QUALIVEST FUNDS
3435 STELZER ROAD
COLUMBUS, OHIO 43219-3035
SEPTEMBER 15, 1997
Dear Qualivest Shareholder:
On behalf of the Board of Trustees of Qualivest Funds ("Qualivest"), we
are pleased to invite you to a special meeting of shareholders on October 31,
1997 (the "Meeting"), that has been called to consider matters that are
important to you. At the Meeting, you will be asked to consider (1) the
approval of an interim advisory agreement with First Bank National Association
("FBNA"), which became effective on August 1, 1997 (when U.S. Bancorp merged
with First Bank System, Inc., as discussed below), and (2) a proposed
reorganization of 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 21, 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.
QUAL-1
<PAGE>
In considering these matters, you should note:
* IDENTICAL TERMS AND FEES
The terms of the interim advisory agreement with FBNA are
substantially identical to the terms of the Qualivest Portfolios'
previous advisory agreement with Qualivest Capital. The fee rates are
unchanged.
* SUBSTANTIALLY SIMILAR OBJECTIVES AND POLICIES
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
First American Funds Investor Services toll free at 1-800-637-2548.
Very truly yours,
/s/ Irimga McKay
Irimga McKay
President
<PAGE>
QUALIVEST FUNDS
3435 STELZER ROAD
COLUMBUS, OHIO 43219-3035
NOTICE OF SPECIAL SHAREHOLDERS MEETING
TO BE HELD ON OCTOBER 31, 1997
NOTICE IS HEREBY GIVEN THAT a Special Meeting of the Shareholders of 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 SEI Investments Management Corporation, Oaks,
Pennsylvania, 19456 on October 31, 1997, at 10:00 A.M. Eastern Time for the
purpose of considering and voting upon:
1. A proposal to ratify and approve an interim investment advisory
agreement between Qualivest, on behalf of each Qualivest Portfolio, and First
Bank National Association ("FBNA") and the receipt of investment advisory fees
by FBNA for the period from August 1, 1997 forward.
2. A proposal to approve an Agreement and Plan of Reorganization providing
for the transfer of the assets and liabilities of each Qualivest Portfolio to a
corresponding fund of First American 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 September 2, 1997
are entitled to notice of, and to vote at, the Special Meeting or any
adjournment(s) thereof.
SHAREHOLDERS ARE REQUESTED TO MARK, DATE, SIGN AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE THE ACCOMPANYING PROXY CARD, WHICH IS BEING SOLICITED BY THE
QUALIVEST BOARD OF TRUSTEES. THIS IS IMPORTANT TO ENSURE A QUORUM AT THE
MEETING. PROXIES MAY BE REVOKED AT ANY TIME BEFORE THEY ARE EXERCISED BY
SUBMITTING TO QUALIVEST A WRITTEN NOTICE OF REVOCATION OR A SUBSEQUENTLY
EXECUTED PROXY OR BY ATTENDING THE MEETING AND VOTING IN PERSON. HOWEVER,
ATTENDANCE AT THE MEETING WILL NOT BY ITSELF SERVE TO REVOKE A PROXY.
Gregory T. Maddox
Secretary
September 15, 1997
<PAGE>
COMBINED PROXY STATEMENT/PROSPECTUS
DATED SEPTEMBER 15, 1997
QUALIVEST FUNDS
3435 STELZER ROAD
COLUMBUS, OHIO 43219-3035
1-800-743-8637
FIRST AMERICAN 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 10:00 A.M.
Eastern Time on October 31, 1997 at the offices of SEI Investments Management
Corporation, Oaks, Pennsylvania, 19456. At the meeting, shareholders will be
asked (i) to ratify and approve an interim investment advisory agreement with
First Bank National Association ("FBNA") and the receipt of investment advisory
fees by FBNA for the period from August 1, 1997 forward, and (ii) to approve a
proposed Agreement and Plan of Reorganization dated August 1, 1997 (the
"Reorganization Agreement") between Qualivest and First American 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 September 15, 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.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
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 ....................................... 23
INFORMATION RELATING TO VOTING MATTERS ....................................... 23
General Information ......................................................... 23
Shareholder and Board Approvals ............................................. 23
Table IV(A) - Qualivest Portfolios - 5% Ownership as of September 2, 1997 24
Table IV(B) - FAF Funds - 5% Ownership as of September 2, 1997 .............. 26
Quorum ...................................................................... 27
Annual Meetings ............................................................. 27
Interests of Certain Persons ................................................ 28
ADDITIONAL INFORMATION ABOUT FAF ............................................. 28
ADDITIONAL INFORMATION ABOUT QUALIVEST ....................................... 28
FINANCIAL STATEMENTS ......................................................... 28
OTHER BUSINESS ............................................................... 29
SHAREHOLDER INQUIRIES ........................................................ 29
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
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 - PROSPECTUS OF TAX FREE OBLIGATIONS FUND AND
TREASURY OBLIGATIONS FUND - RETAIL CLASS SHARES
IX - PROSPECTUS OF TAX FREE OBLIGATIONS - INSTITUTIONAL
CLASS SHARES
</TABLE>
<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 Reorganization
<PAGE>
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
SEI Investments Management Corporation, Oaks, Pennsylvania, 19456 on October
31, 1997 at 10:00 A.M. Eastern Time. (This special meeting and any
adjournment(s) thereof are referred to as the "Meeting.") Only shareholders of
record at the close of business on September 2, 1997 will be entitled to vote
at the Meeting. Shares are entitled to one vote for each dollar of value
invested and a proportionate fractional vote for any fraction of a dollar
invested. Shares represented by a properly executed proxy will be voted in
accordance with the instructions thereon or, if no specification is made, the
persons named as proxies will vote in favor of each proposal set forth in the
Notice of Meeting. Proxies may be revoked at any time before they are exercised
by submitting to Qualivest a written notice of revocation or a subsequently
executed proxy or by attending the Meeting and voting in person. However,
attendance at the Meeting will not by itself serve to revoke a proxy. For
additional information, including a description of the shareholder votes
required for approval of the Interim Advisory Agreements and the Reorganization
Agreement, see "Information Relating to Voting Matters."
PRINCIPAL RISK FACTORS
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 21,
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:
<TABLE>
<CAPTION>
CURRENT
CONTRACTUAL ADVISORY
NET ASSETS AS OF ADVISORY FEE RATE
NAME OF FAF SERIES JUNE 30, 1997 FEE RATE AFTER WAIVERS
- --------------------------------------- ------------------ ------------- ---------------
<S> <C> <C> <C>
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%
</TABLE>
As of June 30, 1997, FBNA was managing accounts with an aggregate value of
approximately $42 billion, including mutual fund assets in excess of $14
billion. FBNA's main offices are located at 601 Second Avenue South,
Minneapolis, Minnesota 55480. Appendix II identifies the principal executive
officer and the directors of FBNA.
No officer or Trustee of Qualivest is an officer, employee, director,
general partner or shareholder of FBNA or any of its affiliates. In addition,
no Trustee of Qualivest has any material interest in any material transaction
in which FBNA or its affiliates is a party.
<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.
<TABLE>
<CAPTION>
DISTRIBUTION AND SHAREHOLDER
QUALIVEST PORTFOLIO CUSTODY FEES SERVICE PLAN FEES
- ------------------------------------------- -------------- ------------------------------
<S> <C> <C>
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
</TABLE>
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 so-called "liquidated
damages" clauses in administration and fund accounting agreements with
Qualivest, as well as under the terms of Qualivest's transfer agency agreement.
New U.S. Bancorp has agreed to indemnify and hold Qualivest, FAF, and their
respective shareholders harmless against any amount which is finally determined
in judicial or agreed-upon alternative dispute resolution proceedings, or
agreed by New U.S. Bancorp, BISYS and Qualivest, to be payable under such
agreements. Accordingly, if any amount is found or agreed to be payable under
such agreements, shareholders of Qualivest and FAF will not bear such expenses.
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)(4)
Net assets ....................... $ 29,811,506 - -
Net asset value per share ........ $ 1.00 - -
Shares outstanding ............... 29,811,495 - -
Institutional Class Shares(5)
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) Pursuant to the Reorganization, Qualivest Class Q Shares will be converted
into Class C Shares of FAF.
(5) Class Y Shares of Qualivest, Class C Shares of FAF.
QUALIVEST TAX-FREE MONEY MARKET FUND/FAF TAX FREE OBLIGATIONS FUND
<TABLE>
<CAPTION>
QUALIVEST
PORTFOLIO FAF FUND(1) PRO FORMA
------------- ------------- -------------
<S> <C> <C> <C>
Class A Shares
Net assets ....................... $31,868,060 $0 $36,517,809
Net asset value per share ........ $ 1.00 $0 $ 1.00
Shares outsanding ................ 31,867,446 0 36,517,295
Class Q Shares(2)
Net assets ....................... $ 4,649,749 - -
Net asset value per share ........ $ 1.00 - -
Shares outstanding ............... 4,649,849 - -
Institutional Class Shares
Net assets ....................... $ 1,784,095 $0 $ 1,784,095
Net asset value per share ........ $ 1.00 $0 $ 1.00
Shares outstanding ............... 1,784,138 0 1,784,138
Class D (Corporate Trust) Shares(3)
Net assets ....................... - $0 $ 0
Net asset value per share ........ - $0 $ 1.00
Shares outstanding ............... - 0
Total Net Assets .................. $38,301,904 $0 $38,301,904
</TABLE>
- ------------------
(1) The FAF Tax Free Obligations Fund is being created for purposes of the
Reorganization and prior to the Reorganization has zero net assets.
(2) Pursuant to the Reorganization, Class Q Shares of Qualivest will be
converted into Class C Shares of FAF.
(3) Not offered by Qualivest, but offered by FAF after the Reorganization.
<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)(3)
Net assets ....................... $146,758,320 - -
Net asset value per share ........ $ 1.00 - -
Shares outstanding ............... 146,756,400 - -
Institutional Class Shares(4)
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 ............... 160,652,622 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) Pursuant to the Reorganization, Qualivest Class Q Shares will be converted
into Class C shares of FAF.
(4) 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
<PAGE>
each corresponding Qualivest Portfolio held such Portfolio 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 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(1)
<TABLE>
<CAPTION>
EFFECTIVE RATE
ADVISORY FEES OF ADVISORY CURRENT
FOR FISCAL YEAR FEES FOR FISCAL YEAR CONTRACTUAL
ENDED 7/31/96 ENDED 7/31/96 ADVISORY
NAME OF QUALIVEST PORTFOLIO (AFTER WAIVERS) (AFTER WAIVERS) FEE RATE
- ----------------------------- ----------------- ---------------------- -------------
<S> <C> <C> <C>
Qualivest Money $1,401,855 0.25% 0.35%
Market
Fund
Qualivest U. S. $ 395,220 0.00% 0.35%
Treasury Money
Market Fund
Qualivest Tax-Free $ 130,991 0.00% 0.35%
Money Market Fund
[WIDE TABLE CONTINUED FROM ABOVE]
<CAPTION>
POST-
REORGANIZATION CURRENT TOTAL PRO FORMA
CONTRACTUAL FUND OPERATING FUND OPERATING
ADVISORY EXPENSES EXPENSES
NAME OF QUALIVEST PORTFOLIO FEE RATE (AFTER WAIVERS)(2) (AFTER WAIVERS)
- ----------------------------- ---------------- -------------------- -----------------
<S> <C> <C> <C>
Qualivest Money 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. 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 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>
- ------------------
(1) Fee Rates and Expense Ratios are based on a percentage of average net
assets.
(2) As of January 31, 1997 (unaudited).
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
<PAGE>
interpretations or decisions pertaining to permissible activities of bank
holding companies and their bank and nonbank subsidiaries, FBNA and its
affiliates might be prohibited from continuing these arrangements. In that
event, it is expected that the Board of Directors would make other arrangements
and that shareholders would not suffer adverse financial consequences.
The other service providers for the Qualivest Portfolios and the 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
<PAGE>
Portfolio. Thus, the risk of a shareholder incurring a financial loss on
account of shareholder liability is limited to circumstances in which a
Qualivest Portfolio itself would be unable to meet its obligations.
The 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.
<PAGE>
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 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, FAF may retain a third party to assist in the solicitation of
proxies for the Reorganization. The cost of solicitation is estimated to be
approximately $32,000 and will be borne by FBNA. Shareholders may vote by
marking, signing, dating and returning the enclosed Proxy Ballot in the
enclosed postage-paid envelope. Any shareholder giving a proxy may revoke it at
any time before it is exercised by submitting to Qualivest a written notice of
revocation or a subsequently executed proxy or by attending the Meeting and
voting in person.
Only shareholders of record at the close of business on September 2, 1997
will be entitled to vote at the Meeting. On that date, the following shares of
the Qualivest Portfolios were outstanding and entitled to be voted:
NAME OF PORTFOLIO AND CLASS SHARES ENTITLED TO VOTE
- --------------------------------- -----------------------
U.S. Treasury Money Market Fund -
Class A Shares 107,965,701
Class Q Shares 30,637,834
Class Y Shares 2,225,011
Tax-Free Money Market Fund -
Class A Shares 32,588,937
Class Q Shares 3,807,198
Class Y Shares 4,090,625
Money Market Fund -
Class A Shares 251,703,144
Class Q Shares 170,110,395
Class Y Shares 153,654,905
Shares are entitled to one vote for each dollar of value invested and a
proportionate fractional vote for any fraction of a dollar invested.
If the accompanying proxy is executed and returned in time for the
Meeting, the shares covered thereby will be voted in accordance with the proxy
on all matters that may properly come before the Meeting.
SHAREHOLDER AND BOARD APPROVALS. Pursuant to the Application, and the
conditions under which the Order was granted by the SEC, the Interim Advisory
Agreement is being submitted for the
<PAGE>
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 September 2, 1997, the officers and Trustees of Qualivest as a group
owned less than 1% of each Qualivest Portfolio. As of September 2, 1997, the
officers and Directors of 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 and/or record ownership with respect to 5% or more
of a class of a Portfolio as of September 2, 1997. Table IV(B) shows the name,
address and share ownership of each person known to FAF to have beneficial
and/or record ownership with respect to 5% or more of a class of a Fund as of
September 2, 1997.
TABLE IV(A)
QUALIVEST PORTFOLIOS - 5% OWNERSHIP AS OF SEPTEMBER 2, 1997
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
SHARES PERCENTAGE OF PORTFOLIO
QUALIVEST PORTFOLIO NAME AND ADDRESS OWNED OF CLASS POST-CLOSING
- --------------------- ------------------------------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Money Market Fund
Class Q *Western Wireless Corporation 33,063,613 19.44% 3.68%
Attn: General Ledger Group
2001 N.W. Sammamish Road
Issaquah, WA 98027
**PAC/SIB L.L.C. 11,642,427 6.84% 1.29%
15350 S.W. Sequoia Parkway Suite 300
Portland, OR 97224
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
SHARES PERCENTAGE OF PORTFOLIO
QUALIVEST PORTFOLIO NAME AND ADDRESS OWNED OF CLASS POST-CLOSING
- --------------------- ----------------------------------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Class Y *TELCO 146,765,090 98.82% 16.57%
c/o First Asset Management
601 2nd Avenue South MPFP 0505
Minneapolis, MN 55402
U.S. Treasury
Money Market Fund
Class Q *California Insurance Center 1,562,297 5.10% ***
of Northern California
Premium Trust Account
3697 Mt. Diablo Blvd.
Suite 350
LaFayette, CA 94549
*ASANTE 2,254,484 7.36% ***
Attn: Mark Collins, Acct. Manager
2650 Sisktyou Blvd., Suite 200
Medford, OR 97504
Class Y *TELCO 1,379,832 62.01% ***
c/o First Asset Management
601 2nd Avenue South MPFP 0505
Minneapolis, MN 55402
Tax-Free
Money Market Fund
Class Q **Washington Asphalt Co., Inc. 1,127,682 29.62% 2.78%
Attn: Marianne Schulz
P.O. Box 7
Bellevue, WA 98009
**Grabhorn Inc. Post Closure Fund 575,225 15.11% 1.42%
14930 S.W. Vandermust
Beaverton, OR 97007
**David P. Taylor Jr. 246,375 6.47% 0.60%
5801 Third Avenue S.
Seattle, WA 98108
**John Titus 1,181,222 31.03% 2.91%
Kusuman Titus
23405 16th Avenue S.E.
Kent, WA 98042
**Robert Cowan & Janice Cowan 263,858 6.93% 0.65%
JTWROS
350 Blalock Ct
Richland, WA 99252
**Bob's Bicycle Center Inc. DBA 378,395 9.94% 0.93%
1st Class BMX
10950 S.E. Division Street
Portland, OR 97266
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
SHARES PERCENTAGE OF PORTFOLIO
QUALIVEST PORTFOLIO NAME AND ADDRESS OWNED OF CLASS POST-CLOSING
- --------------------- ------------------------------- ----------- ------------ --------------
<S> <C> <C> <C> <C>
**John D. Eskidsen & 273,118 7.17% 0.67%
Linda J. Eskildsen
JTWROS
14013 Amberwood Circle
Lake Oswego, OR 97035
Class Y *TELCO 3,781,080 92.43% 9.34%
c/o First Asset Management
601 2nd Avenue South MPFP 0505
Minneapolis, MN 55402
*Mercer G. Rhodes T/UA-Y 295,086 7.21% 0.72%
c/o First Asset Management
601 2nd Avenue South MPFP 0505
Minneapolis, MN 55402
</TABLE>
- ------------------
*Record holder only.
**Known to Qualivest to be beneficial owner.
***Less than 0.1%.
TABLE IV(B)
FAF FUNDS - 5% OWNERSHIP AS OF SEPTEMBER 2, 1997
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
SHARES PERCENTAGE OF PORTFOLIO
FAF FUND NAME AND ADDRESS OWNED OF CLASS POST-CLOSING
- ----------------------- ------------------------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Prime Obligations Fund
Class A *National Financial 179,788,683 87.73% 20.03%
Services Corp.
FEBO its Customers
P.O. Box 3752
Church Street Station
New York, NY 10008-3752
Class B *Colorado National Bank 185,494 9.14% ***
Custodian of IRA of
Bill L. Falder
12072 East Iowa Avenue
Aurora, CO 80012-5236
*First Bank NA 125,040 6.16% ***
Custodian of IRA of
Russell C. Eidal
320 Bluff Drive
Lowell, AR 72745-9117
Class D *VAR & Co. 114,948,582 100% 12.80%
First Trust N.A.
P.O. Box 64010
St. Paul, MN 55164-0010
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
SHARES PERCENTAGE OF PORTFOLIO
FAF FUND NAME AND ADDRESS OWNED OF CLASS POST-CLOSING
- -------------------------- -------------------------- --------------- ------------ --------------
<S> <C> <C> <C> <C>
Treasury Obligations Fund
Class C *VAR & Co. 775,600,236 88.83% 19.85%
First Trust N.A.
P.O. Box 64010
St. Paul, MN 55164-0010
*Special Custody Account 90,198,888 10.33% 2.30%
for the Exclusive Benefit
of Customers of FBS
Investment Services, Inc.
100 South Fifth Street
Suite 1400
ATTN: Money Fund Unit
Minneapolis, MN
55402-1217
Class D *VAR & Co. 2,892,068,105 100% 74.04%
First Trust N.A.
P.O. Box 64010
St. Paul, MN 55164-0010
</TABLE>
- ------------------
*Record holder only.
***Less than 0.1%
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.
<PAGE>
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, 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
<PAGE>
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.
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:
------------------------------------
Title:
---------------------------------
[SEAL] FIRST BANK NATIONAL ASSOCIATION
By:
------------------------------------
Title:
---------------------------------
<PAGE>
Dated: August 1, 1997
SCHEDULE A
TO THE INVESTMENT ADVISORY AGREEMENT
BETWEEN QUALIVEST FUNDS AND
FIRST BANK NATIONAL ASSOCIATION
<TABLE>
<CAPTION>
NAME OF FUND COMPENSATION
------------ ------------
<S> <C>
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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAME OF FUND COMPENSATION
------------ ------------
<S> <C>
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:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
FIRST BANK NATIONAL ASSOCIATION
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
<PAGE>
APPENDIX II
PRINCIPAL EXECUTIVE OFFICER AND DIRECTORS OF
FIRST BANK NATIONAL ASSOCIATION
The directors and the principal executive officer of FBNA are listed
below, together with their addresses and principal occupations.
<TABLE>
<CAPTION>
OTHER POSITIONS AND OFFICES
NAME POSITIONS AND OFFICES WITH FBNA AND PRINCIPAL BUSINESS ADDRESS
- ------------------ -------------------------------------- ------------------------------------
<S> <C> <C>
John F. Grundhofer Chairman, President and Chief President and Chief Executive
Executive Officer Officer of U.S. Bancorp*
Richard A. Zona Director and Vice Chairman-Finance Vice Chairman Finance of U.S.
Bancorp*
Philip G. Heasley Director and Vice Chairman Vice Chairman and Group Head of
the Retail Product Group of U.S.
Bancorp*
Daniel C. Rohr Director and Executive Vice President Executive Vice President,
Commercial Banking Group of U.S.
Bancorp*
J. Robert Hoffman Director, Executive Vice President and Executive Vice President and Chief
Chief Credit Officer Credit Officer of U.S. Bancorp*
Lee R. Mitau Director, Executive Vice President, Executive Vice President, General
General Counsel and Secretary Counsel and Secretary of U.S.
Bancorp*
Susan E. Lester Director, Executive Vice President and Executive Vice President and Chief
Chief Financial Officer Financial Officer of U.S. Bancorp*
Robert D. Sznewajs Director and Vice Chairman Vice Chairman of U.S. Bancorp*
Gary T. Duim Director and Vice Chairman Vice Chairman of U.S. Bancorp*
</TABLE>
- ------------------
* Address: 601 Second Avenue South, Minneapolis, Minnesota 55402.
<PAGE>
APPENDIX III
AGREEMENT AND PLAN OF REORGANIZATION
BY AND BETWEEN
FIRST AMERICAN FUNDS, INC.
AND
QUALIVEST FUNDS
DATED: AS OF , 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ------
<S> <C> <C>
1. CONVEYANCE OF ASSETS OF QUALIVEST FUNDS .......................... 2
2. LIQUIDATION OF QUALIVEST FUNDS ................................... 3
3. EFFECTIVE TIME OF THE REORGANIZATION ............................. 3
4. CERTAIN REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF
QUALIVEST ...................................................... 4
5. CERTAIN REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF 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 ..................................................... 14
</TABLE>
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this day of , 1997 by and between Qualivest Funds ("Qualivest"), a
Massachusetts business trust consisting of multiple investment portfolios
including, among others, 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 21, 1997, or at
such time on such later date as provided herein or as the parties otherwise may
agree in writing. (The date and time at which such actions are taken are
referred to herein as the "Effective Time of the Reorganization.") To the
extent any Fund Assets are, for any reason, not transferred at the Effective
Time of the Reorganization, Qualivest shall cause such Fund Assets to be
transferred in accordance with this Agreement at the earliest practicable date
thereafter. All acts taking place at the Closing shall be deemed to take place
simultaneously as of the Effective Time of the Reorganization unless otherwise
agreed to by the parties. The Closing shall be held at the offices of Dorsey &
Whitney LLP, 220 South Sixth Street, Minneapolis, Minnesota 55402, or at such
other place as the parties may agree.
(b) In the event the Effective Time of the Reorganization occurs on a day
on which (i) the Exchange or another primary trading market for portfolio
securities of the 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 Reorganization,
<PAGE>
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 Expenses(3) ..................................... 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 Expenses(3) .................................... 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 Expenses(2) ..................................... 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
PROSPECTUS
September 12, 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 September 12, 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 September 12, 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 .......................... 10
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 ........... 26
Credit Enhancement Agreements ........... 26
Put Options ............................. 27
Variable and Floating Rate
Obligations ........................... 27
Lending of Portfolio Securities ......... 27
When-Issued and Delayed-
Delivery Securities ................... 28
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
<TABLE>
<CAPTION>
TAX FREE TREASURY
OBLIGATIONS OBLIGATIONS
FUND FUND
<S> <C> <C>
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 reimburse-
ments)(1) 0.11% 0.30%
Rule 12b-1 fees 0.25%(2) 0.25%(2)
Other expenses (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
</TABLE>
(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
SEI Investments Management Corporation (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%. The Fund
has approved the appointment of First Bank National Association as a
sub-administrator (the "Sub-Administrator"), effective January 1, 1998.
It is contemplated that the Sub-Administrator will assist SEI in the
performance of administrative services for the Fund. The
<PAGE>
Sub-Administrator Agreement provides that SEI will compensate the
Sub-Administrator at an annual rate of up to 0.05% of Fund average daily
net assets.
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 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 Distributor or its affiliates will reimburse the Adviser for
Fund-related marketing expenses the Adviser incurs through December 31,
1997 in an amount of approximately 0.01% of the Fund's average daily net
assets.
<PAGE>
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 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
<PAGE>
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.
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.
<PAGE>
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 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.
<PAGE>
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.
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
<PAGE>
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.
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.
<PAGE>
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 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.
<PAGE>
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 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.
<PAGE>
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 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 federal income tax purposes, an
alternative minimum tax
<PAGE>
("AMT") is imposed on taxpayers to the extent that such tax, if any,
exceeds a taxpayer's regular income tax liability (with certain
adjustments). Liability for AMT will depend upon each shareholder's tax
situation.
Exempt-interest dividends attributable to interest income on certain
tax-exempt obligations issued after August 7, 1986, to finance certain
private activities will be treated as an item of tax preference that is
included in alternative minimum taxable income for purposes of
calculating the AMT for all taxpayers. Tax Free Obligations Fund may
invest up to 20% of its total assets in securities the interest on which
is treated as an item of tax preference that is included in alternative
minimum taxable income for purposes of calculating the AMT. Each
shareholder is advised to consult his or her tax adviser with respect to
the possible effects of such tax preference items.
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 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
<PAGE>
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 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
<PAGE>
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., 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, more than 10% of its net assets would be in illiquid assets
including time deposits and repurchase agreements maturing in more than
seven days. As a fundamental policy, neither Fund will purchase a
security if, as a result, 25% or more of its assets would be in any
single industry provided that there
<PAGE>
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 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
<PAGE>
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, 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
<PAGE>
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 that meet the criteria for liquidity
established by the Board of Directors are considered 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.
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
<PAGE>
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 ("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.
<PAGE>
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.
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.
<PAGE>
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 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.
<PAGE>
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.
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."
<PAGE>
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
PROSPECTUS
September 12, 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 September 12, 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 September 12, 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 ........... 11
Share Purchases and Redemptions ......... 11
What Shares Cost ........................ 12
Exchanging Securities for Fund
Shares ................................ 12
Certificates and Confirmations .......... 12
Dividends ............................... 12
Capital Gains ........................... 13
Exchange Privilege ...................... 13
TAXES ....................................... 13
FUND SHARES ................................. 14
CALCULATION OF PERFORMANCE DATA ............. 15
INVESTMENT RESTRICTIONS AND TECHNIQUES ...... 15
General Restrictions .................... 15
Municipal Obligations ................... 17
Loan Participations; Section 4(2)
and Rule 144A Securities .............. 18
Securities of Foreign Banks and
Branches .............................. 19
United States Government
Securities ............................ 19
Repurchase Agreements ................... 20
Credit Enhancement Agreements ........... 20
Put Options ............................. 21
Variable and Floating Rate
Obligations ........................... 21
Lending of Portfolio Securities ......... 21
When-Issued and Delayed-
Delivery Securities ................... 22
Money Market Funds ...................... 22
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(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
SEI Investments Management Corporation (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%. The
Fund has approved the appointment of First Bank National Association as
a sub-administrator (the "Sub-Administrator"), effective January 1,
1998. It is contemplated that the Sub-Administrator will assist SEI in
the performance of administrative services for the Fund. The
Sub-Administrator Agreement provides that SEI will compensate the
Sub-Administrator at an annual rate of up to 0.05% of the Fund's average
daily net assets.
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
<PAGE>
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 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. The
Distributor or its affiliates will reimburse the Adviser for
Fund-related marketing expenses the Adviser incurs through December 31,
1997 in an amount of approximately 0.01% of the Fund's average daily net
assets.
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.
<PAGE>
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 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.
<PAGE>
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.
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
<PAGE>
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.
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.
<PAGE>
Distributions paid from other interest income will be taxable to
shareholders as ordinary income. For federal income tax purposes, an
alternative minimum tax ("AMT") is imposed on taxpayers to the extent
that such tax, if any, exceeds a taxpayer's regular income tax liability
(with certain adjustments). Liability for AMT will depend upon each
shareholder's tax situation.
Exempt-interest dividends attributable to interest income on certain
tax-exempt obligations issued after August 7, 1986, to finance certain
private activities will be treated as an item of tax preference that is
included in alternative minimum taxable income for purposes of
calculating the AMT for all taxpayers. The Fund may invest up to 20% of
its total assets in securities the interest on which is treated as an
item of tax preference that is included in alternative minimum taxable
income for purposes of calculating the AMT. Each shareholder is advised
to consult his or her tax adviser with respect to the possible effects
of such tax preference items.
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.
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.
<PAGE>
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 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,
<PAGE>
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 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, more than 10% of its net assets would be in illiquid assets
including time deposits and repurchase agreements maturing in more than
seven days. As a fundamental policy, the Fund will not purchase a
security if, as a result, 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.
<PAGE>
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.
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.
<PAGE>
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 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
<PAGE>
corporate obligations qualifying for resale to certain "qualified
institutional buyers" pursuant to Rule 144A under the Securities Act of
1933 that meet the criteria for liquidity established by the Board of
Directors are considered 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, 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.
<PAGE>
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 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.
<PAGE>
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 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.
<PAGE>
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 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."
<PAGE>
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 SEPTEMBER 15, 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; and (2) 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 tax law also restricts the
deductibility of other expenses allocable to shares of Tax Free Obligations
Fund.
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.
Pro forma combining statements are not presented for Qualivest Tax-Free Money
Market Fund (Qualivest Tax-Free) and First American Tax Free Obligations Fund
(First American Tax Free) because Qualivest Tax-Free will be reorganized into
First American Tax Free which is being created by First American Funds, Inc. and
currently has no assets or liabilities. The only significant pro forma financial
statement impact resulting from the reorganization of Tax-Free Money Market to
Tax-Free Obligations relates to fees and expenses of the funds which are
outlined in Appendix V of the Combined Proxy Statement / Prospectus.
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.
The pro forma adjustment to amortization of organization costs
reflects the elimination of any remaining unamortized
organization costs included as assets on the books of the
Money Market Fund during the period.
<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.
