FIRST AMERICAN INVESTMENT FUNDS, INC.
REAL ESTATE SECURITIES FUND
RETAIL CLASS
[GRAPHIC]
PROSPECTUS
September 29, 1995
[LOGO OF FIRST AMERICAN FUNDS]
FIRST AMERICAN FUNDS
The power of disciplined investing
TABLE OF CONTENTS
PAGE
SUMMARY 4
FEES AND EXPENSES 6
Class A Share Fees and Expenses 6
Class B Share Fees and Expenses 7
Information Concerning Fees and
Expenses 8
THE FUND 9
INVESTMENT OBJECTIVE AND
POLICIES 9
Real Estate Securities Fund 10
Risks to Consider 11
MANAGEMENT 12
Investment Adviser 12
Portfolio Managers 13
Custodian 14
Administrator 14
Transfer Agent 14
DISTRIBUTOR 15
INVESTING IN THE FUND 16
Share Purchases 16
Minimum Investment Required 17
Alternative Sales Charge Options 17
Systematic Investment Program 22
Exchanging Securities for Fund
Shares 22
Certificates and Confirmations 22
Dividends and Distributions 22
Exchange Privilege 23
REDEEMING SHARES 24
By Telephone 25
By Mail 25
By Systematic Withdrawal Program 26
Redemption Before Purchase
Instruments Clear 26
Accounts with Low Balances 27
DETERMINING THE PRICE OF SHARES 27
Determining Net Asset Value 27
FEDERAL INCOME TAXES 28
FUND SHARES 29
CALCULATION OF PERFORMANCE DATA 30
SPECIAL INVESTMENT METHODS 31
Cash Items 31
Repurchase Agreements 32
When-Issued and Delayed-Delivery
Transactions 32
Lending of Portfolio Securities 32
Options Transactions 33
Fixed Income Securities 34
Portfolio Transactions 34
Portfolio Turnover 35
Investment Restrictions 35
FIRST AMERICAN INVESTMENT FUNDS, INC.
680 East Swedesford Road, Wayne, Pennsylvania 19087
RETAIL CLASSES PROSPECTUS
The shares described in this Prospectus represent interests in First American
Investment Funds, Inc., which consists of mutual funds with several different
investment portfolios and objectives. This Prospectus relates to the Class A and
Class B Shares of the following fund (the "Fund"):
Real Estate Securities Fund
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, INCLUDING FIRST BANK NATIONAL ASSOCIATION AND ANY OF ITS
AFFILIATES, NOR ARE THEY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. AN INVESTMENT IN THE FUND
INVOLVES INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL, DUE TO
FLUCTUATIONS IN THE FUND'S NET ASSET VALUE.
This Prospectus concisely sets forth information about the Fund that a
prospective investor should know before investing. It should be read and
retained for future reference.
A Statement of Additional Information dated June 30, 1995 for the Fund has been
filed with the Securities and Exchange Commission and is incorporated in its
entirety by reference in this Prospectus. To obtain copies of the Statement of
Additional Information at no charge, or to obtain other information or make
inquiries about the Fund, call (800) 637-2548 or write SEI Financial Services
Company, 680 East Swedesford Road, Wayne, Pennsylvania 19087.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is September 29, 1995.
SUMMARY
First American Investment Funds, Inc. ("FAIF") is an open-end investment company
which offers shares in several different mutual funds. This Prospectus provides
information with respect to the Class A and Class B Shares of Real Estate
Securities Fund (the "Fund").
REAL ESTATE SECURITIES FUND has an objective of providing above average current
income and long-term capital appreciation by investing primarily in equity
securities of real estate companies. Under normal market conditions, the Fund
invests at least 65% of its total assets in income producing equity securities
of publicly traded companies principally engaged in the real estate industry. A
majority of the Fund's total assets will be invested in securities of real
estate investment trusts ("REITs"), with an expected emphasis on Equity REITs.
See "Investment Objective and Policies."
INVESTMENT ADVISER First Bank National Association (the "Adviser") serves as
investment adviser to the Fund. See "Management."
DISTRIBUTOR; ADMINISTRATOR SEI Financial Services Company (the "Distributor")
serves as the distributor of the Fund's shares. SEI Financial Management
Corporation (the "Administrator") serves as the administrator of the Fund. See
"Management" and "Distributor."
OFFERING PRICES Class A Shares of the Fund are sold at net asset value plus a
maximum sales charge of 4.50%. These sales charges are reduced on purchases of
$50,000 or more. 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% will be imposed on such purchases in the event of redemption within 24
months following the purchase. Class A Shares of the Fund otherwise are redeemed
at net asset value without any additional charge. Class A Shares of the Fund are
subject to a Rule 12b-1 distribution and service fee computed at an annual rate
of 0.25% of the average daily net assets of that class. See "Investing in the
Fund-Alternative Sales Charge Options."
Class B Shares of the Fund are sold at net asset value without an initial sales
charge. Class B Shares of the Fund are subject to Rule 12b-1 distribution and
service fees computed at an annual rate totaling 1.00% of the average daily net
assets of that class. If Class B Shares are redeemed within six years after
purchase, they are subject to a contingent deferred sales charge declining from
5.00% in the first year to zero after six years. Class B Shares automatically
convert into Class A Shares approximately eight years after purchase. See
"Investing in the Fund -- Alternative Sales Charge Options."
MINIMUM INITIAL AND SUBSEQUENT INVESTMENTS The minimum initial investment is
$1,000 ($250 for IRAs) for the Fund. Subsequent investments must be $100 or
more. Regular investment in the Fund is simplified through the Systematic
Investment Program through which monthly purchases of $100 or more are possible.
See "Investing in the Fund--Minimum Investment Required" and "--Systematic
Investment Program."
EXCHANGES Shares of the Fund may be exchanged for the same class of shares of
other FAIF funds at the shares' respective net asset values with no additional
charge. See "Investing in the Fund -- Exchange Privilege."
REDEMPTIONS Shares of the Fund may be redeemed at any time at their net asset
value next determined after receipt of a redemption request by the Fund's
transfer agent, less any applicable contingent deferred sales charge. The Fund
may, upon 60 days written notice, redeem an account if the account's net asset
value falls below $500. See "Investing in the Fund" and "Redeeming Shares."
RISKS TO CONSIDER Because the Fund invests primarily in the real estate
industry, it is particularly subject to risks associated with that industry. The
real estate industry has been subject to substantial fluctuations and declines
on a local, regional and national basis in the past and may continue to be in
the future. In addition, because the Fund may invest a substantial portion of
its assets in REITs, it also is subject to the risks associated with direct
investments in REITs which are discussed under "Risks to Consider -Investments
in REITs." Investors also should note that the Fund will operate as a
"non-diversified" investment company under the Investment Company Act of 1940,
which means that it may invest a greater proportion of its assets in the
securities of one or a limited number of issuers than may a "diversified"
investment company.
The Fund also is subject to the risk of generally adverse equity markets.
Investors should recognize that market prices of equity securities generally,
and of particular companies' equity securities, frequently are subject to
greater volatility than prices of fixed income securities.
The performance of the Fund will reflect in part the ability of the Adviser to
select securities which are suited to achieving its investment objective. Due to
its active management, the Fund could underperform other mutual funds with
similar investment objectives or the market generally.
The Fund may enter into repurchase agreements, purchase put and call options and
write covered call options, purchase securities on a when-issued or
delayed-delivery basis, and engage in securities lending transactions to the
extent described under "Investment Objective and Policies -- Real Estate
Securities Fund -- Investment Policies" and "Special Investment Methods."
SHAREHOLDER INQUIRIES Any questions or communications regarding the Fund or a
shareholder account should be directed to the Distributor by calling (800)
637-2548, or to the financial institution which holds shares on an investor's
behalf.
FEES AND EXPENSES RETAIL CLASSES
CLASS A SHARE FEES AND EXPENSES
<TABLE>
<CAPTION>
REAL ESTATE
SECURITIES FUND
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum sales load imposed on purchases
(as a percentage of offering price)(1) 4.50%
Maximum sales load imposed on reinvested dividends None
Deferred sales load(1) None
Redemption fees None
Exchange fees None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment advisory fees
(after voluntary fee waivers and reimbursements(2) 0.44%
Rule 12b-1 fees (after voluntary waivers)(2) 0.25%
Other expenses(2) 0.36%
Total fund operating expenses
(after voluntary fee waivers and reimbursements)(2) 1.05%
EXAMPLE(3)
You would pay the following expenses on a $1,000
investment, assuming (i) the maximum applicable
sales charge for the Fund; (ii) a 5% annual return;
and (iii) redemption at the end of each time period:
1 year $ 55
3 years $ 77
</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% will be imposed in the case of
redemption within 24 months following the purchase. See "Investing in the
Fund -- Alternative Sales Charge Options."
(2) The Adviser intends to waive a portion of its fees and/or reimburse
expenses on a voluntary basis, and the amounts shown reflect this waiver
and reimbursement as of the date of this Prospectus. The Adviser intends to
maintain such waiver and reimbursement in effect for the current fiscal
year but reserves the right to discontinue such waiver and reimbursement at
any time in its sole discretion. Absent any fee waivers, investment
advisory fees as an annualized percentage of average daily net assets would
be 0.70%; and total fund operating expenses would be 1.31%. Other expenses
includes an administration fee and is based on estimated amounts for the
current fiscal year.
(3) Absent the fee waivers and reimbursements referred to in (2) above, the
dollar amounts for the 1 and 3-year periods would be $58 and $85,
respectively.
CLASS B SHARE FEES AND EXPENSES
<TABLE>
<CAPTION>
REAL ESTATE
SECURITIES FUND
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on purchases
(as a percentage of offering price) None
Maximum sales load imposed on reinvested dividends None
Maximum contingent deferred sales charge
(as a percentage of original purchase price
or redemption proceeds, as applicable) 5.00%
Redemption fees None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment advisory fees
(after voluntary fee waivers and reimbursements(1) 0.44%
Rule 12b-1 fees 1.00%
Other expenses(1) 0.36%
Total fund operating expenses
(after voluntary fee waivers and reimbursements)(1) 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 and 4% in year 3:
1 year $ 68
3 years $ 97
ASSUMING NO REDEMPTION(3)
You would pay the following expenses on the same investment,
assuming no redemption:
1 year $ 18
3 years $ 57
</TABLE>
(1) The Adviser intends to waive a portion of its fees and/or reimburse
expenses on a voluntary basis, and the amounts shown reflect this waiver
and reimbursement as of the date of this Prospectus. The Adviser intends to
maintain such waiver and reimbursement in effect for the current fiscal
year but reserves the right to discontinue such waiver and reimbursement at
any time in its sole discretion. Absent any fee waivers, investment
advisory fees as an annualized percentage of average daily net assets would
be 0.70%; and total fund operating expenses would be 2.06%. Other expenses
includes an administration fee and is based on estimated amounts for the
current fiscal year.
(2) Absent the fee waiver and reimbursement referred to in (1) above, the
dollar amounts for the 1 and 3-year periods would be $71 and $105,
respectively.
(3) Absent the fee waiver and reimbursement referred to in (1) above and
assuming no redemptions, the dollar amounts for the 1 and 3-year periods
would be $21 and $65, respectively.
INFORMATION CONCERNING FEES AND EXPENSES
The purpose of the preceding tables is to assist the investor in understanding
the various costs and expenses that an investor in the Fund may bear directly or
indirectly. THE EXAMPLES CONTAINED IN THE TABLES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN. The information set forth in the foregoing tables and
examples relates only to the Class A and Class B Shares of the Fund. The Fund
also offers Class C Shares which are subject to the same expenses except that
they bear no sales loads and distribution fees.
The examples in the above tables are based on projected annual Fund operating
expenses after voluntary fee waivers and expense reimbursements by the Adviser.
Although the Adviser intends to maintain such waivers in effect for the current
fiscal year, any such waivers are voluntary and may be discontinued at any time.
Prior to fee waivers, investment advisory fees accrue at the annual rate as a
percentage of average daily net assets of 0.70%.
The Class A Shares of the Fund may pay distribution and service fees to the
Distributor in an amount equaling 0.25% per year of such class's average daily
net assets, and the Class B Shares of the Fund bear distribution and servicing
fees totaling 1.00% per year of such class's average daily net assets. The
Distributor also receives the sales charge for distributing the Fund's Class A
Shares. Due to the distribution fees paid by these classes of shares, long-term
shareholders may pay more than the equivalent of the maximum front-end sales
charges otherwise permitted by NASD rules. For additional information, see
"Distributor."
Other expenses include fees paid by the Fund to the Administrator for providing
various services necessary to operate the Fund. These include shareholder
servicing and certain accounting and other services. The Administrator provides
these services for a fee calculated at an annual rate of 0.12% of average daily
net assets of the Fund subject to a minimum of $50,000 per fiscal year;
provided, that to the extent that the aggregate net assets of all First American
funds exceed $8 billion, the percentage stated above is reduced to 0.105%. Other
expenses of the Fund also includes the cost of maintaining shareholder records,
furnishing shareholder statements and reports, and other services. Investment
advisory fees, administrative fees and other expenses are reflected in the
Fund's daily dividends and are not charged to individual shareholder accounts.
THE FUND
FAIF is an open-end management investment company which offers shares in several
different mutual funds (collectively, the "FAIF Funds"), each of which evidences
an interest in a separate and distinct investment portfolio. Shareholders may
purchase shares in each FAIF Fund through three separate classes (Class A, Class
B and Class C) which provide for variations in distribution costs, voting rights
and dividends. Except for these differences among classes, each share of each
FAIF Fund represents an undivided proportionate interest in that fund. FAIF is
incorporated under the laws of the State of Maryland, and its principal offices
are located at 680 East Swedesford Road, Wayne, Pennsylvania 19087.
This Prospectus relates only to the Class A and Class B Shares of the Fund named
on the cover hereof. Information regarding the Class C Shares of this Fund and
regarding the Class A, Class B and Class C Shares of the other FAIF Funds is
contained in separate prospectuses that may be obtained from FAIF's Distributor,
SEI Financial Services Company, 680 East Swedesford Road, Wayne, Pennsylvania
19087, or by calling (800) 637-2548. The Board of Directors of FAIF may
authorize additional series or classes of common stock in the future.
INVESTMENT OBJECTIVE AND POLICIES
This section describes the investment objective and policies of the Fund. There
is no assurance that the Fund's investment objective will be achieved. The
Fund's investment objective is not fundamental and therefore may be changed
without a vote of shareholders. Such a change could result in the Fund having an
investment objective different from that which shareholders considered
appropriate at the time of their investment in the Fund. Shareholders will
receive written notification at least 30 days prior to any change in the Fund's
investment objective. The Fund is a non-diversified investment company, as
defined in the Investment Company Act of 1940 (the "1940 Act").
If a percentage limitation on investments by the Fund stated below or in the
Statement of Additional Information is adhered to at the time of an investment,
a later increase or decrease in percentage resulting from changes in asset
values will not be deemed to violate the limitation. Where the Fund is limited
to investing in securities with specified ratings, it is not required to sell a
security if its rating is reduced or discontinued after purchase, but it may
consider doing so. However, in no event will more than 5% of the Fund's net
assets be invested in non-investment grade securities. Descriptions of the
rating categories of Standard & Poor's Corporation ("Standard & Poor's") and
Moody's Investors Service, Inc. ("Moody's") are contained in the Statement of
Additional Information.
When the term "equity securities" is used in this Prospectus, it refers to
common stock (including, with respect to real estate investment trusts, shares
or units of beneficial interest therein) and securities which are convertible
into or exchangeable for, or which carry warrants or other rights to acquire,
common stock.
This section also contains information concerning certain investment risks borne
by Fund shareholders under the heading " -- Risks to Consider." Further
information concerning the securities in which the Fund may invest and related
matters is set forth under "Special Investment Methods."
REAL ESTATE SECURITIES FUND
OBJECTIVE. Real Estate Securities Fund has an objective of providing above
average current income and long-term capital appreciation by investing primarily
in equity securities of real estate companies.
INVESTMENT POLICIES. Under normal market conditions, Real Estate Securities Fund
invests at least 65% of its total assets in income producing equity securities
of publicly traded companies principally engaged in the real estate industry.
For this purpose, a company is deemed to be "principally engaged" in the real
estate industry if (i) it derives at least 50% of its revenues or profits from
the ownership, construction, management, financing or sale of residential,
commercial or industrial real estate, or (ii) has at least 50% of the fair
market value of its assets invested in such real estate. The Fund seeks to
invest in equity securities that provide a dividend yield that exceeds the
composite dividend yield of the securities included in the Standard & Poor's 500
Composite Stock Price Index.
A majority of the Fund's total assets will be invested in securities of real
estate investment trusts ("REITs"). REITs are publicly traded corporations or
trusts that specialize in acquiring, holding, and managing residential,
commercial or industrial real estate. A REIT is not taxed at the entity level on
income distributed to its shareholders or unitholders if it distributes to
shareholders or unitholders at least 95% of its taxable income for each taxable
year and complies with regulatory requirements relating to its organization,
ownership, assets and income.
REITs generally can be classified as Equity REITs, Mortgage REITs, and Hybrid
REITs. An Equity REIT invests the majority of its assets directly in real
property and derives its income primarily from rents and from capital gains on
real estate appreciation which are realized through property sales. A Mortgage
REIT invests the majority of its assets in real estate mortgage loans and
derives its income primarily from interest payments. A Hybrid REIT combines the
characteristics of an Equity REIT and a Mortgage REIT. Although the Fund can
invest in all three kinds of REITs, its emphasis is expected to be on
investments in Equity REITs.
The Fund also may invest up to 35% of its total assets in fixed income
securities of the kinds described under "Special Investment Methods -- Fixed
Income Securities."
In addition, the Fund may (i) enter into repurchase agreements; (ii) in order to
attempt to reduce risk, purchase put and call options on equity securities and
on stock indices; (iii) write covered call options covering up to 25% of the
equity securities owned by the Fund; (iv) purchase securities on a when-issued
or delayed-delivery basis; and (v) engage in the lending of portfolio
securities. For information about these investment methods and certain
associated risks, see the related headings under "Special Investment Methods."
For temporary defensive purposes during times of unusual market conditions, the
Fund may without limitation hold cash or invest in cash items of the kinds
described under "Special Investment Methods -- Cash Items." The Fund also may
invest not more than 35% of its total assets in cash and cash items in order to
utilize assets awaiting normal investment.
RISKS TO CONSIDER
An investment the Fund involves certain risks. These include the following:
CONCENTRATION IN REAL ESTATE INDUSTRY; NON-DIVERSIFICATION. Because the Fund
invests primarily in the real estate industry, it is particularly subject to
risks associated with that industry. The real estate industry has been subject
to substantial fluctuations and declines on a local, regional and national basis
in the past and may continue to be in the future. Real property values and
incomes from real property may decline due to general and local economic
conditions, overbuilding and increased competition, increases in property taxes
and operating expenses, changes in zoning laws, casualty or condemnation losses,
regulatory limitations on rents, changes in neighborhoods and in demographics,
increases in market interest rates, or other factors. Factors such as these may
adversely affect companies which own and operate real estate directly, companies
which lend to such companies, and companies which service the real estate
industry. Although the Fund will operate as a non- diversified investment
company under the 1940 Act, it intends to conduct its operations so as to
qualify as a regulated investment company under the Internal Revenue Code of
1986, as amended (the "Code").
INVESTMENTS IN REITS. Because the Fund may invest a substantial portion of its
assets in REITs, it also is subject to risks associated with direct investments
in REITs. Equity REITs will be affected by changes in the values of and incomes
from the properties they own, while Mortgage REITs may be affected by the credit
quality of the mortgage loans they hold. In addition, REITs are dependent on
specialized management skills and on their ability to generate cash flow for
operating purposes and to make distributions to shareholders or unitholders.
REITs may have limited diversification and are subject to risks associated with
obtaining financing for real property, as well as to the risk of
self-liquidation. REITs also can be adversely affected by their failure to
qualify for tax-free pass-through treatment of their income under the Code or
their failure to maintain an exemption from registration under the 1940 Act. By
investing in REITs indirectly through the Fund, a shareholder bears not only a
proportionate share of the expenses of the Fund, but also may indirectly bear
similar expenses of some of the REITs in which it invests.
EQUITY SECURITIES GENERALLY. Market prices of equity securities generally, and
of particular companies' equity securities, frequently are subject to greater
volatility than prices of fixed income securities. Market prices of equity
securities as a group have dropped dramatically in a short period of time on
several occasions in the past, and they may do so again in the future. The Fund
is subject to the risk of generally adverse equity markets.
ACTIVE MANAGEMENT. The performance of the Fund will reflect in part the ability
of the Adviser to select securities which are suited to achieving the Fund's
investment objective. Due to its active management, the Fund could underperform
other mutual funds with similar investment objectives or the market generally.
OTHER. Investors also should review "Special Investment Methods" for information
concerning risks associated with certain investment techniques which may be
utilized by the Fund.
MANAGEMENT
The Board of Directors of FAIF has the primary responsibility for overseeing the
overall management and electing the officers of FAIF. Subject to the overall
direction and supervision of the Board of Directors, the Adviser acts as
investment adviser for and manages the investment portfolios of FAIF.
INVESTMENT ADVISER
First Bank National Association, 601 Second Avenue South, Minneapolis, Minnesota
55480, is the Fund's investment adviser. The Adviser has acted as an investment
adviser to FAIF since its inception in 1987 and has acted as investment adviser
to First American Funds, Inc. since 1982. As of December 31, 1994, the Adviser
was managing accounts with an aggregate value of over $23 billion. First Bank
System, Inc., 601 Second Avenue South, Minneapolis, Minnesota 55480, is the
holding company for the Adviser.
The Fund has agreed to pay the Adviser monthly fees calculated on an annual
basis equal to 0.70% of its average daily net assets. The Adviser may, at its
option, waive any or all of its fees, or reimburse expenses, with respect to the
Fund from time to time. Any such waiver or reimbursement is voluntary and may be
discontinued at any time. The Adviser also may absorb or reimburse expenses of
the Fund from time to time, in its discretion, while retaining the ability to be
reimbursed by the Fund for such amounts prior to the end of the fiscal year.
This practice would have the effect of lowering the Fund's overall expense ratio
and of increasing yield to investors, or the converse, at the time such amounts
are absorbed or reimbursed, as the case may be.
The Glass-Steagall Act generally prohibits banks from engaging in the business
of underwriting, selling or distributing securities and from being affiliated
with companies principally engaged in those activities. In addition,
administrative and judicial interpretations of the Glass-Steagall Act prohibit
bank holding companies and their bank and nonbank subsidiaries from organizing,
sponsoring or controlling registered open-end investment companies that are
continuously engaged in distributing their shares. Bank holding companies and
their bank and nonbank subsidiaries may serve, however, as investment advisers
to registered investment companies, subject to a number of terms and conditions.
Although the scope of the prohibitions and limitations imposed by the
Glass-Steagall Act has not been fully defined by the courts or the appropriate
regulatory agencies, the Fund has received an opinion from its counsel that the
Adviser is not prohibited from performing the investment advisory services
described above, and that FBS Investment Services, Inc. ("ISI"), a wholly owned
broker-dealer subsidiary of the Adviser, is not prohibited from serving as a
Participating Institution as described herein. In the event of changes in
federal or state statutes or regulations or judicial and administrative
interpretations or decisions pertaining to permissible activities of bank
holding companies and their bank and nonbank subsidiaries, the Adviser and ISI
might be prohibited from continuing these arrangements. In that event, it is
expected that the Board of Directors would make other arrangements and that
shareholders would not suffer adverse financial consequences.
PORTFOLIO MANAGERS
CHARLES S. INGWALSON is portfolio co-manager for Real Estate Securities Fund.
Charles joined the Adviser in 1984 as president of First Asset Realty Advisers,
where he managed the Adviser's collective real estate investment vehicle for
pension funds. Charles has over 30 years experience in the real estate industry
and is past president of the Minnesota Mortgage Bankers Association and present
treasurer of the Minnesota Shopping Center Association. He received his
bachelor's degree from the University of North Dakota.
MARY M. HOYME is portfolio co-manager for Real Estate Securities Fund. Mary
joined the Adviser in 1989 as a research analyst, prior to which she was
employed for seven years as an equity and economic analyst with IDS Financial
Services. She received her bachelor's degree from the University of Wisconsin
- -- Eau Claire and her master's degree in business administration from the
College of St. Thomas. She is a Chartered Financial Analyst.
CUSTODIAN
The custodian of the Fund's assets is First Trust National Association (the
"Custodian"), First Trust Center, 180 East Fifth Street, St. Paul, Minnesota
55101. The Custodian is a subsidiary of First Bank System, Inc., which also
controls the Adviser.
As compensation for its services, the Custodian is paid monthly fees equal to
0.03% of the average daily net assets of the Fund.
ADMINISTRATOR
The administrator for the Fund is SEI Financial Management Corporation (the
"Administrator"), 680 East Swedesford Road, Wayne, Pennsylvania 19087. The
Administrator, a wholly-owned subsidiary of SEI Corporation, provides the Fund
with certain administrative services necessary to operate the Fund. These
services include shareholder servicing and certain accounting and other
services. The Administrator provides these services for a fee calculated at an
annual rate of 0.12% of the Fund's average daily net assets, subject to a
minimum administrative fee during each fiscal year of $50,000; provided, that to
the extent that the aggregate net assets of all First American funds exceed $8
billion, the percentage stated above is reduced to 0.105%. From time to time,
the Administrator may voluntarily waive its fees or reimburse expenses with
respect to the Fund. Any such waivers or reimbursements may be made at the
Administrator's discretion and may be terminated at any time.
TRANSFER AGENT
Supervised Service Company (the "Transfer Agent") serves as the transfer agent
and dividend disbursing agent for the Fund. The address of the Transfer Agent is
811 Main Street, Kansas City, Missouri 64105. The Transfer Agent is not
affiliated with the Distributor, the Administrator or the Adviser.
DISTRIBUTOR
SEI Financial Services Company is the principal distributor for shares of the
Fund and of the other FAIF Funds. The Distributor is a Pennsylvania corporation
and is the principal distributor for a number of investment companies. The
Distributor is a wholly-owned subsidiary of SEI Corporation and is located at
680 East Swedesford Road, Wayne, Pennsylvania 19087. The Distributor is not
affiliated with the Adviser, First Bank System, Inc., the Custodian or their
respective affiliates.
Shares of the Fund are distributed through the Distributor and securities firms,
financial institutions (including, without limitation, banks) and other industry
professionals (the "Participating Institutions") which enter into sales
agreements with the Distributor to perform share distribution or shareholder
support services.
FAIF has adopted a Plan of Distribution for the Class A Shares pursuant to Rule
12b-1 under the 1940 Act (the "Class A Distribution Plan"). The Class A
Distribution Plan authorizes the Distributor to retain the sales charge paid
upon purchase of Class A Shares, except that portion which is reallowed to
Participating Institutions. See "Investing in the Fund -- Alternative Sales
Charge Options." Under the Class A Distribution Plan, the Fund also pays the
Distributor a distribution fee monthly at an annual rate of 0.25% of the Fund's
Class A Shares' average daily net assets, which fee may be used by the
Distributor to provide compensation for sales support and distribution
activities with respect to Class A Shares of the Fund. From time to time, the
Distributor may voluntarily waive its distribution fees with respect to the
Class A Shares of the Fund. Any such waivers may be made at the Distributor's
discretion and may be terminated at any time.
Under another distribution plan (the "Class B Distribution Plan") adopted in
accordance with Rule 12b-1 under the 1940 Act, the Fund may pay to the
Distributor a sales support fee at an annual rate of up to 0.75% of the average
daily net assets of the Class B Shares of the Fund, which fee may be used by the
Distributor to provide compensation for sales support and distribution
activities with respect to Class B Shares of the Fund. This fee is calculated
and paid each month based on the average daily net assets for that month. In
addition to this fee, the Distributor may be paid a shareholder servicing fee of
0.25% of the average daily net assets of the Class B Shares pursuant to a
service plan (the "Class B Service Plan"), which fee may be used by the
Distributor to provide compensation for personal, ongoing servicing and/or
maintenance of shareholder accounts with respect to Class B Shares of the Fund.
Although Class B Shares are sold without an initial sales charge, the
Distributor pays a total of 4.25% of the amount invested (including a prepaid
service fee of 0.25% of the amount invested) to dealers who sell Class B Shares
(excluding exchanges from other Class B Shares in the First American family).
The service fee payable under the Class B Service Plan is prepaid for the first
year as described above.
The Class A and Class B Distribution Plans recognize that the Adviser, the
Administrator, the Distributor, and any Participating Institution may in their
discretion use their own assets to pay for certain additional costs of
distributing Fund shares. Any arrangement to pay such additional costs may be
commenced or discontinued by any of these persons at any time. In addition,
while there is no sales charge on purchases of Class A Shares of $1 million and
more, the Adviser may pay amounts to broker-dealers from its own assets with
respect to such sales. ISI, a subsidiary of the Adviser, is a Participating
Institution.
INVESTING IN THE FUND
SHARE PURCHASES
Shares of the Fund are sold at their net asset value, next determined after an
order is received, plus any applicable sales charge, on days on which the New
York Stock Exchange is open for business. Shares may be purchased as described
below. The Fund reserves the right to reject any purchase request.
THROUGH A FINANCIAL INSTITUTION. Shares may be purchased through a financial
institution which as a sales agreement with the Distributor. An investor may
call his or her financial institution to place an order. Purchase orders must be
received by the financial institution by the time specified by the institution
to be assured same day processing, and purchase orders must be transmitted to
and received by the Fund by 3:00 p.m. Central time in order for shares to be
purchased at that day's price. It is the financial institution's responsibility
to transmit orders promptly.
BY MAIL. An investor may place an order to purchase shares of the Fund directly
through the Transfer Agent. Orders by mail are considered received after payment
by check is converted by the Fund into federal funds. In order to purchase
shares by mail, an investor must:
* complete and sign the new account form;
* enclose a check made payable to (Fund name); and
* mail both to Supervised Service Company, P.O. Box 419382, Kansas City,
Missouri 64141-6382.
After an account is established, an investor can purchase shares by mail by
enclosing a check and mailing it to Supervised Service Company at the above
address.
BY WIRE. To purchase shares of the Fund by wire, call (800) 637-2548 before 3:00
p.m. Central time to place an order. All information needed will be taken over
the telephone, and the order will be considered received when the Custodian
receives payment by wire. Federal funds should be wired as follows: First Bank
National Association, Minneapolis, Minnesota: ABA Number 091000022; For Credit
to: Supervised Service Company: Account Number 6023458026; For Further Credit
To: (Investor Name and Fund Name). Shares cannot be purchased by Federal Reserve
wire on days on which the New York Stock Exchange is closed and on federal
holidays upon which wire transfers are restricted.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment for the Fund is $1,000 unless the investment is
in a retirement plan, in which case the minimum investment is $250. The minimum
subsequent investment is $100. The Fund reserves the right to waive the minimum
investment requirement for employees of First Bank National Association, First
Trust National Association and First Bank System, Inc. and their respective
affiliates.
ALTERNATIVE SALES CHARGE OPTIONS
THE TWO ALTERNATIVES: OVERVIEW. An investor may purchase shares of the Fund at a
price equal to its net asset value per share plus a sales charge which, at the
investor's election, may be imposed either (i) at the time of the purchase (the
Class A "initial sales charge alternative"), or (ii) on a contingent deferred
basis (the Class B "deferred sales charge alternative"). Each of Class A and
Class B represents the Fund's interest in its portfolio of investments. The
classes have the same rights and are identical in all respects except that (i)
Class B Shares bear the expenses of the contingent deferred sales charge
arrangement and distribution and service fees resulting from such sales
arrangement; (ii) each class has exclusive voting rights with respect to
approvals of any Rule 12b-1 distribution plan related to that specific class
(although Class B shareholders may vote on any distribution fees imposed on
Class A Shares as long as Class B Shares convert into Class A Shares); (iii)
only Class B Shares carry a conversion feature; and (iv) each class has
different exchange privileges. Sales personnel of financial institutions
distributing the Fund's shares, and other persons entitled to receive
compensation for selling shares, may receive differing compensation for selling
Class A and Class B Shares.
These alternative purchase arrangements permit an investor to choose the method
of purchasing shares that is more beneficial to that investor. The amount of a
purchase, the length of time an investor expects to hold the shares, and whether
the investor wishes to receive dividends in cash or in additional shares, will
all be factors in determining which sales charge option is best for a particular
investor. An investor should consider whether, over the time he or she expects
to maintain the investment, the accumulated sales charges on Class B Shares
prior to conversion would be less than the initial sales charge on Class A
Shares, and to what extent the differential may be offset by the expected higher
yield of Class A Shares. Class A Shares will normally be more beneficial to an
investor if he or she qualifies for reduced sales charges as described below.
Accordingly, orders for Class B Shares for $250,000 or more ordinarily will be
treated as orders for Class A Shares or declined.
The Directors of FAIF have determined that no conflict of interest currently
exists between the Class A and Class B Shares. On an ongoing basis, the
Directors, pursuant to their fiduciary duties under the 1940 Act and state laws,
will seek to ensure that no such conflict arises.
CLASS A SHARES.
WHAT CLASS A SHARES COST. Class A Shares of the Fund are offered on a continuous
basis at their next determined offering price, which is net asset value, plus a
sales charge as set forth below:
<TABLE>
<CAPTION>
MAXIMUM AMOUNT
OF SALES CHARGE
SALES CHARGE AS SALES CHARGE AS REALLOWED TO
PERCENTAGE OF PERCENTAGE OF PARTICIPATING
OFFERING PRICE NET ASSET VALUE INSTITUTIONS
<S> <C> <C> <C>
Less than $50,000 4.50% 4.75% 4.05%
$50,000 but less than $100,000 4.00% 4.17% 3.60%
$100,000 but less than $250,000 3.50% 3.63% 3.15%
$250,000 but less than $500,000 2.75% 2.83% 2.47%
$500,000 but less than
$1,000,000 2.00% 2.04% 1.80%
$1,000,000 and over 0.00% 0.00% 0.00%
</TABLE>
There is no initial sales charge on purchases of Class A Shares of $1 million or
more. However, Participating Institutions will receive a commission of 1.00% on
such sales. Redemptions of Class A Shares purchased at net asset value within 24
months of purchase will be subject to a contingent deferred sales charge of
1.00%. However, Class A Shares that are redeemed will not be subject to this
contingent deferred sales charge to the extent that the value of the shares
represents capital appreciation of Fund assets or reinvestment of dividends or
capital gain distributions.
Net asset value is determined at 3:00 p.m. Central time Monday through Friday
except on (i) days on which there are not sufficient changes in the value of the
Fund's portfolio securities that its net asset value might be materially
affected; (ii) days during which no shares are tendered for redemption and no
orders to purchase shares are received; and (iii) on the following federal
holidays: New Year's Day, Presidents' Day, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day. In addition, net asset value will not
be calculated on Good Friday.
DEALER CONCESSION. A dealer will normally receive up to 90% of the applicable
sales charge. Any portion of the sales charge which is not paid to a dealer will
be retained by the Distributor. In addition, the Distributor may, from time to
time in its sole discretion, institute one or more promotional incentive
programs which will be paid by the Distributor from the sales charge it receives
or from any other source available to it. Under any such program, the
Distributor will provide promotional incentives, in the form of cash or other
compensation including merchandise, airline vouchers, trips and vacation
packages, to all dealers selling shares of the Fund. Promotional incentives of
these kinds will be offered uniformly to all dealers and predicated upon the
amount of shares of the Fund sold by the dealer. Whenever 90% or more of a sales
charge is paid to a dealer, that dealer may be deemed to be an underwriter as
defined in the Securities Act of 1933.
The sales charge for shares sold other than through registered broker/dealers
will be retained by the Distributor. The Distributor may pay fees to financial
institutions out of the sales charge in exchange for sales and/or administrative
services performed on behalf of the institution's customers in connection with
the initiation of customer accounts and purchases of Fund shares.
REDUCING THE CLASS A SALES CHARGE. The sales charge can be reduced on the
purchase of Class A Shares through (i) quantity discounts and accumulated
purchases, or (ii) signing a 13-month letter of intent:
* Quantity Discounts and Accumulated Purchases: As shown in the table
above, larger purchases of Class A Shares reduce the percentage sales
charge paid. The Fund will combine purchases made on the same day by
an investor, the investor's spouse, and the investor's children under
age 21 when it calculates the sales charge. In addition, the sales
charge, if applicable, is reduced for purchases made at one time by a
trustee or fiduciary for a single trust estate or a single fiduciary
account.
The sales charge discount applies to the total current market value of
the Fund, plus the current market value of any other FAIF Fund and any
other mutual funds having a sales charge and distributed as part of
the First American family of funds. Prior purchases and concurrent
purchases of Class A Shares of any FAIF Fund will be considered in
determining the sales charge reduction. In order for an investor to
receive the sales charge reduction on Class A Shares, the Transfer
Agent must be notified by the investor in writing or by his or her
financial institution at the time the purchase is made that Fund
shares are already owned or that purchases are being combined.
* Letter of Intent: If an investor intends to purchase at least $50,000
of Class A Shares in the Fund and other FAIF Funds over the next 13
months, the sales charge may be reduced by signing a letter of intent
to that effect. This letter of intent includes a provision for a sales
charge adjustment depending on the amount actually purchased within
the 13-month period and a provision for the Custodian to hold a
percentage equal to the particular FAIF Fund's maximum sales charge
rate of the total amount intended to be purchased in escrow (in
shares) for all FAIF Funds until the purchase is completed.
The amount held in escrow for all FAIF Funds will be applied to the
investor's account at the end of the 13-month period after deduction
of the sales load applicable to the dollar value of shares actually
purchased. In this event, an appropriate number of escrowed shares may
be redeemed in order to realize the difference in the sales charge.
A letter of intent will not obligate the investor to purchase shares,
but if he or she does, each purchase during the period will be at the
sales charge applicable to the total amount intended to be purchased.
This letter may be dated as of a prior date to include any purchases
made within the past 90 days.
SALES OF CLASS A SHARES AT NET ASSET VALUE. Purchases of the Fund's Class A
Shares by the Adviser or any of its affiliates, or any of their or FAIF's
officers, directors, employees, retirees, sales representatives, partners and
full-time employees of FAIF's general counsel, and members of their immediate
families (i.e., parent, child, spouse, sibling, step or adopted relationships,
and UTMA accounts naming qualifying persons), may be made at net asset value
without a sales charge.
If Class A Shares of the Fund have been redeemed, the shareholder has a one-time
right, within 30 days, to reinvest the redemption proceeds in Class A Shares of
any FAIF Fund at the next-determined net asset value without any sales charge.
The Transfer Agent must be notified by the shareholder in writing or by his or
her financial institution of the reinvestment in order to eliminate a sales
charge. If the shareholder redeems his or her shares of the Fund, there may be
tax consequences.
In addition, purchases of Class A Shares of the Fund that are funded by proceeds
received upon the redemption (within 60 days of the purchase of Fund shares) of
shares of any unrelated open-end investment company that charges a sales load
may be made at net asset value. To make such a purchase at net asset value, an
investor or the investor's broker must, at the time of purchase, submit a
written request to the Transfer Agent that the purchase be processed at net
asset value pursuant to this privilege, accompanied by a photocopy of the
confirmation (or similar evidence) showing the redemption from the unrelated
fund. The redemption of the shares of the non-related fund is, for federal
income tax purposes, a sale upon which a gain or loss my be realized.
CLASS B SHARES.
CONTINGENT DEFERRED SALES CHARGE. Class B Shares are sold at net asset value
without any initial sales charge. If an investor redeems Class B Shares within
eight years of purchase, he or she will pay a contingent deferred sales charge
at the rates set forth below. This charge is assessed on an amount equal to the
lesser of the then-current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price or on shares derived from reinvestment of
dividends or capital gain distributions.
CONTINGENT DEFERRED SALES CHARGE
YEAR SINCE AS A PERCENTAGE OF DOLLAR
PURCHASE AMOUNT SUBJECT TO CHARGE
First 5.00%
Second 5.00%
Third 4.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh None
Eighth None
In determining whether a particular redemption is subject to a contingent
deferred sales charge, it is assumed that the redemption is first of any Class A
Shares in the shareholder's Fund account; second, of any Class B Shares held for
more than eight years and Class B Shares acquired pursuant to reinvestment of
dividends or other distributions; and third, of Class B Shares held longest
during the eight-year period. This method should result in the lowest possible
sales charge.
The contingent deferred sales charge is waived on redemption of Class B Shares
(i) within one year following the death or disability (as defined in the
Internal Revenue Code) of a shareholder, and (ii) to the extent that the
redemption represents a minimum required distribution from an individual
retirement account or other retirement plan to a shareholder who has attained
the age of 70 1/2 . A shareholder or his or her representative must notify the
Transfer Agent prior to the time of redemption if such circumstances exist and
the shareholder is eligible for this waiver.
CONVERSION FEATURE. At the end of the period ending eight years after the
beginning of the month in which the shares were issued, Class B Shares will
automatically convert to Class A Shares and will no longer be subject to the
Class B distribution and service fees. This conversion will be on the basis of
the relative net asset values of the two classes.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account and
invested in Fund shares at the net asset value next determined after an order is
received, plus any applicable sales charge. A shareholder may apply for
participation in this program through his or her financial institution or call
(800) 637-2548.
EXCHANGING SECURITIES FOR FUND SHARES
The Fund may accept securities in exchange for Fund shares. The Fund will allow
such exchanges only upon the prior approval by the Fund and a determination by
the Fund and the Adviser that the securities to be exchanged are acceptable.
Securities accepted by the Fund will be valued in the same manner that the Fund
values its assets. The basis of the exchange will depend upon the net asset
value of Fund shares on the day the securities are valued.
CERTIFICATES AND CONFIRMATIONS
The Transfer Agent maintains a share account for each shareholder. Share
certificates will not be issued by the Fund.
Confirmations of each purchase and redemption are sent to each shareholder. In
addition, monthly confirmations are sent to report all transactions and
dividends paid during that month for the Fund.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared and paid quarterly. Distributions of any net realized
long-term capital gains will be made at least once every 12 months. Dividends
and distributions are automatically reinvested in additional shares of the Fund
on payment dates at the ex-dividend date net asset value without a sales charge,
unless shareholders request cash payments on the new account form or by writing
to the Fund.
All shareholders on the record date are entitled to the dividend. If shares are
purchased before a record date for a dividend or a distribution of capital
gains, a shareholder will pay the full price for the shares and will receive
some portion of the purchase price back as a taxable dividend or distribution
(to the extent, if any, that the dividend or distribution is otherwise taxable
to holders of Fund shares). If shares are redeemed or exchanged before the
record date for a dividend or distribution or are purchased after the record
date, those shares are not entitled to the dividend or distribution.
The amount of dividends payable on Class A and Class B Shares generally will be
less than the dividends payable on Class C Shares because of the distribution
expenses charged to Class A and Class B Shares. The amount of dividends payable
on Class A Shares generally will be more than the dividends payable on the Class
B Shares because of the distribution and service fees paid by Class B Shares.
EXCHANGE PRIVILEGE
Shareholders may exchange Class A or Class B Shares of the Fund for currently
available Class A or Class B Shares, respectively, of the other FAIF Funds or of
other funds in the First American family. Class A Shares of the Fund, whether
acquired by direct purchase, reinvestment of dividends on such shares, or
otherwise, may be exchanged for Class A Shares of other funds without the
payment of any sales charge (i.e., at net asset value). Exchanges of shares
among the FAIF Funds must meet any applicable minimum investment of the fund for
which shares are being exchanged.
For purposes of calculating the Class B Shares' eight-year conversion period or
contingent deferred sales charges payable upon redemption, the holding period of
Class B Shares of the "old" fund and the holding period of Class B Shares of the
"new" fund are aggregated.
The ability to exchange shares of the Fund does not constitute an offering or
recommendation of shares of one fund by another fund. This privilege is
available to shareholders resident in any state in which the fund shares being
acquired may be sold. An investor who is considering acquiring shares in another
First American Fund pursuant to the exchange privilege should
obtain and carefully read a prospectus of the fund to be acquired. Exchanges may
be accomplished by a written request, or by telephone if a preauthorized
exchange authorization is on file with the Transfer Agent, shareholder servicing
agent, or financial institution.
Written exchange requests must be signed exactly as shown on the authorization
form, and the signatures may be required to be guaranteed as for a redemption of
shares by an entity described below under "Redeeming Shares -- Directly From the
Fund -- Signatures." Neither the Fund, the Distributor, the Transfer Agent, any
shareholder servicing agent, or any financial institution will be responsible
for further verification of the authenticity of the exchange instructions.
Telephone exchange instructions made by an investor may be carried out only if a
telephone authorization form completed by the investor is on file with the
Transfer Agent, shareholder servicing agent, or financial institution. Shares
may be exchanged between two FAIF Funds by telephone only if both FAIF Funds
have identical shareholder registrations.
Telephone exchange instructions may be recorded and will be binding upon the
shareholder. Telephone instructions must be received by the Transfer Agent
before 3:00 p.m. Central time, or by a shareholder's shareholder servicing agent
or financial institution by the time specified by it, in order to for shares to
be exchanged the same day. Neither the Transfer Agent nor the Fund will be
responsible for the authenticity of exchange instructions received by telephone
if it reasonably believes those instructions to be genuine. The Fund and the
Transfer Agent will each employ reasonable procedures to confirm that telephone
instructions are genuine, and they may be liable for losses resulting from
unauthorized or fraudulent telephone instructions if they do not employ these
procedures.
Shareholders of the Fund may have difficulty in making exchanges by telephone
through brokers and other financial institutions during times of drastic
economic or market changes. If a shareholder cannot contact his or her broker or
financial institution by telephone, it is recommended that an exchange request
be made in writing and sent by overnight mail to Supervised Service Company, 811
Main Street, Kansas City, Missouri 64105.
Shareholders who become eligible to purchase Class C Shares may exchange Class A
Shares for Class C Shares. An example of such an exchange would be a situation
in which an individual holder of Class A Shares subsequently opens a custody or
agency account with a financial institution which invests in Class C Shares.
The terms of any exchange privilege may be modified or terminated by the Fund at
any time. There are currently no additional fees or charges for the exchange
service. The Fund does not contemplate establishing such fees or charges, but it
reserves the right to do so. Shareholders will be notified of any modification
or termination of the exchange privilege and of the imposition of any additional
fees or changes.
REDEEMING SHARES
The Fund redeems shares at their net asset value next determined after the
Transfer Agent receives the redemption request, reduced by any applicable
contingent deferred sales charge. Redemptions will be made on days on which the
Fund computes its net asset value. Redemption requests can be made as described
below and must be received in proper form.
BY TELEPHONE
A shareholder may redeem shares of the Fund by calling his or her financial
institution to request the redemption. Shares will be redeemed at the net asset
value next determined after the Fund receives the redemption request from the
financial institution. Redemption requests must be received by the financial
institution by the time specified by the institution in order for shares to be
redeemed at that day's net asset value, and redemption requests must be
transmitted to and received by the Fund by 3:00 p.m. Central time in order for
shares to be redeemed at that day's net asset value. Pursuant to instructions
received from the financial institution, redemptions will be made by check or by
wire transfer. It is the financial institution's responsibility to transmit
redemption requests promptly.
Shareholders who did not purchase their shares of the Fund through a financial
institution may redeem their shares by telephoning (800) 637-2548. At the
shareholder's request, redemption proceeds will be paid by check mailed to the
shareholder's address of record or wire transferred to the shareholder's account
at a domestic commercial bank that is a member of the Federal Reserve System,
normally within one business day, but in no event more than seven days after the
request. The minimum amount for a wire transfer is $1,000. If at any time the
Fund determines it necessary to terminate or modify this method of redemption,
shareholders will be promptly notified.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming shares by telephone. If this should occur, another
method of redemption should be considered. Neither the Transfer Agent nor the
Fund will be responsible for the authenticity of redemption instructions
received by telephone if it reasonably believes those instructions to be
genuine. The Fund and the Transfer Agent will each employ reasonable procedures
to confirm that telephone instructions are genuine, and they may be liable for
losses resulting from unauthorized or fraudulent telephone instructions if they
do not employ these procedures. These procedures may include taping of telephone
conversations.
BY MAIL
Any shareholder may redeem Fund shares by sending a written request to the
Transfer Agent, shareholder servicing agent, or financial institution. The
written request should include the shareholder's name, the Fund name, the
account number, and the share or dollar amount requested to be redeemed, and
should be signed exactly as the shares are registered. Shareholders should call
the Fund, shareholder servicing agent or financial institution for assistance in
redeeming by mail. A check for redemption proceeds normally is mailed within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request.
Shareholders requesting a redemption of $5,000 or more, a redemption of any
amount to be sent to an address other than that on record with the Fund, or a
redemption payable other than to the shareholder of record, must have signatures
on written redemption requests guaranteed by:
* a trust company or commercial bank the deposits of which are insured
by the Bank Insurance Fund, which is administered by the Federal
Deposit Insurance Corporation ("FDIC");
* a member firm of the New York, American, Boston, Midwest, or Pacific
Stock Exchanges or of the National Association of Securities Dealers;
* a savings bank or savings and loan association the deposits of which
are insured by the Savings Association Insurance Fund, which is
administered by the FDIC; or
* any other "eligible guarantor institution," as defined in the
Securities Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and the Transfer Agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantees to institutions that are members of a
signature guarantee program. The Fund and the Transfer Agent reserve the right
to amend these standards at any time without notice.
BY SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders whose account value is at least $5,000 may elect to participate in
the Systematic Withdrawal Program. Under this program, Fund shares are redeemed
to provide for periodic withdrawal payments in an amount directed by the
shareholder. A shareholder may apply to participate in this program through his
or her financial institution. It is generally not in a shareholder's best
interest to participate in the Systematic Withdrawal Program at the same time
that the shareholder is purchasing additional shares if a sales charge must be
paid in connection with such purchases. Because automatic withdrawals with
respect to Class B Shares are subject to the contingent deferred sales charge,
it may not be in the best interest of a Class B shareholder to participate in
the Systematic Withdrawal Program.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When shares are purchased by check or with funds transmitted through the
Automated Clearing House, the proceeds of redemptions of those shares are not
available until the Transfer Agent is reasonably certain that the purchase
payment has cleared, which could take up to ten calendar days from the purchase
date.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account, except retirement plans, and pay the proceeds,
less any applicable contingent deferred sales charge, to the shareholder if the
account balance falls below the required minimum value of $500. Shares will not
be redeemed in this manner, however, if the balance falls below $500 because of
changes in the Fund's net asset value. Before shares are redeemed to close an
account, the shareholder will be notified in writing and allowed 60 days to
purchase additional shares to meet the minimum account requirement.
DETERMINING THE PRICE OF SHARES
Class A Shares of the Fund are sold at net asset value plus a sales charge,
while Class B Shares are sold without a front-end sales charge. Shares are
redeemed at net asset value less any applicable contingent deferred sales
charge. See "Investing in the Fund-Alternative Sales Charge Options."
The net asset value per share is determined as of the earlier of the close of
the New York Stock Exchange or 3:00 p.m. Central time on each day the New York
Stock Exchange is open for business, provided that net asset value need not be
determined on days when no Fund shares are tendered for redemption and no order
for the Fund's shares is received and on days on which changes in the value of
portfolio securities will not materially affect the current net asset value of
the Fund's shares. The price per share for purchases or redemptions is such
value next computed after the Transfer Agent receives the purchase order or
redemption request.
It is the responsibility of Participating Institutions promptly to forward
purchase and redemption orders to the Transfer Agent. In the case of redemptions
and repurchases of shares owned by corporations, trusts or estates, the Transfer
Agent or Fund may require additional documents to evidence appropriate authority
in order to effect the redemption, and the applicable price will be that next
determined following the receipt of the required documentation.
DETERMINING NET ASSET VALUE
The net asset value per share for the Fund is determined by dividing the value
of the securities owned by the Fund plus any cash and other assets (including
interest accrued and dividends declared but not collected), less all
liabilities, by the number of Fund shares outstanding. For the purpose of
determining the aggregate net assets of the Fund, cash and receivables will be
valued at their face amounts. Interest will be recorded as accrued and dividends
will be recorded on the ex-dividend date. Securities traded on a national
securities exchange or on the NASDAQ National Market System are valued at the
last reported sale price that day. Securities traded on a national securities
exchange or on the NASDAQ National Market System for which there were no sales
on that day, and securities traded on other over-the-counter markets for which
market quotations are readily available, are valued at the mean between the bid
and asked prices.
Portfolio securities underlying actively traded options are valued at their
market price as determined above. The current market value of any exchange
traded option held or written by the Fund is its last sales price on the
exchange prior to the time when assets are valued, unless the bid price is
higher or the asked price is lower, in which event the bid or asked price is
used. In the absence of any sales that day, options will be valued at the mean
between the current closing bid and asked prices.
Short-term securities with maturities of less than 60 days when acquired, or
which subsequently are within 60 days of maturity, are valued at amortized cost.
Securities and other assets for which market prices are not readily available
are valued at fair value as determined in good faith by or under the direction
of the Board of Directors. Subject to the use of reliable market quotations for
actively traded securities, fixed income securities may be valued on the basis
of prices provided by a pricing service when such prices are believed to reflect
the fair market value of the securities. Pricing services generally take into
account institutional size trading in similar groups of securities. The pricing
service and valuation procedures are reviewed and subject to approval by the
Board of Directors.
Although the methodology and procedures for determining net asset value are
identical for all classes of shares, the net asset value per share of different
classes of shares of the Fund may differ because of the distribution expenses
charged to Class A and Class B Shares.
FEDERAL INCOME TAXES
The Fund intends to qualify as a regulated investment company under Subchapter M
of the Internal Revenue Code of 1986, as amended (the "Code"), during its
current taxable year in order to be relieved of payment of federal income taxes
on amounts of taxable income it distributes to shareholders.
Dividends paid from the Fund's net investment income and net short-term capital
gains will be taxable to shareholders as ordinary income, whether or not the
shareholder elects to have such dividends automatically reinvested in additional
shares. Dividends paid by the Fund attributable to investments in the securities
of REITs will not be eligible for the 70% deduction for dividends received by
corporations.
Dividends paid from the net capital gains of the Fund and designated as capital
gain dividends will be taxable to shareholders as long-term capital gains,
regardless of the length of time for which they have held their shares in the
Fund. Long-term capital gains of individuals are currently subject to a maximum
tax rate of 28%.
Gain or loss realized upon the sale of shares in the Fund will be treated as
capital gain or loss, provided that the shares represented a capital asset in
the hands of the shareholder. Such gain or loss will be long-term gain or loss
if the shares were held for more than one year.
The Fund is required by federal law to withhold 31% of reportable payments
(including dividends, capital gain distributions, and redemptions) paid to
certain accounts whose owners have not complied with IRS regulations. In order
to avoid this withholding requirement, each shareholder will be asked to certify
on the shareholder's account application that the social security or taxpayer
identification number provided is correct and that the shareholder is not
subject to backup withholding for previous underreporting to the IRS.
This is a general summary of the federal tax laws applicable to the Fund and its
shareholders as of the date of this Prospectus. See the Statement of Additional
Information for further details. Before investing in the Fund, an investor
should consult his or her tax adviser about the consequences of state and local
tax laws.
FUND SHARES
Each share of the Fund is fully paid, nonassessable, and transferable. Shares
may be issued as either full or fractional shares. Fractional shares have pro
rata the same rights and privileges as full shares. Shares of the Fund have no
preemptive or conversion rights.
Each share of the Fund has one vote. On some issues, such as the election of
directors, all shares of all FAIF Funds vote together as one series. The shares
do not have cumulative voting rights. Consequently, the holders of more than 50%
of the shares voting for the election of directors are able to elect all of the
directors if they choose to do so. On issues affecting only a particular Fund or
Class, the shares of that Fund or Class will vote as a separate series. Examples
of such issues would be proposals to alter a fundamental investment restriction
pertaining to a Fund or to approve, disapprove or alter a distribution plan
pertaining to a Class.
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 1940 Act, or (ii) are requested in writing by the holders of 25% or more
of the outstanding shares of FAIF.
CALCULATION OF PERFORMANCE DATA
From time to time, the Fund may advertise information regarding its performance.
The Fund may publish its "yield," its "cumulative total return," its "average
annual total return" and its "distribution rate." Distribution rates may only be
used in connection with sales literature and shareholder communications preceded
or accompanied by a Prospectus. Each of these performance figures is based upon
historical results and is not intended to indicate future performance, and,
except for "distribution rate," is standardized in accordance with Securities
and Exchange Commission ("SEC") regulations.
"Yield" for the Fund is computed by dividing the net investment income per share
(as defined in applicable SEC regulations) earned during a 30-day period (which
period will be stated in the advertisement) by the maximum offering price per
share on the last day of the period. Yield is an annualized figure, in that it
assumes that the same level of net investment income is generated over a one
year period. The yield formula annualizes net investment income by providing for
semi-annual compounding.
"Total return" is based on the overall dollar or percentage change in value of a
hypothetical investment in the Fund assuming reinvestment of dividend
distributions and deduction of all charges and expenses, including, as
applicable, the maximum sales charge imposed on Class A Shares or the contingent
deferred sales charge imposed on Class B Shares redeemed at the end of the
specified period covered by the total return figure. "Cumulative total return"
reflects the Fund's performance over a stated period of time. "Average annual
total return" reflects the hypothetical annually compounded rate that would have
produced the same cumulative total return if performance had been constant over
the entire period. Because average annual returns tend to smooth out variations
in the Fund's performance, they are not the same as actual year-by-year results.
As a supplement to total return computations, the Fund may also publish "total
investment return" computations which do not assume deduction of the maximum
sales charge imposed on Class A Shares or the contingent deferred sales charge
imposed on Class B Shares.
"Distribution rate" is determined by dividing the income dividends per share for
a stated period by the maximum offering price per share on the last day of the
period. All distribution rates published for the Fund are measures of the level
of income dividends distributed during a specified period. Thus, these rates
differ from yield (which measures income actually earned by the Fund) and total
return (which measures actual income, plus realized and unrealized gains or
losses of the Fund's investments). Consequently, distribution rates alone should
not be considered complete measures of performance.
The performance of the Class A and Class B Shares of the Fund will normally be
lower than for the Class C Shares because Class C Shares are not subject to the
sales charges and distribution expenses applicable to Class A and Class B
Shares. In addition, the performance of Class A and Class B Shares of the Fund
will differ because of the different sales charge structures of the classes and
because of the higher distribution and service fees charged to Class B Shares.
In reports or other communications to shareholders and in advertising material,
the performance of the Fund may be compared to recognized unmanaged indices or
averages of the performance of similar securities. Also, the performance of the
Fund may be compared to that of other funds of similar size and objectives as
listed in the rankings prepared by Lipper Analytical Services, Inc. or similar
independent mutual fund rating services, and the Fund may include in such
reports, communications and advertising material evaluations published by
nationally recognized independent ranking services and publications. For further
information regarding the Fund's performance, see "Fund Performance" in the
Statement of Additional Information.
SPECIAL INVESTMENT METHODS
This section provides additional information concerning the securities in which
the Fund may invest and related topics. Further information concerning these
matters is contained in the Statement of Additional Information.
CASH ITEMS
The "cash items" in which the Fund may invest, as described under "Investment
Objective and Policies," include short-term obligations such as rated commercial
paper and variable amount master demand notes; United States dollar-denominated
time and savings and time deposits (including certificates of deposit); bankers
acceptances; obligations of the United States Government or its agencies or
instrumentalities; repurchase agreements collateralized by eligible investments
of the Fund; securities of other mutual funds which invest primarily in debt
obligations with remaining maturities of 13 months or less (which investments
also are subject to the advisory fee); and other similar high-quality short-term
United States dollar-denominated obligations.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements. A repurchase agreement involves
the purchase by the Fund of securities with the agreement that after a stated
period of time, the original seller will buy back the same securities
("collateral") at a predetermined price or yield. Repurchase agreements involve
certain risks not associated with direct investments in securities. If the
original seller defaults on its obligation to repurchase as a result of its
bankruptcy or otherwise, the purchasing Fund will seek to sell the collateral,
which could involve costs or delays. Although collateral (which may consist of
any fixed income security which is an eligible investment for the Fund) will at
all times be maintained in an amount equal to the repurchase price under the
agreement (including accrued interest), the Fund would suffer a loss if the
proceeds from the sale of the collateral were less than the agreed-upon
repurchase price. The Adviser will monitor the creditworthiness of the firms
with which the Fund enters into repurchase agreements.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed-delivery basis.
When such a transaction is negotiated, the purchase price is fixed at the time
the purchase commitment is entered, but delivery of and payment for the
securities take place at a later date. The Fund will not accrue income with
respect to securities purchased on a when-issued or delayed-delivery basis prior
to their stated delivery date. Pending delivery of the securities, the Fund will
maintain in a segregated account cash or liquid high-grade securities in an
amount sufficient to meet its purchase commitments.
The purchase of securities on a when-issued or delayed-delivery basis exposes
the Fund to risk because the securities may decrease in value prior to delivery.
In addition, the Fund's purchase of securities on a when-issued or
delayed-delivery basis while remaining substantially fully invested could
increase the amount of the Fund's total assets that are subject to market risk,
resulting in increased sensitivity of net asset value to changes in market
prices. However, the Fund will engage in when-issued and delayed-delivery
transactions only for the purpose of acquiring portfolio securities consistent
with its investment objective, and not for the purpose of investment leverage. A
seller's failure to deliver securities to the Fund could prevent the Fund from
realizing a price or yield considered to be advantageous.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Fund may lend portfolio securities
representing up to one-third of the value of its total assets to broker-dealers,
banks or other institutional borrowers of securities. As with other extensions
of credit, there may be risks of delay in recovery of the securities or even
loss of rights in the collateral should the borrower of the securities fail
financially.
However, the Fund will only enter into loan arrangements with broker-dealers,
banks, or other institutions which the Adviser has determined are creditworthy
under guidelines established by the Board of Directors. In these loan
arrangements, the Fund will receive collateral in the form of cash, United
States Government securities or other high-grade debt obligations equal to at
least 100% of the value of the securities loaned. Collateral is marked to market
daily. The Fund will pay a portion of the income earned on the lending
transaction to the placing broker and may pay administrative and custodial fees
in connection with these loans.
OPTIONS TRANSACTIONS
PURCHASES OF PUT AND CALL OPTIONS. The Fund may purchase put and call options to
the extent specified under "Investment Objective and Policies." These
transactions will be undertaken only for the purpose of reducing risk to the
Fund; that is, for "hedging" purposes. These transactions may include the
purchase of put and call options on equity securities and on stock indices.
A put option on a security gives the purchaser of the option the right (but not
the obligation) to sell, and the writer of the option the obligation to buy, the
underlying security at a stated price (the "exercise price") at any time before
the option expires. A call option on a security gives the purchaser the right
(but not the obligation) to buy, and the writer the obligation to sell, the
underlying security at the exercise price at any time before the option expires.
The purchase price for a put or call option is the "premium" paid by the
purchaser for the right to sell or buy.
Options on indices are similar to options on securities except that, rather than
the right to take or make delivery of a specific security at a stated price, an
option on an index gives the holder the right to receive, upon exercise of the
option, a defined amount of cash if the closing value of the index upon which
the option is based is greater than, in the case of a call, or less than, in the
case of a put, the exercise price of the option.
The Fund will not invest more than 5% of the value of its total assets in
purchased options, provided that options which are "in the money" at the time of
purchase may be excluded from this 5% limitation. A call option is "in the
money" if the exercise price is lower than the current market price of the
underlying security or index, and a put option is "in the money" if the exercise
price is higher than the current market price. The Fund's loss exposure in
purchasing an option is limited to the sum of the premium paid and the
commission or other transaction expenses associated with acquiring the option.
The use of purchased put and call options involves certain risks. These include
the risk of an imperfect correlation between market prices of securities held by
the Fund and the prices of options, and the risk of limited liquidity in the
event that the Fund seeks to close out an options position before expiration by
entering into an offsetting transaction.
WRITING OF COVERED CALL OPTIONS. The Fund may write (sell) covered call options
to the extent specified under "Investment Objective and Policies." These
transactions would be undertaken principally to produce additional income. These
transactions may include the writing of covered call options on equity
securities which the Fund owns or has the right to acquire.
When the Fund sells a covered call option, it is paid a premium by the
purchaser. If the market price of the security covered by the option does not
increase above the exercise price before the option expires, the option
generally will expire without being exercised, and the Fund will retain both the
premium paid for the option and the security. If the market price of the
security covered by the option does increase above the exercise price before the
option expires, however, the option is likely to be exercised by the purchaser.
In that case the Fund will be required to sell the security at the exercise
price, and it will not realize the benefit of increases in the market price of
the security above the exercise price of the option.
FIXED INCOME SECURITIES
The fixed income securities in which the Fund may invest include securities
issued or guaranteed by the United States Government or its agencies or
instrumentalities, nonconvertible preferred stocks, nonconvertible corporate
debt securities, and short-term obligations of the kinds described above under
"-- Cash Items." Investments in nonconvertible preferred stocks and
nonconvertible corporate debt securities will be limited to securities which are
rated at the time of purchase not less than BBB by Standard & Poor's or Baa by
Moody's (or equivalent short-term ratings), or which have been assigned an
equivalent rating by another nationally recognized statistical rating
organization, or which are of comparable quality in the judgment of the Adviser.
Obligations rated BBB, Baa or their equivalent, although investment grade, have
speculative characteristics and carry a somewhat higher risk of default than
obligations rated in the higher investment grade categories.
The fixed income securities specified above are subject to (i) interest rate
risk (the risk that increases in market interest rates will cause declines in
the value of debt securities held by the Fund); (ii) credit risk (the risk
that the issuers of debt securities held by the Fund default in making required
payments); and (iii) call or prepayment risk (the risk that a borrower may
exercise the right to prepay a debt obligation before its stated maturity,
requiring the Fund to reinvest the prepayment at a lower interest rate).
PORTFOLIO TRANSACTIONS
Portfolio transactions in the over-the-counter market will be effected with
market makers or issuers, unless better overall price and execution are
available through a brokerage transaction. It is anticipated that most portfolio
transactions involving debt securities will be executed on a principal basis.
Also, with respect to the placement of portfolio transactions with securities
firms, subject to the overall policy to seek to place portfolio transactions as
efficiently as possible and at the best price, research services and placement
of orders by securities firms for the Fund's shares may be taken into account as
a factor in placing portfolio transactions for the Fund.
PORTFOLIO TURNOVER
Although the Fund does not intend generally to trade for short-term profits, it
may dispose of a security without regard to the time it has been held when such
action appears advisable to the Adviser. The portfolio turnover rate for the
Fund may vary from year to year and may be affected by cash requirements for
redemptions of shares. High portfolio turnover rates generally would result in
higher transaction costs and could result in additional tax consequences to the
Fund's shareholders.
INVESTMENT RESTRICTIONS
The fundamental and nonfundamental investment restrictions of the Fund are set
forth in full in the Statement of Additional Information. The fundamental
restrictions include the following:
* The Fund will not borrow money, except from banks for temporary or
emergency purposes. The amount of such borrowing may not exceed 10% of
the Fund's total assets. The Fund will not borrow money for leverage
purposes. For the purpose of this investment restriction, the use of
options and futures transactions and the purchase of securities on a
when-issued or delayed-delivery basis shall not be deemed the
borrowing of money.
* The Fund will not mortgage, pledge or hypothecate its assets, except
in an amount not exceeding 15% of the value of its total assets to
secure temporary or emergency borrowing.
* The Fund will not make short sales of securities.
* The Fund will not purchase any securities on margin except to obtain
such short-term credits as may be necessary for the clearance of
transactions.
A fundamental policy or restriction, including those stated above, cannot be
changed without an affirmative vote of the holders of a "majority" of the
outstanding shares of the Fund, as defined in the 1940 Act.
As a nonfundamental policy, the Fund will not invest more than 15% of its net
assets in all forms of illiquid investments, as determined pursuant to
applicable Securities and Exchange Commission rules and interpretations. Section
4(2) commercial paper may be determined to be "liquid" under guidelines adopted
by the Board of Directors. Rule 144A securities may in the future be determined
to be "liquid" under guidelines adopted by the Board of Directors if the current
position of certain state securities regulators regarding such securities is
modified. Investing in Rule 144A securities could have the effect of increasing
the level of illiquidity in the Fund to the extent that qualified institutional
buyers become, for a time, uninterested in purchasing these securities.
FIRST AMERICAN INVESTMENT FUNDS, INC.
680 East Swedesford Road
Wayne, Pennsylvania 19087
INVESTMENT ADVISER
FIRST BANK NATIONAL ASSOCIATION
601 Second Avenue South
Minneapolis, Minnesota 55402
CUSTODIAN
FIRST TRUST NATIONAL ASSOCIATION
180 East Fifth Street
St. Paul, Minnesota 55101
DISTRIBUTOR
SEI FINANCIAL SERVICES COMPANY
680 East Swedesford Road
Wayne, Pennsylvania 19087
ADMINISTRATOR
SEI FINANCIAL MANAGEMENT CORPORATION
680 East Swedesford Road
Wayne, Pennsylvania 19087
TRANSFER AGENT
SUPERVISED SERVICE COMPANY
811 Main Street
Kansas City, Missouri 64105
INDEPENDENT AUDITORS
KPMG PEAT MARWICK LLP
90 South Seventh Street
Minneapolis, Minnesota 55402
COUNSEL
DORSEY & WHITNEY P.L.L.P.
220 South Sixth Street
Minneapolis, Minnesota 55402
FAIF-1004 (9/95)R
