
and/or interest on the Fund's investment securities. The Qualivest Tax-Free
Money Market Fund may not enter such agreements.
GUARANTEED INVESTMENT CONTRACTS. The Qualivest Tax-Free Money Market Fund may
invest in Guaranteed Investment Contracts issued by insurance companies whose
outstanding debt securities are rated in the first two rating categories by a
NRSRO. The FAF Tax Free Obligations Fund may not enter such contracts.
LOAN PARTICIPATION INTERESTS. The FAF Tax Free Obligations Fund may invest in
loan participation interests. The Qualivest Tax-Free Money Market Fund may
not invest in loan participation interests.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS. Each of the Funds may purchase
securities on a when-issued or delayed-delivery basis.
PUT OPTIONS. Each of the FAF Tax Free Obligations Fund and the Qualivest
Tax-Free Money Market Fund may purchase tax-exempt securities which include a
"put" (the right to resell them to the issuer, a bank or a broker-dealer at a
specified price within a specified period of time prior to the maturity date).
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
FAF Tax Free Obligations Fund 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. The Qualivest Tax-Free Money
Market Fund may not lend portfolio securities.
MONEY MARKET FUNDS. The FAF Tax Free Obligations Fund may invest, to the extent
permitted by the 1940 Act, in securities issued by other money market funds,
provided that the permitted investments of such other money market funds
constitute permitted investments of FAF Tax Free Obligations Fund. The Qualivest
Tax-Free Money Market Fund may invest up to 25% of its total assets in shares of
money market mutual fund for cash management purposes.
INVESTMENT RESTRICTIONS
RESTRICTIONS UNDER RULE 2A-7. Similar to the other Funds, the Qualivest Tax-Free
Money Market Fund and FAF Tax Free Obligations Fund are each subject to the
investment restrictions of Rule 2a-7. For a complete description of such
restrictions, see the corresponding sections in the comparison of the Money
Market Fund and Prime Obligations Fund.
OTHER RESTRICTIONS. The FAF Tax Free Obligations Fund will not invest (a) more
than 10% of its net assets in securities that are deemed to be illiquid at the
time of purchase, including time deposits and repurchase agreements maturing in
more than seven days, (b) 25% or more of its assets in a single
<PAGE>
industry, provided that there is no limitation on the purchase of obligations
issued or guaranteed by the United States, its agencies or instrumentalities, or
obligations of domestic commercial banks, excluding for this purpose, foreign
branches of domestic commercial banks.
Similarly, the Qualivest Tax-Free Money Market Fund will not invest more than
10% of its net assets in securities that are deemed to be illiquid at the time
of purchase. In addition, the Qualivest Money Market Fund will not purchase any
securities which would cause more than 25% of the value of its assets at the
time of purchase to be invested in securities of one or more issuers conducting
their business activities in the same industry, provided that there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, domestic banks certificates of
deposit or bankers' acceptances issued by U.S. branches of domestic banks, and
repurchase agreements secured by obligations of the U.S. Government or its
agencies or instrumentalities.
<PAGE>
APPENDIX V
FEES AND EXPENSES OF THE QUALIVEST PORTFOLIOS
AND CORRESPONDING FAF FUNDS
The following tables compare the current fees and expenses for each Qualivest
Portfolio and its corresponding FAF Fund. FBNA has agreed that, for the period
commencing on the Closing and continuing until September 30, 1998, it will waive
fees and reimburse expenses to the FAF Funds to the extent necessary to maintain
FAF Fund total operating expenses at the levels provided in the tables. The
purpose of these tables is to assist shareholders in understanding the various
costs and expenses that investors in these portfolios will bear as shareholders.
THE EXAMPLES CONTAINED IN THE TABLES SHOULD NOT BE CONSIDERED REPRESENTATIONS OF
PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
QUALIVEST MONEY MARKET FUND/FAF PRIME OBLIGATIONS FUND
<TABLE>
<CAPTION>
QUALIVEST FAF PRIME
MONEY MARKET FUND OBLIGATIONS FUND
CLASS A CLASS Q CLASS Y CLASS A CLASS C
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) None None None None None
Maximum Sales Charge Imposed on Reinvested
Dividends None None None None None
Deferred Sales Charge (as a percentage of
redemption proceeds) None None None None None
Redemption Fees None None None None None
Exchange Fees None None None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment
Advisory Fees (after waivers)1 0.25% 0.25% 0.25% 0.31% 0.31%
Rule 12b-1 Fees (after waivers)2 0.40% 0.00% None 0.25% None
Other Expenses3 0.26% 0.26% 0.26% 0.14% 0.14%
Total Fund Operating Expenses (after waivers)4 0.91% 0.51% 0.51% 0.70% 0.45%
</TABLE>
1 Investment advisory fees for the Qualivest Portfolio and the FAF Fund reflect
voluntary fee waivers by the investment adviser. Absent voluntary waivers,
current investment advisory fees for the Qualivest Portfolio and the FAF Fund
would be 0.35% and .040% respectively of average daily net assets.
2 The Qualivest Portfolio has determined that it will not pay Rule 12b-1 fees
with respect to its Class Q shares through the current fiscal year. Otherwise
Rule 12b-1 fees as a percentage of Class Q's average daily net assets are
payable at an annual rate of up to 0.25%.
3 The Qualivest Portfolio has adopted, but not implemented, a plan under which
up to 0.25% of average daily net assets attributable to Class Y shares may be
expended to procure shareholder services.
4 Absent any fee waivers, including 12b-1 fees, total fund operating expenses
would be 1.01%, 0.86% and 0.61%, respectively, of average daily net assets for
the Class A, Class Q and Class Y shares of the Qualivest Portfolio, and 0.79%
and 0.54%, respectively, of average daily net assets for the Class A and Class
C shares of the FAF Fund.
<PAGE>
Example:
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return, and (2) redemption at the end of each time period:
QUALIVEST FAF PRIME
MONEY MARKET FUND OBLIGATIONS FUND
CLASS A CLASS Q CLASS Y CLASS A CLASS C
1 year $ 9 $ 5 $ 5 $ 7 $ 5
3 years $ 29 $16 $16 $22 $14
5 years $ 50 $29 $29 $39 $25
10 years $112 $64 $64 $87 $57
QUALIVEST U.S. TREASURY MONEY MARKET FUND/FAF TREASURY OBLIGATIONS FUND
<TABLE>
<CAPTION>
QUALIVEST U.S. FAF TREASURY
TREASURY MONEY MARKET FUND OBLIGATIONS FUND
CLASS A CLASS Q CLASS Y CLASS A CLASS C
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) None None None None None
Maximum Sales Charge Imposed on Reinvested
Dividends None None None None None
Deferred Sales Charge (as a percentage of
redemption proceeds) None None None None None
Redemption Fees None None None None None
Exchange Fees None None None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment Advisory Fees (after waivers)1 0.00% 0.00% 0.00% 0.30% 0.30%
Rule 12b-1 Fees (after waivers)2 0.40% 0.20% None 0.25% None
Other Expenses3 0.32% 0.31% 0.31% 0.15% 0.15%
Total Fund Operating Expenses (after waivers)4 0.72% 0.51% 0.31% 0.70% 0.45%
</TABLE>
1 Investment advisory fees for the Qualivest Portfolio and the FAF Fund reflect
voluntary fee waivers by the investment adviser. Absent voluntary waivers,
current investment advisory fees for the Qualivest Portfolio and the FAF Fund
would be 0.35% and 0.40%, respectively, of average daily net assets.
2 The Qualivest Portfolio has determined that it will pay 0.20% in Rule 12b-1
fees with respect to its Class Q shares through the current fiscal year.
Otherwise, Rule 12b-1 fees as a percentage of Class Q's average daily net
assets are payable at an annual rate of up to 0.25%.
3 The Qualivest Portfolio has adopted, but not implemented, a plan under which
up to 0.25% of average daily net assets attributable to Class Y shares may be
expended to procure shareholder services.
4 Absent any fee waivers, including 12b-1 fees, total fund operating expenses
would be 1.07%, 0.91% and 0.66%, respectively, of average daily net assets for
the Class A, Class Q and Class Y shares of the Qualivest Portfolio, and 0.80%
and 0.55%, respectively, of average daily net assets for the Class A and Class
C shares of the FAF Fund.
<PAGE>
Example:
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return, and (2) redemption at the end of each time period:
QUALIVEST U.S. FAF TREASURY
TREASURY MONEY MARKET FUND OBLIGATION FUND
CLASS A CLASS Q CLASS Y CLASS A CLASS C
1 year $ 7 $ 5 $ 3 $ 7 $ 5
3 years $23 $16 $10 $22 $14
5 years $40 $29 $17 $39 $25
10 years $89 $64 $39 $87 $57
QUALIVEST TAX-FREE MONEY MARKET FUND/FAF TAX FREE OBLIGATIONS FUND
<TABLE>
<CAPTION>
QUALIVEST FAF TAX FREE
TAX-FREE MONEY MARKET FUND OBLIGATIONS FUND
CLASS A CLASS Q CLASS Y CLASS A CLASS C
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) None None None None None
Maximum Sales Charge Imposed on Reinvested
Dividends None None None None None
Deferred Sales Charge (as a percentage of
redemption proceeds) None None None None None
Redemption Fees None None None None None
Exchange Fees None None None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment Advisory Fees (after waivers)1 0.00% 0.00% 0.00% 0.11% 0.11%
Rule 12b-1 Fees 0.40% 0.25% None 0.25% None
Other Expenses2 0.49% 0.47% 0.41% 0.34% 0.34%
Total Fund Operating Expenses (after waivers)3 0.89% 0.72% 0.41% 0.70% 0.45%
</TABLE>
1 Investment advisory fees for the Qualivest Portfolio and the FAF Fund reflect
voluntary fee waivers by the investment adviser. Absent voluntary waivers,
current investment advisory fees for the Qualivest Portfolio and the FAF Fund
would be 0.35% and 0.40%, respectively, of average daily net assets.
2 The Qualivest Portfolio has adopted, but not implemented, a plan under
which up to 0.25% of average daily net assets attributable to Class Y shares
may be expended to procure shareholder services.
3 Absent any voluntary fee waivers or expense reimbursements, total fund
operating expenses would be 1.24%, 1.07% and 0.76%, respectively, of average
daily net assets for the Class A, Class Q and Class Y shares of the Qualivest
Portfolio, and 0.99% and 0.74%, respectively, of average daily net assets for
the Class A and Class C shares of the FAF Fund.
<PAGE>
Example:
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return, and (2) redemption at the end of each time period:
QUALIVEST FAF TAX FEE
TAX-FEE MONEY MARKET OBLIGATIONS FUND
CLASS A CLASS Q CLASS Y CLASS A CLASS C
1 year $ 9 $ 7 $ 4 $ 7 $ 5
3 years $ 28 $23 $13 $22 $14
5 years $ 49 $40 $23 $39 $25
10 years $110 $89 $52 $87 $57
<PAGE>
APPENDIX VI
COMPARISON OF INTERIM ADVISORY AGREEMENT AND
FAF INVESTMENT ADVISORY AGREEMENT
This Appendix summarizes and compares certain significant provisions of the
Interim Advisory Agreement (the "Interim Agreement") against corresponding
provisions of the FAF Investment Advisory Agreement (the "FAF Agreement"). Fees
payable under the Agreements are set forth in Table III in the Combined
Proxy Statement/Prospectus.
ADVISORY SERVICES. The Interim Agreement provides that the adviser will provide
a continuous investment program for the Qualivest Portfolios, including
investment research and management with respect to all securities and
investments and cash equivalents in the Portfolios. The Interim Agreement
provides that the adviser will pay all expenses incurred by it in connection
with its activities under the Agreement other than the cost of securities
(including brokerage commissions, if any) purchased by the portfolios.
Similarly, the FAF Agreement provides that the adviser agrees to act as the
investment adviser for, and to manage the investment of the assets of, the FAF
Funds. Under the FAF Agreement the adviser is required, at its own expense, to
provide the FAF Funds with all necessary office space, personnel and facilities
necessary and incident to the performance of the adviser's services under the
Agreement. In addition, under the FAF Agreement, the adviser is required to pay
or be responsible for the payment of all compensation to personnel of the FAF
Funds and the officers and directors of the FAF Funds who are affiliated with
the adviser or any entity which controls, is controlled by or is under common
control with the adviser.
FEE AND EXPENSE LIMITATIONS. Each Agreement requires that if, in any fiscal
year, the aggregate expenses of any Fund or Portfolio exceed the expense
limitations imposed under the securities regulations of a state, the adviser
will reimburse the Fund or Portfolio. A portion of such reimbursement will be
paid by the administrator in the case of the Interim Agreement. Such
reimbursement shall not exceed the advisory fees paid to the adviser during the
year, unless otherwise required by the state and, in the case of the FAF
Agreement, unless the adviser agrees to be bound by such state requirement.
Under federal law, states may no longer impose expense limitations on mutual
funds.
STANDARD OF CARE. The Interim Agreement provides that the adviser shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Portfolios in connection with the performance of the Interim Agreement,
except a loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the adviser in the
performance of its duties or from reckless disregard by it of its obligations
and duties under the Interim Agreement.
The FAF Agreement provides that the adviser shall be liable to the Funds and
their shareholders or former shareholders for any negligence or willful
misconduct on the part of the adviser or any of its directors, officers,
employees, representatives or agents in connection with the responsibilities
assumed by it under the FAF Agreement, provided that the adviser shall not be
liable for any investments made by the adviser in accordance with the explicit
or implicit direction of the Board of Directors of FAF or the investment
objectives and policies of a Fund, and provided further that any liability of
the adviser resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services shall be limited to the period and amount
set forth in Section 36(b)(3) of the 1940 Act. In addition, the adviser agrees
in the FAF agreement to indemnify FAF and each Fund with respect to any loss,
liability, judgment, cost or penalty which FAF or any Fund may directly or
indirectly suffer or incur in any way arising out of or in connection with any
breach of the FAF Agreement by the adviser.
PORTFOLIO TRANSACTIONS. The Interim Agreement provides that the adviser will
place or cause to be placed orders for the purchase or sale of securities for
the Portfolios either directly with the issuer or with any broker or dealer. The
Interim Agreement requires that, in placing orders with brokers and dealers, the
adviser will attempt to obtain prompt execution of orders in an effective manner
at the most favorable price. To the extent permitted by the 1940 Act, when the
execution and price offered by two
<PAGE>
or more brokers or dealers are comparable, the adviser may purchase and sell
portfolio securities to and from brokers and dealers who provide the adviser
with research advice and other services. The Interim Agreement provides that
portfolio securities will not be purchased from or sold to the administrator,
the adviser, or any affiliated person of the administrator, the adviser or
Qualivest, except to the extent permitted by the 1940 Act.
The FAF Agreement provides that the adviser may utilize the Funds' distributor
or an affiliate of the adviser as a broker in accordance with the 1940 Act and
the Funds' registration statement. The FAF Agreement also provides that
allocation of portfolio transactions shall be subject to such policies and
supervision as FAF's Board of Directors or any committee thereof
deems appropriate and any brokerage policy set forth in the then current
registration statement of the Funds.
<PAGE>
APPENDIX VII
SHAREHOLDER TRANSACTIONS AND SERVICES
This Appendix compares the shareholder transactions and services of the
Qualivest Portfolios and the corresponding FAF Funds. The following is qualified
in its entirety by the more detailed information included in the prospectuses
for the Qualivest Portfolios and the Existing FAF Funds which are incorporated
by reference in this Combined Proxy Statement/Prospectus and by the preliminary
prospectuses for the Class A, Class C and Class D Shares of the Tax Free
Obligations Fund, which are attached to this Combined Proxy Statement/Prospectus
as Appendix VIII and Appendix IX.
PURCHASE, EXCHANGE AND REDEMPTION PROCEDURES
PURCHASES OF QUALIVEST AND FAF CLASS A SHARES. Class A shares of both the
Qualivest Portfolios and the FAF Funds may be purchased at a net asset value
without any front-end or contingent deferred sales charge.
The minimum initial investment for Qualivest Portfolios Class A shares generally
is $500, with a $100 minimum for subsequent purchases. The minimum initial
investment for FAF Funds Class A shares generally is $1,000, with a minimum of
$100 for subsequent purchases.
Class A Qualivest Portfolio shares may be purchased directly from the
Portfolios' distributor or through a broker-dealer who has established a dealer
agreement with the distributor. Such purchases may be made by mail, by telephone
or by wire. Class A FAF Fund shares may be purchased through a financial
institution which has a sales agreement with the Funds' distributor, by mail
directly through the Funds' transfer agent, or by wire.
Both the FAF Funds and the Qualivest Portfolios have automatic investment
programs which allow shareholders to make regular purchases of Class A shares
through automatic deduction from their bank accounts. Shares of the FAF Prime
Obligations Fund and Treasury Obligations Fund also may be exchanged through
automatic monthly deductions from an investor's account for the same class of
shares of First American Investment Funds, Inc. or First American Strategy
Funds, Inc.
PURCHASES OF QUALIVEST PORTFOLIO CLASS Q AND CLASS Y SHARES AND FAF FUND CLASS C
SHARES. The Class Q and Class Y shares of the Qualivest Portfolios and the Class
C shares of the FAF Funds are offered at net asset value without any front-end
or contingent deferred sales charges. Class Y shares of the Qualivest Portfolios
are offered only to certain institutional investors and bank trust departments
purchasing shares on behalf of fiduciary, advisory, agency, custody or other
similar accounts maintained by or on behalf of their customers. Class Q shares
of the Qualivest Portfolios are only offered to certain corporations, pension
plans, foundations, charitable institutions, certain large investors, insurance
companies, banks and other banking institutions and other non-bank fiduciaries.
Class Q and Class Y shares may be purchased through a broker-dealer, bank or
trust company that has established a dealer agreement with the Portfolios'
distributor and also may be purchased directly by mail, by telephone or by wire.
Class C shares of the FAF Funds are offered through banks and certain other
institutions for the investment of their own funds and funds for which they act
in a fiduciary, agency or custodial capacity. Such shares may be purchased by
wire, or the Fund may accept securities in exchange for Fund shares.
EXCHANGES. Shares of a Qualivest Portfolio may be exchanged for shares of the
same class of other Qualivest Portfolios. Similarly, shares of an FAF Fund may
be exchanged for shares of the same class of the other FAF Funds or of other
funds in the First American family.
REDEMPTIONS. Shares of the Qualivest Portfolios and Class A shares of the FAF
Funds may be redeemed by written request or by telephone. In addition, Class A
shareholders of Qualivest Money Market Fund, FAF Prime Obligations Fund and FAF
Treasury Obligations Fund may redeem shares by check, if the shareholder has
established a checking account for the Funds or Portfolios. Class A and Class C
Qualivest Portfolio shareholders with an account balance of at least $500 and
Class A FAF Fund shareholders with an account balance of at least $5,000 may
also elect to participate in a systematic
<PAGE>
withdrawal program under which shares are redeemed to provide for periodic
withdrawal payments in an amount directed by the shareholder. Payments for
redeemed Class C shares of the FAF Funds can be made only by wire transfer.
DIVIDENDS AND DISTRIBUTIONS.
The dividend and distribution policies of the Qualivest Portfolios and the FAF
Funds are similar. Net income dividends are declared daily and paid monthly for
both the Qualivest Portfolios and the FAF Funds. For both the FAF Funds and
Qualivest Portfolios distributions of any net realized long-term capital gains
are made at least once annually. In addition, all dividends and distributions
are automatically reinvested in shares of the Fund or Portfolio at net asset
value unless the shareholders elects to receive dividends or distributions in
cash or, in the case of the Class A shares of the Qualivest Portfolios, in the
same class of another Qualivest mutual fund.
<PAGE>
APPENDIX VIII
FIRST AMERICAN FUNDS, INC.
MONEY MARKET FUNDS
RETAIL CLASSES
TAX FREE OBLIGATIONS FUND
TREASURY OBLIGATIONS FUND
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS
________________, 1997
SUBJECT TO COMPLETION - July 21, 1997
[LOGO]
FIRST AMERICAN FUNDS
THE POWER OF DISCIPLINED INVESTING
<PAGE>
FIRST AMERICAN FUNDS, INC.
Oaks, Pennsylvania 19456
RETAIL CLASSES PROSPECTUS
The shares described in this Prospectus represent interests in First American
Funds, Inc., which consists of mutual funds with four different investment
portfolios and objectives. This Prospectus relates to the Class A Shares of the
following funds (the "Funds"):
* TAX FREE OBLIGATIONS FUND
* TREASURY OBLIGATIONS FUND
Tax Free Obligations Fund seeks to achieve maximum current income exempt from
federal income taxes consistent with preservation of capital and maintenance of
liquidity. Treasury Obligations Fund seeks to achieve maximum current income to
the extent consistent with the preservation of capital and maintenance of
liquidity. Each Fund has its own policies designed to meet its investment
objective. Tax Free Obligations Fund pursues its objective by investing in money
market instruments the income from which is exempt from federal income tax.
Treasury Obligations Fund pursues its objective by investing in United States
Treasury obligations and repurchase and reverse repurchase agreements with
respect to such obligations. Each Fund is a diversified open-end mutual fund.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, INCLUDING FIRST BANK NATIONAL ASSOCIATION OR ANY OF ITS
AFFILIATES, NOR ARE THEY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
This Prospectus sets forth concisely information about the Funds that a
prospective investor should know before investing. It should be read and
retained for future reference.
A Statement of Additional Information dated ____________, 1997 for the Funds has
been filed with the Securities and Exchange Commission ("SEC") and is
incorporated in its entirety by reference in this Prospectus. To obtain copies
of the Statement of Additional Information at no charge, or to obtain other
information or make inquiries about the Funds, call (800) 637-2548 or write SEI
Investments Distribution Co., Oaks, Pennsylvania 19456. The SEC maintains a
World Wide Web site that contains reports and information regarding issuers that
file electronically with the SEC. The address of such site is
"http://www.sec.gov."
AN INVESTMENT IN THE FUNDS IS NEITHER INSURED NOR GUARANTEED BY THE UNITED
STATES GOVERNMENT, AND THERE IS NO ASSURANCE THAT THE FUNDS WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is __________, 1997.
<PAGE>
TABLE OF CONTENTS
PAGE
----
SUMMARY OF FUND EXPENSES 4
Class A Share Fees and Expenses 4
Information Concerning Fees and
Expenses 5
THE FUNDS 6
INVESTMENT OBJECTIVES AND POLICIES 6
Tax Free Obligations Fund 6
Treasury Obligations Fund 7
MANAGEMENT OF THE FUNDS 7
Investment Adviser 8
Portfolio Managers 9
Custodian 9
Administrator 9
Transfer Agent 9
DISTRIBUTOR 10
PORTFOLIO TRANSACTIONS 11
INVESTING IN THE FUNDS 11
Share Purchases 11
Minimum Investment Required 12
Systematic Investment Program 12
Systematic Exchange Program 13
Certificates and Confirmations 13
Dividends and Distributions 13
Exchange Privilege 14
REDEEMING SHARES 15
By Telephone 15
By Mail 16
By Checking Account 17
By Systematic Withdrawal Program 17
Redemption Before Purchase
Instruments Clear 17
Accounts with Low Balances 17
DETERMINING THE PRICE OF SHARES 18
TAXES 18
FUND SHARES 19
CALCULATION OF PERFORMANCE DATA 19
INVESTMENT RESTRICTIONS AND
TECHNIQUES 20
General 20
Municipal Obligations 22
Loan Participations; Section 4(2) and
Rule 144A Securities 23
Securities of Foreign Banks and
Branches 24
United States Government Securities 24
Repurchase Agreements 25
Reverse Repurchase Agreements 25
Credit Enhancement Agreements 26
Put Options 26
Variable and Floating Rate
Obligations 27
Lending of Portfolio Securities 27
When-Issued and Delayed- Delivery
Securities 27
Money Market Funds 28
Information Concerning Compensation
Paid to First Trust National
Association and Its Affiliates 28
<PAGE>
SUMMARY OF FUND EXPENSES
CLASS A SHARE FEES AND EXPENSES
TAX FREE TREASURY
OBLIGATIONS OBLIGATIONS
FUND FUND
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on purchases None None
Maximum sales load imposed on reinvested
dividends None None
Maximum contingent deferred sales charge
(as a percentage of original purchase
price or redemption proceeds, as
applicable) None None
Redemption fees None None
Exchange fees None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment advisory fees (after voluntary
fee waivers and reimbursements)(1) 0.11% 0.30%
Rule 12b-1 fees 0.25%(2) 0.25%(2)
Other expenses (after voluntary fee
waivers and reimbursements)(1) 0.34% 0.15%
Total fund operating expenses
(after voluntary fee waivers and
reimbursements)(1) 0.70% 0.70%
EXAMPLE(3)
You would pay the following expenses on a $1,000 investment, assuming (i) a 5%
annual return, and (ii) redemption at the end of each time period:
1 year $ 7 $ 7
3 years $ 22 $ 22
5 years (Treasury Obligations Fund) -- $ 39
10 years (Treasury Obligations Fund) -- $ 87
(1) First Bank National Association, the investment adviser for the Funds,
intends to waive a portion of its fees and/or reimburse expenses on a
voluntary basis, and the amounts shown above reflect these waivers and
reimbursements as of the date of this Prospectus. The Funds' investment
adviser intends to maintain such waivers and reimbursements until
September 30, 1998. Absent any fee waivers or reimbursements,
investment advisory fees for the Fund as an annualized percentage of
average daily net assets would be 0.40%; and total fund operating
expenses calculated on such basis would be 0.99% for Tax Free
Obligations Fund and 0.80% for Treasury Obligations Fund. Other
expenses include an annual administration fee.
(2) Of this amount, 0.25% is designated as a shareholder servicing fee and
none as a distribution fee.
(3) Absent the fee waivers and reimbursement referred to in (1) above, the
dollar amounts for the 1 and 3-year periods would be as follows: Tax
Free Obligations Fund, $10 and $32, and Treasury Obligations Fund, $8
and $26, and, in the case of Treasury Obligations Fund, the dollar
amounts for the 5 and 10-year periods would be $44 and $99.
<PAGE>
INFORMATION CONCERNING FEES AND EXPENSES
The purpose of the preceding table is to assist the investor in understanding
the various costs and expenses that an investor in the Funds may bear directly
or indirectly. THE DATA CONTAINED IN THE TABLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN. The information set forth in the tables relates only to
the Class A Shares of the Funds. The Funds also offer Class C and Class D
Shares.
Investment advisory fees are paid by the Funds to First Bank National
Association (the "Adviser") for managing its investments. The examples in the
above table are based on annual operating expenses for the Funds after voluntary
fee waivers and expense reimbursements by the Adviser. Prior to fee waivers,
investment advisory fees accrue at the annual rate of 0.40% of the average daily
net assets of the Funds. "Other expenses" include administrative fees which are
paid by the Funds to SEI Investments Management Corporation (the
"Administrator") for providing various services necessary to operate the Funds.
These include shareholder servicing and certain accounting and other services.
The Administrator provides these services for a fee calculated as described
under "Management of the Funds -- Administrator" below. "Other expenses" in the
tables are based on estimates.
The Class A Shares of the Funds pay a shareholder servicing fee to the
Distributor in an amount equalling 0.25% of the annual average daily net assets
attributable to the Class A Shares. Due to the payment of such fees by the Class
A Shares of the Funds, long-term shareholders may pay more than the equivalent
of the maximum front-end sales charges otherwise permitted by NASD rules.
<PAGE>
THE FUNDS
First American Funds, Inc. ("FAF") is an open-end management investment company
that offers its shares in four different mutual funds, each of which evidences
an interest in a separate and distinct investment portfolio. Shareholders may
purchase shares in the Funds through separate classes that provide for
variations in distribution costs, shareholder servicing fees, voting rights and
dividends. Except for these differences among classes, each share of a Fund
represents an undivided proportionate interest in such Fund. FAF is incorporated
under the laws of the State of Minnesota, and its principal offices are located
at Oaks, Pennsylvania 19456.
This Prospectus relates only to the Class A Shares of the Funds. Information
regarding the Class C and Class D Shares of the Funds is contained in separate
prospectuses that may be obtained from the Funds' Distributor, SEI Investments
Distribution Co., Oaks, Pennsylvania 19456, or by calling (800) 637-2548. The
Board of Directors of FAF may authorize additional series or classes of common
stock in the future.
INVESTMENT OBJECTIVES AND POLICIES
The Adviser will purchase investments for each Fund consistent with its
investment objective described below and that meet the quality characteristics
established for such Fund. As discussed below, each Fund pursues different
strategies in seeking to achieve its investment objective. A Fund's investment
objective may not be changed without an affirmative vote of the holders of a
majority (as defined in the Investment Company Act of 1940, as amended (the
"1940 Act"), of the outstanding shares of the Fund. The Funds may not always
achieve their objectives.
TAX FREE OBLIGATIONS FUND
As a fundamental investment objective, Tax Free Obligations Fund seeks to
achieve maximum current income exempt from federal income taxes consistent with
preservation of capital and maintenance of liquidity. In seeking to achieve this
objective and as a fundamental policy, the Fund invests at least 80% of its
total assets in municipal obligations, the income from which is exempt from
federal income tax. In addition, the Fund may invest up to 20% of its total
assets in municipal obligations, the income from which is an item of tax
preference for purposes of the federal alternative minimum tax. For more
information on these types of securities, see "Investment Restrictions and
Techniques -- Municipal Obligations" below.
The Fund may also (i) engage in repurchase agreements with respect to any of its
portfolio securities, (ii) purchase credit enhancement agreements to
<PAGE>
enhance the creditworthiness of its portfolio securities, (iii) lend securities
from its portfolio, (iv) purchase the securities described above on a
when-issued or delayed-delivery basis, (v) purchase put options with respect to
its portfolio securities and (vi) invest in variable or floating rate
obligations. See "Investment Restrictions and Techniques" below.
The Fund may invest up to 20% of its total assets collectively in taxable money
market securities including marketable securities issued or guaranteed by the
United States Government or its agencies or instrumentalities; certain United
States dollar denominated obligations (including bankers acceptances, time
deposits, and certificates of deposit, including variable rate certificates of
deposit) of banks (including commercial banks, savings banks, and savings and
loan associations) organized under the laws of the United States or any state,
foreign banks, United States branches of foreign banks, if such banks have total
assets of not less than $500 million; and certain corporate and other
obligations, including high grade commercial paper, non-convertible corporate
debt securities, and loan participation interests with no more than 397 days
remaining to maturity as determined pursuant to Rule 2a-7 under the 1940 Act. In
addition, the Fund's engagement in lending portfolio securities and in
purchasing put options with respect to its portfolio securities may result in
taxable income. For defensive purposes, the Fund may temporarily invest more
than 20% (up to 100%) of the value of its total assets in taxable money market
securities and certain tax-exempt securities, the income on which is an item of
tax preference for purposes of the federal alternative minimum tax when, in the
opinion of the Adviser, it is advisable to do so in light of prevailing market
and economic conditions for purposes of preserving liquidity or capital. See
"Investment Restrictions and Techniques" for a discussion of the risks relating
to investments in such securities.
TREASURY OBLIGATIONS FUND
As a fundamental investment objective, Treasury Obligations Fund seeks to
achieve maximum current income consistent with preservation of capital and
maintenance of liquidity. In seeking to achieve its investment objective,
Treasury Obligations Fund invests in United States Treasury obligations maturing
within 397 days or less as determined pursuant to Rule 2a-7 under the 1940 Act
and repurchase agreements and reverse repurchase agreements relating to such
securities. The Fund may also purchase such securities on a when-issued or
delayed-delivery basis and lend securities from its portfolio. For a discussion
of these securities and techniques, see "Investment Restrictions and Techniques"
below.
MANAGEMENT OF THE FUNDS
The Board of Directors of FAF has the primary responsibility for overseeing the
overall management and electing other officers of FAF. Subject to the
<PAGE>
overall direction and supervision of the Board of Directors, the Adviser acts as
investment adviser for and manages the investment portfolios of FAF.
INVESTMENT ADVISER
First Bank National Association, 601 Second Avenue South, Minneapolis, Minnesota
55480, acts as the Funds' investment adviser through its First Asset Management
group. The Adviser provides the Funds with investment research and portfolio
management. As of December 31, 1996, the Adviser was managing accounts with an
aggregate value of approximately $35 billion, including mutual fund assets in
excess of $12 billion. First Bank System, Inc., 601 Second Avenue South,
Minneapolis, Minnesota 55480, is the holding company for the Adviser.
Each Fund pays the Adviser a monthly fee equal, on an annual basis, to 0.40% of
the Fund's average daily net assets. The Adviser may, at its option, waive any
or all of its fees, or reimburse expenses, with respect to the Funds from time
to time. Any such waiver or reimbursement is voluntary. The Adviser also may
absorb or reimburse expenses of a Fund 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
the Funds' overall expense ratio and of increasing yield to investors, or the
converse, at the time such amounts are absorbed or reimbursed, as the case may
be.
The Glass-Steagall Act generally prohibits banks from engaging in the business
of underwriting, selling, or distributing securities and from being affiliated
with companies principally engaged in those activities. In addition,
administrative and judicial interpretations of the Glass-Steagall Act prohibit
bank holding companies and their bank and nonbank subsidiaries from organizing,
sponsoring, or controlling registered open-end investment companies that are
continuously engaged in distributing their shares. Bank holding companies and
their bank and nonbank subsidiaries may serve, however, as investment advisers
to registered investment companies, subject to a number of terms and conditions.
Although the scope of the prohibitions and limitations imposed by the
Glass-Steagall Act has not been fully defined by the courts or the appropriate
regulatory agencies, the Funds have received an opinion from their counsel that
the Adviser is not prohibited from performing the investment advisory services
described above, and that FBS Investment Services, Inc. ("ISI"), a wholly-owned
broker-dealer of the Adviser, is not prohibited from serving as a Participating
Institution as described herein. In the event of changes in federal or state
statutes or regulations or judicial and administrative interpretations or
decisions pertaining to permissible activities of bank holding companies and
their bank and nonbank subsidiaries, the Adviser might be prohibited from
<PAGE>
continuing these arrangements. In that event, it is expected that the Board of
Directors would make other arrangements and shareholders would not suffer
adverse financial consequences.
PORTFOLIO MANAGERS
JOSEPH M. ULREY III is portfolio co-manager for each of the Funds. He spent
10 years overseeing various functions in the Treasury and Finance Divisions
of First Bank System before joining the Adviser. For the past 5 1/2 years Mr.
Ulrey has managed assets for individuals and institutional clients of the
Adviser. Mr. Ulrey graduated from Macalester College with a bachelor's degree
in mathematics/economics and went on to the University of Chicago for his
master's in business administration, concentrating in finance.
JAMES D. PALMER is portfolio co-manager for each of the Funds. Mr. Palmer
joined the Adviser in 1992, prior to which he was a securities lending trader
and senior master trust accountant with First Trust National Association. Mr.
Palmer holds a bachelor's degree from the University of Wisconsin -- LaCrosse
and a master's of business administration degree from the University of
Minnesota.
CUSTODIAN
The custodian of the Funds' assets is First Trust National Association (the
"Custodian"), First Trust Center, 180 East Fifth Street, St. Paul, Minnesota
55101. The Custodian is a subsidiary of FBS, which also controls the Adviser. As
compensation for its services to the Funds, the Custodian is paid 0.03% of each
Fund's average daily net assets. In addition, the Custodian is reimbursed by the
Funds for its out-of-pocket expenses incurred in providing services to the
Funds.
ADMINISTRATOR
The Administrator, a wholly-owned subsidiary of SEI Investments Company ("SEI"),
provides the Funds with certain administrative personnel and services necessary
to operate the Funds. Such services include shareholder servicing and certain
legal and accounting services. The Administrator provides these personnel and
services for compensation at an annual rate equal to 0.07% of each Fund's
average daily net assets, subject to a minimum administrative fee during each
fiscal year of $50,000; provided, that to the extent the aggregate net assets of
all First American funds exceed $8 billion, the percentage stated above is
reduced to 0.055%.
TRANSFER AGENT
DST Systems, Inc. serves as the transfer agent (the "Transfer Agent") and
dividend disbursing agent for the Funds. The address of the Transfer Agent is
<PAGE>
1004 Baltimore, Kansas City, Missouri 64105. The Transfer Agent is not
affiliated with the Distributor, the Administrator or the Adviser.
DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor") is the principal
distributor for shares of the Funds. The Distributor is a Pennsylvania
corporation organized on July 20, 1981, and is the principal distributor for
a number of investment companies. The Distributor is a wholly-owned
subsidiary of SEI and is located at Oaks, Pennsylvania 19456. The Distributor
is not affiliated with the Adviser, First Bank System, Inc., the Custodian
and their respective affiliates.
FAF has adopted a Rule 12b-1 plan and entered into a distribution and
shareholder servicing agreement with the Distributor with respect to
distribution-related activities and shareholder servicing for the Class A Shares
of each Fund. Under this plan and agreement, each Fund pays the Distributor a
shareholder servicing fee monthly at an annual rate of 0.25% of the Fund's Class
A Shares' average daily net assets. The shareholder servicing fee is intended to
compensate the Distributor for ongoing servicing and/or maintenance of
shareholder accounts and may be used by the Distributor to provide compensation
to institutions through which shareholders hold their shares for ongoing
servicing and/or maintenance of shareholder accounts.
The foregoing plan recognizes that the Distributor, the Administrator and the
Adviser may in their discretion use their own assets to pay for certain costs of
distributing Fund shares. Any such arrangement to pay such additional costs may
be in the form of cash or promotional incentives and may be commenced or
discontinued by the Adviser, the Administrator, the Distributor, or any
Participating Institutions (as defined below) at any time. The Distributor may
engage securities dealers, financial institutions (including, without
limitation, banks), and other industry professionals (the "Participating
Institutions") to perform share distribution and shareholder support services
for the Funds. ISI, a subsidiary of the Adviser, is a Participating Institution.
The investment company shares and other securities distributed by the
Distributor are not deposits or obligations of, or endorsed or guaranteed by,
First Bank National Association or its affiliates, and are not insured by the
Bank Insurance Fund, which is administered by the Federal Deposit Insurance
Corporation.
<PAGE>
PORTFOLIO TRANSACTIONS
The Funds anticipate being as fully invested as practicable in debt securities.
Most of the Funds' portfolio transactions are effected with dealers at a spread
or markup. The dealer's profit, if any, is the difference, or spread, between
the dealer's purchase and sale price for the obligation. The Funds may authorize
the Adviser to place brokerage orders with some brokers who help distribute the
Funds' shares, if the Adviser reasonably believes that the commission and
transaction quality are comparable to that available from other qualified
brokers. Because the Adviser trades a large number of securities, dealers
generally are willing to work with the Adviser on a more favorable spread to the
Funds than would be possible for most individual investors.
INVESTING IN THE FUNDS
SHARE PURCHASES
Shares are sold at their net asset value on days on which the New York Stock
Exchange and the Federal Reserve wire system are open for business. Shares of
each Fund may be purchased as described below. The Funds reserve the right to
reject any purchase request.
THROUGH A FINANCIAL INSTITUTION. Shares may be purchased through a financial
institution which has a sales agreement with the Distributor. An investor may
call his or her financial institution to place an order. Purchase orders must be
received by the financial institution by the time specified by the institution
to be assured same day processing, and purchase orders must be transmitted to
and received by a Fund by 12:00 noon Central time in order for shares to be
purchased at that day's price. It is the financial institution's responsibility
to transmit orders promptly.
Certain brokers assist their clients in the purchase or redemption of shares
and charge a fee for this service.
BY MAIL. An investor may place an order to purchase shares of the Funds directly
through the Transfer Agent. Orders by mail will be executed upon receipt of
payment by the Transfer Agent. If an investor's check does not clear, the
purchase will be cancelled and the investor could be liable for any losses or
fees incurred. Third-party checks, credit cards, credit card checks and cash
will not be accepted. When purchases are made by check, the proceeds of
redemptions of the shares are not available until the Transfer Agent is
reasonably certain that the purchase payment has cleared, which could take up to
ten calendar days from the purchase date.
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In order to purchase shares by mail, an investor must:
* complete and sign the new account form;
* enclose a check made payable to (Fund name); and
* mail both to DST Systems, Inc., P.O. Box 419382, Kansas City,
Missouri 64141-6382.
After an account is established, an investor can purchase shares by mail by
enclosing a check and mailing it to DST Systems, Inc. at the above address.
BY WIRE. To purchase shares of the Funds by wire, call (800) 637-2548 before
12:00 noon Central time to place an order. All information needed will be taken
over the telephone, and the order will be considered received when the Custodian
receives payment by wire. If the Custodian does not receive the wire by 12:00
noon Central time, the order will be executed the next business day. Federal
funds should be wired as follows: First Bank National Association, Minneapolis,
Minnesota; ABA Number 091000022; For Credit to: DST Systems: Account Number
160234580266; For Further Credit To: (Investor Name and Fund Name). Shares
cannot be purchased by Federal Reserve wire on days on which the New York Stock
Exchange is closed and on federal holidays upon which wire transfers are
restricted.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment is $1,000, unless the investment is in a
retirement plan, in which case the minimum initial investment is $250. The
minimum subsequent investment is $100. The Funds reserve the right to waive the
minimum investment requirement in certain cases for employees of First Bank
National Association, First Trust National Association, First Bank
System, Inc., and their respective affiliates.
SYSTEMATIC INVESTMENT PROGRAM
Once an account has been opened, shareholders may add to their investment on a
regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account and
invested in a Fund's shares at the net asset value next determined after an
order is received. A shareholder may apply for participation in this program
through his or her financial institution or call (800) 637-2548.
SYSTEMATIC EXCHANGE PROGRAM
Shares of the Funds also may be exchanged through automatic monthly deductions
from an investor's account for the same class of shares of First American
Investment Funds, Inc. or First American Strategy Funds, Inc. Under a systematic
exchange program, an investor initially purchases Class A Shares
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of a Fund in an amount equal to the total amount of the investment the investor
desires to make in the same class of shares of First American Investment Funds
or First American Strategy Funds. On a monthly basis a specified dollar amount
of a Fund shares is exchanged for shares of the same class of a specified
portfolio of First American Investment Funds or First American Strategy Funds.
Exchanges of Class A Shares will be subject to the applicable sales charge
imposed by the First American Investment Funds portfolio and, accordingly, it
may be beneficial for an investor to execute a letter of intent in connection
with a Class A Shares systematic exchange program. Shares of First American
Strategy Funds are not subject to a sales charge. The systematic exchange
program of investing a fixed dollar amount at regular intervals over time in a
First American Investment Funds or First American Strategy Funds portfolio has
the effect of reducing the average cost per share of the shares of the portfolio
acquired. This effect also can be achieved through the First American Investment
Funds or First American Strategy Funds systematic investment program, which is
described in the applicable prospectuses. A shareholder may apply for
participation in the systematic exchange program through his or her financial
institution or by calling (800) 637-2548.
CERTIFICATES AND CONFIRMATIONS
The Transfer Agent maintains a share account for each shareholder. Share
certificates will not be issued by the Funds. Monthly confirmations are sent
to report all transactions and dividends paid during that month.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income will be accrued daily and paid monthly.
Dividends are automatically reinvested on payment dates in additional shares of
the Funds, unless cash payments are requested by contacting the applicable Fund.
Shares purchased through the Fund before 12:00 noon Central time earn dividends
that day.
EXCHANGE PRIVILEGE
Shareholders may exchange Class A Shares of each Fund for currently available
Class A Shares, of the other funds in the First American family. Exchanges of
Class A Shares of the Funds will be subject to imposition of sales charges, as
applicable, unless such shares are shown to have been originally issued in
exchange for shares in the First American family of funds that had a sales
charge. Exchanges of shares among the funds must meet any applicable minimum
investment of the fund for which shares are being exchanged.
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The ability to exchange shares of the funds does not constitute an offering or
recommendation of shares of one fund by another fund. This privilege is
available to shareholders resident in any state in which the fund shares being
acquired may be sold. Exchanges may be accomplished by a written request, or by
telephone if a preauthorized exchange authorization is on file with the Transfer
Agent, shareholder servicing agent, or financial institution.
Written exchange requests must be signed exactly as shown on the authorization
form, and the signatures may be required to be guaranteed as for a redemption of
shares by an entity described under "Redeeming Shares -- By Mail." Neither the
Funds, the Distributor, the Transfer Agent, any shareholder servicing agent, nor
any financial institution will be responsible for further verification of the
authenticity of the exchange instructions. See also "Redeeming Shares."
Telephone exchange instructions made by the investor may be carried out only if
a telephone authorization form completed by the investor is on file with the
Transfer Agent, shareholder servicing agent, or financial institution. Shares
may be exchanged between two funds by telephone only if the two funds have
identical shareholder registrations.
Telephone exchange instructions may be recorded and will be binding upon the
shareholder. Telephone instructions must be received by the Transfer Agent
before 12:00 noon Central time, or by a shareholder's shareholder servicing
agent or financial institution by the time specified by it, in order for shares
to be exchanged the same day. Neither the Transfer Agent nor the Funds will be
responsible for the authenticity of exchange instructions received by telephone
if it reasonably believes those instructions to be genuine. The Funds and the
Transfer Agent will each employ reasonable procedures to confirm that telephone
instructions are genuine, and they may be liable for losses resulting from
unauthorized or fraudulent telephone instructions if they do not employ these
procedures.
Shareholders of a Fund may have difficulty in making exchanges by telephone
through brokers and other financial institutions during times of drastic
economic or market changes. If a shareholder cannot contact his or her broker or
financial institution by telephone, it is recommended that an exchange request
be made in writing and sent by overnight mail to DST Systems, Inc., 1004
Baltimore, Kansas City, Missouri 64105.
The terms of any exchange privileges may be modified or terminated by the Funds
at any time. There are currently no additional fees or charges for the exchange
service and the Funds do not contemplate establishing such fees or charges,
although each Fund reserves the right to do so. Shareholders will be notified of
any modification or termination of the exchange privilege and of the imposition
of any additional fees or charges.
<PAGE>
REDEEMING SHARES
Each Fund redeems shares at the net asset value next determined after the
Transfer Agent receives the redemption request. Redemptions will be made on days
on which a Fund computes its net asset value. Redemptions can be made as
described below and must be received in proper form.
BY TELEPHONE
A shareholder may redeem shares of the Funds, if he or she elects the privilege
on the initial shareholder application, by calling his or her financial
institution to request the redemption. Shares will be redeemed at the net asset
value next determined after a Fund receives the redemption request from the
financial institution. Redemption requests must be received by the financial
institution by the time specified by the institution to be assured same day
processing and redemption requests must be transmitted to and received by a Fund
by 12:00 noon Central time for same day processing. Pursuant to instructions
received from the financial institution, redemptions will be made by check or by
wire transfer. It is the financial institution's responsibility to transmit
redemption requests promptly. Redemptions processed by 12:00 noon Central time
will not receive that day's dividend. Redemption requests placed after that time
will earn that day's dividend, but will not receive proceeds until the following
day.
Shareholders who did not purchase their shares through a financial institution
may redeem Fund shares by telephoning (800) 637-2548. At the shareholder's
request, redemption proceeds will be paid by check and mailed to the
shareholder's address of record or wire transferred to the shareholder's account
at a domestic commercial bank that is a member of the Federal Reserve System,
normally within one business day, but in no event longer than seven days after
the request. Wire instructions must be previously established in the account or
provided in writing. The minimum amount for a wire transfer is $1,000. If at any
time a Fund determines it necessary to terminate or modify this method of
redemption, shareholders will be promptly notified.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption should be considered. Neither the Transfer Agent nor the
Funds will be responsible for any loss, liability, cost or expense for acting
upon wire instructions or upon telephone instructions that it reasonably
believes to be genuine. These procedures may include taping of telephone
conversations. To ensure authenticity of redemption or exchange instructions
received by telephone, the Transfer Agent examines each shareholder request by
verifying the account number and/or taxpayer identification number at the time
such request is made. The Transfer Agent
<PAGE>
subsequently sends confirmations of both exchange sales and exchange purchases
to the shareholder for verification. If reasonable procedures are not employed,
the Transfer Agent and the Funds may be liable for any losses due to
unauthorized or fraudulent telephone transactions.
BY MAIL
Any shareholder may redeem Fund shares by sending a written request to the
Transfer Agent, shareholder servicing agent, or financial institution. The
written request should include the shareholder's name, the Fund name, the
account number, and the share or dollar amount requested to be redeemed, and
should be signed exactly as the shares are registered. Shareholders should call
the applicable Fund, shareholder servicing agent or financial institution for
assistance in redeeming by mail. A check for redemption proceeds normally is
mailed within one business day, but in no event more than seven business days,
after receipt of a proper written redemption request.
Shareholders requesting a redemption of $5,000 or more, a redemption of any
amount to be sent to an address other than that on record with a Fund, or a
redemption payable other than to the shareholder of record must have signatures
on written redemption requests guaranteed by:
* a trust company or commercial bank, the deposits of which are
insured by the Bank Insurance Fund, which is administered by
the Federal Deposit Insurance Corporation ("FDIC");
* a member firm of the New York, American, Boston, Midwest, or
Pacific Stock Exchanges or the National Association of
Securities Dealers;
* a savings bank or savings and loan association the deposits of
which are insured by the Savings Association Insurance Fund,
which is administered by the FDIC; or
* any other "eligible guarantor institution," as defined in the
Securities Exchange Act of 1934.
The Funds do not accept signatures guaranteed by a notary public.
The Funds and the Transfer Agent have adopted standards for accepting signature
guarantees from the above institutions. The Funds may elect in the future to
limit eligible signature guarantees to institutions that are members of a
signature guarantee program. The Funds and the Transfer Agent reserve the right
to amend these standards at any time without notice.
BY CHECKING ACCOUNT
At the shareholder's request, the Transfer Agent will establish a checking
account for redeeming Fund shares. With a Fund checking account, shares
<PAGE>
may be redeemed simply by writing a check for $100 or more. The redemption will
be made at the net asset value on the date that the Transfer Agent presents the
check to a Fund. A check may not be written to close an account. If a
shareholder wishes to redeem shares and have the proceeds available, a check may
be written and negotiated through the shareholder's bank. Checks should never be
sent to the Transfer Agent to redeem shares. Copies of canceled checks are
available upon request. A fee is charged for this service. For further
information, contact the Funds.
BY SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders whose account value is at least $5,000 may elect to participate in
the Systematic Withdrawal Program. Under this program, Fund shares are redeemed
to provide for periodic withdrawal payments in an amount directed by the
shareholder. A shareholder may apply for participation in this program through
his or her financial institution.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When shares are purchased by check or with funds transferred through the
Automated Clearing House, the proceeds of redemption of those shares are not
available until the Transfer Agent is reasonably certain that the purchase
payment has cleared, which could take up to ten calendar days from the purchase
date.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Funds may
redeem shares in any account, except retirement plans, and pay the proceeds to
the shareholder if the account balance falls below the required minimum value of
$500. This requirement does not apply, however, if the balance falls below $500
because of changes in the Funds' net asset value. Before shares are redeemed to
close an account, the shareholder will be notified in writing and allowed 60
days to purchase additional shares to meet the minimum account requirement.
DETERMINING THE PRICE OF SHARES
The net asset value per share is determined as of the earlier of the close of
the New York Stock Exchange or 3:00 p.m. Central time on each day the New York
Stock Exchange is open for business, provided that the net asset value need not
be determined on days when no Fund shares are tendered for redemption and no
order to purchase Fund shares is received and on days on which changes in the
value of portfolio securities will not materially affect the current net asset
value of the Funds' shares. The price per share for purchases
<PAGE>
or redemptions is such value next computed after the Transfer Agent receives the
purchase order or redemption request. It is the responsibility of Participating
Institutions to promptly forward purchase and redemption orders to the Transfer
Agent. In the case of redemptions and repurchases of shares owned by
corporations, trusts or estates, the Transfer Agent or a Fund may require
additional documents to evidence appropriate authority in order to effect the
redemption and the applicable price will be that next determined following the
receipt of the required documentation.
The net asset value per share for each Fund is determined by dividing the value
of the securities owned by the Fund plus any cash and other assets (including
interest accrued and dividends declared but not collected), less all
liabilities, by the number of Fund shares outstanding.
Securities in the Funds' portfolio are valued on the basis of amortized cost.
This means valuation assumes a steady rate of payment from the date of purchase
until maturity instead of looking at actual changes in market value. The Funds'
other assets are valued by a method which the FAF Board of Directors believes
would accurately reflect fair value.
TAXES
The Funds will distribute all of their net income to shareholders. Dividends
paid by Treasury Obligations Fund will be taxable as ordinary income to
shareholders, whether reinvested or received in cash. Tax Free Obligations Fund
intends to take all actions required under the Internal Revenue Code of 1986 (as
amended) to ensure that it may pay "exempt-interest dividends." If the Fund
meets these requirements, distributions of net interest income from tax-exempt
obligations that are designated by the Fund as exempt-interest dividends will be
excludable from gross income of the Fund's shareholders. Distributions paid from
other interest income will be taxable to shareholders as ordinary income. Tax
Free Obligations Fund may invest up to 20% of its total assets in securities
which generate interest which is treated as an item of tax preference.
For a more detailed discussion of the taxation of the Funds and the tax
consequences of an investment in the Funds, see "Taxes" in the Statement of
Additional Information.
FUND SHARES
Each share of the Funds is fully paid, nonassessable, and transferable.
Shares may be issued as either full or fractional shares. Fractional shares
have pro
<PAGE>
rata the same rights and privileges as full shares. Shares of the Funds have no
preemptive or conversion rights.
Each share of the Funds has one vote. On some issues, such as the election of
directors, all shares of all FAF 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 or
class, the shares of that fund or class will vote as a separate series. Examples
of such issues would be proposals to alter a fundamental investment restriction
pertaining to a fund or to approve, disapprove or alter a distribution plan
pertaining to a class.
The Bylaws of FAF provide that annual shareholders' meetings are not required
and that meetings of shareholders need be held only with such frequency as
required under Minnesota law and the 1940 Act.
CALCULATION OF PERFORMANCE DATA
From time to time each Fund may advertise its "yield," "effective yield" and, in
the case of Tax Free Obligations Fund, "tax equivalent yield" in advertisements
or in reports or other communications with shareholders. These yield figures are
based on historical earnings and are not intended to indicate future
performance. The "yield" of a Fund refers to the income generated by an
investment over a seven-day period (which period will be stated in the
advertisement). This income is then "annualized," that is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly but, when annualized, the income
earned by an investment in the Fund is assumed to be reinvested. The "effective
yield" will be slightly higher than the "yield" because of the compounding
effect of this assumed reinvestment. "Tax-equivalent yield" is that yield which
a taxable investment must generate in order to equal a Fund's yield for an
investor in a stated income tax bracket. Tax equivalent yield is computed by
dividing that income tax rate, and adding the resulting amount to that portion,
if any, of the yield which is not tax exempt.
Advertisements and other sales literature for a Fund may refer to the Fund's
"cumulative total return" and "average annual total return." Total return is
based on the overall dollar or percentage change in value of a hypothetical
investment in a Fund assuming dividend distributions are reinvested. A
cumulative total return reflects the Funds' performance over a stated period of
time. An average annual total return reflects the hypothetical annually
<PAGE>
compounded rate that would have produced the same cumulative total return if
performance had been constant over the entire period. Because average annual
returns tend to smooth out variations in a Fund's performance, they are not the
same as actual year-by-year results.
Performance quotations are computed separately for Class A, Class C and Class D
Shares of each Fund. The performance of each class will differ due to the
varying levels of distribution fees and shareholder service fees applicable to
each class.
INVESTMENT RESTRICTIONS AND TECHNIQUES
GENERAL
The Funds are subject to the investment restrictions of Rule 2a-7 under the 1940
Act in addition to other policies and restrictions discussed herein. Pursuant to
Rule 2a-7, each Fund is required to invest exclusively in securities that mature
within 397 days from the date of purchase and to maintain an average weighted
maturity of not more than 90 days. Under Rule 2a-7, securities which are subject
to specified types of demand or put features may be deemed to mature at the next
demand or put date although they have a longer stated maturity. Rule 2a-7 also
requires that all investments by each Fund be limited to United States
dollar-denominated investments that (a) present "minimal credit risk" and (b)
are at the time of acquisition "Eligible Securities." Eligible Securities
include, among others, securities that are rated by two Nationally Recognized
Statistical Rating Organizations ("NRSROs") in one of the two highest categories
for short-term debt obligations, such as A-1 or A-2 by Standard & Poor's
Corporation ("Standard & Poor's"), or Prime-1 or Prime-2 by Moody's Investors
Service, Inc. ("Moody's"). It is the responsibility of the Adviser to determine
that the Funds' investments present only "minimal credit risk" and are Eligible
Securities. The Board of Directors of FAF has established written guidelines and
procedures for the Adviser and oversees the Adviser's determination that the
Funds' portfolio securities present only "minimal credit risk" and are Eligible
Securities.
Rule 2a-7 requires, among other things, that Treasury Obligations Fund may not
invest, other than in United States "Government Securities" (as defined in the
1940 Act), more than 5% of its total assets in securities of a single issuer;
provided, that the Fund may invest in First Tier Securities (as defined in Rule
2a-7) in excess of that limitation for a period of up to three business days
after the purchase thereof provided that the Fund may not make more than one
such investment at any time. Rule 2a-7 also requires that Treasury Obligations
Fund may not invest, other than in United States Government securities, (a) more
than 5% of its total assets in Second Tier Securities (i.e.,
<PAGE>
Eligible Securities that are not rated by two NRSROs in the highest category
such as A-1 and Prime-1) and (b) more than the greater of 1% of its total assets
or $1,000,000 in Second Tier Securities of any one issuer.
In order to provide shareholders with full liquidity, each Fund has implemented
the following practices to maintain a constant price of $1.00 per share:
limiting the portfolio's dollar-weighted average maturity to 90 days or less and
buying securities which mature within 397 days from the date of acquisition as
determined pursuant to Rule 2a-7 under the 1940 Act. The Funds cannot guarantee
a $1.00 share price but these practices help to minimize any price fluctuations
that might result from rising or declining interest rates. All money market
instruments, including United States Government securities, can change in value
when interest rates or an issuer's creditworthiness changes. The value of the
securities in the Funds' portfolios can be expected to vary inversely with
changes in prevailing interest rates, with the amount of such variation
depending primarily upon the period of time remaining to maturity of the
security. If the security is held to maturity, no gain or loss will be realized
as a result of interest rate fluctuations.
As a non-fundamental policy, neither Fund will purchase a security if, as a
result: (a) more than 10% of its net assets would be in illiquid assets
including time deposits and repurchase agreements maturing in more than seven
days; or (b) 25% or more of its assets would be in any single industry provided
that there is no limitation on the purchase of obligations issued or guaranteed
by the United States, its agencies or instrumentalities, or obligations of
domestic commercial banks, excluding for this purpose, foreign branches of
domestic commercial banks.
Unless otherwise stated, the policies described above in this section for the
Funds are non-fundamental and may be changed by a vote of the Board of
Directors. The Funds have adopted certain other investment restrictions, which
are set forth in detail in the Statement of Additional Information. These
restrictions are fundamental and may not be changed without the approval of the
holders of a majority (as defined in the 1940 Act) of the outstanding shares of
the Funds.
If a percentage limitation under this section or "Investment Objectives and
Policies," or under "Investment Restrictions" in the Statement of Additional
Information, is adhered to at the time of an investment, a later increase or
decrease in percentage resulting from changes in values of assets will not
constitute a violation of such limitation except in the case of the limitation
on illiquid investments.
The securities in which the Funds invest may not yield as high a level of
current income as longer term or lower grade securities, which generally have
<PAGE>
less liquidity and a greater fluctuation in value. All securities in the
portfolio are purchased with and payable in United States dollars.
MUNICIPAL OBLIGATIONS
As described under "Investment Objectives and Policies," Tax Free Obligations
Fund invests principally in municipal obligations such as municipal bonds and
other debt obligations. These municipal bonds and debt obligations are issued by
the states and by their local and special-purpose political subdivisions. The
term "municipal bond" as used in this Prospectus includes short-term municipal
notes and other commercial paper issued by the states and their political
subdivisions.
The two general classifications of municipal bonds are "general obligation"
bonds and "revenue" bonds. General obligation bonds are secured by the
governmental issuer's pledge of its faith, credit and taxing power for the
payment of principal and interest. They are usually paid from general revenues
of the issuing governmental entity. Revenue bonds, on the other hand, are
usually payable only out of a specific revenue source rather than from general
revenues. Revenue bonds ordinarily are not backed by the faith, credit or
general taxing power of the issuing governmental entity. The principal and
interest on revenue bonds for private facilities are typically paid out of rents
or other specified payments made to the issuing governmental entity by a private
company which uses or operates the facilities. Examples of these types of
obligations are industrial revenue bonds and pollution control revenue bonds.
Industrial revenue bonds are issued by governmental entities to provide
financing aid to community facilities such as hospitals, hotels, business or
residential complexes, convention halls and sport complexes. Pollution control
revenue bonds are issued to finance air, water and solids pollution control
systems for privately operated industrial or commercial facilities.
Revenue bonds for private facilities usually do not represent a pledge of the
credit, general revenues or taxing powers of the issuing governmental entity.
Instead, the private company operating the facility is the sole source of
payment of the obligation. Sometimes, the funds for payment of revenue bonds
come solely from revenue generated by operation of the facility. Revenue bonds
which are not backed by the credit of the issuing governmental entity frequently
provide a higher rate of return than other municipal obligations, but they
entail greater risk than obligations which are guaranteed by a governmental unit
with taxing power. Federal income tax laws place substantial limitations on
industrial revenue bonds, and particularly certain specified private activity
bonds issued after August 7, 1986. In the future, legislation could be
introduced in Congress which could further restrict or eliminate the income tax
exemption for interest on debt obligations in which the Funds may invest.
<PAGE>
The Fund's investment in municipal bonds and other debt obligations that are
purchased from financial institutions such as commercial and investment banks,
savings associations and insurance companies may take the form of
participations, beneficial interests in a trust, partnership interests or any
other form of indirect ownership that allows the Fund to treat the income from
the investment as exempt from federal income tax.
In addition, Tax Free Obligations Fund may invest in other federal income
tax-free securities such as (i) tax and revenue anticipation notes issued to
finance working capital needs in anticipation of receiving taxes or other
revenues, (ii) bond anticipation notes that are intended to be refinanced
through a later issuance of longer-term bonds, (iii) variable and floating rate
obligations including variable rate demand notes, and (iv) participation, trust
and partnership interests in any of the foregoing obligations.
LOAN PARTICIPATIONS; SECTION 4(2) AND RULE 144A SECURITIES
Tax Free Obligations Fund's investments in taxable money market securities may
include loan participation interests. A loan participation interest represents a
pro rata undivided interest in an underlying bank loan. Participation interests,
like the underlying loans, may have fixed, floating, or variable rates of
interest. The bank selling a participation interest generally acts as a mere
conduit between its borrower and the purchasers of interests in the loan. The
purchaser of an interest generally does not have recourse against the bank in
the event of a default on the underlying loan. Therefore, the credit risk
associated with such instruments is governed by the creditworthiness of the
underlying borrowers and not by the banks selling the interests. Loan
participation interests that can be sold within a seven-day period are deemed by
the Adviser to be liquid investments. If a loan participation interest is
restricted from being sold within a seven-day period, then it, as a
non-fundamental policy, will be limited, together with other illiquid
investments, to not more than 10% of the Fund's net assets. Commercial paper
issued in reliance on the exemption from registration afforded by Section 4(2)
of the Securities Act of 1933 and corporate obligations qualifying for resale to
certain "qualified institutional buyers" pursuant to Rule 144A under the
Securities Act of 1933 meet the criteria for liquidity established by the Board
of Directors and are quite liquid. Consequently, Tax Free Obligations Fund does
not intend to subject such securities to the limitation applicable to restricted
securities. Investing in Rule 144A securities could have the effect of
increasing the level of illiquidity in the Fund to the extent that qualified
institutional buyers become, for a time, uninterested in purchasing these
securities.
<PAGE>
SECURITIES OF FOREIGN BANKS AND BRANCHES
Because Tax Free Obligations Fund's investments in taxable money market
securities may include securities of foreign branches of domestic banks, foreign
banks, and United States branches of foreign banks, the Fund may be subject to
additional investment risks that are different in some respects from those
incurred by a fund that invests only in debt obligations of United States banks.
These risks may include future unfavorable political and economic developments
and possible withholding taxes, seizure of foreign deposits, currency controls,
interest limitations, or other governmental restrictions which might affect the
payment of principal or interest on securities owned by the Fund. Additionally,
there may be less public information available about foreign banks and their
branches. The Adviser carefully considers these factors when making investments.
The Fund has agreed that, in connection with investment in securities issued by
foreign banks, United States branches of foreign banks, and foreign branches of
domestic banks, consideration will be given to the domestic marketability of
such securities in light of these factors.
UNITED STATES GOVERNMENT SECURITIES
The Funds may invest in securities issued or guaranteed as to principal or
interest by the United States Government, or, political subdivisions, agencies
or instrumentalities of the United States Government. These investments include
direct obligations of the United States Treasury such as United States Treasury
bonds, notes, and bills. The Treasury securities are essentially the same except
for differences in interest rates, maturities, and dates of issuance. In
addition to Treasury securities, the Funds may invest in securities, such as
notes, bonds, and discount notes which are issued or guaranteed by agencies of
the United States Government and various instrumentalities which have been
established or sponsored by the United States Government. Except for United
States Treasury securities, these United States Government obligations, even
those which are guaranteed by federal agencies or instrumentalities, may or may
not be backed by the "full faith and credit" of the United States. In the case
of securities not backed by the full faith and credit of the United States, the
investor must look principally to the agency issuing or guaranteeing the
obligation for ultimate repayment and may not be able to assert a claim against
the United States itself in the event the agency or instrumentality does not
meet its commitment. The Adviser considers securities guaranteed by an
irrevocable letter of credit issued by a government agency to be guaranteed by
that agency.
United States Treasury obligations include bills, notes and bonds issued by the
United States Treasury and separately traded interest and principal component
parts of such obligations that are transferable through the Federal book-entry
system known as Separately Traded Registered Interest and Principal Securities
<PAGE>
("STRIPS"). STRIPS are sold as zero coupon securities, which means that they are
sold at a substantial discount and redeemed at face value at their maturity date
without interim cash payments of interest or principal. This discount is
accreted over the life of the security, and such accretion will constitute the
income earned on the security for both accounting and tax purposes. Because of
these features, such securities may be subject to greater interest rate
volatility than interest paying United States Treasury obligations. The Fund's
investments in STRIPS will be limited to components with maturities of less than
397 days and the Fund will not actively trade such components.
REPURCHASE AGREEMENTS
Each Fund may engage in repurchase agreements with respect to any of its
portfolio securities. In a repurchase agreement, a Fund buys a security at one
price and simultaneously promises to sell that same security back to the seller
at a mutually agreed upon time and price. The Funds may engage in repurchase
agreements with any member bank of the Federal Reserve System or dealer in
United States Government securities. Repurchase agreements usually are for short
periods, such as under one week, not to exceed 30 days. In all cases, the
Adviser must be satisfied with the creditworthiness of the other party to the
agreement before entering a repurchase agreement. In the event of bankruptcy of
the other party to a repurchase agreement, the Funds might experience delays in
recovering its cash. To the extent that, in the meantime, the value of the
securities the Funds purchased may have decreased, the Funds could experience a
loss.
REVERSE REPURCHASE AGREEMENTS
Treasury Obligations Fund may also enter into reverse repurchase agreements.
These transactions are similar to borrowing cash. The Fund will not enter into
reverse repurchase agreements to increase income (leveraging), and it will only
enter into such agreements for temporary or emergency purposes, for the purpose
of meeting redemption requests which might otherwise require the untimely
disposition of assets. In a reverse repurchase agreement, the Fund transfers
possession of a portfolio instrument to another person, such as a financial
institution, broker, or dealer, in return for a percentage of the instrument's
market value in cash, and agrees that on a stipulated date in the future the
Fund will repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable Treasury Obligations Fund to avoid selling
portfolio instruments at a time when a sale may be deemed to be disadvantageous,
but the ability to enter into reverse repurchase agreements does not ensure that
Treasury Obligations Fund will be able to avoid selling portfolio instruments at
a disadvantageous time.
<PAGE>
When effecting reverse repurchase agreements, liquid assets of Treasury
Obligations Fund, in a dollar amount sufficient to make payment for the
obligations to be purchased, are segregated on the Fund's records at the trade
date. These assets are marked to market daily and are maintained until the
transaction is settled.
During the period any reverse repurchase agreements are outstanding, but only to
the extent necessary to assure completion of the reverse repurchase agreements,
Treasury Obligations Fund will restrict the purchase of portfolio instruments to
money market instruments maturing on or before the expiration date of the
reverse repurchase agreements.
CREDIT ENHANCEMENT AGREEMENTS
Tax Free Obligations Fund may arrange for guarantees, letters of credit, or
other forms of credit enhancement agreements (collectively, "Guarantees") for
the purpose of further securing the payment of principal and/or interest on the
Fund's investment securities. Although each investment security, at the time it
is purchased, must meet the Fund's creditworthiness criteria, Guarantees
sometimes are purchased from banks and other institutions (collectively,
"Guarantors") when the Adviser, through yield and credit analysis, deems that
credit enhancement of certain of the Fund's securities is advisable. As a
non-fundamental policy, the Fund will limit the value of all investment
securities issued or guaranteed by each Guarantor to not more than 10% of the
value of the Fund's total assets.
PUT OPTIONS
Tax Free Obligations Fund may purchase tax-exempt securities which provide for
the right to resell them to the issuer, a bank or a broker-dealer at a specified
price within a specified period of time prior to the maturity date of such
obligations. Such a right to resell, which is commonly known as a "put," may be
sold, transferred or assigned only with the underlying security or securities.
The Fund may pay a higher price for a tax-exempt security with a put than would
be paid for the same security without a put. The primary purpose of purchasing
such securities with puts is to permit the Fund to be as fully invested as
practicable in tax-exempt securities while at the same time providing the Fund
with appropriate liquidity.
VARIABLE AND FLOATING RATE OBLIGATIONS
Certain of the obligations in which Tax Free Obligations Fund may invest may be
variable or floating rate obligations in which the interest rate is adjusted
either at predesignated periodic intervals (variable rate) or when there is a
change in the index rate of interest on which the interest rate payable on the
obligation is based (floating rate). Variable or floating rate
<PAGE>
obligations 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. Variable or floating rate instruments with a demand feature enable the
Fund to purchase instruments with a stated maturity in excess of 397 calendar
days. The Fund determines the maturity of variable or floating rate instruments
in accordance with Securities and Exchange Commission rules which allow the Fund
to consider certain of such instruments as having maturities that are less than
the maturity date on the face of the instrument.
LENDING OF PORTFOLIO SECURITIES
Each Fund may from time to time lend securities from its portfolio to brokers,
dealers, and financial institutions and receive collateral in cash or securities
issued or guaranteed by the United States Government which will be maintained at
all times in an amount equal to at least 100% of the current value of the loaned
securities. Such loans may not exceed one-third of the value of a Fund's total
assets. The Funds will pay a portion of the income earned on a lending
transaction to the placing broker and may pay administrative and custodial fees
(including fees to an affiliate of the Adviser) in connection with these loans.
For additional information, see "Investment Restrictions" in the Statement of
Additional Information.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES
The Funds may purchase the securities described above on a when-issued or
delayed-delivery basis. The settlement dates for these types of transactions are
determined by mutual agreement of the parties and may occur a month or more
after the parties have agreed to the transaction. Securities purchased on a
when-issued or delayed-delivery basis are subject to market fluctuation and no
interest accrues to the Funds during the period prior to settlement. At the time
a Fund commits to purchase securities on a when-issued or delayed- delivery
basis, it will record the transaction and thereafter reflect the value, each
day, of such security in determining its net asset value. At the time of
delivery of the securities, the value may be more or less than the purchase
price. The Funds will also establish a segregated account with its Custodian in
which it will maintain cash or cash equivalents or other portfolio securities
equal in value to commitments for such when-issued or delayed-delivery
securities. The Funds will not purchase securities on a when-issued or delayed-
delivery basis if, as a result thereof, more than 15% of each Fund's net assets
would be so invested.
<PAGE>
MONEY MARKET FUNDS
Each of the Funds may invest, to the extent permitted by the 1940 Act, in
securities issued by other money market funds, provided that the permitted
investments of such other money market funds constitute permitted investments of
the investing Fund. The Adviser will waive its advisory fee on amounts which are
invested in such other money market funds. The money market funds in which a
Fund may invest include other money market funds advised by the Adviser.
Investments by a Fund in other money market funds advised by the Adviser are
subject to certain restrictions contained in an exemptive order issued by the
Securities and Exchange Commission.
INFORMATION CONCERNING COMPENSATION PAID TO FIRST TRUST NATIONAL ASSOCIATION AND
ITS AFFILIATES
First Trust National Association ("First Trust") may act as fiduciary with
respect to plans subject to the Employee Retirement Income Security Act of 1974
("ERISA") which invest in the Funds. This section sets forth information
concerning compensation that First Trust and its affiliates may receive from a
Fund.
First Trust, as custodian for the assets of the Funds, receives the custodian
fees specified herein under the caption "Management -- Custodian."
First Bank National Association, which is under common ownership with First
Trust, acts as investment adviser to the Fund and receives the advisory fees
specified herein under the caption "Management -- Investment Adviser."
First Trust and its affiliates may receive shareholder servicing fees in the
amounts specified herein under the caption "Distributor." First Trust also may
act as securities lending agent in connection with the Funds' securities lending
transactions and receive, as compensation for such services, fees equal to 40%
of the Funds' income from such securities lending transactions.
<PAGE>
FIRST AMERICAN FUNDS, INC.
Oaks, Pennsylvania 19456
INVESTMENT ADVISER
FIRST BANK NATIONAL ASSOCIATION
601 Second Avenue South
Minneapolis, Minnesota 55402
CUSTODIAN
FIRST TRUST NATIONAL ASSOCIATION
180 East Fifth Street
St. Paul, Minnesota 55101
DISTRIBUTOR
SEI INVESTMENTS DISTRIBUTION CO.
Oaks, Pennsylvania 19456
ADMINISTRATOR
SEI INVESTMENTS MANAGEMENT
CORPORATION
Oaks, Pennsylvania 19456
TRANSFER AGENT
DST SYSTEMS, INC.
1004 Baltimore
Kansas City, Missouri 64105
INDEPENDENT AUDITORS
KPMG PEAT MARWICK LLP
90 South Seventh Street
Minneapolis, Minnesota 55402
COUNSEL
DORSEY & WHITNEY LLP
220 South Sixth Street
Minneapolis, Minnesota 55402
FAF-1901 (7/97)R
<PAGE>
APPENDIX IX
FIRST AMERICAN FUNDS, INC.
MONEY MARKET FUNDS
INSTITUTIONAL CLASS
TAX FREE OBLIGATIONS FUND
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS
_______________, 1997
SUBJECT TO COMPLETION - July 21, 1997
[LOGO]
FIRST AMERICAN FUNDS
THE POWER OF DISCIPLINED INVESTING
<PAGE>
FIRST AMERICAN FUNDS, INC.
Oaks, Pennsylvania 19456
INSTITUTIONAL CLASS PROSPECTUS
The shares described in this Prospectus represent interests in First American
Funds, Inc., which consists of mutual funds with four different investment
portfolios and objectives. This Prospectus relates to the Class C Shares of the
following fund (the "Fund"):
* TAX FREE OBLIGATIONS FUND
Class C Shares of the Fund are offered through banks and certain other
institutions for the investment of their own funds and funds for which they act
in a fiduciary, agency or custodial capacity.
The Fund seeks to achieve maximum current income exempt from federal income
taxes consistent with preservation of capital and maintenance of liquidity. The
Fund pursues its objective by investing in money market instruments, the income
from which is exempt from federal income tax. The Fund is a diversified open-end
mutual fund.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, INCLUDING FIRST BANK NATIONAL ASSOCIATION OR ANY OF ITS
AFFILIATES, NOR ARE THEY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. AN INVESTMENT IN THE FUND
INVOLVES INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
This Prospectus sets forth concisely information about the Fund that a
prospective investor should know before investing. It should be read and
retained for future reference.
A Statement of Additional Information dated _____________, 1997 for the Fund
has been filed with the Securities and Exchange Commission ("SEC") and is
incorporated in its entirety by reference in this Prospectus. To obtain copies
of the Statement of Additional Information at no charge, or to obtain other
information or make inquiries about the Fund, call (800) 637-2548 or write SEI
Investments Distribution Co., Oaks, Pennsylvania 19456. The SEC maintains a
World Wide Web site that contains reports and information regarding issuers that
file electronically with the SEC. The address of such site is
"http://www.sec.gov."
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE UNITED STATES
GOVERNMENT, AND THERE IS NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is ____________, 1997.
<PAGE>
TABLE OF CONTENTS
PAGE
SUMMARY OF FUND EXPENSES 4
Class C Share Fees and Expenses 4
Information Concerning Fees and
Expenses 5
THE FUND 6
INVESTMENT OBJECTIVES AND POLICIES 6
MANAGEMENT OF THE FUND 7
Investment Adviser 7
Portfolio Managers 8
Custodian 9
Administrator 9
Transfer Agent 9
DISTRIBUTOR 9
PORTFOLIO TRANSACTIONS 10
PURCHASE AND REDEMPTION OF SHARES 10
Share Purchases and Redemptions 10
What Shares Cost 11
Exchanging Securities for Fund Shares 12
Certificates and Confirmations 12
Dividends 12
Capital Gains 12
Exchange Privilege 13
TAXES 13
FUND SHARES 13
CALCULATION OF PERFORMANCE DATA 14
INVESTMENT RESTRICTIONS AND
TECHNIQUES 15
General Restrictions 15
Municipal Obligations 16
Loan Participations; Section 4(2) and
Rule 144A Securities 18
Securities of Foreign Banks and
Branches 18
United States Government
Securities 19
Repurchase Agreements 19
Credit Enhancement Agreements 20
Put Options 20
Variable and Floating Rate
Obligations 20
Lending of Portfolio Securities 21
When-Issued and Delayed- Delivery
Securities 21
Money Market Funds 21
Information Concerning Compensation
Paid to First Trust National
Association and Its Affiliates 22
<PAGE>
SUMMARY OF FUND EXPENSES
CLASS C SHARE FEES AND EXPENSES
TAX FREE
OBLIGATIONS FUND
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on
purchases None
Maximum sales load imposed on
reinvested dividends None
Deferred sales load None
Redemption fees None
Exchange fees None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment advisory fees (after
voluntary fee waivers and
reimbursements)(1) 0.11%
Rule 12b-1 fees None
Other expenses (after voluntary
fee waivers and
reimbursements)(1) 0.34%
Total fund operating expenses
(after voluntary fee
waivers and reimbursements)(1) 0.45%
EXAMPLE(2)
You would pay the following expenses on a $1,000
investment, assuming (i) a 5% annual return, and (ii)
redemption at the end of each time period:
1 year $5
3 years $14
(1) First Bank National Association, the investment adviser for the Fund,
intends to waive a portion of its fees and/or reimburse expenses on a
voluntary basis, and the amounts shown above reflect these waivers and
reimbursements as of the date of this Prospectus. The Fund's investment
adviser intends to maintain such waivers and reimbursements until
September 30, 1998. Absent any fee waivers or reimbursements,
investment advisory fees for the Fund as an annualized percentage of
average daily net assets would be 0.40%; and total fund operating
expenses with respect to Class C Shares calculated on such basis would
be 0.74% for the Fund. Other expenses include an annual administration
fee.
(2) Absent the voluntary reduction of fees the dollar amounts for the 1 and
3-year periods in the example above would be $8 and $24 for the Fund.
<PAGE>
INFORMATION CONCERNING FEES AND EXPENSES
The purpose of the preceding table is to assist the investor in understanding
the various costs and expenses that an investor in the Fund may bear directly or
indirectly. THE DATA CONTAINED IN THE TABLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN. The information set forth in the tables relates only to
the Class C Shares of the Fund. The Fund also offers Class A and Class D Shares
which are subject to the same expenses and additional sales, shareholder
servicing and/or distribution expenses.
Investment advisory fees are paid by the Fund to First Bank National Association
(the "Adviser") for managing its investments. The examples in the above table
are based on annual operating expenses for the Fund after voluntary fee waivers
and expense reimbursements by the Adviser. Prior to fee waivers, investment
advisory fees accrue at the annual rate of 0.40% of the average daily net assets
of the Fund. "Other expenses" include administrative fees which are paid by the
Fund to SEI Investments Management Corporation (the "Administrator") for
providing various services necessary to operate the Fund. These include
shareholder servicing and certain accounting and other services. The
Administrator provides these services for a fee calculated as described under
"Management of the Fund -- Administrator" below. "Other expenses" in the tables
are based on estimates.
<PAGE>
THE FUND
First American Funds, Inc. ("FAF") is an open-end management investment company
which offers its shares in four different mutual funds, each of which evidences
an interest in a separate and distinct investment portfolio. Shareholders may
purchase shares in the Fund through separate classes that provide for variations
in shareholder servicing fees, distribution costs, voting rights and dividends.
Except for these differences among classes, each share of the Fund represents an
undivided proportionate interest in the Fund. FAF is incorporated under the laws
of the State of Minnesota, and its principal offices are located at Oaks,
Pennsylvania 19456.
This Prospectus relates only to the Class C Shares of the Fund named on the
cover hereof. Information regarding the Class A and Class D Shares of the Fund
is contained in separate prospectuses that may be obtained from the Fund's
Distributor, SEI Investments Distribution Co., Pennsylvania 19456, or by calling
(800) 637-2548. The Board of Directors of FAF may authorize additional series or
classes of common stock in the future.
INVESTMENT OBJECTIVES AND POLICIES
As a fundamental investment objective, the Fund seeks to achieve maximum current
income exempt from federal income taxes consistent with preservation of capital
and maintenance of liquidity. The Adviser will purchase investments for the Fund
consistent with such investment objective. The Fund's investment objective may
not be changed without an affirmative vote of the holders of a majority (as
defined in the Investment Company Act of 1940, as amended (the "1940 Act")) of
the outstanding shares of the Fund. The Fund may not always achieve its
objectives.
In seeking to achieve its investment objective and as a fundamental policy, the
Fund invests at least 80% of its total assets in municipal obligations, the
income from which is exempt from federal income tax. In addition, the Fund may
invest up to 20% of its total assets in municipal obligations, the income from
which is an item of tax preference for purposes of the federal alternative
minimum tax. For more information on these types of securities, see "Investment
Restrictions and Techniques -- Municipal Obligations" below.
The Fund may also (i) engage in repurchase agreements with respect to any of its
portfolio securities, (ii) purchase credit enhancement agreements to enhance the
creditworthiness of its portfolio securities, (iii) lend securities from its
portfolio, (iv) purchase the securities described above on a when-issued or
delayed-delivery basis, (v) purchase put options with respect to its portfolio
securities and (vi) invest in variable or floating rate obligations.
<PAGE>
For more information on these techniques, see "Investment Restrictions and
Techniques" below.
The Fund may invest up to 20% of its total assets collectively in taxable money
market securities including marketable securities issued under or guaranteed by
the United States Government or its agencies or instrumentalities; certain
United States dollar denominated obligations (including bankers' acceptances,
time deposits, and certificates of deposit, including variable rate certificates
of deposit) of banks (including commercial banks, savings banks and savings and
loan associations) organized under the laws of the United States or any state,
foreign banks, United States branches of foreign banks, if such banks have total
assets of not less than $500 million and certain corporate and other obligations
including high grade commercial paper, nonconvertible corporate debt securities,
and loan participation interests with no more than 397 days remaining to
maturity as determined pursuant to Rule 2a-7 under the 1940 Act. In addition,
the Fund's engagement in lending portfolio securities and in purchasing put
options with respect to its portfolio securities may result in taxable income.
For defensive purposes, the Fund may temporarily invest more than 20% (up to
100%) of the value of its total assets in taxable money market securities and
certain tax-exempt securities, the income on which is an item of tax preference
for purposes of the federal alternative minimum tax when, in the opinion of the
Adviser, it is advisable to do so in light of prevailing market and economic
conditions for purposes of preserving liquidity or capital. See "Investment
Restrictions and Techniques" for a discussion of the risks relating to
investments in such securities.
MANAGEMENT OF THE FUND
The Board of Directors of FAF has the primary responsibility for overseeing the
overall management and electing other officers of FAF. Subject to the overall
direction and supervision of the Board of Directors, the Adviser acts as
investment adviser for and manages the investment portfolios of FAF.
INVESTMENT ADVISER
First Bank National Association, 601 Second Avenue South, Minneapolis, Minnesota
55480, acts as the Fund's investment adviser through its First Asset Management
group. The Adviser provides the Fund with investment research and portfolio
management. As of December 31, 1996, the Adviser was managing accounts with an
aggregate value of approximately $35 billion, including mutual fund assets in
excess of $12 billion. First Bank System, Inc., 601 Second Avenue South,
Minneapolis, Minnesota 55480, is the holding company for the Adviser.
<PAGE>
The Fund pays the Adviser a monthly fee equal, on an annual basis, to 0.40% of
the Fund's average daily net assets. The Adviser may, at its option, waive any
or all of its fees, or reimburse expenses. Any such waiver or reimbursement is
voluntary and may be discontinued at any time. The Adviser also may absorb or
reimburse expenses of the Fund from time to time, in its discretion, while
retaining the ability to be reimbursed by the Fund for such amounts prior to the
end of the fiscal year. This practice would have the effect of lowering the
Fund's overall expense ratio and of increasing yield to investors, or the
converse, at the time such amounts are absorbed or reimbursed, as the case may
be.
The Glass-Steagall Act generally prohibits banks from engaging in the business
of underwriting, selling, or distributing securities and from being affiliated
with companies principally engaged in those activities. In addition,
administrative and judicial interpretations of the Glass-Steagall Act prohibit
bank holding companies and their bank and nonbank subsidiaries from organizing,
sponsoring, or controlling registered open-end investment companies that are
continuously engaged in distributing their shares. Bank holding companies and
their bank and nonbank subsidiaries may serve, however, as investment advisers
to registered investment companies, subject to a number of terms and conditions.
Although the scope of the prohibitions and limitations imposed by the
Glass-Steagall Act has not been fully defined by the courts or the appropriate
regulatory agencies, the Fund has received an opinion from its counsel that the
Adviser is not prohibited from performing the investment advisory services
described above, and that FBS Investment Services, Inc. ("ISI"), a wholly-owned
broker-dealer of the Adviser, is not prohibited from serving as a Participating
Institution as described herein. In the event of changes in federal or state
statutes or regulations or judicial and administrative interpretations or
decisions pertaining to permissible activities of bank holding companies and
their bank and nonbank subsidiaries, the Adviser might be prohibited from
continuing these arrangements. In that event, it is expected that the Board of
Directors would make other arrangements and shareholders would not suffer
adverse financial consequences.
PORTFOLIO MANAGERS
JOSEPH M. ULREY III is portfolio co-manager for the Fund. He spent 10 years
overseeing various functions in the Treasury and Finance Divisions of First Bank
System before joining the Adviser. For the past 5 1/2 years Mr. Ulrey has
managed assets for individuals and institutional clients of the Adviser. Mr.
Ulrey graduated from Macalester College with a bachelor's degree in
mathematics/economics and went on to the University of Chicago for his master's
in business administration, concentrating in finance.
<PAGE>
JAMES D. PALMER is portfolio co-manager for the Fund. Mr. Palmer joined the
Adviser in 1992, prior to which he was a securities lending trader and senior
master trust accountant with First Trust National Association. Mr. Palmer
holds a bachelor's degree from the University of Wisconsin -- LaCrosse and a
master's of business administration degree from the University of Minnesota.
CUSTODIAN
The custodian of the Fund's assets is First Trust National Association (the
"Custodian"), First Trust Center, 180 East Fifth Street, St. Paul, Minnesota
55101. The Custodian is a subsidiary of FBS, which also controls the Adviser. As
compensation for its services to the Fund, the Custodian is paid 0.03% of the
Fund's average daily net assets. In addition, the Custodian is reimbursed for
its out-of-pocket expenses incurred in providing services to the Fund.
ADMINISTRATOR
The Administrator, a wholly-owned subsidiary of SEI Investments Company ("SEI"),
provides the Fund with certain administrative personnel and services necessary
to operate the Fund. Such services include shareholder servicing and certain
legal and accounting services. The Administrator provides these personnel and
services for compensation at an annual rate equal to 0.07% of the Fund's average
daily net assets, subject to a minimum administrative fee during each fiscal
year of $50,000; provided, that to the extent that the aggregate net assets of
all First American funds exceed $8 billion, the percentage stated above is
reduced to 0.055%.
TRANSFER AGENT
DST Systems, Inc. serves as the transfer agent (the "Transfer Agent") and
dividend disbursing agent for the Fund. The address of the Transfer Agent is
1004 Baltimore, Kansas City, Missouri 64105. The Transfer Agent is not
affiliated with the Distributor, the Administrator or the Adviser.
DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor") is the principal
distributor for shares of the Fund. The Distributor is a Pennsylvania
corporation organized on July 20, 1981, and is the principal distributor for a
number of investment companies. The Distributor is a wholly-owned subsidiary of
SEI and is located at Oaks, Pennsylvania 19456. The Distributor is not
affiliated with the Adviser, First Bank System, Inc., the Custodian and their
respective affiliates.
The Distributor, the Administrator and the Adviser may in their discretion use
their own assets to pay for certain costs of distributing Fund shares. They also
<PAGE>
may discontinue any payment of such costs at any time. The Distributor may
engage securities dealers, financial institutions (including, without
limitation, banks), and other industry professionals (the "Participating
Institutions") to perform share distribution and shareholder support services
for the Fund.
ISI, a subsidiary of the Adviser, is a Participating Institution. The Adviser
currently pays ISI 0.25% of the portion of the Fund's average daily net assets
attributable to Class C Shares for which ISI is responsible in connection with
ISI's distribution of shares and/or provision of shareholder support services.
The investment company shares and other securities distributed by the
Distributor are not deposits or obligations of, or endorsed or guaranteed by,
First Bank National Association or its affiliates, and are not insured by the
Bank Insurance Fund, which is administered by the Federal Deposit Insurance
Corporation.
PORTFOLIO TRANSACTIONS
The Fund anticipates being as fully invested as practicable in debt securities.
Most of the Fund's portfolio transactions are effected with dealers at a spread
or markup. The dealer's profit, if any, is the difference, or spread, between
the dealer's purchase and sale price for the obligation. The Fund may authorize
the Adviser to place brokerage orders with some brokers who help distribute the
Fund's shares, if the Adviser reasonably believes that the commission and
transaction quality are comparable to that available from other qualified
brokers. Because the Adviser trades a large number of securities, dealers
generally are willing to work with the Adviser on a more favorable spread to the
Fund than would be possible for most individual investors.
PURCHASE AND REDEMPTION OF SHARES
SHARE PURCHASES AND REDEMPTIONS
Shares are sold and redeemed on days on which the New York Stock Exchange and
the Federal Reserve wire system are open for business ("Business Days"). Payment
for Class C Shares may be made only by wire. Wire transfers of federal funds for
share purchases should be sent to First Bank National Association, Minneapolis,
Minnesota; ABA Number 091000022; For Credit to: DST Systems, Inc.; Account
Number 160234580266; For Further Credit to: (Investor Name and Fund Name).
Shares cannot be purchased by Federal Reserve wire on days on which the New York
Stock Exchange is closed and on federal holidays restricting wire transfers.
Orders placed through a financial institution are considered received when the
Fund
<PAGE>
is notified of the purchase order. Purchase orders must be received by the
financial institution by the time specified by the institution to be assured
same day processing and purchase orders must be transmitted to and received by
the Fund by 12:00 noon Central time in order for shares to be purchased at that
day's price. It is the financial institution's responsibility to transmit orders
promptly.
Purchase orders will be effective and eligible to receive dividends declared the
same day if the Transfer Agent receives an order before the time specified
above, and the Custodian receives Federal funds before the close of business
that day. Otherwise, the purchase order will be effective the next Business Day.
The purchase price is the net asset value per share, which is expected to remain
constant at $1.00, next determined after the purchase order is effective. The
net asset value per share is calculated as of 3:00 p.m. Central time, each
Business Day based on the amortized cost method. The Fund reserves the right to
reject a purchase order when the Transfer Agent determines that it is not in the
best interest of the Fund and/or shareholder(s) to accept such purchase order.
The Fund is required to redeem for cash all full and fractional shares of the
Fund. The redemption price is the net asset value per share of the Fund
(normally $1.00 per share) next determined after receipt by the Transfer Agent
of the redemption order.
Redemption orders may be made any time before 12:00 noon Central time, if
redeeming directly through the Fund, or by the time specified by the financial
institution if redeeming through a financial institution, in order to receive
that day's redemption price. For redemption orders received before such times,
payment will be made the same day by transfer of Federal funds. Otherwise,
payment will be made on the next Business Day. Redeemed shares are not entitled
to dividends declared on the day the redemption order is effective.
WHAT SHARES COST
Class C Shares of the Fund are sold at their net asset value next determined
after an order is received and accepted by the Fund. There is no sales charge
imposed on Class C Shares by the Fund. The term "net asset value per share" or
"NAV" refers to the worth or price of one share. NAV is computed by adding the
value of the Fund's securities plus cash and other assets, deducting
liabilities, and then dividing the result by the number of shares outstanding.
Securities in the Fund's portfolio are valued on the basis of amortized cost.
This means valuation assumes a steady rate of payment from the date of purchase
until maturity instead of looking at actual changes in market value. The Fund's
other assets are valued by a method which the Board of Directors believes would
accurately reflect fair value.
<PAGE>
The net asset value is determined at 3:00 p.m. Central time, Monday through
Friday, except on (i) days on which there are not sufficient changes in the
value of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no shares are tendered for
redemption and no orders to purchase shares are received; or (iii) on the
following federal holidays: New Year's Day, Presidents' Day, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. In addition,
the net asset value will not be calculated on Good Friday.
EXCHANGING SECURITIES FOR FUND SHARES
The Fund may accept securities in exchange for Fund shares. The Fund will allow
such exchanges only upon the prior approval of the Fund and a determination by
the Fund and the Adviser that the securities to be exchanged are acceptable.
Securities accepted by the Fund will be valued in the same manner that the Fund
values its assets. The basis of the exchange will depend upon the net asset
value of the Fund shares on the day the securities are valued.
CERTIFICATES AND CONFIRMATIONS
The Transfer Agent for the Fund maintains a share account for each shareholder
of record. Share certificates are not issued by the Fund. Monthly confirmations
are sent to report transactions such as purchases and redemptions as well as
dividends paid during the month.
DIVIDENDS
Dividends are declared daily and paid monthly. Shares purchased through the Fund
by wire before 12:00 noon Central time begin earning dividends that day. Shares
purchased by check begin earning dividends on the day after the check is
converted into federal funds. Dividends are automatically reinvested in
additional shares of the Fund unless cash payments are requested by contacting
the Fund. Whether dividends are paid in cash or are reinvested in additional
shares, they will be taxable as ordinary income under the Code. The amount of
dividends payable on Class C Shares generally will be more than the dividends
payable on the Class A and Class D Shares because Class C Shares are not charged
a distribution or shareholder servicing fee.
CAPITAL GAINS
The Fund does not expect to incur any capital gains or losses. If, for some
extraordinary reason, the Fund realizes net long-term capital gains, they will
distribute them at least once every 12 months.
<PAGE>
EXCHANGE PRIVILEGE
Shareholders may exchange Class C Shares of the Fund at net asset value for
currently available Class C Shares of other funds in the First American family.
There is currently no fee for this service and the Fund does not currently
contemplate establishing such a charge, although it reserves the right to do so.
The ability to exchange shares of the Fund does not constitute an offering or
recommendation of shares of one fund by another fund. This privilege is
available to shareholders resident in any state in which the fund shares being
acquired may be sold. An investor who is considering acquiring shares in another
First American fund pursuant to the exchange privilege should obtain and
carefully read a prospectus of the fund to be acquired. Exchanges may be
accomplished by a written request, or by telephone if a preauthorized exchange
authorization is on file with the Transfer Agent, shareholder servicing agent or
financial institution. Neither the Transfer Agent nor the Fund will be
responsible for the authenticity of exchange instructions received by telephone
if it reasonably believes those instructions to be genuine. The Fund and the
Transfer Agent will each employ reasonable procedures to confirm that telephone
instructions are genuine, and they may be liable for losses resulting from
unauthorized or fraudulent telephone instructions if they do not employ these
procedures. These procedures may include taping of telephone conversations.
TAXES
The Fund will distribute all of its net income to shareholders. The Fund intends
to take all actions required under the Internal Revenue Code of 1986 (as
amended) to ensure that it may pay "exempt-interest dividends." If the Fund
meets these requirements, distributions of net interest income from tax-exempt
obligations that are designated by the Fund as exempt-interest dividends will be
excluded from the gross income of the Fund's shareholders. Distributions paid
from other interest income will be taxable to shareholders as ordinary income.
The Fund may invest up to 20% of its total assets in securities which generate
interest which is treated as an item of tax preference.
For a more detailed discussion of the taxation of the Fund and the tax
consequences of an investment in the Fund, see "Taxes" in the Statement of
Additional Information.
<PAGE>
FUND SHARES
Each share of the Fund is fully paid, nonassessable, and transferable. Shares
may be issued as either full or fractional shares. Fractional shares have pro
rata the same rights and privileges as full shares. Shares of the Fund have no
preemptive or conversion rights.
Each share of the Fund has one vote. On some issues, such as the election of
directors, all shares of all FAF 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 or
class, the shares of that fund or class will vote as a separate series. Examples
of such issues would be proposals to alter a fundamental investment restriction
pertaining to a fund or to approve, disapprove or alter a distribution plan
pertaining to a class.
The Bylaws of FAF provide that annual shareholders' meetings are not required
and that meetings of shareholders need be held only with such frequency as
required under Minnesota law and the 1940 Act.
CALCULATION OF PERFORMANCE DATA
From time to time the Fund may advertise its "yield," "effective yield" and "tax
equivalent yield" in advertisements or in reports or other communications with
shareholders. These yield figures are based on historical earnings and are not
intended to indicate future performance. The "yield" of the Fund refers to the
income generated by an investment over a seven-day period (which period will be
stated in the advertisement). This income is then "annualized," that is, the
amount of income generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" is calculated similarly but, when annualized,
the income earned by an investment in the Fund is assumed to be reinvested. The
"effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment. "Tax equivalent yield" is that
yield which a taxable investment must generate in order to equal the Fund's
yield for an investor in a stated income tax bracket. Tax equivalent yield is
computed by dividing that income tax rate, and adding the resulting amount to
that portion, if any, of the yield which is not tax exempt.
Advertisements and other sales literature for the Fund may refer to the Fund's
"cumulative total return" and "average annual total return." Total return is
based on the overall dollar or percentage change in value of a hypothetical
<PAGE>
investment in the Fund assuming dividend distributions are reinvested. A
cumulative total return reflects the Fund's performance over a stated period of
time. An average annual total return reflects the hypothetical annually
compounded rate that would have produced the same cumulative total return if
performance had been constant over the entire period. Because average annual
returns tend to smooth out variations in the Fund's performance, they are not
the same as actual year-by-year results.
Performance quotations are computed separately for Class A, Class C and Class D
Shares of the Fund. The performance of each class of shares will differ due to
the varying levels of distribution fees and shareholder service fees applicable
to each class.
INVESTMENT RESTRICTIONS AND TECHNIQUES
GENERAL RESTRICTIONS
The Fund is subject to the investment restrictions of Rule 2a-7 under the
1940 Act in addition to their other policies and restrictions discussed below.
Pursuant to Rule 2a-7, the Fund is required to invest exclusively in securities
that mature within 397 days from the date of purchase and to maintain an average
weighted maturity of not more than 90 days. Under Rule 2a-7, securities which
are subject to certain types of demand or put features may be deemed to mature
at the next demand or put date although they have a longer stated maturity. Rule
2a-7 also requires that all investments by the Fund be limited to United States
dollar-denominated investments that (a) present "minimal credit risk" and (b)
are at the time of acquisition "Eligible Securities." Eligible Securities
include, among others, securities that are rated by two Nationally Recognized
Statistical Rating Organizations ("NRSROs") in one of the two highest categories
for short-term debt obligations, such as A-1 or A-2 by Standard & Poor's
Corporation ("Standard & Poor's"), or Prime-1 or Prime-2 by Moody's Investors
Service, Inc. ("Moody's"). It is the responsibility of the Adviser to determine
that the Fund's investments present only "minimal credit risk" and are Eligible
Securities. The Board of Directors of FAF has established written guidelines and
procedures for the Adviser and oversees the Adviser's determination that the
Fund's portfolio securities present only "minimal credit risk" and are Eligible
Securities.
In order to provide shareholders with full liquidity, the Fund has implemented
the following practices to maintain a constant price of $1.00 per share:
limiting the portfolio's dollar-weighted average maturity to 90 days or less and
buying securities which mature within 397 days from the date of acquisition as
determined pursuant to Rule 2a-7 under the 1940 Act. The Fund cannot guarantee a
$1.00 share price but these practices help to minimize any price fluctuations
that might result from rising or declining interest rates. All money
<PAGE>
market instruments, including United States Government securities, can change in
value when interest rates or an issuer's creditworthiness changes. The value of
the securities in the Fund's portfolios can be expected to vary inversely with
changes in prevailing interest rates, with the amount of such variation
depending primarily upon the period of time remaining to maturity of the
security. If the security is held to maturity, no gain or loss will be realized
as a result of interest rate fluctuations.
As a non-fundamental policy, the Fund will not purchase a security if, as a
result: (a) more than 10% of its net assets would be in illiquid assets
including time deposits and repurchase agreements maturing in more than seven
days; or (b) 25% or more of its assets would be in any single industry, provided
that there is no limitation on the purchase of obligations issued or guaranteed
by the United States, its agencies or instrumentalities, or obligations of
domestic commerical banks, excluding for this purpose, foreign branches of
domestic commercial banks.
The securities in which the Fund invests may not yield as high a level of
current income as longer term or lower grade securities. These other securities
may have less stability of principal, be less liquid, and fluctuate more in
value than the securities in which the Fund invests. All securities in the
Fund's portfolio are purchased with and payable in United States dollars.
Unless otherwise stated, the policies described above in this section and under
"Investment Objectives and Policies" for the Fund are non-fundamental and may be
changed by a vote of the Board of Directors. The Fund has adopted certain other
investment restrictions, which are set forth in detail in the Statement of
Additional Information. These restrictions are fundamental and may not be
changed without the approval of the holders of a majority (as defined in the
1940 Act) of the outstanding shares of the Fund.
If a percentage limitation under this section or "Investment Objectives and
Policies" or under "Investment Restrictions" in the Statement of Additional
Information, is adhered to at the time of an investment, a later increase or
decrease in percentage resulting from changes in values of assets will not
constitute a violation of such limitation except in the case of the limitation
on illiquid investments.
MUNICIPAL OBLIGATIONS
As described under "Investment Objectives and Policies," the Fund invests
principally in municipal obligations such as municipal bonds and other debt
obligations. These municipal bonds and debt obligations are issued by the states
and by their local and special-purpose political subdivisions. The term
"municipal bond" as used in this Prospectus includes short-term municipal notes
and other commercial paper issued by the states and their political
subdivisions.
<PAGE>
The two general classifications of municipal bonds are "general obligation"
bonds and "revenue" bonds. General obligation bonds are secured by the
governmental issuer's pledge of its faith, credit and taxing power for the
payment of principal and interest. They are usually paid from general revenues
of the issuing governmental entity. Revenue bonds, on the other hand, are
usually payable only out of a specific revenue source rather than from general
revenues. Revenue bonds ordinarily are not backed by the faith, credit or
general taxing power of the issuing governmental entity. The principal and
interest on revenue bonds for private facilities are typically paid out of rents
or other specified payments made to the issuing governmental entity by a private
company which uses or operates the facilities. Examples of these types of
obligations are industrial revenue bonds and pollution control revenue bonds.
Industrial revenue bonds are issued by governmental entities to provide
financing aid to community facilities such as hospitals, hotels, business or
residential complexes, convention halls and sport complexes. Pollution control
revenue bonds are issued to finance air, water and solids pollution control
systems for privately operated industrial or commercial facilities.
Revenue bonds for private facilities usually do not represent a pledge of the
credit, general revenues or taxing powers of the issuing governmental entity.
Instead, the private company operating the facility is the sole source of
payment of the obligation. Sometimes, the funds for payment of revenue bonds
come solely from revenue generated by operation of the facility. Revenue bonds
which are not backed by the credit of the issuing governmental entity frequently
provide a higher rate of return than other municipal obligations, but they
entail greater risk than obligations which are guaranteed by a governmental unit
with taxing power. Federal income tax laws place substantial limitations on
industrial revenue bonds, and particularly certain specified private activity
bonds issued after August 7, 1986. In the future, legislation could be
introduced in Congress which could further restrict or eliminate the income tax
exemption for interest on debt obligations in which the Funds may invest.
The Fund's investment in municipal bonds and other debt obligations that are
purchased from financial institutions such as commercial and investment banks,
savings associations and insurance companies may take the form of
participations, beneficial interests in a trust, partnership interests or any
other form of indirect ownership that allows the Fund to treat the income from
the investment as exempt from federal income tax.
In addition, the Fund may invest in other federal income tax-free securities
such as (i) tax and revenue anticipation notes issued to finance working capital
needs in anticipation of receiving taxes or other revenues, (ii) bond
anticipation notes that are intended to be refinanced through a later issuance
of longer-term bonds, (iii) variable and floating rate obligations, including
<PAGE>
variable rate demand notes, and (iv) participation, trust and partnership
interests in any of the foregoing obligations.
LOAN PARTICIPATIONS; SECTION 4(2) AND RULE 144A SECURITIES
The Fund may invest in taxable money market securities such as loan
participation interests. A loan participation interest represents a pro rata
undivided interest in an underlying bank loan. Participation interests, like the
underlying loans, may have fixed, floating, or variable rates of interest. The
bank selling a participation interest generally acts as a mere conduit between
its borrower and the purchasers of interests in the loan. The purchaser of an
interest generally does not have recourse against the bank in the event of a
default on the underlying loan. Therefore, the credit risk associated with such
instruments is governed by the creditworthiness of the underlying borrowers and
not by the banks selling the interests. Loan participation interests that can be
sold within a seven-day period are deemed by the Adviser to be liquid
investments. If a loan participation interest is restricted from being sold
within a seven-day period, then it, as a non-fundamental policy, will be
limited, together with other illiquid investments, to not more than 10% of the
Fund's net assets. Commercial paper issued in reliance on the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933 and
corporate obligations qualifying for resale to certain "qualified institutional
buyers" pursuant to Rule 144A under the Securities Act of 1933 meet the criteria
for liquidity established by the Board of Directors and are quite liquid.
Consequently, the Fund does not intend to subject such securities to the
limitation applicable to restricted securities. Investing in Rule 144A
securities could have the effect of increasing the level of illiquidity in the
Fund to the extent that qualified institutional buyers become, for a time,
uninterested in purchasing these securities.
SECURITIES OF FOREIGN BANKS AND BRANCHES
Because the Fund's investments in taxable money market securities may include
securities of foreign branches of domestic banks, foreign banks, and United
States branches of foreign banks, the Fund may be subject to additional
investment risks that are different in some respects from those incurred by a
fund that invests only in debt obligations of United States banks. These risks
may include future unfavorable political and economic developments and possible
withholding taxes, seizure of foreign deposits, currency controls, interest
limitations, or other governmental restrictions which might affect the payment
of principal or interest on securities owned by the Fund. Additionally, there
may be less public information available about foreign banks and their branches.
The Adviser carefully considers these factors when making investments. The Fund
has agreed that, in connection with investment in securities issued by foreign
banks, United States branches of foreign banks,
<PAGE>
and foreign branches of domestic banks, consideration will be given to the
domestic marketability of such securities in light of these factors.
UNITED STATES GOVERNMENT SECURITIES
The Fund may invest in direct obligations of the United States Treasury such as
United States Treasury bonds, notes, and bills. The Treasury securities are
essentially the same except for differences in interest rates, maturities, and
dates of issuance. In addition to Treasury securities, the Fund may invest in
securities, such as notes, bonds, and discount notes which are issued or
guaranteed by agencies of the United States Government and various
instrumentalities which have been established or sponsored by the United States
Government. Except for United States Treasury securities, these United States
Government obligations, even those which are guaranteed by federal agencies or
instrumentalities, may or may not be backed by the "full faith and credit" of
the United States. In the case of securities not backed by the full faith and
credit of the United States, the investor must look principally to the agency
issuing or guaranteeing the obligation for ultimate repayment and may not be
able to assert a claim against the United States itself in the event the agency
or instrumentality does not meet its commitment. The Adviser considers
securities guaranteed by an irrevocable letter of credit issued by a government
agency to be guaranteed by that agency.
United States Treasury obligations include bills, notes and bonds issued by the
United States Treasury and separately traded interest and principal component
parts of such obligations that are transferable through the Federal book-entry
system known as Separately Traded Registered Interest and Principal Securities
("STRIPS"). STRIPS are sold as zero coupon securities, which means that they are
sold at a substantial discount and redeemed at face value at their maturity date
without interim cash payments of interest or principal. This discount is
accreted over the life of the security, and such accretion will constitute the
income earned on the security for both accounting and tax purposes. Because of
these features, such securities may be subject to greater interest rate
volatility than interest paying United States Treasury obligations. The Fund's
investments in STRIPS will be limited to components with maturities of less than
397 days and the Fund will not actively trade such components.
REPURCHASE AGREEMENTS
The Fund may engage in repurchase agreements with respect to any of its
portfolio securities. In a repurchase agreement, the Fund buys a security at one
price and simultaneously promises to sell that same security back to the seller
at a mutually agreed upon time and price. The Fund may engage in repurchase
agreements with any member bank of the Federal Reserve System
<PAGE>
or dealer in United States Government securities. Repurchase agreements usually
are for short periods, such as under one week, not to exceed 30 days. In all
cases, the Adviser must be satisfied with the creditworthiness of the other
party to the agreement before entering a repurchase agreement. In the event of
bankruptcy of the other party to a repurchase agreement, the Fund might
experience delays in recovering its cash. To the extent that, in the meantime,
the value of the securities the Fund purchased may have decreased, the Fund
could experience a loss.
CREDIT ENHANCEMENT AGREEMENTS
The Fund may arrange for guarantees, letters of credit, or other forms of credit
enhancement agreements (collectively, "Guarantees") for the purpose of further
securing the payment of principal and/or interest on the Fund's investment
securities. Although each investment security, at the time it is purchased, must
meet the Fund's creditworthiness criteria, Guarantees sometimes are purchased
from banks and other institutions (collectively, "Guarantors") when the Adviser,
through yield and credit analysis, deems that credit enhancement of certain of
the Fund's securities is advisable. As a non-fundamental policy, the Fund will
limit the value of all investment securities issued or guaranteed by each
Guarantor to not more than 10% of the value of the Fund's total assets.
PUT OPTIONS
The Fund may purchase tax-exempt securities which provide for the right to
resell them to the issuer, a bank or a broker-dealer at a specified price within
a specified period of time prior to the maturity date of such obligations. Such
a right to resell, which is commonly known as a "put," may be sold, transferred
or assigned only with the underlying security or securities. The Fund may pay a
higher price for a tax-exempt security with a put than would be paid for the
same security without a put. The primary purpose for purchasing such securities
with puts is to permit the Fund to be as fully invested as practicable in
tax-exempt securities while at the same time providing the Fund with appropriate
liquidity.
VARIABLE AND FLOATING RATE OBLIGATIONS
Certain of the obligations in which the Fund may invest may be variable or
floating rate obligations in which the interest rate is adjusted either at
predesignated periodic intervals (variable rate) or when there is a change in
the index rate of interest on which the interest rate payable on the obligation
is based (floating rate). Variable or floating rate obligations 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
<PAGE>
not exceeding 397 calendar days on no more than 30 days' notice. Variable or
floating rate instruments with a demand feature enable the Fund to purchase
instruments with a stated maturity in excess of 397 calendar days. The Fund
determines the maturity of variable or floating rate instruments in accordance
with Securities and Exchange Commission rules which allow the Fund to consider
certain of such instruments as having maturities that are less than the maturity
date on the face of the instrument.
LENDING OF PORTFOLIO SECURITIES
The Fund may from time to time lend securities from its portfolio to brokers,
dealers, and financial institutions and receive collateral in cash or securities
issued or guaranteed by the United States Government which will be maintained at
all times in an amount equal to at least 100% of the current value of the loaned
securities. Such loans may not exceed one-third of the value of the lending
Fund's total assets. The Fund will pay a portion of the income earned on a
lending transaction to the placing broker and may pay administrative and
custodial fees (including fees to an affiliate of the Adviser) in connection
with these loans. For additional information, see "Investment Restrictions" in
the Statement of Additional Information.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES
The Fund may purchase the securities described above on a when-issued or
delayed-delivery basis. The settlement dates for these types of transactions are
determined by mutual agreement of the parties and may occur a month or more
after the parties have agreed to the transaction. Securities purchased on a
when-issued or delayed-delivery basis are subject to market fluctuation and no
interest accrues to the Fund during the period prior to settlement. At the time
the Fund commits to purchase securities on a when-issued or delayed- delivery
basis, it will record the transaction and thereafter reflect the value, each
day, of such security in determining its net asset value. At the time of
delivery of the securities, the value may be more or less than the purchase
price. The Fund will also establish a segregated account with its Custodian in
which it will maintain cash or cash equivalents or other portfolio securities
equal in value to commitments for such when-issued or delayed-delivery
securities. The Fund will not purchase securities on a when-issued or delayed-
delivery basis if, as a result thereof, more than 15% of that Fund's net assets
would be so invested.
MONEY MARKET FUNDS
The Fund may invest, to the extent permitted by the 1940 Act, in securities
issued by other money market funds, provided that the permitted investments of
such other money market funds constitute permitted investments of the investing
Fund. The Adviser will waive its advisory fee on amounts which are
<PAGE>
invested in such other money market funds. Investments by the Fund in such other
Fund are subject to restrictions contained in an exemptive order issued by the
Securities and Exchange Commission.
INFORMATION CONCERNING COMPENSATION PAID TO FIRST TRUST
NATIONAL ASSOCIATION AND ITS AFFILIATES
First Trust National Association ("First Trust") may act as fiduciary with
respect to plans subject to the Employee Retirement Income Security Act of 1974
("ERISA") which invest in the Fund. This section sets forth information
concerning compensation that First Trust and its affiliates may receive from the
Fund.
First Trust, as custodian for the assets of the Fund, receives the custodian
fees specified herein under the caption "Management -- Custodian."
First Bank National Association, which is under common ownership with First
Trust, acts as investment adviser to the Funds and receives the advisory fees
specified herein under the caption "Management -- Investment Adviser."
First Trust also may act as securities lending agent in connection with the
Fund's securities lending transactions and receive, as compensation for such
services, fees equal to 40% of the Fund's income from such securities lending
transactions.
<PAGE>
FIRST AMERICAN FUNDS, INC.
Oaks, Pennsylvania 19456
INVESTMENT ADVISER
FIRST BANK NATIONAL ASSOCIATION
601 Second Avenue South
Minneapolis, Minnesota 55402
CUSTODIAN
FIRST TRUST NATIONAL ASSOCIATION
180 East Fifth Street
St. Paul, Minnesota 55101
DISTRIBUTOR
SEI INVESTMENTS DISTRIBUTION CO.
Oaks, Pennsylvania 19456
ADMINISTRATOR
SEI INVESTMENTS MANAGEMENT
CORPORATION
Oaks, Pennsylvania 19456
TRANSFER AGENT
DST SYSTEMS, INC.
1004 Baltimore
Kansas City, Missouri 64105
INDEPENDENT AUDITORS
KPMG PEAT MARWICK LLP
90 South Seventh Street
Minneapolis, Minnesota 55402
COUNSEL
DORSEY & WHITNEY LLP
220 South Sixth Street
Minneapolis, Minnesota 55402
FAF-1902 (7/97)I
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
DATED , 1997
PROPOSED ACQUISITION OF ASSETS OF
U.S. TREASURY MONEY MARKET FUND,
TAX-FREE MONEY MARKET FUND AND MONEY MARKET FUND
PORTFOLIOS OF
QUALIVEST FUNDS
3435 STELZER ROAD
COLUMBUS, OHIO 43219-3035
1-800-743-8637
BY AND IN EXCHANGE FOR SHARES OF
TREASURY OBLIGATIONS FUND,
TAX FREE OBLIGATIONS FUND AND PRIME OBLIGATIONS FUND
PORTFOLIOS OF
FIRST AMERICAN FUNDS, INC.
OAKS, PENNSYLVANIA 19456
1-800-637-2548
This Statement of Additional Information relates to the proposed
Agreement and Plan of Reorganization providing for (a) the acquisition of all of
the assets and the assumption of all liabilities of the U.S. Treasury Money
Market Fund, Tax-Free Money Market Fund and Money Market Fund (the "Qualivest
Portfolios"), each separately managed portfolios of Qualivest Funds
("Qualivest") by the Treasury Obligations Fund, Tax Free Obligations Fund and
Prime Obligations Fund ("FAF Funds"), each separately managed series of First
American Funds, Inc. ("FAF"), in exchange for shares of capital stock of the FAF
Funds having an aggregate net asset value equal to the aggregate value of the
assets acquired (less the liabilities assumed) of the Qualivest Portfolios and
(b) the liquidation of the Qualivest Portfolios and the pro rata distribution of
the Qualivest Portfolio shares to FAF Fund shareholders. This Statement of
Additional Information consists of this cover page, the preliminary Statement of
Additional Information of FAF relating to the Class A, Class C and Class D
shares of the Tax Free Obligations Fund and the Class A shares of the Treasury
Obligations Fund, which is attached as Appendix A to this Statement of
Additional Information, and the following documents, each of which is
incorporated by reference herein:
1. Statement of Additional Information of FAF dated January 31,
1997, containing information concerning the Class A, Class C
and Class D shares of the Prime Obligations Fund and the Class
C and Class D shares of the Treasury Obligations Fund.
2. Statement of Additional Information of Qualivest dated
December 1, 1996.
3. Annual report of FAF for the fiscal year ended September 30,
1996.
4. Semi-Annual report of FAF for the six months ended March 31,
1997.
5. Annual report of Qualivest for the fiscal year ended July 31,
1996.
6. Semi-Annual report of Qualivest for the six months ended
January 31, 1997.
7. Financial Statements required by Form N-14, Item 14 (to the
extent not included in Items 3, 4, 5 and 6 above).
This Statement of Additional Information is not a prospectus. The
Prospectus/Proxy Statement dated the date hereof relating to the
above-referenced transaction may be obtained without charge by writing or
calling Qualives or FAF at the addresses or telephone numbers noted above. This
Statement of Additional Information relates to, and should be read in
conjunction with, such Prospectus/Proxy Statement.
Note: In the SEC filing package, Items No. 3 and 4 referred to above are
included in Part A as materials to be delivered with the Prospectus/Proxy
Statement. A copy of Items No. 1, 2, 4 and 5 also will be delivered to any
person requesting the Statement of Additional Information.
<PAGE>
Appendix A
Part B
FIRST AMERICAN FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION
DATED __________, 1997
TAX FREE OBLIGATIONS FUND
TREASURY OBLIGATIONS FUND
This Statement of Additional Information relates to the Class A Shares
of Tax Free Obligations Fund and Treasury Obligations Fund, and the Class C and
Class D Shares of Tax Free Obligations Fund (each a "Fund," and collectively the
"Funds"), each of which is a series of First American Funds, Inc. This Statement
of Additional Information is not a prospectus, but should be read in conjunction
with the Funds' current Prospectuses dated __________, 1997. This Statement of
Additional Information is incorporated into the Funds' Prospectuses by
reference. To obtain copies of the Prospectuses, call (800) 637-2548 or write
SEI Investments Distribution Co., Oaks, Pennsylvania 19456. Please retain this
Statement of Additional Information for future reference.
TABLE OF CONTENTS
PAGE
----
General Information............................. 2
Investment Restrictions......................... 3
Portfolio Turnover ............................. 6
Directors and Executive Officers................ 6
Capital Stock .................................. 9
Investment Advisory and Other Services.......... 9
Portfolio Transactions.......................... 12
Net Asset Value and Public Offering Price ...... 14
Valuation of Portfolio Securities............... 14
Taxes........................................... 15
Calculation of Performance Data................. 16
Commercial Paper and Bond Ratings............... 17
SUBJECT TO COMPLETION -- July 21, 1997
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may any
offers to buy be accepted prior to the time the registration statement becomes
effective. This Statement of Additional Information does not constitute a
prospectus.
GENERAL INFORMATION
First American Funds, Inc. ("FAF") was incorporated under the name
"First American Money Fund, Inc." The Board of Directors and shareholders, at
meetings held December 6, 1989 and January 18, 1990, respectively, approved
amendments to the Articles of Incorporation providing that the name "First
American Money Fund, Inc." be changed to "First American Funds, Inc."
FAF 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 FAF to which this Statement of Additional Information
relates are named on the cover hereof.
Shareholders may purchase shares of each Fund through Class A, Class C
and Class D Shares. The various classes provide for variations in distribution
costs, voting rights and dividends. To the extent permitted under the Investment
Company Act of 1940 (the "1940 Act"), the Funds may also provide for variations
in other costs among the classes although they have no present intention to do
so. Except for differences among the classes pertaining to distribution costs,
each share of each Fund represents an equal proportionate interest in that Fund.
FAF has prepared and will provide a separate Prospectus relating to the
Class A (the "Retail Class Prospectus"), the Class C (the "Institutional Class
Prospectus") and the Class D Shares of the Funds (the "Corporate Trust Class
Prospectus"), respectively. These Prospectuses can be obtained by calling or
writing SEI Investments Distribution Co. at the address and telephone number set
forth on the cover of this Statement of Additional Information. This Statement
of Additional Information relates to all Prospectuses for the Class A Shares of
Tax Free Obligations Fund and Treasury Obligations Fund, and Class C and D
Shares of Tax Free Obligations Fund. It should be read in conjunction with the
applicable Prospectus.
The By-laws of FAF provide that meetings of shareholders be held only
with such frequency as required under Minnesota law and the 1940 Act. Minnesota
corporation law requires only that the Board of Directors convene shareholders'
meetings when it deems appropriate. In addition, 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 shares of FAF may demand a regular meeting of shareholders by written
notice given to the chief executive officer or chief financial officer of FAF.
Within 30 days after receipt of the demand, the Board of Directors shall cause a
regular meeting of shareholders to be called, which meeting shall be held no
later than 40 days after receipt of the demand, all at the expense of FAF. In
addition, the 1940 Act requires a shareholder vote for all amendments to
fundamental investment policies and restrictions, for approval of all investment
advisory contracts and amendments thereto, and for all amendments to Rule 12b-1
distribution plans.
INVESTMENT RESTRICTIONS
TAX FREE OBLIGATIONS FUND
Tax Free Obligations Fund has adopted the following investment
limitations and fundamental policies. These policies and limitations cannot be
changed by the Fund without approval by the holders of a majority of the
outstanding shares of the Fund as defined in the 1940 Act (i.e., the lesser of
the vote of (a) 67% of the shares of the Fund 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). Tax Free Obligations Fund may not:
1. Purchase common stocks, preferred stocks, warrants, other
equity securities, corporate bonds or debentures, state bonds,
municipal bonds, or industrial revenue bonds (except through
the purchase of obligations referred to under "Investment
Objectives and Policies" in the Fund's Prospectus).
2. Borrow money except from banks for temporary or emergency
purposes for the purpose of meeting redemption requests which
might otherwise require the untimely disposition of
securities. Borrowing in the aggregate may not exceed 10% of
the value of the Fund's total assets (including the amount
borrowed) valued at the lesser of cost or market less
liabilities (not including the amount borrowed) at the time
the borrowing is made. The borrowings will be repaid before
any additional investments are made. However, even with such
authority to borrow money, there is no assurance that the Fund
will not have to dispose of securities on an untimely basis to
meet redemption requests. For the purpose of this investment
restriction, the use of options and futures transactions and
the purchase of securities on a when-issued or
delayed-delivery basis shall not be deemed the borrowing of
money. (As a fundamental policy, the Fund will not make
additional investments while its borrowings exceed 5% of total
assets).
3. Pledge, hypothecate, mortgage or otherwise encumber its
assets, except in an amount up to 15% of the value of its
total assets but only to secure borrowings for temporary or
emergency purposes.
4. Sell securities short or purchase securities on margin.
5. Write or purchase put or call options, except that the Fund
may write or purchase put or call options in connection with
the purchase of variable rate certificates of deposit
described below and as otherwise permitted as provided in the
Fund's Prospectus.
6. Underwrite the securities of other issuers except to the
extent the Fund may be deemed to be an underwriter, under
federal securities laws, in connection with the disposition of
portfolio securities, or purchase securities with contractual
or other restrictions on resale.
7. Purchase or sell real estate, real estate investment trust
securities, commodities or commodity contracts, or oil and gas
interests.
8. Lend money to others except through the purchase of debt
obligations of the type which the Fund is permitted to
purchase (see "Investment Objectives and Policies" in the
Fund's Prospectus).
9. Invest in companies for the purpose of exercising control.
10. Purchase or retain the securities of any issuer if any of the
officers or directors of the Fund or its investment adviser
owns beneficially more than 1/2 of 1% of the securities of
such issuer and together own more than 5% of the securities of
such issuer.
As a non-fundamental policy, Tax Free Obligations Fund may not (i)
invest more than 10% of its net assets in illiquid assets, including, without
limitation, time deposits and repurchase agreements maturing in more than seven
days and (ii) invest 25% or more of its assets in the securities of issuers in
any single industry; provided that there shall be no limitation on the purchase
of obligations issued or guaranteed by the United States, its agencies or
instrumentalities, or obligations of domestic commercial banks, excluding for
this purpose, foreign branches of domestic commercial banks. As to utility
companies, gas, electric, water, and telephone companies are considered as
separate industries. As to finance companies, the following two categories are
each considered a separate industry: (A) business credit institutions, such as
Honeywell Finance Corporation and General Electric Credit Corp., and (B)
personal credit institutions, such as Sears Roebuck Acceptance Corp. and
Household Finance Corporation.
In connection with Tax Free Obligations Fund's purchase of variable
rate certificates of deposit ("CDs"), it may enter into agreements with banks or
dealers allowing the Fund to resell the certificates to the bank or dealer, at
the Fund's option. Time deposits which may be purchased by the Fund are deposits
held in foreign branches of United States banks which have a specified term or
maturity. The Fund purchases CDs from only those domestic savings and loan
institutions which are regulated by the Office of Thrift Supervision and the
Federal Deposit Insurance Corporation ("FDIC"), and whose deposits are insured
by either the Savings Association Insurance Fund or the Bank Insurance Fund,
each of which is administered by the FDIC. However, because the Fund purchases
large denomination CDs, it does not expect to benefit materially from such
insurance. The policies described in this paragraph are nonfundamental and may
be changed by the Board of Directors.
Tax Free Obligations Fund may invest in obligations of foreign branches
of United States banks and United States branches of foreign banks. The
obligations of foreign branches of United States banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by governmental regulation.
Payment of interest and principal upon these obligations may also be affected by
governmental action in the country of domicile of the branch (generally referred
to as sovereign risk). In addition, evidences of ownership of portfolio
securities may be held outside of the United States and the Fund may be subject
to the risks associated with the holding of such property overseas. Various
provisions of federal law governing the establishment and operation of domestic
branches do not apply to foreign branches of domestic banks. Obligations of
United States branches of foreign banks may be general obligations of the parent
bank in addition to the issuing branch, or may be limited by the terms of a
specific obligation and by federal and state regulation as well as by
governmental action in the country in which the foreign bank has its head
office.
TREASURY OBLIGATIONS FUND
Treasury Obligations Fund has adopted the following investment
limitations and fundamental policies. These limitations cannot be changed by the
Fund without approval by the holders of a majority of the outstanding shares of
the Fund as defined in the 1940 Act. Treasury Obligations Fund may not:
1. Borrow money except that the Fund may borrow from banks or
enter into reverse repurchase agreements for temporary or
emergency purposes, for the purpose of meeting redemption
requests which might otherwise require the untimely
disposition of securities in aggregate amounts not exceeding
10% of the value of the Fund's total assets (including the
amount borrowed or subject to reverse repurchase agreements)
valued at the lesser of cost or market less liabilities (not
including the amount borrowed or subject to reverse repurchase
agreements) at the time the borrowing or reverse repurchase
agreement is entered into. Any borrowings will be repaid
before any additional investments are made. During the period
any reverse repurchase agreements are outstanding, the Fund
will restrict the purchase of portfolio securities to
instruments maturing on or before the expiration date of the
reverse repurchase agreements, but only to the extent
necessary to assure completion of the reverse repurchase
agreements. Interest paid on borrowed funds will decrease the
net earnings of the Fund. The Fund will not borrow or enter
into reverse repurchase agreements to increase income
(leveraging).
2. Pledge, hypothecate, mortgage or otherwise encumber its
assets, except in an amount up to 15% of the value of its
total assets but only to secure borrowings for temporary or
emergency purposes.
3. Sell securities short or purchase securities on margin.
4. Underwrite the securities of other issuers except to the
extent the Fund may be deemed to be an underwriter, under
federal securities laws, in connection with the disposition of
portfolio securities.
As a non-fundamental policy, Treasury Obligations Fund will
not (i) invest in oil, gas or other mineral leases, (ii) invest more than 10% of
its net assets in illiquid assets, including, without limitation, repurchase
agreements maturing in more than seven days, and (iii) invest 25% or more of its
assets in the securities of issuers in any single industry; provided that there
shall be no limitation on the purchase of obligations issued or guaranteed by
the United States, its agencies or instrumentalities, or obligations of domestic
commercial banks, excluding for this purpose, for branches of domestic
commercial banks
As to (iii) above, utility companies, gas, electric, water and
telephone companies are considered separate industries, and as to finance
companies, the following two categories are each considered a separate industry:
A. business credit institutions, such as Honeywell
Finance Corporation and General Electric Credit
Corp., and
B. personal credit institutions, such as Sears Roebuck
Acceptance Corp. and Household Finance Corporation.
The Funds may not invest in obligations of any affiliate of
First Bank System, Inc., including First Bank National Association (the
"Adviser").
The Funds may lend securities to the extent described in the
Prospectuses under "Investment Restrictions and Techniques -- Lending of
Portfolio Securities." When a Fund lends portfolio securities, it continues to
be entitled to the interest payable on the loaned securities and, in addition,
receives interest on the amount of the loan at a rate negotiated with the
borrower. The Fund may pay a portion of the income earned on the lending
transaction to the placing broker and may pay administrative and custodial fees
in connection with these loans. The Funds contemplate that (to the extent
permissible under the 1940 Act) the Custodian may be the recipient of such
administrative and custodial fees in connection with some such lending
transactions. As set forth in the Prospectuses, First Trust National
Association, the Funds' custodian and an affiliate of the Adviser, may act as
securities lending agent for the Funds and receive separate compensation for
such services, subject to compliance with conditions contained in a Securities
and Exchange Commission exemptive order permitting First Trust to provide such
services and receive such compensation.
Short-term investments and repurchase agreements may be
entered into on a joint basis by the Funds and other funds advised by the
Adviser to the extent permitted by Securities and Exchange Commission exemptive
order.
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 any 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. FAIF has made such notice filings with respect to those Funds which
may invest in commodity futures or commodity options contracts.
PORTFOLIO TURNOVER
The Funds generally intend to hold their portfolio securities to
maturity. In certain instances, however, a Fund may dispose of its portfolio
securities prior to maturity when it appears such action will be in the best
interest of the Fund because of changing money market conditions, redemption
requests, or otherwise. A Fund may attempt to maximize the total return on its
portfolio by trading to take advantage of changing money market conditions and
trends or to take advantage of what are believed to be disparities in yield
relationships between different money market instruments. Because each Fund
invests in short-term securities and manages its portfolio as described above in
"Investment Restrictions" and as described in the Prospectus under "Investment
Objectives and Policies," the Fund's portfolio will turn over several times a
year. Because brokerage commissions as such are not usually paid in connection
with the purchase or sale of the securities in which the Funds invest and
because the transactional costs are small, the high turnover is not expected
materially to affect net asset values or yields. Securities with maturities of
less than one year are excluded from required portfolio turnover rate
calculations, and, therefore, each Fund's turnover rate for reporting purposes
will be zero.
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of FAF 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 FAF are identified with an asterisk.
DIRECTORS
Robert J. Dayton, 5140 Norwest Center, Minneapolis, Minnesota 55402:
Director of FAF since December 1994 and of First American Investment Funds, Inc.
("FAIF") since September 1994 and of First American Strategy Funds, Inc.
("FASF") since June 1996; Chairman (1989-1993) and Chief Executive Officer
(1993-present), Okabena Company (private family investment office). Age: 54.
Andrew M. Hunter III, 537 Harrington Road, Wayzata, Minnesota 55391:
Director of FAF, FAIF and FASF since January 1997; Chairman of Hunter, Keith
Industries, a diversified manufacturing and services management company, since
1975. Age: 49.
Leonard W. Kedrowski, 16 Dellwood Avenue, Dellwood, Minnesota 55110:
Director of FAF and FAIF since November 1993 and of FASF since June 1996;
President and owner of Executive Management Consulting, Inc., a management
consulting firm; Vice President, Chief Financial Officer, Treasurer, Secretary
and Director of Anderson Corporation, a large privately-held manufacturer of
wood windows, from 1983 to October 1992. Age: 55.
* Robert L. Spies, 4715 Twin Lakes Avenue, Brooklyn Center, Minnesota
55429: Director of FAF, FAIF and FASF since January 31, 1997; employed by First
Bank System, Inc. and subsidiaries from 1957 to January 31, 1997, most recently
as Vice President, First Bank National Association. Age: 62.
Joseph D. Strauss, 8617 Edenbrook Crossing, # 443, Brooklyn Park,
Minnesota 55443: Director of FAF since 1984 and of FAIF since April 1991 and of
FASF since June 1996; Chairman of FAF's and FAIF's Boards since 1993 and of
FASF's Board since 1996; President of FAF and FAIF from June 1989 to November
1989; Owner and President, Strauss Management Company, since 1993; Owner and
President, Community Resource Partnerships, Inc., a community business retention
survey company, since 1992; attorney-at-law. Age: 56.
Virginia L. Stringer, 712 Linwood Avenue, St. Paul, Minnesota 55105:
Director of FAIF since August 1987 and of FAF since April 1991 and of FASF since
June 1996; Owner and President, Strategic Management Resources, Inc. since 1993;
formerly President and Director of The Inventure Group, a management consulting
and training company, President of Scott's, Inc., a transportation company, and
Vice President of Human Resources of The Pillsbury Company. Age: 52.
Gae B. Veit, P.O. Box 6, Loretto, Minnesota 55357: Director of FAIF and
FAF since December 1993 and of FASF since June 1996; owner and CEO of Shingobee
Builders, Inc., a general contractor. Age: 53.
EXECUTIVE OFFICERS
David Lee, SEI Investments Company, Oaks, Pennsylvania 19456: President
of FAIF and FAF since April 1994 and of FASF since June 1996; Senior Vice
President and Assistant Secretary of FAF and FAIF beginning June 1, 1993; Senior
Vice President of SEI Investments Distribution Co. (the "Distributor") since
1991; President, GW Sierra Trust Funds prior to 1991. Age: 44.
Carmen V. Romeo, SEI Investments Company, Oaks, Pennsylvania 19456:
Treasurer and Assistant Secretary of FAIF and FAF since November 1992 and of
FASF since June 1996; Director, Executive Vice President, Chief Financial
Officer and Treasurer of SEI Investments Company ("SEI"), SEI Investments
Management Corporation (the "Administrator") and the Distributor since 1981.
Age: 52.
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; Vice President, Assistant Secretary and General Counsel of
the Administrator and the Distributor. Age: 36.
Kathryn Stanton, SEI Investments Company, Oaks, Pennsylvania 19456:
Vice President and Assistant Secretary of FAIF and FAF since April 1994 and of
FASF since June 1996; Vice President and Assistant Secretary of the
Administrator and the Distributor since April 1994; Associate, Morgan, Lewis &
Bockius, from 1989 to 1994. Age: 37.
Sandra K. Orlow, SEI Investments Company, Oaks, Pennsylvania 19456:
Vice President and Assistant Secretary of FAIF and FAF since 1992 and of FASF
since June 1996; Vice President and Assistant Secretary of SEI, the
Administrator and the Distributor since 1983. Age: 40.
Marc Cahn, SEI Investments Company, Oaks, Pennsylvania 19456: Vice
President and Assistant Secretary of FAIF. FAF and FASF since June 1996; Vice
President and Assistant Secretary of the Administrator and Distributor since May
1996; Associate General Counsel, Barclays Bank PLC, from 1994 to 1996; ERISA
Counsel, First Fidelity Bancorporation, prior to 1994. Age: 39.
Barbara A. Nugent, SEI Investments Company, Oaks, Pennsylvania 19456:
Vice President and Assistant Secretary of FAIF, FAF and FASF since June 1996;
Vice President and Assistant Secretary of the Administrator and Distributor
since April 1996; Associate, Drinker, Biddle & Reath, from 1994 to 1996;
Assistant Vice President/Administration (1992 to 1993) and Operations (1988 to
1992), Delaware Service Company, Inc. Age: 39.
Stephen G. Meyer, SEI Investments Company, Oaks, Pennsylvania 19456:
Controller of FAIF and FAF since March 1995 and of FASF since June 1996;
Director of Internal Audit and Risk Management of SEI from 1992 to 1995; Senior
Associate, Coopers & Lybrand, from 1990 to 1992. Age: 31.
Michael J. Radmer, 220 South Sixth Street, Minneapolis, Minnesota
55402: Secretary of FAIF since April 1991 and of FAF since 1981 and of FASF
since June 1996; Partner, Dorsey & Whitney LLP, a Minneapolis-based law firm and
general counsel of FAIF and FAF. Age: 52.
COMPENSATION
The First American Family of Funds, which includes FAF, FAIF and FASF,
currently pays only to directors of the funds who are not paid employees or
affiliates of the funds a fee of $15,000 per year ($22,500 in the case of the
Chair) plus $2,500 ($3,750 in the case of the Chair) per meeting of the Board
attended and $800 per committee meeting attended ($1,600 in the case of a
committee chair) and reimburses travel expenses of directors and officers to
attend Board meetings. Legal fees and expenses are also paid to Dorsey & Whitney
LLP, the law firm of which Michael J. Radmer, secretary of FAF, FAIF and FASF,
is a partner. The following table sets forth information concerning aggregate
compensation paid to each director of FAF (i) by FAF (column 2), and (ii) by
FAF, FAIF and FASF collectively (column 5) during the fiscal year ended
September 30, 1996. No executive officer or affiliated person of FAF had
aggregate compensation from FAF in excess of $60,000 during such fiscal year:
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Total
Compensation
Aggregate Pension or Retirement Estimated From Registrant
Name of Compensation Benefits Accrued as Annual Benefits and Fund Complex
Person, Position From Registrant Part of Fund Expenses Upon Retirement Paid to Directors
---------------- --------------- --------------------- --------------- -----------------
<S> <C> <C> <C> <C>
Robert J. Dayton, Director $21,121 -0- -0- $32,850
Andrew M. Hunter III, Director* -0- -0- -0- -0-
Leonard W. Kedrowski, Director $21,974 -0- -0- $34,150
Robert L. Spies, Director* -0- -0- -0- -0-
Joseph D. Strauss, Director $36,293 -0- -0- $56,375
Virginia L. Stringer, Director $22,730 -0- -0- $35,350
Gae B. Veit, Director $22,484 -0- -0- $34,950
- -----------
* Not a director during the fiscal year ended September 30, 1996.
</TABLE>
Under Minnesota law, each director owes certain fiduciary duties to the
Funds and to their shareholders. Minnesota law provides that a director "shall
discharge the duties of the position of director in good faith, in a manner the
director reasonably believes to be in the best interest of the corporation, and
with the care an ordinarily prudent person in a like position would exercise
under similar circumstances." Fiduciary duties of a director of a Minnesota
corporation include, therefore, both a duty of "loyalty" (to act in good faith
and in a manner reasonably believed to be in the best interest of the
corporation) and a duty of "care" (to act with the care an ordinarily prudent
person in a like position would exercise under similar circumstances). In 1987,
Minnesota enacted legislation which authorizes corporations to eliminate or
limit the personal liability of a director to the corporation or its
shareholders for monetary damages for breach of the fiduciary duty of "care."
Minnesota law does not, however, permit a corporation to eliminate or limit the
liability of a director (a) for any breach of the director's duty of "loyalty"
to the corporation or its shareholders, (b) for acts or omissions not in good
faith or that involve intentional misconduct or a knowing violation of the law,
(c) for authorizing a dividend, stock repurchase or redemption, or other
distribution in violation of Minnesota law or for violation of certain
provisions of Minnesota securities laws, or (d) for any transaction from which
the director derived an improper personal benefit. FAF's Board of Directors and
shareholders, at meetings held December 10, 1987 and March 15, 1988,
respectively, approved an amendment to the Articles of Incorporation that limits
the liability of directors to the fullest extent permitted by the Minnesota
legislation and the 1940 Act.
Minnesota law does not eliminate the duty of "care" imposed on a
director. It only authorizes a corporation to eliminate monetary liability for
violations of that duty. Further, Minnesota law does not permit elimination or
limitation of liability of "officers" to the corporation for breach of their
duties as officers. Minnesota law does not permit elimination or limitation of
the availability of equitable relief, such as injunctive or rescissionary
relief. These remedies, however, may be ineffective in situations where
shareholders become aware of such a breach after a transaction has been
consummated and rescission has become impractical. Minnesota law does not permit
elimination or limitation of a director's liability under the Securities Act of
1933, as amended, or the Securities Exchange Act of 1934, as amended. The 1940
Act prohibits elimination or limitation of a director's liability for acts
involving willful malfeasance, bad faith, gross negligence, or reckless
disregard of the duties of a director.
CAPITAL STOCK
As of July 18, 1997, no shares of the Tax Free Obligations Fund and the
Class A Shares of the Treasury Obligations Fund were outstanding.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
First Bank National Association (the "Adviser"), 601 Second Avenue
South, Minneapolis, Minnesota 55480, serves as the investment adviser and
manager of the Funds through its First Asset Management group. The Adviser is a
national banking association that has professionally managed accounts for
individuals, insurance companies, foundations, commingled accounts, trust funds,
and others for over 75 years. The Adviser is a subsidiary of First Bank System,
Inc. ("FBS"), 601 Second Avenue South, Minneapolis, Minnesota 55480, which is a
regional, multi-state bank holding company headquartered in Minneapolis,
Minnesota. FBS is comprised of 13 banks and several trust and nonbank
subsidiaries, with 362 banking locations and 18 nonbank offices primarily in
Minnesota, Colorado, Illinois, Iowa, Kansas, Montana, Nebraska, North Dakota,
South Dakota, Wisconsin and Wyoming. Through its subsidiaries, FBS provides
consumer banking, commercial lending, financing of import/export trade, foreign
exchange and investment services as well as mortgage banking, trust, commercial
and agricultural finance, data processing, leasing and brokerage services.
Pursuant to an Investment Advisory Agreement, effective as of January
20, 1995 (the "Advisory Agreement") between FAF, on behalf of each Fund, and the
Adviser, the Funds engage the Adviser to act as investment adviser for and to
manage the investment of the Funds' assets. The Advisory Agreement requires each
Fund to pay the Adviser a monthly fee equal, on an annual basis, to .40 of 1% of
the Fund's average daily net assets.
The Advisory Agreement requires the Adviser to arrange, if requested by
FAF, for officers or employees of the Adviser to serve without compensation from
the Funds as directors, officers, or employees of FAF if duly elected to such
positions by the shareholders or directors of FAF. The Adviser has the authority
and responsibility to make and execute investment decisions for the Funds within
the framework of the Funds' investment policies, subject to review by the Board
of Directors of FAF. The Adviser is also responsible for monitoring the
performance of the various organizations providing services to the Funds,
including the Funds' distributor, shareholder services agent, custodian, and
accounting agent, and for periodically reporting to FAF's Board of Directors on
the performance of such organizations. The Adviser will, at its own expense,
furnish the Funds with the necessary personnel, office facilities, and equipment
to service the Funds' investments and to discharge its duties as investment
adviser of the Funds. In addition to the investment advisory fee, each Fund pays
all of its expenses that are not expressly assumed by the Adviser or any other
organization with which the Fund may enter into an agreement for the performance
of services. Each Fund is liable for such nonrecurring expenses as may arise,
including litigation to which the Fund may be a party. FAF may have an
obligation to indemnify its directors and officers with respect to such
litigation. The Adviser will be liable to the Funds under the Advisory Agreement
for any negligence or willful misconduct by the Adviser other than liability for
investments made by the Adviser in accordance with the explicit direction of the
Board of Directors or the investment objectives and policies of the Funds. The
Adviser has agreed to indemnify the Funds with respect to any loss, liability,
judgment, cost or penalty that a Fund may suffer due to a breach of the Advisory
Agreement by the Adviser.
Tax Free Obligations Fund and Treasury Obligations Fund (with respect
to Class A Shares) had not commenced operations as of September 30, 1996, the
end of FAF's most recent fiscal year. They therefore paid no advisory fees to
the Adviser during such year.
DISTRIBUTOR AND DISTRIBUTION PLANS
SEI Investments Distribution Co. (the "Distributor" ) serves as the
distributor for the Class A, Class C and Class D Shares of the Funds. The
Distributor is a wholly-owned subsidiary of SEI Investments Company, which also
owns the Funds' Administrator. See "-- Custodian: Administrator; Transfer Agent;
Counsel; Accountants" below.
The Distributor serves as distributor for the Class A, Class C and
Class D Shares pursuant to a Distribution Agreement effective as of January 20,
1995 between itself and the Funds. These agreements are referred to collectively
as the "Distribution Agreements."
Under the Distribution Agreements, the 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. The shares of the Funds are distributed through the Distributor and
through securities firms, financial institutions (including, without limitation,
banks) and other industry professionals (the "Participating Institutions") which
enter into sales agreements with the Distributor to perform share distribution
or shareholder support services.
FBS Investment Services, Inc. ("ISI"), a subsidiary of the Adviser, is
a Participating Institution. The Adviser currently pays ISI .25% of the portion
of each Fund's average daily net assets attributable to Class C Shares for which
ISI is responsible in connection with ISI's provision of shareholder support
services. Such amounts paid to ISI by the Adviser will not affect the Adviser's
agreement to limit expenses of each Fund as discussed under "Management of the
Funds -- Investment Adviser" in the Prospectuses.
The Class A Shares pay to the Distributor a shareholder servicing fee
at an annual rate of 0.25% of the average daily net assets of the Class A
Shares, which fee may be used by the Distributor to provide compensation for
shareholder servicing activities with respect to the Class A Shares of the kinds
described in the Retail Class Prospectus. This fee is calculated and paid each
month based on average daily net assets of Class A of each Fund for that month.
The Distributor receives no compensation for distribution of the Class
C Shares. The Class D Shares of each Fund pay a shareholder servicing fee to the
Distributor monthly at the annual rate of 0.15% of each Fund's Class D average
daily net assets, which fee may be used by the Distributor to provide
compensation for shareholder servicing activities with respect to the Class D
Shares of the kinds described in the Corporate Trust Class Prospectus. This fee
is calculated and paid each month based on average daily net assets of Class D
Shares of each Fund for that month.
The Distribution Agreements provide that they will continue in effect
for a period of more than one year from the date of their execution only so long
as such continuance is specifically approved at least annually by the vote of a
majority of the Board members of FAF and by the vote of the majority of those
Board members of FAF who are not interested persons of FAF and who have no
direct or indirect financial interest in the operation of FAF's Rule 12b-1 Plans
of Distribution or in any agreement related to such Plans.
FAF has adopted Plans of Distribution (the "Plans") with respect to
Class A and Class D Shares of the Funds, respectively, pursuant to Rule 12b-1
under the 1940 Act. Rule 12b-1 provides in substance that a mutual fund may not
engage directly or indirectly in financing any activity which is primarily
intended to result in the sale of shares, except pursuant to a plan adopted
under the Rule. The Plans authorize the Funds to pay the Distributor fees for
the services it performs for the Funds as described in the preceding paragraphs.
The Plans recognize that the Adviser, the Administrator, the Distributor, and
any Participating Institution, in their discretion, may use their own assets to
pay for certain additional costs of distributing shares of the Funds. Any such
arrangement to pay such additional costs may be commenced or discontinued by the
Adviser, the Administrator, the Distributor, or any Participating Institution at
any time.
Each Plan is a "compensation-type" plan under which the Distributor is
entitled to receive the distribution fee regardless of whether its actual
distribution expenses are more or less than the amount of the fee. If, after
payments by the Distributor for advertising, marketing, and distribution, there
are any remaining fees, these may be used as the Distributor may elect. Because
the amounts payable under the Plans will be commingled with the Distributor's
general funds, including the revenues it receives in the conduct of its
business, it is possible that certain of the Distributor's overhead expenses
will be paid out of Plan fees and that these expenses may include items which
the SEC Staff has noted, for example, the costs of leases, depreciation,
communications, salaries, training, and supplies. The Funds believe that such
expenses, if paid, will be paid only indirectly out of the fees being paid under
the Plans.
Tax Free Obligations Fund and Treasury Obligations Fund (with respect
to Class A Shares) had not commenced operations as of September 30, 1996, the
end of FAIF's most recent fiscal year. They therefore paid no distribution or
shareholder servicing fees during such year.
CUSTODIAN; ADMINISTRATOR; TRANSFER AGENT; COUNSEL; ACCOUNTANTS
First Trust (the "Custodian") acts as custodian of the Funds' assets
and portfolio securities pursuant to a Custodian Agreement between First Trust
and the Funds. The Custodian takes no part in determining the investment
policies of the Funds or in deciding which securities are purchased or sold by
the Funds. The duties of the Custodian are limited to receiving and safeguarding
the assets and securities of the Funds and to delivering or disposing of them
pursuant to the Funds' order. The Funds compensate the Custodian at such rates
and at such times as the Funds and the Custodian may agree on in writing from
time to time, and the Custodian is granted a lien for unpaid compensation upon
any cash or securities held by it for the Funds.
As compensation for its services to the Funds, the Custodian is paid a
monthly fee calculated on an annual basis equal to 0.03% of such Fund's average
daily net assets. In addition, the Custodian is reimbursed for its out-of-pocket
expenses incurred while providing its services to the Funds. The Custodian
continues to serve so long as its appointment is approved at least annually by
the Board of Directors including a majority of the directors who are not
interested persons (as defined under the 1940 Act) of FAF.
The Administrator, a wholly owned subsidiary of SEI, provides
administrative services to the Funds for a fee as described in the prospectus.
DST Systems, Inc., 1004 Baltimore, Kansas City, Missouri 64105, is
transfer agent and dividend disbursing agent for the shares of the Funds. The
transfer agent is not affiliated with the Distributor, the Administrator or the
Adviser.
Tax Free Obligations Fund and Treasury Obligations Fund (with respect
to Class A Shares) had not commenced operations as of September 30, 1996, the
end of FAF's most recent fiscal year. They therefore paid no fees to the
Administrator during such year.
Dorsey & Whitney LLP is independent general counsel for the Funds.
KPMG Peat Marwick LLP, 90 South Seventh Street, 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
As the Funds' portfolios are exclusively composed of debt, rather than
equity securities, most of the Funds' portfolio transactions are effected with
dealers without the payment of brokerage commissions but at net prices, which
usually include a spread or markup. In effecting such portfolio transactions on
behalf of the Funds, the Adviser seeks the most favorable net price consistent
with the best execution. The Adviser may, however, select a dealer to effect a
particular transaction without communicating with all dealers who might be able
to effect such transaction because of the volatility of the money market and the
desire of the Adviser to accept a particular price for a security because the
price offered by the dealer meets guidelines for profit, yield, or both.
Decisions with respect to placement of the Funds' portfolio
transactions are made by the Adviser. The primary consideration in making these
decisions is efficiency in executing orders and obtaining the most favorable net
prices for the Funds. Most Fund transactions are with the issuer or with major
dealers acting for their own account and not as brokers. When consistent with
these objectives, business may be placed with broker-dealers who furnish
investment research services to the Adviser. Such research services would
include advice, both directly and in writing, as to the value of securities, the
advisability of investing in, purchasing, or selling securities, and the
availability of securities or purchasers or sellers of securities, as well as
analyses and reports concerning issues, industries, securities, economic factors
and trends, portfolio strategy, and the performance of accounts.
The research services may allow the Adviser to supplement its own
investment research activities and enable the Adviser to obtain the views and
information of individuals and research staffs of many different securities
firms prior to making investment decisions for the Funds. To the extent
portfolio transactions are effected with broker-dealers who furnish research
services, the Adviser would receive a benefit, which is not capable of
evaluation in dollar amounts, without providing any direct monetary benefit to
the Funds from these transactions.
The Adviser has not entered into any formal or informal agreements with
any broker-dealers, and does not maintain any "formula" that must be followed in
connection with the placement of Fund portfolio transactions in exchange for
research services provided to the Adviser, except as noted below. The Adviser
may, from time to time, maintain an informal list of broker-dealers that will be
used as a general guide in the placement of Fund business in order to encourage
certain broker-dealers to provide the Adviser with research services, which the
Adviser anticipates will be useful to it. Any list, if maintained, would be
merely a general guide, which would be used only after the primary criteria for
the selection of broker-dealers (discussed above) has been met, and,
accordingly, substantial deviations from the list could occur. While it is not
expected that any Fund will pay brokerage commissions, if it does, the Adviser
would authorize the Fund to pay an amount of commission for effecting a
securities transaction in excess of the amount of commission another
broker-dealer would have charged only if the Adviser determined in good faith
that such amount of commission was reasonable in relation to the value of the
brokerage and research services provided by such broker-dealer, viewed in terms
of either that particular transaction or the overall responsibilities of the
Adviser with respect to the Funds.
No Fund effects brokerage transactions in its portfolio securities with
any broker-dealer affiliated directly or indirectly with its Adviser or
Distributor unless such transactions, including the frequency thereof, the
receipt of commissions payable in connection therewith, and the selection of the
affiliated broker-dealer effecting such transactions are not unfair or
unreasonable to the shareholders of the Fund, as determined by the Board of
Directors. Any transactions with an affiliated broker-dealer must be on terms
that are both at least as favorable to the Fund as such Fund can obtain
elsewhere and at least as favorable as such affiliate broker-dealer normally
gives to others.
When two or more clients of the Adviser are simultaneously engaged in
the purchase or sale of the same security, the prices and amounts are allocated
in accordance with a formula considered by the Adviser to be equitable to each
client. In some cases, this system could have a detrimental effect on the price
or volume of the security as far as each client is concerned. In other cases,
however, the ability of the clients to participate in volume transactions will
produce better executions for each client.
Tax Free Obligations Fund and Treasury Obligations Fund (with respect
to Class A Shares) had not commenced operations as of September 30, 1996, the
end of FAF's most recent fiscal year. They therefore paid no commissions during
such year.
NET ASSET VALUE AND PUBLIC OFFERING PRICE
The method for determining the public offering price of Fund shares is
summarized in the Prospectus. Each Fund is open for business and its net asset
value per share is calculated on every day the New York Stock Exchange and the
Federal Reserve wire system are open for business. The New York Stock Exchange
is not open for business on the following holidays (or on the nearest Monday or
Friday if the holiday falls on a weekend): New Year's Day, Washington's Birthday
(observed), Good Friday, Memorial Day (observed), Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day. Each year the New York Stock Exchange 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,
the Funds' net asset value per share may be affected on days when investors may
not purchase or redeem shares.
VALUATION OF PORTFOLIO SECURITIES
The Funds' portfolio securities are valued on the basis of the
amortized cost method of valuation. This involves valuing an instrument at its
cost and thereafter assuming a constant amortization to maturity of any discount
or premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price a Fund would receive if it sold the instrument.
During periods of declining interest rates, the daily yield on shares of a Fund
computed as described above may tend to be higher than a like computation made
by a fund with identical investments utilizing a method of valuation based upon
market prices and estimates of market prices for all of its portfolio
instruments. Thus, if the use of amortized cost by a Fund resulted in a lower
aggregate portfolio value on a particular day, a prospective investor in the
Fund would be able to obtain a somewhat higher yield than would result from
investment in a fund utilizing solely market values, and existing investors in
the Fund would receive less investment income. The converse would apply in a
period of rising interest rates.
The valuation of the Funds' portfolio instruments based upon their
amortized cost and the concomitant maintenance of the Funds' per share net asset
value of $1.00 is permitted in accordance with Rule 2a-7 under the 1940 Act,
under which the Funds must adhere to certain conditions. The Funds must maintain
a dollar-weighted average portfolio maturity of 90 days or less, purchase only
instruments having remaining maturities of 397 days or less from the date of
purchase, and invest only in securities determined by the Board of Directors to
present minimal credit risks and which are of high quality as determined by
major rating services, or, in the case of any instrument which is not so rated,
which are of comparable quality as determined by the Board of Directors. The
maturities of variable rate demand instruments held in the Funds' portfolio will
be deemed to be the longer of the demand period, or the period remaining until
the next interest rate adjustment, although stated maturities may be in excess
of one year. It is the normal practice of the Funds to hold portfolio securities
to maturity and realize par therefor unless such sale or other disposition is
mandated by redemption requirements or other extraordinary circumstances. The
Board of Directors must establish procedures designed to stabilize, to the
extent reasonably possible, the Funds' price per share as computed for the
purpose of sales and redemptions at a single value. It is the intention of the
Funds to maintain a per share net asset value of $1.00. Such procedures will
include review of the Funds' portfolio holdings by the Directors at such
intervals as they may deem appropriate, to determine whether the Funds' net
asset value calculated by using available market quotations deviates from $1.00
per share and, if so, whether such deviation may result in material dilution or
is otherwise unfair to existing shareholders. In the event the Board of
Directors determines that such a deviation exists, they will take such
corrective action as they regard as necessary and appropriate, such as selling
portfolio instruments prior to maturity to realize capital gains or losses or to
shorten average portfolio maturity, withholding dividends, or establishing a net
asset value per share by using available market quotations.
TAXES
Each Fund intends to elect each year to be taxed as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), and, if it qualifies as such, it will not be subject to
federal income tax on the portion of its investment company taxable income and
net capital gain distributed to its shareholders. Each of the series of First
American is treated as a separate entity for federal income tax purposes. In
order to qualify as a regulated investment company for any taxable year, a Fund
must, in addition to certain other requirements, (1) derive at least 90% of its
gross income from dividends, interest, certain payments with respect to
securities loans, and gains from the sale or other disposition of stock or
securities or other income derived with respect to its business of investing in
such stock or securities; (2) derive less than 30% of its gross income from the
sale or other disposition of stock or securities held for less than three
months; and (3) distribute at least 90% of its investment company taxable income
(net investment income and the excess of net short-term capital gain over net
long-term capital loss) for the taxable year.
To qualify as a regulated investment company, a Fund must also
diversify its holdings so that, at the close of each quarter of its taxable
year, (1) at least 50% of the value of its total assets consists of cash, cash
items, securities issued by the United States Government, its agencies and
instrumentalities, and the securities of other regulated investment companies,
and other securities limited generally with respect to any one issuer to not
more than 5% of the total assets of the Fund and not more than 10% of the
outstanding voting securities of such issuer, and (2) not more than 25% of the
value of its total assets is invested in the securities of any issuer (other
than securities issued by the United States Government, its agencies or
instrumentalities, or the securities of other regulated investment companies),
or in two or more issuers that the Fund controls and that are engaged in the
same or similar trades or businesses.
Each Fund expects to distribute net realized short-term gains (if any)
once each year, although it may distribute them more frequently, if necessary in
order to maintain the Funds' net asset value at $1.00 per share. Distributions
of net short-term capital gains are taxable to investors as ordinary income.
Under the Code, each Fund is required to withhold 31% of reportable
payments (including dividends, capital gain distributions, if any, and
redemptions) paid to certain shareholders who have not certified that the social
security number or taxpayer identification number supplied by them is correct
and that they are not subject to backup withholding because of previous
underreporting to the IRS. These backup withholding requirements generally do
not apply to shareholders that are corporations or governmental units or certain
tax-exempt organizations.
Under the Code, interest on indebtedness incurred or continued to
purchase or carry shares of an investment company paying exempt-interest
dividends, such as Tax Free Obligations Fund, will not be deductible by a
shareholder in proportion to the ratio of exempt-interest dividends to all
dividends other than those treated as long-term capital gains. Indebtedness may
be allocated to shares of Tax Free Obligations Fund even though not directly
traceable to the purchase of such shares. Federal law also restricts the
deductibility of other expenses allocable to shares of Tax Free Obligations
Fund.
For federal income tax purposes, an alternative minimum tax ("AMT") is
imposed on taxpayers to the extent that such tax exceeds a taxpayer's regular
income tax liability (with certain adjustments). Exempt-interest dividends
attributable to interest income on certain tax-exempt obligations issued after
August 7, 1986 to finance certain private activities are treated as an item of
tax preference that is included in alternative minimum taxable income for
purposes of computing the federal alternative minimum tax for all taxpayers and
the federal environmental tax on corporations. Tax Free Obligations Fund may
invest in obligations the interest on which is treated as an item of tax
preference, to the extent set forth in the Prospectus. In addition, a portion of
all other tax-exempt interest received by a corporation, including
exempt-interest dividends, will be included in adjusted current earnings and
earnings and profits for purposes of determining the federal corporate
alternative minimum tax, the environmental tax imposed on corporations by
Section 59A of the Code, and the branch profits tax imposed on foreign
corporations under Section 884 of the Code.
Because liability for AMT in the case of individuals will depend upon
the regular tax liability and tax preference items of a specific taxpayer, the
extent, if any, to which any tax preference items resulting from investment in
Tax Free Obligations Fund will be subject to the tax will depend upon each
shareholder's individual situation. For shareholders with substantial tax
preferences, the AMT could reduce the after-tax economic benefits of an
investment in the Fund. Each shareholder is advised to consult his or her tax
adviser with respect to the possible effects of such tax preference items.
For shareholders who are or may become recipients of Social Security
benefits, exempt-interest dividends are includable in computing "modified
adjusted gross income" for purposes of determining the amount of Social Security
benefits, if any, that is required to be included in gross income. The maximum
amount of Social Security benefits includable in gross income is 85%.
The Code imposes requirements on certain tax-exempt bonds which, if not
satisfied, could result in loss of tax-exemption for interest on such bonds,
even retroactively to the date of issuance of the bonds. Proposals may be
introduced before Congress in the future, the purpose of which will be to
further restrict or eliminate the federal income tax exemption for certain
tax-exempt securities. Tax Free Obligations Fund cannot predict what additional
legislation may be enacted that may affect shareholders. The Fund will avoid
investment in such tax-exempt securities which, in the opinion of the Adviser,
pose a material risk of the loss of tax exemption. Further, if such tax-exempt
security in the Fund's portfolio loses its exempt status, the Fund will make
every effort to dispose of such investment on terms that are not detrimental to
the Fund.
CALCULATION OF PERFORMANCE DATA
The Funds may issue current yield quotations. Simple yields are
computed by determining the net change, exclusive of capital changes, in the
value of a hypothetical pre-existing account having a balance of one share at
the beginning of a recent seven calendar day period, subtracting a hypothetical
charge reflecting deductions from shareholder accounts, and dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return, and then multiplying the base period return by
365/7. The resulting yield figure will be carried to at least the nearest
hundredth of one percent. Effective yields are computed by determining the net
change, exclusive of capital changes, in the value of a hypothetical
pre-existing account having a balance of one share at the beginning of a recent
seven calendar day period, subtracting a hypothetical charge reflecting
deductions from shareholder accounts, and dividing the difference by the value
of the account at the beginning of the base period to obtain the base period
return, and then compounding the base period return by adding 1, raising the sum
to a power equal to 365 divided by 7, and subtracting 1 from the result,
according to the following formula:
EFFECTIVE YIELD -- [(BASE PERIOD RETURN + 1)365/7]-1
When calculating the foregoing yield or effective yield quotations, the
calculation of net change in account value will include the value of additional
shares purchased with dividends from the original share and dividends declared
on both the original share and any such additional shares, and all fees, other
than nonrecurring accounts or sales charges that are charged to all shareholder
accounts in proportion to the length of the base period. Realized gains and
losses from the sale of securities and unrealized appreciation and depreciation
are excluded from the calculation of yield and effective yield.
From time to time, a Fund may advertise its "yield" and "effective
yield." These yield figures are based upon historical earnings and are not
intended to indicate future performance. The "yield" of a Fund refers to the
income generated by an investment in the Fund over a seven-day period (which
period will be stated in the advertisement). This income is then "annualized,"
that is, the amount of income generated by the investment during that week is
assumed to be generated each week over a 52-week period and is shown as a
percentage of the investment. The "effective yield" is calculated similarly but,
when annualized, the income earned by an investment in the Fund is assumed to be
reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment.
Tax Free Obligations Fund may also advertise its tax equivalent yield.
This yield will be computed by dividing that portion of the seven-day yield or
effective yield of the Fund (computed as set forth above) which is tax-exempt by
one minus a stated income tax rate and adding the product of that portion, if
any, of the yield of the Fund that is not tax-exempt.
Yield information may be useful in reviewing the Funds' performance and
for providing a basis for comparison with other investment alternatives.
However, yields fluctuate, unlike investments which pay a fixed yield for a
stated period of time. Yields for the Funds are calculated on the same basis as
other money market funds as required by applicable regulations. Investors should
give consideration to the quality and maturity of the portfolio securities of
the respective investment companies when comparing investment alternatives.
Investors should recognize that in periods of declining interest rates
the Funds' yields will tend to be somewhat higher than prevailing market rates,
and in periods of rising interest rates the Funds' yields will tend to be
somewhat lower. Also, when interest rates are falling, the inflow of net new
money to a Fund from the continuous sale of its shares will likely be invested
in portfolio instruments producing lower yields than the balance of the Funds'
portfolio, thereby reducing the current yield of the Fund. In periods of rising
interest rates, the opposite can be expected to occur.
Should a Fund incur or anticipate any unusual expense, loss, or
depreciation which would adversely affect its net asset values per share or
income for a particular period, the Directors would at that time consider
whether to adhere to the present dividend policy described above or revise it in
light of the then prevailing circumstances. For example, if a Fund's net asset
value per share were reduced, or were anticipated to be reduced, below $1.00,
the Directors may suspend further dividend payments until net asset value
returned to $1.00. Thus, such expenses or losses or depreciation may result in
the investor receiving upon redemption a price per share lower than that which
the investor paid.
COMMERCIAL PAPER AND BOND RATINGS
COMMERCIAL PAPER RATINGS
Standard & Poor's Corporation ("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 defined 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 either overwhelming or very strong. Those
issues determined to possess overwhelming safety characteristics will be denoted
with a plus sign designation.
Moody's Investors Service, Inc. ("Moody's") commercial paper ratings
are opinions of the ability of the issuers to repay punctually 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 note 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
CORPORATE BOND RATINGS
Standard & Poor's ratings for corporate bonds include the following:
Bonds 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.
Bonds rated "AA" have a very strong capacity to pay interest and repay
principal and differ from the highest-rated issues only in small
degree.
Moody's ratings for corporate bonds include the following:
Bonds 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 by an
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.
Bonds 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 bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities, or
fluctuation of protective elements may be of greater amplitude, or
there may be other elements present that make the long-term risks
appear somewhat larger than the Aaa securities.
<PAGE>
FIRST AMERICAN FUNDS, INC.
INTRODUCTION TO PRO FORMA COMBINING STATEMENTS
MARCH 31, 1997
The accompanying unaudited pro forma combining Statement of Assets and
Liabilities, Statement of Operations and Schedule of Investments, reflect the
accounts of Qualivest Money Market Fund (Money Market) and the First American
Prime Obligations Fund (Prime Obligations).
These statements have been derived from the underlying accounting records for
the Prime Obligations Fund and the Money Market Fund used in calculating net
asset values for the twelve-month period ended March 31, 1997. The pro forma
combining Statement of Operations have been prepared based upon the fee and
expense structure of the Prime Obligations Fund.
Pro forma combining statements are not presented for the Qualivest U.S. Treasury
Money Market Fund (U.S. Treasury) and the First American Treasury Obligations
Fund (Treasury Obligations) based on the fact that the U.S. Treasury Fund's
assets are less than 10% of the Treasury Obligations Fund's assets.
Under the proposed merger agreement and plan of reorganization, all outstanding
shares of each class of the Money Market Fund will be issued in exchange for
shares of specified classes of the Prime Obligations Fund.
<PAGE>
First American Funds, Inc.
Prime Obligations Fund
Pro Forma Combining Statement Of Assets And Liabilities
3/31/97
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma
Money Prime Adjustments Pro Forma
Market Obligations (Note 2) Combined
(000) (000) (000) (000)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Assets:
Total Investments (Cost $580,127,
$3,582,305 and $4,162,432,
respectively) $ 580,127 $ 3,582,305 $ -- $ 4,162,432
Cash (474) 38 -- (436)
Receivables:
Accrued Income 179 11,579 -- 11,758
Investment Securities Sold -- 11 -- 11
Income and Other Receivables 2 -- -- 2
Other Assets 13 9 -- 22
----------- ----------- ----------- -----------
Total Assets 579,847 3,593,942 -- 4,173,789
----------- ----------- ----------- -----------
Liabilities:
Payables
Income Distribution Payable 2,452 15,396 -- 17,848
Accrued Expenses 325 1,572 -- 1,897
----------- ----------- ----------- -----------
Total Liabilities 2,777 16,968 -- 19,745
----------- ----------- ----------- -----------
Net Assets applicable to:
Prime Obligations Institutional Class
($.01 par value - 20 billion authorized)
based on 3,280,263,834 and 3,597,091,376
outstanding shares, respectively -- 3,280,264 316,827 (a) 3,597,091
Prime Obligations Retail Class A
($.01 par value - 20 billion authorized)
based on 176,646,848 and 436,889,487
outstanding shares, respectively -- 176,647 260,243 (a) 436,890
Prime Obligations Retail Class B
($.01 par value - 20 billion authorized)
based on 4,444,549 outstanding shares -- 4,444 -- 4,444
Prime Obligations Corporate Trust Class
($.01 par value - 20 billion authorized)
based on 115,609,114 outstanding shares -- 115,609 -- 115,609
Money Market Class A based on 260,242,639
outstanding shares 260,243 -- (260,243) (a) --
Money Market Class Y based on 145,917,622
outstanding shares 145,917 -- (145,917) (a) --
Money Market Class Q based on 170,909,920
outstanding shares 170,910 -- (170,910) (a) --
Undistributed net investment income -- 9 -- 9
Accumulated net realized gain/(loss)
on investments -- 1 -- 1
----------- ----------- ----------- -----------
Total Net Assets $ 577,070 $ 3,576,974 $ -- $ 4,154,044
=========== =========== =========== ===========
Net Asset Value,
offering price and redemption price per share -
Class Y and Institutional Class, respectively $1.00 $1.00 $1.00
=========== =========== ===========
Net Asset Value,
offering price and redemption price per share -
Class Q $1.00
===========
Net Asset Value,
offering price and redemption price per share -
Class A $1.00 $1.00 $1.00
=========== =========== ===========
Net Asset Value
and offering price per share - Class B $1.00 $1.00
=========== ===========
Net Asset Value,
offering price and redemption price per share -
Corporate Trust Class $1.00 $1.00
=========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
First American Funds, Inc.
Prime Obligations Fund
Pro Forma Combining Statement of Operations
For the Year Ended March 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Adjustments
Prime Money (Note 2) Pro Forma
Obligations Market Debit Credit Combined
(000) (000) (000) (000) (000)
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Investment Income:
Interest $ 186,414 $ 27,548 $ -- $ -- $ 213,962
----------- ----------- ---------- --------- -----------
Expenses:
Investment advisory fees 13,444 1,266 1,447 (b) 1,266(b) 14,891
Waiver of investment advisory fees (2,570) -- (168)(b) -- (2,738)
Administrative fees 2,231 804 114 (b) 804(b) 2,345
Transfer agent fees 108 49 15 (c) 49(c) 123
Amortization of organizational costs - 1 -- 1(c) --
Custodian fees 1,007 152 110 (b) 152(b) 1,117
Directors' fees 105 25 10 (c) 25(c) 115
Registration fees 351 62 20 (c) 62(c) 371
Professional fees 268 68 20 (c) 68(c) 288
Printing 151 49 15 (c) 49(c) 166
Distribution fees - FAIF Retail Class A 364 -- 608 (b) -- 972
Distribution fees - Qualivest Class A - 972 -- 972(b) --
Distribution fees - FAIF Retail Class B 25 -- -- -- 25
Distribution fees - FAIF Corporate Trust Class D 191 -- -- -- 191
Other 45 13 29 (c) 13(c) 74
----------- ----------- ---------- --------- -----------
Net expenses before expenses paid indirectly 15,720 3,461 2,220 3,461 17,940
Less: Expenses paid indirectly (11) -- -- -- (11)
----------- ----------- ---------- --------- -----------
Total net expenses 15,709 3,461 2,220 3,461 17,929
----------- ----------- ---------- --------- -----------
Investment income (loss) - net 170,705 24,087 (2,220) (3,461) 196,033
----------- ----------- ---------- --------- -----------
Realized and Unrealized Gains (Losses) on Investments
Net realized gain (loss) on investments 8 -- -- -- 8
----------- ----------- ---------- --------- -----------
Net Increase (Decrease) in Net Assets Resulting
from Operations $ 170,713 $ 24,087 $ (2,220) $ (3,461) $ 196,041
=========== =========== ========== ========= ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
FIRST AMERICAN FUNDS, INC.
NOTES TO PRO FORMA STATEMENTS
(UNAUDITED)
1. BASIS OF COMBINATION
The unaudited pro forma combining Statement of Assets and Liabilities, Statement
of Operations and Schedule of Investments give effect to the proposed
acquisition of the Qualivest Money Market Fund (Money Market) by the First
American Prime Obligations Fund (Prime Obligations). The proposed acquisition
will be accounted for by the method of accounting for tax free mergers of
investment companies (sometimes referred to as the pooling without restatement
method). The acquisition will be accomplished by an exchange of all outstanding
shares of each class for Money Market Fund in exchange for shares of specified
classes of the Prime Obligations Fund.
The pro forma combining statements should be read in conjunction with the
historical financial statements of the constituent funds and the notes thereto
incorporated by reference in the Statement of Additional Information.
Prime Obligations Fund is a portfolio offered by First American Funds, Inc.
(FAF) a diversified, open-end, management investment company registered under
the Investment Company Act of 1940, as amended. FAF presently includes a series
of three funds.
2. PRO FORMA ADJUSTMENTS
(a) The pro forma combining statements of assets and liabilities
assumes the issuance of additional shares of Prime Obligations
Fund as if the reorganization were to have taken place on
March 31, 1997 and is based on the net asset value of the
acquiring fund. Transactions in shares of capital stock are as
follows: 260,242,639 Class A shares of Money Market Fund
exchanged for 260,242,639 Class A shares of Prime Obligations
Fund; and 170,909,920 Class Q shares and 145,917,622 Class Y
shares of Money Market Fund exchanged for 316,827,542
Institutional Class shares of Prime Obligations Fund.
(b) The pro forma adjustments to investment advisory fees
(including waivers), administrative fees, custodian fees and
distribution fees (including waivers) reflect the difference
in fees charged by the Prime Obligations based upon the
effective fee schedule.
First Bank National Association (FBNA) has agreed to waive
fees and reimburse expenses through September 30, 1998, to the
extent necessary
<PAGE>
to maintain overall total Fund operating expense ratios at the
pro forma expense levels of 0.70% and 0.45% for Class A and
Institutional Class shares, respectively.
(c) The pro forma adjustments to transfer agent fees, directors'
fees, registration fees, professional fees, printing expenses
and other expenses reflect the expected savings due to the
combination of Money Market Fund and Prime Obligations Fund.
<PAGE>
First American Funds, Inc.
Prime Obligations Fund
Pro Forma Combining Schedule Of Investments
3/31/97
(Unaudited)
<TABLE>
<CAPTION>
Par Value
--- -----
Money Prime Pro Forma Money Prime Pro Forma
Market Obligations Combined Market Obligations Combined
(000) (000) (000) Security Maturity (000) (000) (000)
----- ----- ----- -------- -------- ----- ----- -----
COMMERICAL PAPER-56.9%
AUTOMOTIVE-0.9% (Percentages represent pro forma value of investments compared to pro forma net assets)
<S> <C> <C> <C> <C> <C> <C>
5,000 - 5,000 FORD MOTOR 5/30/97 $ 4,956 $ - $ 4,956
5,000 - 5,000 FORD MOTOR 5/28/97 4,958 - 4,958
5,000 - 5,000 FORD MOTOR 8/13/97 4,902 - 4,902
5,000 - 5,000 TOYOTA MOTOR 5/5/97 4,975 - 4,975
5,000 - 5,000 TOYOTA MOTOR 7/3/97 4,932 - 4,932
5,000 - 5,000 TOYOTA MOTOR 7/14/97 4,923 - 4,923
6,000 - 6,000 TOYOTA MOTOR 7/31/97 5,889 - 5,889
------------------------------------------
TOTAL AUTOMOTIVE 35,535 - 35,535
------------------------------------------
BANKS-DOMESTIC-6.5%
- 50,000 50,000 BANKERS TRUST NY CORP 4/2/97 - 24,653 24,653
- 25,000 25,000 BANKERS TRUST NY CORP 7/2/97 - 49,991 49,991
- 9,300 9,300 HAHN ISSUING CO. 4/7/97 - 9,292 9,292
- 6,544 6,544 INTERNATIONAL SEC. 4/16/97 - 6,051 6,051
- 20,000 20,000 INTERNATIONAL SEC. 4/18/97 - 9,373 9,373
- 20,000 20,000 INTERNATIONAL SEC. 4/28/97 - 6,481 6,481
- 20,791 20,791 INTERNATIONAL SEC. 4/30/97 - 14,904 14,904
- 15,650 15,650 INTERNATIONAL SEC. 4/30/97 - 7,580 7,580
- 20,000 20,000 INTERNATIONAL SEC. 5/12/97 - 20,701 20,701
- 15,035 15,035 INTERNATIONAL SEC. 5/27/97 - 19,879 19,879
- 7,655 7,655 INTERNATIONAL SEC. 6/3/97 - 6,530 6,530
- 7,643 7,643 INTERNATIONAL SEC. 6/12/97 - 19,950 19,950
- 6,120 6,120 INTERNATIONAL SEC. 6/16/97 - 15,582 15,582
- 9,493 9,493 INTERNATIONAL SEC. 6/23/97 - 12,936 12,936
- 6,568 6,568 INTERNATIONAL SEC. 6/27/97 - 19,920 19,920
- 7,169 7,169 INTERNATIONAL SEC. 7/14/97 - 7,058 7,058
- 13,166 13,166 INTERNATIONAL SEC. 7/28/97 - 7,561 7,561
5,000 - 5,000 REP. NEW YORK 6/13/97 4,946 - 4,946
5,000 - 5,000 REP. NEW YORK 7/23/97 4,916 - 4,916
------------------------------------------
TOTAL BANKS-DOMESTIC 9,862 258,442 268,304
------------------------------------------
BANKS-FOREIGN-8.3%
- 50,000 50,000 BANCA SERFIN 6/10/97 - 49,483 49,483
- 6,000 6,000 BANCO DE CREDITO NACIONAL 5/2/97 - 5,972 5,972
- 10,000 10,000 CEMEX 4/17/97 - 9,976 9,976
- 24,700 24,700 COSCO CAYMAN LIMITED 5/23/97 - 24,506 24,506
- 10,480 10,480 CROWN LEASING USA 4/17/97 - 9,794 9,794
- 9,820 9,820 CROWN LEASING USA 4/18/97 - 10,455 10,455
- 15,000 15,000 DAEWOO INTERNATIONAL 4/18/97 - 14,962 14,962
- 8,878 8,878 FINANCE ONE FUNDING 8/29/97 - 8,682 8,682
- 10,000 10,000 HARTZ 4/2/97 - 24,908 24,908
- 9,000 9,000 HARTZ 4/16/97 - 8,979 8,979
- 24,985 24,985 HARTZ 4/21/97 - 9,999 9,999
- 17,700 17,700 KONICA FINANCE USA 4/15/97 - 17,663 17,663
- 21,000 21,000 NACIONAL FINANCIERA 4/30/97 - 20,909 20,909
- 15,000 15,000 PEMEX CAPITAL INC. 9/9/97 - 14,639 14,639
- 7,500 7,500 RYOBI FINANCE 4/10/97 - 7,490 7,490
- 7,000 7,000 RYOBI FINANCE 4/24/97 - 6,975 6,975
5,000 - 5,000 TORONTO-DOMINION 4/9/97 4,994 - 4,994
5,000 - 5,000 TORONTO-DOMINION 4/18/97 4,987 - 4,987
5,000 - 5,000 TORONTO-DOMINION 4/11/97 4,977 - 4,977
5,000 - 5,000 TORONTO-DOMINION 5/2/97 4,993 - 4,993
- 5,300 5,300 TOWSON TOWN CENTER INC 4/18/97 - 5,286 5,286
- 21,700 21,700 TOWSON TOWN CENTER INC 4/18/97 - 21,643 21,643
- 9,289 9,289 TOWSON TOWN CENTER INC 4/15/97 - 9,269 9,269
- 15,000 15,000 US PRIME PROPERTY INC 5/12/97 - 14,909 14,909
- 27,400 27,400 US PRIME PROPERTY INC 5/19/97 - 27,206 27,206
------------------------------------------
TOTAL BANKS-FOREIGN 19,951 323,705 343,656
------------------------------------------
See accompanying notes to financial statements.
<PAGE>
Par Value
--- -----
Money Prime Pro Forma Money Prime Pro Forma
Market Obligations Combined Market Obligations Combined
(000) (000) (000) Security Maturity (000) (000) (000)
----- ----- ----- -------- -------- ----- ----- -----
BEVERAGES-0.1%
5,000 - 5,000 COCA-COLA CO. 4/28/97 $ 4,980 $ - $ 4,980
------------------------------------------
BUILDING PRODUCTS-0.5%
5,000 - 5,000 GUARDIAN INDS 4/30/97 4,979 - 4,979
5,000 - 5,000 GUARDIAN INDS 6/10/97 5,918 - 5,918
5,000 - 5,000 GUARDIAN INDS 6/27/97 4,948 - 4,948
6,000 - 6,000 GUARDIAN INDS 7/1/97 4,936 - 4,936
------------------------------------------
TOTAL BUILDING PRODUCTS 20,781 - 20,781
------------------------------------------
CHEMICALS-0.7%
5,000 - 5,000 DUPONT 4/3/97 4,999 - 4,999
5,000 - 5,000 MONSANTO 4/29/97 4,947 - 4,947
4,700 - 4,700 MONSANTO 5/6/97 4,979 - 4,979
5,000 - 5,000 MONSANTO 5/8/97 4,676 - 4,676
5,000 - 5,000 MONSANTO 6/11/97 4,973 - 4,973
5,000 - 5,000 MONSANTO 7/16/97 4,922 - 4,922
------------------------------------------
TOTAL CHEMICALS 29,496 - 29,496
------------------------------------------
COMMERCIAL FUNDING CORPORATIONS-18.1%
- 20,000 20,000 ASSET SECURITIZATION 6/2/97 - 19,814 19,814
- 10,000 10,000 ASSET SECURITIZATION 5/8/97 - 9,944 9,944
- 25,000 25,000 ASSET SECURITIZATION 4/25/97 - 24,905 24,905
- 15,000 15,000 DISTRIBUTION FUNDING 4/23/97 - 14,951 14,951
- 33,055 33,055 DISTRIBUTION FUNDING 4/25/97 - 32,938 32,938
- 13,445 13,445 DISTRIBUTION FUNDING 4/4/97 - 13,439 13,439
- 33,500 33,500 DISTRIBUTION FUNDING 4/21/97 - 33,401 33,401
- 20,736 20,736 EQUIPMENT FUNDING CORP. 4/7/97 - 20,718 20,718
- 25,000 25,000 EQUIPMENT FUNDING CORP. 4/3/97 - 24,993 24,993
- 41,443 41,443 EQUIPMENT FUNDING CORP. 4/4/97 - 41,425 41,425
- 25,160 25,160 EQUIPMENT INTERMED. 4/7/97 - 25,138 25,138
- 4,800 4,800 JEFFERSON SMURFIT 4/1/97 - 4,800 4,800
- 9,400 9,400 JEFFERSON SMURFIT 5/15/97 - 9,337 9,337
- 9,000 9,000 JEFFERSON SMURFIT 6/17/97 - 8,894 8,894
- 7,000 7,000 JEFFERSON SMURFIT 6/16/97 - 6,919 6,919
- 25,000 25,000 POOLED ACCOUNTS REC. 4/11/97 - 24,963 24,963
- 28,164 28,164 POOLED ACCOUNTS REC. 4/11/97 - 28,122 28,122
- 21,833 21,833 POOLED ACCOUNTS REC. 4/25/97 - 21,751 21,751
- 25,000 25,000 POOLED ACCOUNTS REC. 4/18/97 - 24,933 24,933
- 12,672 12,672 POOLED ACCOUNTS REC. 4/10/97 - 12,655 12,655
- 45,000 45,000 POOLED ACCOUNTS REC. 4/1/97 - 45,000 45,000
- 30,000 30,000 PREMIUM FUNDING INC. 4/21/97 - 29,911 29,911
- 22,418 22,418 PREMIUM FUNDING INC. 4/10/97 - 22,388 22,388
- 20,000 20,000 PREMIUM FUNDING INC. 4/17/97 - 19,952 19,952
- 15,000 15,000 PREMIUM FUNDING INC. 4/23/97 - 14,951 14,951
- 15,141 15,141 PREMIUM FUNDING INC. 4/14/97 - 15,112 15,112
- 15,041 15,041 PREMIUM FUNDING INC. 4/7/97 - 15,028 15,028
- 14,000 14,000 PREMIUM FUNDING INC. 4/9/97 - 13,983 13,983
- 10,276 10,276 PREMIUM FUNDING INC. 4/2/97 - 10,274 10,274
- 25,163 25,163 RECEIVABLES CAP CORP. 4/24/97 - 25,077 25,077
- 40,248 40,248 RECEIVABLES CAP CORP. 4/22/97 - 40,123 40,123
- 20,168 20,168 RECEIVABLES CAP CORP. 5/16/97 - 20,027 20,027
- 25,000 25,000 RECEIVABLES CAP CORP. 5/9/97 - 24,852 24,852
- 25,000 25,000 RECEIVABLES CAP CORP. 4/25/97 - 24,910 24,910
- 28,000 28,000 RECEIVABLES CAP CORP. 4/23/97 - 27,908 27,908
------------------------------------------
TOTAL COMMERCIAL FUNDING
CORPORATIONS - 753,536 753,536
------------------------------------------
COMPUTERS-0.2%
5,000 - 5,000 IBM 6/4/97 4,953 - 4,953
5,000 - 5,000 IBM 6/12/97 4,947 - 4,947
------------------------------------------
TOTAL COMPUTERS 9,900 - 9,900
------------------------------------------
See accompanying notes to financial statements.
<PAGE>
Par Value
--- -----
Money Prime Pro Forma Money Prime Pro Forma
Market Obligations Combined Market Obligations Combined
(000) (000) (000) Security Maturity (000) (000) (000)
----- ----- ----- -------- -------- ----- ----- -----
ELECTRIC UTILITY-1.0%
5,000 - 5,000 PACIFICORP 4/2/97 $ 4,954 $ - $ 4,954
5,000 - 5,000 PACIFICORP 5/6/97 4,999 - 4,999
5,000 - 5,000 PACIFICORP 6/3/97 4,974 - 4,974
5,000 - 5,000 PORTLAND GENERAL 6/25/97 4,936 - 4,936
5,000 - 5,000 PORTLAND GENERAL 7/18/97 4,920 - 4,920
5,000 - 5,000 PORTLAND GENERAL 7/28/97 4,913 - 4,913
6,000 - 6,000 PORTLAND GENERAL 8/21/97 5,867 - 5,867
5,000 - 5,000 PORTLAND GENERAL 7/8/97 4,928 - 4,928
------------------------------------------
TOTAL ELECTRIC UTILITY 40,491 - 40,491
------------------------------------------
FINANCIAL SERVICES-2.3%
5,000 - 5,000 AMERICAN EXPRESS 4/21/97 4,985 - 4,985
5,000 - 5,000 AMERICAN EXPRESS 6/4/97 4,953 - 4,953
5,000 - 5,000 AMERICAN GENERAL 4/7/97 4,996 - 4,996
6,000 - 6,000 AMERICAN GENERAL 7/10/97 5,908 - 5,908
5,000 - 5,000 ASSOC. CORP. 4/4/97 4,941 - 4,941
5,000 - 5,000 ASSOC. CORP. 6/20/97 4,998 - 4,998
6,000 - 6,000 CIT GROUP 7/9/97 5,906 - 5,906
5,000 - 5,000 GENERAL ELECTRIC 4/16/97 4,989 - 4,989
5,000 - 5,000 GENERAL ELECTRIC 6/9/97 4,933 - 4,933
5,000 - 5,000 GENERAL ELECTRIC 6/16/97 4,949 - 4,949
5,000 - 5,000 GENERAL ELECTRIC 6/30/97 4,945 - 4,945
5,000 - 5,000 NATIONAL RURAL 5/13/97 4,965 - 4,965
5,000 - 5,000 NATIONAL RURAL 5/15/97 4,969 - 4,969
5,000 - 5,000 NATIONAL RURAL 5/19/97 4,967 - 4,967
6,000 - 6,000 NATIONAL RURAL 5/28/97 5,947 - 5,947
5,000 - 5,000 TRANSAMERICA FIN 4/16/97 4,938 - 4,938
2,000 - 2,000 TRANSAMERICA FIN 4/24/97 4,989 - 4,989
5,000 - 5,000 TRANSAMERICA FIN 6/5/97 1,993 - 1,993
5,000 - 5,000 TRANSAMERICA FIN 6/24/97 4,952 - 4,952
------------------------------------------
TOTAL FINANCIAL SERVICES 94,223 - 94,223
------------------------------------------
FOOD PRODUCTS-0.7%
5,000 - 5,000 CAMPBELL SOUP 9/15/97 4,878 - 4,878
5,000 - 5,000 CARGILL FIN SVC 4/10/97 4,993 - 4,993
5,000 - 5,000 CARGILL FIN SVC 7/21/97 4,917 - 4,917
5,000 - 5,000 CARGILL FIN SVC 7/30/97 4,913 - 4,913
5,000 - 5,000 CARGILL INC DCP 5/7/97 4,974 - 4,974
5,000 - 5,000 CARGILL INC DCP 5/14/97 4,968 - 4,968
------------------------------------------
TOTAL FOOD PRODUCTS 29,643 - 29,643
------------------------------------------
FOREIGN FUNDING CORPORATIONS-3.6%
- 25,000 25,000 SIGMA FINANCE INC. 6/5/97 - 24,756 24,756
- 10,000 10,000 SIGMA FINANCE INC. 5/16/97 - 9,934 9,934
- 36,000 36,000 SIGMA FINANCE INC. 5/12/97 - 35,782 35,782
- 30,000 30,000 SIGMA FINANCE INC. 5/15/97 - 29,806 29,806
- 14,000 14,000 SIGMA FINANCE INC. 5/19/97 - 13,901 13,901
- 15,000 15,000 SIGMA FINANCE INC. 5/13/97 - 14,902 14,902
- 15,000 15,000 SIGMA FINANCE INC. 4/14/97 - 14,971 14,971
- 7,500 7,500 SIGMA FINANCE INC. 4/15/97 - 7,484 7,484
------------------------------------------
TOTAL FOREIGN FUNDING
CORPORATIONS - 151,536 151,536
------------------------------------------
INSURANCE-2.3%
5,000 - 5,000 AIG FUNDING DCP 8/4/97 4,908 - 4,908
5,000 - 5,000 METLIFE FUNDING 6/2/97 4,973 - 4,973
5,000 - 5,000 METLIFE FUNDING 5/27/97 4,959 - 4,959
5,000 - 5,000 METLIFE FUNDING 6/9/97 4,954 - 4,954
5,000 - 5,000 METLIFE FUNDING 5/8/97 4,949 - 4,949
5,000 - 5,000 PRUDENTIAL 4/8/97 4,925 - 4,925
5,000 - 5,000 PRUDENTIAL 4/22/97 4,995 - 4,995
5,000 - 5,000 PRUDENTIAL 6/18/97 4,985 - 4,985
5,000 - 5,000 PRUDENTIAL 7/11/97 4,942 - 4,942
5,000 - 5,000 PRUDENTIAL 7/17/97 4,920 - 4,920
See accompanying notes to financial statements.
<PAGE>
Par Value
--- -----
Money Prime Pro Forma Money Prime Pro Forma
Market Obligations Combined Market Obligations Combined
(000) (000) (000) Security Maturity (000) (000) (000)
----- ----- ----- -------- -------- ----- ----- -----
INSURANCE (CONTINUED)
5,000 - 5,000 SAFECO CREDIT 4/1/97 $ 5,000 $ - $ 5,000
5,000 - 5,000 SAFECO CREDIT 4/17/97 4,990 - 4,990
5,000 - 5,000 SAFECO CREDIT 5/1/97 4,953 - 4,953
5,000 - 5,000 SAFECO CREDIT 6/4/97 4,988 - 4,988
5,000 - 5,000 SAFECO CREDIT 4/15/97 4,978 - 4,978
5,000 - 5,000 USAA CAPITAL 8/19/97 4,943 - 4,943
5,000 - 5,000 USAA CAPITAL 5/21/97 4,963 - 4,963
5,000 - 5,000 USAA CAPITAL 6/17/97 4,938 - 4,938
5,000 - 5,000 USAA CAPITAL 6/23/97 4,898 - 4,898
------------------------------------------
TOTAL INSURANCE 94,161 - 94,161
------------------------------------------
LEASING-0.5%
5,000 - 5,000 INTERNATIONAL LEASE 4/11/97 4,915 - 4,915
5,000 - 5,000 INTERNATIONAL LEASE 5/22/97 4,962 - 4,962
5,000 - 5,000 INTERNATIONAL LEASE 6/26/97 4,936 - 4,936
5,000 - 5,000 INTERNATIONAL LEASE 7/25/97 4,993 - 4,993
------------------------------------------
TOTAL LEASING 19,806 - 19,806
------------------------------------------
MISCELLANEOUS-0.6%
5,000 - 5,000 UNIV. OF CAL. REGENTS 4/23/97 4,942 - 4,942
5,000 - 5,000 UNIV. OF CAL. REGENTS 4/24/97 5,908 - 5,908
5,000 - 5,000 UNIV. OF CAL. REGENTS 6/19/97 4,984 - 4,984
5,000 - 5,000 UNIV. OF CAL. REGENTS 7/2/97 4,982 - 4,982
6,000 - 6,000 UNIV. OF CAL. REGENTS 7/10/97 4,931 - 4,931
------------------------------------------
TOTAL MISCELLANEOUS 25,747 - 25,747
------------------------------------------
OFFICE EQUIPMENT AND SERVICES-0.5%
5,000 - 5,000 MCGRAW-HILL 8/11/97 4,901 - 4,901
5,000 - 5,000 PITNEY BOWES 6/18/97 5,792 - 5,792
5,870 - 5,870 PITNEY BOWES 7/1/97 4,886 - 4,886
5,000 - 5,000 PITNEY BOWES 8/26/97 4,942 - 4,942
------------------------------------------
TOTAL OFFICE EQUIPMENT
AND SERVICES 20,521 - 20,521
------------------------------------------
PHARMACEUTICALS-0.4%
5,000 - 5,000 WARNER-LAMBERT 5/9/97 4,967 - 4,967
5,000 - 5,000 WARNER-LAMBERT 5/15/97 4,972 - 4,972
5,000 - 5,000 WARNER-LAMBERT 6/6/97 4,951 - 4,951
------------------------------------------
TOTAL PHARMACEUTICALS 14,890 - 14,890
------------------------------------------
PRINTING AND PUBLISHING-0.5%
5,000 - 5,000 DONNELLEY & SONS 5/12/97 4,970 - 4,970
5,000 - 5,000 MC-GRAW HILL 5/20/97 5,907 - 5,907
6,000 - 6,000 MC-GRAW HILL 7/11/97 4,964 - 4,964
5,000 - 5,000 MC-GRAW HILL 8/6/97 4,905 - 4,905
------------------------------------------
TOTAL PRINTING AND PUBLISHING 20,746 - 20,746
------------------------------------------
RETAIL FUNDING CORPORATIONS-7.9%
- 8,754 8,754 CREDIT CARD SECUR. 4/2/97 - 8,753 8,753
- 15,047 15,047 CREDIT CARD SECUR. 4/1/97 - 15,047 15,047
- 8,568 8,568 ENTERPRISE FUNDING 4/11/97 - 8,555 8,555
- 18,332 18,332 ENTERPRISE FUNDING 5/7/97 - 18,234 18,234
- 8,142 8,142 ENTERPRISE FUNDING 4/28/97 - 8,109 8,109
- 24,892 24,892 ENTERPRISE FUNDING 4/18/97 - 24,829 24,829
- 13,067 13,067 ENTERPRISE FUNDING 4/7/97 - 13,055 13,055
- 14,146 14,146 ENTERPRISE FUNDING 4/15/97 - 14,117 14,117
- 11,609 11,609 ENTERPRISE FUNDING 4/3/97 - 11,606 11,606
- 25,919 25,919 ENTERPRISE FUNDING 4/4/97 - 25,908 25,908
- 35,000 35,000 ENTERPRISE FUNDING 4/28/97 - 34,861 34,861
- 20,000 20,000 ENTERPRISE FUNDING 5/5/97 - 19,899 19,899
- 27,177 27,177 FIRST DEPOSIT MASTER 5/6/97 - 27,035 27,035
See accompanying notes to financial statements.
<PAGE>
Par Value
--- -----
Money Prime Pro Forma Money Prime Pro Forma
Market Obligations Combined Market Obligations Combined
(000) (000) (000) Security Maturity (000) (000) (000)
----- ----- ----- -------- -------- ----- ----- -----
RETAIL FUNDING CORPORATIONS (CONTINUED)
- 10,000 10,000 FIRST DEPOSIT MASTER 4/17/97 $ - $ 9,976 $ 9,976
- 16,000 16,000 FIRST DEPOSIT MASTER 4/16/97 - 15,964 15,964
- 25,000 25,000 FIRST DEPOSIT MASTER 5/13/97 - 24,844 24,844
- 25,000 25,000 FIRST DEPOSIT MASTER 4/30/97 - 24,892 24,892
- 15,000 15,000 FIRST DEPOSIT MASTER 4/9/97 - 14,982 14,982
- 10,000 10,000 FIRST DEPOSIT MASTER 4/8/97 - 9,990 9,990
------------------------------------------
TOTAL RETAIL FUNDING
CORPORATIONS - 330,656 330,656
------------------------------------------
SECURITY BROKERS AND DEALERS-0.6%
5,000 - 5,000 MERRILL LYNCH 4/14/97 5,896 - 5,896
5,000 - 5,000 MERRILL LYNCH 4/23/97 4,990 - 4,990
5,000 - 5,000 MERRILL LYNCH 7/18/97 4,984 - 4,984
6,000 - 6,000 MERRILL LYNCH 7/24/97 4,919 - 4,919
5,000 - 5,000 MERRILL LYNCH 7/29/97 4,911 - 4,911
------------------------------------------
TOTAL SECURITY BROKERS
AND DEALER 25,700 - 25,700
------------------------------------------
TRANSPORTATION AND SHIPPING-0.2%
5,000 - 5,000 NORFOLK SOUTHERN 5/12/97 4,970 - 4,970
5,000 - 5,000 NORFOLK SOUTHERN 5/29/97 4,957 - 4,957
------------------------------------------
TOTAL TRANSPORTATION AND SHIPPING 9,927 - 9,927
------------------------------------------
TELECOMMUNICATIONS-0.5%
5,000 - 5,000 AT&T CORP. 8/14/97 4,899 - 4,899
5,000 - 5,000 LUCENT TECHNOLOGIES 5/16/97 4,967 - 4,967
5,000 - 5,000 LUCENT TECHNOLOGIES 5/23/97 4,939 - 4,939
5,000 - 5,000 LUCENT TECHNOLOGIES 6/25/97 4,962 - 4,962
------------------------------------------
TOTAL TELECOMMUNICATIONS 19,767 - 19,767
------------------------------------------
TOTAL COMMERCIAL PAPER 546,127 1,817,875 2,364,002
------------------------------------------
CORPORATE OBLIGATIONS-27.5%
BROKERAGE-8.4%
- 105,000 105,000 BANKERS TRUST 144A 04/01/97* - 105,000 105,000
- 50 50 BEAR STEARNS CO 04/07/97* - 50,000 50,000
- 75,000 75,000 MORGAN STANLEY 04/15/97* - 75,000 75,000
- 25,000 25,000 STRCTD ENHNCD MERL 04/18/97* - 25,000 25,000
- 10,000 10,000 STRCTD ENHNCD MERL 04/18/97* - 10,000 10,000
- 84,741 84,741 WFP TOWER B FIN CORP 04/08/97* - 84,730 84,730
------------------------------------------
TOTAL BROKERAGE - 349,730 349,730
------------------------------------------
DIVERSIFIED FINANCE-2.7%
- 9,000 9,000 AMERICAN GENERAL FINANCE 5/15/97 - 9,011 9,011
- 11,500 11,500 AMERICAN GENERAL FINANCE 1/15/98 - 11,722 11,722
- 5,000 5,000 ASSOCIATES CORP MTN 4/29/97 - 5,006 5,006
- 5,000 5,000 ASSOCIATES CORP MTN 6/15/97 - 5,030 5,030
- 5,160 5,160 FORD MOTOR CREDIT 6/10/97 - 5,193 5,193
- 8,000 8,000 FORD MOTOR CREDIT 4/29/97 - 8,011 8,011
3,000 - 3,000 GENERAL ELECTRIC VRN 4/7/97 3,000 - 3,000
- 7,000 7,000 HOUSEHOLD FINANCE MTN 4/25/97 - 7,003 7,003
- 10,850 10,850 INT'L LEASE FINANCE MTN 2/13/98 - 10,844 10,844
- 9,000 9,000 INT'L LEASE FINANCE MTN 6/2/97 - 8,990 8,990
- 15,000 15,000 INT'L LEASE FINANCE MTN 7/3/97 - 14,997 14,997
- 6,600 6,600 INT'L LEASE FINANCE MTN 6/9/97 - 6,597 6,597
- 6,000 6,000 INT'L LEASE FINANCE MTN 7/15/97 - 6,011 6,011
11,000 - 11,000 PACCAR LEASING VRN 4/19/97 11,000 - 11,000
------------------------------------------
TOTAL DIVERSIFIED FINANCE 14,000 98,415 112,415
------------------------------------------
DOMESTIC BANK-2.9%
- 12,410 12,410 BANKAMERICA CORP 6.00% 7/15/97 - 12,416 12,416
- 110,000 110,000 SMM TRUST 1996-D 4/28/97* - 110,000 110,000
------------------------------------------
TOTAL DOMESTIC BANK - 122,416 122,416
------------------------------------------
See accompanying notes to financial statements.
<PAGE>
Par Value
--- -----
Money Prime Pro Forma Money Prime Pro Forma
Market Obligations Combined Market Obligations Combined
(000) (000) (000) Security Maturity (000) (000) (000)
----- ----- ----- -------- -------- ----- ----- -----
FOREIGN BANK-2.4%
- 100,000 100,000 STRUCTURED PRODUCTS ASSET RTN 4/03/97* $ - $ 100,000 $ 100,000
------------------------------------------
FOREIGN FUNDING CORPORATONS-4.0%
- 30,000 30,000 BETA FINANCE 4/01/97* - 30,040 30,040
- 20,000 20,000 BETA FINANCE 5/16/97 - 20,000 20,000
- 65,000 65,000 BETA FINANCE 6/10/97 - 65,000 65,000
- 50,000 50,000 SALTS III CAYMAN IS. 7/23/97 - 50,000 50,000
------------------------------------------
TOTAL FOREIGN FUNDING CORPORATIONS - 165,040 165,040
------------------------------------------
INSURANCE-7.1%
- 75,000 75,000 ANCHOR NATIONAL LIFE 4/01/97* - 75,000 75,000
3,000 125,000 128,000 COMMONWEALTH LIFE 4/01/97* 3,000 125,000 128,000
7,000 - 7,000 GEN. AM. LIFE FA 4/01/97* 7,000 - 7,000
10,000 75,000 85,000 SUN LIFE INSURANCE 4/01/97* 10,000 75,000 85,000
------------------------------------------
TOTAL INSURANCE 20,000 275,000 295,000
------------------------------------------
TOTAL CORPORATE OBLIGATIONS 34,000 1,110,601 1,144,601
------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS-4.0%
- 70,455 70,455 EXPORT -IMPORT BANK 4/01/97* - 70,445 70,445
- 36,163 36,163 KA LEASING 4/01/97* - 36,163 36,163
- 38,400 38,400 SLMA FLOATER 4/01/97* - 38,161 38,161
- 11,150 11,150 SLMA FLTR (Q20) TUE 4/01/97* - 11,147 11,147
- 10,000 10,000 SLMA FLTR (Q21) TUE 4/01/97* - 9,998 9,998
- 1,250 1,250 U.S. AGENCY FOR INT'L DEV 4/01/97* - 1,248 1,248
------------------------------------------
TOTAL U.S GOVERNMENT AGENCY
OBLIGATIONS - 167,162 167,162
------------------------------------------
CERTIFICATES OF DEPOSIT-2.9%
- 20,000 20,000 MERCANTILE SAFE DEP. 04/01/97* - 20,000 20,000
- 20,000 20,000 MERCANTILE SAFE DEP. 04/01/97* - 20,000 20,000
- 5,640 5,640 MERCANTILE SAFE DEP. 08/21/97* - 5,604 5,604
- 25,000 25,000 SOCIETE GENERALE INSTL 1/13/98 - 24,996 24,996
- 50,000 50,000 WILMINGTON DELAWARE 1/7/98 - 49,972 49,972
------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT - 120,572 120,572
------------------------------------------
ASSET-BACKED SECURITIES-2.6%
- 111,500 111,500 CARCO AUTO LOAN MASTER TRUST 04/15/97* - 111,500 111,500
------------------------------------------
LOAN PARTICIPATION CERTIFICATES-1.2%
- 50,000 50,000 BARCLAY'S BANK LP 5/23/97 - 50,000 50,000
------------------------------------------
REPURCHASE AGREEMENTS-4.9%
- 27,296 27,296 SALOMON BROTHERS 4/1/97 - 27,296 27,296
- 177,299 177,299 LEHMAN BROTHERS 4/1/97 - 177,299 177,299
------------------------------------------
TOTAL REPURCHASE AGREEMENTS - 204,595 204,595
------------------------------------------
TOTAL INVESTMENTS (Cost $580,127,
$3,582,305 and $4,162,432, respectively) $580,127 $ 3,582,305 $ 4,162,432
==========================================
</TABLE>
* Date shown is next reset date.
See accompanying notes to financial statements.
<PAGE>
FIRST AMERICAN FUNDS, INC.
PART C - OTHER INFORMATION
ITEM 15. 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, any rules, regulations, or releases promulgated
thereunder.
Section 302A.521 of the Minnesota Statues, as now enacted, provides
that a corporation shall indemnify a person made or threatened to be made a
party to a proceeding by reason of the former or present official capacity of
the person against judgments, penalties, fines, settlements and reasonable
expenses, including attorneys' fees and disbursements, incurred by the person in
connection with the proceeding if, with respect to the acts or omissions of the
person complained of in the proceeding, the person has not been indemnified by
another organization for the same judgments, penalties, fines, settlements, and
reasonable expenses incurred by the person in connection with the proceeding
with respect to the same act 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.
The Registrant maintains officers' and directors' liability insurance
providing coverage, with certain exceptions, for acts and omissions in the
course of the covered persons' duties as officers and directors.
<PAGE>
ITEM 16. EXHIBITS
(1) Amended and Restated Articles of Incorporation, as amended
through January 20, 1995. (Incorporated by reference to
Exhibit (1) to Post-Effective Amendment No. 22 to the
Registrant's Registration Statement on Form N-1A, File No. 2-
74747 (the "Post-Effective Amendment No. 22").)
(2) Bylaws, as amended through December 7, 1994. (Incorporated by
reference to Exhibit (2) to the Post-Effective Amendment No.
22.)
(3) Not applicable.
* (4) Agreement and Plan of Reorganization, attached as Appendix
III to the Prospectus/Proxy Statement included in Part A of
this Registration Statement on Form N-14.
(5) Not Applicable
(6) Investment Advisory Agreement, dated January 20, 1995, between
the Registrant and First Bank National Association.
(Incorporated by reference to Exhibit (5) to the Post
Effective Amendment No. 22.)
(7) (a) Distribution Agreement and Service Agreement relating
to the Class B Shares, dated January 20, 1995,
between the Registrant and SEI Financial Services
Company. (Incorporated by reference to Exhibit (6)(a)
to the Post-Effective Amendment No. 22.)
(b) Distribution Agreement relating to the Class A, Class
C and Class D Shares, dated January 1, 1995, between
the Registrant and SEI Financial Services Company.
(Incorporated by reference to Exhibit (6)(b) to the
Post-Effective Amendment No. 22.)
(8) Not applicable.
(9) (a) Custodian Agreement dated September 20, 1993, between
the Registrant and First Trust National Association.
(Incorporated by reference to Exhibit (8)(a) to the
Post-Effective Amendment No. 22.)
(b) Compensation Agreement dated January 20, 1995,
pursuant to Custodian Agreement. (Incorporated by
reference to Exhibit (8)(b) to the Post-Effective
Amendment No. 22.)
(10) (a) Distribution Plan for Class A Shares. (Incorporated
by reference to Exhibit (15)(a) to the Post-Effective
Amendment No. 22.)
(b) Distribution Plan for Class B Shares. (Incorporated
by reference to Exhibit (15)(b) to the Post-Effective
Amendment No. 22.)
<PAGE>
(c) Distribution Plan for Class D Shares. (Incorporated
by reference to Exhibit (15)(c) to the Post-Effective
Amendment No. 22.)
(d) Service Plan for Class B Shares. (Incorporated by
reference to Exhibit (15)(d) to the Post-Effective
Amendment No. 22.)
(e) Multiple Class Plan Pursuant to Rule 18f-3.
(Incorporated by reference to Exhibit (18) to the
Post Effective Amendment No. 22.)
* (11) Opinion and Consent of Dorsey & Whitney LLP with respect
to the legality of the securities being registered.
** (12) Opinion and Consent of Dorsey & Whitney LLP with respect to
tax matters (to be filed by Amendment to this Registration
Statement on Form N-14.)
(13) (a) Transfer Agency Agreement dated March 31, 1994,
between the Registrant and Supervised Service
Company. [superseded] (Incorporated by reference to
Exhibit (9)(a) to the Post-Effective Amendment No.
22.)
(b) Assignment of Transfer Agency Agreement to DST
Systems, Inc. [superseded] (Incorporated by reference
to Exhibit (9)(b) to the Post-Effective Amendment
No. 22.)
(c) Administration Agreement dated January 1, 1995
between the Registrant and SEI Financial Management
Corporation. (Incorporated by reference to Exhibit
(9)(c) to the Post-Effective Amendment No. 22.)
* (d) Transfer Agency Agreement dated as of January 1,
1996, between Registrant and DST Systems, Inc.
* (14) (a) Consent of KPMG Peat Marwick LLP
* (b) Consent of Deloitte & Touche LLP
* (16) Powers of Attorney of Directors signing the Registration
Statement
* (17) (a) Rule 24f-2 Election of Registrant
* (b) Form of Proxy Card
* Filed herewith.
** To be filed by amendment.
ITEM 17. UNDERTAKINGS.
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a prospectus which is
a part of this Registration Statement by any person or party who is deemed to be
an underwriter within the meaning of Rule 145(c) of the Securities Act, the
<PAGE>
reoffering prospectus will contain the information called for by the applicable
registration form for reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(2) The undersigned Registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an amendment to the
Registration Statement and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering of them.
(3) The undersigned Registrant agrees to file, by post-effective
amendment, an opinion of counsel or a copy of a ruling of the Internal Revenue
Service supporting the tax consequences of the proposed reorganization within a
reasonable time after receipt of such opinion or ruling.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Oaks, Commonwealth of
Pennsylvania, on the 8th day of August, 1997.
FIRST AMERICAN FUNDS, INC.
ATTEST: /s/ Stephen G. Meyer By /s/ Kathryn L. Stanton
Stephen G. Meyer Kathryn L. Stanton, Vice President
Pursuant to the requirements of the Securities Act of 1933, 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/ Stephen G. Meyer Controller (Principal **
Stephen G. Meyer Financial and Accounting
Officer)
* Director **
Robert J. Dayton
* Director **
Andrew M. Hunter III
* Director **
Robert L. Spies
* Director **
Leonard W. Kedrowski
* Director **
Joseph D. Strauss
* Director **
Virginia L. Stringer
* Director **
Gae B. Veit
* By: /s/ Kathryn L. Stanton
Kathryn L. Stanton
Attorney in Fact
** August 8, 1997.
EXHIBIT 11
[LETTERHEAD OF DORSEY & WHITNEY LLP]
August , 1997
First American Funds, Inc.
Oaks, Pennsylvania 19456
Re: First American Funds, Inc.
Shares to be Issued Pursuant to Agreement and Plan of Reorganization
Ladies and Gentlemen:
We have acted as counsel to First American Funds, Inc., a Minnesota
corporation ("FAF"), in connection with FAF's authorization and proposed
issuance of its Class A and C common shares, par value $.01 per share, of Series
B, Series D and Series E of FAF (the "Shares"). The Shares are to be issued
pursuant to an Agreement and Plan of Reorganization (the "Agreement"), by and
between FAF (the "Acquiring Fund"), and Qualivest Funds (the "Acquired Fund"),
the form of which Agreement is included as Appendix III to the Combined Proxy
Statement/Prospectus relating to the transactions contemplated by the Agreement
included in FAF's Registration Statement on Form N-14 filed with the Securities
and Exchange Commission (the "Registration Statement").
In rendering the opinions hereinafter expressed, we have reviewed the
corporate proceedings taken by FAF in connection with the authorization and
issuance of the Shares, and we have reviewed such questions of law and examined
copies of such corporate records of FAF, certificates of public officials and of
responsible officers of FAF, and other documents as we have deemed necessary as
a basis for such opinions. As to the various matters of fact material to such
opinions, we have, when such facts were not independently established, relied to
the extent we deem proper on certificates of public officials and of responsible
officers of FAF. In connection with such review and examination, we have assumed
that all copies of documents provided to us conform to the originals; that all
signatures are genuine; and that prior to the consummation of the transactions
contemplated thereby, the Agreement will have been duly and validly executed and
delivered on behalf of each of the parties thereto in substantially the form
included in the Registration Statement.
<PAGE>
Based on the foregoing, it is our opinion that:
1. FAF is validly existing as a corporation in good standing under the
laws of the State of Minnesota.
2. The Shares, when issued and delivered by the Acquiring Fund pursuant
to, and upon satisfaction of the conditions contained in, the Agreement, will be
duly authorized, validly issued, fully paid and non-assessable.
In rendering the foregoing opinions (a) we express no opinion as to the
laws of any jurisdiction other than the State of Minnesota; and (b) we have
assumed, with your concurrence, that the conditions to closing set forth in the
Agreement will have been satisfied.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Information Relating to the Proposed Reorganization--Federal Income Tax
Consequences" in FAF's final Combined Proxy Statement/Prospectus relating to the
Shares included in the Registration Statement.
Very truly yours,
/s/ Dorsey & Whitney LLP
JDA
EXHIBIT (13)(d)
AGENCY AGREEMENT
THIS AGREEMENT made the 1st day of January, 1997, by and between FIRST
AMERICAN FUNDS, INC., a corporation existing under the laws of the State of
Minnesota, having its principal place of business at 680 East Swedesford Road,
Wayne, Pennsylvania 19087 (the "Fund"), and DST SYSTEMS, INC., a corporation
existing under the laws of the State of Delaware, having its principal place of
business at 333 W. 11th St., 5th Fl., Kansas City, Missouri 64105 ("DST"):
WITNESSETH:
WHEREAS, the Fund desires to appoint DST as Transfer Agent and Dividend
Disbursing Agent, and DST desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
1. Documents to be Filed with Appointment.
In connection with the appointment of DST as Transfer Agent and
Dividend Disbursing Agent for the Fund, there will be filed with DST
the following documents:
A. A certified copy of the resolutions of the Board of Directors
of the Fund (which term when used herein shall include any
Board of Trustees, or other governing body of the Fund,
however styled) appointing DST as Transfer Agent and Dividend
Disbursing Agent, approving the form of this Agreement, and
designating certain persons to sign stock certificates, if
any, and give written instructions and requests on behalf of
the Fund;
B. A certified copy of the Articles of Incorporation (which term
as used herein shall include, where relevant, the Declaration
of Trust, or other basic instrument establishing the existence
and nature of the Fund) of the Fund and all amendments
thereto;
C. A certified copy of the Bylaws of the Fund;
D. Copies of Registration Statements and amendments thereto,
filed with the Securities and Exchange Commission.
E. Specimens of all forms of outstanding stock certificates, in
the forms approved by the Board of Directors of the Fund, with
a certificate of the Secretary of the Fund, as to such
approval;
F. Specimens of the signatures of the officers of the Fund
authorized to sign stock certificates and individuals
authorized to sign written instructions and requests;
G. An opinion of counsel for the Fund, as such opinion(s) have
been filed with the Fund's Registration Statement or notices
required under Rule 24f-2 under the Investment Company Act of
1940 (the "1940 Act"), with respect to: (1) The Fund's
organization and existence under the laws of its state of
organization, and (2) That all issued shares are validly
issued, fully paid and nonassessable.
2. Certain Representations and Warranties of DST.
DST represents and warrants to the Fund that:
A. It is a corporation duly organized and existing and in good
standing under the laws of Delaware.
B. It is duly qualified to carry on its business in the State of
Missouri.
C. It is empowered under applicable laws and by its Articles of
Incorporation and Bylaws to enter into and perform the
services contemplated in this Agreement.
D. It is registered as a transfer agent to the extent required
under the Securities Exchange Act of 1934 (the "1934 Act").
E. All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
F. It has and will continue to have and maintain the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
G. It is in compliance with Securities and Exchange Commission
("SEC") regulations and is not subject to restrictions under
Rule 17Ad.
H. Copies of DST's Rule 17Ad-13 reports will be provided to the
Fund annually as and to the extent required under Rule 17Ad-13
under the 1934 Act.
I. Its fidelity bonding and minimum capital meet the transfer
agency requirements of the New York Stock Exchange and the
American Stock Exchange.
3. Certain Representations and Warranties of the Fund. The Fund represents
and warrants to DST that:
A. It is a corporation duly organized and existing and in good
standing under the laws of the State of Minnesota.
B. It is an open-end management investment company registered
under the 1940 Act, as amended, the portfolios of which may be
diversified or non-diversified.
C. A registration statement under the Securities Act of 1933 has
been filed and will be effective with respect to all shares of
the Fund being offered for sale.
D. All requisite steps have been and will continue to be taken to
register the Fund's shares for sale in all applicable states
and such registration will be effective at all times shares
are offered for sale in such state.
E. The Fund is empowered under applicable laws and by its charter
and Bylaws to enter into and perform this Agreement.
4. Scope of Appointment.
A. Subject to the conditions set forth in this Agreement, the
Fund hereby appoints DST as Transfer Agent and Dividend
Disbursing Agent.
B. DST hereby accepts such appointment and agrees that it will
act as the Fund's Transfer Agent and Dividend Disbursing
Agent. DST agrees that it will also act as agent in connection
with the Fund's periodic withdrawal payment accounts and other
open accounts or similar plans for shareholders, if any.
C. The Fund agrees to use its reasonable efforts to deliver to
DST in Kansas City, Missouri, as soon as they are available,
all of its shareholder account records.
D. DST, utilizing TA2000(R), DST's computerized data processing
system for securityholder accounting (the "TA2000 System"),
will perform the following services as transfer and dividend
disbursing agent for the Fund, and as agent of the Fund for
shareholder accounts thereof, in a timely manner: issuing
(including countersigning), transferring and canceling share
certificates, if any; maintaining all shareholder accounts;
providing transaction journals; as requested by the Fund and
subject to payment by the Fund of an additional fee, preparing
shareholder meeting lists for use in connection with any
annual or special meeting and arrange for an affiliate to
print, mail and receive back proxies and to certify the
shareholder votes of the Fund of any portfolios thereof;
mailing shareholder reports and prospectuses; withholding, as
required by federal law, taxes on shareholder accounts,
disbursing income dividends and capital gains distributions to
shareholders, preparing, filing and mailing U.S. Treasury
Department Forms 1099, 1042, and 1042S and performing and
paying backup withholding as required for all shareholders;
preparing and mailing confirmation forms to shareholders and
dealers, as instructed, for all purchases and liquidations of
shares of the Fund and other confirmable transactions in
shareholders' accounts; recording reinvestment of dividends
and distributions in shares of the Fund; providing or making
available on-line daily and monthly reports as provided by the
TA2000 System and as requested by the Fund or its management
company; maintaining those records necessary to carry out
DST's duties hereunder, including all information reasonably
required by the Fund to account for all transactions in the
Fund shares, calculating the appropriate sales charge with
respect to each purchase of the Fund shares as set forth in
the prospectus for the Fund, determining the portion of each
sales charge payable to the dealer participating in a sale in
accordance with schedules delivered to DST by the Fund's
principal underwriter or distributor (hereinafter "principal
underwriter") from time to time, disbursing dealer commissions
collected to such dealers, determining the portion of each
sales charge payable to such principal underwriter and
disbursing such commissions to the principal underwriter;
receiving correspondence pertaining to any former, existing or
new shareholder account, processing such correspondence for
proper recordkeeping, and responding promptly to shareholder
correspondence; mailing to dealers confirmations of wire order
trades; mailing copies of shareholder statements to
shareholders and registered representatives of dealers in
accordance with the Fund's instructions; interfacing with,
accepting and effectuating order for transactions and
registration and maintenance information, all on an automated
basis, from, and providing advices to the Fund's custodian
bank and to the Fund's settlement bank in connection with the
settling of such transactions, with, the National Securities
Clearing Corporation ("NSCC") pertaining to NSCC's Fund/SERV
and Networking programs; and processing, generally on the date
of receipt, purchases or redemptions or instructions to settle
any mail or wire order purchases or redemptions received in
proper order as set forth in the prospectus, rejecting
promptly any requests not received in proper order (as defined
by the Fund or its agents), and causing exchanges of shares to
be executed in accordance with the Fund's instructions and
prospectus and the general exchange privilege applicable.
E. At the request of Fund, DST shall use reasonable efforts to
provide the services set forth in Section 4.D. other than
through DST's usual methods of and procedures to utilize the
TA2000 System, that is by using methods and procedures other
than those usually employed by DST to perform services
requiring more manual intervention by DST, either in the entry
of data, in the maintenance of account lists and/or the
effecting of transactions with respect to timers and accounts
subject to agreements with timers, or in the modification or
amendment of reports generated by the TA2000 System, or which
provides information to DST after the commencement of the
nightly processing cycle of the TA2000 System, thereby
decreasing the effective time for performance by DST (the
"Exception Services").
F. DST shall use reasonable efforts to provide, reasonably
promptly under the circumstances, the same transfer agent
services with respect to any new, additional functions or
features or any changes or improvements to existing functions
or features as provided for in the Fund's instructions,
prospectus or application as amended from time to time, for
the Fund provided (i) DST is advised in advance by the Fund of
any changes therein and (ii) the TA2000 System and the mode of
operations utilized by DST as then constituted supports such
additional functions and features. If any addition to,
improvement of or change in the features and functions
currently provided by the TA2000 System or the operations as
requested by the Fund requires an enhancement or modification
to the TA2000 System or to operations as then conducted by
DST, DST shall not be liable therefore until such modification
or enhancement is installed on the TA2000 System or new mode
of operation is instituted. If any new, additional function or
feature or change or improvement to existing functions or
features or new service or mode of operation measurably
increases DST's cost of performing the services required
hereunder at the current level of service, DST shall advise
the Fund of the amount of such increase and if the Fund elects
to utilize such function, feature or service, DST shall be
entitled to increase its fees by the amount of the increase in
costs. In no event shall DST be responsible for or liable to
provide any additional function, feature, improvement or
change in method of operation until it has consented thereto
in writing.
G. The Fund shall have the right to add new series to the TA2000
System upon at least thirty (30) days' prior written notice to
DST provided that the requirements of the new series are
generally consistent with services then being provided by DST
under this Agreement. Rates or charges for additional series
shall be as set forth in Exhibit A, as hereinafter defined,
for the remainder of the contract term except as such series
use functions, features or characteristics for which DST has
imposed an additional charge as part of its standard pricing
schedule. In the latter event, rates and charges shall be in
accordance with DST's then-standard pricing schedule.
5. Limit of Authority.
Unless otherwise expressly limited by the resolution of appointment or
by subsequent action by the Fund, the appointment of DST as Transfer
Agent will be construed to cover the full amount of authorized stock of
the class or classes for which DST is appointed as the same will, from
time to time, be constituted, and any subsequent increases in such
authorized amount.
In case of such increase the Fund will file with DST:
A. If the appointment of DST was theretofore expressly limited, a
certified copy of a resolution of the Board of Directors of
the Fund increasing the authority of DST;
B. A certified copy of the amendment to the Articles of
Incorporation of the Fund authorizing the increase of stock;
C. A certified copy of the order or consent of each governmental
or regulatory authority required by law to consent to the
issuance of the increased stock, and an opinion of counsel
that the order or consent of no other governmental or
regulatory authority is required;
D. Opinion of counsel for the Fund, as such opinion(s) have been
filed with the Fund's Registration Statement or notices
required under Rule 24f-2 under the 1940 Act, stating:
(1) The status of the additional shares of stock of the
Fund under the Securities Act of 1933, as amended,
and any other applicable federal or state statute;
and
(2) That the additional shares are validly issued, fully
paid and nonassessable.
6. Compensation and Expenses.
A. In consideration for its services hereunder as Transfer Agent
and Dividend Disbursing Agent, the Fund will pay to DST from
time to time a reasonable compensation for all services
rendered as Agent, and also, all its reasonable billable
expenses, charges, counsel fees, and other disbursements
including, in the event of a termination of this Agreement,
the post-deconversion fees ("Compensation and Expenses")
incurred in connection with the agency. Such compensation is
set forth in separate schedules to be agreed to by the Fund
and DST, copies of the initial schedules are attached hereto
as Exhibits A and B. If the Fund has not paid such
Compensation and Expenses to DST within a reasonable time, DST
may charge against any monies held under this Agreement, the
amount of any Compensation and/or Expenses for which it shall
be entitled to reimbursement under this Agreement.
B. The Fund also agrees promptly to reimburse DST for all
reasonable billable expenses or disbursements incurred by DST
in connection with the performance of services under this
Agreement including, but not limited to, expenses for postage,
express delivery services, freight charges, envelopes, checks,
drafts, forms (continuous or otherwise), specially requested
reports and statements, telephone calls, telegraphs,
stationery supplies, counsel fees, outside printing and
mailing firms (including Output Technology, Inc. and Support
Resources, Inc.), magnetic tapes, reels or cartridges (if sent
to the Fund or to a third party at the Fund's request) and
magnetic tape handling charges, off-site record storage, media
for storage of records (e.g., microfilm, microfiche, optical
platters, computer tapes), computer equipment installed at the
Fund's request at the Fund's or a third party's premises,
telecommunications equipment, telephone/telecommunication
lines between the Fund and its agents, on one hand, and DST on
the other, proxy soliciting, processing and/or tabulating
costs, second-site backup computer facility, transmission of
statement data for remote printing or processing, and National
Securities Clearing Corporation ("NSCC") transaction fees to
the extent any of the foregoing are paid by DST. The Fund
agrees to pay postage expenses at least one day in advance if
so requested. In addition, any other expenses incurred by DST
at the request or with the consent of the Fund will be
promptly reimbursed by the Fund.
C. Amounts due hereunder shall be due and paid on or before the
thirtieth (30th) business day after receipt of the statement
therefor by the Fund (the "Due Date"). The Fund is aware that
its failure to pay all amounts in a timely fashion so that
they will be received by DST on or before the Due Date will
give rise to costs to DST not contemplated by this Agreement,
including but not limited to carrying, processing and
accounting charges. Accordingly, subject to Section 6.
D. hereof, in the event that any amounts due hereunder are not
received by DST by the Due Date, the Fund shall pay a late
charge equal to the lesser of the maximum amount permitted by
applicable law or the product of that rate announced from time
to time by State Street Bank and Trust Company as its "Prime
Rate" plus three (3) percentage points times the amount
overdue, times the number of days from the Due Date up to and
including the day on which payment is received by DST divided
by 365. The parties hereby agree that such late charge
represents a fair and reasonable computation of the costs
incurred by reason of late payment or payment of amounts not
properly due. Acceptance of such late charge shall in no event
constitute a waiver of the Fund's or DST's default or prevent
the non-defaulting party from exercising any other rights and
remedies available to it. D. In the event that any charges are
disputed, the Fund shall, on or before the Due Date, pay all
undisputed amounts due hereunder and notify DST in writing of
any disputed charges for billable expenses which it is
disputing in good faith. Payment for such disputed charges
shall be due on or before the close of the fifth (5th)
business day after the day on which DST provides to the Fund
documentation which an objective observer would agree
reasonably supports the disputed charges (the "Revised Due
Date"). Late charges shall not begin to accrue as to charges
disputed in good faith until the first business day after the
Revised Due Date.
E. The fees and charges set forth on Exhibit A shall increase or
may be increased as follows:
(1) On the first day of each new term, but only in
accordance with the "Fee Increases" provision in
Exhibit A;
(2) DST may increase the fees and charges set forth on
Exhibit A upon at least ninety (90) days prior
written notice, if changes in existing laws, rules or
regulations: (i) require substantial system
modifications or (ii) materially increase cost of
performance hereunder;
(3) Upon at least ninety (90) days prior written notice,
DST may impose a reasonable charge for additional
features of TA2000 used by the Fund which features
are not consistent with the Fund's current processing
requirements; and
(4) In the event DST, at the Fund's request or direction,
performs Exception Services, DST shall be entitled to
impose a reasonable increase in the fees and charges
for such Exception Services from those set forth on
Exhibit A to the extent such Exception Services
increase DST's cost of performance.
If DST notifies the Fund of an increase in fees or charges
pursuant to subparagraph (2) of this Section 6.E., the parties shall
confer, diligently and in good faith and agree upon a new fee to cover
the amount necessary, but not more than such amount, to reimburse DST
for the Fund's aliquot portion of the cost of developing the new
software to comply with regulatory charges and for the increased cost
of operation.
If DST notifies the Fund of an increase in fees or charges
under subparagraphs (3) or (4) of this Section 6.E., the parties shall
confer, diligently and in good faith, and agree upon a new fee to cover
such new fund feature.
7. Operation of DST System.
In connection with the performance of its services under this
Agreement, DST is responsible for such items as:
A. That entries in DST's records, and in the Fund's records on
the TA2000 System created by DST, accurately reflect the
orders, instructions, and other information received by DST
from the Fund, the Fund's distributor, manager or principal
underwriter, the Fund's investment adviser, or the Fund's
administrator (each an "Authorized Person"), broker-dealers
and/or shareholders;
B. That shareholder lists, shareholder account verifications,
confirmations and other shareholder account information to be
produced from its records or data be available and accurately
reflect the data in the Fund's records on the TA2000 System;
C. The accurate and timely issuance of dividend and distribution
checks in accordance with instructions received from the Fund
and the data in the Fund's records on the TA2000 System;
D. That redemption transactions and payments be effected timely,
under normal circumstances on the day of receipt, and
accurately in accordance with redemption instructions received
by DST from Authorized Persons, broker-dealers or shareholders
and the data in the Fund's records on the TA2000 System;
E. The deposit daily in the Fund's appropriate bank account of
all checks and payments received by DST from NSCC,
broker-dealers or shareholders for investment in shares;
F. Notwithstanding anything herein to the contrary, with respect
to "as of" adjustments, DST will not assume one hundred
percent (100%) responsibility for losses resulting from "as
ofs" due to clerical errors or misinterpretations of
shareholder instructions by DST, but DST will discuss with the
Fund DST's accepting liability for an "as of" on a
case-by-case basis and will accept "financial responsibility"
for a particular situation resulting in a "material" financial
loss to the Fund where DST acted in bad faith or without due
diligence. As used herein: (i) the terms "as of" or "as ofs"
refer to the situation where, as a result of DST's sole error
or omission, DST enters a transaction into the TA2000 System
on a basis of a price determined other than the price next
determined after the receipt by DST of instructions to perform
such transaction; (ii) the term "financial responsibility"
shall include only the loss experienced by the Fund during the
period between the entry of the erroneous transaction or the
omission to enter the transaction into the TA2000 System and
one (1) day after the earliest time when a record disclosing
the erroneous transaction or the omission to process shall
have been made available to or received by the presentor or
the presentor's agent [plus any delay occasioned by DST to
research and to correct the error or omission after notice
thereof has been received by DST]; and a financial loss shall
be "material" when the financial consequences to the Fund of
DST's error or omission shall have resulted in a loss to the
Fund of one full cent ($0.01) per share or greater.
G. The requiring of proper forms of instructions, signatures and
signature guarantees(1) and any necessary documents supporting
the opening of shareholder accounts, transfers, redemptions
and other shareholder account transactions, all in conformance
with DST's present procedures as set forth in its Legal
Manual, Check Acceptance Policy, Checkwriting Draft
Procedures, and Signature Guarantee Procedures (collectively
the "Procedures") with such changes or deviations therefrom as
may be from time to time required or approved by the Fund, its
investment adviser, principal underwriter or administrator, or
its or DST's counsel and the rejection of orders or
instructions not in good order in accordance with the
applicable prospectus or the Procedures;
--------
(1) DST shall ascertain that what reasonably purports to be an appropriate
signature guarantee is present if a signature guarantee is required, but DST
shall have no responsibility for verifying the authenticity thereof or the
authority of the person executing the signature guarantee.
H. The maintenance of customary records in connection with its
agency, and particularly those records required to be
maintained pursuant to subparagraph (2)(iv) of paragraph (b)
of Rule 31a-1 under the Investment Company Act of 1940, if
any; and
I. The maintenance of a current, duplicate set of the Fund's
essential records at a secure separate location, in a form
available and usable forthwith in the event of any breakdown
or disaster disrupting its main operation.
8. Indemnification.
A. DST shall at all times use reasonable care, due diligence and
act in good faith in performing its duties under this
Agreement. DST shall provide its services as Transfer Agent in
accordance with Section 17A of the Securities Exchange Act of
1934, and the rules and regulations thereunder. In the absence
of bad faith, willful misconduct, knowing violations of
applicable law pertaining to the manner in which transfer
agency services are to be performed by DST (excluding any
violations arising directly or indirectly out of the actions
or omissions to act of third parties unaffiliated with DST),
reckless disregard of the performance of its duties, or
negligence on its part, DST shall not be liable for any action
taken, suffered, or omitted by it or for any error of judgment
(including reasonable interpretations of unclear, ambiguous or
obscure instructions) made by it or its employees in the
performance of its duties under this Agreement. For those
activities or actions delineated in the Procedures, DST shall
be presumed to have used reasonable care, due diligence and
acted in good faith if it has acted in accordance with the
Procedures, copies of which have been provided to the SEI
Corporation ("SEI"), the administrator to the Fund and
reviewed and approved by SEI's counsel, as amended from time
to time with approval of counsel, or for any deviation
therefrom approved by the Fund or DST counsel.
B. DST shall not be responsible for, and the Fund shall indemnify
and hold DST harmless from and against, any and all losses,
damages, costs, charges, counsel fees, payments, expenses and
liability which are asserted against DST or for which DST is
to be liable, arising out of or attributable to:
(1) All actions of DST required to be taken by DST
pursuant to this Agreement, provided that DST has
acted in good faith and with due diligence and
reasonable care;
(2) The Fund's refusal or failure to comply with the
terms of this Agreement, the Fund's negligence or
willful misconduct, or the breach of any
representation or warranty of the Fund hereunder;
(3) The good faith reliance on, or the carrying out of,
any written or oral instructions or requests of
persons designated by the Fund in writing (see
Exhibit C) from time to time as authorized to give
instructions on its behalf or representatives of an
Authorized Person or DST's good faith reliance on, or
use of, information, data, records and documents
received from, or which have been prepared and/or
maintained by the Fund, its investment advisor, its
sponsor or its principal underwriter;
(4) Defaults by dealers or shareowners with respect to
payment for share orders previously entered if DST
has acted in good faith;
(5) The offer or sale of the Fund's shares in violation
of any requirement under federal securities laws or
regulations or the securities laws or regulations of
any state or in violation of any stop order or other
determination or ruling by any federal agency or
state with respect to the offer or sale of such
shares in such state (unless such violation results
from DST's failure to comply with written
instructions of the Fund or of any officer of the
Fund that no offers or sales be input into the Fund's
securityholder records in or to residents of such
state);
(6) The Fund's errors and mistakes in the use of the
TA2000 System, the data center, computer and related
equipment used to access the TA2000 System (the "DST
Facilities"), and control procedures relating thereto
in the verification of output and in the remote input
of data;
(7) Errors, inaccuracies, and omissions in, or errors,
inaccuracies or omissions of DST arising out of or
resulting from such errors, inaccuracies and
omissions in, the Fund's records, shareholder and
other records, delivered to DST hereunder by the Fund
or its prior agent(s);
(8) Actions or omissions to act by the Fund or agents
designated by the Fund with respect to duties assumed
thereby as provided for in Section 21 hereof; and
(9) DST's performance of Exception Services except where
DST acted or omitted to act in bad faith, with
reckless disregard of its obligations or with gross
negligence.
C. Except where DST is entitled to indemnification under Section
8.B. hereof and with respect to "as ofs" set forth in Section
7.F., DST shall indemnify and hold the Fund harmless from and
against any and all losses, damages, costs, charges, counsel
fees, payments, expenses and liability arising out of DST's
failure to comply with the terms of this Agreement or arising
out of or attributable to DST's negligence or willful
misconduct or breach of any representation or warranty of DST
hereunder.
D. EXCEPT FOR VIOLATIONS OF SECTION 23, IN NO EVENT AND UNDER NO
CIRCUMSTANCES SHALL EITHER PARTY TO THIS AGREEMENT BE LIABLE
TO ANYONE, INCLUDING, WITHOUT LIMITATION TO THE OTHER PARTY,
FOR CONSEQUENTIAL DAMAGES FOR ANY ACT OR FAILURE TO ACT UNDER
ANY PROVISION OF THIS AGREEMENT EVEN IF ADVISED OF THE
POSSIBILITY THEREOF.
E. Promptly after receipt by an indemnified person of notice of
the commencement of any action, such indemnified person will,
if a claim in respect thereto is to be made against an
indemnifying party hereunder, notify the indemnifying party in
writing of the commencement thereof; but the failure so to
notify the indemnifying party will not relieve an indemnifying
party from any liability that it may have to any indemnified
person for contribution or otherwise under the indemnity
agreement contained herein except to the extent it is
prejudiced as a proximate result of such failure to timely
notify. In case any such action is brought against any
indemnified person and such indemnified person seeks or
intends to seek indemnity from an indemnifying party, the
indemnifying party will be entitled to participate in, and, to
the extent that it may wish, assume the defense thereof (in
its own name or in the name and on behalf of any indemnified
party or both with counsel reasonably satisfactory to such
indemnified person); provided, however, if the defendants in
any such action include both the indemnified person and an
indemnifying party and the indemnified person shall have
reasonably concluded that there may be a conflict between the
positions of the indemnified person and an indemnifying party
in conducting the defense of any such action or that there may
be legal defenses available to it and/or other indemnified
persons which are inconsistent with those available to an
indemnifying party, the indemnified person or indemnified
persons shall have the right to select one separate counsel
(in addition to local counsel) to assume such legal defense
and to otherwise participate in the defense of such action on
behalf of such indemnified person or indemnified persons at
such indemnified party's sole expense. Upon receipt of notice
from an indemnifying party to such indemnified person of its
election so to assume the defense of such action and approval
by the indemnified person of counsel, which approval shall not
be unreasonably withheld (and any disapproval shall be
accompanied by a written statement of the reasons therefor),
the indemnifying party will not be liable to such indemnified
person hereunder for any legal or other expenses subsequently
incurred by such indemnified person in connection with the
defense thereof. An indemnifying party will not settle or
compromise or consent to the entry of any judgment with
respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified
persons are actual or potential parties to such claim, action,
suit or proceeding) unless such settlement, compromise or
consent includes an unconditional release of each indemnified
person from all liability arising out of such claim, action,
suit or proceeding. An indemnified party will not, without the
prior written consent of the indemnifying party settle or
compromise or consent to the entry of any judgment with
respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution
may be sought hereunder. If it does so, it waives its right to
indemnification therefor.
9. Certain Covenants of DST and the Fund.
A. All requisite steps will be taken by the Fund from time to
time when and as necessary to register the Fund's shares for
sale in all states in which the Fund's shares shall at the
time be offered for sale and require registration. If at any
time the Fund receives notice of any stop order or other
proceeding in any such state affecting such registration or
the sale of the Fund's shares, or of any stop order or other
proceeding under the federal securities laws affecting the
sale of the Fund's shares, the Fund will give prompt notice
thereof to DST.
B. DST hereby agrees to perform such transfer agency functions as
are set forth in Section 4.D. above and establish and maintain
facilities and procedures reasonably acceptable to the Fund
for safekeeping of stock certificates, check forms, and
facsimile signature imprinting devices, if any; and for the
preparation or use, and for keeping account of, such
certificates, forms and devices, and to carry such insurance
as it considers adequate and reasonably available.
C. To the extent required by Section 31 of the Investment Company
Act of 1940 as amended and Rules thereunder, DST agrees that
all records maintained by DST relating to the services to be
performed by DST under this Agreement are the property of the
Fund and will be preserved and will be surrendered promptly to
the Fund on request.
D. DST agrees to furnish the Fund annual reports of its financial
condition, consisting of a balance sheet, earnings statement
and any other publicly available financial information
reasonably requested by the Fund and a copy of the report
issued by its certified public accountants pursuant to Rule
17Ad-13 under the 1934 Act as filed with the SEC. The annual
financial statements will be certified by DST's certified
public accountants and may be included in DST's publicly
distributed Annual Report.
E. DST represents and agrees that it will use its reasonable
efforts to keep current on the trends of the investment
company industry relating to shareholder services and will use
its reasonable efforts to continue to modernize and improve.
F. DST will permit the Fund and its authorized representatives to
make periodic inspections of its operations as such would
involve the Fund at reasonable times during business hours.
G. DST will provide in Kansas City at the Fund's request and
expense training for the Fund's personnel in connection with
use and operation of the TA2000 System. All travel and
reimbursable expenses incurred by the Fund's personnel in
connection with and during training at DST's Facility shall be
borne by the Fund. At the Fund's option and expense, DST also
agrees to use its reasonable efforts to provide two (2) man
weeks of training at the Fund's facility for the Fund's
personnel in connection with the continued operation of the
TA2000 System. Reasonable travel, per diem and reimbursable
expenses incurred by DST personnel in connection with and
during training at the Fund's facility or in connection with
the conversion shall be borne by the Fund.
10. Recapitalization or Readjustment. In case of any recapitalization,
readjustment or other change in the capital structure of the Fund
requiring a change in the form of stock certificates, DST will issue or
register certificates in the new form in exchange for, or in transfer
of, the outstanding certificates in the old form, upon receiving:
A. Written instructions from an officer of the Fund;
B. Certified copy of the amendment to the Articles of
Incorporation or other document effecting the change;
C. Certified copy of the order or consent of each governmental or
regulatory authority, required by law to the issuance of the
stock in the new form, and an opinion of counsel that the
order or consent of no other government or regulatory
authority is required;
D. Specimens of the new certificates in the form approved by the
Board of Directors of the Fund, with a certificate of the
Secretary of the Fund as to such approval;
E. Opinion of counsel for the Fund stating:
(1) The status of the shares of stock of the Fund in the
new form under the Securities Act of 1933, as amended
and any other applicable federal or state statute;
and
(2) That the issued shares in the new form are, and all
unissued shares will be, when issued, validly issued,
fully paid and nonassessable.
11. Reserved.
12. Death, Resignation or Removal of Signing Officer. The Fund will file
promptly with DST written notice of any change in the officers
authorized to sign written requests or instructions to give requests or
instructions, together with two signature cards bearing the specimen
signature of each newly authorized officer.
13. Future Amendments of Charter and Bylaws. The Fund will promptly file
with DST copies of all material amendments to its Articles of
Incorporation or Bylaws made after the date of this Agreement.
14. Instructions, Opinion of Counsel and Signatures.
At any time DST may apply to any person authorized by the Fund to give
instructions to DST, and may with the approval of a Fund officer and at
the expense of the Fund, either consult with legal counsel for the Fund
or consult with counsel chosen by DST and acceptable to the Fund, with
respect to any matter arising in connection with the agency and it will
not be liable for any action taken or omitted by it in good faith in
reliance upon such instructions or upon the opinion of such counsel.
For purposes hereof, DST's internal counsel and attorneys employed by
Sonnenschein Nath & Rosenthal, DST's primary outside counsel for
transfer agent matters, are acceptable to the Fund. DST will be
protected in acting upon any paper or document reasonably believed by
it to be genuine and to have been signed by the proper person or
persons and will not be held to have notice of any change of authority
of any person, until receipt of written notice thereof from the Fund.
It will also be protected in recognizing stock certificates which it
reasonably believes to bear the proper manual or facsimile signatures
of the officers of the Fund, and the proper countersignature of any
former Transfer Agent or Registrar, or of a co-Transfer Agent or
co-Registrar.
15. Force Majeure and Disaster Recovery Plans.
A. DST shall not be responsible or liable for its failure or
delay in performance of its obligations under this Agreement
arising out of or caused, directly or indirectly, by
circumstances beyond its reasonable control, including,
without limitation: any interruption, loss or malfunction or
any utility, transportation, computer hardware, provided such
equipment has been reasonably maintained, or third party
software or communication service; inability to obtain labor,
material, equipment or transportation, or a delay in mails;
governmental or exchange action, statute, ordinance, rulings,
regulations or direction; war, strike, riot, emergency, civil
disturbance, terrorism, vandalism, explosions, labor disputes,
freezes, floods, fires, tornadoes, acts of God or public
enemy, revolutions, or insurrection; or any other cause,
contingency, circumstance or delay not subject to DST's
reasonable control which prevents or hinders DST's performance
hereunder.
B. DST currently maintains an agreement with a third party
whereby DST is to be permitted to use on a "shared use" basis
a "hot site" (the "Recovery Facility") maintained by such
party in event of a disaster rendering the DST Facilities
inoperable. DST has developed and is continually revising a
business contingency plan (the "Business Contingency Plan")
detailing which, how, when, and by whom data maintained by DST
at the DST Facilities will be installed and operated at the
Recovery Facility. Provided the Fund is paying its pro rata
portion of the charge therefor, DST will, in the event of a
disaster rendering the DST Facilities inoperable, use
reasonable efforts to convert the TA2000 System containing the
designated Fund data to the computers at the Recovery Facility
in accordance with the then current Business Contingency Plan.
C. DST also currently maintains, separate from the area in which
the operations which provides the services to the Fund
hereunder are located, a Crisis Management Center consisting
of phones, computers and the other equipment necessary to
operate a full service transfer agency business in the event
one of its operations areas is rendered inoperable. The
transfer of operations to other operating areas or to the
Crisis Management Center is also covered in DST's Business
Contingency Plan.
16. Certification of Documents.
The required copy of the Articles of Incorporation of the Fund and
copies of all amendments thereto will be certified by the Secretary of
State (or other appropriate official) of the State of Incorporation,
and if such Articles of Incorporation and amendments are required by
law to be also filed with a county, city or other officer of official
body, a certificate of such filing will appear on the certified copy
submitted to DST. A copy of the order or consent of each governmental
or regulatory authority required by law to the issuance of the stock
will be certified by the Secretary or Clerk of such governmental or
regulatory authority, under proper seal of such authority. The copy of
the Bylaws and copies of all amendments thereto, and copies of
resolutions of the Board of Directors of the Fund, will be certified by
the Secretary or an Assistant Secretary of the Fund under the Fund's
seal.
17. Records.
DST will maintain customary records in connection with its agency, and
particularly will maintain those records required to be maintained
pursuant to subparagraph (2) (iv) of paragraph (b) of Rule 31a-1 under
the Investment Company Act of 1940, if any.
18. Disposition of Books, Records and Canceled Certificates. DST may send
periodically to the Fund, or to where designated by the Secretary or an
Assistant Secretary of the Fund, all books, documents, and all records
no longer deemed needed for current purposes and stock certificates
which have been canceled in transfer or in exchange, upon the
understanding that such books, documents, records, and stock
certificates will be maintained by the Fund under and in accordance
with the requirements of Section 17Ad-7 adopted under the Securities
Exchange Act of 1934. Such materials will not be destroyed by the Fund
without the consent of DST (which consent will not be unreasonably
withheld), but will be safely stored for possible future reference.
19. Provisions Relating to DST as Transfer Agent.
A. Instructions for the transfer, exchange or redemption of
shares of the Fund will be accepted, the registration,
redemption or transfer of the shares be effected and, where
applicable, funds remitted therefor. Upon surrender of the old
certificates in form or receipt by DST of instructions deemed
by DST properly endorsed for transfer, exchange or redemption,
accompanied by such documents as DST may deem necessary to
evidence the authority of the person making the transfer,
exchange or redemption, the transfer, exchange or redemption
of the shares reflected by such certificates be effected and
any sums due in connection therewith be remitted, in
accordance with the instructions contained herein. DST
reserves the right to refuse to transfer or redeem shares
until it is satisfied that the endorsement or signature on the
instruction or any other document is valid and genuine, and
for that purpose it may require a guaranty of signature in
accordance with the Signature Guarantee Procedures. DST also
reserves the right to refuse to transfer, exchange or redeem
shares until it is satisfied that the requested transfer,
exchange or redemption is legally authorized, and DST will
incur no liability for the refusal in good faith to make
transfers or redemptions which, in its judgment, are improper
or unauthorized. DST may, in effecting transfers, exchanges or
redemptions, rely upon DST's Procedures and Simplification
Acts, Uniform Commercial Code or other statutes which protect
it and the Fund in not requiring complete fiduciary
documentation. In cases in which DST is not directed or
otherwise required to maintain the consolidated records of
shareholder's accounts, DST will not be liable for any loss
which may arise by reason of not having such records.
B. DST will, at the expense of the Fund, issue and mail
subscription warrants, effectuate stock dividends, exchanges
or split ups, or act as Conversion Agent upon receiving
written instructions from any officer of the Fund and such
other documents as DST deems necessary.
C. DST will, at the expense of the Fund, supply a shareholder's
list to the Fund for its annual meeting upon receiving a
request from an officer of the Fund. It will also, at the
expense of the Fund, supply lists at such other times as may
be requested by an officer of the Fund.
D. Upon receipt of written instructions of an officer of the
Fund, DST will, at the expense of the Fund, address and mail
notices to shareholders.
E. In case of any request or demand for the inspection of the
stock books of the Fund or any other books in the possession
of DST, DST will endeavor to notify the Fund and to secure
instructions as to permitting or refusing such inspection. DST
reserves the right, however, to exhibit the stock books or
other books to any person in case it is advised by its counsel
that it may be held responsible for the failure to exhibit the
stock books or other books to such person.
20. Provisions Relating to Dividend Disbursing Agency.
A. DST will, at the expense of the Fund, provide a special form
of check containing the imprint of any device or other matter
desired by the Fund. Said checks must, however, be of a form
and size convenient for use by DST.
B. If the Fund desires to include additional printed matter,
financial statements, etc., with the dividend checks, the same
will be furnished DST within a reasonable time prior to the
date of mailing of the dividend checks, at the expense of the
Fund.
C. If the Fund desires its distributions mailed in any special
form of envelopes, sufficient supply of the same will be
furnished to DST but the size and form of said envelopes will
be subject to the approval of DST. If stamped envelopes are
used, they must be furnished by the Fund; or if postage stamps
are to be affixed to the envelopes, the stamps or the cash
necessary for such stamps must be furnished by the Fund.
D. DST shall establish and maintain on behalf of the Fund one or
more deposit accounts as Agent for the Fund, into which DST
shall deposit the funds DST receives for payment of dividends,
distributions, redemptions or other disbursements provided for
hereunder and to draw checks against such accounts.
E. DST is authorized and directed to stop payment of checks
theretofore issued hereunder, but not presented for payment,
when the payees thereof allege either that they have not
received the checks or that such checks have been mislaid,
lost, stolen, destroyed or through no fault of theirs, are
otherwise beyond their control, and cannot be produced by them
for presentation and collection, and, to issue and deliver
duplicate checks in replacement thereof.
21. Assumption of Duties By the Fund or Agents Designated By the Fund.
A. The Fund or its designated agents other than DST may assume
certain duties and responsibilities of DST or those services
of Transfer Agent and Dividend Disbursing Agent as those terms
are referred to in Section 4.D. of this Agreement including
but not limited to answering and responding to telephone
inquiries from shareholders and brokers, accepting shareholder
and broker instructions (either or both oral and written) and
transmitting orders based on such instructions to DST,
preparing and mailing confirmations, obtaining certified TIN
numbers, classifying the status of shareholders and
shareholder accounts under applicable tax law, establishing
shareholder accounts on the TA2000 System and assigning social
codes and Taxpayer Identification Number codes thereof, and
disbursing monies of the Fund, said assumption to be embodied
in writing to be signed by both parties.
B. To the extent the Fund or its agent or affiliate assumes such
duties and responsibilities, DST shall be relieved from all
responsibility and liability therefor and is hereby
indemnified and held harmless against any liability therefrom
and in the same manner and degree as provided for in Section 8
hereof.
C. Initially the Fund or its designees shall be responsible for
the following: (i) answer and respond to phone calls from
shareholders and broker-dealers, and (ii) monitor wire order
settlements and order cancellations of unsettled trades.
22. Termination of Agreement.
A. This Agreement shall be in effect for an initial period of
three (3) years and, thereafter, shall automatically extend
for additional, successive twelve (12) month terms upon the
expiration of any term hereof unless terminated as hereinafter
provided. This Agreement may be terminated by either party
upon the expiration of any term by the delivery to the other
party of one hundred twenty (120) days prior written notice of
such termination, provided, however, that the effective date
of any termination shall not occur during the period from
November 15 through March 15 of any year to avoid adversely
impacting year end.
B. Each party, in addition to any other rights and remedies,
shall have the right to terminate this Agreement forthwith
upon the occurrence at any time of any of the following events
with respect to the other party:
(1) The bankruptcy of the other party or its assigns or
the appointment of a receiver for the other party or
its assigns; or
(2) Failure by the other party or its assigns to perform
its duties in accordance with the Agreement, which
failure materially adversely affects the business
operations of the first party and which failure
continues for thirty (30) days after receipt of
written notice from the first party.
C. Either party may terminate this Agreement at any time by
delivering to the other party written notice of such
termination at least six (6) months prior to the effective
date of such termination.
D. In the event of any termination of this Agreement, the Fund
will continue to pay to DST as invoiced all sums due for DST's
services until completion of the conversion and will pay to
DST, no later than contemporaneously with the dispatch by DST
of the Fund's records, all amounts payable to DST hereunder.
An estimated invoice for fees and reimbursable expenses will
be presented prior to conversion for amounts anticipated to
follow the conversion. The Fund should accrue appropriate
reserves in expectation of invoices/amounts which will be
generated and received following the date of conversion, which
the Fund will pay within thirty (30) days of receipt.
E. In addition, in the event of any termination, DST will,
provided the Fund contemporaneously pays all outstanding
charges and fees, promptly transfer all of the records of the
Fund to the designated successor transfer agent. DST shall
also provide reasonable assistance to the Fund and its
designated successor transfer agent and other information
relating to its services provided hereunder (subject to the
recompense of DST for such assistance and information at its
standard rates and fees for personnel then in effect at that
time); provided, however, as used herein "reasonable
assistance" and "other information" shall not include
assisting any new service or system provider to modify, alter,
enhance, or improve its system or to improve, enhance, or
alter its current system, or to provide any new, functionality
or to require DST to disclose any DST Confidential
Information, as hereinafter defined, or any information which
is otherwise confidential to DST.
F. Subsequent to any termination of this Agreement, the Fund
shall continue to pay to DST, subject to and in accordance
with the terms and conditions set forth in Sections 6.A.,
6.B., 6.C. and 6.D. of this Agreement, for all expenses
incurred on the Fund's behalf and the post-deconversion fees
set forth in Exhibit B to this Agreement (a) until the Fund
accounts are purged from the TA2000 System (no longer being
required for Year End Reporting) with respect to closed
account fees and (b) so long as DST's services are utilized by
the Fund with respect to all fees other than those for closed
accounts.
G. In any event, the effective date of any deconversion as a
result a termination of this Agreement shall not occur during
the period from November 15th through March 15th of any year
to avoid adversely impacting year end.
23. Confidentiality.
A. DST agrees that, except as provided in the last sentence of
Section 19.J. hereof, or as otherwise required by law, DST
will keep confidential all records of and information in its
possession relating to the Fund or its shareholders or
shareholder accounts and will not disclose the same to any
person except at the request or with the consent of the Fund.
B. The Fund owns all of the data supplied by or on behalf of the
Fund to DST. The Fund has proprietary rights to all such data,
records and reports containing such data, but not including
the software programs upon which such data is installed, and
all records relating to such data will be transferred in
accordance with Section 22.D above in the event of
termination.
C. The Fund agrees to keep confidential all non-public financial
statements and other financial records of DST received
hereunder, all accountants' reports relating to DST, the terms
and provisions of this Agreement, including all exhibits and
schedules now or in the future attached hereto and all
manuals, systems and other technical information and data, not
publicly disclosed, relating to DST's operations and programs
furnished to it by DST pursuant to this Agreement and will not
disclose the same to any person except at the request or with
the consent of DST.
D. (1) The Fund acknowledges that DST has proprietary rights
in and to the TA2000 System used to perform services
hereunder including, but not limited to the
maintenance of shareholder accounts and records,
processing of related information and generation of
output, including, without limitation any changes or
modifications of the TA2000 System and any other DST
programs, data bases, supporting documentation, or
procedures (collectively "DST Confidential
Information") which the Fund's access to the TA2000
System or computer hardware or software may permit
the Fund or its employees or agents to become aware
of or to access and that the DST Confidential
Information constitutes confidential material and
trade secrets of DST. The Fund agrees to maintain the
confidentiality of the DST Confidential Information.
(2) The Fund acknowledges that any unauthorized use,
misuse, disclosure or taking of DST Confidential
Information which is confidential as provided by law,
or which is a trade secret, residing or existing
internal or external to a computer, computer system,
or computer network, or the knowing and unauthorized
accessing or causing to be accessed of any computer,
computer system, or computer network, may be subject
to civil liabilities and criminal penalties under
applicable state law. The Fund will advise all of its
employees and agents who have access to any DST
Confidential Information or to any computer equipment
capable of accessing DST or DST hardware or software
of the foregoing.
(3) The Fund acknowledges that disclosure of the DST
Confidential Information may give rise to an
irreparable injury to DST inadequately compensable in
damages. Accordingly, DST may seek (without the
posting of any bond or other security) injunctive
relief against the breach of the foregoing
undertaking of confidentiality and nondisclosure, in
addition to any other legal remedies which may be
available, and the Fund consents to the obtaining of
such injunctive relief. All of the undertakings and
obligations relating to confidentiality and
nondisclosure, whether contained in this Section or
elsewhere in this Agreement shall survive the
termination or expiration of this Agreement for a
period of ten (10) years.
24. Changes and Modifications.
A. During the term of this Agreement DST will use on behalf of
the Fund without additional cost all modifications,
enhancements, or changes which DST may make to the TA2000
System in the normal course of its business and which are
applicable to functions and features offered by the Fund,
unless substantially all DST clients are charged separately
for such modifications, enhancements or changes, including,
without limitation, substantial system revisions or
modifications necessitated by changes in existing laws, rules
or regulations. The Fund agrees to pay DST promptly for
modifications and improvements which are charged for
separately at the rate provided for in DST's standard pricing
schedule which shall be identical for substantially all
clients, if a standard pricing schedule shall exist. If there
is no standard pricing schedule, the parties shall mutually
agree upon the rates to be charged.
B. DST shall have the right, at any time and from time to time,
to alter and modify any systems, programs, procedures or
facilities used or employed in performing its duties and
obligations hereunder; provided that the Fund will be notified
as promptly as possible prior to implementation of such
alterations and modifications and that no such alteration or
modification or deletion shall materially adversely change or
affect the operations and procedures of the Fund in using or
employing the TA2000 System or DST Facilities hereunder or the
reports to be generated by such system and facilities
hereunder, unless the Fund is given thirty (30) days prior
notice to allow the Fund to change its procedures and DST
provides the Fund with revised operating procedures and
controls at the time such notice is delivered to the Fund.
C. All enhancements, improvements, changes, modifications or new
features added to the TA2000 System however developed or paid
for shall be, and shall remain, the confidential and exclusive
property of, and proprietary to, DST.
25. Subcontractors.
Nothing herein shall impose any duty upon DST in connection with or
make DST liable for the actions or omissions to act of unaffiliated
third parties such as, by way of example and not limitation, Airborne
Services, the U.S. mails and telecommunication companies, provided, if
DST selected such company, DST shall have exercised due care in
selecting the same.
26. Limitations on Liability. If the Fund is comprised of more than one
Portfolio, each Portfolio shall be regarded for all purposes hereunder
as a separate party apart from each other Portfolio. Unless the context
otherwise requires, with respect to every transaction covered by this
Agreement, every reference herein to the Fund shall be deemed to relate
solely to the particular Portfolio to which such transaction relates.
Under no circumstances shall the rights, obligations or remedies with
respect to a particular Portfolio constitute a right, obligation or
remedy applicable to any other Portfolio. The use of this single
document to memorialize the separate agreement of each Portfolio is
understood to be for clerical convenience only and shall not constitute
any basis for joining the Portfolios for any reason.
27. Miscellaneous.
A. This Agreement shall be construed according to, and the rights
and liabilities of the parties hereto shall be governed by,
the laws of the State of Missouri, excluding that body of law
applicable to choice of law.
B. All terms and provisions of this Agreement shall be binding
upon, inure to the benefit of and be enforceable by the
parties hereto and their respective successors and permitted
assigns.
C. The representations and warranties, the indemnifications
extended hereunder, and the provisions of Sections 22.F and
6.A through and including 6.D., to the extent incorporated by
Section 22.F., are intended to and shall continue after and
survive the expiration, termination or cancellation of this
Agreement.
D. No provisions of this Agreement may be amended or modified in
any manner except by a written agreement properly authorized
and executed by each party hereto.
E. The captions in this Agreement are included for convenience of
reference only, and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or
effect.
F. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
G. If any part, term or provision of this Agreement is by the
courts held to be illegal, in conflict with any law or
otherwise invalid, the remaining portion or portions shall be
considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced as
if the Agreement did not contain the particular part, term or
provision held to be illegal or invalid.
H. This Agreement may not be assigned by the Fund or DST without
the prior written consent of the other.
I. Neither the execution nor performance of this Agreement shall
be deemed to create a partnership or joint venture by and
between the Fund and DST. It is understood and agreed that all
services performed hereunder by DST shall be as an independent
contractor and not as an employee of the Fund. This Agreement
is between DST and the Fund and neither this Agreement nor the
performance of services under it shall create any rights in
any third parties. There are no third party beneficiaries
hereto.
J. Except as specifically provided herein, this Agreement does
not in any way affect any other agreements entered into among
the parties hereto and any actions taken or omitted by any
party hereunder shall not affect any rights or obligations of
any other party hereunder.
K. The failure of either party to insist upon the performance of
any terms or conditions of this Agreement or to enforce any
rights resulting from any breach of any of the terms or
conditions of this Agreement, including the payment of
damages, shall not be construed as a continuing or permanent
waiver of any such terms, conditions, rights or privileges,
but the same shall continue and remain in full force and
effect as if no such forbearance or waiver had occurred.
L. This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement, draft or
agreement or proposal with respect to the subject matter
hereof, whether oral or written, and this Agreement may not be
modified except by written instrument executed by both
parties.
M. All notices to be given hereunder shall be deemed properly
given if delivered in person or if sent by U.S. mail, first
class, postage prepaid, or if sent by facsimile and thereafter
confirmed by mail as follows:
If to DST:
DST Systems, Inc. 1055 Broadway, 7th Fl. Kansas City, Missouri
64105 Attn: Senior Vice President-Full Service Facsimile No.:
816-435-3455
With a copy of non-operational notices to:
DST Systems, Inc.
333 W. 11th St., 5th Fl.
Kansas City, Missouri 64105
Attn: Legal Department
Facsimile No.: 816-435-8630
If to the Fund:
First American Funds, Inc.
680 East Swedesford Rd.
Wayne, Pennsylvania 19087
Attn: General Counsel
Facsimile No.: (610) 676-1040
or to such other address as shall have been specified
in writing by the party to whom such notice is to be
given.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective duly authorized officers, to be effective as of the
day and year first above written.
DST SYSTEMS, INC.
By: /s/ Thomas A. McCullough
Title: Executive Vice President
FIRST AMERICAN
FUNDS, INC.
By: /s/ Kate Stanton
Title: Vice President
EXHIBIT A
PAGE 1 of 4
DST SYSTEMS, INC.
FIRST AMERICAN TRANSFER AGENCY FEE PROPOSAL
EFFECTIVE JANUARY 1, 1997 THROUGH DECEMBER 31, 1999
A. MINIMUM FEE
Year 1 - January 1997 through December 1997
Cusips in the range 1-10 $11,000/year
Cusips in the range 11-20 $10,500/year
Cusips in the range > 20 $9,250/year
Year 2 - January 1998 through December 1998
Cusips in the range 1-10 $13,000/year
Cusips in the range 11-20 $12,500/year
Cusips in the range > 20 $11,000/year
Year 3 - January 1999 through December 1999
Cusips in the range 1-10 $15,500/year
Cusips in the range 11-20 $14,000/year
Cusips in the range > 20 $12,500/year
Note: Minimum fees set forth above apply to each CUSIP unless charges
included in Paragraph B below for each CUSIP exceed the applicable
minimum fee.
B. ACCOUNT MAINTENANCE AND PROCESSING FEES
Year 1 - January 1997 through December 1997
Open Accounts:
Daily Accrual Portfolio(s) $23.00 per account per year
Monthly Accrual Portfolio(s) $18.00 per account per year
Other Accruals Portfolio(s) $16.00 per account per year
Closed Accounts $2.85 per account per year
Year 2 - January 1998 through December 1998
Open Accounts:
Daily Accrual Portfolio(s) $24.00 per account per year
Monthly Accrual Portfolio(s) $19.00 per account per year
Other Accruals Portfolio(s) $17.00 per account per year
Closed Accounts $2.85 per account per year
Year 3 - January 1999 through December 1999
Open Accounts:
Daily Accrual Portfolio(s) $25.00 per account per year
Monthly Accrual Portfolio(s) $21.00 per account per year
Other Accruals Portfolio(s) $18.00 per account per year
Closed Accounts $2.85 per account per year
C. OPTIONAL SERVICES
Financial Intermediary Interface (includes generally Schwab and Schwab-like
interfaces, NSCC and transactions with entities entering more than five
transactions a week).
To Be Determined
12b-1 Processing $.15 per open and closed account per cycle
CDSC/Sharelot Accounting $1.90 per account per year
Ad-Hoc Reporting
Multi File Reports $400 per report
Single File Reports $250 per report
*Audio ResponseTM System - Not Used Currently
*NSCC Charges quoted upon request
Escheatment Costs - as incurred To be determined
Conversion/Acquisition Costs - Out of Pocket expenses including but not
limited to travel and accommodations, programming, training, equipment
installation, etc.
*Computer/Technical Personnel:
Business Analyst/Tester:
Dedicated $70,500 per year
On Request:
Senior Staff Support $65 per hour
Staff Support $45 per hour
Clerical Support $35 per hour
Technical/Programming:
Dedicated $115,000 per year
On Request $90 per hour
Technical/C Programming:
Dedicated $140,000 per year
On Request $115 per hour
NOTES TO THE ABOVE FEE SCHEDULE
A. The above schedule does not include reimbursable expenses that are
incurred on the Fund's behalf. Examples of reimbursable expenses are set
forth on Page 37 of this Agreement. Reimbursable expenses are billed
separately from service fees on a monthly basis. Postage will be paid in
advance if so requested.
B. Any fees or reimbursable expenses not paid within 30 days of the date of
the original invoice will be charged a late payment fee of 1.0% per month
until payment is received.
C. The above fees, except for those indicated by an "*" are guaranteed
for a three year period. All items marked by an "*" are subject to
change with 60 day notice.
D. The monthly fee for an open account shall be charged in the month during
which an account is opened through the month in which such account is
closed. The monthly fee for a closed account shall be charged in the
month following the month during which such account is closed and shall
cease to be charged in the month following the Purge Date, as hereinafter
defined. The "Purge Date" for any year shall be any day after June 1st of
that year, as selected by the Fund, provided that written notification is
presented to DST at least forty-five (45) days prior to the Purge Date.
Fees Accepted By:
/s/ Thomas A. McCullough /s/ Kate Stanton
- ------------------------ --------------------------
DST Systems, Inc. First American Funds, Inc.
3/14/97
- ------------------------ --------------------------
Date Date
REIMBURSABLE EXPENSES
Forms
Postage (to be paid in advance if so requested)
Mailing Services
Computer Hardware and Software - specific to Fund or installed at remote site
at Fund's direction
Telecommunications Equipment and Lines/Long Distance Charges Magnetic
Tapes, Reels or Cartridges
Magnetic Tape Handling Charges
Microfiche/Microfilm
Freight Charges
Printing
Bank Wire and ACH Charges
Proxy Processing - per proxy mailed
not including postage
Includes: Proxy Card
Printing
Outgoing Envelope
Return Envelope
Tabulation and Certification
T.I.N. Certification (W-8 & W-9)
(Postage associated with the return
envelope is included)
N.S.C.C. Communications Charge To Be Determined
(Fund/Serv and Networking)
Off-site Record Storage
Second Site Disaster Currently $.07
Backup Fee (per account) (guaranteed not to
exceed $.11 through
12/31/97)
Transmission of Statement Data for Currently $.035/per
Remote Processing record
Travel, Per Diem and other Billables
Incurred by DST personnel traveling to,
at and from the Fund at the request
of the Fund
EXHIBIT B
DST SYSTEMS, INC. / FIRST AMERICAN FUNDS
POST DECONVERSION FEE SCHEDULE
ALL FEES EFFECTIVE AS OF DECONVERSION:
ACCOUNT MAINTENANCE
Closed Accounts $.20/month/acct
Transaction/Maintenance Processing $2.50/item
Telephone Calls $4.00/call
Research Requests $40/hour (1 hr min)
PROGRAMMING
As required at DST's then current standard rates
REIMBURSABLE EXPENSES
This schedule does not include reimbursable expenses that are incurred on the
Fund's behalf. Examples of reimbursable expenses include but are not limited to
forms, postage, mailing services, telephone line/long distance charges,
transmission of statement data for remote print/mail operations, remote client
hardware, document storage, tax certification mailings, magnetic tapes,
printing, microfiche, Fed wire bank charges, ACH bank charges, NSCC charges, as
required or incurred, etc. Reimbursable expenses are billed separately from
Account Maintenance and Programming fees on a monthly basis and late payments
are subject to late charges in accordance with Section 6.C. of this Agreement.
EXHIBIT C
AUTHORIZED PERSONNEL
Pursuant to Section 8.A. of the Agency Agreement between First American Funds,
Inc. (the "Fund") and DST (the "Agreement"), the Fund authorizes the following
Fund personnel to provide instructions to DST, and receive inquiries from DST in
connection with the Agreement:
Name Title
---- -----
Jeff Wilson First Bank - Managing Director
of Mutual Funds
- ----------------------------- --------------------------------
Ted Rice First Bank - Trust Counsel
- ----------------------------- --------------------------------
Beth Zerbato SEI - Operations Manager
- ----------------------------- --------------------------------
Craig Rife SEI - Account Director
- ----------------------------- --------------------------------
Kim Peterson SEI - Operations Manager
- ----------------------------- --------------------------------
Kate Stanton SEI - Deputy General Counsel/
Vice President/Asst. Secretary
- ----------------------------- --------------------------------
Donna Rafa SEI - Mutual Fund Manager
- ----------------------------- --------------------------------
This Exhibit may be revised by the Fund by providing DST with a substitute
Exhibit B. Any such substitute Exhibit B shall become effective twenty-four (24)
hours after DST's receipt of the document and shall be incorporated into the
Agreement.
ACKNOWLEDGMENT OF RECEIPT:
FIRST AMERICAN
DST SYSTEMS, INC. FUNDS, INC.
By: /s/ Thomas A. McCullogh By: /s/ Kate Stanton
Title: Executive Vice President Title: Vice President
Date: 3/14/97 Date:__________________________
EXHIBIT 14(a)
[letterhead]
Independent Auditors' Consent
The Board of Directors
First American Funds, Inc.:
We consent to the incorporation by reference in the registration statement on
Form N-14 (the "Registration Statement") of First American Funds, Inc. (the
"Funds") of our report, dated November 8, 1996, relating to the financial
statements and financial highlights of the Funds. We also consent to the
references to our Firm under the headings (a) "Financial Statements" in the
Registration Statement, (b) "Financial Highlights" in the prospectuses of the
Funds dated January 31, 1997, which are incorporated by reference in the
Registration Statement, and (c) "Custodian; Transfer Agent; Counsel;
Accountants" in the statement of additional information of the Funds dated
January 31, 1997, which is incorporated by reference in the Registration
Statement.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
August 7, 1997
EXHIBIT 14(b)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in the Registration Statement of First American
Funds, Inc. on Form N-14, under the Securities Act of 1933, of our report dated
September 12, 1996, relating to the Qualivest U.S. Treasury Money Market Fund,
Qualivest Tax-Free Money Market Fund, and Qualivest Money Market Fund,
incorporated by reference and to the reference to us as "experts" under the
caption "Financial Statements" in such Registration Statement.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Dayton, Ohio
August 6, 1997
EXHIBIT 16
FIRST AMERICAN FUNDS, INC.
POWER OF ATTORNEY -- N-14 REGISTRATION STATEMENT
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Kathryn L. Stanton, Michael J.
Radmer, and Donna Rafa, and each of them, his or her true and lawful
attorneys-in-fact and agents, each acting alone, with full power of substitution
and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign a Registration Statement on Form N-14 of First
American Funds, Inc. ("FAF"), relating to the combination of each of Qualivest
Funds' U.S. Treasury Money Market Fund, Tax-Free Money Market Fund, and Money
Market Fund with and into each of FAF's Treasury Obligations Fund, Tax-Free
Money Market Fund and Prime Obligations Fund, respectively, and any and all
amendments thereto, including post-effective amendments, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, each acting alone, full power and authority to do and perform to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, each acting alone, or
the substitutes for such attorneys-in-fact and agents, may lawfully do or cause
to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ Robert J. Dayton Director July 15, 1997
Robert J. Dayton
/s/ Virginia L. Stringer Director July 8, 1997
Virginia L. Stringer
/s/ Joseph D. Strauss Director July 7, 1997
Joseph D. Strauss
/s/ Robert L. Spies Director July 7, 1997
Robert L. Spies
/s/ Leonard W. Kedrowski Director July 3, 1997
Leonard W. Kedrowski
/s/ Andrew M. Hunter III Director July 11, 1997
Andrew M. Hunter III
/s/ Gae B. Veit Director July 7, 1997
Gae B. Veit
EXHIBIT 17(a)
<PAGE 1>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 50249
FORM 24F-2
Annual Notice of Securities Sold
Pursuant to Rule 24f-2
1. Name and address of issuer:
First American Funds, Inc.
601 Second Ave. South
Minneapolis, MN 55402-4302
2. Name of each series or class of funds for which this notice is filed:
Prime Obligation
Treasury Obligation
Government Obligation
3. Investment Company Act File Number: 811-5309
Securities Act File Number: 2-74747
4. Last day of fiscal year for which this notice is filed:
September 30, 1996
5. Check box if this notice is being filed more than 180 days after the close of
the issuer's fiscal year for purposes of reporting securities sold after the
close of the fiscal year but before termination of the issuer's 24f-2
declaration:
[ ]
6. Date of termination of issuer's declaration under rule 24f-2(a)(1), if
applicable (see instruction A.6):
7. Number and amount of securities of the same class or series which had been
registered under the Securities Act of 1933 other than pursuant to rule 24f-2 in
a prior fiscal year, but which remained unsold at the beginning of the fiscal
year:
Dollars $0
Shares 0
8. Number and amount of securities registered during the fiscal year other than
pursuant to rule 24f-2:
9. Number and aggregate sale price of securities sold during the fiscal year:
Dollars $30,847,773,706
Shares 30,847,773,706
10. Number and aggregate sale price of securities sold during the fiscal year in
reliance upon registration pursuant to rule 24f-2:
Dollars $30,847,773,706
Shares 30,847,773,706
11. Number and aggregate sale price of securities issued during the fiscal year
in connection with dividend reinvestment plans, if applicable
(see Instruction B.7):
Dollars $75,441,938
Shares 75,441,938
<TABLE>
<CAPTION>
12. Calculation of registration fee:
<S> <C>
(I) Aggregate sale price of securities sold during the fiscal year in reliance
on rule 24f-2 (from Item 10): $30,847,773,706
(ii) Aggregate price of shares issued in connection with dividend reinvestment
plans (from Item 11, if applicable): + 75,441,938
(iii) Aggregate price of shares redeemed or repurchased during the fiscal year
(if applicable): -29,453,406,285
(iv) Aggregate price of shares redeemed or repurchased and previously applied as
a reduction to filing fees pursuant rule 24e-2 (if applicable):
(v) Net Aggregate price of securities sold and issued during the fiscal year in
reliance on rule 24f-2 [line (i), plus line (ii), less line (iii), plus line
(iv)] (if applicable): 1,469,809,359
(vi) Multiplier prescribed by Section 6(b) of the Securities of 1933 or other
applicable law or regulation (see instruction C.6): x1/33th
(vii) Fee due [line (i) or line (v) multiplied by line (vi)]: 445,396.78
</TABLE>
<PAGE 3>
13. Check box if fees are being remitted to the Commission's lockbox depository
as described in section 3a of the Commission's Rules of Informal and Other
Procedures (17 CFR 202.3a).
[X]
Date of mailing or wire transfer of filing fees to the Commission's
lockbox depository: November 25, 1996
SIGNATURES
This report has been signed below by the following person on behalf of the
issuer and in the capacities and on the dates indicated.
By (Signature and Title)* /s/ Stephen G. Meyer
Stephen G. Meyer, Controller
Date November 25, 1996
EXHIBIT 17(b)
FORM OF PROXY
___________________ FUND
(A SERIES OF QUALIVEST FUNDS)
OAKS, PENNSYLVANIA 19456
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF QUALIVEST FUNDS
The undersigned hereby appoints Kathryn L. Stanton, Michael J. Radmer,
and Donna Rafa, and each of them, with power to act without the other and with
the right of substitution in each, as proxies of the undersigned and hereby
authorizes each of them to represent and to vote, as designated below, all the
shares of ______________ Fund (the "Fund"), a series of Qualivest Funds
("Qualivest"), held of record by the undersigned on ______________, 1997, at the
Special Meeting of Shareholders of the Fund to be held on ______________, 1997,
or any adjournments or postponements thereof, with all powers the undersigned
would possess if present in person. All previous proxies given with respect to
the Special Meeting hereby are revoked.
THE PROXIES ARE INSTRUCTED TO VOTE AS FOLLOWS:
1. PROPOSAL TO RATIFY AND APPROVE AN INTERIM ADVISORY AGREEMENT between
Qualivest, on behalf of the Fund, and First Bank National Association
("FBNA"), and the receipt of investment advisory fees by FBNA for the
period from August 1, 1997 forward.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. PROPOSAL TO APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION providing
for the transfer of the assets and liabilities of the Fund to a
corresponding fund of First American Funds, Inc. ("FAF") in exchange
for shares of designated classes of the corresponding FAF fund.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the annual meeting or any adjournments or
postponements thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS GIVEN, THIS
PROXY WILL BE VOTED "FOR" THE PROPOSALS ABOVE. RECEIPT OF THE NOTICE OF SPECIAL
MEETING OF SHAREHOLDERS AND THE PROXY STATEMENT RELATING TO THE MEETING IS
ACKNOWLEDGED BY YOUR EXECUTION OF THIS PROXY.
PLEASE SIGN THIS PROXY EXACTLY AS YOUR NAME APPEARS BELOW. WHEN SHARES
ARE HELD BY JOINT TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A
CORPORATION, PLEASE SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED
OFFICER. IF A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY PARTNER OR OTHER
AUTHORIZED PERSON.
DATED: ________________________, 1997
________________________
Signature
________________________
Signature if held jointly
TO SAVE FURTHER SOLICITATION EXPENSE, PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY PROMPTLY USING THE ENCLOSED POSTAGE-PREPAID ENVELOPE.
