FIRST AMERICAN FUNDS INC, 497, 1998-02-11

FIRST AMERICAN FUNDS INC
497, 1998-02-11

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JANUARY 31, 1998

MONEY MARKET FUNDS

CLASS A AND CLASS B SHARES

Treasury Obligations Fund

Prime Obligations Fund

Tax Free Obligations Fund

FIRST AMERICAN FUNDS, INC.

PROSPECTUS

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

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TABLE OF CONTENTS

Summary 2

Fees and Expenses 4

Financial Highlights 7

The Funds 10

Investment Objectives and Policies 10

Management of the Funds 11

Distributor 13

Portfolio Transactions 14

Investing in the Funds 14

Redeeming Shares 18

Determining the Price of Shares 20

Taxes 21

Fund Shares 21

Calculation of Performance Data 22

Investment Restrictions and Techniques 22

Information Concerning Compensation 28
Paid to U.S. Bank National Association,
First Trust National Association and
Other Affiliates

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FIRST AMERICAN FUNDS, INC.

CLASS A AND CLASS B SHARES 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"):

* TREASURY OBLIGATIONS FUND

* PRIME OBLIGATIONS FUND

* TAX FREE OBLIGATIONS FUND

This Prospectus also relates to the Class B Shares of Prime Obligations Fund.

Each Fund has its own policies designed to meet its investment objective.
Treasury Obligations Fund seeks to achieve maximum current income to the extent
consistent with the preservation of capital and maintenance of liquidity.

SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, INCLUDING U.S. 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 January 31, 1998 for the Funds has
been filed with the Securities and Exchange Commission ("SEC") and is
incorporated in its entirety by reference in this Prospectus. To obtain copies
of the Statement of Additional Information at no charge, or to obtain other
information or make inquiries about the Funds, call (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 A FUND IS NEITHER INSURED NOR GUARANTEED BY THE UNITED STATES
GOVERNMENT, AND THERE IS NO ASSURANCE THAT EACH 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 January 31, 1998.

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SUMMARY

First American Funds, Inc. ("FAF") is an open-end investment company which
offers shares in several different mutual funds. This Prospectus provides
information with respect to the Class A Shares of the following Funds. It also
relates to the Class B Shares of Prime Obligations Fund.

TREASURY OBLIGATIONS FUND has an objective of seeking to achieve maximum current
income consistent with preservation of capital and maintenance of liquidity. In
seeking to achieve its investment objective, the Fund invests in United States
Treasury obligations maturing within 397 days or less as determined pursuant to
Rule 2a-7 under the Investment Company Act of 1940 (the "1940 Act") and
repurchase agreements relating to such securities.

PRIME OBLIGATIONS FUND has an objective of seeking to achieve maximum current
income to the extent consistent with the preservation of capital and the
maintenance of liquidity. In seeking to achieve its investment objective, the
Fund invests in money market instruments, including marketable securities issued
or guaranteed by the United States Government or its agencies or
instrumentalities, United States dollar-denominated obligations of banks
organized under the laws of the United States or any state, foreign banks,
United States branches of foreign banks, and foreign branches of United States
banks, if such banks have total assets of not less than $500 million.

TAX FREE OBLIGATIONS FUND has an objective of seeking to achieve maximum current
income exempt from federal income taxes consistent with the preservation of
capital and maintenance of liquidity. In seeking to achieve its investment
objective, 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.

INVESTMENT ADVISER. U.S. Bank National Association (the "Adviser" or "U.S.
Bank") serves as the investment adviser to each of the Funds through its First
American Asset Management group. See "Management of the Funds."

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

OFFERING PRICES. Class A Shares of the Funds are sold at net asset value without
any initial or contingent deferred sales charges. Class A Shares of the Funds
are redeemed at net asset value without any additional charge. Class A Shares of
each Fund are subject to a shareholder servicing fee computed at an annual rate
of 0.25% of the average daily net assets of that class.

Class B Shares of the Funds are sold at net asset value without any initial
sales charge. If Class B Shares are redeemed within six years after purchase,
they are subject to a contingent deferred sales charge declining from 5.00% in
the first year to zero after six years. Class B Shares of each Fund are subject
to Rule 12b-1 distribution and shareholder servicing fees computed at an annual
rate totaling 1.00% of the average daily net assets of that class.

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

EXCHANGES. Shares of any Fund may be exchanged for the same class of shares of
other funds in the First American family of funds at the shares' respective net
asset values with no

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additional charge. See "Investing in the Funds -- Exchange Privilege."

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

SHAREHOLDER INQUIRIES. Any questions or communications regarding the Funds or a
shareholder account should be directed to the Distributor by calling (800)
637-2548, or to the financial institution which holds shares on an investor's
behalf.

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FEES AND EXPENSES

CLASS A SHARE FEES AND EXPENSES

TREASURY PRIME TAX FREE
OBLIGATIONS OBLIGATIONS OBLIGATIONS
FUND FUND FUND

SHAREHOLDER TRANSACTION EXPENSES

Maximum sales load imposed on purchases None None None

Maximum sales load imposed on reinvested
dividends None None None

Maximum contingent deferred sales charge (as a
percentage of original purchase price or
redemption proceeds, as applicable)(1) None None None

Redemption fees None None None

Exchange fees None None None

ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)

Investment advisory fees (after voluntary fee
waivers)(1) 0.32% 0.33% 0.11%+

Rule 12b-1 fees 0.25%(2) 0.25%(2) 0.25%(2)

Other expenses 0.13% 0.12% 0.34%+

Total fund operating expenses
(after voluntary fee waivers)(1) 0.70% 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:

1 year $ 7 $ 7 $ 7

3 years $ 22 $ 22 $ 22

5 years $ 39 $ 39 $ 39

10 years $ 87 $ 87 $ 87

+ The advisory fees, other expenses, and total fund operating expenses set
forth above reflect estimates of current expenses.

(1) The Adviser intends to waive a portion of its fees on a voluntary basis,
and the amounts shown above reflect these waivers as of the date of this
Prospectus. The Adviser intends to maintain such waivers for the current
fiscal year but reserves the right to terminate its waiver at any time
thereafter in its sole discretion. Notwithstanding the foregoing, the
Adviser will maintain such waivers of each of the Funds in effect through
September 30, 1998. Absent any fee waivers, investment advisory fees for
the Funds as an annualized percentage of average daily net assets would be
0.40%; and total fund operating expenses calculated on such basis would be
0.80% for Treasury Obligations Fund, 0.77% for Prime Obligations Fund and
0.99% for Tax Free Obligations Fund. "Other expenses" includes an annual
administration fee and, for Treasury Obligations Fund and Tax Free
Obligations Fund, is based on estimated amounts for the current fiscal
year.

(2) Of this amount, 0.25% is designated as a shareholder servicing fee and none
as a distribution fee.

(3) Absent the fee waivers referred to in (1) above, the dollar amounts for the
1, 3, 5, and 10 year periods in the example above would be as follows:
Treasury Obligations Fund, $8, $26, $44, $99; and Prime Obligations Fund,
$8, $25, $43, $95; and Tax Free Obligations Fund, $10, $32, $55 and $121.

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CLASS B SHARE FEES AND EXPENSES

PRIME
OBLIGATIONS
FUND

SHAREHOLDER TRANSACTION EXPENSES

Maximum sales load imposed on purchases None

Maximum sales load imposed on reinvested dividends None

Maximum contingent deferred sales charge (as a
percentage of original purchase price or redemption
proceeds, as applicable)(1) 5.00%

Redemption fees None

Exchange fees None

ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)

Investment advisory fees (after voluntary
fee waivers)(2) 0.33%

Rule 12b-1 fees 1.00%(3)

Other expenses 0.12%

Total fund operating expenses
(after voluntary fee waivers) (2) 1.45%

EXAMPLE

You would pay the following expenses on a $1,000 investment, assuming (i) a 5%
annual return, (ii) redemption at the end of each time period with the payment
of the maximum applicable contingent deferred sales charge of 5% in year 1, 4%
in year 3, 2% in year 5 and automatic conversion to Class A Shares at the end of
year 8 (column 1) and (iii) no redemption (column 2):

(assuming (assuming no
redemption)(4) redemption)(5)

1 year $ 65 $ 15

3 years $ 86 $ 46

5 years $ 99 $ 79

10 years $153 $153

(1) Class B Shares of Prime Obligations Fund are only available pursuant to an
exchange for Class B Shares of another fund in the First American family of
funds pursuant to a systematic exchange program for the purchase of Class B
Shares of such other fund. The deferred sales charge applied to Class B
Shares of the Fund at the time of redemption will be equal to the deferred
sales charge that would have been applied to the shares of such other fund.
Currently, the maximum deferred sales charges on such shares is 5.00%.

(2) The Adviser intends to waive a portion of its fees on a voluntary basis,
and the amounts shown above reflect these waivers as of date of this
Prospectus. The Adviser intends to maintain such waiver for the current
fiscal year but reserves the right to terminate its waiver at any time
thereafter in its sole discretion. Absent any fee waivers, 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 1.52%. "Other expenses" includes an annual administration
fee.

(3) Of this amount, 0.25% is designed as a shareholder servicing fee and 0.75%
as a distribution fee.

(4) Absent the fee waiver referred to in (2) above, the dollar amounts for the
1, 3, 5 and 10 year period in the example above would be as follows: $65,
$88, $103 and $161.

(5) Absent the fee waiver referred to in (2) above, the dollar amounts for the
1, 3, 5, and 10 year period (assuming no redemption) in the example above
would be as follows: $15, $48, $83 and $161.

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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.

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FINANCIAL HIGHLIGHTS

Because Class A Shares of Treasury Obligations Fund were first offered November
3, 1997, no financial highlights for such shares are provided. Further
information about the Funds' performance is contained in such FAF annual reports
which may be obtained without charge by calling (800) 637-2548 or by writing SEI
Investments Distribution Co., Oaks, Pennsylvania 19456.

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FINANCIAL HIGHLIGHTS (continued)

For the periods ended September 30,
For a share outstanding throughout the period

NET
DIVIDENDS ASSET
NET ASSET NET FROM NET VALUE
VALUE BEGINNING INVESTMENT INVESTMENT END OF
OF PERIOD INCOME INCOME PERIOD

PRIME OBLIGATIONS FUND Class A

1997 $1.00 $0.049 $(0.049) $1.00
1996 1.00 0.050 (0.050) 1.00
1995(1) 1.00 0.038 (0.038) 1.00

Class B
1997 $1.00 $0.042 $(0.042) $1.00
1996 1.00 0.042 (0.042) 1.00
1995(2) 1.00 0.032 (0.032) 1.00

TAX FREE OBLIGATIONS FUND(3) Class A
1997(4)(5) $1.00 $0.010 $(0.010) $1.00
1997(7) 1.00 0.027 (0.027) 1.00
1996(7) 1.00 0.028 (0.028) 1.00
1995(6)(7) 1.00 0.017 (0.017) 1.00

+Returns are for the period indicated and have not been annualized.

(1) This class of shares has been offered since January 21, 1995 (the Fund
itself having commenced operations on March 1, 1990). All ratios for the
period have been annualized.

(2) This class of shares has been offered since January 23, 1995 (the Fund
itself having commenced operations on March 1, 1990). All ratios for the
period have been annualized.

(3) The financial highlights for Tax Free Obligations Fund as set forth herein
include the historical financial highlights of the Qualivest Tax-Free Money
Market Fund (Class A shares). The assets of the Qualivest Tax-Free Money
Market Fund were acquired by Tax Free Obligations Fund on November 25,
1997. In connection with such acquisition, Class A shares of the Qualivest
Tax-Free Money Market Fund were exchanged for Class A Shares of Tax Free
Obligations Fund.

(4) For the period commencing on August 1, 1997 and ending on November 30,
1997. All ratios for the period have been annualized.

(5) The Board of Directors of FAF approved a change in the Fund's fiscal year
end from July 31 to November 30, effective November 30, 1997.

(6) Commenced operations on January 9, 1995. All ratios for the period have
been annualized.

(7) For the period ended July 31.

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RATIO OF
RATIO EXPENSES
RATIO OF OF NET TO AVERAGE
NET ASSETS EXPENSES INCOME TO NET ASSETS
TOTAL END OF TO AVERAGE AVERAGE (EXCLUDING
RETURN PERIOD (000) NET ASSETS NET ASSETS WAIVERS)

5.06% $218,261 0.70% 4.95% 0.77%
5.08 135,146 0.70 4.94 0.79
3.84+ 96,083 0.70 5.43 0.82
4.27% $ 2,018 1.45% 4.17% 1.52%
4.29 1,763 1.45 4.15 1.54
3.28+ 14 1.45 4.70 1.57
0.96%+ $ 28,662 0.89% 2.83% 1.23%
2.76 31,668 0.88 2.73 1.23
2.81 30,143 0.89 2.78 1.25
1.66+ 33,569 1.00 2.98 1.36

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THE FUNDS

First American Funds, Inc. 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 each FAF Fund 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 each FAF
Fund represents an undivided proportionate interest in that 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 Treasury Obligations Fund,
Prime Obligations Fund and Tax Free Obligations Fund, and the Class B Shares of
Prime Obligations Fund. Information regarding the Class C and Class D Shares of
the Funds is contained in separate prospectuses that may be obtained from FAF's
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

This section describes the investment objectives and policies of the Funds.
There is no assurance that any of these objectives will be achieved. A Fund's
investment objective may not be changed without an affirmative vote of the
holders of a majority (as defined in the 1940 Act) of the outstanding shares of
the Fund.

TREASURY OBLIGATIONS FUND

As a fundamental investment objective, Treasury Obligations Fund seeks to
achieve maximum current income consistent with the 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 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.

PRIME OBLIGATIONS FUND

As a fundamental investment objective, Prime Obligations Fund seeks to achieve
maximum current income to the extent consistent with the preservation of capital
and maintenance of liquidity. In seeking to achieve its objective, the Fund
invests in money market instruments, including marketable securities issued or
guaranteed by the United States Government or its agencies or instrumentalities;
United States dollar-denominated obligations (including bankers' acceptances,
time deposits, and certificates of deposit, including variable rate certificates
of deposit) of banks (including commercial banks, savings banks, and savings and
loan associations) organized under the laws of the United States or any state,
foreign banks, United States branches of foreign banks, and foreign branches of
United States banks, if such banks have total assets of not less than $500
million; and certain corporate and other obligations, including high grade
commercial paper, non-convertible corporate debt securities, and loan
participation interests with no more than 397 days remaining to maturity as
determined pursuant to Rule 2a-7 under the 1940 Act. For more information on
these types of securities, see "Investment Restrictions and Techniques" below.

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portfolio or (iv) purchase the securities described above on a when-issued or
delayed delivery basis. See "Investment Restrictions and Techniques" below.

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

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
the 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 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, 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.

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 overall
direction and supervision of the Board of Directors, the Adviser acts as
investment adviser for and manages the investment portfolios of FAF.

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INVESTMENT ADVISER

U.S. Bank National Association, 601 Second Avenue South, Minneapolis, Minnesota
55402, acts as the Funds' investment adviser through its First American Asset
Management group. The Adviser has acted as an investment adviser to FAF since
its inception in 1982 and has acted as an investment adviser to First American
Investment Funds, Inc. since 1987 and to First American Strategy Funds, Inc.
since 1996. As of September 30, 1997, the Adviser was managing accounts with an
aggregate value of approximately $55 billion, including mutual fund assets of
approximately $20 billion. U.S. Bancorp, 601 Second Avenue South, Minneapolis,
Minnesota 55480, is the holding company for the Adviser.

Each of the Funds 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 Fund
from time to time. Any such waiver or reimbursement is voluntary and may be
discontinued at any time except each of the Funds have agreed to maintain
current waivers in effect through September 30, 1998. The Adviser also may
absorb or reimburse expenses of the Funds from time to time, in its discretion,
while retaining the ability to be reimbursed by the Funds for such amounts prior
to the end of the fiscal year. This practice would have the effect of lowering a
Fund's overall expense ratio and of increasing yield to investors, or the
converse, at the time such amounts are absorbed or reimbursed, as the case may
be.

The Glass-Steagall Act generally prohibits banks from engaging in the business
of underwriting, selling, or distributing securities and from being affiliated
with companies principally engaged in those activities. In addition,
administrative and judicial interpretations of the Glass-Steagall Act prohibit
bank holding companies and their bank and nonbank subsidiaries from organizing,
sponsoring, or controlling registered open-end investment companies that are
continuously engaged in distributing their shares. Bank holding companies and
their bank and nonbank subsidiaries may serve, however, as investment 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 certain broker-dealers affiliated with the Adviser,
are 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 and certain affiliated broker-dealers might be
prohibited from continuing these arrangements. In that event, it is expected
that the Board of Directors would make other arrangements and shareholders would
not suffer adverse financial consequences.

PORTFOLIO MANAGERS

JOSEPH M. ULREY III is portfolio co-manager for each of the Funds. He is a
member of the Adviser's asset allocation committee. He joined the Adviser in
1991 and has 16 years of investment industry experience. Prior to joining the
Adviser, Mr. Ulrey spent 10 years overseeing various functions in the
Treasury and Finance Divisions of U.S. Bancorp. Mr. Ulrey received his
bachelor's degree in mathematics/economics from Macalester College and his
master's degree in business administration from the University of Chicago.

JAMES D. PALMER is portfolio co-manager for each of the Funds. He joined the
Adviser in 1992 and has over seven years of investment industry experience.
Prior to joining the Adviser, Mr. Palmer was a securities lending trader and
senior master trust accountant with First Trust National Association. Mr. Palmer
received his bachelor's degree from the University of Wisconsin --

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LaCrosse and his master's degree in business administration 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 U.S. Bancorp. 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 for its out-of-pocket
expenses incurred in providing services to the Funds.

ADMINISTRATOR

The administrator for the Funds is SEI Investments Management Corporation, Oaks
Pennsylvania 19456. The Administrator, a wholly-owned subsidiary of SEI
Investments Company, provides the Funds with certain administrative 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, 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%. U.S. Bank assists the
Administrator and provides sub-administration services for the Funds. For these
services, the Administrator compensates the sub-administrator at an annual rate
of up to 0.05% of each Fund's average daily 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. is the principal distributor for shares of the
Funds. The Distributor, which is not affiliated with the Adviser, 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 Investments Company and is located at Oaks,
Pennsylvania 19456.

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 the Funds. In consideration of the services and facilities to be provided by
the Distributor or any service provider, 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 asset value, which fee is computed and paid monthly.
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.

FAF has also adopted a Plan of Distribution with respect to the Class B Shares
of Prime Obligations Fund (the "Class B Distribution Plan"), pursuant to Rule
12b-1 under the 1940 Act. With respect to the Class B Shares, FAF has also
entered into a Distribution and Service Agreement with the Distributor on behalf
of Prime Obligations Fund (the "Class B Distribution Agreement"). Under the
Class B Distribution Plan and the Class B Distribution Agreement, the
Distributor is authorized to retain the contingent deferred sales charge that
may be paid upon redemption of this Fund's Class B Shares, and the

<PAGE>

Fund pays the Distributor a distribution fee at an annual rate of 0.75% of the
Fund's Class B Shares average daily net asset value, which fee is computed and
paid monthly. The distribution fee may be used by the Distributor to provide
compensation for sales support and distribution activities with respect to Class
B Shares of this Fund. In addition to the distribution fee, the Distributor is
paid a shareholder servicing fee of 0.25% of the average daily net assets of the
Class B Shares pursuant to the Class B Distribution Plan and a shareholder
service plan (the "Class B Service Plan"), which fee may be used by the
Distributor to provide compensation for ongoing servicing and maintenance of
shareholder accounts with respect to the Class B Shares of this Fund. The
distribution fee paid to the Distributor under the Class B Distribution Plan is
used by the Distributor to compensate broker-dealers, including the Distributor
and the Distributor's registered representatives, for their sale of Fund shares,
and may also be used to pay other advertising and promotional expenses in
connection with the distribution of Fund shares.

The foregoing plans recognize 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 Fund. U.S. Bancorp Investments, Inc., a broker-dealer affiliated with
the Adviser ("USBI"), is a Participating Institution.

The investment company shares and other securities distributed by the
Distributor are not deposits or obligations of, or endorsed or guaranteed by,
U.S. Bank 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.

A greater spread may be paid to those firms that provide research services. The
Adviser may use this research information in managing the Funds' assets. The
Adviser uses its best efforts to obtain execution of the Funds' portfolio
transactions at spreads which are reasonable in relation to the benefits
received.

INVESTING IN THE FUNDS

SHARE PURCHASES

Shares are sold at their net asset value on days on which both the New York
Stock Exchange and federally-chartered banks are open for business. Shares of
the Funds may be purchased as described below. Class B Shares of Prime
Obligations Fund 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. The Funds reserve the right to reject any purchase request.

THROUGH A FINANCIAL INSTITUTION. Shares may be purchased through a financial
institution which

<PAGE>

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. Purchase orders for Treasury Obligations Fund and Prime
Obligations Fund must be transmitted to and received by the Funds by 2:00 p.m.
Central time and purchase orders for Tax Free Obligations Fund must be
transmitted to and received by the Fund by 11:30 a.m. Central time, in order for
shares to be purchased at that day's price. It is the financial institution's
responsibility to transmit orders promptly.

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

BY MAIL. An investor may place an order to purchase shares of the Funds directly
through the Transfer Agent. Orders by mail will be executed upon receipt of
payment by the Transfer Agent. If an investor's check does not clear, the
purchase will be cancelled and the investor could be liable for any losses or
fees incurred. Third-party checks, credit cards, credit card checks and cash
will not be accepted. When purchases are made by check, the proceeds of
redemptions of the shares 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 Treasury Obligations Fund and Prime
Obligations Fund by wire, call (800) 637-2548 before 2:00 p.m. Central time to
place an order. To purchase shares of Tax Free Obligations Fund by
wire, call (800) 637-2548 before 11:30 a.m. 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 the applicable deadline, the order will
be executed the next business day. Federal funds should be wired as follows:
U.S. Bank National Association, Minneapolis, Minnesota; ABA Number 091000022;
For Credit to: DST Systems, Inc.: Account Number 160234580266; For Further
Credit To: (Investor Name and Fund Name). Shares cannot be purchased by Federal
Reserve wire on days on which the New York Stock Exchange is closed or
federally-chartered banks are closed.

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 the Adviser and
its affiliates.

ALTERNATIVE PURCHASE OPTIONS

Class A Shares and Class B Shares represent interests in a Fund's portfolio of
investments. The classes have the same rights and are identical in all respects
except that (i) Class B Shares bear the expenses of the contingent deferred
sales charge arrangement; (ii) Class A Shares and Class B Shares bear different
expenses in connection with their respective shareholder servicing plans and
distribution plans; (iii) each class has exclusive voting rights with respect to
approvals of any Rule 12b-1 distribution plan or service plan related to that
specific class; and (iv) each class has different exchange features. Sales
personnel of broker-dealers distributing the Funds' shares, and other persons
entitled to receive compensation for

<PAGE>

selling shares, may receive differing compensation for selling Class A and Class
B Shares.

CLASS A SHARES. Each Fund's Class A Shares are offered on a continuous basis at
their next determined offering price, which is net asset value. There is no
initial or contingent deferred sales charge on purchases of Class A Shares.
Class A Shares are subject to a shareholder servicing fee paid to the
Distributor monthly at an annual rate of 0.25% of the Class A Shares' average
daily net assets. See "Distributor" above.

CLASS B SHARES. Class B Shares are only available with respect to Prime
Obligations Fund. Class B Shares are sold at net asset value without any initial
sales charge. Class B Shares are available for purchase only in exchange for
shares of a mutual fund in the First American family of funds that assess a
contingent deferred sales charge (the "Exchange Class Shares") or through a
systematic exchange program as described below. Currently, only the Class B
Shares of the funds in the First American family of funds assess a contingent
deferred sales charge. If an investor redeems Class B Shares of Prime
Obligations Fund within eight years of purchase of the Exchange Class Shares, he
or she will pay a contingent deferred sales charge in an amount equal to the
contingent deferred sales charge he or she would have paid on the Exchange Class
Shares, assuming no exchange had occurred. Consequently, if a shareholder
exchanges Exchange Class Shares for Class B Shares of Prime Obligations Fund,
the transaction will not be subject to a contingent deferred sales charge;
however, when Class B Shares acquired through the exchange are redeemed, the
shareholder will be treated as if no exchange took place for the purpose of
determining the contingent deferred sales charge and will be charged a
contingent deferred sales charge at the rates set forth below. This charge is
assessed on an amount equal to the lesser of the then-current market value or
the cost of the shares being redeemed. Accordingly, no sales charge is imposed
on increases in net asset value, if any, above the initial purchase price or on
shares derived from reinvestment of dividends or capital gains distributions.

CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE

First 5.00%

Second 5.00%

Third 4.00%

Fourth 3.00%

Fifth 2.00%

Sixth 1.00%

Seventh None

Eighth None

In determining whether a particular redemption is subject to a contingent
deferred sales charge, it is assumed that the redemption is first, of any Class
A Shares in the shareholder's Fund account; second, of any Class B Shares held
for more than eight years and Class B Shares acquired pursuant to reinvestment
of dividends or other distributions; and third, of Class B Shares held longest
during the eight year period. This method should result in the lowest possible
sales charge.

At the end of the period ending eight years after the beginning of the month in
which the Exchange Class Shares were issued, Class B Shares will automatically
convert to Class A Shares and will no longer be subject to the Class B
distribution and service fees. This conversion will be on the basis of the
relative net asset values of the two classes.

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 Fund 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. ("FAIF") or First American Strategy Funds, Inc. ("FASF").
Under a systematic exchange program, an investor initially purchases Class A or
Class B Shares of Prime Obligations Fund in an amount equal to the total amount
of the investment the investor desires to make in the same class of shares of
FAIF or FASF. On a monthly basis a specified dollar amount of Prime Obligations
Fund shares is exchanged for shares of the same class of a specified portfolio
of FAIF or FASF. Exchanges of Class A Shares will be subject to the applicable
sales charge imposed by the FAIF 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. Exchanges of Class B Shares are not
subject to a contingent deferred sales charge, but if shares are redeemed rather
than exchanged, the shares are subject to such a charge. Shares of FASF are not
subject to a sales charge. The systematic exchange program of investing a fixed
dollar amount at regular intervals over time in a FAIF or FASF 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 FAIF or FASF 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. Confirmations of each purchase and
redemption are sent to each shareholder. In addition, monthly confirmations are
sent to report all transactions and dividends paid during that month.

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 Funds before 2:00 p.m. Central time (for Treasury
Obligations Fund and Prime Obligations Fund) and before 11:30 a.m. Central time
(for Tax Free Obligations Fund) earn dividends that day. Dividends payable on
Class B Shares will generally be less than the dividends payable on Class A
Shares because of the greater distribution and shareholder service expenses
charged to Class B Shares.

EXCHANGE PRIVILEGE

Shareholders may exchange Class A Shares of each Fund or Class B Shares of Prime
Obligations Fund for currently available Class A or Class B Shares,
respectively, of the other funds in the First American family of funds.
Exchanges of Class A Shares of a Fund 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.

<PAGE>

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 2:00 p.m. Central time (for Treasury Obligations Fund and Prime
Obligations Fund) and before 11:30 a.m. Central time (for Tax Free Obligations
Fund), or by a shareholder's shareholder servicing agent or financial
institution by the time specified by it, in order for shares to be exchanged the
same day. Neither the Transfer Agent nor the Funds will be responsible for the
authenticity of exchange instructions received by telephone if it reasonably
believes those instructions to be genuine. The Funds and the Transfer Agent will
each employ reasonable procedures to confirm that telephone instructions are
genuine, and they may be liable for losses resulting from unauthorized or
fraudulent telephone instructions if they do not employ these procedures.

Shareholders of a Fund may have difficulty in making exchanges by telephone
through brokers and other financial institutions during times of drastic
economic or market changes. If a shareholder cannot contact his or her broker or
financial institution by telephone, it is recommended that an exchange request
be made in writing and sent by overnight mail to DST Systems, Inc., 1004
Baltimore, Kansas City, Missouri 64105.

The terms of any exchange privilege 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 the Funds reserve 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, reduced by any applicable
contingent deferred sales charge on Class B Shares. 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 a Fund, if he or she elects the privilege on
the initial shareholder application, by calling his or her financial institution
to request the redemption. Shares will be redeemed at the net asset value next
determined after the Fund receives the redemption request from the financial
institution (less the amount of any applicable contingent deferred sales
charge). 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 the Funds by 2:00
p.m. Central time (for Treasury Obligations Fund and Prime Obligations Fund) and
by 11:30 a.m. Central time (for Tax Free Obligations Fund), 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

<PAGE>

processed by 2:00 p.m. Central time (for Treasury Obligations Fund and Prime
Obligations Fund) and by 11:30 a.m. Central time (for Tax Free Obligations Fund)
will not receive that day's dividend. Redemption requests placed after that
respective time will earn that day's dividend, but will not receive proceeds
until the following day.

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

In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption should be considered. Neither the Transfer Agent nor any
Fund will be responsible for any loss, liability, cost or expense for acting
upon wire instructions or upon telephone instructions that it reasonably
believes to be genuine. The Transfer Agent and the Funds will each employ
reasonable procedures to confirm that instructions communicated are 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 Funds, 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 the Funds, or a
redemption payable other than to the shareholder of record, must have signatures
on written redemption requests guaranteed by:

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

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

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

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

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

The Funds and the Transfer Agent have adopted standards for accepting signature
guarantees from the above institutions. The Funds may elect in the future to
limit eligible signature guarantees to institutions that are members of a
signature

<PAGE>

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. Because automatic withdrawals of Class B
Shares are subject to the contingent deferred sales charge, it may not be in the
best interest of a Class B shareholder to participate in the Systematic
Withdrawal Program.

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 a Fund's net asset value. Before shares are redeemed to
close an account, the shareholder will be notified in writing and allowed 60
days to purchase additional shares to meet the minimum account requirement.

DETERMINING THE PRICE OF SHARES

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 and federally-chartered banks are 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 for that Fund's shares is received and on
days on which changes in the value of portfolio securities will not materially
affect the current net asset value of the Fund's shares. The price per share for
purchases or redemptions is such value next computed after the Transfer Agent
receives the purchase order or redemption request. It is the responsibility of
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.

<PAGE>

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' portfolios 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 its net income to shareholders. Dividends paid
by Treasury Obligations Fund and Prime 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 (the "Code"), 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.

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.
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. Also, a portion of all other tax-exempt interest received by a
corporation, including exempt-interest dividends, will be included in adjusted
current earnings and earnings and profits for purposes of determining the
federal corporate alternative minimum tax and the branch profits tax imposed on
foreign corporations under Section 884 of the Code. 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 Fund, 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.

<PAGE>

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" and "effective yield" and,
in the case of Tax Free Obligations Fund, "tax-equivalent yield" in
advertisements or in reports or other communications with shareholders. Both
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 federal or combined
federal/state income tax bracket (normally assumed to be the maximum tax rate or
combined rate). Tax equivalent yield is computed by dividing that portion of the
yield which is tax-exempt by one minus the stated 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 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 a Fund's performance, they are not the
same as actual year-by-year results.

Performance quotations are computed separately for Class A, Class B, Class C and
Class D Shares of the Funds. 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 RESTRICTIONS

The Funds are subject to the investment restrictions of Rule 2a-7 under the 1940
Act in addition to other policies and restrictions discussed herein. Pursuant to
Rule 2a-7, each Fund is required to invest exclusively in securities that mature
within 397 days from the date of purchase and to maintain an average weighted
maturity of not more than 90 days. Under Rule 2a-7, securities which are subject
to specified types of demand or put features may be deemed to mature at the next
demand or put date although they have a longer stated maturity. Rule 2a-7 also
requires that all investments by each Fund be limited to United States
dollar-denominated investments that (a) present "minimal credit risk" and (b)
are at the time of acquisition "Eligible Securities." Eligible Securities
include, among others, securities that are rated by two Nationally Recognized
Statistical Rating Organizations ("NRSROs") in one of the two highest categories
for short-term debt obligations, such as A-1 or A-2 by Standard & Poor's Rating
Services, a division of The McGraw-Hill Companies, Inc. ("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

<PAGE>

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 each 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 issued by the issuer of the security;
provided that the applicable 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 each
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, the Funds have 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 each 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 fundamental policy of Prime Obligations Fund and a non-fundamental policy
of Treasury Obligations Fund and Tax Free Obligations Fund, each 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, each Fund will not purchase a
security if, as a result 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). The foregoing limitation does not apply to
obligations issued or guaranteed by the United States or its agencies or
instrumentalities.

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. These other securities
may have less stability of principal, be less liquid, and fluctuate more in
value than the securities in which the Funds invest. All securities

<PAGE>

in each Fund's 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
subdivision.

Two general classifications of municipal bonds are "general obligation" bonds
and "revenue" bonds. General obligation bonds are secured by the governmental
issuer's pledge of its faith, credit and taxing power for the payment of
principal and interest. They are usually paid from general revenues of the
issuing governmental entity. Revenue bonds, on the other hand, are usually
payable only out of a specific revenue source rather than from general revenues.
Revenue bonds ordinarily are not backed by the faith, credit or general taxing
power of the issuing governmental entity. The principal and interest on revenue
bonds for private facilities are typically paid out of rents or other specified
payments made to the issuing governmental entity by a private company which uses
or operates the facilities. Examples of these types of obligations are
industrial revenue bonds and pollution control revenue bonds. Industrial revenue
bonds are issued by governmental entities to provide financing aid to community
facilities such as hospitals, hotels, business or residential complexes,
convention halls and sport complexes. Pollution control revenue bonds are issued
to finance air, water and solids pollution control systems for privately
operated industrial or commercial facilities.

Revenue bonds for private facilities usually do not represent a pledge of the
credit, general revenues or taxing powers of the issuing governmental entity.
Instead, the private company operating the facility is the sole source of
payment of the obligation. Sometimes, the funds for payment of revenue bonds
come solely from revenue generated by operation of the facility. Revenue bonds
which are not backed by the credit of the issuing governmental entity frequently
provide a higher rate of return than other municipal obligations, but they
entail greater risk than obligations which are guaranteed by a governmental unit
with taxing power. Federal income tax laws place substantial limitations on
industrial revenue bonds, and particularly certain specified private activity
bonds issued after August 7, 1986. In the future, legislation could be
introduced in Congress which could further restrict or eliminate the income tax
exemption for interest on debt obligations in which the Fund may invest.

Tax Free Obligations 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

Prime Obligations Fund and Tax Free Obligations Fund may invest in loan
participation interests. A

<PAGE>

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 (for
example, a Fund) 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 Prime Obligations Fund (as a fundamental policy)
and Tax Free Obligations Fund (as a non-fundamental policy) will be limited,
together with other illiquid investments, to not more than 10% of the applicable
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, Prime Obligations Fund and Tax Free Obligations Fund do
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 a 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 portfolios of Prime Obligations Fund's and Tax Free Obligations
Fund's investments in taxable money market securities may contain securities of
foreign branches of domestic banks, foreign banks, and United States branches of
foreign banks, such 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 such 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 Funds have 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

Each Fund may invest in securities issued or guaranteed as to principal or
interest by the United States Government, or agencies or instrumentalities of
the United States Government. These investments include direct obligations of
the United States Treasury such as United States Treasury bonds, notes, and
bills. The Treasury securities are essentially the same except for differences
in interest rates, maturities, and dates of issuance. In addition to Treasury
securities, Prime Obligations Fund and Tax Free Obligations 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

<PAGE>

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. A Fund's
investments in STRIPS will be limited to components with maturities of less than
397 days and the Funds 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. Each 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, a 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

Prime Obligations Fund and 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 such Funds' investment securities. Although each
investment security, at the time it is purchased, must meet such Funds'
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 such Funds'
securities is advisable. As a non-fundamental policy, Prime Obligations Fund and
Tax Free Obligations Fund will limit the value of all investment securities
issued or guaranteed by each Guarantor to not more than 10% of the value of such
Fund's total assets.

PUT OPTIONS

Tax Free Obligations Fund may purchase tax-exempt securities which provide for
the right to resell them to the issuer, a bank or a broker-dealer at a specified
price within a specified period of time prior to the maturity date of such
obligations. Such a right to resell, which is commonly known as a "put," may be
sold, transferred or assigned only with the underlying security or securities.
The Fund may pay a higher price for a tax-exempt security with a put than would
be paid for the same security without a put. The primary purpose of purchasing
such securities with puts is to permit the Fund to be as fully invested as
practicable in tax-exempt securities while at the same time providing the Fund
with appropriate liquidity.

<PAGE>

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

In order to generate additional income, each of the Funds may lend portfolio
securities representing up to one-third of the value of its total assets to
broker-dealers, banks or other institutional borrowers of securities. If the
Funds engage in securities lending, distributions paid to shareholders from the
resulting income will not be excludable from a shareholder's gross income for
income tax purposes. As with other extensions of credit, there may be risks of
delay in recovery of the securities or even loss of rights in the collateral
should the borrower of the securities fail financially. However, the Funds will
only enter into loan arrangements with broker-dealers, banks, or other
institutions which the Adviser has determined are creditworthy under guidelines
established by the Board of Directors. In these loan arrangements, the Funds
will receive collateral in the form of cash, United States Government securities
or other high-grade debt obligations equal to at least 100% of the value of the
securities loaned. Collateral is marked to market daily. The Funds will pay a
portion of the income earned on the lending transaction to the placing broker
and may pay administrative and custodial fees in connection with these loans
which, in the case of First Trust National Association, are 40% of the Funds'
income from such securities lending transactions.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES

Each Fund may purchase securities 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 a Fund commits to
purchase securities on a when-issued or delayed delivery basis, they 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. Each Fund will also establish
a segregated account with its Custodian in which they will maintain cash or cash
equivalents or other portfolio securities equal in value to commitments for such
when-issued or delayed delivery securities. A 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.

<PAGE>

MONEY MARKET FUNDS

Each of the Funds may invest, to the extent permitted by the 1940 Act, in
securities issued by other money market funds, provided that the permitted
investments of such other money market funds constitute permitted investments of
the investing Fund. The money market funds in which the Funds 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 U.S. BANK NATIONAL ASSOCIATION,
FIRST TRUST NATIONAL ASSOCIATION AND OTHER AFFILIATES

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

Investment advisory services -- see "Management of the Funds-Investment Adviser"

Custodian services -- see "Management of the Funds-Custodian"

Sub-administration -- see "Management of the Funds-Administrator"

Shareholder servicing -- see "Distributor"

Securities lending -- see "Investment Restrictions and Techniques-Lending of
Portfolio Securities"

<PAGE>

FIRST AMERICAN FUNDS, INC.
Oaks, Pennsylvania 19456

Investment Adviser
U.S. 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 (1/98) R

<PAGE>

JANUARY 31, 1998

MONEY MARKET FUNDS

CLASS C SHARES

Treasury Obligations Fund

Government Obligations Fund

Prime Obligations Fund

Tax Free Obligations Fund

FIRST AMERICAN FUNDS, INC.

PROSPECTUS

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

<PAGE>

TABLE OF CONTENTS

Summary 2

Fees and Expenses 3

Financial Highlights 5

The Funds 8

Investment Objectives and Policies 8

Management of the Funds 10

Distributor 11

Portfolio Transactions 12

Purchases and Redemptions of Shares 12

Taxes 14

Fund Shares 15

Calculation of Performance Data 15

Investment Restrictions and Techniques 16

Information Concerning Compensation 21
Paid to U.S. Bank National Association,
First Trust National Association and
Other Affiliates

<PAGE>

FIRST AMERICAN FUNDS, INC.

CLASS C SHARES PROSPECTUS

* TREASURY OBLIGATIONS FUND

* GOVERNMENT OBLIGATIONS FUND

* PRIME OBLIGATIONS FUND

* TAX FREE OBLIGATIONS FUND

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.

The date of this Prospectus is January 31, 1998.

<PAGE>

SUMMARY

GOVERNMENT OBLIGATIONS FUND has an objective of seeking to achieve maximum
current income to the extent consistent with the preservation of capital and
maintenance of liquidity. In seeking to achieve its investment objective, the
Fund invests exclusively in United States Government securities maturing within
397 days as determined pursuant to Rule 2a-7 under the 1940 Act and
repurchase agreements relating to such securities.

ELIGIBLE INVESTORS; OFFERING PRICES. 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 fiduciary, agency or custodial capacity. Class C Shares
are sold at net asset value without any front-end or deferred sales charges. See
"Purchases and Redemptions of Shares."

EXCHANGES. Class C Shares of any Fund may be exchanged for Class C shares of
other funds in the First American family of funds at the shares' respective net
asset values with no additional charge. See "Purchases and Redemptions of Shares
- -- Exchange Privilege."

REDEMPTIONS. Shares of each Fund may be redeemed at any time at their net asset
value next determined after receipt of a redemption request by the Funds'
transfer agent, with no additional charge. See "Purchases and Redemptions of
Shares."

<PAGE>

FEES AND EXPENSES

CLASS C SHARE FEES AND EXPENSES

<TABLE>
<CAPTION>
TREASURY GOVERNMENT PRIME TAX FREE
OBLIGATIONS OBLIGATIONS OBLIGATIONS OBLIGATIONS
FUND FUND FUND FUND
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES

Maximum sales load imposed on purchases None None None None

Maximum sales load imposed on reinvested
dividends None None None None

Deferred sales load None None None None

Redemption fees None None None None

Exchange fees None None None None

ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)

Investment advisory fees (after voluntary fee
waivers)(1) 0.32% 0.33% 0.33% 0.11%+

Rule 12b-1 fees None None None None

Other expenses 0.13% 0.12% 0.12% 0.34%+

Total fund operating expenses
(after voluntary fee waivers)(1) 0.45% 0.45% 0.45% 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 $ 5 $ 5 $ 5

3 years $ 14 $ 14 $ 14 $ 14

5 years $ 25 $ 25 $ 25 $ 25

10 years $ 57 $ 57 $ 57 $ 57

</TABLE>

+ The advisory fees, other expenses, and total fund operating expenses set
forth above reflect estimates of current expenses.

(1) The Adviser intends to waive a portion of its fees on a voluntary basis,
and the amounts shown above reflect these waivers as of the date of this
Prospectus. The Adviser intends to maintain such waivers for the current
fiscal year but reserves the right to terminate its waiver at any time
thereafter in its sole discretion. Notwithstanding the foregoing, the
Adviser will maintain such waivers of Treasury Obligations Fund, Prime
Obligations Fund and Tax Free Obligations Fund in effect through September
30, 1998. Absent any fee waivers, investment advisory fees for each 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 0.53% for Treasury Obligations Fund, 0.52% for
Government Obligations Fund, 0.52% for Prime Obligations Fund, and 0.74%
for Tax Free Obligations Fund. "Other expenses" includes an annual
administration fee and, for Tax Free Obligations Fund, is based on
estimated amounts for the current fiscal year.

(2) Absent the fee waivers referred to in (1) above, the dollar amounts for the
1, 3, 5, and 10 year periods in the example above would be as follows:
Treasury Obligations Fund, $5, $17, $30 and $66; Government Obligations
Fund, $5, $17, $29 and $65; Prime Obligations Fund, $5, $17, $29 and $65;
and Tax Free Obligations Fund, $8, $24, $41 and $92.

<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 a 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.

<PAGE>

FINANCIAL HIGHLIGHTS

Further information about the Funds' performance is contained in such FAF annual
reports which may be obtained without charge by calling (800) 637-2548 or by
writing SEI Investments Distribution Co., Oaks, Pennsylvania 19456.

<PAGE>

FINANCIAL HIGHLIGHTS (continued)

For the periods ended September 30,
For a share outstanding throughout the period

NET ASSET DIVIDENDS
VALUE NET FROM NET
BEGINNING INVESTMENT INVESTMENT
OF PERIOD INCOME INCOME

TREASURY OBLIGATIONS FUND Class C

1997 $1.00 $0.050 $(0.050)
1996 1.00 0.050 (0.050)
1995(2) 1.00 0.038 (0.038)

GOVERNMENT OBLIGATIONS FUND Class C

1997 $1.00 $0.051 $(0.051)
1996 1.00 0.051 (0.051)
1995 1.00 0.054 (0.054)
1994 1.00 0.034 (0.034)
1993 1.00 0.028 (0.028)
1992 1.00 0.038 (0.038)
1991 1.00 0.060 (0.060)
1990(1) 1.00 0.045 (0.045)

PRIME OBLIGATIONS FUND Class C

1997 $1.00 $0.052 $(0.052)
1996 1.00 0.052 (0.052)
1995 1.00 0.055 (0.055)
1994 1.00 0.035 (0.035)
1993 1.00 0.030 (0.030)
1992 1.00 0.039 (0.039)
1991 1.00 0.064 (0.064)
1990(1) 1.00 0.046 (0.046)

TAX FREE OBLIGATIONS FUND(3) Class C

1997(4)(5) $1.00 $0.011 $(0.011)
1997(7) 1.00 0.031 (0.031)
1996(7) 1.00 0.032 (0.032)
1995(6)(7) 1.00 0.019 (0.019)

+ Returns are for the period indicated and have not been annualized

(1) Commenced operations on March 1, 1990. All ratios for the period have been
annualized.

(2) This class of shares has been offered since January 24, 1995 (the Fund
itself having commenced operations on March 1, 1990). All ratios for the
period have been annualized.

(3) The financial highlights for Tax Free Obligations Fund as set forth herein
include the historical financial highlights of the Qualivest Tax-Free Money
Market Fund (Class Y shares). The assets of the Qualivest Tax-Free Money
Market Fund were acquired by Tax Free Obligations Fund on November 25,
1997. In connection with such acquisition, the Class Q and Y shares of the
Qualivest Tax-Free Money Market Fund were exchanged for Class C Shares of
Tax Free Obligations Fund.

(4) For the period commencing on August 1, 1997 and ending on November 30,
1997. All ratios for the period have been annualized.

(5) The Board of Directors of FAF approved a change in the Fund's fiscal year
end from July 31 to November 30, effective November 30,1997.

(6) Commenced operations on January 9, 1995. All ratios for the period have
been annualized.

(7) For the period ended July 31.

<PAGE>

RATIO OF
RATIO OF NET EXPENSES TO
NET ASSET RATIO OF INVESTMENT AVERAGE
VALUE NET ASSETS EXPENSES TO INCOME TO NET ASSETS
END OF END OF AVERAGE AVERAGE (EXCLUDING
PERIOD TOTAL RETURN PERIOD (000) NET ASSETS NET ASSETS WAIVERS)

$1.00 5.14% $ 897,797 0.45% 5.03% 0.53%
1.00 5.15 317,392 0.45 5.00 0.55
1.00 3.83+ 117,171 0.45 5.50 0.55

$1.00 5.20% $ 946,196 0.45% 5.07% 0.52%
1.00 5.24 777,594 0.45 5.10 0.54
1.00 5.55 551,286 0.45 5.44 0.60
1.00 3.48 455,869 0.45 3.61 0.61
1.00 2.87 237,331 0.45 2.83 0.65
1.00 3.85 93,770 0.45 3.71 0.64
1.00 6.22 72,824 0.45 5.90 0.68
1.00 4.56+ 29,704 0.45 7.60 0.98

$1.00 5.32% $3,615,873 0.45% 5.19% 0.52%
1.00 5.34 3,166,213 0.45 5.20 0.54
1.00 5.64 2,911,055 0.45 5.53 0.60
1.00 3.56 1,307,347 0.45 3.58 0.60
1.00 3.02 682,988 0.45 2.97 0.62
1.00 4.02 203,765 0.45 3.90 0.59
1.00 6.60 193,650 0.45 6.43 0.57
1.00 4.73+ 239,231 0.45 7.90 0.55

$1.00 1.08%+ $ 10,703 0.64% 3.09% 0.97%
1.00 3.17 9,137 0.48 3.13 0.83
1.00 3.22 3,895 0.41 2.92 0.79
1.00 1.88+ 1,264 0.59 3.38 0.94

<PAGE>

THE FUNDS

First American Funds, Inc. 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 each FAF 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 each FAF
Fund represents an undivided proportionate interest in that 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 Funds named on the
cover hereof. Information regarding the Class D Shares of the Funds, the Class A
Shares of the Funds and the Class B Shares of Prime Obligations Fund is
contained in separate prospectuses that may be obtained from FAF's 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

TREASURY OBLIGATIONS FUND

GOVERNMENT OBLIGATIONS FUND

As a fundamental investment objective, Government Obligations Fund seeks to
achieve maximum current income to the extent consistent with the preservation of
capital and maintenance of liquidity. In seeking to achieve its investment
objective, Government Obligations Fund invests exclusively in United States
Government securities maturing within 397 days as determined pursuant to Rule
2a-7 under the 1940 Act, and in 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.

PRIME OBLIGATIONS FUND

<PAGE>

United States or any state, foreign banks, United States branches of foreign
banks, and foreign branches of United States banks, if such banks have total
assets of not less than $500 million; and certain corporate and other
obligations, including high grade commercial paper, non-convertible corporate
debt securities, and loan participation interests with no more than 397 days
remaining to maturity as determined pursuant to Rule 2a-7 under the 1940 Act.
For more information on these types of securities, see "Investment Restrictions
and Techniques" below.

Prime Obligations Fund may also (i) engage in repurchase agreements with respect
to any of its portfolio securities, (ii) purchase credit enhancement agreements
to enhance the creditworthiness of its portfolio securities, (iii) lend
securities from its portfolio or (iv) purchase the securities described above
on a when-issued or delayed delivery basis. For more information on these
techniques, see "Investment Restrictions and Techniques" below.

TAX FREE OBLIGATIONS FUND

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 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

<PAGE>

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 FUNDS

INVESTMENT ADVISER

U.S. Bank National Association, 601 Second Avenue South, Minneapolis, Minnesota
55402, acts as the Funds' investment adviser through its First American Asset
Management group. The Adviser provides the Funds with investment research and
portfolio management. The Adviser has acted as an investment adviser to FAF
since its inception in 1982 and has acted as an investment adviser to First
American Investment Funds, Inc. since 1987 and to First American Strategy Funds,
Inc. since 1996. As of September 30, 1997, the Adviser was managing accounts
with an aggregate value of approximately $55 billion, including mutual fund
assets of approximately $20 billion. U.S. Bancorp, 601 Second Avenue South,
Minneapolis, Minnesota 55480, is the holding company for the Adviser.

Each of the Funds 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 one or more
of the Funds from time to time. Any such waiver or reimbursement is voluntary
and may be discontinued at any time except, Treasury Obligations Fund, Prime
Obligations Fund and Tax Free Obligations Fund have agreed to maintain current
waivers in effect through September 30, 1998. The Adviser also may absorb or
reimburse expenses of the Funds from time to time, in its discretion, while
retaining the ability to be reimbursed by the Funds for such amounts prior to
the end of the fiscal year. This practice would have the effect of lowering each
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.

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 certain broker-dealers affiliated with the Adviser are
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 and certain affiliated broker-dealers might be prohibited from
continuing these arrangements. In that event, it is expected that the Board of
Directors would make other

<PAGE>

arrangements and shareholders would not suffer adverse financial consequences.

PORTFOLIO MANAGERS

JAMES D. PALMER is portfolio co-manager for each of the Funds. He joined the
Adviser in 1992, and has over seven years of investment industry experience.
Prior to joining the Adviser, Mr. Palmer was a securities lending trader and
senior master trust accountant with First Trust National Association. Mr. Palmer
received his bachelor's degree from the University of Wisconsin -- LaCrosse and
his master's degree in business administration from the University of Minnesota.

CUSTODIAN

ADMINISTRATOR

The administrator for the Funds is SEI Investments Management Corporation, Oaks,
Pennsylvania 19456. The Administrator, a wholly-owned subsidiary of SEI
Investments Company, provides the Funds with certain administrative 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, 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%. U.S. Bank assists the
Administrator and provides sub-administrative services for the Funds. For these
services, the Administrator compensates the sub-administrator at an annual rate
of up to 0.05% of each Fund's average daily net assets.

TRANSFER AGENT

DISTRIBUTOR

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
arrangement to pay such additional costs may be commenced or discontinued by any
of these persons at any time. The Distributor may engage securities dealers,
financial institutions (including,

<PAGE>

without limitation, banks), and other industry professionals (the "Participating
Institutions") to perform share distribution and shareholder support services
for the Funds. U.S. Bancorp Investments, Inc., a broker-dealer affiliated with
the Adviser ("USBI"), is a Participating Institution. The Adviser currently pays
USBI 0.25% of the portion of each Fund's average daily net assets attributable
to Class C Shares for which USBI is responsible in connection with USBI's
distribution of shares and/or provision of shareholder support services.

PORTFOLIO TRANSACTIONS

PURCHASES AND REDEMPTIONS OF SHARES

SHARE PURCHASES AND REDEMPTIONS

Shares are sold and redeemed on days on which both the New York Stock Exchange
and federally-chartered banks are open for business ("Business Days"). Payment
for Class C Shares may be made only by wire. All information needed will be
taken over the telephone and the order will be considered placed when the
Custodian receives payment by wire. Federal funds should be wired as follows:
U.S. Bank National Association, Minneapolis, Minnesota; ABA Number 091000022;
For Credit to: DST Systems, Inc.; Account Number 160234580266; For Further
Credit to: (Investor Name and Fund Name). Shares cannot be purchased by Federal
Reserve wire on days on which the New York Stock Exchange is closed or
federally-chartered banks are closed. Purchase orders must be received by the
financial institution by the time specified by the institution to be assured
same day processing. Purchase orders for Treasury Obligations Fund, Government
Obligations Fund and Prime Obligations Fund must be transmitted to and received
by such Funds by 2:00 p.m. Central time and purchase orders for Tax Free
Obligations Fund must be transmitted to and received by the Fund by 11:30 a.m.
Central time in order for shares to be purchased at that day's price. It is the
financial institution's responsibility to transmit orders promptly.

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 the earlier of the close of the
New York Stock Exchange or 3:00 p.m. Central time, each Business Day based on
the amortized

<PAGE>

cost method. The Funds reserve 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 Funds are required to redeem for cash all full and fractional shares of the
Funds. The redemption price is the net asset value per share of the Funds
(normally $1.00 per share) next determined after receipt by the Transfer Agent
of the redemption order.

Redemption requests for Treasury Obligations Fund, Government Obligations Fund
and Prime Obligations Fund may be made any time before 2:00 p.m. Central time
and redemption requests for Tax Free Obligations Fund may be made any time
before 11:30 a.m. Central time, if redeeming directly through the Funds, 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
requests received before such times, payment will be made the same day by
transfer of Federal funds. Otherwise, payment will be made on the next Business
Day. Redeemed shares are not entitled to dividends declared on the day the
redemption order is effective.

WHAT SHARES COST

Class C Shares of the Funds are sold and redeemed at their net asset value next
determined after an order is received and accepted by the applicable Fund. There
is no sales charge imposed on Class C Shares by the Funds. 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 a Fund's securities plus cash and other assets,
deducting liabilities, and then dividing the result by the number of shares
outstanding.

Securities in each 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 Funds'
other assets are valued by a method which the Board of Directors believes would
accurately reflect fair value.

DETERMINING NET ASSET VALUE

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

EXCHANGING SECURITIES FOR FUND SHARES

A Fund may accept securities in exchange for Fund shares. A Fund will allow such
exchanges only upon the prior approval of such Fund and a determination by that
Fund and the Adviser that the securities to be exchanged are acceptable.
Securities accepted by a Fund will be valued in the same manner that a 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 Funds maintains a share account for each shareholder
of record. Share certificates are not issued by the Funds. Confirmations of each
purchase and redemption are sent to each shareholder. In addition, monthly
confirmations are sent to report all transactions and dividends paid during that
month.

<PAGE>

DIVIDENDS

The amount of dividends payable on Class C Shares generally will be more than
the dividends payable on the Class A, Class B and Class D Shares because Class C
Shares are not charged a distribution or shareholder servicing fee.

CAPITAL GAINS

The Funds do not expect to incur any capital gains or losses. If, for some
extraordinary reason, the Funds realize net long-term capital gains, they will
distribute them at least once every 12 months.

EXCHANGE PRIVILEGE

Shareholders may exchange Class C Shares of a Fund at net asset value for
currently available Class C Shares of another fund or other funds in the First
American family of funds at net asset value. There is currently no fee for this
service and the Funds do not currently contemplate establishing such a charge,
although they reserve the right to do so.

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. 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 any Fund will be
responsible for the authenticity of exchange instructions received by telephone
if it reasonably believes those instructions to be genuine. The Funds and the
Transfer Agent will each employ reasonable procedures to confirm that telephone
instructions are genuine, and they may be liable for losses resulting from
unauthorized or fraudulent telephone instructions if they do not employ these
procedures. These procedures may include taping of telephone conversations.

TAXES

<PAGE>

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 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 a Fund may advertise its "yield" and "effective yield" and, in
the case of Tax Free Obligations Fund, "tax equivalent yield" in advertisements
or in reports or other communications with shareholders. Both 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 federal or combined
federal/state income tax bracket (normally assumed to be the maximum tax rate or
combined rate). "Tax equivalent yield" is computed by dividing that portion of
the yield which is tax-exempt by one minus the stated income tax rate, and
adding the resulting amount to that portion, if any, of the yield which is not
tax-exempt.

<PAGE>

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 a Fund's performance, they are
not the same as actual year-by-year results.

Performance quotations are computed separately for Class A, Class B, Class C and
Class D Shares of each 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 Funds are 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, 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 requires that all investments by each Fund be limited to United States
dollar-denominated investments that (a) present "minimal credit risk" and (b)
are at the time of acquisition "Eligible Securities." Eligible Securities
include, among others, securities that are rated by two Nationally Recognized
Statistical Rating Organizations ("NRSROs") in one of the two highest categories
for short-term debt obligations, such as A-1 or A-2 by Standard & Poor's Rating
Services, a division of The McGraw-Hill Companies, Inc. ("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 each 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 issued by the issuer of the security;
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 each 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.

<PAGE>

As a fundamental policy of Prime Obligations Fund and Government Obligations
Fund, and a non-fundamental policy of Treasury Obligations Fund and Tax Free
Obligations Fund, each 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 of Treasury Obligations Fund, Prime Obligations Fund and Tax Free
Obligations Fund, such funds will not purchase a security if, as a result 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).
The foregoing limitation does not apply to obligations issued or guaranteed by
the United States or its agencies or instrumentalities.

Unless otherwise stated, the policies described above in this section and under
"Investment Objectives and Policies" for each Fund 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.

MUNICIPAL OBLIGATIONS

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 Fund may invest.

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

Prime Obligations Fund and Tax Free Obligations Fund may invest in 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 (for example, a Fund) 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 Prime Obligations
Fund (as a fundamental policy) and Tax Free Obligations Fund (as a
non-fundamental policy) will be limited, together with other illiquid
investments, to not more than 10% of the applicable 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, Prime
Obligations Fund and Tax Free Obligations Fund do 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 a 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 portfolios of Prime Obligations Fund and Tax Free Obligations Fund
may contain securities of foreign branches of domestic banks, foreign banks, and
United States branches of

<PAGE>

foreign banks, such 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 such Funds. Additionally, there may be less
public information available about foreign banks and their branches. The Adviser
carefully considers these factors when making investments. The Funds have 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

Each 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, Government Obligations
Fund, Prime Obligations Fund and Tax Free Obligations 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.

REPURCHASE AGREEMENTS

<PAGE>

purchased may have decreased, the Fund could experience a loss.

CREDIT ENHANCEMENT AGREEMENTS

PUT OPTIONS

VARIABLE AND FLOATING RATE OBLIGATIONS

LENDING OF PORTFOLIO SECURITIES

<PAGE>

Funds will 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 which, in the case of First Trust National Association, are 40% of
the Funds' income from such securities lending transactions.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES

Each Fund may purchase securities 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 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. Each 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. A 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

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 money market funds in which a Fund may invest include
other money market funds advised by the Adviser. Investments by a Fund in such
other money market funds advised by the Adviser are subject to restrictions
contained in an exemptive order issued by the Securities and Exchange
Commission.

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

Investment advisory services -- see "Management of the Funds-Investment Adviser"

Custodian services -- see "Management of the Funds-Custodian"

Sub-administration -- see "Management of the Funds-Administrator"

Shareholder servicing -- see "Distributor"

Securities lending -- see "Investment Restrictions and Techniques-Lending of
Portfolio Securities"

<PAGE>

FIRST AMERICAN FUNDS, INC.
Oaks, Pennsylvania 19456

Investment Adviser
U.S. 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 (1/98) I

<PAGE>

JANUARY 31, 1998

MONEY MARKET FUNDS

CLASS D SHARES

Treasury Obligations Fund

Government Obligations Fund

Prime Obligations Fund

Tax Free Obligations Fund

FIRST AMERICAN FUNDS, INC.

PROSPECTUS

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

<PAGE>

TABLE OF CONTENTS

Summary 2

Fees and Expenses 3

Financial Highlights 6

The Funds 8

Investment Objectives and Policies 8

Management of the Funds 10

Distributor 11

Portfolio Transactions 12

Purchases and Redemptions of Shares 12

Taxes 14

Fund Shares 15

Calculation of Performance Data 15

Investment Restrictions and Techniques 16

Information Concerning Compensation 21
Paid to U.S. Bank National Association,
First Trust National Association and
Other Affiliates

<PAGE>

FIRST AMERICAN FUNDS, INC.

CLASS D SHARES PROSPECTUS

* TREASURY OBLIGATIONS FUND

* GOVERNMENT OBLIGATIONS FUND

* PRIME OBLIGATIONS FUND

* TAX FREE OBLIGATIONS FUND

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.

The date of this Prospectus is January 31, 1998.

<PAGE>

SUMMARY

GOVERNMENT OBLIGATIONS FUND has an objective of seeking to achieve maximum
current income to the extent consistent with the preservation of capital and
maintenance of liquidity. In seeking to achieve its investment objective, the
Fund invests exclusively in United States Government securities maturing within
397 days as determined pursuant to Rule 2a-7 under the 1940 Act and repurchase
agreements relating to such securities.

ELIGIBLE INVESTORS; OFFERING PRICES. Class D Shares are offered to corporations
and certain governmental entities. Class D Shares are sold at net asset value
without any front-end or deferred sales charges. Class D Shares of each Fund are
subject to a shareholder servicing fee computed at an annual rate of 0.15% of
the average daily net assets of that class. See "Purchases and Redemptions of
Shares."

<PAGE>

FEES AMD EXPENSES

CLASS D SHARE FEES AND EXPENSES

TREASURY GOVERNMENT PRIME TAX FREE
OBLIGATIONS OBLIGATIONS OBLIGATIONS OBLIGATIONS
FUND FUND FUND FUND
<S> <C> <C> <C> <C>

SHAREHOLDER TRANSACTION EXPENSES

Maximum sales load imposed on purchases None None None None

Maximum sales load imposed on reinvested
dividends None None None None

Deferred sales load None None None None

Redemption fees None None None None

Exchange fees None None None None

ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets)

Investment advisory fees (after voluntary fee
waivers)(1) 0.32% 0.33% 0.33% 0.11%+

Rule 12b-1 fees 0.15%(2) 0.15%(2) 0.15%(2) 0.15%(2)

Other expenses(1) 0.13% 0.12% 0.12% 0.34%+

Total fund operating expenses
(after voluntary fee waivers)(1) 0.60% 0.60% 0.60% 0.60%+

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 $ 6 $ 6 $ 6 $ 6

3 years $19 $19 $19 $19

5 years $33 $33 $33 $33

10 years $75 $75 $75 $75

</TABLE>

+ The advisory fees, other expenses, and total fund operating expenses set
forth above reflect estimates of current expenses.

(1) The Adviser intends to waive a portion of its fees on a voluntary basis,
and the amounts shown above reflect these waivers as of the date of this
Prospectus. The Adviser intends to maintain such waivers for the current
fiscal year but reserves the right to terminate its waiver at any time
thereafter in its sole discretion. Absent any fee waivers, investment
advisory fees for each Fund as an annualized percentage of average daily
net assets would be 0.40%; and total fund operating expenses with respect
to Class D Shares calculated on such basis would be 0.68% for Treasury
Obligations Fund, 0.67% for Government Obligations Fund, 0.67% for Prime
Obligations Fund and 0.89% for Tax Free Obligations Fund. "Other expenses"
includes an annual administration fee and, for Tax Free Obligations Fund,
is based on estimated amounts for the current fiscal year.

(2) Of this amount, 0.15% is designated as a shareholder servicing fee and none
as a distribution fee.

(3) Absent the voluntary reduction of fees the dollar amounts for the 1, 3, 5,
and 10 year periods in the example above would be as follows: Treasury
Obligations Fund, $7, $22, $38 and $85; Government Obligations Fund, $7,
$21, $37 and $83; Prime Obligations Fund, $7, $21, $37 and $83; and Tax
Free Obligations Fund, $9, $28, $49 and $110.

<PAGE>

INFORMATION CONCERNING FEES AND EXPENSES

<PAGE>

(This page has been left blank intentionally.)

<PAGE>

FINANCIAL HIGHLIGHTS

The following audited financial highlights for each of the Funds should be read
in conjunction with the Funds' financial statements, the related notes thereto
and the independent auditors' report of KPMG Peat Marwick LLP, independent
auditors, appearing in FAF's annual reports to shareholders dated September 30,
1997 and dated November 30, 1997. Further information about the Funds'
performance is contained in such FAF annual reports to shareholders which may be
obtained without charge by calling (800) 637-2548 or by writing SEI Investments
Distribution Co., Oaks, Pennsylvania 19456.

For the periods ended September 30,
For a share outstanding throughout the period

NET ASSET DIVIDENDS
VALUE NET FROM NET
BEGINNING INVESTMENT INVESTMENT
OF PERIOD INCOME INCOME

TREASURY OBLIGATIONS FUND Class D

1997 $1.00 $0.049 $(0.049)
1996 1.00 0.049 (0.049)
1995 1.00 0.051 (0.051)
1994(1) 1.00 0.031 (0.031)

GOVERNMENT OBLIGATIONS FUND Class D

1997 $1.00 $0.049 $(0.049)
1996 1.00 0.050 (0.050)
1995(2) 1.00 0.038 (0.038)

PRIME OBLIGATIONS FUND Class D

1997 $1.00 $0.050 $(0.050)
1996 1.00 0.051 (0.051)
1995(3) 1.00 0.038 (0.038)

TAX FREE OBLIGATIONS FUND Class D

1997(4) $1.00 $0.000 $ --

+Returns are for the period indicated and have not been annualized.

(1) Commenced operations on October 4, 1993. All ratios for the period have
been annualized.

(2) This class of shares has been offered since January 21, 1995 (the Fund
itself having commenced operations on March 1, 1990). All ratios for the
period have been annualized.

(3) This class of shares has been offered since January 24, 1995 (the Fund
itself having commenced operations on March 1, 1990). All ratios for the
period have been annualized.

(4) For the period commencing on November 26, 1997 and ending November 30,
1997. All ratios for the period have been annualized.

<PAGE>

$1.00 4.98% $2,847,215 0.60% 4.88% 0.68%
1.00 5.00 1,616,130 0.60 4.86 0.70
1.00 5.22 1,038,818 0.60 5.13 0.70
1.00 3.12+ 746,090 0.58 3.19 0.68

$1.00 5.04% $ 337,199 0.60% 4.92% 0.67%
1.00 5.08 269,382 0.60 4.96 0.69
1.00 3.85+ 198,859 0.60 5.45 0.70

$1.00 5.16% $ 113,064 0.60% 5.02% 0.67%
1.00 5.18 109,213 0.60 4.98 0.69
1.00 3.86+ 9,735 0.60 5.51 0.72

$1.00 0.04%+ $ 1 0.60% 3.20% 9.07%

<PAGE>

THE FUNDS

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 each FAF Fund through separate classes which provide for
variations in shareholder servicing fees, distribution costs, voting rights and
dividends. Except for these differences among classes, each share of each FAF
Fund represents an undivided proportionate interest in that 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 D Shares of the Funds named on the
cover hereof. Information regarding the Class C Shares of the Funds, the Class A
Shares of the Funds and the Class B Shares of the Prime Obligations Fund 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

TREASURY OBLIGATIONS FUND

GOVERNMENT OBLIGATIONS FUND

As a fundamental investment objective, Government Obligations Fund seeks to
achieve maximum current income to the extent consistent with the preservation of
capital and maintenance of liquidity. In seeking to achieve its investment
objective, Government Obligations Fund invests exclusively in United States
Government securities maturing within 397 days as determined pursuant to Rule
2a-7 under the 1940 Act and in 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.

PRIME OBLIGATIONS FUND

<PAGE>

loan associations) organized under the laws of the United States or any state,
foreign banks, United States branches of foreign banks, and foreign branches of
United States banks, if such banks have total assets of not less than $500
million; and certain corporate and other obligations, including high grade
commercial paper, non-convertible corporate debt securities, and loan
participation interests with no more than 397 days remaining to maturity as
determined pursuant to Rule 2a-7 under the 1940 Act. For more information on
these types of securities, see "Investment Restrictions and Techniques" below.

TAX FREE OBLIGATIONS FUND

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 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

<PAGE>

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 FUNDS

INVESTMENT ADVISER

U.S. Bank National Association, 601 Second Avenue South, Minneapolis, Minnesota
55402, acts as the Funds' investment adviser through its First American Asset
Management group. The Adviser has acted as an investment adviser to FAF since
its inception in 1982 and has acted as an investment adviser to First American
Investment Funds, Inc. since 1987 and to First American Strategy Funds, Inc.
since 1996. The Adviser provides the Funds with investment research and
portfolio management. As of September 30, 1997, the Adviser was managing
accounts with an aggregate value of approximately $55 billion, including mutual
fund assets of approximately $20 billion. U.S. Bancorp, 601 Second Avenue South,
Minneapolis, Minnesota 55480, is the holding company for the Adviser.

Each of the Funds 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 one or more
of the Funds from time to time. Any such waiver or reimbursement is voluntary
and may be discontinued at any time. The Adviser also may absorb or reimburse
expenses of the Funds from time to time, in its discretion, while retaining the
ability to be reimbursed by the Funds for such amounts prior to the end of the
fiscal year. This practice would have the effect of lowering a Fund's overall
expense ratio and of increasing yield to investors, or the converse, at the time
such amounts are absorbed or reimbursed, as the case may be.

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 certain broker-dealers affiliated with the Adviser are
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 and certain affiliated broker-dealers might be prohibited from
continuing these arrangements. In that event, it is expected that the Board of
Directors would make other arrangements and shareholders would not suffer
adverse financial consequences.

<PAGE>

PORTFOLIO MANAGERS

JOSEPH ULREY III is portfolio co-manager for each of the Funds. He is a member
of the Adviser's asset allocation committee. He joined the Adviser in 1991 and
has 16 years of investment industry experience. Prior to joining the Adviser,
Mr. Ulrey spent 10 years overseeing various functions in the Treasury and
Finance Divisions of U.S. Bancorp. Mr. Ulrey received his bachelor's degree in
mathematics/economics from Macalester College and his master's degree in
business administration from the University of Chicago.

CUSTODIAN

ADMINISTRATOR

The Administrator for the Funds is SEI Investments Management Corporation, Oaks,
Pennsylvania 19456. The Administrator, a wholly-owned subsidiary of SEI
Investments Company, provides the Funds with certain administrative 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, 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%. U.S. Bank assists the
Administrator and provides sub-administrative services for the Funds. For those
services, the Administrator compensates the sub-administrator at an annual rate
of up to 0.05% of each Fund's average daily net assets.

TRANSFER AGENT

DISTRIBUTOR

FAF has adopted a Rule 12b-1 plan and entered into a distribution and
shareholder servicing agreement with the Distributor with respect to shareholder
servicing for the Class D Shares of the Funds (the "Plan"), pursuant to Rule
12b-1 under the 1940 Act and has entered into a Distribution Agreement with the
Distributor on behalf of the Class D Shares of the Funds (the "Distribution
Agreement"). In consideration of the services and facilities to be provided by
the Distributor or any service provider, each Fund pays the Distributor a

<PAGE>

shareholder servicing fee monthly at an annual rate of 0.15% of the Fund's Class
D Shares' average daily net asset value, which fee is computed and paid monthly.
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. U.S. Bancorp Investments, Inc., a broker-dealer affiliated with
the Adviser ("USBI"), is a Participating Institution.

PORTFOLIO TRANSACTIONS

PURCHASES AND REDEMPTIONS OF SHARES

SHARE PURCHASES AND REDEMPTIONS

Shares are sold and redeemed on days on which both the New York Stock Exchange
and federally-chartered banks are open for business ("Business Days"). Payment
for Class D Shares may be made only by wire. All information needed will be
taken over the telephone and the order will be considered placed when the
Custodian receives payment by wire. Federal funds should be wired as follows:
U.S. Bank National Association, Minneapolis, Minnesota; ABA Number 091000022;
For Credit to: DST Systems, Inc., Account Number 160234580266; For Further
Credit to: (Investor Name and Fund Name). Shares cannot be purchased by Federal
Reserve wire on days on which the New York Stock Exchange is closed or
federally-chartered banks are closed. Purchase orders must be received by the
financial institution by the time specified by the institution to be assured
same day processing. Purchase orders for Treasury Obligations Fund, Government
Obligations Fund and Prime Obligations Fund must be transmitted to and received
by the Funds by 2:00 p.m. Central time and purchase orders for Tax Free
Obligations Fund

<PAGE>

must be transmitted to and received by the Fund by 11:30 a.m. Central time, in
order for shares to be purchased at that day's price. It is the financial
institution's responsibility to transmit orders promptly.

Redemption requests for Treasury Obligations Fund, Government Obligations Fund
and Prime Obligations Fund may be made any time before 2:00 p.m. Central time
and redemption requests for Tax Free Obligations Fund may be made any time
before 11:30 a.m. Central time, if redeeming directly through the Fund, or by
the time specified by the financial institution if redeeming through a financial
institution, in order to receive that day's redemption price. For redemption
orders received before such times, payment will be made the same day by transfer
of federal funds. Otherwise, payment will be made on the next Business Day.
Redeemed shares are not entitled to dividends declared on the day the redemption
order is effective.

WHAT SHARES COST

Class D Shares of the Funds are sold at their net asset value next determined
after an order is received and accepted by the applicable Fund. There is no
sales charge imposed on Class D Shares by the Funds. 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 a Fund's securities plus cash and other assets, deducting
liabilities, and then dividing the result by the number of shares outstanding.

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

EXCHANGING SECURITIES FOR FUND SHARES

<PAGE>

same manner that a 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 Funds maintains a share account for each shareholder
of record. Share certificates are not issued by the Funds. Confirmations of each
purchase and redemption are sent to each shareholder. Monthly confirmations are
sent to report all transactions and dividends paid during that month.

DIVIDENDS

Dividends are declared daily and paid monthly. Shares of Treasury Obligations
Fund, Government Obligations Fund and Prime Obligations Fund purchased through
the Funds by wire before 2:00 p.m. Central time and shares of Tax Free
Obligations Fund purchased through the Fund by wire before 11:30 a.m. Central
time begin earning dividends that day. Dividends are automatically reinvested in
additional shares of the Funds unless cash payments are requested by contacting
the Funds. 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 D Shares generally will be less than the dividends
payable on the Class C Shares and more than the dividends payable on Class A and
Class B Shares because Class C Shares are not charged a distribution or
shareholder servicing fee and Class A and Class B Shares are charged
distribution and/or shareholder servicing fees in excess of the shareholder
servicing fees charged to the Class D Shares.

CAPITAL GAINS

TAXES

The Funds will distribute all of their net income to shareholders. Dividends
paid by Treasury Obligations Fund, Government Obligations Fund and Prime
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 (the
"Code"), 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.

<PAGE>

the branch profits tax imposed on foreign corporations under Section 884 of the
Code. 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

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

"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 federal or combined
federal/state income tax bracket (normally assumed to be the maximum tax rate or
combined rate). "Tax equivalent yield" is computed by dividing that portion of
the yield which is tax-exempt by one minus the stated income tax rate, and
adding the resulting amount to that portion, if any, of the yield which is not
tax-exempt.

Performance quotations are computed separately for Class A, Class B, 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.

<PAGE>

INVESTMENT RESTRICTIONS AND TECHNIQUES

GENERAL RESTRICTIONS

Rule 2a-7 requires, among other things, that each 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 issued by the issuer of the security;
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 each 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, the Funds have 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 each Fund's portfolio 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 fundamental policy of Prime Obligations Fund and Government Obligations
Fund and a non-fundamental policy of Treasury Obligations Fund and Tax Free
Obligations Fund, each 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 of Treasury Obligations Fund, Prime Obligations Fund and Tax Free
Obligations Fund, such funds will not purchase a security if, as a result 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

<PAGE>

purpose, foreign branches of domestic commercial banks). The foregoing
limitation does not apply to obligations issued or guaranteed by the United
States or its agencies or instrumentalities.

MUNICIPAL OBLIGATIONS

<PAGE>

legislation could be introduced in Congress which could further restrict or
eliminate the income tax exemption for interest on debt obligations in which the
Fund may invest.

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

Prime Obligations Fund and Tax Free Obligations Fund may invest in 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 (for example, a Fund) 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 Prime Obligations
Fund (as a fundamental policy) and Tax Free Obligations Fund (as a
non-fundamental policy) will be limited, together with other illiquid
investments, to not more than 10% of the applicable 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 and are considered liquid. Consequently,
Prime Obligations Fund and Tax Free Obligations Fund do 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 a 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 portfolios of Prime Obligations Fund and Tax Free Obligations Fund
may contain securities of foreign branches of domestic banks, foreign banks, and
United States branches of foreign banks, such 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 such Funds. Additionally, there
may be less public information available about foreign banks and their branches.
The Adviser carefully considers these factors when making investments.

<PAGE>

The Funds have 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

REPURCHASE AGREEMENTS

CREDIT ENHANCEMENT AGREEMENTS

<PAGE>

thiness 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 such Funds'
securities is advisable. As a non-fundamental policy, Prime Obligations Fund and
Tax Free Obligations Fund will limit the value of all investment securities
issued or guaranteed by each Guarantor to not more than 10% of the value of such
Fund's total assets.

PUT OPTIONS

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 or 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

<PAGE>

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES

Each Fund may purchase securities 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 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. Each 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. A 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

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 money market funds in which a Fund may invest include
other money market funds advised by the Adviser. Investments by a 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 U.S. BANK NATIONAL ASSOCIATION,
FIRST TRUST NATIONAL ASSOCIATION AND OTHER AFFILIATES

Investment advisory services -- see "Management of the Funds-Investment Adviser"

Custodian services -- see "Management of the Funds-Custodian"

Sub-administration -- see "Management of the Funds-Administrator"

Shareholder servicing -- see "Distributor"

Securities lending -- see "Investment Restrictions and Techniques-Lending of
Portfolio Securities"

<PAGE>

FIRST AMERICAN FUNDS, INC.
Oaks, Pennsylvania 19456

Investment Adviser
U.S. 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-1903 (1/98) CT

<PAGE>

FIRST AMERICAN FUNDS, INC.

STATEMENT OF ADDITIONAL INFORMATION
DATED JANUARY 31, 1998

TREASURY OBLIGATIONS FUND
GOVERNMENT OBLIGATIONS FUND
PRIME OBLIGATIONS FUND
TAX FREE OBLIGATIONS FUND

This Statement of Additional Information relates to the Class A, Class
C and Class D Shares of Treasury Obligations Fund, Prime Obligations Fund and
Tax Free Obligations Fund, the Class C and Class D Shares of Government
Obligations Fund, and the Class B Shares of Prime 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 January 31, 1998. 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................................ 2
Portfolio Turnover .................................... 8
Directors and Executive Officers....................... 8
Investment Advisory and Other Services................. 12
Portfolio Transactions................................. 17
Capital Stock ......................................... 19
Net Asset Value and Public Offering Price ............. 21
Valuation of Portfolio Securities...................... 21
Taxes.................................................. 22
Calculation of Performance Data........................ 23
Commercial Paper and Bond Ratings...................... 25
Financial Statements................................... 26

<PAGE>

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."

As set forth in the Prospectuses, 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. These series
are referred to in this Statement of Additional Information as the "Funds."

Shareholders may purchase shares of each Fund through separate classes.
Prime Obligations Fund offers its shares in four classes, Class A, Class B,
Class C and Class D. Treasury Obligations Fund and Tax Free Obligations Fund
offer their shares in three classes, Class A, Class C and Class D. Government
Obligations Fund offers Class C and Class D Shares only. 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 and Class B (the "Class A and Class B Shares Prospectus"), the Class C
(the "Class C Shares Prospectus") and the Class D Shares of the Funds (the
"Class D Shares 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 various classes of shares of the Funds. 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

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 (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). Treasury Obligations Fund may not:

<PAGE>

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. Issue any senior securities (as defined in the 1940 Act),
except as set forth in investment restriction number (1)
above, and except to the extent that purchasing or selling on
a when-issued, delayed delivery or forward commitment basis or
using similar investment strategies may be deemed to
constitute issuing a senior security.

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. 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.

6. 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.

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).

As a non-fundamental policy, Treasury Obligations Fund will not (i)
invest in oil, gas or other mineral leases and (ii) invest more than 10% of its
net assets in illiquid assets, including, without limitation, repurchase
agreements maturing in more than seven days.

As to investment restriction (6) 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.

<PAGE>

GOVERNMENT OBLIGATIONS FUND

Government 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. Government Obligations Fund may not:

1. 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. Interest paid on borrowed funds will decrease
the net earnings of the Fund. The Fund will not borrow 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.

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

As a non-fundamental policy, Government Obligations Fund will not
invest in oil, gas or other mineral leases or real estate limited partnerships.

PRIME OBLIGATIONS FUND

Prime 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. Prime Obligations Fund may not:

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

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.

<PAGE>

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

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

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

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

11. Invest in companies for the purpose of exercising control.

12. Purchase or retain the securities of any issuer if any of the officers
or directors of 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.

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. 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.

<PAGE>

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. Issue any senior securities (as defined in the 1940 Act),
except as set forth in investment restriction number (2)
above, and except to the extent that using options, futures
contracts and options on futures contracts, purchasing or
selling on a when-issued, delayed delivery or forward
commitment basis or using similar investment strategies may be
deemed to constitute issuing a senior security.

11. Invest 25% or more of its total assets in the securities of
any 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.

As a non-fundamental policy, Tax Free Obligations Fund may not 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 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.

In connection with Prime Obligation Fund's and 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,

<PAGE>

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.

Prime Obligations Fund and 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 obligation 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.

The Funds may not invest in obligations of any affiliate of U.S.
Bancorp, including U.S. 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. As set forth in the Prospectuses, First Trust
National Association ("First Trust"), 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 an 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

<PAGE>

Association. FAF 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.

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

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

Leonard W. Kedrowski, 16 Dellwood Avenue, Dellwood, Minnesota 55110:
Director of 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 FAIF, FAF and FASF since January 31, 1997; employed by First
Bank System, Inc. and subsidiaries from 1957 to January 31, 1997, most recently
as Vice President, First Bank National Association. Age: 62.

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

<PAGE>

Boards from 1993 to September 1997 and of FASF's Board from June 1996 to
September 1997; President of FAF and FAIF from June 1989 to November 1989; Owner
and President, Strauss Management Company, since 1993; Owner and President,
Community Resource Partnerships, Inc., a community business retention survey
company, since 1992; attorney-at-law. Age: 56.

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

EXECUTIVE OFFICERS

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: 45.

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: 53.

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: 37.

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: 38.

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: 41.

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

Joseph M. O'Donnell, Vice President and Assistant Secretary of FAIF,
FAF and FASF beginning in February 1998; Vice President and Assistant Secretary
of the Administrator and Distributor since January 1998; Vice President and
General Counsel, FPS Services, Inc. from 1993 to 1997; Staff Counsel and
Secretary, Provident Mutual Family of Funds from 1990 to 1993. Age: 42.

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

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, FAF and FASF. Age: 52.

<PAGE>

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. In the event of telephonic Board or committee meetings,
each director receives a fee of $500 per Board or committee meeting ($750 in the
case of the Chair or a committee chair). In addition, directors may receive a
per diem fee of $1,000 per day plus travel expenses when directors travel out of
town on Fund business. However, directors do not receive the $1,000 per diem
amount plus the foregoing Board or committee fee for an out of town Board or
committee meeting but instead receive the greater of the total per diem fe or
meeting fee. 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, 1997. 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(1) From Registrant Part of Fund Expenses Upon Retirement Paid to Directors
- ------------------------------ --------------- --------------------- --------------- -----------------
<S> <C> <C> <C> <C>
Robert J. Dayton, Director $20,802 -0- -0- $33,500

Roger A. Gibson, Director * -0- -0- -0- -0-

Andrew M. Hunter III, Director $14,145 -0- -0- $23,250

Leonard W. Kedrowski, Director $20,347 -0- -0- $32,700

Robert L. Spies, Director $14,660 -0- -0- $24,050

Joseph D. Strauss, Director $24,878 -0- -0- $39,925

Virginia L. Stringer, Director $24,581 -0- -0- $39,925

</TABLE>

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

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

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

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

<PAGE>

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.

<PAGE>

INVESTMENT ADVISORY AND OTHER SERVICES

INVESTMENT ADVISER

U.S. Bank National Association (the "Adviser"), 601 Second Avenue
South, Minneapolis, Minnesota 55402, serves as the investment adviser and
manager of the Funds through its First American 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 U.S.
Bancorp ("USB"), 601 Second Avenue South, Minneapolis, Minnesota 55402, which is
a regional, multi-state bank holding company headquartered in Minneapolis,
Minnesota. USB operates five banks and eleven trust companies with offices in 17
contiguous states from Illinois to Washington. USB also has various other
subsidiaries engaged in financial services. At December 31, 1997 on a pro forma
combined basis, USB and consolidated subsidiaries has consolidated assets of
approximately $71 billion, consolidated deposits of $48 billion and
shareholders' equity of $6 billion.

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.

<PAGE>

The following table sets forth total advisory fees before waivers and
after waivers for each of the Funds for the fiscal years ended September 30,
1995, September 30, 1996 and September 30, 1997:

<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
September 30, 1995 September 30, 1996 September 30, 1997
--------------------------- -------------------------- --------------------------
Advisory Fee Advisory Fee Advisory Fee Advisory Fee Advisory Fee Advisory Fee
Before After Before After Before After
Waivers Waivers Waivers Waivers Waivers Waivers
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Treasury Obligations
Fund...................... $3,995,741 $3,094,023 $6,253,637 $4,688,746 $12,432,597 $9,904,279

Government Obligations
Fund...................... 2,880,555 2,134,664 3,821,969 3,007,413 4,856,530 4,020,449

Prime Obligations Fund........ 7,153,924 5,037,203 11,293,845 8,866,700 14,885,761 12,400,673

Tax Free Obligations
Fund(1)................... -- -- -- -- 46,188 1,174

</TABLE>

(1) Information is for the four month period from August 1, 1997 to November 30,
1997.

DISTRIBUTOR AND DISTRIBUTION PLANS

SEI Investments Distribution Co. (the "Distributor" ) serves as the
distributor for the Class A, Class B, 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, and as the distributor for the Class B Shares
pursuant to a Distribution and Service Agreement dated January 20, 1995 (the
"Class B Distribution Agreement") 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.

U.S. Bancorp Investment Services, Inc. ("USBI"), a subsidiary of the
Adviser, is a Participating Institution. The Adviser currently pays USBI .25% of
the portion of each Fund's average daily net assets attributable to Class C
Shares for which USBI is responsible in connection with USBI's provision of
shareholder support services. Such amounts paid to USBI 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 Class A and Class B Shares Prospectus. This fee is calculated
and paid each month based on average daily net assets of Class A of each Fund
for that month.

<PAGE>

The Class B Shares pay to the Distributor a distribution fee at an
annual rate of 0.75% of the average daily net assets of the Class B Shares,
which fee may be used by the Distributor to provide compensation for sales
support and distribution activities with respect to the Class B Shares. This fee
is calculated and paid each month based on average daily net assets of Class B
Shares for that month. In addition to this fee, the Distributor is paid a
shareholder servicing fee at an annual rate of 0.25% of the average daily net
assets of Prime Obligations Fund's Class B Shares pursuant to the Class B
Distribution Agreement and a service plan (the "Class B Service Plan"), which
fee may be used by the Distributor to provide compensation for shareholder
servicing activities with respect to the Class B Shares of the Prime Obligations
Fund of the kinds described in the Class A and Class B Shares Prospectus. The
Distributor also receives any contingent deferred sales charges paid with
respect to sales of Class B Shares.

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 Class D Shares Prospectus. This fee is
calculated and paid each month based on average daily net assets of Class D 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, Class B 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 Class B Plan also authorizes the Distributor to retain the
contingent deferred sales charge applied on redemptions of Class B Shares. 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.

The following tables set forth the total Rule 12b-1 fees, after
waivers, paid by each class of the Funds for the fiscal years ended September
30, 1995, September 30, 1996 and September 30, 1997:

<PAGE>

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1995

CLASS A CLASS B CLASS C CLASS D
------- ------- ------- -------
<S> <C> <C> <C> <C>
Treasury Obligations Fund............. * * $0 $0
Government Obligations Fund........... * * 0 *
Prime Obligations Fund................ * * 0 *
Tax Free Obligations Fund............. * * * *

YEAR ENDED SEPTEMBER 30, 1996

CLASS A CLASS B CLASS C CLASS D
------- ------- ------- -------

Treasury Obligations Fund............. * * * $982,300
Government Obligations Fund........... * * $0 199,644
Prime Obligations Fund................ $140,285 $92 0 6,634
Tax Free Obligations Fund............. * * * *

YEAR ENDED SEPTEMBER 30, 1997

CLASS A CLASS B CLASS C CLASS D
------- ------- ------- -------

Treasury Obligations Fund............. * * $0 $3,609,010
Government Obligations Fund........... * * 0 484,747
Prime Obligations Fund................ $432,465 $31,045 0 222,621
Tax Free Obligations Fund(1).......... 39,839 * 4,123 *

</TABLE>

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

* Fund was not in operation during this fiscal year

(1) Information is for the period from August 1, 1997 to November 30, 1997. Of
these amounts, $38,857 and $4,123 are distribution fees from the Class A
and Class Q shares of the Qualivest Tax-Free Obligations Fund,
respectively. On November 25, 1997 Tax Free Obligations Fund acquired the
assets of the Qualivest Tax-Free Money Market Fund. In connection with such
acquisition, Class A shares of the Qualivest Tax-Free Money Market Fund
were exchanged for Class A shares of Tax Free Obligations Fund, and Class Q
and Y shares of the Qualivest Tax-Free Money Market Fund were exchanged for
Class C shares of Tax Free Obligations Fund.

CUSTODIAN; ADMINISTRATOR; TRANSFER AGENT; COUNSEL; ACCOUNTANTS

First Trust National Association (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.

<PAGE>

The following table sets forth total custodian fees, after waivers,
paid by each of the Funds for the fiscal years ended September 30, 1995,
September 30, 1996, and September 30, 1997:

<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
September 30,1995 September 30, 1996 September 30, 1997
----------------- ------------------ ------------------
<S> <C> <C> <C>
Treasury Obligations
Fund...................... $281,166 $467,928 $ 932,086

Government Obligations
Fund...................... 216,267 278,285 358,464

Prime Obligations Fund........ 537,494 842,325 1,107,820

Tax Free Obligations
Fund(1)................... -- -- 1,000

</TABLE>

(1) For the four month period from August 1, 1997 to November 30, 1997.

The Administrator, a wholly-owned subsidiary of SEI Investments
Company, provides administrative services to the Funds for a fee as described in
the prospectus. The following table sets forth total administrative fees, after
waivers, paid by each of the Funds for the fiscal years ended September 30,
1995, September 30, 1996, and September 30, 1997:

Government Obligations
Fund...................... 504,095 659,381 775,846

Prime Obligations
Fund...................... 1,251,489 1,945,261 2,375,994

Tax Free Obligations
Fund(1)................... -- -- 16,689

</TABLE>

(1) For the four month period from August 1, 1997 to November 30, 1997.

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.

Dorsey & Whitney LLP, 220 South Sixth Street, Minneapolis, Minnesota
55402, 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.

<PAGE>

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

<PAGE>

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.

During the fiscal year ended September 30, 1997, Treasury Obligations
Fund, Government Obligations Fund, and Prime Obligations Fund paid brokerage
commissions to SEI Investments Distribution Co. ("SIDCO") totalling $17,473.03,
$19,397.43, and $18,435.93, respectively, in connection with portfolio
transactions transacted through SIDCO. SIDCO also acts as the Funds' Distributor
and is under common control with the Funds' Administrator. These commissions
represented 100% of the aggregate brokerage commissions paid by each Fund during
the fiscal year. Transactions effected by Treasury Obligations Fund, Government
Obligations Fund, and Prime Obligations Fund through SIDCO represented 100% of
the aggregate dollar amount of transactions involving the payment of commissions
effected by each of these Funds during the fiscal year.

At September 30, 1997, Prime Obligations Fund held securities of
broker-dealers which are deemed to be "regular brokers or dealers" of the Funds
under the 1940 Act (or of such broker-dealers' parent companies) in the
following amounts: Bankers Trust certificate of deposit, $34,981,084; Bankers
Trust note, $105,000,000; Bear Stearns commercial paper, $24,938,556; First
Boston commercial paper, $24,923,472; Goldman Sachs note, $3,003,573; and Morgan
Stanley medium term note, $75,000,000.

<PAGE>

CAPITAL STOCK

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

<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING SHARES
-----------------------------------------
CLASS A CLASS B CLASS C CLASS D
------- ------- ------- -------

TREASURY OBLIGATIONS FUND
<S> <C> <C> <C> <C>
BHC Securities, Inc................................................ 99.70%
2005 Market St.
Philadelphia, PA 19103-7042

VAR & Co........................................................... 81.92%
First Trust National Assn.
P.O. Box 64010
St. Paul, MN 55164-0010

Special Custody Account for the exclusive benefit of customers of FBS
Investment Services, Inc. .................................... 16.26%
Attn: Money Fund Unit R/R
100 South Fifth St., Suite 1400
Minneapolis, MN 55402-1217

VAR & Co........................................................... 99.53%
First Trust National Assn.
Attn: Mutual Funds Unit
P.O. Box 64010
St. Paul, MN 55164-0010

GOVERNMENT OBLIGATIONS FUND

Special Custody Account for the exclusive benefit of customers of FBS
Investment Services, Inc. .................................... 49.42%
Attn: Money Fund Unit R/R
100 South Fifth St., Suite 1400
Minneapolis, MN 55402-1217

VAR & Co........................................................... 45.49%
First Trust National Assn.
Attn: Mutual Funds Unit
P.O. Box 64010
St. Paul, MN 55164-0010

VAR & Co........................................................... 98.64%
First Trust National Assn.
Attn: Mutual Funds Unit
P.O. Box 64010
St. Paul, MN 55164-0010

PRIME OBLIGATIONS FUND

BHC Securities, Inc................................................ 42.72%
2005 Market St.
Philadelphia, PA 19103-7042

Special Custody Account for the exclusive benefit of customers of FBS
Investment Services, Inc. .................................... 29.20%
Attn: Money Fund Unit R/R
100 South Fifth St., Suite 1400
Minneapolis, MN 55402-1217

National Financial Services Corporation
for the exclusive benefit of our customers.................... 25.50%
P.O. Box 3752
Church Street Station
New York, NY 10008-3752

<PAGE>

PERCENTAGE OF OUTSTANDING SHARES
-----------------------------------------
CLASS A CLASS B CLASS C CLASS D
------- ------- ------- -------

NFSC FEBO # 03M-862193............................................. 6.14%
First Bank NA Cust
IRA of Russell C. Eidal
320 Bluff Drive
Lowell, AR 72745-9117

NFSC FEBO # 03M-817783............................................. 5.56%
First Bank NA Cust
IRA of Donald M. Haas
510 Alvarado Lane
Plymouth, MN 55447-3327

NFSC FEBO # 03M-516724............................................. 5.47%
Judi L. Brink
T/O/D et al
5018 Picket Drive
Colorado Springs, CO 80918-3618

VAR & Co........................................................... 55.83%
First Trust National Assn.
Attn: Mutual Funds Unit
P.O. Box 64010
St. Paul, MN 55164-0010

Special Custody Account for the exclusive benefit of customers of FBS
Investment Services, Inc. .................................... 32.80%
Attn: Money Fund Unit R/R
100 South Fifth St., Suite 1400
Minneapolis, MN 55402-1217

Telco.............................................................. 6.44%
Attn: Trust Mutual Funds
P.O. Box 3168
Portland, OR 97208-3168

VAR & Co........................................................... 99.98%
First Trust National Assn.
Attn: Mutual Funds Unit
P.O. Box 64010
St. Paul, MN 55164-0010

TAX FREE OBLIGATIONS FUND

BHC Securities, Inc................................................ 97.91%
Trade House Account - Retail
One Commerce Square
Attn: Sweeps Department
2005 Market St.
Philadelphia, PA 19103-7042

SEI Corporation.................................................... 100.00%
Attn: Rob Silvestri
One Freedom Valley Dr.
Oaks, PA 19456

VAR & Co........................................................... 74.57%
First Trust National Assn.
Attn: Mutual Funds Unit
P.O. Box 64010
St. Paul, MN 55164-0010

Telco.............................................................. 21.33%
C/O U.S. Bank of Oregon - Trust
555 S.W. Oak
Portland, O 97204-1752

</TABLE>

<PAGE>

NET ASSET VALUE AND PUBLIC OFFERING PRICE

The method for determining the public offering price of Fund shares is
summarized in the applicable Prospectuses. Each Fund is open for business and
its net asset value per share is calculated on every day the New York Stock
Exchange and federally-chartered banks 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, Martin
Luther King, Jr. Day, Washington's Birthday (observed), Good Friday, Memorial
Day (observed), Independence Day, Labor Day, Thanksgiving Day, and Christmas
Day. Each year the 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. On September
30, 1997, the net asset value per share for the Funds was calculated as follows:

<TABLE>
<CAPTION>
NET ASSET
NET ASSETS SHARES VALUE PER SHARE
(IN DOLLARS) / OUTSTANDING = (IN DOLLARS)
------------ ----------- ------------
<S> <C> <C> <C>
TREASURY OBLIGATIONS FUND
Class A................................... * * *
Class C................................... $897,796,543 / 897,798,054 = $1.00
Class D................................... 2,847,215,098 / 2,847,200,292 = 1.00

GOVERNMENT OBLIGATIONS FUND
Class C................................... 946,195,887 / 946,221,708 = 1.00
Class D................................... 337,199,447 / 337,210,778 = 1.00

PRIME OBLIGATIONS FUND
Class A................................... 218,260,656 / 218,262,281 = 1.00
Class B................................... 2,018,329 / 2,202,273 = 1.00
Class C................................... 3,615,873,449 / 3,615,864,191 = 1.00
Class D................................... 113,063,854 / 113,070,148 = 1.00

TAX FREE OBLIGATIONS FUND(1)
Class A................................... 10,703,018 / 10,704,539 = 1.00
Class C................................... 28,662,179 / 28,664,406 = 1.00
Class D................................... 1,000 / 1,000 = 1.00

</TABLE>

* Not in operation during fiscal year ended September 30, 1997.

(1) Net asset value is as of November 30, 1997.

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

<PAGE>

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 FAF 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

<PAGE>

$1.00 per share. Distributions of net investment income and 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, distributions of net investment income by a Fund to a
shareholder who, as to the United States, is a nonresident alien individual,
nonresident alien fiduciary of a trust or estate, foreign corporation, or
foreign partnership (a "foreign shareholder") will be subject to U.S.
withholding tax (at a rate of 30% lower or lower treaty rate). Withholding will
not apply if a dividend paid by a Fund to a foreign shareholder is "effectively
connected" with a U.S. trade or business of such shareholder, in which case the
reporting and withholding requirements applicable to U.S. citizens or domestic
corporations will apply. Each Fund will report annually to its shareholders the
amount of any withholding.

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

<PAGE>

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. For the
seven-day period ended September 30, 1997, or in the case of Tax Free
Obligations Fund (Qualivest Tax-Free Money Market) for the seven-day period
ended November 28, 1997, the yield and effective yield, respectively, for the
Funds were as follows:

YIELD EFFECTIVE YIELD
----- ---------------

TREASURY OBLIGATIONS FUND
Class A............................. * *
Class C............................. 5.19% 5.32%
Class D............................. 5.04% 5.16%

GOVERNMENT OBLIGATIONS FUND
Class C............................. 5.20% 5.34%
Class D............................. 5.05% 5.18%

PRIME OBLIGATIONS FUND
Class A............................. 5.08% 5.21%
Class B............................. 4.33% 4.42%
Class C............................. 5.34% 5.48%
Class D............................. 5.18% 5.32%

TAX FREE OBLIGATIONS FUND
Class A+............................ 3.10% 3.15%
Class C+............................ 3.40% 3.45%
Class D............................. * *

+Yields as of November 28, 1997.
*Not in operation during the seven day period ended November 28,
1997.

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. For the seven-day period
ended November 28, 1997, the tax-equivalent yield for Tax Free Obligations Fund
was as follows:

<PAGE>

TAX FREE OBLIGATIONS FUND
Class A+........................... 3.23% 5.35%
Class C+........................... 3.47% 5.75%
Class D............................ * *

+Yields as of November 28, 1997.
*Not in operation during the seven day period ended November 28,
1997.

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

The commercial paper ratings of Standard & Poor's Rating Services, a
division of The McGraw-Hill Companies, Inc. ("Standard & Poor's") 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.

The commercial paper ratings of Moody's Investors Service, Inc.
("Moody's") 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, as amended, 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

<PAGE>

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.

FINANCIAL STATEMENTS

The financial statements of FAF included in its annual reports to
shareholders dated September 30, 1997 and dated November 30, 1997 are
incorporated herein by reference. Such annual reports to shareholders accompany
this Statement of Additional Information.