FIRST AMERICAN INVESTMENT FUNDS, INC.
REAL ESTATE SECURITIES FUND
INSTITUTIONAL CLASS
PROSPECTUS
JUNE 30, 1995
[LOGO]
TABLE OF CONTENTS
PAGE
SUMMARY ................................. 4
FEES AND EXPENSES ....................... 6
Class C Share Fees and Expenses ........ 6
Information Concerning Fees and Expenses 6
THE FUND ................................ 7
INVESTMENT OBJECTIVE AND POLICIES ....... 8
Real Estate Securities Fund ............ 8
Risks to Consider ...................... 10
MANAGEMENT .............................. 11
Investment Adviser ..................... 11
Portfolio Managers ..................... 12
Custodian .............................. 12
Administrator .......................... 12
Transfer Agent ......................... 13
DISTRIBUTOR ............................. 13
PURCHASES AND REDEMPTIONS OF SHARES ..... 13
Share Purchases and Redemptions ........ 13
What Shares Cost ....................... 14
Exchanging Securities for Fund Shares .. 15
Certificates and Confirmations ......... 15
Dividends and Distributions ............ 15
Exchange Privilege ..................... 16
FEDERAL INCOME TAXES .................... 17
FUND SHARES ............................. 17
CALCULATION OF PERFORMANCE DATA ......... 18
SPECIAL INVESTMENT METHODS .............. 19
Cash Items ............................. 19
Repurchase Agreements .................. 19
When-Issued and
Delayed-Delivery Transactions ......... 20
Lending of Portfolio Securities ........ 20
Options Transactions ................... 21
Fixed Income Securities ................ 22
Portfolio Transactions ................. 22
Portfolio Turnover ..................... 23
Investment Restrictions ................ 23
FIRST AMERICAN INVESTMENT FUNDS, INC.
680 East Swedesford Road, Wayne, Pennsylvania 19087
INSTITUTIONAL CLASS 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 C
Shares of the following fund (the "Fund"):
REAL ESTATE SECURITIES FUND
Class C Shares of the Fund are offered through banks and certain other
institutions for the investment of their own funds and funds for which they
act in a fiduciary, agency or custodial capacity.
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 June 30, 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 C 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."
ELIGIBLE INVESTORS; OFFERING PRICES Class C Shares are offered through banks and
certain other institutions for the investment of their own funds and funds for
which they act in a fiduciary, agency or custodial capacity. Class C Shares are
sold at net asset value without any front-end or deferred sales charges. See
"Purchases and Redemptions of Shares."
EXCHANGES Class C Shares of the Fund may be exchanged for Class C Shares of
other FAIF funds at the shares' respective net asset values with no additional
charge. See "Purchases and Redemptions of Shares -- 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, with no additional charge. See "Purchases and Redemptions of
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 INSTITUTIONAL CLASS
CLASS C SHARE FEES AND EXPENSES
REAL
ESTATE
SECURITIES
FUND
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on purchases None
Maximum sales load imposed on reinvested dividends None
Deferred sales load None
Redemption fees None
Exchange fees None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment advisory fees (after voluntary fee waivers
and reimbursements(1) 0.44%
Rule 12b-1 fees None
Other expenses(1) 0.36%
Total fund operating expenses (after voluntary fee waivers and
reimbursements)(1) 0.80%
EXAMPLE(2)
You would pay the following expenses on a $1,000 investment, assuming (i)
a 5% annual return, and (ii) redemption at the end of each time period:
1 year $ 8
3 years $26
(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 1.06%. 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 $11 and $34,
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 C Shares of the Fund.
The Fund also offers Class A and Class B Shares which are subject to the same
expenses and, in addition, to a front-end or contingent deferred sales load
and certain distribution expenses.
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%.
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 C Shares of the Fund named on the
cover hereof. Information regarding the Class A and Class B 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. In the event of changes in federal or
state statutes or regulations or judicial and administrative interpretations
or decisions pertaining to permissible activities of bank holding companies
and their bank and nonbank subsidiaries, the Adviser might be prohibited from
continuing these arrangements. In that event, it is expected that the Board
of Directors would make other arrangements and 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.
The Distributor, the Administrator and the Adviser may in their discretion
use their own assets to pay for certain costs of distributing Fund shares.
They also may discontinue any payment of such costs at any time.
PURCHASES AND REDEMPTIONS OF SHARES
SHARE PURCHASES AND REDEMPTIONS
Shares of the Fund are sold and redeemed on days on which the New York Stock
Exchange is open for business ("Business Days").
Payment for shares can be made only by wire transfer. Wire transfers of
federal funds for share purchases should be sent to 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. Purchase orders will be
effective and eligible to receive dividends declared the same day if the
Transfer Agent receives an order before 3:00 p.m. Central time and the
Custodian receives Federal funds before the close of business that day.
Otherwise, the purchase order will be effective the next Business Day. The
net asset value per share is calculated as of 3:00 p.m. Central time each
Business Day. The Fund reserves the right to reject a purchase order.
The Fund is required to redeem for cash all full and fractional shares of the
Fund. Redemption orders may be made any time before 3:00 p.m. Central time in
order to receive that day's redemption price. For redemption orders received
before 3:00 p.m. Central time, payment will ordinarily be made the same day
by transfer of Federal funds, but payment may be made up to 7 days later.
WHAT SHARES COST
Class C Shares of the Fund are sold and redeemed at net asset value. 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. In the case of redemptions and
repurchases of shares owned by corporations, trusts or estates, the Transfer
Agent 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 of 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.
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 C Shares generally will be more than
the dividends payable on Class A or Class B Shares because of the
distribution expenses charged to Class A and Class B Shares.
EXCHANGE PRIVILEGE
Shareholders may exchange Class C Shares of the Fund for currently available
Class C Shares of the other FAIF Funds or of other funds in the First
American family 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.
The ability to exchange shares of the Fund does not constitute an offering or
recommendation of shares of one fund by another fund. This privilege is
available to shareholders resident in any state in which the fund shares
being acquired may be sold. An investor who is considering acquiring shares
in another First American Fund pursuant to the exchange privilege should
obtain and carefully read a prospectus of the fund to be acquired. Exchanges
may be accomplished by a written request, or by telephone if a preauthorized
exchange authorization is on file with the Transfer Agent, shareholder
servicing agent, or financial institution. Neither the Transfer Agent nor the
Fund will be responsible for the authenticity of exchange instructions
received by telephone if it reasonably believes those instructions to be
genuine. The Fund and the Transfer Agent will each employ reasonable
procedures to confirm that telephone instructions are genuine, and they may
be liable for losses resulting from unauthorized or fraudulent telephone
instructions if they do not employ these procedures. These procedures may
include taping of telephone conversations.
Shares of a class in which an investor is no longer eligible to participate
may be exchanged for shares of a class in which that investor is eligible to
participate. An example of this kind of exchange would be a situation in
which Class C Shares of the Fund held by a financial institution in a trust
or agency capacity for one or more individual beneficiaries are exchanged for
Class A Shares of the Fund and distributed to the individual beneficiaries.
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.
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.
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 C Shares of the Fund will normally be higher
than for the Class A and Class B Shares because Class C Shares are not
subject to the sales charges and distribution expenses applicable to Class A
and 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-1504(6/95C)I
FIRST AMERICAN INVESTMENT FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION
DATED JUNE 30, 1995
REAL ESTATE SECURITIES FUND
This Statement of Additional Information relates to the Class A, Class
B and Class C Shares of the fund named above (the "Fund"), which is a series of
First American Investment Funds, Inc. ("FAIF"). This Statement of Additional
Information is not a prospectus, but should be read in conjunction with the
Fund's current Institutional Class Prospectus dated June 30, 1995 and its Retail
Class Prospectus dated September 1, 1995. This Statement of Additional
Information is incorporated into the Fund's Prospectuses by reference. To obtain
copies of a Prospectus, write or call the Fund's administrator SEI Financial
Services Company, 680 East Swedesford Road, Wayne, Pennsylvania 19087,
telephone: (800) 637-2548. Please retain this Statement of Additional
Information for future reference.
TABLE OF CONTENTS
PAGE
GENERAL INFORMATION.............................. 2
ADDITIONAL INFORMATION CONCERNING
FUND INVESTMENTS................................ 3
Short-Term Investments..................... 3
Repurchase Agreements...................... 3
When-Issued and Delayed-Delivery
Transactions............................ 3
Lending of Portfolio Securities............ 4
Options Transactions....................... 4
INVESTMENT RESTRICTIONS.......................... 5
DIRECTORS AND EXECUTIVE OFFICERS................. 7
Directors.................................. 7
Executive Officers......................... 7
Compensation............................... 8
INVESTMENT ADVISORY AND OTHER
SERVICES....................................... 8
Investment Advisory Agreement.............. 8
Administration Agreement................... 9
Distributor and Distribution Plans......... 9
Custodian; Transfer Agent; Counsel;
Accountants............................. 11
PORTFOLIO TRANSACTIONS AND ALLOCATION
OF BROKERAGE.................................. 11
CAPITAL STOCK.................................... 13
NET ASSET VALUE AND PUBLIC OFFERING
PRICE ........................................ 13
FUND PERFORMANCE................................. 13
SEC Standardized Performance Figures....... 13
Non-Standard Distribution Rates............ 14
Certain Performance Comparisons............ 14
TAXATION ........................................ 15
RATINGS ........................................ 16
FINANCIAL STATEMENTS............................. F-1
GENERAL INFORMATION
First American Investment Funds, Inc. ("FAIF") was incorporated in the
State of Maryland on August 20, 1987 under the name "SECURAL Mutual Funds, Inc."
The Board of Directors and shareholders, at meetings held January 10, 1991, and
April 2, 1991, respectively, approved amendments to the Articles of
Incorporation providing that the name "SECURAL Mutual Funds, Inc." be changed to
"First American Investment Funds, Inc."
FAIF is organized as a series fund and currently issues its shares in
22 series. Each series of shares represents a separate investment portfolio with
its own investment objective and policies (in essence, a separate mutual fund).
The series of FAIF to which this Statement of Additional Information relates is
Real Estate Securities Fund. This series is referred to in this Statement of
Additional Information as the "Fund."
Shareholders may purchase shares of the Fund through three separate
classes, Class A, Class B and Class C, which provide for variations in
distribution costs, voting rights and dividends. To the extent permitted by the
Investment Company Act of 1940, the Fund may also provide for variations in
other costs among the classes although is has no present intention to do so. In
addition, a sales load is imposed on the sale of Class A and Class B Shares of
the Fund. Except for differences among the classes pertaining to distribution
costs, each share of the Fund represents an equal proportionate interest in the
Fund. Class A and Class B Shares sometimes are referred to together as the
"Retail Class Shares," and Class C Shares sometimes are referred to as the
"Institutional Class Shares."
FAIF has prepared and will provide a Prospectus relating to the Retail
Class Shares and a Prospectus relating to the Institutional Class Shares of the
Fund. These Prospectuses can be obtained by calling or writing SEI Financial
Management Corporation at the address and telephone number set forth on the
cover of this Statement of Additional Information. This Statement of Additional
Information relates both to the Retail Class Prospectus and to the Institutional
Class Prospectus for the Fund. It should be read in conjunction with the
applicable Prospectus. Separate prospectuses and statements of additional
information relate to the other funds of FAIF.
The Articles of Incorporation and Bylaws of FAIF provide that meetings
of shareholders be held as determined by the Board of Directors and as required
by the 1940 Act. Maryland corporation law requires a meeting of shareholders to
be held upon the written request of shareholders holding 10% or more of the
voting shares of FAIF, with the cost of preparing and mailing the notice of such
meeting payable by the requesting shareholders. The 1940 Act requires a
shareholder vote for all amendments to fundamental investment policies and
restrictions, for approval of all investment advisory contracts and amendments
thereto, and for all amendments to Rule 12b-1 distribution plans.
ADDITIONAL INFORMATION CONCERNING FUND INVESTMENTS
The investment objectives, policies and restrictions of the Fund are
set forth in its Prospectuses. Additional information concerning the investments
which may be made by the Fund is set forth under this caption. Additional
information concerning the Fund's investment restrictions is set forth below
under the caption "Investment Restrictions."
SHORT-TERM INVESTMENTS
The Fund can invest in a variety of short-term instruments which are
specified in its Prospectuses. A brief description of certain kinds of
short-term instruments follows:
COMMERCIAL PAPER. Commercial paper consists of unsecured promissory
notes issued by corporations. Issues of commercial paper normally have
maturities of less than nine months and fixed rates of return. Subject to the
limitations described in the Prospectuses, the Fund may purchase commercial
paper consisting of issues rated at the time of purchase within the two highest
rating categories by Standard & Poor's Corporation ("Standard & Poor's") or
Moody's Investors Service, Inc. ("Moody's"), or which have been assigned an
equivalent rating by another nationally recognized statistical rating
organization. The Fund also may invest in commercial paper that is not rated but
that is determined by the Adviser to be of comparable quality to instruments
that are so rated. For a description of the rating categories of Standard &
Poor's and Moody's, see "Ratings" herein.
BANKERS ACCEPTANCES. Bankers acceptances are credit instruments
evidencing the obligation of a bank to pay a draft drawn on it by a customer.
These instruments reflect the obligation both of the bank and of the drawer to
pay the full amount of the instrument upon maturity.
VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand
notes are unsecured demand notes that permit the indebtedness thereunder to vary
and provide for periodic adjustments in the interest rate according to the terms
of the instrument. Because master demand notes are direct lending arrangements
between the Fund and the issuer, they are not normally traded. Although there is
no secondary market in the notes, the Fund may demand payment of principal and
accrued interest at any time. While the notes are not typically rated by credit
rating agencies, issuers of variable amount master demand notes (which are
normally manufacturing, retail, financial, and other business concerns) must
satisfy the same criteria as set forth above for commercial paper. The Adviser
will consider the earning power, cash flow, and other liquidity ratios of the
issuers of such notes and will continuously monitor their financial status and
ability to meet payment on demand.
REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements to the extent specified in
its Prospectuses. The Fund's custodian will hold the securities underlying any
repurchase agreement, or the securities will be part of the Federal
Reserve/Treasury Book Entry System. The market value of the collateral
underlying the repurchase agreement will be determined on each business day. If
at any time the market value of the collateral falls below the repurchase price
under the repurchase agreement (including any accrued interest), the appropriate
Fund will promptly receive additional collateral (so the total collateral is an
amount at least equal to the repurchase price plus accrued interest).
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS
When the Fund agrees to purchase securities on a when-issued or
delayed-delivery basis, the Custodian will set aside cash or liquid securities
equal to the amount of the commitment in a separate account. Normally, the
Custodian will set aside securities to satisfy the purchase commitment, and in
that case, the Fund may be required subsequently to place additional assets in
the separate account in order to assure that the value of the account remains
equal to the amount of the Fund's commitments. It may be expected that the
Fund's net assets will fluctuate to a greater degree when it sets aside
securities to cover such purchase commitments than when it sets aside cash. In
addition, because the Fund will set aside cash or liquid securities to satisfy
its purchase commitments in the manner described above, its liquidity and the
ability of the Adviser to manage it might be affected in the event its
commitments to purchase when-issued or delayed-delivery securities ever exceeded
25% of the value of its assets. Under normal market conditions, however, the
Fund's commitments to purchase when-issued or delayed-delivery securities will
not exceed 25% of the value of its assets.
LENDING OF PORTFOLIO SECURITIES
When the Fund lends portfolio securities, it must receive 100%
collateral as described in the Prospectuses. This collateral must be valued
daily by the Adviser and, if the market value of the loaned securities
increases, the borrower must furnish additional collateral to the Fund. During
the time portfolio securities are on loan, the borrower pays the Fund any
dividends or interest paid on the securities. Loans are subject to termination
by the Fund or the borrower at any time. While the Fund does not have the right
to vote securities on loan, it would terminate the loan and regain the right to
vote if that were considered important with respect to the investment.
OPTIONS TRANSACTIONS
OPTIONS ON SECURITIES. To the extent specified in the Prospectuses, the
Fund may purchase put and call options on securities and may write covered call
options on securities which it owns or has the right to acquire. The Fund may
purchase put options to hedge against a decline in the value of its portfolio.
By using put options in this way, the Fund would reduce any profit it might
otherwise have realized in the underlying security by the amount of the premium
paid for the put option and by transaction costs. In similar fashion, the Fund
may purchase call options to hedge against an increase in the price of
securities that the Fund anticipates purchasing in the future. The premium paid
for the call option plus any transaction costs will reduce the benefit, if any,
realized by the Fund upon exercise of the option, and, unless the price of the
underlying security rises sufficiently, the option may expire unexercised.
The writer (seller) of a call option has no control over when the
underlying securities must be sold; the writer may be assigned an exercise
notice at any time prior to the termination of the option. If a call option is
exercised, the writer experiences a profit or loss from the sale of the
underlying security. The writer of a call option that wishes to terminate its
obligation may effect a "closing purchase transaction." This is accomplished by
buying an option on the same security as the option previously written. If the
Fund was unable to effect a closing purchase transaction in a secondary market,
it would not be able to sell the underlying security until the option expires or
it delivers the underlying security upon exercise.
OPTIONS ON STOCK INDICES. Options on stock indices are similar to
options on individual stocks except that, rather than the right to take or make
delivery of stock at a specified price, an option on a stock index gives the
holder the right to receive, upon exercise of the option, an amount of cash if
the closing value of the stock index upon which the option is based is greater
than, in the case of a call, or lesser than, in the case of a put, the exercise
price of the option. This amount of cash is equal to the difference between the
closing price of the index and the exercise price of the option expressed in
dollars times a specified multiple (the "multiplier"). The writer of the option
is obligated, in return for the premium received, to make delivery of this
amount. Unlike stock options, all settlements for stock index options are in
cash, and gain or loss depends on price movements in the stock market generally
(or in a particular industry or segment of the market) rather than price
movements in individual stocks. The multiplier for an index option performs a
function similar to the unit of trading for a stock option. It determines the
total dollar value per contract of each point in the difference between the
underlying stock index. A multiplier of 100 means that a one-point difference
will yield $100. Options on different stock indices may have different
multipliers.
INVESTMENT RESTRICTIONS
In addition to the investment objectives and policies set forth in the
Prospectuses and under the caption "Additional Information Concerning Fund
Investments" above, the Fund is subject to the investment restrictions set forth
below. The investment restrictions set forth in paragraphs 1 through 9 below are
fundamental and cannot be changed with respect to the Fund without approval by
the holders of a majority of the outstanding shares of the Fund as defined in
the Investment Company Act of 1940, as amended (the "1940 Act"), i.e., by the
lesser of the vote of (a) 67% of the shares of the Fund present at a meeting
where more than 50% of the outstanding shares are present in person or by proxy,
or (b) more than 50% of the outstanding shares of the Fund.
The Fund will not:
1. Invest in any securities if, as a result, 25% or more of the value of
its total assets would be invested in the securities of issuers
conducting their principal business activities in any one industry,
except that the Fund will invest without restriction in issuers
principally engaged in the real estate industry. This restriction does
not apply to securities of the United States Government or its agencies
and instrumentalities or repurchase agreements relating thereto.
2. Issue any senior securities (as defined in the 1940 Act), other than as
set forth in restriction number 3 below and except to the extent that
using options or purchasing securities on a when-issued basis may be
deemed to constitute issuing a senior security.
3. 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. (As
a non-fundamental policy, the Fund will not make additional investments
while its borrowings exceed 5% of total assets.)
4. 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.
5. Make short sales of securities.
6. Purchase any securities on margin except to obtain such short-term
credits as may be necessary for the clearance of transactions.
7. Purchase or sell physical commodities (including, by way of example and
not by way of limitation, grains, oilseeds, livestock, meat, food,
fiber, metals, petroleum, petroleum-based products or natural gas) or
futures or options contracts with respect to physical commodities. This
restriction shall not restrict the Fund from purchasing or selling any
financial contracts or instruments which may be deemed commodities
(including, by way of example and not by way of limitation, options,
futures and options on futures with respect, in each case, to interest
rates, currencies, stock indices, bond indices or interest rate
indices) or any security which is collateralized or otherwise backed by
physical commodities.
8. Purchase or sell real estate or real estate mortgage loans, except that
the Fund may invest in securities secured by real estate or interests
therein or issued by companies that invest in or hold real estate or
interests therein, and in mortgaged-backed securities.
9. Act as an underwriter of securities of other issuers, except to the
extent the Fund may be deemed to be an underwriter, under Federal
securities laws, in connection with the disposition of portfolio
securities.
The following restrictions are non-fundamental and may be changed by
FAIF's Board of Directors without shareholder vote. The Fund will not:
10. 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.
11. Invest in any securities, if as a result more than 5% of the value of
its total assets is invested in the securities of any issuers (other
than publicly traded real estate investment trusts) which, with their
predecessors, have a record of less than three years continuous
operation. (Securities of any of such issuers will not be deemed to
fall within this limitation if they are guaranteed by an entity which
has been in continuous operation for more than three years.)
12. Invest for the purpose of exercising control or management.
13. Purchase or sell real estate limited partnership interests (other than
publicly traded real estate limited partnership interests), or oil, gas
or other mineral leases, rights or royalty contracts, except that the
Fund may purchase or sell securities of companies which invest in or
hold the foregoing.
14. Purchase securities of any other registered investment company (as
defined in the 1940 Act), except, subject to 1940 Act limitations, (a)
the Fund may, as part of its investment in cash items, invest in
securities of other mutual funds which invest primarily in debt
obligations with remaining maturities of 13 months or less; and (b) the
Fund may purchase securities as part of a merger, consolidation,
reorganization or acquisition of assets.
15. Lend any of its assets, except portfolio securities representing up to
one-third of the value of its total assets.
16. Invest in foreign securities.
17. Invest in warrants; provided, that the Fund may invest in warrants in
an amount not exceeding 5% of the Fund's net assets. No more than 2% of
this 5% may be warrants which are not listed on the New York Stock
Exchange.
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of FAIF are listed below, together
with their business addresses and their principal occupations during the past
five years. Mr. Eastman and Mr. Kedrowski are "interested directors" (as that
term is defined in the 1940 Act) of FAIF.
DIRECTORS
Robert J. Dayton, 5140 Norwest Center, Minneapolis, Minnesota 55402:
Director of FAIF since September 1994 and of First American Funds, Inc. ("FAF")
since December 1994; Chairman (1989-1993) and Chief Executive Officer
(1993-present), Okabena Company (private family investment office).
Welles B. Eastman, 998 Shady Lane, Wayzata, Minnesota 55391: Director
of FAF since January 1990 and of FAIF since April 1991; Chairman of the Board of
Directors of Annandale State Bank, Annandale, Minnesota; Vice President of the
Adviser from 1968 and Vice President of the Institutional Trust Group of First
Trust National Association from 1986 until his retirement in December 1988 from
such positions.
Irving D. Fish, Fallon McElligott, Inc., 901 Marquette, Suite 3200,
Minneapolis, Minnesota 55402: Director of FAF since 1984 and of FAIF since April
1991; Partner and Chief Financial Officer of Fallon McElligott, Inc., a
Minneapolis-based advertising agency.
Leonard W. Kedrowski, 16 Dellwood Avenue, Dellwood, Minnesota 55110:
Director of FAIF and FAF since November 1993; Vice President, Chief Financial
Officer, Treasurer, Secretary and Director of Anderson Corporation from 1983 to
October 1992.
Joseph D. Strauss, 8617 Edenbrook Crossing, # 443, Brooklyn Park,
Minnesota 55443: Director of FAF since 1984 and of FAIF since April 1991;
Chairman of FAF's and FAIF's Boards since 1992; President of FAF and FAIF from
June 1989 to November 1989; Owner and President, Strauss Management Company,
since 1993; Owner and President, Community Resource Partnerships, Inc. since
1992; attorney-at-law.
Virginia L. Stringer, 712 Linwood Avenue, St. Paul, Minnesota 55105:
Director of FAIF since August 1987 and of FAF since April 1991; Management
Consultant; former President and Director of The Inventure Group, Inc., a
management consulting and training company, since August 1991; President of
Scott's Consulting, Inc., a management consulting company, from 1989 to 1991;
President of Scott's, Inc., a transportation company, from 1989 to 1990; Vice
President of Human Resources of The Pillsbury Company, a food manufacturing
company, from 1981 to 1989.
Gae B. Veit, P.O. Box 6, Loretto, Minnesota 55357: Director of FAIF and
FAF since December 7, 1993; owner and CEO of Shingobee Builders, Inc., a general
contractor.
EXECUTIVE OFFICERS
David Lee, SEI Corporation, 680 East Swedesford Road, Wayne,
Pennsylvania 19087: President of FAIF and FAF since April 1994; Senior Vice
President and Assistant Secretary of FAF and FAIF beginning June 1, 1993; Senior
Vice President of SEI Financial Services Company (the "Distributor") since 1991;
President, GW Sierra Trust Funds prior to 1991.
Carmen V. Romeo, SEI Corporation, 680 East Swedesford Road, Wayne,
Pennsylvania 19087: Treasurer and Assistant Secretary of FAIF and FAF beginning
November 1992; Director, Executive Vice President, Chief Financial Officer and
Treasurer of SEI Corporation ("SEI"), SEI Financial Management Corporation (the
"Administrator") and the Distributor since 1981.
Kevin P. Robins, SEI Corporation, 680 East Swedesford Road, Wayne,
Pennsylvania 19087: Vice President and Assistant Secretary of FAIF and FAF since
April 1994; Vice President, Assistant Secretary and General Counsel of the
Administrator and the Distributor.
Kathryn Stanton, SEI Corporation, 680 East Swedesford Road, Wayne,
Pennsylvania 19087: Vice President and Assistant Secretary of FAIF and FAF since
April 1994; Vice President and Assistant Secretary of the Administrator and the
Distributor since April 1994; Associate, Morgan, Lewis & Bockius, from 1989 to
1994.
Sandra K. Orlow, SEI Corporation, 680 East Swedesford Road, Wayne,
Pennsylvania 19087: Vice President and Assistant Secretary of FAIF and FAF since
1992; Vice President and Assistant Secretary of SEI, the Administrator and the
Distributor since 1983.
Robert B. Carroll, SEI Corporation, 680 East Swedesford Road, Wayne,
Pennsylvania 19087: Vice President and Assistant Secretary of FAIF and FAF since
September 1994; Vice President and Assistant Secretary of SEI, the Administrator
and the Distributor since 1994; Division of Investment Management, United States
Securities and Exchange Commission, from 1990 to 1994; Associate, McGuire,
Woods, Brattle & Boothe, before 1990.
Stephen G. Meyer, SEI Corporation, 680 East Swedesford Road, Wayne,
Pennsylvania 19087: Controller of FAIF and FAF since March 1995; Director of
Internal Audit and Risk Management of SEI since 1992; Senior Associate, Coopers
& Lybrand, from 1990 to 1992.
Michael J. Radmer, 220 South Sixth Street, Minneapolis, Minnesota
55402: Secretary of FAIF since April 1991 and of FAF since 1981; Partner, Dorsey
& Whitney P.L.L.P., a Minneapolis-based law firm and general counsel of FAIF and
FAF.
COMPENSATION
The First American Family of Funds, which includes FAIF and FAF,
currently pays only to directors of the funds who are not paid employees or
affiliates of the funds a fee of $8,400 per year plus $1,400 ($2,800 in the case
of the Chairman) per meeting of the Board attended and $400 per committee
meeting attended and reimburses travel expenses of directors and officers to
attend Board meetings. Legal fees and expenses are also paid to Dorsey & Whitney
P.L.L.P., the law firm of which Michael J. Radmer, secretary of FAIF and FAF, is
a partner.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISORY AGREEMENT
First Bank National Association (the "Adviser"), 601 Second Avenue
South, Minneapolis, Minnesota 55480, serves as the investment adviser and
manager of the Fund. The Adviser is a national banking association that has
professionally managed accounts for individuals, insurance companies,
foundations, commingled accounts, trust funds, and others for over 75 years. The
Adviser is a subsidiary of First Bank System, Inc. ("FBS"), 601 Second Avenue
South, Minneapolis, Minnesota 55480, which is a regional bank holding company
headquartered in Minneapolis, Minnesota. FBS is comprised of 9 banks and several
trust and nonbank subsidiaries, with 220 offices primarily in Minnesota,
Colorado, Illinois, Montana, North Dakota, South Dakota and Wisconsin. Through
its subsidiaries, FBS provides commercial and agricultural finance, consumer
banking, trust, capital markets, cash management, investment management, data
processing, leasing, mortgage banking and brokerage services.
Pursuant to an Investment Advisory Agreement dated April 2, 1991, as
supplemented (the "Advisory Agreement"), the Fund engages the Adviser to act as
investment adviser for and to manage the investment of the assets of the Fund.
The Fund pays the Adviser monthly fees calculated on an annual basis equal to
0.70% of its average daily net assets.
The Advisory Agreement requires the Adviser to provide FAIF with all
necessary office space, personnel and facilities necessary and incident to the
Adviser's performance of its services thereunder. The Adviser is responsible for
the payment of all compensation to personnel of FAIF and the officers and
directors of FAIF, if any, who are affiliated with the Adviser or any of its
affiliates. The Advisory Agreement provides that the Fund will be reimbursed by
the Adviser, in an amount not in excess of the advisory fees payable by the
Fund, for excess fund expenses as may be required by the laws of certain states
in which the Fund's shares may be offered for sale. As of the date of this
Statement of Additional Information, the most restrictive state limitation in
effect requires that "aggregate annual expenses" (which include the investment
advisory fee and other operating expenses but exclude interest, taxes, brokerage
commissions, Rule 12b-1 fees and certain other expenses) shall not exceed 2-1/2%
of the first $30 million of average net assets, 2% of the next $70 million of
average net assets and 1-1/2% of the remaining average net assets of the Fund
for any fiscal year.
In addition to the investment advisory fee, the Fund pays all its
expenses that are not expressly assumed by the Adviser or any other organization
with which the Fund may enter into an agreement for the performance of services.
The Fund is liable for such nonrecurring expenses as may arise, including
litigation to which the Fund may be a party, and it may have an obligation to
indemnify its directors and officers with respect to such litigation.
The Fund had not commenced operations as of September 30, 1994, the end
of FAIF's most recent fiscal year. It therefore paid no advisory fees to the
Adviser during such year.
ADMINISTRATION AGREEMENT
SEI Financial Management Corporation (the "Administrator") serves as
administrator for the Fund pursuant to an Administration Agreement between it
and FAIF. The Administrator is a wholly-owned subsidiary of SEI Corporation,
which also owns the Fund's distributor. See "-- Distributor and Distribution
Plans" below. Under the Administration Agreement, the Administrator provides
administrative personnel and services to the Fund for a fee as described in the
Fund's Prospectuses. These services include, among others, regulatory reporting,
fund and portfolio accounting, shareholder reporting services, and compliance
monitoring services.
The Fund had not commenced operations as of September 30, 1994, the end
of FAIF's most recent fiscal year. It therefore paid no fees to the
Administrator during such year.
DISTRIBUTOR AND DISTRIBUTION PLANS
SEI Financial Services Company (the "Distributor") serves as the
distributor for the Class A, Class B and Class C Shares of the Fund. The
Administrator is a wholly-owned subsidiary of SEI Corporation, which also owns
the Fund's Administrator. See "-- Administration Agreement" above.
The Distributor serves as distributor for the Class A and Class C
Shares pursuant to a Distribution Agreement dated February 10, 1994 (the "Class
A/Class C Distribution Agreement") between itself and the Fund, and as
distributor for the Class B Shares pursuant to a Distribution and Service
Agreement dated August 1, 1994, as amended September 14, 1994 (the "Class B
Distribution and Service Agreement") between itself and the Fund. These
agreements are referred to collectively as the "Distribution Agreements."
Under the Distribution Agreements, the Distributor has agreed to
perform all distribution services and functions of the Fund to the extent such
services and functions are not provided to the Fund pursuant to another
agreement. The Distribution Agreements provide that shares of the Fund are
distributed through the Distributor and, with respect to Class A and Class B
Shares, through securities firms, financial institutions (including, without
limitation, banks) and other industry professionals (the "Participating
Institutions") which enter into sales agreements with the Distributor to perform
share distribution or shareholder support services.
The Distributor receives no compensation for distribution of the Class
C Shares. With respect to the Class A Shares, the Distributor receives all of
the front-end sales charges paid upon purchase of the Fund's shares except for a
portion (as disclosed in the Prospectuses) which may be re-allowed to
Participating Institutions. The Distributor also receives any contingent
deferred sales charges paid with respect so sales of Class A Shares with respect
to which front-end sales charges were waived, as described in the Prospectuses.
The Class A Shares of the Fund also pay a distribution fee to the Distributor
monthly at the annual rate of 0.25% of the Fund's Class A average daily net
assets, which fee may be used by the Distributor to provide compensation for
sales support and distribution activities with respect to the Class A Shares.
The Class B Shares of the Fund pay to the Distributor a sales support
fee at an annual rate of 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 the
Class B Shares. This fee is calculated and paid each month based on average
daily net assets of Class B of the Fund for that month. In addition to this fee,
the Distributor is paid a shareholder servicing fee at an annual rate of 0.25%
of the average daily net assets of the Fund's 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 service and/or
maintenance of shareholder accounts with respect to the Class B Shares of the
Fund. Although Class B Shares are sold without a front-end sales charge, the
Distributor pays a total of 4.25% of the amount invested (including a pre-paid
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 servicing fee payable under the Class B Service Plan is prepaid as described
above.
The Distribution Agreements provide that they will continue in effect
for a period of more than one year from the date of their execution only so long
as such continuance is specifically approved at least annually by the vote of a
majority of the Board members of FAIF and by the vote of the majority of those
Board members of FAIF who are not interested persons of FAIF and who have no
direct or indirect financial interest in the operation of FAIF's Rule 12b-1
Plans of Distribution or in any agreement related to such Plans.
FAIF has adopted Plans of Distribution with respect to the Class A and
Class B Shares of the Fund, respectively, pursuant to Rule 12b-1 under the 1940
Act (collectively, the "Plans"). Rule 12b-1 provides in substance that a mutual
fund may not engage directly or indirectly in financing any activity which is
primarily intended to result in the sale of shares, except pursuant to a plan
adopted under the Rule. The Plans authorize the Distributor to retain the sales
charges paid upon purchase of Class A and Class B Shares. Each of the Plans is a
"compensation-type" plan under which the Distributor is entitled to receive the
distribution fee regardless of whether its actual distribution expenses are more
or less than the amount of the fee. The Class B Plan authorizes the Distributor
to retain the contingent deferred sales charge applied on redemptions of Class B
Shares, except that portion which is reallowed to Participating Institutions.
The Plans recognize that the Distributor, any Participating Institution, the
Administrator, and the Adviser, in their discretion, may from time to time use
their own assets to pay for certain additional costs of distributing Class A and
Class B Shares. Any such arrangements to pay such additional costs may be
commenced or discontinued by the Distributor, any Participating Institution, the
Administrator, or the Adviser at any time.
The Fund had not commenced operations as of September 30, 1994, the end
of FAIF's most recent fiscal year. It therefore paid no distribution fees during
such year.
CUSTODIAN; TRANSFER AGENT; COUNSEL; ACCOUNTANTS
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 owns the Adviser.
The Custodian takes no part in determining the investment policies of
the Fund or in deciding which securities are purchased or sold by the Fund. All
of the instruments representing the investments of the Fund and all cash is held
by the Custodian. The Custodian delivers securities against payment upon sale
and pays for securities against delivery upon purchase. The Custodian also
remits Fund assets in payment of Fund expenses, pursuant to instructions of
FAIF's officers or resolutions of the Board of Directors.
As compensation for its services to the Fund, the Custodian is paid a
monthly fee calculated on an annual basis equal to 0.03% of the Fund's average
daily net assets. In addition, the Custodian is reimbursed for its out-of-pocket
expenses incurred while providing its services to the Fund. The Custodian
continues to serve so long as its appointment is approved at least annually by
the Board of Directors including a majority of the directors who are not
interested persons (as defined under the 1940 Act) of FAIF.
Supervised Service Company, Inc., 811 Main Street, Kansas City,
Missouri 64105, is transfer agent and dividend disbursing agent for the shares
of the Fund.
Dorsey & Whitney P.L.L.P., 220 South Sixth Street, Minneapolis,
Minnesota 55402, is independent General Counsel for the Fund.
KPMG Peat Marwick LLP, 90 South Seventh Street, Minneapolis, Minnesota
55402, acts as the Fund's independent auditors, providing audit services
including audits of the annual financial statements and assistance and
consultation in connection with SEC filings.
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE
Decisions with respect to placement of the Fund's portfolio
transactions are made by the Adviser. The Fund's policy is to seek to place
portfolio transactions with brokers or dealers who will execute transactions as
efficiently as possible and at the most favorable price. The Adviser may,
however, select a broker or dealer to effect a particular transaction without
communicating with all brokers or dealers who might be able to effect such
transaction because of the volatility of the market and the desire of the
Adviser to accept a particular price for a security because the price offered by
the broker or dealer meets guidelines for profit, yield or both. Many of the
portfolio transactions involve payment of a brokerage commission by the Fund. In
some cases, transactions are with dealers or issuers who act as principal for
their own accounts and not as brokers. Transactions effected on a principal
basis are made without the payment of brokerage commissions but at net prices,
which usually include a spread or markup. In effecting transactions in
over-the-counter securities, the Fund deals with market makers unless it appears
that better price and execution are available elsewhere.
While the Adviser does not deem it practicable and in the Fund's best
interest to solicit competitive bids for commission rates on each transaction,
consideration will regularly be given by the Adviser to posted commission rates
as well as to other information concerning the level of commissions charged on
comparable transactions by other qualified brokers. The Fund had not commenced
operations as of September 30, 1994, the end of FAIF's most recent fiscal year.
It therefore paid no brokerage commissions during such year.
Subject to the policy of seeking favorable price and execution for the
transaction size and risk involved, in selecting brokers and dealers other than
the Distributor and determining commissions paid to them, the Adviser may
consider ability to provide supplemental performance, statistical and other
research information as well as computer hardware and software for research
purposes for consideration, analysis and evaluation by the staff of the Adviser.
In accordance with this policy, the Fund does not execute brokerage transactions
solely on the basis of the lowest commission rate available for a particular
transaction. Subject to the requirements of favorable price and efficient
execution, placement of orders by securities firms for the purchase of shares of
the Fund may be taken into account as a factor in the allocation of portfolio
transactions.
Research services that may be received by the Adviser would include
advice, both directly and in writing, as to the value of securities, the
advisability of investing in, purchasing, or selling securities, and the
availability of securities or purchasers or sellers of securities, as well as
analyses and reports concerning issuers, industries, securities, economic
factors and trends, portfolio strategy, and the performance of accounts. The
research services may allow the Adviser to supplement its own investment
research activities and enable the Adviser to obtain the views and information
of individuals and research staffs of many different securities firms prior to
making investment decisions for the Fund. To the extent portfolio transactions
are effected with brokers and dealers who furnish research services, the Adviser
would receive a benefit, which is not capable of evaluation in dollar amounts,
without providing any direct monetary benefit to the Fund from these
transactions. Research services furnished by brokers and dealers used by the
Fund for portfolio transactions may be utilized by the Adviser in connection
with investment services for other accounts and, likewise, research services
provided by brokers and dealers used for transactions of other accounts may be
utilized by the Adviser in performing services for the Fund. The Adviser
determines the reasonableness of the commissions paid in relation to their view
of the value of the brokerage and research services provided, considered in
terms of the particular transactions and their overall responsibilities with
respect to all accounts as to which it exercises investment discretion.
The Adviser has not entered into any formal or informal agreements with
any broker or dealer, and does not maintain any "formula" that must be followed
in connection with the placement of Fund portfolio transactions in exchange for
research services provided to the Adviser, except as noted below. The Adviser
may, from time to time, maintain an informal list of brokers and dealers that
will be used as a general guide in the placement of Fund business in order to
encourage certain brokers and dealers to provide the Adviser with research
services, which the Adviser anticipates will be useful to it. Any list, if
maintained, would be merely a general guide, which would be used only after the
primary criteria for the selection of brokers and dealers (discussed above) had
been met, and, accordingly, substantial deviations from the list could occur.
The Adviser would authorize the Fund to pay an amount of commission for
effecting a securities transaction in excess of the amount of commission another
broker or dealer would have charged only if the Adviser determined in good faith
that the amount of such commission was reasonable in relation to the value of
the brokerage and research services provided by such broker or dealer, viewed in
terms of either that particular transaction or the overall responsibilities of
the Adviser with respect to the Fund.
The Fund does not effect any brokerage transactions in its portfolio
securities with any broker or dealer affiliated directly or indirectly with the
Adviser or the Distributor unless such transactions, including the frequency
thereof, the receipt of commissions payable in connection therewith, and the
selection of the affiliated broker or dealer effecting such transactions are not
unfair or unreasonable to the shareholders of the Fund, as determined by the
Board of Directors. Any transactions with an affiliated broker or dealer must be
on terms that are both at least as favorable to the Fund as the Fund can obtain
elsewhere and at least as favorable as such affiliated broker or dealer normally
gives to others.
When two or more clients of the Adviser are simultaneously engaged in
the purchase or sale of the same security, the prices and amounts are allocated
in accordance with a formula considered by the Adviser to be equitable to each
client. In some cases, this system could have a detrimental effect on the price
or volume of the security as far as each client is concerned. In other cases,
however, the ability of the clients to participate in volume transactions may
produce better executions for each client.
CAPITAL STOCK
As of March 23, 1995, the directors and officers of FAIF as a group
owned less than one percent of each class of the Fund's outstanding shares. As
of that date, all of the shares of the Fund (consisting of 100 shares of each of
Class A, Class B and Class C) were held by SEI Financial Management Corporation.
NET ASSET VALUE AND PUBLIC OFFERING PRICE
The method for determining the public offering price of the shares of
the Fund is summarized in the Retail Class Prospectus under the captions
"Investing in the Fund" and "Determining the Price of Shares" and in the
Institutional Class Prospectus under the caption "Purchases and Redemptions of
Shares." The net asset value of the Fund's shares is determined on each day
during which the New York Stock Exchange (the "NYSE") is open for business. The
NYSE is not open for business on the following holidays (or on the nearest
Monday or Friday if the holiday falls on a weekend): New Year's Day,
Washington's Birthday (observed), Good Friday, Memorial Day (observed),
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Each year the
NYSE may designate different dates for the observance of these holidays as well
as designate other holidays for closing in the future. To the extent that the
securities of the Fund are traded on days that the Fund is not open for
business, the Fund's net asset value per share may be affected on days when
investors may not purchase or redeem shares.
FUND PERFORMANCE
SEC STANDARDIZED PERFORMANCE FIGURES
YIELD FOR THE FUND. Yield for the Fund is a measure of the net
investment income per share (as defined) earned over a 30-day period expressed
as a percentage of the maximum offering price of the Fund's shares at the end of
the period. Such yield figures are determined by dividing the net investment
income per share earned during the specified 30-day period by the maximum
offering price per share on the last day of the period, according to the
following formula:
<TABLE>
<CAPTION>
<S> <C> <C>
6
Yield = 2 [((a - b) / cd) + 1) - 1]
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = average daily number of shares outstanding during the period that were
entitled to receive dividends
d = maximum offering price per share on the last day of the period
</TABLE>
TOTAL RETURN. Total return measures both the net investment income
generated by, and the effect of any realized or unrealized appreciation or
depreciation of, the underlying investments in the Fund's portfolio. The Fund's
average annual and cumulative total return figures are computed in accordance
with the standardized methods prescribed by the Securities and Exchange
Commission.
AVERAGE ANNUAL TOTAL RETURN. Average annual total return figures are
computed by determining the average annual compounded rates of return over the
periods indicated in the advertisement, sales literature or shareholders'
report, that would equate the initial amount invested to the ending redeemable
value, according to the following formula:
<TABLE>
<CAPTION>
<S> <C>
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the period of a hypothetical
$1,000 payment made at the beginning of such period
</TABLE>
This calculation (i) assumes all dividends and distributions are reinvested at
net asset value on the appropriate reinvestment dates as described in the
Prospectuses, and (ii) deducts (a) the maximum sales charge from the
hypothetical initial $1,000 investment (if applicable), and (b) all recurring
fees, such as advisory fees, charged as expenses to all shareholder accounts.
CUMULATIVE TOTAL RETURN. Cumulative total return is computed by finding
the cumulative compounded rate of return over the period indicated in the
advertisement that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
<TABLE>
<CAPTION>
<S> <C>
CTR = ((ERV - P) / P ) 10
Where: CTR = cumulative total return
ERV = ending redeemable value at the end of, the period of a hypothetical
$1,000 payment made at the beginning of such period; and
P = initial payment of $1,000
</TABLE>
This calculation (i) assumes all dividends and distributions are reinvested at
net asset value on the appropriate reinvestment dates as described in the
Prospectuses, and (ii) deducts (a) the maximum sales charge from the
hypothetical initial $1,000 investment (if applicable), and (b) all recurring
fees, such as advisory fees, charged as expenses to all shareholder accounts.
NON-STANDARD DISTRIBUTION RATES
HISTORICAL DISTRIBUTION RATES. The Fund's historical annualized
distribution rates are computed by dividing the income dividends of the Fund for
a stated period by the maximum offering price on the last day of such period.
ANNUALIZED CURRENT DISTRIBUTION RATES. The Fund's annualized current
distribution rates are computed by multiplying the Fund's income dividends for a
specified quarter by four, and dividing the resulting figure by the maximum
offering price on the last day of the specified period.
CERTAIN PERFORMANCE COMPARISONS
The Fund may compare its performance to that of certain published or
otherwise widely disseminated indices compiled by third parties. These indices
include, among others:
* NAREIT EQUITY REIT INDEX, which is a market weighted index based on the
last closing price of the month for all tax-qualified Equity REITs
listed on the New York Stock Exchange, the American Stock Exchange and
the NASDAQ National Market System. Equity REITs are defined as REITs
with 75% or more of their gross invested book assets invested directly
or indirectly in the equity ownership of real estate. Only common
shares issued by an Equity REIT are included in the index.
TAXATION
The tax status of the Fund and the distributions that the Fund will
make to shareholders are summarized in the Prospectuses in the sections entitled
"Federal Income Taxes." The Fund intends to fulfill the requirements of
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), as a
regulated investment company. If so qualified, the Fund will not be liable for
federal income taxes to the extent it distributes its taxable income to its
shareholders.
To qualify under Subchapter M for tax treatment as a regulated
investment company, the Fund must, among other things: (1) derive at least 90%
of its gross income from dividends, interest, and certain other types of
payments related to its investment in stock or securities; (2) distribute to its
shareholders at least 90% of its investment company taxable income (as that term
is defined in the Code determined without regard to the deduction for dividends
paid) and 90% of its net tax-exempt income; (3) derive less than 30% of its
annual gross income from the sale or other disposition of stock, securities,
options, futures, or forward contracts held for less than three months; and (4)
diversify its holdings so that, at the end of each fiscal quarter of the Fund,
(a) at least 50% of the market value of the Fund's assets is represented by
cash, cash items, U.S. Government securities and securities of other regulated
investment companies, and other securities, with these other securities limited,
with respect to any one issuer, to an amount no greater than 5% of the Fund's
total assets and no greater than 10% of the outstanding voting securities of
such issuer, and (b) not more than 25% of the market value of the Fund's total
assets is invested in the securities of any one issuer (other than U.S.
Government securities or securities of other regulated investment companies).
The Fund is subject to a nondeductible excise tax equal to 4% of the
excess, if any, of the amount required to be distributed for each calendar year
over the amount actually distributed. For this purpose, any amount on which the
Fund is subject to corporate-level income tax is considered to have been
distributed. In order to avoid the imposition of this excise tax, the Fund must
declare and pay dividends representing 98% of its net investment income for that
calendar year and 98% of its capital gains (both long-term and short-term) for
the twelve-month period ending October 31 of the calendar year.
Any loss on the sale or exchange of shares of the Fund generally will
be disallowed to the extent that a shareholder acquires or contracts to acquire
shares of the Fund with 30 days before or after such sale or exchange.
Furthermore, if Fund shares with respect to which a long-term capital gain
distribution has been made are held for less than six months, any loss on the
sale or exchange of such shares will be treated as a long-term capital loss to
the extent of such long-term capital gain distribution.
For federal tax purposes, if a shareholder exchanges shares of the Fund
for shares of any other FAIF Fund pursuant to the exchange privilege (see
"Investing in the Fund -- Exchange Privilege" in the Prospectus for Class A and
Class B Shares, and "Purchases and Redemptions of Shares -- Exchange Privilege"
in the Prospectus for Class C Shares), such exchange will be considered a
taxable sale of the shares being exchanged. Furthermore, if a shareholder of
Retail Class Shares carries out the exchange within 90 days of purchasing shares
in a fund on which he or she has incurred a sales charge, the sales charge
cannot be taken into account in determining the shareholder's gain or loss on
the sale of those shares to the extent that the sales charge that would have
been applicable to the purchase of the later-acquired shares in the other fund
is reduced because of the exchange privilege. However, the amount of any sales
charge that may not be taken into account in determining the shareholder's gain
or loss on the sale of the first-acquired shares may be taken into account in
determining gain or loss on the eventual sale or exchange of the later-acquired
shares.
Dividends generally are taxable to shareholders at the time they are
paid. However, dividends declared in October, November and December, made
payable to shareholders of record in such a month and actually paid in January
of the following year are treated as paid and are thereby taxable to
shareholders as of December 31.
Pursuant to the Code, distributions of net investment income by the
Fund to a shareholder who, as to the United States, is a nonresident alien
individual, nonresident alien fiduciary of a trust or estate, foreign
corporation, or foreign partnership (a "foreign shareholder") will be subject to
U.S. withholding tax (at a rate of 30% or lower treaty rate). Withholding will
not apply if a dividend paid by the Fund to a foreign shareholder is
"effectively connected" with a U.S. trade or business of such shareholder, in
which case the reporting and withholding requirements applicable to U.S.
citizens or domestic corporations will apply. Distributions of net long-term
capital gains are not subject to tax withholding but, in the case of a foreign
shareholder who is a nonresident alien individual, such distributions ordinarily
will be subject to U.S. income tax at a rate of 30% if the individual is
physically present in the U.S. for more than 182 days during the taxable year.
The Fund will report annually to its shareholders the amount of any withholding.
The foregoing relates only to federal income taxation and is a general
summary of the federal tax law in effect as of the date of this Statement of
Additional Information.
RATINGS
A rating of a rating service represents that service's opinion as to
the credit quality of the rated security. However, such ratings are general and
cannot be considered absolute standards of quality or guarantees as to the
creditworthiness of an issuer. A rating is not a recommendation to purchase,
sell or hold a security, because it does not take into account market value or
suitability for a particular investor. Markets values of debt securities may
change as a result of a variety of factors unrelated to credit quality,
including changes in market interest rates.
When a security has been rated by more than one service, the ratings
may not coincide, and each rating should be evaluated independently. Ratings are
based on current information furnished by the issuer or obtained by the rating
services from other sources which they consider reliable. Ratings may be
changed, suspended or withdrawn as a result of changes in or unavailability of
such information, or for other reasons. In general, the Fund is not required to
dispose of a security if its rating declines after it is purchased, although it
may consider doing so.
RATINGS OF CORPORATE DEBT OBLIGATIONS
STANDARD & POOR'S CORPORATION
AAA: Securities rated AAA have the highest rating assigned by Standard
& Poor's to a debt obligation. Capacity to pay interest and repay
principal is extremely strong.
AA: Securities rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only to a
small degree.
A: Securities rated A have a strong capacity to pay interest and repay
principal, although they are somewhat more susceptible to adverse
effects of changes in circumstances and economic conditions than bonds
in higher rated categories.
BBB: Securities rated BBB are regarded as having an adequate capacity
to pay interest and repay principal. Although such securities normally
exhibit adequate protection standards, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity
to pay interest and repay principal for securities in this category
than for those in higher rated categories.
Debt rated BB, B, CCC, CC, and C by Standard & Poor's is regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
BB: Securities rated BB have less near-term vulnerability to default
than other speculative issues. However, they face major ongoing
uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to inadequate capacity to meet timely
interest and principal payments. The BB rating category is also used
for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating.
B: Securities rated B have a greater vulnerability to default but
currently have the capacity to meet interest payments and principal
repayments. Adverse business, financial, or economic conditions will
likely impair capacity or willingness to pay interest and repay
principal. The B rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied BB or BB- rating.
CCC: Securities rated CCC have a currently identifiable vulnerability
to default, and are dependent upon favorable business, financial, and
economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial, or economic
conditions, they are not likely to have the capacity to pay interest
and repay principal. The CCC rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied B or
B- rating.
The ratings from AA to CCC may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories.
MOODY'S INVESTORS SERVICE, INC.
Aaa: Securities which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are protected
by a large or exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Securities which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group, they comprise what are
generally known as high grade securities. They are rated lower than the
best securities because margins of protection may not be as large as in
Aaa securities, or fluctuation of protective elements may be of greater
magnitude, or there may be other elements present which make the
long-term risks appear somewhat greater than in Aaa securities.
A: Securities which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Baa: Securities which are rated Baa are considered as medium grade
obligations, being neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
securities lack outstanding investment characteristics, and in fact
have some speculative characteristics.
Ba: An issue which is rated Ba is judged to have speculative elements;
its future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes issues in this class.
B: An issue which is rated B generally lacks characteristics of the
desirable investment. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of
time may be small.
Caa: An issue which is rated Caa is of poor standing. Such an issue may
be in default or there may be present elements of danger with respect
to principal or interest.
Those securities in the Aa, A and Baa groups which Moody's believes possess the
strongest investment attributes are designated by the symbols Aa-1, A-1 and
Baa-1. Other Aa, A and Baa securities comprise the balance of their respective
groups. These rankings (1) designate the securities which offer the maximum in
security within their quality groups, (2) designate securities which can be
bought for possible upgrading in quality, and (3) additionally afford the
investor an opportunity to gauge more precisely the relative attractiveness of
offerings in the marketplace.
RATINGS OF PREFERRED STOCK
STANDARD & POOR'S CORPORATION. Standard & Poor's ratings for preferred
stock have the following definitions:
AAA: An issue rated "AAA" has the highest rating that may be assigned
by Standard & Poor's to a preferred stock issue and indicates an
extremely strong capacity to pay the preferred stock obligations.
AA: A preferred stock issue rated "AA" also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations
is very strong, although not as overwhelming as for issues rated "AAA."
A: An issue rated "A" is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more susceptible
to the adverse effects of changes in circumstances and economic
conditions.
BBB: An issue rated "BBB" is regarded as backed by an adequate capacity
to pay the preferred stock obligations. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to make
payments for a preferred stock in this category than for issues in the
category.
MOODY'S INVESTORS SERVICE, INC. Moody's ratings for preferred stock
include the following:
aaa: An issue which is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the
least risk of dividend impairment within the universe of preferred
stocks.
aa: An issue which is rated "aa" is considered a high grade preferred
stock. This rating indicates that there is reasonable assurance that
earnings and asset protection will remain relatively well maintained in
the foreseeable future.
a: An issue which is rate "a" is considered to be an upper medium grade
preferred stock. While risks are judged to be somewhat greater than in
the "aaa" and "aa" classifications, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.
baa: An issue which is rated "baa" is considered to be medium grade,
neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any
great length of time.
RATINGS OF COMMERCIAL PAPER
STANDARD & POOR'S CORPORATION. Commercial paper ratings are graded into
four categories, ranging from "A" for the highest quality obligations to "D" for
the lowest. Issues assigned the A rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designation 1, 2 and 3 to indicate the relative degree of safety. The "A-1"
designation indicates that the degree of safety regarding timely payment is very
strong. Those issues determined to possess overwhelming safety characteristics
will be denoted with a plus (+) symbol designation. The Fund will not purchase
commercial paper rated A-3 or lower.
MOODY'S INVESTORS SERVICE, INC. Moody's commercial paper ratings are
opinions as to the ability of the issuers to timely repay promissory obligations
not having an original maturity in excess of nine months. Moody's makes no
representation that such obligations are exempt from registration under the
Securities Act of 1933, and it does not represent that any specific instrument
is a valid obligation of a rated issuer or issued in conformity with any
applicable law. Moody's employs the following three designations, all judged to
be investment grade, to indicate the relative repayment capacity of rated
issuers:
PRIME-1: Superior capacity for repayment.
PRIME-2: Strong capacity for repayment.
PRIME-3: Acceptable capacity for repayment.
The Fund will not purchase Prime-3 commercial paper.
Peat Marwick LLP
4200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
First American Investment Funds, Inc.:
We have audited the statement of assets and liabilities of Real Estate
Securities Fund (a fund within First American Investment Funds, Inc.) as of
March 23, 1995. This financial statement is the responsibility of the Fund's
management. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. Our procedures include
confirmation of cash in bank by correspondence with the custodian. An audit also
includes assessing the accounting principles used and significant estimates made
by management as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of Real Estate
Securities Fund as of March 23, 1995 in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
March 27, 1995
FIRST AMERICAN INVESTMENT FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
MARCH 23, 1995
REAL ESTATE
SECURITIES
FUND
ASSETS:
Cash $ 300
Deferred organizational costs 25,000
Total Assets 25,300
LIABILITIES:
Payable to Administrator for reimbursement
of organization costs 25,000
NET ASSETS:
Portfolio shares of Institutional Class
($.0001 par value 2 billion authorized)
based on 10 outstanding shares of beneficial
interest 100
Portfolio shares of Retail Class A ($.0001
par value - 2 billion authorized) based on
10 outstanding shares of beneficial interest 100
Portfolio shares of Retail Class B ($.0001
par value - 2 billion authorized) based on
10 outstanding shares of beneficial interest 100
Total Net Assets 300
NET ASSET VALUE PER SHARE - INSTITUTIONAL CLASS $ 10.00
NET ASSET VALUE PER SHARE - RETAIL CLASS A $ 10.00
NET ASSET VALUE PER SHARE - RETAIL CLASS B $ 10.00
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
FIRST AMERICAN INVESTMENT FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 23, 1995
(1) ORGANIZATION:
First American Investment Funds, Inc. (FAIF) is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment company.
FAIF presently includes a series of twenty-two funds which includes the Real
Estate Securities Fund (the Fund). The other funds in the series which are not
being reported at this time are: Limited Term Income Fund, Intermediate Term
Income Fund, Fixed Income Fund, Intermediate Government Bond Fund, Mortgage
Securities Fund, Intermediate Tax Free Fund, Colorado Intermediate Tax Free
Fund, Minnesota Insured Intermediate Tax Free Fund, Asset Allocation Fund,
Balanced Fund, Equity Index Fund, Stock Fund, Special Equity Fund, Regional
Equity Fund, Emerging Growth Fund, Technology Fund, International Fund, Limited
Volatility Stock Fund, Limited Term Tax Free Fund, Equity Income Fund and
Diversified Growth Fund. The assets of each fund are segregated, and a
shareholder's interest is limited to the fund in which shares are held. The Fund
has not commenced operation except with respect to organizational matters and
the sale of initial shares of beneficial interest to SEI Financial Management
Corporation (the "Administrator") on March 23, 1995.
The Fund offers three classes of shares: the Institutional Class Shares, the
Retail Class A Shares and the Retail Class B Shares. Each class is sold pursuant
to different sales arrangements and bear different expenses.
(2) FEDERAL TAXES:
The Fund intends to comply with the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
taxable income to the shareholders of the Fund.
(3) FEES AND EXPENSES:
The Fund has an investment advisory agreement with First Bank National
Association (the Adviser), under which the Adviser manages the Fund's assets and
furnishes related office facilities, equipment, research and personnel. The Fund
pays a monthly fee to the Adiviser equal to an annual rate of .70% of average
daily net assets. The Adviser may waive all or part of its fee in order to
maintain a competitve expense ratio. For the fiscal year ended September 30,
1995, the Adviser has voluntarily agreed to limit total fund expenses to .80%,
.80% and 1.80% of average daily net assets of Institutional Class, Retail Class
A and Retail Class B, respectively.
The Fund has agreements with SEI Financial Services Company (SFS) and SEI
Financial Management Corporation (SFM), to serve as Distibutor and Administrator
of the Fund, respectively. Under the distribution plan, the Fund will pay SFS a
monthly distribution fee of .25% of each Fund's average daily net assets of the
Retail Class A Shares and 1.00% of the Retail Class B Shares, which may be used
by SFS to provide compensation for sales support and distribution activities.
SFM provides administrative services, including certain accounting, legal and
shareholder services, at an annual rate of .12% of the Fund's average daily net
assets, with a minimum annual fee of $50,000.
In addition to the fees above, the Fund is responsible for paying most other
operating expenses including director's fees, registration fees, printing
shareholder reports, legal and auditing fees, organizational costs and other
miscellaneous expenses.
(4) ORGANIZATIONAL COSTS AND TRANSACTIONS WITH AFFILIATES:
The Fund expects to incur organizational expenses in connection with its
start-up and initial registration. These costs will be paid by the Fund and
amortized over 60 months commencing with operations.
Certain directors and officers of FAIF are also officers of the Administrator
and/or Distributor. Such officers and directors are paid no fees by FAIF for
serving in their repective roles.
Through a seperate contractual agreement, First Trust National Association, an
affiliate of the Adviser, serves as the Fund's custodian.
Legal fees and expenses are paid to a law firm of which the Secretary of the
Fund is a partner.
