FIRST AMERICAN INVESTMENT FUNDS, INC. December 18, 1995
To the Shareholders of Limited Volatility Stock Fund:
Enclosed with this letter is a proxy voting ballot, a Prospectus/Proxy
Statement and related information concerning a Special Meeting of Shareholders
of the Limited Volatility Stock Fund of First American Investment Funds, Inc.
("FAIF") to be held on Monday, January 22, 1996. The purpose of this Special
Meeting is to submit to shareholders of Limited Volatility Stock Fund a proposal
to combine that Fund with and into FAIF's Stock Fund by means of the
reorganization described in the Prospectus/Proxy Statement.
If the proposed combination of Funds is approved, you will receive
Class C shares in Stock Fund, which is the same class of shares that you
currently hold in Limited Volatility Stock Fund. The exchange of shares will
take place on the basis of the relative net asset values per share of the
respective classes of the two Funds. Investment advisory fees, sales charges,
and Rule 12b-1 distribution and shareholder servicing fees all will remain
unchanged.
At September 30, 1995, Limited Volatility Stock Fund had net assets of
only approximately $17 million, while Stock Fund had net assets of approximately
$333 million. As described in the Prospectus/Proxy Statement, FAIF's Board of
Directors believes that the proposed combination of Funds is in the best
interests of Limited Volatility Stock Fund shareholders because, among other
things, it is expected to lower the total expense ratio experienced by such
shareholders (before fee waivers, if any) due to the economies of scale
associated with becoming part of a larger Fund.
Although the investment objectives of the two Funds are similar in that
both seek capital appreciation and income, shareholders should carefully
consider both the similarities and the differences between the two Funds. These
similarities and differences, as well as other important information concerning
the proposed combination of Funds, are described in detail in the
Prospectus/Proxy Statement, which you are encouraged to review carefully. If you
have any additional questions, please call your account administrator,
investment sales representative, or FAIF directly at 1-800-637-2548.
FAIF's Board of Directors has approved the proposed combination of
Funds and recommends it for your approval. I encourage you to vote in favor of
the proposal, and ask that you please send your completed proxy ballot in as
soon as possible to help save the cost of additional solicitations. As always,
we thank you for your confidence and support.
Sincerely,
/s/ David G. Lee
David G. Lee
President
LIMITED VOLATILITY STOCK FUND
A SEPARATELY MANAGED SERIES OF
FIRST AMERICAN INVESTMENT FUNDS, INC.
680 EAST SWEDESFORD ROAD
WAYNE, PENNSYLVANIA
(800) 637-2548
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 22, 1996
To the Shareholders of Limited Volatility Stock Fund: December 18, 1995
NOTICE IS HEREBY GIVEN that a special meeting of shareholders of
Limited Volatility Stock Fund (the "Acquired Fund"), a separately managed series
of First American Investment Funds, Inc. ("FAIF") will be held at 10:00 a.m.,
Eastern time, on Monday, January 22, 1996, at the offices of SEI Corporation,
680 East Swedesford Road, Wayne Pennsylvania, First Floor, Management Conference
Room. The purpose of the special meeting is as follows:
1. To consider and vote on a proposed Agreement and Plan of
Reorganization (the "Plan") providing for (a) the acquisition of all
of the assets and the assumption of all liabilities of the Acquired
Fund by Stock Fund (the "Acquiring Fund"), a separately managed series
of FAIF, in exchange for shares of common stock of the Acquiring Fund
having an aggregate net asset value equal to the aggregate value of
the assets acquired (less the liabilities assumed) of the Acquired
Fund and (b) the liquidation of the Acquired Fund and the pro rata
distribution of the Acquiring Fund shares to Acquired Fund
shareholders. Under the Plan, Acquired Fund shareholders will receive
Class C shares of the Acquiring Fund, which is the same class of
shares that they held in the Acquired Fund, having a net asset value
equal as of the effective time of the Plan to the net asset value of
their Acquired Fund shares. A vote in favor of the Plan will be
considered a vote in favor of an amendment to the articles of
incorporation of FAIF required to effect the reorganization
contemplated by the Plan.
2. To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
Even if Acquired Fund shareholders vote to approve the Plan,
consummation of the Plan is subject to certain other conditions. See
"Information About the Reorganization -- Plan of Reorganization" in the attached
Prospectus/Proxy Statement.
THE BOARD OF DIRECTORS OF FAIF RECOMMENDS APPROVAL OF THE PLAN.
The close of business on December 11, 1995 has been fixed as the record
date for the determination of shareholders entitled to notice of and to vote at
the meeting and any adjournments or postponements thereof.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE SIGN AND
PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE. IN
ORDER TO AVOID THE ADDITIONAL EXPENSE OF FURTHER SOLICITATION, WE RESPECTFULLY
ASK FOR YOUR COOPERATION IN MAILING IN YOUR PROXY PROMPTLY. If you are present
at the meeting, you may then revoke your proxy and vote in person, as explained
in the Prospectus/Proxy Statement in the section entitled "Voting Information."
By Order of the Board of Directors,
MICHAEL J. RADMER
Secretary
PROSPECTUS/PROXY STATEMENT
DATED DECEMBER 18, 1995
ACQUISITION OF THE ASSETS OF
LIMITED VOLATILITY STOCK FUND
A SEPARATELY MANAGED SERIES OF
FIRST AMERICAN INVESTMENT FUNDS, INC.
680 EAST SWEDESFORD ROAD
WAYNE, PENNSYLVANIA 19087
(800) 637-2548
BY AND IN EXCHANGE FOR SHARES OF
STOCK FUND
A SEPARATELY MANAGED SERIES OF
FIRST AMERICAN INVESTMENT FUNDS, INC.
680 EAST SWEDESFORD ROAD
WAYNE, PENNSYLVANIA 19087
(800) 637-2548
This Prospectus/Proxy Statement is being furnished to the shareholders
of Limited Volatility Stock Fund (the "Acquired Fund"), a separately managed
series of First American Investment Funds, Inc. ("FAIF"), in connection with a
special meeting (the "Meeting") of the shareholders of the Acquired Fund to be
held at the offices of SEI Corporation, 680 East Swedesford Road, Wayne,
Pennsylvania on Monday, January 22, 1996, for the purposes set forth in the
accompanying Notice of Special Meeting of Shareholders. This Prospectus/Proxy
Statement is first being mailed to shareholders of the Acquired Fund on or about
December 18, 1995. Information concerning the voting rights of each Acquired
Fund shareholder is set forth under "Voting Information" below. Directors and
officers of FAIF and employees of SEI Financial Management Company, the
administrator for the Acquired Fund, may, without cost to the Acquired Fund,
solicit proxies for management of the Acquired Fund by means of mail, telephone,
or personal calls. Persons holding shares as nominees will, upon request, be
reimbursed for their reasonable expenses incurred in sending proxy soliciting
materials on behalf of the Board of Directors to their principals.
As set forth in the Notice of Special Meeting of Shareholders, this
Prospectus/Proxy Statement relates to a proposed Agreement and Plan of
Reorganization (the "Plan") providing for (i) the acquisition of all the assets
and the assumption of all liabilities of the Acquired Fund by Stock Fund (the
"Acquiring Fund"), a separately managed series of FAIF, in exchange for shares
of common stock of the Acquiring Fund having an aggregate net asset value equal
to the aggregate value of the assets acquired (less liabilities assumed) of the
Acquired Fund, and (ii) the liquidation of the Acquired Fund and the pro rata
distribution of its holdings of Acquiring Fund shares to Acquired Fund
shareholders. The Acquired Fund and the Acquiring Fund are sometimes referred to
herein, individually, as a "Fund," or together, as the "Funds." A vote in favor
of the Plan will be considered a vote in favor of an amendment to the articles
of incorporation of FAIF required to effect the reorganization contemplated by
the Plan.
As a result of the transactions contemplated by the Plan (collectively,
the "Reorganization"), each shareholder of the Acquired Fund will receive Class
C Acquiring Fund shares, which is the same class that he or she held in the
Acquired Fund, with a net asset value equal at the effective time of the
Reorganization to the net asset value of the shareholder's Acquired Fund shares
at such time. The Reorganization is being structured as a tax-free
reorganization so that no income, gain or loss will be recognized by the
Acquired Fund or its shareholders as a result thereof (except that the Acquired
Fund contemplates that it will make a distribution, immediately prior to the
Reorganization, of all of its net income and net realized capital gains, if any,
not previously distributed, and this distribution will be taxable to Acquired
Fund shareholders subject to taxation). The shareholders of the Acquired Fund
are being asked to vote on the proposed Plan and Reorganization at the Meeting.
In addition to the approval of the Plan and Reorganization by Acquired
Fund shareholders, the consummation of the Reorganization is subject to certain
other conditions. See "Information About the Reorganization -- Plan of
Reorganization."
FAIF, of which the Acquired Fund and the Acquiring Fund are separate
series, is an open-end management investment company. The Acquired Fund and the
Acquiring Fund are both diversified, open-end funds with investment objectives
which are similar, in that both seek capital appreciation and income.
Specifically:
* The Acquired Fund has a primary objective of maximizing total return
(capital appreciation plus income) within the constraint of
controlling the volatility of the Acquired Fund to a level below that
of the major market indices such as the S&P 500 and the Dow Jones
Industrial Average. In this respect, the Acquired Fund seeks to
maintain a five year historical performance relative to the S&P 500 at
a beta level no greater than .95. A secondary objective of the
Acquired Fund is to provide current income at a level that exceeds
that of the S&P 500.
* The Acquiring Fund has a primary objective of capital appreciation. A
secondary objective of the Acquiring Fund is to provide current
income.
In addition, the investment policies of the Acquired Fund and the Acquiring Fund
are substantially identical. Under normal market conditions, both Funds invest
at least 80% of their total assets in equity securities (and at least 65% in
common stocks) diversified among a broad range of industries and among companies
that have a market capitalization of at least $500 million. Both Funds also are
permitted to invest up to 20% of their total assets in the aggregate in equity
securities of issuers with a market capitalization of less than $500 million and
in specified kinds of fixed income securities which are the same for both Funds.
Moreover, the fundamental and non-fundamental investment restrictions applicable
to the two Funds are substantially similar. The Funds' investment objectives,
policies and restrictions are described and compared in further detail herein
under "Information About the Acquired Fund and the Acquiring Fund -- Comparison
of Investment Objectives, Policies and Restrictions."
Based on the historical performance and current portfolio composition
of the respective Funds, the Funds' investment adviser expects that the level of
net investment income of Acquiring Fund shares issued in the Reorganization will
be somewhat lower than the historical level of net investment income on the
Acquired Fund shares currently held by Acquired Fund shareholders and somewhat
lower than the dividend yield of the S&P 500. However, during the five years
ended September 30, 1995, the Acquiring Fund met the Acquired Fund's investment
objective with respect to volatility. See "Summary -- Investment Objectives,
Policies and Restrictions" herein.
First Bank National Association ("FBNA" or the "Manager") serves as the
investment adviser to both the Acquired Fund and the Acquiring Fund.
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about the proposed Plan and
Reorganization and about the Acquiring Fund and its affiliates that each
Acquired Fund shareholder should know prior to voting on the proposed Plan and
Reorganization.
INCORPORATION BY REFERENCE
The documents listed in items 1 and 2 below, which have been filed with
the Securities and Exchange Commission (the "Commission"), are incorporated
herein by reference to the extent noted below. A Statement of Additional
Information dated December 18, 1995 relating to this Prospectus/Proxy Statement
has been filed with the Commission and is also incorporated by reference into
this Prospectus/Proxy Statement. A copy of the Statement of Additional
Information, and of the document listed in item 3 below, is available upon
request and without charge by writing to SEI Financial Services Company, 680
East Swedesford Road, Wayne, Pennsylvania 19087 or by calling (800) 637-2548.
The documents listed in items 2 and 3 below are incorporated by reference into
the Statement of Additional Information and will be provided with any copy of
the Statement of Additional Information which is requested. Any documents
requested will be sent within one business day of receipt of the request by
first class mail or other means designed to ensure equally prompt delivery.
1. The Retail Class Prospectus dated January 31, 1995 and the
Institutional Class Prospectus dated January 31, 1995 of the Acquiring
Fund and the Acquired Fund are incorporated herein in their entirety
by reference, and a copy of each accompanies this Prospectus/Proxy
Statement.
2. The "Portfolio Performance Discussion" for the Acquiring Fund set
forth at page 13 of FAIF's Annual Report for the year ended September
30, 1995 is incorporated herein by reference, and a copy of such
Annual Report accompanies this Prospectus/Proxy Statement. Such Annual
Report, as it relates to the Retail Classes and the Institutional
Class of both the Acquiring Fund and the Acquired Fund, is
incorporated by reference in the Statement of Additional Information
relating to this Prospectus/Proxy Statement.
3. The Statement of Additional Information dated January 31, 1995 of
FAIF, as it relates to the Retail Classes and the Institutional Class
of both the Acquired Fund and the Acquiring Fund, is incorporated by
reference in the Statement of Additional Information relating to this
Prospectus/Proxy Statement.
Also accompanying and attached to this Prospectus/Proxy Statement as Exhibit A
is a copy of the Plan for the proposed Reorganization.
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 CON-
TRARY IS A CRIMINAL OFFENSE.
SUMMARY
This summary is qualified in its entirety by reference to the
additional information contained elsewhere in this Prospectus/Proxy Statement,
the Prospectuses and Statement of Additional Information of FAIF relating to the
Acquiring Fund and the Acquired Fund, each dated January 31, 1995, and the Plan,
a copy of which is attached to this Prospectus/Proxy Statement as Exhibit A.
Acquired Fund shareholders should review the accompanying documents carefully in
connection with their review of this Prospectus/Proxy Statement.
PROPOSED REORGANIZATION
The Plan provides for (i) the acquisition of all of the assets and the
assumption of all liabilities of the Acquired Fund by the Acquiring Fund in
exchange for shares of common stock of the Acquiring Fund having an aggregate
net asset value equal to the aggregate value of the assets acquired (less
liabilities assumed) of the Acquired Fund and (ii) the liquidation of the
Acquired Fund and the pro rata distribution of its holdings of Acquiring Fund
shares to Acquired Fund shareholders as of the effective time of the
Reorganization (the close of normal trading on the New York Stock Exchange,
currently 4:00 p.m. Eastern Time, on January 26, 1996, or such later date as
provided for in the Plan) (such time and date, the "Effective Time"). The value
of the Acquired Fund assets and liabilities to be acquired by the Acquiring
Fund, and the value of the Acquiring Fund shares to be exchanged therefor, will
be computed as of the Effective Time. As a result of the Reorganization, each
shareholder of the Acquired Fund will receive Acquiring Fund shares of the same
class that he or she held in the Acquired Fund, with a net asset value equal to
the net asset value of the shareholder's Acquired Fund shares as of the
Effective Time. See "Information About the Reorganization."
For the reasons set forth below under "Information About the
Reorganization -- Reasons for the Reorganization," the Board of Directors of
FAIF, including all of the "non-interested" Directors, as that term is defined
in the Investment Company Act of 1940, as amended (the "Investment Company
Act"), has concluded that the Reorganization would be in the best interests of
the shareholders of the Acquired Fund and that the interests of Acquired Fund's
existing shareholders would not be diluted as a result of the transactions
contemplated by the Reorganization. Therefore, the Board of Directors has
approved the Reorganization and has submitted the Plan for approval by Acquired
Fund shareholders.
The Board of Directors of FAIF has also concluded that the
Reorganization would be in the best interests of the Acquiring Fund's existing
shareholders and has therefore approved the Reorganization on behalf of the
Acquiring Fund.
Approval of the Plan and Reorganization will require the affirmative
vote of a majority of the outstanding shares of each class of the Acquired Fund,
voting as separate classes.
TAX CONSEQUENCES
Prior to completion of the Reorganization, FAIF, on behalf of the
Acquired Fund, will have received from counsel an opinion that, upon the
Reorganization and the transfer of the assets of the Acquired Fund, no gain or
loss will be recognized by the Acquired Fund or its shareholders for federal
income tax purposes. The holding period and aggregate tax basis of Acquiring
Fund shares that are received by each Acquired Fund shareholder will be the same
as the holding period and aggregate tax basis of the Acquired Fund shares
previously held by such shareholders. In addition, the holding period and tax
basis of the assets of the Acquired Fund in the hands of the Acquiring Fund as a
result of the Reorganization will be the same as in the hands of the Acquired
Fund immediately prior to the Reorganization. See "Information About the
Reorganization -Federal Income Tax Consequences."
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
The Acquired Fund and the Acquiring Fund are both diversified, open-end
funds with investment objectives which are similar, in that both seek capital
appreciation and income. Specifically:
* The Acquired Fund has a primary objective of maximizing total return
(capital appreciation plus income) within the constraint of
controlling the volatility of the Acquired Fund to a level below that
of the major market indices such as the S&P 500 and the Dow Jones
Industrial Average. In this respect, the Acquired Fund seeks to
maintain a five year historical performance relative to the S&P 500 at
a beta level no greater than .95. A secondary objective of the
Acquired Fund is to provide current income at a level that exceeds
that of the S&P 500.
* The Acquiring Fund has a primary objective of capital appreciation. A
secondary objective of the Acquiring Fund is to provide current
income.
In addition, the investment policies of the Acquired Fund and the Acquiring Fund
are substantially identical. Under normal market conditions, both Funds invest
at least 80% of their total assets in equity securities (and at least 65% in
common stocks) diversified among a broad range of industries and among companies
that have a market capitalization of at least $500 million. Both Funds also are
permitted to invest up to 20% of their total assets in the aggregate in equity
securities of issuers with a market capitalization of less than $500 million and
in specified kinds of fixed income securities which are the same for both Funds.
Moreover, the fundamental and non-fundamental investment restrictions applicable
to the two Funds are substantially similar. The Funds' investment objectives,
policies and restrictions are described and compared in further detail herein
under "Information About the Acquired Fund and the Acquiring Fund -- Comparison
of Investment Objectives, Policies and Restrictions."
Based on the historical performance and current portfolio composition
of the respective Funds, the Funds' investment adviser expects that the level of
net investment income of the respective classes of Acquiring Fund shares issued
in the Reorganization will be somewhat lower than the historical level of net
investment income on the respective classes of Acquired Fund shares and somewhat
lower than the dividend yield of the S&P 500. The following table sets forth the
annualized ratio of net investment income to average net assets for the
respective classes of the two Funds for the period ended September 30, 1995:
NET INVESTMENT INCOME
ACQUIRED FUND ACQUIRING FUND
Class A..................... * 1.89%
Class B..................... * 1.10%
Class C..................... 2.75% 2.10%
* No Class A or Class B shares of the Acquired Fund were outstanding
during this period.
At September 30, 1995 the dividend yield of the S&P 500 was 2.3%, based on that
day's closing prices. Shareholders should recognize that net investment income
is only one component of a fund's total return. For the year ended September 30,
1995, the total return of the Acquired Fund and the Acquiring Fund were as
follows:
TOTAL RETURN*
ACQUIRED FUND ACQUIRING FUND
Class A..................... ** 25.26%
Class B..................... ** 24.20%
Class C..................... 21.93% 25.50%
* Returns, excluding sales charges, are for the period indicated and
have not been annualized. The Acquired Fund was not in operation for
the entire period.
** No Class A or Class B shares of the Acquired Fund were outstanding
during this period.
Inasmuch as the Acquired Fund only commenced operations on November 15,
1994, its beta level cannot be compared with the five year historical beta of
the S&P 500. The five year historical beta level of the Acquiring Fund relative
to the S&P 500 for the period ended September 30, 1995 was approximately 0.7.
Thus, during this five-year period the Acquiring Fund met the Acquired Fund's
investment objective with respect to volatility.
The Annual Report of FAIF for the year ended September 30, 1995,
referred to above under "Incorporation by Reference," provides information
concerning the percentages of the respective Funds' assets invested in various
industries at September 30, 1995.
FEES AND EXPENSES
The Acquired Fund and the Acquiring Fund each have agreements with the
Manager pursuant to which they pay the Manager investment advisory fees for
managing their respective investment portfolios. The investment advisory fees
for the two Funds accrue at the same rate, equal to an annual rate of 0.70% of
the applicable Fund's average daily assets. Investment advisory fees therefore
will remain unchanged as a result of the Reorganization.
The Acquired Fund currently offers only Class C shares. The Acquiring
Fund offers shares in three classes: Class A, Class B, and Class C. Class A
shares and Class B shares are sometimes referred to collectively as "Retail
Class" shares, and Class C shares sometimes are referred to as "Institutional
Class" shares. These classes are subject to the following charges:
* Class C shares of both the Acquired Fund and the Acquiring Fund are
subject to no front-end, contingent deferred or other sales charges,
no redemption fee and no Rule 12b-1 distribution or shareholder
servicing fees.
* Class A shares of the Acquiring Fund are subject to a front-end sales
charge of 4.50%. The front-end sales charge on Class A shares is
waived in full on purchases of $1 million or more, but a 1% deferred
sales charge is collected if shares subject to such a waiver are sold
within 24 months after purchase. No Class A shares are subject to any
other contingent deferred sales charge or other sales charges or to
any redemption fee. Class A shares are subject to distribution fees
equaling 0.25% per annum of average daily net assets under FAIF's Rule
12b-1 plan of distribution, which is a compensation-type plan.
* Class B shares of the Acquiring Fund are subject to no front-end sales
charge. Class B shares are subject to a contingent deferred sales
charge declining from 5% in the first year following purchase to 0%
after six years and to Rule 12b-1 distribution and shareholder
servicing fees of 1.00% per annum of average daily net assets under
compensation-type plans. Eight years after purchase, Class B shares
automatically convert to Class A shares.
As described below, in the Reorganization Class C shares of the Acquired Fund,
which are the only class outstanding, will be exchanged for Class C shares of
the Acquiring Fund. Therefore, sales charges, Rule 12b-1 fees and shareholder
servicing fees will remain unchanged as a result of the Reorganization.
Through January 31, 1996, the Manager is waiving its advisory fee to
the extent that total fund expenses exceed the following percentages of average
net assets of the respective Funds and classes on a per annum basis:
Class A Class B Class C
Acquired Fund................... 1.00% 1.75% 0.75%
Acquiring Fund................. 1.05% 1.80% 0.80%
The Manager has not agreed to waive advisory fees in any set amount after
January 31, 1996, which is the earliest date upon which the Reorganization can
take effect. The Manager has represented, however, that if any such waiver is
made after such date and if the proposed Reorganization is not completed, the
Manager intends that the total expense "caps" thereunder would be the same for
the Acquired Fund and the Acquiring Fund. Therefore, in no event will the
holders of Acquired Fund shares become subject to a less advantageous total
expense "cap" as a result of the proposed Reorganization.
PRO FORMA FEES AND EXPENSES
The following tables are intended to assist Acquired Fund shareholders
in understanding the various costs and expenses (expressed as a percentage of
average net assets) (i) that such shareholders currently bear as Acquired Fund
shareholders (under the "Acquired Fund" column); (ii) that shareholders of the
Acquiring Fund currently bear (under the "Acquiring Fund" column); and (iii)
that such shareholders can expect to bear as Acquiring Fund shareholders after
the Reorganization is consummated (under the "Pro Forma" column). The following
tables are as of September 30, 1995.
<TABLE>
<CAPTION>
CLASS A SHARES FEES AND EXPENSES
<S> <C> <C> <C>
ACQUIRED ACQUIRING
FUND FUND PRO FORMA
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on purchases (as a
percentage of offering price)(1)........................ 4.50% 4.50% 4.50%
Maximum sales load imposed on reinvested dividends............ None None None
Deferred sales load(1)........................................ None None None
Redemption fees............................................... None None None
Exchange fees................................................. None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment advisory fees (after voluntary fee waivers
and reimbursements(2)................................... 0.24% 0.57% 0.57%
Rule 12b-1 fees (after voluntary waivers)(2).................. 0.25% 0.25% 0.25%
Other expenses(2)............................................. 0.51% 0.23% 0.23%
Total fund operating expenses (after voluntary fee
waivers and reimbursements)(2)........................... 1.00% 1.05% 1.05%
EXAMPLE(3)
You would pay the following expenses on a $1,000 investment, assuming
(i) the maximum applicable sales charge; (ii) a 5% annual return; and
(iii) redemption at the end of each time period:
1 year........................................................ $55 $55 $55
3 years....................................................... $75 $77 $77
5 years....................................................... $98 $100 $100
10 years...................................................... $162 $167 $167
</TABLE>
(1) The rules of the Securities and Exchange Commission require that the
maximum sales charge be reflected in the above table. However, certain
investors may qualify for reduced sales charges. Purchases of $1 million or
more of Class A Shares are not subject to an initial sales charge, but a
contingent deferred sales charge of 1.00% is imposed in the case of
redemption within 24 months following the purchase.
(2) Total fund operating expenses are based on fee waivers which expire January
31, 1996. See "-- Fees and Expenses" above. Absent any fee waivers,
investment advisory fees as an annualized percentage of average daily net
assets would be 0.70% (Acquired Fund), 0.70% (Acquiring Fund), and 0.70%
(Pro Forma); Rule 12b-1 fees would be 0.25% (Acquired Fund), 0.25%
(Acquiring Fund), and 0.25% (Pro Forma); and total fund operating expenses
would be 1.46% (Acquired Fund), 1.19% (Acquiring Fund), and 1.19% (Pro
Forma). Other expenses includes an administration fee.
(3) Absent fee waivers and reimbursements, the respective dollar amounts for
the 1, 3, 5, and 10-year periods would be $59, $89, $121, and $212
(Acquired Fund); $57, $81, $107, and $183 (Acquiring Fund); and $57, $81,
$107, and $183 (Pro Forma).
<TABLE>
<CAPTION>
CLASS B SHARES FEES AND EXPENSES
<S> <C> <C> <C>
ACQUIRED ACQUIRING
FUND FUND PRO FORMA
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on purchases (as a
percentage of offering price)........................... None None None
Maximum sales load imposed on reinvested dividends............ None None None
Maximum contingent deferred sales charge (as a
percentage of original purchase price or redemption
proceeds, as applicable)................................. 5.00% 5.00% 5.00%
Redemption fees............................................... None None None
Exchange fees................................................. None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment advisory fees (after voluntary fee waivers
and reimbursements(1)................................... 0.24% 0.57% 0.57%
Rule 12b-1 fees............................................... 1.00% 1.00% 1.00%
Other expenses(1)............................................. 0.51% 0.23% 0.23%
Total fund operating expenses (after voluntary fee
waivers and reimbursements)(1)........................... 1.75% 1.80% 1.80%
EXAMPLE (ASSUMING REDEMPTION)(2)
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; and (iii) 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:
1 year........................................................ $68 $68 $68
3 years....................................................... $95 $97 $97
5 years....................................................... $115 $117 $117
10 years...................................................... $186 $192 $192
EXAMPLE (ASSUMING NO REDEMPTION)(3)
You would pay the following expenses on the same investment,
assuming no redemption:
1 year........................................................ $18 $18 $18
3 years....................................................... $55 $57 $57
5 years....................................................... $95 $97 $97
10 years...................................................... $186 $192 $192
</TABLE>
(1) Total fund operating expenses are based on fee waivers which expire January
31, 1996. See "-- Fees and Expenses" above. Absent any fee waivers,
investment advisory fees as an annualized percentage of average daily net
assets would be 0.70% (Acquired Fund), 0.70% (Acquiring Fund), and 0.70%
(Pro Forma); and total fund operating expenses would be 2.21% (Acquired
Fund), 1.94% (Acquiring Fund), and 1.94% (Pro Forma).
Other expenses includes an administration fee.
(2) Absent fee waivers and reimbursements, the respective dollar amounts for
the 1, 3, 5, and 10-year periods would be $72, $109, $138, and $235
(Acquired Fund); $70, $101, $125, and $207 (Acquiring Fund); and $70, $101,
$125, and $207 (Pro Forma).
(3) Absent fee waivers and reimbursements, the respective dollar amounts for
the 1, 3, 5, and 10-year periods would be $22, $69, $118, and $235
(Acquired Fund); $20, $61, $105, and $207 (Acquiring Fund); and $20, $61,
$105, and $207 (Pro Forma).
<TABLE>
<CAPTION>
CLASS C SHARES FEES AND EXPENSES
<S> <C> <C> <C>
ACQUIRED ACQUIRING
FUND FUND PRO FORMA
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on purchases (as a
percentage of offering price)........................... None None None
Maximum sales load imposed on reinvested dividends............ None None None
Deferred sales load........................................... None None None
Redemption fees............................................... None None None
Exchange fees................................................. None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment advisory fees (after voluntary fee waivers
and reimbursements(1)................................... 0.24% 0.57% 0.57%
Rule 12b-1 fees............................................... None None None
Other expenses(1)............................................. 0.51% 0.23% 0.23%
Total fund operating expenses (after voluntary fee
waivers and reimbursements)(1)........................... 0.75% 0.80% 0.80%
EXAMPLE (ASSUMING REDEMPTION)(2)
You would pay the following expenses on a $1,000 investment,
assuming (i) a 5% annual return, and (ii) redemption at the end of
each time period:
1 year........................................................ $8 $8 $8
3 years....................................................... $24 $26 $26
5 years....................................................... $42 $44 $44
10 years...................................................... $93 $99 $99
</TABLE>
(1) Total fund operating expenses are based on fee waivers which expire January
31, 1996. See "-- Fees and Expenses" above. Absent any fee waivers,
investment advisory fees as an annualized percentage of average daily net
assets would be 0.70% (Acquired Fund), 0.70% (Acquiring Fund), and 0.70%
(Pro Forma); and total fund operating expenses would be 1.21% (Acquired
Fund), 0.94% (Acquiring Fund), and 0.94% (Pro Forma).
Other expenses includes an administration fee.
(2) Absent fee waivers and reimbursements, the respective dollar amounts for
the 1, 3, 5, and 10-year periods would be $12, $38, $66, and $147 (Acquired
Fund); $10, $30, $52, and $115 (Acquiring Fund); and $10, $30, $52, and
$115 (Pro Forma).
PURCHASE, EXCHANGE AND REDEMPTION PROCEDURES
Class C shares of the Acquiring Fund received by Acquired Fund
shareholders in the Reorganization will be subject to the same purchase,
exchange and redemption procedures that currently apply to Class C shares of the
Acquired Fund. These procedures are discussed in the Institutional Class
Prospectus of the Acquired Fund and the Acquiring Fund which accompanies this
Prospectus/Proxy Statement under the heading "Purchases and Redemptions of
Shares."
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared daily and paid monthly with respect to both the
Acquired Fund and the Acquiring Fund. Distributions of any net realized
long-term capital gains are made at least once every twelve months with respect
to both Funds. Dividends and distributions for each Fund are automatically
reinvested in additional shares of the Fund unless cash payments are requested
by contacting the Fund.
SHAREHOLDER VOTING RIGHTS
Class A, Class B and Class C shares are treated as separate classes of
shares issued by the respective Funds. Class A, Class B and Class C shares
within a Fund vote together as a single class on most issues, such as election
of directors, and as separate classes on issues that affect only a particular
class, such as Rule 12b-1 distribution plans.
RISK FACTORS
Because the investment objectives, policies and restrictions of the
Acquired Fund and the Acquired Fund are similar (see "Information About the
Acquired Fund and the Acquiring Fund" below), the risks associated with
investing in both Funds are similar. Each of the Funds is subject to the risk of
generally adverse equity markets. Investors also should recognize that the
market prices of equity securities generally, and of particular companies'
equity securities, are subject to greater volatility than prices of fixed income
securities.
Because both Funds are actively managed, their performance reflects in
part the ability of the Manager to select securities which are suited to
achieving their investment objectives. Due to their active management, either or
both Funds could underperform other mutual funds with similar investment
objectives or the market generally.
In addition, both Funds may invest up to 25% of their total assets in
securities of foreign issuers which are either listed on a United States
securities exchange or represented by American Depositary Receipts and may
invest in the types of instruments referred to below under "Information About
the Acquired Fund and the Acquiring Fund." For further information concerning
these types of investments and their associated risks, see "Investment
Objectives and Policies" and "Special Investment Methods" in the Retail Class
Prospectus and the Institutional Class Prospectus relating to the Funds which
accompany this Prospectus/Proxy Statement.
INFORMATION ABOUT THE REORGANIZATION
REASONS FOR THE REORGANIZATION
The Board of Directors of FAIF, including all of the "non-interested"
directors, has determined that it is advantageous to combine the Acquired Fund
with the Acquiring Fund. As discussed in detail below under "Information About
the Acquired Fund and the Acquiring Fund," the Funds have similar investment
objectives, policies and restrictions. The Funds also have the same investment
manager and the same distributor, custodian, transfer agent and auditors.
The Board of Directors of FAIF has determined that the Reorganization
is expected to provide certain benefits to the Acquired Fund and the Acquiring
Fund and is in the best interests of each Fund and its respective shareholders.
The Board of Directors has also determined that the interests of the existing
shareholders of each Fund will not be diluted as a result of the Reorganization.
The Board considered, among other things, the following factors in making such
determinations:
(i) the advantages which may be realized by the Acquired Fund and the
Acquiring Fund, consisting of a potentially reduced expense ratio before
waivers, economies of scale resulting from fund growth, and facilitation of
portfolio management. The Board noted in this regard that the Acquiring
Fund, with its much larger asset base and resulting economies of scale, has
a significantly lower expense ratio before fee waivers than does the
smaller Acquired Fund, and it is expected that holders of the Acquired Fund
will benefit from this lower expense ratio;
(ii)the tax-free nature of the proposed Reorganization;
(iii) the terms and conditions of the Plan, including that (a) the
exchange of Acquired Fund shares for Acquiring Fund shares will take place
on a net asset value basis; (b) no sales charge will be incurred by
Acquired Fund shareholders in connection with their acquisition of
Acquiring Fund shares in the Reorganization; and (c) the condition to
closing that the Manager or an affiliate of the Manager pay any unamortized
organizational expenses on the books of the Acquired Fund;
(iv) the agreement of the Manager to bear the costs associated with
the proposed Reorganization;
(v) the fact that the advisory fee, Rule 12b-1 fees and sales charges
would remain constant for Acquired Fund shareholders; and
(vi) the fact that in no event will the holders of Acquired Fund
shares become subject to a less advantageous total expense "cap" as a
result of the proposed combination of Funds.
The Board also considered the potential benefits to the Manager which could
result from the proposed Reorganization. The Board recognized that if the
Manager determines to waive advisory fees in the future, to the extent that the
proposed Reorganization results in lower overall expense ratios before fee
waivers, the combination of Funds would have the effect of decreasing the cost
to the Manager of providing such waivers. The Board also noted, however, that
the Manager is not obligated to make any such waivers and that if such waivers
are not made, former shareholders of the Acquired Fund and shareholders of the
Acquiring Fund would benefit directly from any decreases in overall expense
ratios and that, in any event, the proposed Reorganization is expected to
provide other benefits to shareholders. The Board thus concluded that, despite
these potential benefits to the Manager, the factors noted in (i) through (vi)
above render the proposed Reorganization fair to and in the best interests of
shareholders of the Acquired Fund and the Acquiring Fund.
PLAN OF REORGANIZATION
The following summary of the proposed Plan and the Reorganization is
qualified in its entirety by reference to the Plan attached to this
Prospectus/Proxy Statement as Exhibit A. The Plan provides that, as of the
Effective Time, the Acquiring Fund will acquire all of the assets and assume all
liabilities of the Acquired Fund in exchange for Acquiring Fund shares having an
aggregate net asset value equal to the aggregate value of the assets acquired
(less liabilities assumed) from the Acquired Fund. The Acquired Fund and the
Acquiring Fund are separate series of shares within FAIF, a single Maryland
corporation. As a result, for corporate law purposes, the acquisition of assets,
assumption of liabilities and exchange of shares is structured under the Plan as
a reallocation of assets and liabilities from the Acquired Fund to the Acquiring
Fund coupled with the issuance and exchange of Class A, Class B and Class C
Acquiring Fund shares in exchange for Class A, Class B and Class C Acquired Fund
shares, respectively. This reallocation of assets and liabilities and exchange
of shares is accomplished under the Plan by amending the articles of
incorporation of FAIF in the manner set forth in the amendment to FAIF's
articles of incorporation as set forth in Exhibit 1 to the Plan attached hereto
as Exhibit A.
Pursuant to the Plan, each holder of Class A, Class B or Class C shares
of the Acquired Fund will receive, at the Effective Time, Class A, Class B or
Class C shares of the Acquiring Fund, as applicable, with an aggregate net asset
value equal to the aggregate net asset value of the Acquired Fund shares owned
by such shareholder immediately prior to the Effective Time. There are currently
no Class A or Class B Acquired Fund shares outstanding. At the Effective Time,
the Acquiring Fund will issue and distribute, at the direction of the Acquired
Fund's Board of Directors, to the Acquired Fund's shareholders of record,
determined as of the Effective Time, the Acquiring Fund Shares issued in
exchange for the Acquired Fund Shares as described above. Thereafter, no
additional shares representing interests in the Acquired Fund will be issued,
and the Acquired Fund will be deemed to be liquidated.
Under the Plan, the net asset value per share of the Acquired Fund's
and the Acquiring Fund's Class A, Class B and Class C shares will be computed as
of the Effective Time using the valuation procedures set forth in FAIF's amended
and restated articles of incorporation and bylaws and then-current Prospectuses
and Statement of Additional Information and as may be required by the Investment
Company Act. The distribution of Acquiring Fund shares to former Acquired Fund
shareholders described above will be accomplished by the establishment of
accounts on the share records of the Acquiring Fund in the names of Acquired
Fund shareholders, each representing the respective classes and numbers of full
and fractional Acquiring Fund shares due such shareholders.
The Plan provides that no sales charges will be incurred by Acquired
Fund shareholders in connection with the acquisition by them of Acquiring Fund
shares pursuant thereto. The Plan also provides that in determining contingent
deferred sales charges applicable to Class B shares issued by the Acquiring Fund
in the Reorganization and the date upon which such shares convert to Class A
shares, the Acquiring Fund will give credit for the period during which the
holders thereof held the Class B shares of the Acquired Fund in exchange for
which such Acquiring Fund shares were issued. In addition, the Plan provides
that if Class A shares of the Acquiring Fund are distributed in the
Reorganization to former holders of Class A shares of the Acquired Fund with
respect to which the front-end sales charge was waived due to a purchase of $1
million or more, the Acquiring Fund will give credit for the period during which
the holder thereof held such Acquired Fund shares in determining whether a
deferred sales charge is payable upon the sale of such Class A shares of the
Acquiring Fund.
The Acquired Fund contemplates that it will make a distribution,
immediately prior to the Effective Time, of all of its net income and net
realized capital gains, if any, not previously distributed. This distribution
will be taxable to Acquired Fund shareholders subject to taxation.
The consummation of the Reorganization is subject to the conditions set
forth in the Plan, including, among others: (i) approval of the Plan, which
includes the related amendment of FAIF's articles of incorporation attached to
the Plan, by the shareholders of the Acquired Fund; (ii) the delivery of the
opinion of counsel described below under "-- Federal Income Tax Consequences;"
(iii) the accuracy as of the Effective Time of the representations and
warranties made by the Acquired Fund and the Acquiring Fund in the Plan; and
(iv) the delivery of customary closing certificates. See the Plan attached
hereto as Exhibit A for a complete listing of the conditions to the consummation
of the Reorganization. The Plan may be terminated and the Reorganization
abandoned at any time prior to the Effective Time, before or after approval by
shareholders of the Acquired Fund, by resolution of the Board of Directors of
FAIF, if circumstances should develop that, in the opinion of the Board, make
proceeding with the consummation of the Plan and Reorganization not in the best
interests of either Fund's shareholders.
The Plan provides that the Manager will pay all expenses incurred in
connection with the Reorganization, and neither Fund will be liable for such
expenses. The Plan also provides that the Manager will pay the Acquired Fund an
amount equal to the unamortized organizational expenses, if any, on the books of
the Acquired Fund, and such unamortized organizational expenses shall not be
reflected in the calculation of the net asset values per share of the Acquired
Fund's shares for purposes of the exchange of shares under the Plan. At January
26, 1996 (the anticipated Effective Date of the Reorganization), the Acquired
Fund's unamortized organizational expenses will equal $7,556.
Approval of the Plan will require the affirmative vote of a majority of
the outstanding shares of each class of the Acquired Fund, voting as separate
classes. Approval of the Plan by Acquired Fund shareholders will be deemed
approval of the amendment to the amended and restated articles of incorporation
of FAIF attached to the Plan. If the Plan is not approved, the Board of
Directors of FAIF will consider other possible courses of action. Acquired Fund
shareholders are not entitled to assert dissenters' rights of appraisal in
connection with the Plan or Reorganization. See "Voting Information -- No
Dissenters' Rights of Appraisal" below.
DESCRIPTION OF ACQUIRING FUND SHARES
The Class A, Class B and Class C shares of the Acquiring Fund issued in
the Reorganization will represent shares of common stock, $.0001 par value, in
the Acquiring Fund, which is an open-end mutual fund and a series of FAIF. FAIF
is an open-end management investment company incorporated under the laws of the
State of Maryland. Each share of the Acquiring Fund issued in the Reorganization
will be 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 Acquiring Fund have no
preemptive or conversion rights.
Each share of the Acquiring Fund has one vote. On some issues, such as
the election of directors, all shares of all series of FAIF 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 series or class within a series, the shares of that series or
class will vote as a separate series or class. Examples of such issues would be
proposals to alter a fundamental investment restriction pertaining to a series
or to approve, disapprove or alter a distribution plan pertaining to a class.
Under the laws of the State of Maryland and FAIF's articles of
incorporation, FAIF is not required to hold shareholder meetings unless they (i)
are required by the Investment Company Act, or (ii) are requested in writing by
the holders of 25% or more of the outstanding shares of FAIF.
FEDERAL INCOME TAX CONSEQUENCES
It is intended that the exchange of Acquiring Fund shares for the
Acquired Fund's net assets and the distribution of such shares to the Acquired
Fund's shareholders upon liquidation of the Acquired Fund will be treated as a
tax-free reorganization under the Code and that, for federal income tax
purposes, no income, gain or loss will be recognized by the Acquired Fund's
shareholders (except that the Acquired Fund contemplates that it will make a
distribution, immediately prior to the Effective Time, of all of its net income
and net realized capital gains, if any, not previously distributed, and this
distribution will be taxable to Acquired Fund shareholders subject to taxation).
FAIF has not asked, nor does it plan to ask, the Internal Revenue Service to
rule on the tax consequences of the Reorganization.
As a condition to the closing of the Reorganization, the two Funds will
receive an opinion from Dorsey & Whitney P.L.L.P., counsel to the Funds, based
in part on certain representations to be furnished by each Fund and their
Manager and other service providers, substantially to the effect that the
federal income tax consequences of the Reorganization will be as follows:
(i) the Reorganization will constitute a reorganization within the meaning
of Section 368(a)(1)(C) of the Code, and the Acquiring Fund and the
Acquired Fund each will qualify as a party to the Reorganization under
Section 368(b) of the Code;
(ii) Acquired Fund shareholders will recognize no income, gain or loss upon
receipt, pursuant to the Reorganization, of Acquiring Fund shares.
Acquired Fund shareholders subject to taxation will recognize income
upon receipt of any net investment income or net capital gains of the
Acquired Fund which are distributed by the Acquired Fund prior to the
Effective Time;
(iii) the tax basis of the Acquiring Fund shares received by each Acquired
Fund shareholder pursuant to the Reorganization will be equal to the
tax basis of the Acquired Fund shares exchanged therefor;
(iv) the holding period of the Acquiring Fund shares received by each
Acquired Fund shareholder pursuant to the Reorganization will include
the period during which the Acquired Fund shareholder held the
Acquired Fund shares exchanged therefor, provided that the Acquired
Fund shares were held as a capital asset at the Effective Time;
(v) the Acquired Fund will recognize no income, gain or loss by reason of
the Reorganization;
(vi) the Acquiring Fund will recognize no income, gain or loss by reason of
the Reorganization;
(vii) the tax basis of the assets received by the Acquiring Fund pursuant
to the Reorganization will be the same as the basis of those assets in
the hands of the Acquired Fund as of the Effective Time;
(viii) the holding period of the assets received by the Acquiring Fund
pursuant to the Reorganization will include the period during which
such assets were held by the Acquired Fund; and
(ix) the Acquiring Fund will succeed to and take into account the earnings
and profits, or deficit in earnings and profits, of the Acquired Fund
as of the Effective Time.
The foregoing advice is based in part upon certain representations
furnished by FAIF and the Manager, of which two principal ones are: (a) that
assets representing at least 90% of the fair market value of the Acquired Fund's
net assets and at least 70% of the fair market value of the Acquired Fund's
gross assets at the Effective Time are exchanged solely for Acquiring Fund
shares with unrestricted voting rights, and (b) that there is no plan or
intention by the shareholders of the Acquired Fund who own beneficially 5% or
more of the outstanding shares of the Acquired Fund and, to the best knowledge
of FAIF, there is no plan or intention on the part of the remaining Acquired
Fund shareholders to sell, exchange or otherwise dispose of a number of
Acquiring Fund shares to be received pursuant to the Reorganization that would
reduce such shareholders' interest to a number of Acquiring Fund shares having,
in the aggregate, a value as of the Effective Time of less than 50% of the total
value of the Acquired Fund shares outstanding immediately prior to the
consummation of the Reorganization.
Shareholders of the Acquired Fund should consult their tax advisors
regarding the effect, if any, of the proposed Reorganization in light of their
individual circumstances. Since the foregoing discussion only relates to the
federal income tax consequences of the Reorganization, shareholders of the
Acquired Fund should consult their tax advisors as to state and local tax
consequences, if any, of the Reorganization.
RECOMMENDATION AND VOTE REQUIRED
The Board of Directors of FAIF, including the "non-interested"
directors, recommends that shareholders of the Acquired Fund approve the Plan.
Approval of the Plan will require the affirmative vote of a majority of the
outstanding shares of each class of the Acquired Fund, voting as separate
classes. Approval of the Plan by Acquired Fund shareholders will be deemed
approval of the amendment to the amended and restated articles of incorporation
of FAIF attached to the Plan.
INFORMATION ABOUT THE ACQUIRED FUND AND THE ACQUIRING FUND
Information concerning the Acquiring Fund and the Acquired Fund is
incorporated herein by reference from the current Retail Class Prospectus and
the current Institutional Class Prospectus, each related to both the Acquiring
Fund and the Acquired Fund and dated January 31, 1995, accompanying this
Prospectus/Proxy Statement and forming part of the Registration Statement of
FAIF on Form N-1A which has been filed with the Commission.
The Acquiring Fund, the Acquired Fund and FAIF are subject to the
informational requirements of the Securities Exchange Act of 1934 (the "Exchange
Act") and in accordance therewith file reports and other information including
proxy materials, reports and charter documents with the Commission. These proxy
materials, reports and other information filed by the Acquiring Fund, the
Acquired Fund and FAIF can be inspected and copies obtained at the Public
Reference Facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the New York Regional Office of the Commission at
Seven World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material can also be obtained from the Public Reference Branch, Office of
Consumer Affairs and Information Services, Securities and Exchange Commission,
Washington, D.C. 20549 at prescribed rates.
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
The Acquired Fund and the Acquiring Fund are both diversified, open-end
funds with investment objectives which are similar, in that both seek capital
appreciation and income. Specifically:
* The Acquired Fund has a primary objective of maximizing total return
(capital appreciation plus income) within the constraint of
controlling the volatility of the Acquired Fund to a level below that
of the major market indices such as the S&P 500 and the Dow Jones
Industrial Average. In this respect, the Acquired Fund seeks to
maintain a five year historical performance relative to the S&P 500 at
a beta level no greater than .95. A secondary objective of the
Acquired Fund is to provide current income at a level that exceeds
that of the S&P 500.
* The Acquiring Fund has a primary objective of capital appreciation. A
secondary objective of the Acquiring Fund is to provide current
income.
As previously noted, based on the historical performance and current portfolio
composition of the respective Funds, the Funds' investment adviser expects that
the level of net investment income on the respective classes of Acquiring Fund
shares issued in the Reorganization will be somewhat lower than the historical
level of net investment income on the respective classes of Acquired Fund shares
and somewhat lower than the dividend yield of the S&P 500. However, during the
five years ended September 30, 1995, the Acquiring Fund met the Acquired Fund's
investment objective with respect to volatility. See "Summary -- Investment
Objectives, Policies and Restrictions" herein.
In addition, the investment policies of the Acquired Fund and the
Acquiring Fund are substantially identical. Under normal market conditions, both
Funds invest at least 80% of their total assets in equity securities (and at
least 65% in common stocks) diversified among a broad range of industries and
among companies that have a market capitalization of at least $500 million. Both
Funds also are permitted to invest up to 20% of their total assets in the
aggregate in equity securities of issuers with a market capitalization of less
than $500 million and in specified kinds of fixed income securities which are
the same for both Funds. Both Funds also may (i) invest up to 25% of their total
assets in securities of foreign issuers which are either listed on a United
States stock exchange or represented by American Depositary Receipts; (ii) enter
into repurchase agreements; (iii) in order to reduce risk, purchase put and call
options on equity securities and on stock indices; (iv) write covered call
options covering up to 25% of the equity securities owned by the Fund; (v)
purchase securities on a when-issued or delayed-delivery basis; (vi) engage in
the lending of portfolio securities; (vii) for defensive purposes during times
of unusual market conditions, without limitation hold cash or invest in cash
items of specified kinds which are the same for both Funds; and (viii) invest
not more than 35% of their total assets in cash and cash items in order to
utilize assets awaiting normal investment.
Moreover, the fundamental and non-fundamental investment restrictions
applicable to the two Funds are substantially similar. The only differences in
this regard are that the Acquired Fund, but not the Acquiring Fund, would be
permitted to make margin payments in connection with foreign currency and other
derivative transactions and to invest in mortgage-backed securities. Inasmuch as
the Acquired Fund has not engaged in such transactions, the Manager does not
believe these differences are significant.
For a complete discussion of the investment objectives, policies and
restrictions of the respective Funds, see the Retail Class Prospectus and the
Institutional Class Prospectus accompanying this Prospectus/Proxy Statement and
the Statement of Additional Information referred to under "Incorporation by
Reference."
CAPITALIZATION
The following table shows the capitalization of the Acquired Fund and
of the Acquiring Fund as of September 30, 1995 and on a pro forma basis as of
that date, giving effect to the proposed Reorganization:
<TABLE>
<CAPTION>
(In thousands, except per share values)
ACQUIRED ACQUIRING
FUND FUND PRO FORMA
<S> <C> <C> <C>
CLASS A SHARES
Net assets........................................... * $13,076 $13,076
Net asset value per share............................ * $19.57 $19.57
Shares outstanding................................... * 668 668
CLASS B SHARES
Net assets........................................... * $7,051 $7,051
Net asset value per share............................ * $19.49 $19.49
Shares outstanding................................... * 362 362
CLASS C SHARES
Net assets........................................... $17,125 $312,559 $329,684
Net asset value per share............................ $11.91 $19.56 $19.56
Shares outstanding................................... 1,438 15,976 16,852
</TABLE>
* No Class A or Class B shares of the Acquired Fund were outstanding at
September 30, 1995.
VOTING INFORMATION
GENERAL
This Prospectus/Proxy Statement is furnished in connection with a
solicitation of proxies by the Board of Directors of FAIF to be used at the
Meeting of Acquired Fund shareholders to be held at 10:00 a.m., Eastern time, on
January 22, 1996, at the offices of SEI Corporation, 680 East Swedesford Road,
Wayne, Pennsylvania and at any adjournments thereof. This Prospectus/Proxy
Statement, along with a Notice of Special Meeting and a proxy card, is first
being mailed to shareholders of the Acquired Fund on or about December 18, 1995.
Only shareholders of record as of the close of business on December 18, 1995
(the "Record Date") will be entitled to notice of, and to vote at, the Meeting
or any adjournment thereof. If the enclosed form of proxy is properly executed
and returned on time to be voted at the Meeting, the proxies named therein will
vote the shares represented by the proxy in accordance with the instructions
marked thereon. Unmarked proxies will be voted "for" the proposed Plan and
Reorganization. A proxy may be revoked by giving written notice, in person or by
mail, of revocation before the Meeting to FAIF at its principal executive
offices, 680 East Swedesford Road, Wayne, Pennsylvania 19087, or by properly
executing and submitting a later-dated proxy, or by voting in person at the
Meeting.
If a shareholder executes and returns a proxy but abstains from voting,
the shares held by such shareholder will be deemed present at the Meeting for
purposes of determining a quorum and will be included in determining the total
number of votes cast. If a proxy is received from a broker or nominee indicating
that such person has not received instructions from the beneficial owner or
other person entitled to vote Acquired Fund shares (i.e., a broker "non-vote"),
the shares represented by such proxy will not be considered present at the
Meeting for purposes of determining a quorum and will not be included in
determining the number of votes cast. Brokers and nominees will not have
discretionary authority to vote shares for which instructions are not received
from the beneficial owner.
Approval of the Plan and Reorganization will require the affirmative
vote described above under "Information About the Reorganization --
Recommendation and Vote Required."
As of December 11, 1995, (i) the Acquired Fund had the following
numbers of shares outstanding and entitled to vote at the Meeting: Class A, 0
shares; Class B, 0 shares; and Class C, 1,441,433.196 shares; (ii) the Acquiring
Fund had the following numbers of shares outstanding: Class A, 729,595.103
shares; Class B, 443,771.614 shares; and Class C, 16,722,341.332 shares; and
(iii) the directors and officers of the respective Funds as a group owned less
than one percent of the outstanding shares of either Fund or any class thereof.
The following table sets forth information concerning those persons known by the
respective Funds to own of record or beneficially more than 5% of the
outstanding shares of either Fund or any class thereof (including 25% holders)
as of such date:
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER AND CLASS OWNERSHIP
NAME AND ADDRESS OF HOLDER OF SHARES OWNED OF CLASS
<S> <C> <C>
ACQUIRED FUND:
Var & Co. .................................. 1,441,433.196 Class C * 100.00%
First Trust National Association
P.O. Box 64010
St. Paul, Minnesota 55164-0010
ACQUIRING FUND:
Var & Co. .................................. 12,033,974.967 Class C * 71.96%
First Trust National Association
P.O. Box 64010
St. Paul, Minnesota 55164-0010
First Trust National Association, as
fiduciary for Diamond Retirement Plan....... 4,111,206.061 Class C * 24.59%
180 East 5th Street
St. Paul, Minnesota 55164-0010
</TABLE>
* Record ownership only.
** Beneficial ownership only.
*** Record and beneficial ownership.
Proxies are solicited by mail. Additional solicitations may be made by
telephone or personal contact by officers or employees of the Distributor and
its affiliates. The cost of solicitation will be born by the Manager.
In the event that sufficient votes to approve the Plan and
Reorganization are not received by the date set for the Meeting, the persons
named as proxies may propose one or more adjournments of the Meeting for up to
120 days to permit further solicitation of proxies. In determining whether to
adjourn the Meeting, the following factors may be considered: the percentage of
votes actually cast, the percentage of negative votes actually cast, the nature
of any further solicitation and the information to be provided to shareholders
with respect to the reasons for the solicitation. Any such adjournment will
require the affirmative vote of a majority of the shares present in person or by
proxy and entitled to vote at the Meeting. The persons named as proxies will
vote upon such adjournment after consideration of the best interests of all
shareholders.
INTERESTS OF CERTAIN PERSONS
The following receive payments from the Acquired Fund and the Acquiring
Fund for services rendered pursuant to contractual arrangements with each of the
Funds: First Bank National Association, as the Manager of each Fund, receives
payments for its investment advisory and management services; SEI Financial
Services Company, as the Distributor for each Fund, receives payments for
providing distribution services; FBS Investment Services, Inc., a subsidiary of
First Bank National Association, receives payments from the Manager for
providing distribution services for each Fund; SEI Financial Management
Corporation, in its capacity as the Administrator for each Fund, receives
payments for providing shareholder servicing, legal and accounting and other
administrative personnel and services; DST Systems, Inc., in its capacity as
transfer and dividend disbursing agent for each Fund, receives payments for
providing transfer agency and dividend disbursing services; and First Trust
National Association, a subsidiary of First Bank System, Inc., which also
controls First Bank National Association, receives payments for providing
custodial services for each Fund.
NO DISSENTERS' RIGHTS OF APPRAISAL
Under the Maryland General Corporation Law and the Investment Company
Act, Acquired Fund shareholders are not entitled to assert dissenters' rights of
appraisal in connection with the Plan or Reorganization.
FINANCIAL STATEMENTS AND EXPERTS
The audited statement of net assets of Stock Fund as of September 30,
1994, and the related statement of operations for the year then ended, changes
in net assets for each of the years in the two-year period then ended and the
financial highlights for the periods indicated therein, as included in the
Statement of Additional Information of FAIF dated January 31, 1995, have been
incorporated by reference into this Prospectus/Proxy Statement in reliance on
the report of KPMG Peat Marwick LLP, independent auditors for Stock Fund, given
on the authority of such firm as experts in accounting and auditing. In
addition, the unaudited financial statements for Stock Fund and Limited
Volatility Stock Fund for the six-month period ending March 31, 1995, as
included in the Semi-Annual Report of FAIF for the six-month period ending March
31, 1995, are incorporated herein by reference.
LEGAL MATTERS
Certain legal matters concerning the issuance of the shares of the
Acquiring Fund to be issued in the Reorganization will be passed by Dorsey &
Whitney P.L.L.P., 220 South Sixth Street, Minneapolis, Minnesota 55402. Dorsey &
Whitney P.L.L.P. will rely, as to matters of Maryland law, on the opinion of
Ober, Kaler, Grimes & Shriver, A Professional Corporation.
PROSPECTUS /PROXY STATEMENT
DECEMBER 18, 1995
PROPOSED ACQUISITION OF ASSETS OF
LIMITED VOLATILITY STOCK FUND
A SEPARATELY MANAGED SERIES OF
FIRST AMERICAN INVESTMENT FUNDS, INC.
BY AND IN EXCHANGE FOR SHARES OF
STOCK FUND
A SEPARATELY MANAGED SERIES OF
FIRST AMERICAN INVESTMENT FUNDS, INC.
TABLE OF CONTENTS
PAGE
INCORPORATION BY REFERENCE ................................................ 3
SUMMARY.................................................................... 4
RISK FACTORS............................................................... 11
INFORMATION ABOUT THE REORGANIZATION ...................................... 11
INFORMATION ABOUT THE ACQUIRED FUND AND THE ACQUIRING FUND ................ 16
VOTING INFORMATION ........................................................ 18
FINANCIAL STATEMENTS AND EXPERTS .......................................... 20
LEGAL MATTERS.............................................................. 20
EXHIBIT A-- AGREEMENT AND PLAN OF REORGANIZATION
THE FOLLOWING DOCUMENTS ACCOMPANY THIS PROSPECTUS/PROXY STATMENT:
EQUITY FUNDS RETAIL CLASS PROSPECTUS DATED JANUARY 31, 1995, OF FIRST AMERICAN
INVESTMENT FUNDS, INC.
EQUITY FUNDS INSTITUTIONAL CLASS PROSPECTUS DATED JANUARY 31, 1995.
ANNUAL REPORT FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995, OF FIRST AMERICAN
INVESTMENT FUNDS, INC.
EXHIBIT A TO PROSPECTUS/PROXY STATEMENT
AGREEMENT AND PLAN OF REORGANIZATION
LIMITED VOLATILITY STOCK FUND AND STOCK FUND
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as
of this ___ day of _______, 1995, by and between Class D (also known as "Stock
Fund") (the "Acquiring Fund") of First American Investment Funds, Inc., a
Maryland corporation ("FAIF"), and Class R (also known as "Limited Volatility
Stock Fund") (the "Acquired Fund") of FAIF. The shares of the Acquiring Fund and
the Acquired Fund designated in FAIF's amended and restated articles of
incorporation, as supplemented by articles supplementary thereto filed through
the date hereof, are referred to herein by the names set forth in Article V,
Section 3 of FAIF's bylaws, as follows:
<TABLE>
<CAPTION>
Designation in Articles of
Incorporation or Articles Supplementary Name Assigned in Bylaws
<S> <C>
Class D Common Shares............................. Stock Fund, Class A
Class D, Series 2 Common Shares................... Stock Fund, Class B
Class D, Series 3 Common Shares................... Stock Fund, Class C
Class R Common Shares............................. Limited Volatility Stock Fund, Class A
Class R, Series 2 Common Shares................... Limited Volatility Stock Fund, Class B
Class R, Series 3 Common Shares................... Limited Volatility Stock Fund, Class C
</TABLE>
This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation pursuant to Sections 368(a)(1)(C) of the United
States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization (the "Reorganization") will consist of the consolidation of the
Acquired Fund with and into the Acquiring Fund by means of the exchange of
shares of common stock, par value $.0001 per share, of the Acquiring Fund (the
"Acquiring Fund Shares"), having an aggregate net asset value equal to the
aggregate net asset value of the Acquired Fund, for all of the issued and
outstanding shares of common stock, par value $.0001 per share, of the Acquired
Fund (the "Acquired Fund Shares"), all upon the terms and conditions hereinafter
set forth in this Agreement. The exchange of Acquiring Fund Shares for Acquired
Fund Shares will be effected pursuant to an amendment to FAIF's Articles of
Incorporation in the form attached hereto as Exhibit 1 (the "Amendment") to be
adopted in accordance with the Maryland General Corporation Law.
WITNESSETH:
WHEREAS, FAIF is a registered, open-end management investment company
that offers its shares of common stock in multiple series (each of which series
represents a separate and distinct portfolio of assets and liabilities);
WHEREAS, each of the Acquiring Fund and the Acquired Fund series of
FAIF offers Class A shares, Class B shares and Class C shares;
WHEREAS, the Acquired Fund owns securities which generally are assets
of the character in which the Acquiring Fund is permitted to invest;
WHEREAS, the Board of Directors of FAIF has determined that the
consolidation of the Acquired Fund with and into the Acquiring Fund by means of
the exchange of Class A, Class B and Class C Acquiring Fund Shares for all of
the issued and outstanding Class A, Class B and Class C Acquired Fund Shares,
respectively, on the basis set forth herein is in the best interests of the
Acquired Fund shareholders and the Acquiring Fund shareholders;
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. EXCHANGE OF SHARES; REALLOCATION OF ASSETS AND LIABILITIES
1.1 Subject to the requisite approval by the Acquired Fund shareholders
and to the other terms and conditions herein set forth and on the basis of the
representations and warranties contained herein, the Acquired Fund and the
Acquiring Fund agree that at the Effective Time (as defined in Section 3.1), (a)
each issued and outstanding Class A Acquired Fund Share shall be, without
further action, exchanged for that number of Class A Acquiring Fund Shares
calculated in accordance with Article 2 hereof and the Amendment; (b) each
issued and outstanding Class B Acquired Fund Share shall be, without further
action, exchanged for that number of Class B Acquiring Fund Shares calculated in
accordance with Article 2 hereof and the Amendment; and (c) each issued and
outstanding Class C Acquired Fund Share shall be, without further action,
exchanged for that number of Class C Acquiring Fund Shares calculated in
accordance with Article 2 hereof and the Amendment.
1.2 (a) At the Effective Time, the assets and liabilities belonging to
the Acquired Fund and its respective classes shall become, without further
action, assets and liabilities belonging to the Acquiring Fund and its
respective classes, all in accordance with Article IV, Section 1(d)(i) and (ii)
of FAIF's amended and restated articles of incorporation. For purposes of the
foregoing, the terms "assets belonging to" and "liabilities belonging to" have
the meanings assigned to them in said Article IV, Section 1(d)(i) and (ii). Such
assets belonging to the Acquired Fund to become assets belonging to the
Acquiring Fund shall consist of all of Acquired Fund's property, including, but
not limited to, all cash, securities, commodities and futures interests and
dividends or interest receivable which are assets belonging to the Acquired Fund
as of the Effective Time. All of said assets shall be set forth in detail in an
unaudited statement of assets and liabilities of the Acquired Fund as of the
Effective Time (the "Effective Time Statement"). The Effective Time Statement
shall, with respect to the listing of the Acquired Fund's portfolio securities,
detail the adjusted tax basis of such securities by lot, the respective holding
periods of such securities and the current and accumulated earnings and profits
of the Acquired Fund. The Effective Time Statement shall be prepared in
accordance with generally accepted accounting principles (except for footnotes)
consistently applied.
(b) The Acquired Fund has provided the Acquiring Fund with a list of
all of the Acquired Fund's assets as of the date of execution of this Agreement.
The Acquired Fund reserves the right to sell any of these securities prior to
the Effective Time and to acquire additional securities in the ordinary course
of its business.
1.3 Pursuant to Section 1.2(a), at the Effective Time the liabilities,
expenses, costs, charges and reserves (including, but not limited to, expenses
incurred in the ordinary course of the Acquired Fund's operations, such as
accounts payable relating to custodian and transfer agency fees, investment
management and administrative fees, legal and audit fees, and expenses of state
securities registration of the Acquired Fund's shares) as reflected in the
Effective Time Statement shall become liabilities, expenses, costs, charges and
reserves of the Acquiring Fund.
1.4 At the Effective Time and pursuant to the plan of reorganization
adopted herein, the Acquiring Fund will issue and distribute (as provided in
Article 2) to the Acquired Fund or, at the direction of the Acquired Fund's
Board of Directors, to the Acquired Fund's shareholders of record, determined as
of the Effective Time (the "Acquired Fund Shareholders"), the Acquiring Fund
Shares issued in exchange for the Acquired Fund Shares pursuant to Section 1.1
and Article 2. Thereafter, no additional shares representing interests in the
Acquired Fund shall be issued, and the Acquired Fund shall be deemed to be
liquidated. Such distribution shall be accomplished by the issuance of such
Acquiring Fund Shares to open accounts on the share records of the Acquiring
Fund in the names of the Acquired Fund Shareholders representing the numbers and
classes of Acquiring Fund Shares due each such shareholder. All issued and
outstanding shares of the Acquired Fund will simultaneously be cancelled on the
books of the Acquired Fund, although from and after the Effective Time share
certificates representing interests in the Acquired Fund will represent those
numbers and classes of Acquiring Fund Shares as determined in accordance with
Article 2. Unless requested by Acquired Fund Shareholders, the Acquiring Fund
will not issue certificates representing the Acquiring Fund Shares in connection
with such exchange.
1.5 Ownership of Acquiring Fund Shares will be shown on the books of
the Acquiring Fund. Shares of the Acquiring Fund will be issued in the manner
described in the Acquiring Fund's Prospectuses and Statement of Additional
Information (in effect as of the Effective Time), except that no sales charges
will be incurred by the Acquired Fund Shareholders in connection with the
acquisition by the Acquired Fund Shareholders of Acquiring Fund Shares pursuant
to this Agreement.
1.6 The Acquiring Fund agrees that in determining contingent deferred
sales charges applicable to Class B shares issued by it in the Reorganization
and the date upon which such shares convert to Class A shares, it shall give
credit for the period during which the holders thereof held the Class B shares
of the Acquired Fund in exchange for which such Acquiring Fund shares were
issued. In the event that Class A shares of the Acquiring Fund are distributed
in the Reorganization to former holders of Class A shares of the Acquired Fund
with respect to which the front-end sales charge was waived due to a purchase of
$1 million or more, the Acquiring Fund agrees that in determining whether a
deferred sales charge is payable upon the sale of such Class A shares of the
Acquiring Fund it shall give credit for the period during which the holder
thereof held such Acquired Fund shares.
1.7 Any reporting responsibility of the Acquired Fund, including, but
not limited to, the responsibility for filing of regulatory reports, tax
returns, or other documents with the Securities and Exchange Commission (the
"Commission"), any state securities commissions, and any federal, state or local
tax authorities or any other relevant regulatory authority, is and shall remain
the responsibility of the Acquired Fund.
2. EXCHANGE RATIOS; VALUATION; ISSUANCE OF ACQUIRING FUND SHARES
2.1 The net asset value per share of the Acquired Fund's and the
Acquiring Fund's Class A shares, Class B shares and Class C shares shall be
computed as of the Effective Time using the valuation procedures set forth in
FAIF's amended and restated articles of incorporation and bylaws and
then-current Prospectuses and Statement of Additional Information and as may be
required by the Investment Company Act of 1940, as amended (the "1940 Act").
2.2(a) The total number of the Acquiring Fund's Class A shares to be
issued (including fractional shares, if any) in exchange for the Acquired Fund's
Class A shares shall be determined as of the Effective Time by multiplying the
number of the Acquired Fund's Class A shares outstanding immediately prior to
the Effective Time times a fraction, the numerator of which is the net asset
value per share of the Acquired Fund's Class A shares immediately prior to the
Effective Time, and the denominator of which is the net asset value per share of
the Acquiring Fund's Class A shares immediately prior to the Effective Time,
each as determined pursuant to Section 2.1.
(b) The total number of the Acquiring Fund's Class B shares to be
issued (including fractional shares, if any) in exchange for the Acquired Fund's
Class B shares shall be determined as of the Effective Time by multiplying the
number of the Acquired Fund's Class B shares outstanding immediately prior to
the Effective Time times a fraction, the numerator of which is the net asset
value per share of the Acquired Fund's Class B shares immediately prior to the
Effective Time, and the denominator of which is the net asset value per share of
the Acquiring Fund's Class B shares immediately prior to the Effective Time,
each as determined pursuant to Section 2.1.
(c) The total number of the Acquiring Fund's Class C shares to be
issued (including fractional shares, if any) in exchange for the Acquired Fund's
Class C shares shall be determined as of the Effective Time by multiplying the
number of the Acquired Fund's Class C shares outstanding immediately prior to
the Effective Time times a fraction, the numerator of which is the net asset
value per share of the Acquired Fund's Class C shares immediately prior to the
Effective Time, and the denominator of which is the net asset value per share of
the Acquiring Fund's Class C shares immediately prior to the Effective Time,
each as determined pursuant to Section 2.1.
2.3 At the Effective Time, the Acquiring Fund shall issue and
distribute to the Acquired Fund Shareholders of the respective classes pro rata
within such classes (based upon the ratio that the number of Acquired Fund
shares of the respective classes owned by each Acquired Fund Shareholder
immediately prior to the Effective Time bears to the total number of issued and
outstanding Acquired Fund shares of the respective classes immediately prior to
the Effective Time) the full and fractional Acquiring Fund Shares of the
respective classes to be issued by the Acquiring Fund pursuant to Section 2.2.
Accordingly, each Class A Acquired Fund Shareholder shall receive, at the
Effective Time, Class A Acquiring Fund Shares with an aggregate net asset value
equal to the aggregate net asset value of the Class A Acquired Fund Shares owned
by such Acquired Fund Shareholder immediately prior to the Effective Time; each
Class B Acquired Fund Shareholder shall receive, at the Effective Time, Class B
Acquiring Fund Shares with an aggregate net asset value equal to the aggregate
net asset value of the Class B Acquired Fund Shares owned by such Acquired Fund
Shareholder immediately prior to the Effective Time; and each Class C Acquired
Fund Shareholder shall receive, at the Effective Time, Class C Acquiring Fund
Shares with an aggregate net asset value equal to the aggregate net asset value
of the Class C Acquired Fund Shares owned by such Acquired Fund Shareholder
immediately prior to the Effective Time.
3. EFFECTIVE TIME OF CLOSING
3.1 The closing of the transactions contemplated by this Agreement (the
"Closing") shall occur as of the close of normal trading on the New York Stock
Exchange (the "Exchange") (currently, 4:00 p.m. Eastern time) on the first day
upon which the conditions to closing shall have been satisfied (but not prior to
January 26, 1996), or at such time on such later date as provided herein or as
the parties otherwise may agree in writing (such time and date being referred to
herein as the "Effective Time"). All acts taking place at the Closing shall be
deemed to take place simultaneously as of the Effective Time unless otherwise
agreed to by the parties. The Closing shall be held at the offices of Dorsey &
Whitney P.L.L.P., 220 South Sixth Street, Minneapolis, Minnesota 55402, or at
such other place as the parties may agree.
3.2 The custodian for the Acquiring Fund (the "Custodian") shall
deliver at the Closing a certificate of an authorized officer stating that it
holds the Acquired Fund's portfolio securities, cash, and any other assets being
allocated to the Acquiring Fund pursuant to this Agreement.
3.3 In the event that the Effective Time occurs on a day on which (a)
the Exchange or another primary trading market for portfolio securities of the
Acquiring Fund or the Acquired Fund shall be closed to trading or trading
thereon shall be restricted, or (b) trading or the reporting of trading on the
Exchange or elsewhere shall be disrupted so that accurate appraisal of the value
of the net assets of the Acquiring Fund or the Acquired Fund is impracticable,
the Effective Time shall be postponed until the close of normal trading on the
Exchange on the first business day when trading shall have been fully resumed
and reporting shall have been restored.
3.4 The Acquired Fund shall deliver at the Closing its certificate
stating that the records maintained by its transfer agent (which shall be made
available to the Acquiring Fund) contain the names and addresses of the Acquired
Fund Shareholders and the number of outstanding Acquired Fund shares owned by
each such shareholder as of the Effective Time. The Acquiring Fund shall certify
at the Closing that the Acquiring Fund Shares required to be issued by it
pursuant to this Agreement have been issued and delivered as reuired herein. At
the Closing, each party shall deliver to the other such bills of sale, liability
assumption agreements, checks, assignments, share certificates, if any, receipts
or other documents as such other party or its counsel may reasonably request.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS
4.1 The Acquired Fund represents, warrants and covenants to the
Acquiring Fund as follows:
(a) FAIF is a corporation duly organized, validly existing and in good
standing under the laws of the State of Maryland;
(b) FAIF is a registered investment company classified as a management
company of the open-end type, and its registration with the Commission as an
investment company under the 1940 Act, and of each series of shares offered by
FAIF under the Securities Act of 1933, as amended (the "1933 Act"), is in full
force and effect;
(c) Shares of the Acquired Fund are registered in all jurisdictions in
which they are required to be registered under applicable state securities laws
and any other applicable laws, and said registrations, including any periodic
reports or supplemental filings, are complete and current, and all fees required
to be paid have been paid, and the Acquired Fund is in good standing, is not
subject to any stop orders, and is fully qualified to sell its shares in any
state in which its shares have been registered;
(d) The Acquired Fund is not in violation, and the execution, delivery
and performance of this Agreement will not result in a violation, of FAIF's
amended and restated articles of incorporation or bylaws or of any material
agreement, indenture, instrument, contract, lease or other undertaking to which
the Acquired Fund is a party or by which it is bound;
(e) No material litigation or administrative proceeding or
investigation of or before any court or governmental body is presently pending
or, to the Acquired Fund's knowledge, threatened against the Acquired Fund or
any of its properties or assets. The Acquired Fund is not a party to or subject
to the provisions of any order, decree or judgment of any court or governmental
body which materially and adversely affects its business or its ability to
consummate the transactions herein contemplated;
(f) The unaudited statement of assets and liabilities of the Acquired
Fund as at March 31, 1995 is in accordance with generally accepted accounting
principles consistently applied, and such statement (a copy of which has been
furnished to the Acquiring Fund) presents fairly, in all material respects, the
financial position of the Acquired Fund as at such date, and there are no known
material contingent liabilities of the Acquired Fund as at such date not
disclosed therein;
(g) Since March 31, 1995, there has not been any material adverse
change in the Acquired Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business, except
as otherwise disclosed to the Acquiring Fund. For the purposes of this paragraph
(g), a decline in net asset value per share of the Acquired Fund, the discharge
or incurrence of Acquired Fund liabilities in the ordinary course of business,
or the redemption of Acquired Fund shares by Acquired Fund Shareholders shall
not constitute such a material adverse change;
(h) All material federal and other tax returns and reports of the
Acquired Fund required by law to have been filed prior to the Effective Time
shall have been filed and shall be correct, and all federal and other taxes
shown as due or required to be shown as due on said returns and reports shall
have been paid or provision shall have been made for the payment thereof, and,
to the best of the Acquired Fund's knowledge, no such return is currently or
shall be under audit and no assessment shall have been asserted with respect to
such returns;
(i) For each taxable year of its operation, the Acquired Fund has met
the requirements of Subchapter M of the Code for qualification and treatment as
a regulated investment company, and the Acquired Fund intends to meet the
requirements of Subchapter M of the Code for qualification and treatment as a
regulated investment company for its final, partial taxable year;
(j) All issued and outstanding shares of the Acquired Fund are, and at
the Effective Time will be, duly and validly issued and outstanding, fully paid
and non-assessable. All of the issued and outstanding shares of the Acquired
Fund will, at the Effective Time, be held by the persons and in the amounts set
forth in the records of the Acquired Fund, as provided in Section 3.4. The
Acquired Fund does not have outstanding any options, warrants or other rights to
subscribe for or purchase any of the Acquired Fund shares, and there is not
outstanding any security convertible into any of the Acquired Fund shares;
(k) At the Effective Time, the Acquired Fund will have good and
marketable title to the Acquired Fund's assets to be allocated to the Acquiring
Fund pursuant to Section 1.2, and from and after the Effective Time the
Acquiring Fund will have good and marketable title thereto, subject to no
restrictions on the transfer thereof, including such restrictions as might arise
under the 1933 Act other than as disclosed to the Acquiring Fund in the
Effective Time Statement;
(l) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Effective Time by all necessary action on the
part of FAIF's Board of Directors, and, subject to the approval of the Acquired
Fund Shareholders, this Agreement will constitute a valid and binding obligation
of the Acquired Fund, enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance and other laws relating to or affecting creditors' rights and to the
application of equitable principles in any proceeding, whether at law or in
equity;
(m) The information to be furnished by the Acquired Fund for use in
registration statements, proxy materials and other documents which may be
necessary in connection with the transactions contemplated hereby shall be
accurate and complete in all material respects;
(n) All information pertaining to the Acquired Fund and its agents and
affiliates and included in the Registration Statement referred to in Section 5.5
(or supplied by the Acquired Fund, its agents or affiliates for inclusion in
said Registration Statement), on the effective date of said Registration
Statement and up to and including the Effective Time, will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which such statements are made, not materially misleading
(other than as may timely be remedied by further appropriate disclosure);
(o) Since March 31, 1995, there have been no material changes by the
Acquired Fund in accounting methods, principles or practices, including those
required by generally accepted accounting principles, except as disclosed in
writing to the Acquiring Fund; and
(p) The Effective Time Statement will be prepared in accordance with
generally accepted accounting principles (except for footnotes) consistently
applied and will present accurately the assets and liabilities of the Acquired
Fund as of the Effective Time, and the values of the Acquired Fund's assets and
liabilities to be set forth in the Effective Time Statement will be computed as
of the Effective Time using the valuation procedures set forth in the Acquired
Fund's amended and restated articles of incorporation and bylaws and
then-current Prospectuses and Statement of Additional Information and as may be
required by the 1940 Act.
4.2 The Acquiring Fund represents, warrants and covenants to the
Acquired Fund as follows:
(a) FAIF is a corporation duly organized, validly existing and in good
standing under the laws of the State of Maryland;
(b) FAIF is a registered investment company classified as a management
company of the open-end type, and its registration with the Commission as an
investment company under the 1940 Act, and of each series of shares offered by
FAIF under the 1933 Act, is in full force and effect;
(c) At or before the Effective Time, shares of the Acquiring Fund
(including, but not limited to, the Acquiring Fund Shares) will be registered in
all jurisdictions in which they will be required to be registered under
applicable state securities laws and any other applicable laws (including, but
not limited to, all jurisdictions necessary to effect the Reorganization), and
said registrations, including any periodic reports or supplemental filings, will
be complete and current, and all fees required to be paid will have been paid,
and the Acquiring Fund will be in good standing, and will not be subject to any
stop orders, and will be fully qualified to sell its shares in any state in
which its shares will have been registered;
(d) The Prospectuses and Statement of Additional Information of the
Acquiring Fund, as of the date hereof and up to and including the Effective
Time, conform and will conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations of
the Commission thereunder and do not and will not include any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not materially misleading;
(e) The Acquiring Fund is not in violation, and the execution, delivery
and performance of this Agreement will not result in a violation, of FAIF's
amended and restated articles of incorporation or bylaws or of any material
agreement, indenture, instrument, contract, lease or other undertaking to which
the Acquiring Fund is a party or by which it is bound;
(f) No material litigation or administrative proceeding or
investigation of or before any court or governmental body is presently pending
or, to the Acquiring Fund's knowledge, threatened against the Acquiring Fund or
any of its properties or assets. The Acquiring Fund is not a party to or subject
to the provisions of any order, decree or judgment of any court or governmental
body which materially and adversely affects its business or its ability to
consummate the transactions herein contemplated;
(g) The statement of assets and liabilities of the Acquiring Fund as at
September 30, 1994 has been audited by KPMG Peat Marwick LLP, independent
accountants, and is in accordance with generally accepted accounting principles
consistently applied, and such statement (a copy of which has been furnished to
the Acquired Fund) presents fairly, in all material respects, the financial
position of the Acquiring Fund as at such date, and there are no known material
contingent liabilities of the Acquiring Fund as at such date not disclosed
therein;
(h) Since September 30, 1994, there has not been any material adverse
change in the Acquiring Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business, except
as otherwise disclosed to the Acquired Fund. For the purposes of this paragraph
(h), a decline in net asset value per share of the Acquiring Fund, the discharge
or incurrence of Acquiring Fund liabilities in the ordinary course of business,
or the redemption of Acquiring Fund Shares by Acquiring Fund shareholders shall
not constitute a material adverse change;
(i) All material federal and other tax returns and reports of the
Acquiring Fund required by law to have been filed prior to the Effective Time
shall have been filed and shall be correct, and all federal and other taxes
shown as due or required to be shown as due on said returns and reports shall
have been paid or provision shall have been made for the payment thereof, and to
the best of the Acquiring Fund's knowledge no such return is currently or shall
be under audit and no assessment shall have been asserted with respect to such
returns;
(j) For each taxable year of its operation, the Acquiring Fund has met
the requirements of Subchapter M of the Code for qualification and treatment as
a regulated investment company, and the Acquiring Fund intends to meet the
requirements of Subchapter M of the Code for qualification and treatment as a
regulated investment company in the current and future years;
(k) All issued and outstanding shares of the Acquiring Fund are, and at
Effective Time will be, duly and validly issued and outstanding, fully paid and
non-assessable;
(l) The Acquiring Fund Shares to be issued and delivered to the
Acquired Fund, for the account of the Acquired Fund Shareholders, pursuant to
the terms of this Agreement, at the Effective Time will have been duly
authorized and, when so issued and delivered, will be duly and validly issued
Acquiring Fund Shares and will be fully paid and non-assessable;
(m) The Acquiring Fund does not have outstanding any options, warrants
or other rights to subscribe for or purchase any of the Acquiring Fund Shares,
and there is not outstanding any security convertible into any of the Acquiring
Fund Shares (other than Class B shares which automatically convert to Class A
shares after a specified period);
(n) At the Effective Time, the Acquiring Fund will have good and
marketable title to the Acquiring Fund's assets;
(o) Since September 30, 1994, there have been no material changes by
the Acquiring Fund in accounting methods, principles or practices, including
those required by generally accepted accounting principles, except as disclosed
in writing to the Acquired Fund;
(p) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Effective Time by all necessary action on the
part of the Board of Directors of FAIF, as issuer of the Acquiring Fund Shares,
and this Agreement will constitute a valid and binding obligation of the
Acquiring Fund enforceable in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance and other laws relating to or affecting creditors' rights and to the
application of equitable principles in any proceeding, whether at law or in
equity. Consummation of the transactions contemplated by this Agreement does not
require the approval of the Acquiring Fund's shareholders;
(q) The information to be furnished by the Acquiring Fund for use in
registration statements, proxy materials and other documents which may be
necessary in connection with the transactions contemplated hereby shall be
accurate and complete in all material respects;
(r) Following the Reorganization, the Acquiring Fund shall determine
its net asset value per share in accordance with the valuation procedures set
forth in the Acquiring Fund's amended and restated articles of incorporation,
bylaws and Prospectuses and Statement of Additional Information (as the same may
be amended from time to time) and as may be required by the 1940 Act; and
(s) The Registration Statement referred to in Section 5.5, on its
effective date and up to and including the Effective Time, will (i) conform in
all material respects to the applicable requirements of the 1933 Act, the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and the 1940 Act
and the rules and regulations of the Commission thereunder, and (ii) not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which such statements were made, not materially
misleading (other than as may timely be remedied by further appropriate
disclosure); provided, however, that the representations and warranties in
clause (ii) of this paragraph shall not apply to statements in (or omissions
from) the Registration Statement concerning the Acquired Fund.
5. FURTHER COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1 Each of the Acquired Fund and the Acquiring Fund will operate its
business in the ordinary course between the date hereof and the Effective Time,
it being understood that such ordinary course of business will include the
declaration and payment of customary dividends and distributions, and any other
distributions that may be advisable (which may include distributions prior to
the Effective Time of net income and/or net realized capital gains not
previously distributed).
5.2 The Acquired Fund will call a meeting of its shareholders to
consider and act upon this Agreement and to take all other action necessary to
obtain approval of the transactions contemplated herein.
5.3 The Acquired Fund will assist the Acquiring Fund in obtaining such
information as the Acquiring Fund reasonably requests concerning the beneficial
ownership of the Acquired Fund shares.
5.4 Subject to the provisions of this Agreement, the Acquiring Fund and
the Acquired Fund will each take, or cause to be taken, all actions, and do or
cause to be done, all things reasonably necessary, proper or advisable to
consummate and make effective the transactions contemplated by this Agreement.
5.5 The Acquired Fund will provide the Acquiring Fund with information
reasonably necessary with respect to the Acquired Fund and its agents and
affiliates for the preparation of the Registration Statement on Form N-14 of the
Acquiring Fund (the "Registration Statement"), in compliance with the 1933 Act,
the 1934 Act and the 1940 Act.
5.6 The Acquiring Fund agrees to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act, the 1940 Act and such
of the state blue sky or securities laws as may be necessary in order to conduct
its operations after the Effective Time.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of the Acquired Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder at or
before the Effective Time, and, in addition thereto, the following further
conditions (any of which may be waived by the Acquired Fund, in its sole and
absolute discretion):
6.1 All representations and warranties of the Acquiring Fund contained
in this Agreement shall be true and correct as of the date hereof and, except as
they may be affected by the transactions contemplated by this Agreement, as of
the Effective Time with the same force and effect as if made at such time; and
6.2 The Acquiring Fund shall have delivered to the Acquired Fund a
certificate executed in its name by its President or a Vice President, in a form
reasonably satisfactory to the Acquired Fund and dated as of the date of the
Closing, to the effect that the representations and warranties of the Acquiring
Fund made in this Agreement are true and correct at the Effective Time, except
as they may be affected by the transactions contemplated by this Agreement and
as to such other matters as the Acquired Fund shall reasonably request.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to complete the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquired Fund of all of the obligations to be performed by it hereunder at or
before the Effective Time and, in addition thereto, the following conditions
(any of which may be waived by the Acquiring Fund, in its sole and absolute
discretion):
7.1 All representations and warranties of the Acquired Fund contained
in this Agreement shall be true and correct as of the date hereof and, except as
they may be affected by the transactions contemplated by this Agreement, as of
the Effective Time with the same force and effect as if made at such time;
7.2 The Acquiring Fund shall have received, and certified as to its
receipt of, the Effective Time Statement;
7.3 The Acquired Fund shall have delivered to the Acquiring Fund a
certificate executed in its name by its President or a Vice President, in form
and substance satisfactory to the Acquiring Fund and dated as of the date of the
Closing, to the effect that the representations and warranties of the Acquired
Fund made in this Agreement are true and correct at and as of the Effective
Time, except as they may be affected by the transactions contemplated by this
Agreement, and as to such other matters as the Acquiring Fund shall reasonably
request;
7.4 At or prior to the Effective Time, the Acquired Fund's investment
adviser, or an affiliate thereof, shall have paid or agreed to pay the Acquired
Fund an amount equal to the unamortized organizational expenses, if any, on the
books of the Acquired Fund, and such unamortized organizational expenses shall
not be reflected in the Effective Time Statement; and
7.5 At or prior to the Effective Time, the Acquired Fund's investment
adviser, or an affiliate thereof, shall have reimbursed or agreed to reimburse
the Acquired Fund by the amount, if any, that the expenses incurred by the
Acquired Fund (or accrued up to the Effective Time) exceed any applicable
contractual or state-imposed expense limitations.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND THE
ACQUIRED FUND
The following shall constitute further conditions precedent to the
consummation of the Reorganization:
8.1 This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
the Acquired Fund in accordance with the provisions of its amended and restated
articles of incorporation and bylaws and applicable law, and certified copies of
the resolutions evidencing such approval shall have been delivered to the
Acquiring Fund. Notwithstanding anything herein to the contrary, neither the
Acquiring Fund nor the Acquired Fund may waive the conditions set forth in this
Section 8.1;
8.2 FAIF shall have obtained such exemptive relief from the provisions
of Sections 17 of the 1940 Act as may, in the view of its counsel, be required
in order to consummate the transactions contemplated hereby;
8.3 The Acquiring Fund's investment adviser shall have paid or agreed
to pay the costs incurred by FAIF in connection with the Reorganization,
including the fees and expenses associated with the preparation and filing of
the application for exemptive relief referred to in Section 8.2 above and the
Registration Statement referred to in Section 5.5 above, and the expenses of
printing and mailing the prospectus/proxy statement, soliciting proxies and
holding the shareholders meeting required to approve the transactions
contemplated by this Agreement;
8.4 As of the Effective Time, no action, suit or other proceeding shall
be threatened or pending before any court or governmental agency in which it is
sought to restrain or prohibit, or obtain damages or other relief in connection
with, this Agreement or the transactions contemplated herein;
8.5 All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities deemed necessary by
the Acquiring Fund or the Acquired Fund to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain any such consent, order or permit would not
involve a risk of a material adverse effect on the assets or properties of the
Acquiring Fund or the Acquired Fund, provided that either party hereto may for
itself waive any of such conditions;
8.6 The Registration Statement shall have become effective under the
1933 Act, and no stop orders suspending the effectiveness thereof shall have
been issued and, to the best knowledge of the parties hereto, no investigation
or proceeding for that purpose shall have been instituted or be pending,
threatened or contemplated under the 1933 Act;
8.7 The parties shall have received the opinion of Dorsey & Whitney
P.L.L.P. addressed to the Acquired Fund and the Acquiring Fund, dated as of the
date of the Closing, and based in part on certain representations to be
furnished by the Acquired Fund, the Acquiring Fund, and their investment adviser
and other service providers, substantially to the effect that:
(i) the Reorganization will constitute a reorganization within the
meaning of Section 368(a)(1)(C) of the Code, and the Acquiring Fund
and the Acquired Fund each will qualify as a party to the
Reorganization under Section 368(b) of the Code;
(ii) the Acquired Fund Shareholders will recognize no income, gain or
loss upon receipt, pursuant to the Reorganization, of the Acquiring
Fund Shares. Acquired Fund Shareholders subject to taxation will
recognize income upon receipt of any net investment income or net
capital gains of the Acquired Fund which are distributed by the
Acquired Fund prior to the Effective Time;
(iii) the tax basis of the Acquiring Fund Shares received by each Acquired
Fund Shareholder pursuant to the Reorganization will be equal to the
tax basis of the Acquired Fund Shares exchanged therefor;
(iv) the holding period of the Acquiring Fund Shares received by each
Acquired Fund Shareholder pursuant to the Reorganization will
include the period during which the Acquired Fund Shareholder held
the Acquired Fund Shares exchanged therefor, provided that the
Acquired Fund shares were held as a capital asset at the Effective
Time;
(v) the Acquired Fund will recognize no income, gain or loss by reason
of the Reorganization;
(vi) the Acquiring Fund will recognize no income, gain or loss by reason
of the Reorganization;
(vii) the tax basis of the assets received by the Acquiring Fund pursuant
to the Reorganization will be the same as the basis of those assets
in the hands of the Acquired Fund as of the Effective Time;
(viii) the holding period of the assets received by the Acquiring Fund
pursuant to the Reorganization will include the period during which
such assets were held by the Acquired Fund; and
(ix) the Acquiring Fund will succeed to and take into account the
earnings and profits, or deficit in earnings and profits, of the
Acquired Fund as of the Effective Time; and
8.8 The Amendment shall have been filed in accordance with the
applicable provisions of Maryland law.
9. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
9.1 The Acquiring Fund and the Acquired Fund agree that neither party
has made any representation, warranty or covenant not set forth herein and that
this Agreement constitutes the entire agreement between the parties.
9.2 The representations and warranties contained in this Agreement or
in any document delivered pursuant hereto or in connection herewith shall
survive the consummation of the transactions contemplated hereunder.
10. TERMINATION
This Agreement and the transactions contemplated hereby may be
terminated and abandoned by either party by resolution of FAIF's Board of
Directors at any time prior to the Effective Time, if circumstances should
develop that, in the good faith opinion of such Board, make proceeding with the
Agreement not in the best interest of the shareholders of the Acquired Fund or
the Acquiring Fund.
11. AMENDMENTS
This agreement may be amended, modified or supplemented in such manner
as may be mutually agreed upon in writing by the authorized officers of the
Acquired Fund and the Acquiring Fund; provided, however, that following the
meeting of the Acquired Fund Shareholders called by the Acquired Fund pursuant
to Section 5.2 of this Agreement, no such amendment may have the effect of
changing the provisions for determining the number of the Acquiring Fund Shares
to be issued to the Acquired Fund Shareholders under this Agreement to the
detriment of such shareholders without their further approval.
12. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be deemed duly given
if delivered or mailed by registered mail, postage prepaid, addressed to the
Acquiring Fund or the Acquired Fund, 680 East Swedesford Road, Wayne,
Pennsylvania 19087, Attention: President (with a copy to Dorsey & Whitney
P.L.L.P., 220 South Sixth Street, Minneapolis, Minnesota 55402, Attention:
Michael J. Radmer).
13. HEADINGS; COUNTERPARTS; ASSIGNMENT; MISCELLANEOUS
13.1 The Article and Section headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original and all of which together shall constitute
one and the same agreement.
13.3 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the prior written consent of the other party. Nothing herein
expressed or implied is intended or shall be construed to confer upon or give
any person, firm or corporation, other than the parties hereto and their
respective successors and assigns, any rights or remedies under or by reason of
this Agreement.
13.4 The validity, interpretation and effect of this Agreement shall be
governed exclusively by the laws of the State of Minnesota, without giving
effect to the principles of conflict of laws thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its President or a Vice President.
FIRST AMERICAN INVESTMENT FUNDS, INC.
on behalf of its
LIMITED VOLATILITY STOCK FUND
By
Kathryn L. Stanton, Vice President
FIRST AMERICAN INVESTMENT FUNDS, INC.
on behalf of its
STOCK FUND
By
Kathryn L. Stanton, Vice President
EXHIBIT 1 TO AGREEMENT AND PLAN OF REORGANIZATION
ARTICLES OF AMENDMENT
TO
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
FIRST AMERICAN INVESTMENT FUNDS, INC.
The undersigned officer of First American Investment Funds, Inc. (the
"Corporation"), a Maryland corporation, hereby certifies that the following
amendments to the Corporation's Amended and Restated Articles of Incorporation
have been advised by the Corporation's Board of Directors and approved by the
Corporation's stockholders in the manner required by the Maryland General
Corporation Law:
WHEREAS, the Corporation is registered as an open end management
investment company (i.e., a mutual fund) under the Investment Company
Act of 1940 and offers its shares to the public in several classes,
each of which represents a separate and distinct portfolio of assets;
and
WHEREAS, it is desirable and in the best interests of the holders of
the Class R shares of the Corporation (also known as "Limited
Volatility Stock Fund") that the assets belonging to such class be sold
to a separate portfolio of the Corporation which is known as "Stock
Fund" and which is represented by the Corporation's Class D shares, in
exchange for shares of Stock Fund which are to be delivered to former
Limited Volatility Stock Fund holders; and
WHEREAS, Limited Volatility Stock Fund and Stock Fund have entered into
an Agreement and Plan of Reorganization providing for the foregoing
transactions; and
WHEREAS, the Agreement and Plan of Reorganization requires that, in
order to bind all holders of shares of Limited Volatility Stock Fund to
the foregoing transactions, and in particular to bind such holders to
the exchange of their Limited Volatility Stock Fund shares for Stock
Fund shares, it is necessary to adopt an amendment to the Corporation's
Amended and Restated Articles of Incorporation.
NOW, THEREFORE, BE IT RESOLVED, that the Corporation's Amended and
Restated Articles of Incorporation be, and the same hereby are, amended
to add the following Article IV(A) immediately following Article IV
thereof:
ARTICLE IV(A). (a) For purposes of this Article IV(A), the following
terms shall have the following meanings:
"Corporation" means this corporation.
"Acquired Fund" means the Corporation's Limited Volatility Stock Fund,
which is represented by the Corporation's Class R shares.
"Class A Acquired Fund Shares" means the Corporation's Class R Common
Shares.
"Class B Acquired Fund Shares" means the Corporation's Class R, Series
2 Common Shares.
"Class C Acquired Fund Shares" means the Corporation's Class R, Series
3 Common Shares.
"Acquiring Fund" means the Corporation's Stock Fund, which is
represented by the Corporation's Class D shares.
"Class A Acquiring Fund Shares" means the Corporation's Class D Common
Shares.
"Class B Acquiring Fund Shares" means the Corporation's Class D, Series
2 Common Shares.
"Class C Acquiring Fund Shares" means the Corporation's Class D, Series
3 Common Shares.
"Effective Time" means 4:00 p.m. Eastern time on the date upon which
these Articles of Amendment are filed with the Maryland State
Department of Assessments and Taxation.
(b) At the Effective Time, the assets belonging to the Acquired Fund,
the liabilities belonging to the Acquired Fund, and the General Assets and
General Liabilities allocated to the Acquired Fund, shall become, without
further action, assets belonging to the Acquiring Fund, liabilities
belonging to the Acquiring Fund, and General Assets and General Liabilities
allocated to the Acquiring Fund. For purposes of the foregoing, the terms
"assets belonging to," "liabilities belonging to," "General Assets" and
"General Liabilities" have the meanings assigned to them in Article IV,
Section 1(d)(i) and (ii) of the Corporation's Amended and Restated Articles
of Incorporation.
(c) At the Effective Time, each issued and outstanding Acquired Fund
share shall be, without further action, exchanged for those numbers and
classes of Acquiring Fund shares calculated in accordance with paragraph
(d) below.
(d) The numbers of Class A, Class B and Class C Acquiring Fund Shares
to be issued in exchange for the Class A, Class B and Class C Acquired Fund
Shares shall be determined as follows:
(i) The net asset value per share of the Acquired Fund's and the
Acquiring Fund's Class A Shares, Class B Shares and Class C Shares
shall be computed as of the Effective Time using the valuation
procedures set forth in the Corporation's articles of incorporation
and bylaws and then-current Prospectuses and Statement of Additional
Information and as may be required by the Investment Company Act of
1940, as amended (the "1940 Act").
(ii) The total number of Class A Acquiring Fund Shares to be
issued (including fractional shares, if any) in exchange for the Class
A Acquired Fund Shares shall be determined as of the Effective Time by
multiplying the number of Class A Acquired Fund Shares outstanding
immediately prior to the Effective Time times a fraction, the
numerator of which is the net asset value per share of Class A
Acquired Fund Shares immediately prior to the Effective Time, and the
denominator of which is the net asset value per share of the Class A
Acquiring Fund Shares immediately prior to the Effective Time, each as
determined pursuant to (i) above.
(iii) The total number of Class B Acquiring Fund Shares to be
issued (including fractional shares, if any) in exchange for the Class
B Acquired Fund Shares shall be determined as of the Effective Time by
multiplying the number of Class B Acquired Fund Shares outstanding
immediately prior to the Effective Time times a fraction, the
numerator of which is the net asset value per share of Class B
Acquired Fund Shares immediately prior to the Effective Time, and the
denominator of which is the net asset value per share of the Class B
Acquiring Fund Shares immediately prior to the Effective Time, each as
determined pursuant to (i) above.
(iv) The total number of Class C Acquiring Fund Shares to be
issued (including fractional shares, if any) in exchange for the Class
C Acquired Fund Shares shall be determined as of the Effective Time by
multiplying the number of Class C Acquired Fund Shares outstanding
immediately prior to the Effective Time times a fraction, the
numerator of which is the net asset value per share of Class C
Acquired Fund Shares immediately prior to the Effective Time, and the
denominator of which is the net asset value per share of the Class C
Acquiring Fund Shares immediately prior to the Effective Time, each as
determined pursuant to (i) above.
(v) At the Effective Time, the Acquired Fund shall issue and
distribute to the Acquired Fund shareholders of the respective classes
pro rata within such classes (based upon the ratio that the number of
Acquired Fund shares of the respective classes owned by each Acquired
Fund shareholder immediately prior to the Effective Time bears to the
total number of issued and outstanding Acquired Fund shares of the
respective classes immediately prior to the Effective Time) the full
and fractional Acquiring Fund shares of the respective classes issued
by the Acquiring Fund pursuant to (ii) through (iv) above.
Accordingly, each Class A Acquired Fund shareholder shall receive, at
the Effective Time, Class A Acquiring Fund Shares with an aggregate
net asset value equal to the aggregate net asset value of the Class A
Acquired Fund Shares owned by such Acquired Fund shareholder
immediately prior to the Effective Time; each Class B Acquired Fund
shareholder shall receive, at the Effective Time, Class B Acquiring
Fund Shares with an aggregate net asset value equal to the aggregate
net asset value of the Class B Acquired Fund Shares owned by such
Acquired Fund shareholder immediately prior to the Effective Time; and
each Class C Acquired Fund shareholder shall receive, at the Effective
Time, Class C Acquiring Fund Shares with an aggregate net asset value
equal to the aggregate net asset value of the Class C Acquired Fund
Shares owned by such Acquired Fund shareholder immediately prior to
the Effective Time.
(e) The distribution of Acquiring Fund shares to Acquired Fund
shareholders provided for in paragraphs (c) and (d) above shall be
accomplished by the issuance of such Acquiring Fund shares to open accounts
on the share records of the Acquiring Fund in the names of the Acquired
Fund shareholders representing the numbers and classes of Acquiring Fund
shares due each such shareholder pursuant to the foregoing provisions. All
issued and outstanding shares of the Acquired Fund shall simultaneously be
cancelled on the books of the Acquired Fund and retired. From and after the
Effective Time, share certificates formerly representing Acquired Fund
shares shall represent the numbers and classes of Acquiring Fund shares
determined in accordance with the foregoing provisions.
(f) From and after the Effective Time, the Acquired Fund shares
cancelled and retired pursuant to paragraph (e) above shall have the status
of authorized and unissued Class R common shares of the Corporation,
without designation as to series.
The undersigned officer of the Corporation hereby acknowledges, in the
name and on behalf of the Corporation, the foregoing Articles of Amendment to be
the corporate act of the Corporation and further certifies that, to the best of
his or her knowledge, information and belief, the matters and facts set forth
therein with respect to the approval thereof are true in all material respects,
under the penalties of perjury.
IN WITNESS WHEREOF, the Corporation has caused these Article of
Amendment to be signed in its name and on its behalf by its President or a Vice
President and witnessed by its Secretary or an Assistant Secretary on
____________________________ , 1996.
FIRST AMERICAN INVESTMENT FUNDS, INC
By __________________________________
Its ________________________________
WITNESS:
__________________________________
Secretary
STATEMENT OF ADDITIONAL INFORMATION
DATED DECEMBER 18, 1995
PROPOSED ACQUISITION OF ASSETS OF
LIMITED VOLATILITY STOCK FUND
A SEPARATELY MANAGED SERIES OF
FIRST AMERICAN INVESTMENT FUNDS, INC.
680 EAST SWEDESFORD ROAD
WAYNE, PENNSYLVANIA 19087
(800) 637-2548
BY AND IN EXCHANGE FOR SHARES OF
STOCK FUND
A SEPARATELY MANAGED SERIES OF
FIRST AMERICAN INVESTMENT FUNDS, INC.
680 EAST SWEDESFORD ROAD
WAYNE, PENNSYLVANIA 19087
(800) 637-2548
THIS STATEMENT OF ADDITIONAL INFORMATION RELATES TO THE PROPOSED
AGREEMENT AND PLAN OF REORGANIZATION PROVIDING FOR (A) THE ACQUISITION OF ALL OF
THE ASSETS AND THE ASSUMPTION OF ALL LIABILITIES OF LIMITED VOLATILITY STOCK
FUND (THE "ACQUIRED FUND"), A SEPARATELY MANAGED SERIES OF FIRST AMERICAN
INVESTMENT FUNDS, INC. ("FAIF") BY STOCK FUND (THE "ACQUIRING FUND"), A
SEPARATELY MANAGED SERIES OF FAIF, IN EXCHANGE FOR SHARES OF COMMON STOCK OF THE
ACQUIRING FUND HAVING AN AGGREGATE NET ASSET VALUE EQUAL TO THE AGGREGATE VALUE
OF THE ASSETS ACQUIRED (LESS THE LIABILITIES ASSUMED) OF THE ACQUIRED FUND AND
(B) THE LIQUIDATION OF THE ACQUIRED FUND AND THE PRO RATA DISTRIBUTION OF THE
ACQUIRING FUND SHARES TO ACQUIRED FUND SHAREHOLDERS. THIS STATEMENT OF
ADDITIONAL INFORMATION CONSISTS OF THIS COVER PAGE AND THE FOLLOWING DOCUMENTS,
EACH OF WHICH IS INCORPORATED BY REFERENCE HEREIN:
1. STATEMENT OF ADDITIONAL INFORMATION OF FAIF DATED JANUARY 31, 1995,
CONTAINING ADDITIONAL INFORMATION CONCERNING THE RETAIL CLASSES AND
THE INSTITUTIONAL CLASS OF BOTH THE ACQUIRED FUND AND THE ACQUIRING
FUND.
2. ANNUAL REPORT OF FAIF FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995,
RELATING TO THE RETAIL CLASSES AND THE INSTITUTIONAL CLASS OF THE
ACQUIRING FUND AND THE ACQUIRED FUND.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. A
PROSPECTUS/PROXY STATEMENT DATED DECEMBER 18, 1995 RELATING TO THE
ABOVE-REFERENCED TRANSACTION MAY BE OBTAINED WITHOUT CHARGE BY WRITING OR
CALLING THE ACQUIRED FUND OR THE ACQUIRING FUND AT THE ADDRESSES OR TELEPHONE
NUMBERS NOTED ABOVE. THIS STATEMENT OF ADDITIONAL INFORMATION RELATES TO, AND
SHOULD BE READ IN CONJUNCTION WITH, SUCH PROSPECTUS/PROXY STATEMENT. PURSUANT TO
ITEM 14(A) OF FORM N-14, PRO FORMA FINANCIAL STATEMENTS ARE OMITTED FROM THIS
STATEMENT OF ADDITIONAL INFORMATION INASMUCH AS THE NET ASSET VALUE OF THE
ACQUIRED FUND DOES NOT EXCEED TEN PERCENT OF THE ACQUIRING FUND'S NET ASSET
VALUE AS OF THE DATE WHICH IS FIVE BUSINESS DAYS BEFORE THE FILING OF THE
REGISTRATION STATEMENT ON FORM N-14 OF WHICH THIS STATEMENT OF ADDITIONAL
INFORMATION IS A PART.
