1933 Act Registration No. 2-74747
1940 Act Registration No. 811-3313
As filed with the Securities and Exchange Commission on April 21, 1998
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. ___ [ ]
Post-Effective Amendment No. 29 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 [X]
Amendment No. 29
FIRST AMERICAN FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
OAKS, PENNSYLVANIA 19456
(Address of Principal Executive Offices) (Zip Code)
(610) 676-1924
(Registrant's Telephone Number, including Area Code)
DAVID LEE
C/O SEI INVESTMENTS COMPANY, OAKS, PENNSYLVANIA 19456
(Name and Address of Agent for Service)
COPIES TO:
Kathryn Stanton, Esq. Michael J. Radmer, Esq.
SEI Investments Company James D. Alt, Esq.
Oaks, Pennsylvania 19456 Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, Minnesota 55402
It is proposed that this filing shall become effective (check
appropriate box):
[x] immediately upon filing pursuant to paragraph (b) of rule 485
[ ] on (date) pursuant to paragraph (b) of rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
Registrant has registered an indefinite number or amount of securities under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940. A Rule 24f-2 Notice was filed with the Securities and Exchange
Commission on December 9, 1997.
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<PAGE>
FIRST AMERICAN FUNDS, INC.
POST-EFFECTIVE AMENDMENT NO. 28
CROSS REFERENCE SHEET FOR ITEMS REQUIRED BY FORM N-1A
NOTE:
PART A of this Registration Statement consists of the Retail Class
Prospectus relating to Class A Shares of the following funds: Treasury
Obligations Fund, Government Obligations Fund, Prime Obligations Fund and Tax
Free Obligations Fund, and Class B Shares of Prime Obligations Fund.
PART B of this Registration Statement consists one Statement of
Additional Information, which relates to all three of the Prospectuses of First
American Funds, Inc.
ITEM NUMBER OF FORM N-1A
PART A CAPTION IN PROSPECTUS
RETAIL CLASSES PROSPECTUS
1 Cover Page
2 Fees and Expenses
3 Financial Highlights
4 The Funds; Investment Objectives and Policies; Investment
Restrictions and Techniques
5 Management of the Funds; Distributor; Investment Objectives and
Policies
5A Not Applicable
6 Fund Shares; Investing in the Funds; Taxes
7 Distributor; Investing in the Funds; Redeeming Shares; Determining
the Price of Shares
8 Redeeming Shares
9 Not Applicable
<PAGE>
CAPTION IN COMBINED STATEMENT
PART B OF ADDITIONAL INFORMATION
10 Cover Page
11 Table of Contents
12 General Information
13 Investment Restrictions
14 Directors and Executive Officers
15 Capital Stock
16 Investment Advisory and Other Services
17 Portfolio Transactions
18 Not Applicable
19 Net Asset Value and Public Offering Price; Valuation of Portfolio
Securities
20 Taxes
21 Investment Advisory and Other Services
22 Calculation of Performance Data
23 Financial Statements
<PAGE>
April 21, 1998
MONEY MARKET FUNDS
CLASS A AND CLASS B 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 4
Financial Highlights 7
The Funds 10
Investment Objectives and Policies 10
Management of the Funds 12
Distributor 13
Portfolio Transactions 14
Investing in the Funds 15
Redeeming Shares 18
Determining the Price of Shares 20
Taxes 21
Fund Shares 22
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
<PAGE>
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
* GOVERNMENT 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 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 April 21, 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 April 21, 1998.
<PAGE>
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.
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.
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
<PAGE>
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.
<PAGE>
FEES AND EXPENSES
CLASS A 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
Maximum contingent deferred sales charge (as a
percentage of original purchase price or
redemption proceeds, as applicable) 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 0.25%(2) 0.25%(2) 0.25%(2) 0.25%(2)
Other expenses 0.13%+ 0.18%+ 0.20% 0.38%+
Total fund operating expenses
(after voluntary fee waivers)(1) 0.70% 0.76% 0.78% 0.74%
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 $ 8 $ 8 $ 8
3 years $ 22 $ 24 $ 25 $ 24
5 years $ 39 $ 42 $ 43 $ 41
10 years $ 87 $ 94 $ 97 $ 92
</TABLE>
+ The other 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 through January
31, 1999 but reserves the right to terminate its waiver at any time
thereafter in its sole discretion. For Government Obligations Fund and
Prime Obligations Fund total fund operating expenses will be maintained at
the levels shown above beginning October 1, 1998. Prior to that date, total
fund operating expenses as an annualized percentage of average daily net
assets will be maintained at 0.70%. 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 0.78% for Treasury Obligations Fund, 0.83% for
Government Obligations Fund, 0.85% for Prime Obligations Fund and 1.03% for
Tax Free Obligations Fund. "Other expenses" includes an administration fee
and, for Treasury Obligations Fund, Government 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, $25, $43 and $97; and Government Obligations
Fund, $8, $26, $46 and $103; and Prime Obligations Fund, $9, $27, $47 and
$105; and Tax Free Obligations Fund, $11, $33, $57 and $126.
<PAGE>
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 and is based on estimated amounts for the current fiscal year.
(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.
<PAGE>
INFORMATION CONCERNING FEES AND EXPENSES
The purpose of the preceding table is to assist the investor in understanding
the various costs and expenses that an investor in the Funds may bear directly
or indirectly. THE DATA CONTAINED IN THE TABLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.
<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 appearing in
FAF's annual reports to shareholders dated September 30, 1997 and dated November
30, 1997 (for Tax Free Obligations Fund), respectively.
Because Class A Shares of Treasury Obligations Fund were first offered November
3, 1997, and Government Obligations Fund were first offered April 21, 1998, no
financial highlights for such Funds 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.
<PAGE>
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.
<PAGE>
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
<PAGE>
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,
Government 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 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.
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
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.
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
<PAGE>
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.
<PAGE>
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 55402, 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 other than Government
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 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 --
<PAGE>
LaCrosse and his master's degree in business administration from the University
of Minnesota.
CUSTODIAN
The Custodian of the Funds' assets is U.S. Bank 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
3300 West 9th Street, Kansas City, Missouri 64105. The Transfer Agent is not
affiliated with the Distributor, the Administrator or the Adviser.
FAF has appointed Piper Jaffray Inc., a broker-dealer affiliated with the
Adviser, as servicing agent to perform certain transfer agent and dividend
disbursing agent services with respect to Class A Shares of the Funds and Class
B Shares of Prime Obligations Fund held through accounts at Piper Jaffray Inc.
and its affiliates. The Funds pay Piper Jaffray Inc. an annual fee of $15 per
account for such services.
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 the 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 the 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, 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 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 the Treasury Obligations Fund, Government
Obligations Fund and Prime Obligations Fund by wire, call (800) 637-2548 before
2:00 p.m. Central time to place an order. In addition, 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, Government 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.
The ability to exchange shares of the Funds does not constitute an offering or
recommendation of shares of one fund by another fund. This privilege is
available to shareholders resident in any state in which the fund shares being
acquired may be sold. Exchanges may be accomplished by a written request, or by
telephone if a preauthorized exchange authorization is on file with the Transfer
Agent, shareholder servicing agent, or financial institution.
<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, Government
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 privileges may be modified or terminated by the Funds
at any time. There are currently no additional fees or charges for the exchange
service and the Funds do not contemplate establishing such fees or charges,
although 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, Government 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, Government
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, 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.
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 Government Obligations Fund, 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, 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
<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,
U.S. BANK TRUST NATIONAL ASSOCIATION AND OTHER AFFILIATES
U.S. Bank National Association, U.S. Bank 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
U.S. BANK 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 (4/98) R
<PAGE>
FIRST AMERICAN FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION
DATED APRIL 21, 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, Government Obligations Fund,
Prime Obligations Fund and Tax Free 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 April 21, 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, Government Obligations Fund and
Tax Free Obligations Fund offer their shares in three classes, Class A, Class C
and Class D. 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. 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 more than 10% of its net assets in illiquid assets, including,
without limitation, repurchase agreements maturing in more than seven
days.
7. Purchase or sell real estate, real estate investment trust securities,
commodities or commodity contracts, or oil or gas interests.
8. Lend money to others except through 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, 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).
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.
3. Issue any senior securities (as defined in the 1940 Act), except as
set forth investment restriction number (2) 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.
4. 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.
5. Sell securities short or purchase securities on margin.
6. 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>
7. 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.
8. 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.
9. Purchase or sell real estate, real estate investment trust securities,
commodities or commodity contracts, or oil and gas interests.
10. 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).
11. 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.
12. Invest in companies for the purpose of exercising control.
13. 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, Dewy Ballantine from 1994 to 1995; Associate,
Winston & Straun 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 June 30, 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:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
September 30,1995 September 30, 1996 September 30, 1997
----------------- ------------------ ------------------
<S> <C> <C> <C>
Treasury Obligations
Fund...................... $656,081 $1,076,226 $1,976,528
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 A................................... * * *
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 A............................. * *
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.
<PAGE>
FIRST AMERICAN FUNDS, INC.
PART C -- OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements for each series of the Registrant are
incorporated by reference into the Statement of Additional
Information under the heading "Financial Statements."
(b) Exhibits
(1) (a) Amended and Restated Articles of Incorporation, as
amended through October 2, 1997. (Incorporated by
reference to Exhibit (1) to Post-Effective Amendment
No. 22 and Exhibit (1)(b) to Post-Effective
Amendment No. 25.)
(b) Certificate of Designation, dated March 2, 1998.
(Incorporated by reference to Exhibit (1)(b) to
` Post-Effective Amendment No. 28.)
(2) Bylaws, as amended through February 23, 1998.
(Incorporated by reference to Exhibit (2) to
` Post-Effective Amendment No. 28.)
(3) Not applicable.
(4) Not applicable.
(5) (a) Investment Advisory Agreement, dated January 20,
1995, between the Registrant and First Bank National
Association. (Incorporated by reference to Exhibit
(5) to Post-Effective Amendment No. 22.)
(b) Amendment to Exhibit A to Investment Advisory
Agreement. (Incorporated by reference to Exhibit
5(b) to Post-Effective Amendment No. 27.)
(6) (a) Distribution Agreement and Service Agreement
relating to the Class B Shares, dated January 20,
1995, between the Registrant and SEI Financial
Services Company. (Incorporated by reference to
Exhibit (6)(a) to Post-Effective Amendment No. 22.)
(6) (b) Distribution Agreement relating to the Class A,
Class C and Class D Shares, dated January 20, 1995,
between the Registrant and SEI Financial Services
Company. (Incorporated by reference to Exhibit
(6)(b) to Post-Effective Amendment No. 22.)
(7) Not applicable.
(8) (a) Custodian Agreement dated September 20, 1993,
between the Registrant and First Trust National
Association. (Incorporated by reference to Exhibit
(8)(a) to Post-Effective Amendment No. 22.)
(8) (b) Compensation Agreement, dated January 20, 1995,
pursuant to Custodian Agreement. (Incorporated by
reference to Exhibit (8)(b) to Post-Effective
Amendment No. 22.)
(8) (c) Compensation Agreement dated October 8, 1997,
pursuant to Custodian Agreement. (Incorporated by
reference to Exhibit 8(c) to Post-Effective
Amendment No. 27.)
(9) (a) Transfer Agency Agreement dated March 31, 1994,
between the Registrant and Supervised Service
Company. [superseded] (Incorporated by reference to
Exhibit (9)(a) to Post-Effective Amendment No. 22.)
<PAGE>
(9) (b) Assignment of Transfer Agency Agreement to DST
Systems, Inc. [superseded] (Incorporated by
reference to Exhibit (9)(b) to Post-Effective
Amendment No. 22.)
(9) (c) Administration Agreement dated January 1, 1995
between the Registrant and SEI Financial Management
Corporation. (Incorporated by reference to Exhibit
(9)(c) to Post-Effective Amendment No. 22.)
(9) (d) Form of Transfer Agency Agreement dated as of
October 1, 1996, between Registrant and DST Systems,
Inc. (Incorporated by reference to Exhibit 9(d) to
Post-Effective Amendment No. 23.)
(9) (e) Agreement dated July 1, 1997 between SEI and First
Bank National Association. (Incorporated herein by
reference to Exhibit 9(e) to Post-Effective
Amendment No. 25.)
(9) (f) Amended and Restated Administration Agreement, dated
July 1, 1997, by and between the Registrant and SEI
Investments Management Corporation. (Incorporated
herein by reference to Exhibit 9(f) to
Post-effective Amendment No. 26.)
(9) (g) Sub-Administration Agreement effective January 1,
1998, by and between SEI and First Bank National
Association. (Incorporated herein by reference to
Exhibit (9)(g) to Post-Effective Amendment No. 26.)
(9) (h) Agreement dated July 1, 1997, by and between First
Bank National Association and SEI Investments
Management Corporation. (Incorporated herein by
reference to Exhibit (9)(h) to Post-Effective
Amendment No. 26.)
(10) (a) Opinion and Consent of Dorsey & Whitney, dated
January 26, 1982. (Incorporated by reference to
Exhibit (10)(a) to Post-Effective Amendment No. 22.)
(10) (b) Opinion and Consent of William N. Koster, Esq.,
dated November 5, 1981. (Incorporated by reference
to Exhibit (10)(b) to Post-Effective Amendment No.
22.)
(11) (a) (1) Not Applicable.
(2) Not Applicable.
(11) (b) Opinion and Consent of Melissa R. Fogelberg, dated
February 6, 1985. (Incorporated by reference to
Exhibit (11)(b) to Post-Effective Amendment No. 22.)
(11) (c) Opinion and Consent of Dorsey & Whitney, dated
November 25, 1991. (Incorporated by reference to
Exhibit (11)(c) to Post-Effective Amendment No. 22.)
(12) Not applicable.
(13) Letter of Investment Intent, dated November 3, 1981.
(Incorporated by reference to Exhibit (13) to
Post-Effective Amendment No. 22.)
<PAGE>
(14) (a) 401(k) Prototype Basic Plan Document # 02 (1989
Restatement), including Amendment Nos. 1, 2, and 3
and sample Adoption Agreement. (Incorporated by
reference to Exhibit 14(a) to Post-Effective
Amendment No. 23.)
(14) (b) Defined Contribution Prototype Basic Plan Document #
01 (1989 Restatement), including Amendment Nos. 1
and 2 and sample Adoption Agreement. (Incorporated
by reference to Exhibit 14(b) to Post-Effective
Amendment No. 23.)
(14) (c) IRA Applications and Documentation. (Incorporated by
reference to Exhibit 14(c) to Post-Effective
Amendment No. 23.)
(15) (a) Distribution Plan for Class A Shares. (Incorporated
by reference to Exhibit (15)(a) to Post-Effective
Amendment No. 22.)
(15) (b) Distribution Plan for Class B Shares. (Incorporated
by reference to Exhibit (15)(b) to Post-Effective
Amendment No. 22.)
(15) (c) Distribution Plan for Class D Shares. (Incorporated
by reference to Exhibit (15)(c) to Post-Effective
Amendment No. 22.)
(15) (d) Service Plan for Class B Shares. (Incorporated by
reference to Exhibit (15)(d) to Post-Effective
Amendment No. 22.)
(16) Not Applicable.
(17) Not Applicable.
(18) Multiple Class Plan Pursuant to Rule 18f-3. (Incorporated
by reference to Exhibit (18) to Post-Effective Amendment
No. 22.)
(19) (a) Powers of Attorney, dated September 30, 1994.
(Incorporated by reference to Exhibit (19) to
Post-Effective Amendment No. 22.)
(19) (b) Power of Attorney of Director Hunter. (Incorporated
by reference to Exhibit 19(b) to Post-Effective
Amendment No. 23.)
(19) (c) Consent to being named and power of attorney of
director nominee Spies. (Incorporated by reference
to Exhibit 19(c) to Post-Effective Amendment No.
23.)
(19) (d) Power of Attorney of Director Gibson. (Incorporated
by reference to Exhibit 19(d) of Post-Effective
Amendment No. 27.)
* Filed herewith
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
The following table sets forth the number of holders of shares of each
series and class of First American Funds, Inc. as of January 14, 1998:
Number of
Fund Title of Class Record Holders
---- -------------- --------------
<PAGE>
Prime Obligations Fund Class A 1,227
Prime Obligations Fund Class B 450
Prime Obligations Fund Class C 40
Prime Obligations Fund Class D 4
Treasury Obligations Fund Class A 21
Treasury Obligations Fund Class C 12
Treasury Obligations Fund Class D 3
Government Obligations Fund Class A 0
Government Obligations Fund Class C 6
Government Obligations Fund Class D 4
Tax Free Obligations Fund Class A 11
Tax Free Obligations Fund Class C 5
Tax Free Obligations Fund Class D 2
ITEM 27. INDEMNIFICATION
The Registrant's Articles of Incorporation and Bylaws provide that the
Registrant shall indemnify such persons for such expenses and liabilities, in
such manner, under such circumstances, and to the full extent as permitted by
Section 302A.521 of the Minnesota Statutes, as now enacted or hereafter amended;
provided, however, that no such indemnification may be made if it would be in
violation of Section 17(h) of the Investment Company Act of 1940, as now enacted
or hereafter amended, and any rules, regulations, or releases promulgated
thereunder.
Section 302A.521 of the Minnesota Statutes, as now enacted, provides
that a corporation shall indemnify a person made or threatened to be made a
party to a proceeding by reason of the former or present official capacity of
the person against judgments, penalties, fines, settlements and reasonable
expenses, including attorneys' fees and disbursements, incurred by the person in
connection with the proceeding if, with respect to the acts or omissions of the
person complained of in the proceeding, the person has not been indemnified by
another organization for the same judgments, penalties, fines, settlements, and
reasonable expenses incurred by the person in connection with the proceeding
with respect to the same acts or omissions; acted in good faith, received no
improper personal benefit, and the Minnesota Statutes dealing with directors'
conflicts of interest, if applicable, have been satisfied; in the case of a
criminal proceeding, had no reasonable cause to believe that the conduct was
unlawful; and reasonably believed that the conduct was in the best interests of
the corporation or, in certain circumstances, reasonably believed that the
conduct was not opposed to the best interests of the corporation.
The Registrant undertakes that no indemnification or advance will be
made unless it is consistent with Sections 17(h) or 17(i) of the Investment
Company Act of 1940, as now enacted or hereafter amended, and Securities and
Exchange Commission rules, regulations, and releases (including, without
limitation, Investment Company Act of 1940 Release No. 11330, September 2,
1980).
Insofar as the indemnification for liability arising under the
Securities Act of 1933, as amended, may be permitted to directors, officers, and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in such Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer, or
controlling person of the Registrant in the successful defense of any action,
suit, or proceeding) is asserted by such director, officer, or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933, as amended, and will be governed by the final
adjudication of such issue.
<PAGE>
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Information on the business of the Registrant's investment adviser,
U.S. Bank National Association (the "Manager"), is described in the section of
each series' Statement of Additional Information, filed as part of this
Registration Statement, entitled "Investment Advisory and Other Services." The
directors and officers of the Manager are listed below, together with their
principal occupation or other positions of a substantial nature during the past
two fiscal years.
<TABLE>
<CAPTION>
POSITIONS AND OFFICES OTHER POSITIONS AND OFFICES
NAME WITH THE MANAGER AND PRINCIPAL BUSINESS ADDRESS
---- ---------------- ------------------------------
<S> <C> <C>
John F. Grundhofer Chairman, President and Chief Chairman, President and Chief
Executive Officer Executive Officer of U.S. Bancorp*
Richard A. Zona Director and Vice Chairman--Finance Vice Chairman--Finance of U.S.
Bancorp *
Philip G. Heasley Director and Vice Chairman Vice Chairman and Group Head of the
Retail Product Group of U.S. Bancorp *
J. Robert Hoffmann Director, Chief Credit Officer Executive Vice President and Chief
and Executive Vice President Credit Officer of U.S. Bancorp *
Lee R. Mitau Director, General Counsel, Executive Vice President, Secretary,
Executive Vice President and Secretary and General Counsel of U.S. Bancorp;
prior to October 1995 partner in Dorsey
& Whitney LLP *
Susan E. Lester Director, Executive Vice President and Executive Vice President and Chief
Chief Financial Officer Financial Officer of U.S. Bancorp; prior
to December 1995 executive vice
president and chief financial officer of
Shawmut National Corporation *
Robert D. Sznewajs Director and Vice Chairman Vice Chairman of U.S. Bancorp *
Gary T. Duim Director and Vice Chairman Vice Chairman of U.S. Bancorp *
</TABLE>
- ---------------
* Address: 601 Second Avenue South, Minneapolis, Minnesota 55402.
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITERS:
(a) Furnish the name of each investment company (other than the
Registrant) for which each principal underwriter currently distributing
securities of the Registrant also acts as a principal under-writer, distributor
or investment adviser:
Registrant's distributor, SEI Investments Distribution Co. (the
"Distributor") acts as distributor for SEI Liquid Asset Trust, SEI Daily Income
Trust, SEI Tax Exempt Trust, SEI Index Funds, SEI Institutional Managed Trust,
SEI International Trust, The Advisors' Inner Circle Fund, Pillar Funds, CUFund,
STI Classic Funds, CoreFunds, Inc., First American Investment Funds, Inc., The
Arbor Fund, Boston 1784 Funds, Marquis Funds, Morgan Grenfell Investment Trust,
The PBHG Funds, Inc., The Achievement Funds Trust, Bishop Street Funds,
CrestFunds, Inc., STI Classic Variable Trust, ARK Funds, Monitor Funds, FMB
Funds, Inc., SEI Asset Allocation Trust, TIP Funds, SEI Institutional
Investments Trust, First American Strategy Funds, Inc., Highmark Funds, Armada
Funds, PBHG Insurance Series Fund, Inc. and Expedition Funds pursuant to
distribution agreements dated November 29, 1982, July 15, 1982, December 3,
1982, July 10, 1985, January 22, 1987, August 30, 1988, November 14, 1991,
February 28, 1992, May 1, 1992, May 29, 1992, October 30, 1992, November 1,
1992, January 28, 1993, June 1, 1993, August 17, 1993, January 3, 1994, December
27, 1994, January 27, 1995, March 1, 1995, August 18, 1995, November 1, 1995,
January 11, 1996, March 1, 1996, April 1, 1996, April 29, 1996, June 14, 1996,
October 1, 1996, February 15, 1997, March 8, 1997, April 1, 1997, and June 9,
1997, respectively.
The Distributor provides numerous financial services to investment
managers, pension plan sponsors, and bank trust departments. These services
include portfolio evaluation, performance measurement, and consulting services
("Funds Evaluation") and automated execution, clearing and settlement of
securities transactions ("MarketLink").
(b) Furnish the information required by the following table with
respect to each director, officer or partner of each principal underwriter named
in the answer to Item 21 of Part B. Unless otherwise noted, the business address
of each director or officer is One Freedom Valley Drive, Oaks, Pennsylvania
19456.
<TABLE>
<CAPTION>
NAME POSITIONS AND OFFICES WITH UNDERWRITER POSITIONS AND OFFICES WITH REGISTRANT
- ---- -------------------------------------- -------------------------------------
<S> <C> <C>
Alfred P. West, Jr. Director, Chairman & Chief --
Executive Officer
Henry H. Greer Director, President & Chief --
Operating Officer
Carmen V. Romeo Director, Executive Treasurer, Assistant Secretary
Vice President & Treasurer
Gilbert L. Beebower Executive Vice President --
Richard B. Lieb Executive Vice President, President -
Investment Services Division --
Dennis J. McGonigle Executive Vice President --
Leo J. Dolan, Jr. Senior Vice President --
Carl A. Guarino Senior Vice President --
Larry Hutchinson Senior Vice President --
Jack May Senior Vice President --
A. Keith McDowell Senior Vice President --
Hartland J. McKeown Senior Vice President --
Barbara J. Moore Senior Vice President --
Kevin P. Robins Senior Vice President, General Counsel Vice President & Assistant Secretary
& Secretary
Robert Wagner Senior Vice President --
<PAGE>
NAME POSITIONS AND OFFICES WITH UNDERWRITER POSITIONS AND OFFICES WITH REGISTRANT
- ---- -------------------------------------- -------------------------------------
Patrick K. Walsh Senior Vice President --
Ronert Aller Vice President --
Gordon W. Carpenter Vice President --
Todd Cipperman Vice President & Assistant Secretary --
Robert Crudup Vice President & Managing Director --
Barbara Doyne Vice President --
Jeff Drennen Vice President --
Vic Galef Vice President & Managing Director --
Kathy Heilig Vice President --
Michael Kantor Vice President --
Samuel King Vice President --
Kim Kirk Vice President & Managing Director --
John Krzeminski Vice President & Managing Director --
Carolyn McLaurin Vice President & Managing Director --
W. Kelso Morrill Vice President --
Mark Nagle Vice President --
Joanne Nelson Vice President --
Sandra K. Orlow Vice President & Assistant Secretary Vice President & Assistant Secretary
Cynthia M. Parrish Vice President & Assistant Secretary --
Donald Pepin Vice President & Managing Director --
Kim Rainey Vice President --
Rob Redecan Vice President --
Maria Reinhart Vice President --
Mark Samuels Vice President & Managing Director --
Steve Smith Vice President --
Daniel Spaventa Vice President --
Kathryn L. Stanton Vice President & Assistant Secretary Acting President, Vice President & Assistant Secretary
Wayne M. Withrow Vice President & Managing Director --
James Dougherty Director of Brokerage Services --
</TABLE>
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books, and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder are maintained by SEI Investments Distribution Co., Oaks,
Pennsylvania 19456.
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
Registrant undertakes to call a meeting of Shareholders for the purpose
of voting upon the question of removal of a Director(s) when requested in
writing to do so by the holders of at least 10% of Registrant's outstanding
shares and in connection with such meetings to comply with the provisions of
Section 16(c) of the Investment Company Act of 1940 relating to Shareholder
communications.
Registrant undertakes to furnish to each person to whom a
prospectus(es) contained in this Registration Statement is delivered a copy of
the FAF annual reports to shareholders, dated September 30, 1997 and November
30, 1997, respectively, upon the request of such person at no charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, the Registrant has duly caused this
Post-Effective Amendment to its Registration Statement No. 2-74747 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Oaks, Commonwealth of Pennsylvania, on the day 21st of April, 1998.
FIRST AMERICAN FUNDS, INC.
ATTEST: /s/ Michael G. Beattie By /s/ Kathryn L. Stanton
------------------------------ ------------------------------
Michael G. Beattie Kathryn L. Stanton, Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the following
persons in the capacity and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Michael G. Beattie Controller (Principal **
- ----------------------------- Financial and Accounting
Michael G. Beattie Officer)
* Director **
- -----------------------------
Robert J. Dayton
* Director **
- -----------------------------
Andrew M. Hunter III
* Director **
- -----------------------------
Robert L. Spies
* Director **
- -----------------------------
Leonard W. Kedrowski
* Director **
- -----------------------------
Joseph D. Strauss
* Director **
- -----------------------------
Virginia L. Stringer
* Director **
- -----------------------------
Roger A. Gibson
* By: /s/ Kathryn L. Stanton
----------------------------
Kathryn L. Stanton
Attorney in Fact
** April 21, 1998
EXHIBIT 1(b)
FIRST AMERICAN FUNDS, INC.
CERTIFICATE OF DESIGNATION
OF
SERIES C, CLASS THREE COMMON SHARES
PURSUANT TO MINNESOTA STATUTES,
SECTION 302A.401, SUBD. 3
The undersigned, being the duly elected Secretary of First American
Funds, Inc., a Minnesota corporation (the "Fund"), hereby certifies that the
following is a true, complete and correct copy of resolutions duly adopted by a
majority of the directors of the Board of Directors of the Fund on February 23,
1998:
APPROVAL OF DESIGNATION OF
SERIES C, CLASS THREE COMMON SHARES
WHEREAS, Article 5(c) of the Amended and Restated Articles of
Incorporation of the Fund provides for the designation of 100,000,000,000 of the
Fund's shares as "Series C Common Shares" and for the designation, within such
series, of 20,000,000,000 of such shares as "Series C, Class One Common Shares"
and of 20,000,000,000 of such shares as "Series C, Class Two Common Shares," and
provides further that the balance of 60,000,000,000 of such Series C Common
Shares may be issued in one or more additional classes with such designations,
preferences and relative, participating, optional or other special rights, or
qualifications, limitations or restrictions thereof, as shall be stated or
expressed in a resolution or resolutions providing for the issue of such class
as may be adopted from time to time by the Board of Directors of the Fund
pursuant to the authority thereby vested in the Board of Directors.
WHEREAS, pursuant to said authority, the Board of Directors of the Fund
wishes to designate a new class of Series C Common Shares to be known as Series
C, Class Three Common Shares.
NOW, THEREFORE, BE IT RESOLVED, that 20,000,000,000 previously
undesignated Series C Common Shares may be issued in the class hereby designated
as "Series C, Class Three Common Shares."
RESOLVED, FURTHER, that the Series C, Class Three Common Shares
designated by these resolutions shall have the relative rights and preferences
set forth in the Amended and Restated Articles of Incorporation of the Fund. As
provided in Article 5 of such Amended and Restated Articles of Incorporation,
the Series C, Class Three Common Shares designated by these resolutions may be
subject to such charges and expenses (including by way of example, but not by
way of limitation, such front-end and deferred sales charges as may be permitted
under the
<PAGE>
Investment Company Act of 1940, as amended (the "1940 Act") and rules of the
National Association of Securities Dealers, Inc. ("NASD"), expenses under Rule
12b-1 plans, administration plans, service plans, or other plans or
arrangements, however designated) adopted from time to time by the Board of
Directors of the Fund in accordance, to the extent applicable, with the 1940
Act, which charges and expenses may differ among classes and from those
applicable to another class within such series, and all of the charges and
expenses to which a class is subject shall be borne by such class and shall be
appropriately reflected (in the manner determined by the Board of Directors) in
determining the net asset value and the amounts payable with respect to
dividends and distributions on and redemptions or liquidations of, the shares of
such class.
RESOLVED, FURTHER, that unless and until the Board of Directors selects
different names for the class of shares designated by these resolutions, it
shall be known by the following name:
Series C, Class Three: Government Obligations Fund, "Class
A" or "Retail Class"
IN WITNESS WHEREOF, the undersigned has signed this Certificate of
Designation this 2nd day of March, 1998.
/s/Michael J. Radmer
----------------------------
Michael J. Radmer, Secretary
Exhibit 2
As approved at Board of Directors Meeting on December 4, 1990; Amendment to
Section 1.01 approved at Board of Directors Meeting on 6/1/93; Amendments to
Article IV approved at Board of Directors Meeting on 9/7/93; Amendments to
Section 1.01 approved at Board of Directors Meeting on 12/7/94; Amendments to
Section 1.01 approved at Board of Directors Meeting on 6/4/97; Amendment to
Section 1.01 approved at Board of Directors Meeting on 2/23/98.
BYLAWS
OF
FIRST AMERICAN FUNDS, INC.
ARTICLE I.
OFFICES, CORPORATE SEAL
Section 1.01. Name. The name of the corporation is "FIRST AMERICAN
FUNDS, INC." The names of the series represented by the series of shares
designated in the corporation's articles of incorporation shall be as follows:
Series B, Class One: Prime Obligations Fund, "Class C" or
"Institutional Class."
Series B, Class Two: Prime Obligations Fund, "Class D" or
"Corporate Trust Class."
Series B, Class Three: Prime Obligations Fund, "Class A" or
"Retail Class."
Series B, Class Four: Prime Obligations Fund, "Class B" or
"CDSC Class."
Series C, Class One: Government Obligations Fund, "Class C" or
"Institutional Class."
Series C, Class Two: Government Obligations Fund, "Class D" or
"Corporate Trust Class."
Series C, Class Three: Government Obligations Fund, "Class A"
or "Retail Class."
Series D, Class One: Treasury Obligations Fund, "Class C" or
"Institutional Class."
Series D, Class Two: Treasury Obligations Fund, "Class D" or
"Corporate Trust Class."
Series D, Class Three: Treasury Obligations Fund, "Class A" or
"Retail Class."
Series F, Class One: Tax Free Money Market Fund, "Class A" or
"Retail Class."
Series F, Class Two: Tax Free Money Market Fund, "Class B" or
"CDSC Class."
Series F, Class Three: Tax Free Money Market Fund, "Class C"
or "Institutional Class."
Series F, Class Four: Tax Free Money Market Fund, "Class D" or
"Corporate Trust Class."
Section 1.02. Registered Office. The registered office of the
corporation in Minnesota shall be that set forth in the Articles of
Incorporation or in the most recent amendment of the Articles of Incorporation
or resolution of the directors filed with the Secretary of State of Minnesota
changing the registered office.
<PAGE>
Section 1.03. Other Offices. The corporation may have such other
offices, within or without the State of Minnesota, as the directors shall, from
time to time, determine.
Section 1.04. Corporate Seal. The corporate seal shall be circular in
form and shall have inscribed thereon the name of the corporation and the word
"Minnesota" and the words "Corporate Seal." The form of the seal shall be
subject to alteration by the Board of Directors, and the seal may be used by
causing it or a facsimile to be impressed or affixed or printed or otherwise
reproduced. Any officer or director of the corporation shall have authority to
affix the corporate seal of the corporation to any document requiring the same.
ARTICLE II.
MEETINGS OF SHAREHOLDERS
Section 2.01. Place and Time of Meeting. Except as provided otherwise
by Minnesota Statutes Chapter 302A, meetings of the shareholders may be held at
any place, within or without the State of Minnesota, designated by the directors
and, in the absence of such designation, shall be held at the registered office
of the corporation in the State of Minnesota. The directors shall designate the
time of day for each meeting and, in the absence of such designation, every
meeting of shareholders shall be held at ten o'clock a.m.
Section 2.02. Regular Meetings. Annual meetings of shareholders are not
required by these Bylaws. Regular meetings shall be held only with such
frequency and at such times and places as provided in and required by Minnesota
Statutes Section 302A.431.
Section 2.03. Special Meetings. Special meetings of the shareholders
may be held at any time and for any purpose and may be called by the Chairman of
the Board, the President, any two directors, or by one or more shareholders
holding ten percent (10%) or more of the shares entitled to vote on the matters
to be presented to the meeting.
Section 2.04. Quorum, Adjourned Meetings. The holders of ten percent
(10%) of the shares outstanding and entitled to vote shall constitute a quorum
for the transaction of business at any regular or special meeting. In case a
quorum shall not be present at a meeting, those present in person or by proxy
shall adjourn the meeting to such day as they shall, by majority vote, agree
upon without further notice other than by announcement at the meeting at which
such adjournment is taken. If a quorum is present, a meeting may be adjourned
from time to time without notice other than announcement at the meeting. At
adjourned meetings at which a quorum is present, any business may be transacted
which might have been transacted at the meeting as originally noticed. If a
quorum
<PAGE>
is present, the shareholders may continue to transact business until adjournment
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum.
Section 2.05. Voting. At each meeting of the shareholders, every
shareholder having the right to vote shall be entitled to vote either in person
or by proxy. Each shareholder, unless the Articles of Incorporation provide
otherwise, shall have one vote for each share having voting power registered in
his name on the books of the corporation. Except as otherwise specifically
provided by these Bylaws or as required by provisions of the Investment Company
Act of 1940 or other applicable laws, all questions shall be decided by a
majority vote of the number of shares entitled to vote and represented at the
meeting at the time of the vote. If the matter(s) to be presented at a regular
or special meeting relates only to particular classes or series of the
corporation, then only the shareholders of such classes or series are entitled
to vote on such matter(s).
Section 2.06. Voting - Proxies. The right to vote by proxy shall exist
only if the instrument authorizing such proxy to act shall have been executed in
writing by the shareholder himself or by his attorney thereunto duly authorized
in writing. No proxy shall be voted after eleven months from its date unless it
provides for a longer period.
Section 2.07. Closing of Books. The Board of Directors may fix a time,
not exceeding sixty (60) days preceding the date of any meeting of shareholders,
as a record date for the determination of the shareholders entitled to notice
of, and to vote at, such meeting, notwithstanding any transfer of shares on the
books of the corporation after any record date so fixed. The Board of Directors
may close the books of the corporation against the transfer of shares during the
whole or any part of such period. If the Board of Directors fails to fix a
record date for determination of the shareholders entitled to notice of, and to
vote at, any meeting of shareholders, the record date shall be the thirtieth
(30th) day preceding the date of such meeting.
Section 2.08. Notice of Meetings. There shall be mailed to each
shareholder, shown by the books of the corporation to be a holder of record of
voting shares, at his address as shown by the books of the corporation, a notice
setting out the date, time and place of each regular meeting and each special
meeting, except where the meeting is an adjourned meeting and the date, time and
place of the meeting were announced at the time of adjournment, which notice
shall be mailed within the period required by law. Every notice of any special
meeting shall state the purpose or purposes for which the meeting has been
called, pursuant to Section 2.03, and the business transacted at all special
meetings shall be confined to the purpose stated in such notice.
<PAGE>
Section 2.09. Waiver of Notice. Notice of any regular or special
meeting may be waived either before, at or after such meeting orally or in a
writing signed by each shareholder or representative thereof entitled to vote
the shares so represented. A shareholder by his attendance at any meeting of
shareholders, shall be deemed to have waived notice of such meeting, except
where the shareholder objects at the beginning of the meeting to the transaction
of business because the item may not lawfully be considered at that meeting and
does not participate at that meeting in the consideration of the item at that
meeting.
Section 2.10. Written Action. Any action which might be taken at a
meeting of the shareholders may be taken without a meeting if done in writing
and signed by all of the shareholders entitled to vote on that action. If the
action to be taken relates to particular classes or series of the corporation,
then only shareholders of such classes or series are entitled to vote on such
action.
ARTICLE III.
DIRECTORS
Section 3.01. Number, Qualification and Term of Office. Until the first
meeting of shareholders, the number of directors shall be the number named in
the Articles of Incorporation. Thereafter, the number of directors shall be
established by resolution of the shareholders (subject to the authority of the
Board of Directors to increase or decrease the number of directors as permitted
by law). In the absence of such shareholder resolution, the number of directors
shall be the number last fixed by the shareholders, the Board of Directors or
the Articles of Incorporation. Directors need not be shareholders. Each of the
directors shall hold office until the regular meeting of shareholders next held
after his election and until his successor shall have been elected and shall
qualify, or until the earlier death, resignation, removal or disqualification of
such director.
Section 3.02. Election of Directors. Except as otherwise provided in
Sections 3.11 and 3.12 hereof, the directors shall be elected at the regular
shareholders' meeting. In the event that directors are not elected at a regular
shareholders' meeting, then directors may be elected at a special shareholders'
meeting, provided that the notice of such meeting shall contain mention of such
purpose. At each shareholders' meeting for the election of directors, the
directors shall be elected by a plurality of the votes validly cast at such
election. Each holder of shares of each class or series of stock of the
corporation shall be entitled to vote for directors and shall have equal voting
power for each share of each class or series of the corporation.
<PAGE>
Section 3.03. General Powers.
(a) Except as otherwise permitted by statute, the property, affairs and
business of the corporation shall be managed by the Board of Directors, which
may exercise all the powers of the corporation except those powers vested solely
in the shareholders of the corporation by statute, the Articles of Incorporation
or these Bylaws, as amended.
(b) All acts done by any meeting of the Directors or by any person
acting as a director, so long as his successor shall not have been duly elected
or appointed, shall, notwithstanding that it be afterwards discovered that there
was some defect in the election of the directors or such person acting as
aforesaid or that they or any of them were disqualified, be as valid as if the
directors or such other person, as the case may be, had been duly elected and
were or was qualified to be directors or a director of the corporation.
Section 3.04. Power to Declare Dividends.
(a) The Board of Directors, from time to time as they may deem
advisable, may declare and pay dividends in cash or other property of the
corporation, out of any source available for dividends, to the shareholders of
each class or series of stock of the corporation according to their respective
rights and interests in the investment portfolio of the corporation issuing such
class or series of stock.
(b) The Board of Directors shall cause to be accompanied by a written
statement any dividend payment wholly or partly from any source other than
(i) the accumulated and accrued undistributed net income of
each class or series (determined in accordance with generally accepted
accounting practice and the rules and regulations of the Securities and
Exchange Commission then in effect) and not including profits or losses
realized upon the sale of securities or other properties; or
(ii) the net income of each class or series so determined for
the current or preceding fiscal year.
Such statement shall adequately disclose the source or sources of such payment
and the basis of calculation and shall be in such form as the Securities and
Exchange Commission may prescribe.
(c) Notwithstanding the above provisions of this Section 3.04, the
Board of Directors may at any time declare and distribute pro rata among the
shareholders of each class or series of stock a "stock dividend" out of the
authorized
<PAGE>
but unissued shares of stock of each class or series, including any shares
previously purchased by a class or series of the corporation.
Section 3.05. Board Meetings. Meetings of the Board of Directors may be
held from time to time at such time and place within or without the State of
Minnesota as may be designated in the notice of such meeting.
Section 3.06. Calling Meetings, Notice. A director may call a board
meeting by giving ten (10) days notice to all directors of the date, time and
place of the meeting; provided that if the day or date, time and place of a
board meeting have been announced at a previous meeting of the board, no notice
is required.
Section 3.07. Waiver of Notice. Notice of any meeting of the Board of
Directors may be waived by any director either before, at or after such meeting
orally or in a writing signed by such director. A director, by his attendance
and participation in the action taken at any meeting of the Board of Directors,
shall be deemed to have waived notice of such meeting, except where the director
objects at the beginning of the meeting to the transaction of business because
the item may not lawfully be considered at that meeting and does not participate
at that meeting in the consideration of the item at that meeting.
Section 3.08. Quorum. A majority of the directors holding office
immediately prior to a meeting of the Board of Directors shall constitute a
quorum for the transaction of business at such meeting; provided however,
notwithstanding the above, if the Board of Directors is taking action pursuant
to the Investment Company Act of 1940, as now enacted or hereafter amended, a
majority of directors who are not "interested persons" (as defined by the
Investment Company Act of 1940, as now enacted or hereafter amended) of the
corporation shall constitute a quorum for taking such action.
Section 3.09. Advance Consent or Opposition. A director may give
advance written consent or opposition to a proposal to be acted on at a meeting
of the Board of Directors. If such director is not present at the meeting,
consent or opposition to a proposal does not constitute presence for purposes of
determining the existence of a quorum, but consent or opposition shall be
counted as a vote in favor of or against the proposal and shall be entered in
the minutes or other record of action at the meeting, if the proposal acted on
at the meeting is substantially the same or has substantially the same effect as
the proposal to which the director has consented or objected. This procedure
shall not be used to act on any investment advisory agreement or plan of
distribution adopted under Rule 12b-1 of the Investment Company Act of 1940, as
amended.
Section 3.10. Conference Communications. Any or all directors may
participate in any meeting of the Board of Directors, or of any duly constituted
<PAGE>
committee thereof, by any means of communication through which the directors may
simultaneously hear each other during such meeting. For the purposes of
establishing a quorum and taking any action at the meeting, such directors
participating pursuant to this Section 3.11 shall be deemed present in person at
the meeting, and the place of the meeting shall be the place of origination of
the conference communication. This procedure shall not be used to act on any
investment advisory agreement or plan of distribution adopted under Rule 12b-1
of the Investment Company Act of 1940, as amended.
Section 3.11. Vacancies; Newly Created Directorships. Vacancies in the
Board of Directors of this corporation occurring by reason of death,
resignation, removal or disqualification shall be filled for the unexpired term
by a majority of the remaining directors of the Board although less than a
quorum; newly created directorships resulting from an increase in the authorized
number of directors by action of the Board of Directors as permitted by Section
3.01 may be filled by a two-thirds (2/3) vote of the directors serving at the
time of such increase; and each person so elected shall be a director until his
successor is elected by the shareholders at their next regular or special
meeting; provided, however, that no vacancy can be filled as provided above if
prohibited by the provisions of the Investment Company Act of 1940.
Section 3.12. Removal. The entire Board of Directors or an individual
director may be removed from office, with or without cause, by a vote of the
shareholders holding a majority of the shares entitled to vote at an election of
directors. In the event that the entire Board or any one or more directors be so
removed, new directors shall be elected at the same meeting, or the remaining
directors may, to the extent vacancies are not filled at such meeting, fill any
vacancy or vacancies created by such removal. A director named by the Board of
Directors to fill a vacancy may be removed from office at any time, with or
without cause, by the affirmative vote of the remaining directors if the
shareholders have not elected directors in the interim between the time of the
appointment to fill such vacancy and the time of the removal.
Section 3.13. Committees. A resolution approved by the affirmative vote
of a majority of the Board of Directors may establish committees having the
authority of the board in the management of the business of the corporation to
the extent provided in the resolution. A committee shall consist of one or more
persons, who need not be directors, appointed by affirmative vote of a majority
of the directors present. Committees are subject to the direction and control
of, and vacancies in the membership thereof shall be filled by, the Board of
Directors.
A majority of the members of the committee present at a meeting is a
quorum for the transaction of business, unless a larger or smaller proportion or
<PAGE>
number is provided in a resolution approved by the affirmative vote of a
majority of the directors present.
Section 3.14. Written Action. Any action which might be taken at a
meeting of the Board of Directors, or any duly constituted committee thereof,
may be taken without a meeting if done in writing and signed by all of the
directors or committee members.
Section 3.15. Compensation. Directors shall receive such fixed sum per
meeting attended or such fixed annual sum as shall be determined, from time to
time, by resolution of the Board of Directors. All directors shall receive their
expenses, if any, of attendance at meetings of the Board of Directors or any
committee thereof. Nothing herein contained shall be construed to preclude any
director from serving this corporation in any other capacity and receiving
proper compensation therefor.
ARTICLE IV.
OFFICERS AND CHAIRMAN OF THE BOARD OF DIRECTORS
Section 4.01. Number. The officers of the corporation shall consist of
the President, one or more Vice Presidents (if desired by the Board), a
Secretary, a Treasurer and such other officers and agents as may, from time to
time, be elected by the Board of Directors. Any number of offices may be held by
the same person.
Section 4.02. Election, Term of Office and Qualifications. The Board of
Directors shall elect, from within or without their number, the officers
referred to in Section 4.01 of these Bylaws, each of whom shall have the powers,
rights, duties, responsibilities and terms in office provided for in these
Bylaws or a resolution of the Board not inconsistent therewith. The President
and all other officers who may be directors shall continue to hold office until
the election and qualification of their successors, notwithstanding an earlier
termination of their directorship.
Section 4.03. Resignation. Any officer (or the Chairman of the Board of
Directors) may resign his office at any time by delivering a written resignation
to the corporation. Unless otherwise specified therein, such resignation shall
take effect upon delivery.
Section 4.04. Removal and Vacancies. Any officer (or the Chairman of
the Board of Directors) may be removed from his office by a majority of the
Board of Directors with or without cause. Such removal, however, shall be
without prejudice to the contract rights of the person so removed. If there be a
vacancy among the officers (or the Chairman of the Board of Directors) of the
corporation by reason of death, resignation or otherwise, such vacancy shall be
filled for the unexpired term by the Board of Directors.
<PAGE>
Section 4.05. Chairman of the Board. The Board of Directors may elect
one of its members as Chairman of the Board. The Chairman of the Board, if one
is elected, shall preside at all meetings of the shareholders and directors and
shall have such other duties as may be prescribed, from time to time, by the
Board of Directors. The Chairman of the Board of Directors will under no
circumstances be deemed to be an "officer" of the corporation, and an individual
serving as Chairman of the Board of Directors will not be deemed to be an
"affiliated person" with respect to the corporation (under the Investment
Company Act of 1940, as amended) solely by virtue of such person's position as
Chairman of the Board of Directors of the corporation.
Section 4.06. President. The President shall have general active
management of the business of the corporation. In the absence of the Chairman of
the Board, he shall preside at all meetings of the shareholders and directors.
He shall be the chief executive officer of the corporation and shall see that
all orders and resolutions of the Board of Directors are carried into effect. He
shall be ex officio a member of all standing committees. He may execute and
deliver, in the name of the corporation, any deeds, mortgages, bonds, contracts
or other instruments pertaining to the business of the corporation and, in
general, shall perform all duties usually incident to the office of the
President. He shall have such other duties as may, from time to time, be
prescribed by the Board of Directors.
Section 4.07. Vice President. Each Vice President shall have such
powers and shall perform such duties as may be specified in the Bylaws or
prescribed by the Board of Directors or by the President. In the event of
absence or disability of the President, Vice Presidents shall succeed to his
power and duties in the order designated by the Board of Directors.
Section 4.08. Secretary. The Secretary shall be secretary of, and shall
attend, all meetings of the shareholders and Board of Directors and shall record
all proceedings of such meetings in the minute book of the corporation. He shall
give proper notice of meetings of shareholders and directors. He shall keep the
seal of the corporation and shall affix the same to any instrument requiring it
and may, when necessary, attest the seal by his signature. He shall perform such
other duties as may, from time to time, be prescribed by the Board of Directors
or by the President.
Section 4.09. Treasurer. The Treasurer shall be the chief financial
officer and shall keep accurate accounts of all money of the corporation
received or disbursed. He shall deposit all moneys, drafts and checks in the
name of, and to the credit of, the corporation in such banks and depositories as
a majority of the Board of Directors shall, from time to time, designate. He
shall have power to endorse, for deposit, all notes, checks and drafts received
by the corporation. He shall disburse the funds of the corporation, as ordered
by the Board of Directors, making proper vouchers therefor. He shall render to
the President and the directors, whenever
<PAGE>
required, an account of all his transactions as Treasurer and of the financial
condition of the corporation, and shall perform such other duties as may, from
time to time, be prescribed by the Board of Directors or by the President.
Section 4.10. Assistant Secretaries. At the request of the Secretary,
or in his absence or disability, any Assistant Secretary shall have power to
perform all the duties of the Secretary, and, when so acting, shall have all the
powers of, and be subject to all restrictions upon, the Secretary. The Assistant
Secretaries shall perform such other duties as from time to time may be assigned
to them by the Board of Directors or the President.
Section 4.11. Assistant Treasurers. At the request of the Treasurer, or
in his absence or disability, any Assistant Treasurer shall have power to
perform all the duties of the Treasurer, and when so acting, shall have all the
powers of, and be subject to all the restrictions upon, the Treasurer. The
Assistant Treasurers shall perform such other duties as from time to time may be
assigned to them by the Board of Directors or the President.
Section 4.12. Compensation. The officers (and the Chairman of the Board
of Directors) of this corporation shall receive such compensation for their
services as may be determined, from time to time, by resolution of the Board of
Directors.
Section 4.13. Surety Bonds. The Board of Directors may require any
officer or agent of the corporation to execute a bond (including, without
limitation, any bond required by the Investment Company Act of 1940 and the
rules and regulations of the Securities and Exchange Commission) to the
corporation in such sum and with such surety or sureties as the Board of
Directors may determine, conditioned upon the faithful performance of his duties
to the corporation, including responsibility for negligence and for the
accounting of any of the corporation's property, funds or securities that may
come into his hands. In any such case, a new bond of like character shall be
given at least every six years, so that the dates of the new bond shall not be
more than six years subsequent to the date of the bond immediately preceding.
ARTICLE V.
SHARES AND THEIR TRANSFER AND REDEMPTION
Section 5.01. Certificate for Shares.
(a) The corporation may have certificated or uncertificated shares, or
both, as designated by resolution of the Board of Directors. Every owner of
certificated shares of the corporation shall be entitled to a certificate, to be
in such
<PAGE>
form as shall be prescribed by the Board of Directors, certifying the number of
shares of the corporation owned by him. Within a reasonable time after the
issuance or transfer of uncertificated shares, the corporation shall send to the
new shareholder the information required to be stated on certificates.
Certificated shares shall be numbered in the order in which they shall be issued
and shall be signed, in the name of the corporation, by the President or a Vice
President and by the Secretary or an Assistant Secretary or by such officers as
the Board of Directors may designate. Such signatures may be by facsimile if
authorized by the Board of Directors. Every certificate surrendered to the
corporation for exchange or transfer shall be cancelled, and no new certificate
or certificates shall be issued in exchange for any existing certificate until
such existing certificate shall have been so cancelled, except in cases provided
for in Section 5.08.
(b) In case any officer, transfer agent or registrar who shall have
signed any such certificate, or whose facsimile signature has been placed
thereon, shall cease to be such an officer (because of death, resignation or
otherwise) before such certificate is issued, such certificate may be issued and
delivered by the corporation with the same effect as if he were such officer,
transfer agent or registrar at the date of issue.
Section 5.02. Issuance of Shares. The Board of Directors is authorized
to cause to be issued shares of the corporation up to the full amount authorized
by the Articles of Incorporation in such classes or series and in such amounts
as may be determined by the Board of Directors and as may be permitted by law.
No shares shall be allotted except in consideration of cash or other property,
tangible or intangible, received or to be received by the corporation under a
written agreement, of services rendered or to be rendered to the corporation
under a written agreement, or of an amount transferred from surplus to stated
capital upon a share dividend. At the time of such allotment of shares, the
Board of Directors making such allotments shall state, by resolution, their
determination of the fair value to the corporation in monetary terms of any
consideration other than cash for which shares are alloted. No shares of stock
issued by the corporation shall be issued, sold or exchanged by or on behalf of
the corporation for any amount less than the net asset value per share of the
shares outstanding as determined pursuant to Article X hereunder.
Section 5.03. Redemption of Shares. Upon the demand of any shareholder,
this corporation shall redeem any share of stock issued by it held and owned
by such shareholder at the net asset value thereof as determined pursuant to
Article X hereunder. The Board of Directors may suspend the right of redemption
or postpone the date of payment during any period when: (a) trading on the New
York Stock Exchange is restricted or such Exchange is closed for other than
weekends or holidays; (b) the Securities and Exchange Commission has by order
permitted such suspension; or (c) an emergency as defined by rules of the
Securities and
<PAGE>
Exchange Commission exists, making disposal of portfolio securities or valuation
of net assets of the corporation not reasonably practicable.
If following a redemption request by any shareholder of this
corporation, the value of such shareholder's interest in the corporation falls
below the required minimum investment, as may be set from time to time by the
Board of Directors, the corporation's officers are authorized, in their
discretion and on behalf of the corporation, to redeem such shareholder's entire
interest and remit such amount, provided that such a redemption will only be
effected by the corporation following: (a) a redemption by a shareholder, which
causes the value of such shareholder's interest in the corporation to fall below
the required minimum investment; (b) the mailing by the corporation to such
shareholder of a "notice of intention to redeem"; and (c) the passage of at
least sixty (60) days from the date of such mailing, during which time the
shareholder will have the opportunity to make an additional investment in the
corporation to increase the value of such shareholder's account to at least the
required minimum investment.
Section 5.04. Transfer of Shares. Transfer of shares on the books of
the corporation may be authorized only by the shareholder named in the
certificate, or the shareholder's legal representative, or the shareholder's
duly authorized attorney-in-fact, and upon surrender of the certificate or the
certificates for such shares or a duly executed assignment covering shares held
in unissued form. The corporation may treat, as the absolute owner of shares of
the corporation, the person or persons in whose name shares are registered on
the books of the corporation.
Section 5.05. Registered Shareholders. The corporation shall be
entitled to treat the holder of record of any share or shares of stock as the
holder in fact thereof and accordingly shall not be bound to recognize any
equitable or other claim to or interest in such share on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise expressly provided by the laws of Minnesota.
Section 5.06. Transfer of Agents and Registrars. The Board of Directors
may from time to time appoint or remove transfer agents and/or registrars of
transfers of shares of stock of the corporation, and it may appoint the same
person as both transfer agent and registrar. Upon any such appointment being
made all certificates representing shares of capital stock thereafter issued
shall be countersigned by one of such transfer agents or by one of such
registrars of transfers or by both and shall not be valid unless so
countersigned. If the same person shall be both transfer agent and registrar,
only one countersignature by such person shall be required.
Section 5.07. Transfer Regulations. The shares of stock of the
corporation may be freely transferred, and the Board of Directors may from time
to
<PAGE>
time adopt rules and regulations with reference to the method of transfer of
shares of stock of the corporation.
Section 5.08. Lost, Stolen, Destroyed and Mutilated Certificates. The
holder of any stock of the corporation shall immediately notify the corporation
of any loss, theft, destruction or mutilation of any certificate therefor, and
the Board of Directors may, in its discretion, cause to be issued to him a new
certificate or certificates of stock, upon the surrender of the mutilated
certificate or in case of loss, theft or destruction of the certificate upon
satisfactory proof of such loss, theft or destruction. A new certificate or
certificates of stock will be issued to the owner of the lost, stolen or
destroyed certificate only after such owner, or his legal representatives, gives
to the corporation and to such registrar or transfer agent as may be authorized
or required to countersign such new certificate or certificates a bond, in such
sum as they may direct, and with such surety or sureties, as they may direct, as
indemnity against any claim that may be made against them or any of them on
account of or in connection with the alleged loss, theft or destruction of any
such certificate.
ARTICLE VI.
DIVIDENDS
Section 6.01. The net investment income of each class or series of the
corporation will be determined, and its dividends shall be declared and made
payable at such time(s) as the Board of Directors shall determine; dividends
shall be payable to shareholders of record as of the date of declaration.
It shall be the policy of each class or series of the corporation to
qualify for and elect the tax treatment applicable to regulated investment
companies under the Internal Revenue Code, so that such class or series will not
be subjected to federal income tax on such part of its income or capital gains
as it distributes to shareholders.
ARTICLE VII.
BOOKS AND RECORDS, AUDIT, FISCAL YEAR
Section 7.01. Share Register. The Board of Directors of the corporation
shall cause to be kept at its principal executive office, or at another place or
places within the United States determined by the board:
(1) a share register not more than one year old, containing the
names and addresses of the shareholders and the number and
classes or series of shares held by each shareholder; and
<PAGE>
(2) a record of the dates on which certificates or transaction
statements representing shares were issued.
Section 7.02. Other Books and Records. The Board of Directors shall
cause to be kept at its principal executive office, or, if its principal
executive office is not in Minnesota, shall make available at its registered
office within ten days after receipt by an officer of the corporation of a
written demand for them made by a shareholder or other person authorized by
Minnesota Statutes Section 302A.461, originals or copies of:
(1) records of all proceedings of shareholders for the last three
years;
(2) records of all proceedings of the Board of Directors for the
last three years;
(3) its articles and all amendments currently in effect;
(4) its bylaws and all amendments currently in effect;
(5) financial statements required by Minnesota Statutes Section
302A.463 and the financial statement for the most recent
interim period prepared in the course of the operation of the
corporation for distribution to the shareholders or to a
governmental agency as a matter of public record;
(6) reports made to shareholders generally within the last three
years;
(7) a statement of the names and usual business addresses of its
directors and principal officers;
(8) any shareholder voting or control agreements of which the
corporation is aware; and
(9) such other records and books of account as shall be necessary
and appropriate to the conduct of the corporate business.
Section 7.03. Audit; Accountant.
(a) The Board of Directors shall cause the records and books of account
of the corporation to be audited at least once in each fiscal year and at such
other times as it may deem necessary or appropriate.
<PAGE>
(b) The corporation shall employ an independent public accountant or
firm of independent public accountants as its Accountant to examine the accounts
of the corporation and to sign and certify financial statements filed by the
corporation. The Accountant's certificates and reports shall be addressed both
to the Board of Directors and to the shareholders.
(c) A majority of the members of the Board of Directors shall select
the Accountant annually at a meeting held within thirty (30) days before or
after the beginning of the fiscal year of the corporation or before the regular
shareholders' meeting in that year. Such selection shall be submitted for
ratification or rejection at the next succeeding regular shareholders' meeting.
If such meeting shall reject such selection, the Accountant shall be selected by
majority vote, either at the meeting at which the rejection occurred or at a
subsequent meeting of shareholders called for the purpose.
(d) Any vacancy occurring between annual meetings, due to the death,
resignation or otherwise of the Accountant, may be filled by the Board of
Directors.
Section 7.04. Fiscal Year. The fiscal year of the corporation shall be
determined by the Board of Directors.
ARTICLE VIII.
INDEMNIFICATION OF CERTAIN PERSONS
Section 8.01. The corporation shall indemnify such persons, for such
expenses and liabilities, in such manner, under such circumstances, and to such
extent as permitted by Section 302A.521 of the Minnesota Statutes, as now
enacted or hereafter amended, provided, however, that no such indemnification
may be made if it would be in violation of Section 17(h) of the Investment
Company Act of 1940, as now enacted or hereinafter amended.
ARTICLE IX.
VOTING OF STOCK HELD
Section 9.01. Unless otherwise provided by resolution of the Board of
Directors, the President, any Vice President, the Secretary or the Treasurer,
may from time to time appoint an attorney or attorneys or agent or agents of the
corporation, in the name and on behalf of the corporation, to cast the votes
which the corporation may be entitled to cast as a stockholder or otherwise in
any other corporation or association, any of whose stock or securities may be
held by the corporation, at meetings of the holders of the stock or other
securities of any such other corporation or association, or to consent in
writing to any action by any such
<PAGE>
other corporation or association, and may instruct the person or persons so
appointed as to the manner of casting such votes or giving such consent, and may
execute or cause to be executed on behalf of the corporation and under its
corporate seal, or otherwise, such written proxies, consents, waivers or other
instruments as it may deem necessary or proper; or any of such officers may
themselves attend any meeting of the holders of stock or other securities of any
such corporation or association and thereat vote or exercise any or all other
rights of the corporation as the holder of such stock or other securities of
such other corporation or association, or consent in writing to any action by
any such other corporation or association.
ARTICLE X.
VALUATION OF NET ASSET VALUE
10.01. The net asset value per share of each class or series of stock
of the corporation shall be determined in good faith by or under supervision of
the officers of the corporation as authorized by the Board of Directors as often
and on such days and at such time(s) as the Board of Directors shall determine,
or as otherwise may be required by law, rule, regulation or order of the
Securities and Exchange Commission.
ARTICLE XI.
CUSTODY OF ASSETS
Section 11.01. All securities and cash owned by this corporation shall,
as hereinafter provided, be held by or deposited with a bank or trust company
having (according to its last published report) not less than Two Million
Dollars ($2,000,000) aggregate capital, surplus and undivided profits (the
"Custodian").
This corporation shall enter into a written contract with the custodian
regarding the powers, duties and compensation of the Custodian with respect to
the cash and securities of this corporation held by the Custodian. Said contract
and all amendments thereto shall be approved by the Board of Directors of this
corporation. In the event of the Custodian's resignation or termination, the
corporation shall use its best efforts promptly to obtain a successor Custodian
and shall require that the cash and securities owned by this corporation held by
the Custodian be delivered directly to such successor Custodian.
<PAGE>
ARTICLE XII.
AMENDMENTS
Section 12.01. These Bylaws may be amended or altered by a vote of the
majority of the Board of Directors at any meeting provided that notice of such
proposed amendment shall have been given in the notice given to the directors of
such meeting. Such authority in the Board of Directors is subject to the power
of the shareholders to change or repeal such bylaws by a majority vote of the
shareholders present or represented at any regular or special meeting of
shareholders called for such purpose, and the Board of Directors shall not make
or alter any Bylaws fixing a quorum for meetings of shareholders, prescribing
procedures for removing directors or filling vacancies in the Board of
Directors, or fixing the number of directors or their classifications,
qualifications or terms of office, except that the Board of Directors may adopt
or amend any Bylaw to increase or decrease their number.
ARTICLE XIII.
MISCELLANEOUS
Section 13.01. Interpretation. When the context in which words are used
in these Bylaws indicates that such is the intent, singular words will include
the plural and vice versa, and masculine words will include the feminine and
neuter genders and vice versa.
Section 13.02. Article and Section Titles. The titles of Sections and
Articles in these Bylaws are for descriptive purposes only and will not control
or alter the meaning of any of these Bylaws as set forth in the text.
