FIRST AMERICAN INVESTMENT FUNDS, INC. September 16, 1997
To the Shareholders of Asset Allocation Fund:
Enclosed with this letter is a proxy voting ballot, a Prospectus/Proxy
Statement and related information concerning a Special Meeting of Shareholders
of the Asset Allocation Fund of First American Investment Funds, Inc. ("FAIF")
to be held on October 31, 1997. The purpose of this Special Meeting is to submit
to shareholders of Asset Allocation Fund a proposal to combine that Fund with
and into FAIF's Balanced Fund by means of the reorganization described in the
Prospectus/Proxy Statement.
If the proposed combination of Funds is approved, you will receive the
same class of shares in Balanced Fund that you currently hold in Asset
Allocation Fund. The exchange of shares will take place on the basis of the
relative net asset values per share of the respective classes of the two Funds.
Investment advisory fees, sales charges, and Rule 12b-1 distribution and
shareholder servicing fees all will remain unchanged.
At March 31, 1997, Asset Allocation Fund had net assets of only
approximately $117 million, while Balanced Fund had net assets of approximately
$407 million. As described in the Prospectus/Proxy Statement, FAIF's Board of
Directors believes that the proposed combination of Funds is in the best
interests of Asset Allocation Fund shareholders because, among other things, it
is expected to lower the total expense ratio experienced by such shareholders
(before fee waivers, if any) due to the economies of scale associated with
becoming part of a larger Fund.
Although the investment objectives of the two Funds are similar in that
both seek to maximize total return by allocating their assets among equity
securities, fixed income securities, and short-term instruments, shareholders
should carefully consider both the similarities and the differences between the
two Funds. These similarities and differences, as well as other important
information concerning the proposed combination of Funds, are described in
detail in the Prospectus/Proxy Statement, which you are encouraged to review
carefully. If you have any additional questions, please call your account
administrator, investment sales representative, or FAIF directly at
1-800-637-2548.
FAIF's Board of Directors has approved the proposed combination of
Funds and recommends it for your approval. I encourage you to vote in favor of
the proposal, and ask that you please send your completed proxy ballot in as
soon as possible to help save the cost of additional solicitations. As always,
we thank you for your confidence and support.
Sincerely,
/s/ David G. Lee
David G. Lee
PRESIDENT
FA-1
<PAGE>
ASSET ALLOCATION FUND
A SEPARATELY MANAGED SERIES OF
FIRST AMERICAN INVESTMENT FUNDS, INC.
OAKS, PENNSYLVANIA 19456
(800) 637-2548
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER 31, 1997
To the Shareholders of Asset Allocation Fund: September 16, 1997
NOTICE IS HEREBY GIVEN that a special meeting of shareholders of Asset
Allocation Fund (the "Acquired Fund"), a separately managed series of First
American Investment Funds, Inc. ("FAIF") will be held at 10:00 a.m. Eastern
Time, on Friday, October 31, 1997, at the offices of SEI Investments Company,
Oaks, Pennsylvania, First Floor, Management Conference Room. The purpose of the
special meeting is as follows:
1. To consider and vote on a proposed Agreement and Plan of
Reorganization (the "Plan") providing for (a) the acquisition
of all of the assets and the assumption of all liabilities of
the Acquired Fund by Balanced Fund (the "Acquiring Fund"), a
separately managed series of FAIF, in exchange for shares of
common stock of the Acquiring Fund having an aggregate net
asset value equal to the aggregate value of the assets
acquired (less the liabilities assumed) of the Acquired Fund
and (b) the liquidation of the Acquired Fund and the pro rata
distribution of the Acquiring Fund shares to Acquired Fund
shareholders. Under the Plan, Acquired Fund shareholders will
receive the same class of shares of the Acquiring Fund that
they held in the Acquired Fund, having a net asset value equal
as of the effective time of the Plan to the net asset value of
their Acquired Fund shares. A vote in favor of the Plan will
be considered a vote in favor of an amendment to the articles
of incorporation of FAIF required to effect the reorganization
contemplated by the Plan.
2. To transact such other business as may properly come before
the meeting or any adjournments or postponements thereof.
Even if Acquired Fund shareholders vote to approve the Plan,
consummation of the Plan is subject to certain other conditions. See
"Information About the Reorganization -- Plan of Reorganization" in the attached
Prospectus/Proxy Statement.
THE BOARD OF DIRECTORS OF FAIF RECOMMENDS APPROVAL OF THE PLAN.
The close of business on September 2, 1997 has been fixed as the record
date for the determination of shareholders entitled to notice of and to vote at
the meeting and any adjournments or postponements thereof.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE SIGN AND
PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE. IN
ORDER TO AVOID THE ADDITIONAL EXPENSE OF FURTHER SOLICITATION, WE RESPECTFULLY
ASK FOR YOUR COOPERATION IN MAILING IN YOUR PROXY PROMPTLY. If you are present
at the meeting, you may then revoke your proxy and vote in person, as explained
in the Prospectus/Proxy Statement in the section entitled "Voting Information."
BY ORDER OF THE BOARD OF DIRECTORS,
Michael J. Radmer
SECRETARY
<PAGE>
PROSPECTUS/PROXY STATEMENT
DATED SEPTEMBER 16, 1997
ACQUISITION OF THE ASSETS OF
ASSET ALLOCATION FUND
A SEPARATELY MANAGED SERIES OF
FIRST AMERICAN INVESTMENT FUNDS, INC.
OAKS, PENNSYLVANIA 19456
(800) 637-2548
BY AND IN EXCHANGE FOR SHARES OF
BALANCED FUND
A SEPARATELY MANAGED SERIES OF
FIRST AMERICAN INVESTMENT FUNDS, INC.
OAKS, PENNSYLVANIA 19456
(800) 637-2548
This Prospectus/Proxy Statement is being furnished to the shareholders
of Asset Allocation Fund (the "Acquired Fund"), a separately managed series of
First American Investment Funds, Inc. ("FAIF"), in connection with a special
meeting (the "Meeting") of the shareholders of the Acquired Fund to be held at
the offices of SEI Investments Company, Oaks, Pennsylvania on Friday, October
31, 1997, for the purposes set forth in the accompanying Notice of Special
Meeting of Shareholders. This Prospectus/Proxy Statement is being mailed to
shareholders of the Acquired Fund on or about September 16, 1997. Information
concerning the voting rights of each Acquired Fund shareholder is set forth
under "Voting Information" below. Directors and officers of FAIF and employees
of SEI Investments Management Corporation, the administrator for the Acquired
Fund, may, without cost to the Acquired Fund, solicit proxies for management of
the Acquired Fund by means of mail, telephone, or personal calls. Persons
holding shares as nominees will, upon request, be reimbursed for their
reasonable expenses incurred in sending proxy soliciting materials on behalf of
the Board of Directors to their principals.
As set forth in the Notice of Special Meeting of Shareholders, this
Prospectus/Proxy Statement relates to a proposed Agreement and Plan of
Reorganization (the "Plan") providing for (i) the acquisition of all the assets
and the assumption of all liabilities of the Acquired Fund by Balanced Fund (the
"Acquiring Fund"), a separately managed series of FAIF, in exchange for shares
of common stock of the Acquiring Fund having an aggregate net asset value equal
to the aggregate value of the assets acquired (less liabilities assumed) of the
Acquired Fund, and (ii) the liquidation of the Acquired Fund and the pro rata
distribution of its holdings of Acquiring Fund shares to Acquired Fund
shareholders. The Acquired Fund and the Acquiring Fund are sometimes referred to
herein, individually, as a "Fund," or together, as the "Funds." A vote in favor
of the Plan will be considered a vote in favor of an amendment to the articles
of incorporation of FAIF required to effect the reorganization contemplated by
the Plan.
As a result of the transactions contemplated by the Plan (collectively,
the "Reorganization"), each shareholder of the Acquired Fund will receive
Acquiring Fund shares of the same class that he or she held in the Acquired
Fund, with a net asset value equal at the effective time of the Reorganization
to the net asset value of the shareholder's Acquired Fund shares at such time.
The Reorganization is being structured as a tax-free reorganization so that no
income, gain or loss will be recognized by the Acquired Fund or its shareholders
as a result thereof (except that the Acquired Fund contemplates that it will
make a distribution, immediately prior to the Reorganization, of all of its net
income and net realized capital gains, if any, not previously distributed, and
this distribution will be taxable to Acquired Fund shareholders subject to
taxation). The shareholders of the Acquired Fund are being asked to vote on the
proposed Plan and Reorganization at the Meeting.
In addition to the approval of the Plan and Reorganization by Acquired
Fund shareholders, the consummation of the Reorganization is subject to certain
other conditions. See "Information About the Reorganization -- Plan of
Reorganization."
<PAGE>
First Bank National Association ("FBNA" or the "Adviser") serves as the
investment adviser to both the Acquired Fund and the Acquiring Fund. SEI
Investments Management Corporation (the "Administrator") serves as the
administrator of the Funds.
FAIF, of which the Acquired Fund and the Acquiring Fund are separate
series, is an open-end management investment company. The Acquired Fund and the
Acquiring Fund are both diversified, open-end funds with investment objectives
which are similar, in that both seek to maximize total return by investing in a
portfolio that includes equity and fixed-income securities. Specifically:
* The Acquired Fund has an objective of maximizing total return
over the long term by allocating its assets principally among
common stocks, bonds, and short-term instruments. There are no
limitations on the proportions in which the Adviser may
allocate the Fund's investments among these three classes of
assets, and the Fund may at times be fully invested in a
single asset class if the Adviser believes that it offers the
most favorable total return outlook.
* The Acquiring Fund has an objective of maximizing total return
(capital appreciation plus income). The Fund seeks to achieve
its objective by investing in a balanced portfolio of equity
securities and fixed income securities. Over the long term, it
is anticipated that the Fund's asset mix will average
approximately 60% equity securities and 40% fixed income
securities, with the asset mix normally ranging between 40%
and 75% equity securities, between 25% and 60% fixed income
securities, and between 0% and 25% money market instruments.
The investment policies of the Funds are similar in that both focus on
the allocation of assets among the same three asset categories. While the
Acquiring Fund's strategy is anticipated to consist of an average asset mix over
the long term of 60% equity securities and 40% fixed income securities, the
Acquired Fund`s investment allocations (which, like the Acquiring Fund's, may
include short-term instruments) are allocated according to the Adviser's
judgment as to the most favorable total return outlook, without regard to
general guidelines as to the anticipated asset mix. In the case of the Acquired
Fund, asset allocation decisions are based on the Adviser's proprietary
quantitative model, which predicts future asset class returns based on
historical experience using probability theory.
At June 30, 1997, the asset allocations of the Acquired Fund and the
Acquiring Fund among classes of assets, expressed as percentages of their
respective net assets, were approximately as follows:
Acquired Fund Acquiring Fund
------------- --------------
Equity securities......................... 38% 56%
Fixed income securities................... 39% 38%
Short term and money market instruments... 23% 6%
Because the Funds are actively managed, these allocations are subject to change
subsequent to the date set forth above. For information concerning the
respective total return and net investment income of the respective Funds for
historic periods, see "Summary -- Investment Objectives, Policies and
Restrictions" herein.
The investment restrictions and limitations of the Funds are
substantially similar, but involve certain differences that reflect the
differences in the general investment policies utilized by the Funds. The Funds'
investment objectives, policies and restrictions are described and compared in
further detail herein under "Information about the Acquired Fund and the
Acquiring Fund -- Comparison of Investment Objectives, Policies and
Restrictions."
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about the proposed Plan and
Reorganization and about the Acquiring Fund and its affiliates that each
Acquiring Fund shareholder should know prior to voting on the proposed Plan and
Reorganization.
<PAGE>
INCORPORATION BY REFERENCE
The documents listed in items 1 and 2 below, which have been filed with
the Securities and Exchange Commission (the "Commission"), are incorporated
herein by reference to the extent noted below. A Statement of Additional
Information dated September 16, 1997 relating to this Prospectus/Proxy Statement
has been filed with the Commission and is also incorporated by reference into
this Prospectus/Proxy Statement. A copy of the Statement of Additional
Information, and of the documents listed in items 3 and 4 below, is available
upon request and without charge by writing to SEI Investments Distribution Co.,
Oaks, Pennsylvania 19456 or by calling (800) 637-2548. The documents listed in
items 3 and 4 below are incorporated by reference into the Statement of
Additional Information and will be provided with the Statement of Additional
Information when requested. Any documents requested will be sent within one
business day of receipt of the request by first class mail or other means
designed to ensure equally prompt delivery.
1. The Retail Class Prospectus dated January 31, 1997 and the
Institutional Class Prospectus dated January 31, 1997 of the
Acquiring Fund and the Acquired Fund are incorporated herein
in their entirety by reference, and a copy of each accompanies
this Prospectus/Proxy Statement.
2. The Statement of Additional Information dated January 31, 1997
of FAIF, as it relates to the Retail Classes and the
Institutional Class of both the Acquired Fund and the
Acquiring Fund, is incorporated by reference in the Statement
of Additional Information relating to this Prospectus/Proxy
Statement.
3. Annual Report of FAIF for the fiscal year ended September 30,
1996, as it relates to the Retail Classes and the
Institutional Class of both the Acquiring Fund and the
Acquired Fund, is incorporated by reference in the Statement
of Additional Information relating to this Prospectus/Proxy
Statement. The "Portfolio Performance Discussion" for the
Acquiring Fund and the Acquired Fund set forth at page 9 of
such Annual Report is incorporated herein by reference, and a
copy of such Annual Report accompanies this Prospectus/Proxy
Statement.
4. The Semi-Annual Report of FAIF for the six months ended March
31, 1997, as it relates to the Retail Classes and the
Institutional Class of both the Acquired Fund and the
Acquiring Fund, is incorporated by reference in the Statement
of Additional Information relating to this Prospectus/Proxy
Statement, and a copy of such Semi-Annual Report accompanies
this Prospectus/Proxy Statement.
Also accompanying and attached to this Prospectus/Proxy Statement as Exhibit A
is a copy of the Plan for the proposed Reorganization.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
SUMMARY
This summary is qualified in its entirety by reference to the more
complete information contained elsewhere in this Prospectus/Proxy Statement, the
Prospectuses and Statement of Additional Information of FAIF relating to the
Acquiring Fund and the Acquired Fund, each dated January 31, 1997, and the Plan,
a copy of which is attached to this Prospectus/Proxy Statement as Exhibit A.
Acquired Fund shareholders should review the accompanying documents carefully in
connection with their review of this Prospectus/Proxy Statement.
PROPOSED REORGANIZATION
The Plan provides for (i) the acquisition of all of the assets and the
assumption of all liabilities of the Acquired Fund by the Acquiring Fund in
exchange for shares of common stock of the Acquiring Fund having an aggregate
net asset value equal to the aggregate value of the assets acquired (less
liabilities assumed) of the Acquired Fund and (ii) the liquidation of the
Acquired Fund and the pro rata distribution of its holdings of Acquiring Fund
shares to Acquired Fund shareholders as of the effective time of the
Reorganization (anticipated to be at the close of normal trading on the New York
Stock Exchange, currently 4:00 p.m. Eastern Time, in the second half
of November 1997, or such later date as provided for in the Plan) (such time and
date, the "Effective Time"). The value of the Acquired Fund assets and
liabilities to be acquired by the Acquiring Fund, and the value of the Acquiring
Fund shares to be exchanged therefor, will be computed as of the Effective Time.
As a result of the Reorganization, each shareholder of the Acquired Fund will
receive Acquiring Fund shares of the same class that he or she held in the
Acquired Fund, with a net asset value equal to the net asset value of the
shareholder's Acquired Fund shares as of the Effective Time. See "Information
About the Reorganization."
For the reasons set forth below under "Information About the
Reorganization -- Reasons for the Reorganization," the Board of Directors of
FAIF, including all of the "non-interested" Directors, as that term is defined
in the Investment Company Act of 1940, as amended (the "Investment Company
Act"), has concluded that the Reorganization would be in the best interests of
the shareholders of the Acquired Fund and that the interests of Acquired Fund's
existing shareholders would not be diluted as a result of the transactions
contemplated by the Reorganization. Therefore, the Board of Directors has
approved the Reorganization and has submitted the Plan for approval by Acquired
Fund shareholders.
The Board of Directors of FAIF has also concluded that the
Reorganization would be in the best interests of the Acquiring Fund's existing
shareholders and has therefore approved the Reorganization on behalf of the
Acquiring Fund.
Approval of the Plan and Reorganization will require the affirmative
vote of a majority of the outstanding shares of each class of the Acquired Fund,
voting as separate classes.
TAX CONSEQUENCES
Prior to completion of the Reorganization, FAIF, on behalf of the
Acquired Fund, will have received from counsel an opinion that, upon the
Reorganization and the transfer of the assets of the Acquired Fund, no gain or
loss will be recognized by the Acquired Fund or its shareholders for federal
income tax purposes. The holding period and aggregate tax basis of Acquiring
Fund shares that are received by each Acquired Fund shareholder will be the same
as the holding period and aggregate tax basis of the Acquired Fund shares
previously held by such shareholders. In addition, the holding period and tax
basis of the assets of the Acquired Fund in the hands of the Acquiring Fund as a
result of the Reorganization will be the same as in the hands of the Acquired
Fund immediately prior to the Reorganization. See "Information About the
Reorganization -- Federal Income Tax Consequences."
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
The Acquired Fund and the Acquiring Fund are both diversified, open-end
funds with investment objectives which are similar, in that both seek to
maximize total return by investing in a portfolio that includes equity and fixed
income securities. Specifically:
* The Acquired Fund has an objective of maximizing total return
over the long term by allocating its assets principally among
common stocks, bonds, and short-term instruments. There are no
limitations on the proportions in which the Fund's investment
Adviser may allocate the Fund's investments among these three
classes of assets, and the Fund may at times be fully invested
in a single asset class if the Fund's investment Adviser
believes that it offers the most favorable total return
outlook.
* The Acquiring Fund has an objective of maximizing total return
(capital appreciation plus income). The Fund seeks to achieve
its objective by investing in a balanced portfolio of equity
securities and fixed income securities. Over the long term, it
is anticipated that the Fund's asset mix will average
approximately 60% equity securities and 40% fixed income
securities, with the asset mix normally ranging between 40%
and 75% equity securities, between 25% and 60% fixed income
securities, and between 0% and 25% money market instruments.
The investment policies of the Funds are similar in that both focus on
the allocation of assets among the same three asset categories. While the
Acquiring Fund's strategy is anticipated to consist of an average asset mix over
the long term of 60% equity securities and 40% fixed income securities, the
Acquired Fund's investment allocations (which, like the Acquiring Fund's, may
include short-term instruments) are allocated according to the Fund's investment
Adviser's judgment as to the most favorable total return outlook, without regard
to general guidelines as to the anticipated asset mix. In the case of the
Acquired Fund, asset allocation decisions are based on the Adviser's proprietary
quantitative model, which predicts future asset class returns based on
historical experience using probability theory. For information concerning the
asset allocations of the respective Funds among classes of assets as of a recent
date, see page 2 above.
With respect to the equity portion of the Funds' investment
allocations, the Acquiring Fund follows a strategy whereby, under normal market
conditions, the Fund invests at least 65% of its total equity assets in stocks
diversified among a broad range of industries and among companies that have a
market capitalization of at least $500 million. In selecting equity securities,
the Adviser employs a value-based selection discipline for the Acquiring Fund.
The equity portion of the Acquiring Fund's portfolio essentially mirrors the
holdings of FAIF's flagship Stock Fund. Within its equity asset class, the
Acquired Fund follows a strict indexing discipline which seeks to produce a
total return approximating that of the Standard & Poor's 500 Composite Stock
Price Index ("S&P 500").
With respect to the fixed income portion of the Funds' investment
allocations, the Acquiring Fund's portfolio (i) is invested in investment grade
securities, at least 65% of which are U.S. Government obligations and corporate
debt obligations and mortgage-related securities rated at least A by Standard &
Poor's or Moody's or which have been assigned an equivalent rating by another
nationally recognized statistical rating organization, and (ii) under normal
market conditions, has a weighted average maturity not exceeding 15 years. The
fixed income portion of the Acquiring Fund's portfolio essentially mirrors the
holdings of FAIF's Fixed Income Fund. The Acquired Fund's fixed income portfolio
may consist of direct obligations of the United States Treasury, in any
maturity. The Adviser thus has discretion in determining the weighted average
maturity of the investments within this asset class of the Acquired Fund. At
June 30, 1997, the weighted average maturities of the fixed income portion of
the Acquiring Fund's portfolio and of the Acquired Fund's portfolio were
approximately 6.81 years and 3.37 years, respectively.
The investment restrictions and limitations of the Funds are
substantially similar, but involve certain differences that reflect the
differences in the general investment policies utilized by the Funds as
described above. The Funds' investment objectives, policies and restrictions are
described and compared in further detail herein under "Information about the
Acquired Fund and the Acquiring Fund -- Comparison of Investment Objectives,
Policies and Restrictions."
<PAGE>
The following tables set forth the comparative total return and ratio
of net investment income to average net assets for each class of the respective
Funds for the periods indicated. Historic returns are not necessarily indicative
of future results.
<TABLE>
<CAPTION>
TOTAL RETURN
CLASS A CLASS B CLASS C
------- ------- -------
ACQUIRED ACQUIRING ACQUIRED ACQUIRING ACQUIRED ACQUIRING
FUND FUND FUND FUND FUND FUND
-------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Six months ended 3/31/97**...... 6.57% 7.26% 6.31% 6.92% 6.78% 7.38%
Year ended 9/30/96.............. 12.09% 15.61% 11.29% 14.78% 12.37% 15.89%
Year ended 9/30/95.............. 19.51% 20.57% 18.51% 19.58% 19.75% 20.89%
Year ended 9/30/94 (2)(3)....... 1.81% 3.02% 0.19% (0.55)% (0.90)% (0.64)%
Year ended 9/30/93 (1).......... 8.01% 10.39% * * * *
Year ended 9/30/92.............. * * * * * *
</TABLE>
* No shares were outstanding during this period.
** Not annualized.
(1) Commenced operations December 14, 1992. The return for the period has
not been annualized.
(2) Class B shares have been offered since August 15, 1994. The return for
the period has not been annualized.
(3) Class C shares have been offered since February 4, 1994. The return for
the period has not been annualized.
<TABLE>
<CAPTION>
NET INVESTMENT INCOME
CLASS A CLASS B CLASS C
------- ------- -------
ACQUIRED ACQUIRING ACQUIRED ACQUIRING ACQUIRED ACQUIRING
FUND FUND FUND FUND FUND FUND
-------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Six months ended 3/31/97**...... 3.02% 2.67% 2.29% 1.91% 3.28% 2.93%
Year ended 9/30/96.............. 2.84% 3.05% 2.12% 2.32% 3.08% 3.31%
Year ended 9/30/95.............. 3.29% 3.41% 2.35% 2.60% 3.53% 3.61%
Year ended 9/30/94 (2)(3)....... 2.01% 2.63% 1.94% 2.80% 2.91% 3.51%
Year ended 9/30/93 (1).......... 2.40% 3.31% * * * *
Year ended 9/30/92.............. * * * * * *
</TABLE>
* No shares were outstanding during this period.
** Not annualized.
(1) Commenced operations December 14, 1992. The return for the period has
not been annualized.
(2) Class B shares have been offered since August 15, 1994. The return for
the period has not been annualized.
(3) Class C shares have been offered since February 4, 1994. The return for
the period has not been annualized.
FEES AND EXPENSES
The Acquired Fund and the Acquiring Fund each have agreements with the
Adviser pursuant to which they agree to pay the Adviser investment advisory fees
for managing their respective investment portfolios. The contractual investment
advisory fees for the two Funds accrue at the same rate, equal to an annual rate
of 0.70% of the applicable Fund's average daily assets. Contractual investment
advisory fees therefore will remain unchanged as a result of the Reorganization.
Through September 30, 1997 the Adviser is waiving its advisory fee to
the extent that total fund expenses exceed the following percentages of average
net assets of the respective Funds and classes on a per annum basis:
Class A Class B Class C
------- ------- -------
Acquired Fund................... 1.05% 1.80% 0.80%
Acquiring Fund................. 1.05% 1.80% 0.80%
The Adviser has not agreed to waive advisory fees in any set amount after
September 30, 1997. The Adviser has represented, however, that its current
waiver with respect to the Acquiring Fund will remain
<PAGE>
in effect through September 30, 1998. Therefore, in no event will the holders of
Acquired Fund shares become subject to a less advantageous total expense "cap"
as a result of the proposed Reorganization.
The Acquired Fund and the Acquiring Fund both offer shares in three classes:
Class A, Class B, and Class C. Class A shares and Class B shares are sometimes
referred to collectively as "Retail Class" shares, and Class C shares sometimes
are referred to as "Institutional Class" shares. With respect to both Funds,
these classes are subject to the following charges:
* Class A shares of both the Acquired Fund and the Acquiring
Fund are subject to a front-end sales charge of 4.50%. The
front-end sales charge on Class A shares of both Funds is
waived in full on purchases of $1 million or more, but a 1%
deferred sales charge is collected if shares subject to such a
waiver are sold within 24 months after purchase. No Class A
shares of either Fund are subject to any other contingent
deferred sales charge or other sales charges or to any
redemption fee. Class A shares of both Funds are subject to a
Rule 12b-1 shareholder servicing fee computed at an annual
rate of 0.25% of the average daily net assets of that class.
* Class B shares of both the Acquired Fund and the Acquiring
Fund are subject to no front-end sales charge. Class B shares
of both Funds are subject to a contingent deferred sales
charge declining from 5% in the first year following purchase
to 0% after six years and to Rule 12b- 1 distribution and
shareholder servicing fees of 1.00% per annum of average daily
net assets under compensation-type plans. Eight years after
purchase, Class B shares of both Funds automatically convert
to Class A shares.
* Class C shares of both the Acquired Fund and the Acquiring
Fund are subject to no front-end, contingent deferred or other
sales charges, no redemption fee and no Rule 12b-1
distribution or shareholder servicing fees.
As described below, in the Reorganization Class A shares of the Acquired Fund
will be exchanged for Class A shares of the Acquiring Fund, Class B shares will
be exchanged for Class B shares, and Class C shares will be exchanged for Class
C shares. Therefore, sales charges, Rule 12b-1 fees and shareholder servicing
fees will remain unchanged as a result of the Reorganization. In addition, the
Plan provides that former holders of Acquired Fund Class B shares who receive
Acquiring Fund Class B shares in the Reorganization will receive credit for the
period they held Acquired Fund Class B shares in applying the six-year step-down
of the contingent deferred sales charge on Acquiring Fund Class B shares and in
determining the date upon which such shares convert to Acquiring Fund Class A
shares. Similarly, the Plan provides that in applying the 24-month 1% deferred
sales charge on purchases of Class A shares with respect to which the front-end
sales charge was waived, credit will be given for the period a former Acquired
Fund shareholder who is subject to such a deferred sales charge held his or her
shares.
<PAGE>
PRO FORMA FEES AND EXPENSES
The following tables are intended to assist Acquired Fund shareholders
of the respective classes in understanding the various costs and expenses
(expressed as a percentage of average net assets) (i) that such shareholders
currently bear as Acquired Fund shareholders (under the "Acquired Fund" column);
(ii) that shareholders of the Acquiring Fund currently bear (under the
"Acquiring Fund" column); and (iii) that such shareholders can expect to bear as
Acquiring Fund shareholders after the Reorganization is consummated (under the
"Pro Forma" column). The following tables are as of September 30, 1996.
<TABLE>
<CAPTION>
CLASS A SHARES FEES AND EXPENSES
ACQUIRED ACQUIRING
FUND FUND PRO FORMA
---- ---- ---------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on purchases (as a
percentage of offering price)(1)........................ 4.50% 4.50% 4.50%
Maximum sales load imposed on reinvested dividends............ None None None
Deferred sales load........................................... None None None
Redemption fees............................................... None None None
Exchange fees................................................. None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment advisory fees (after voluntary fee waivers)(2)..... 0.47% 0.61% 0.61%
Rule 12b-1 fees(2)(3)......................................... 0.25% 0.25% 0.25%
Other expenses................................................ 0.33% 0.19% 0.19%
Total fund operating expenses (after voluntary fee
waivers)(2).............................................. 1.05% 1.05% 1.05%
EXAMPLE(4)
You would pay the following expenses on a $1,000 investment, assuming (i) the
maximum applicable sales charge; (ii) a 5% annual return; and (iii) redemption
at the end of each time period:
1 year........................................................ $55 $55 $55
3 years....................................................... $77 $77 $77
5 years....................................................... $100 $100 $100
10 years...................................................... $167 $167 $167
</TABLE>
(1) The rules of the Securities and Exchange Commission require that the
maximum sales charge be reflected in the above table. However, certain
investors may qualify for reduced sales charges. Purchases of $1
million or more of Class A Shares are not subject to an initial sales
charge, but a contingent deferred sales charge of 1.00% is imposed in
the case of redemption within 24 months following the purchase.
(2) The Adviser intends to waive a portion of its fees on a voluntary
basis, and the amounts shown reflect these waivers as of January 31,
1997. The Adviser intends to maintain such waivers in effect
through September 30, 1997 but reserves the right to discontinue such
waivers at any time in its sole discretion. See "--Fees and Expenses"
above. Absent any fee waivers, investment advisory fees as an
annualized percentage of average daily net assets would be 0.70%
(Acquired Fund), 0.70% (Acquiring Fund), and 0.70% (Pro Forma); Rule
12b-1 fees would be 0.25 (Acquired Fund), 0.25 (Acquiring Fund), and
0.25 (Pro Forma) and total fund operating expenses calculated on such
basis would be 1.28% (Acquired Fund), 1.14% (Acquiring Fund), and 1.14%
(Pro Forma). Other expenses includes an administration fee.
(3) Of this amount, 0.25% is designated as a shareholder servicing fee and
none as a distribution fee.
(4) Absent fee waivers, the respective dollar amounts for the 1, 3, 5, and
10-year periods would be $57, $84, $112, and $193 (Acquired Fund); $56,
$80, $105, and $177 (Acquiring Fund); and $56, $80, $105, and $177 (Pro
Forma).
<PAGE>
<TABLE>
<CAPTION>
CLASS B SHARES FEES AND EXPENSES
ACQUIRED ACQUIRING
FUND FUND PRO FORMA
---- ---- ---------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on purchases (as a
percentage of offering price)........................... None None None
Maximum sales load imposed on reinvested dividends............ None None None
Maximum contingent deferred sales charge (as a
percentage of original purchase price or redemption
proceeds, as applicable)................................. 5.00% 5.00% 5.00%
Redemption fees............................................... None None None
Exchange fees................................................. None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment advisory fees...................................... 0.47% 0.61% 0.61%
Rule 12b-1 fees(2)............................................ 1.00% 1.00% 1.00%
Other expenses................................................ 0.33% 0.19% 0.19%
Total fund operating expenses (after voluntary fee
waivers)(1).............................................. 1.80% 1.80% 1.80%
EXAMPLE (ASSUMING REDEMPTION)(2)
You would pay the following expenses on a $1,000 investment, assuming (i) a 5%
annual return; (ii) redemption at the end of each time period; and (iii) payment
of the maximum applicable contingent deferred sales charge of 5% in year 1, 4%
in year 3, 2% in year 5, and automatic conversion to Class A shares at the end
of year 8:
1 year........................................................ $68 $68 $68
3 years....................................................... $97 $97 $97
5 years....................................................... $117 $117 $117
10 years...................................................... $192 $192 $192
EXAMPLE (ASSUMING NO REDEMPTION)(3)
You would pay the following expenses on the same investment, assuming no
redemption:
1 year........................................................ $18 $18 $18
3 years....................................................... $57 $57 $57
5 years....................................................... $97 $97 $97
10 years...................................................... $192 $192 $192
</TABLE>
(1) The Adviser intends to waive a portion of its fees on a voluntary
basis, and the amounts shown reflect these waivers as of January 31,
1997. The Adviser intends to maintain such waivers in effect
through September 30, 1997 but reserves the right to discontinue such
waivers at any time in its sole discretion. See "--Fees and Expenses"
above. Absent any fee waivers, investment advisory fees for each Fund
as an annualized percentage of average daily net assets would be 0.70%
(Acquired Fund), 0.70% (Acquiring Fund), and 0.70% (Pro Forma); Rule
12b-1 fees would be 0.25 (Acquired Fund), 0.25 (Acquiring Fund), and
0.25 (Pro Forma); and total fund operating expenses calculated on such
basis would be 2.03% (Acquired Fund), 1.89% (Acquiring Fund), and 1.89%
(Pro Forma). Other expenses includes an administration fee.
(2) Of this amount, 0.25% is designated as a shareholder servicing fee and
0.75% as a distribution fee.
(3) Absent fee waivers, the respective dollar amounts for the 1, 3, 5, and
10-year periods would be $71, $104, $129, and $217 (Acquired Fund);
$69, $99, $122, and $202 (Acquiring Fund); and $69, $99, $122, and $202
(Pro Forma).
(4) Absent fee waivers, the respective dollar amounts for the 1, 3, 5, and
10-year periods would be $21, $64, $109, and $217 (Acquired Fund); $19,
$59, $102, and $202 (Acquiring Fund); and $19, $59, $102, and $202 (Pro
Forma).
<PAGE>
<TABLE>
<CAPTION>
CLASS C SHARES FEES AND EXPENSES
ACQUIRED ACQUIRING
FUND FUND PRO FORMA
---- ---- ---------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on purchases....................... None None None
Maximum sales load imposed on reinvested dividends............ None None None
Deferred sales load........................................... None None None
Redemption fees............................................... None None None
Exchange fees................................................. None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment advisory fees (after voluntary fee waivers)(1)..... 0.47% 0.61% 0.61%
Rule 12b-1 fees............................................... None None None
Other expenses................................................ 0.33% 0.19% 0.19%
Total fund operating expenses (after voluntary fee
waivers)(1).............................................. 0.80% 0.80% 0.80%
EXAMPLE (ASSUMING REDEMPTION)(2)
You would pay the following expenses on a $1,000 investment, assuming (i) a 5%
annual return, and (ii) redemption at the end of each time period:
1 year........................................................ $8 $8 $8
3 years....................................................... $26 $26 $26
5 years....................................................... $44 $44 $44
10 years...................................................... $99 $99 $99
</TABLE>
(1) The Adviser intends to waive a portion of its fees on a voluntary
basis, and the amounts shown reflect these waivers as of January 31,
1997. The Adviser intends to maintain such waivers in effect
through September 30, 1997 but reserves the right to discontinue such
waivers at any time in its sole discretion. See "--Fees and Expenses"
above. Absent any fee waivers, investment advisory fees as an
annualized percentage of average daily set assets would be 0.70%
(Acquired Fund), 0.70% (Acquiring Fund), and 0.70% (Pro Forma); and
total fund operating expenses calculated on such basis would be 1.03%
(Acquired Fund), 0.89% (Acquiring Fund), and 0.89% (Pro Forma). Other
expenses includes an administration fee.
(2) Absent fee waivers, the respective dollar amounts for the 1, 3, 5, and
10-year periods would be $11, $33, $57, and $126 (Acquired Fund); $9,
$28, $49, and $110 (Acquiring Fund); and $9, $28, $49, and $110 (Pro
Forma).
PURCHASE, EXCHANGE AND REDEMPTION PROCEDURES
Class A and Class B shares of the Acquiring Fund received by Acquired
Fund shareholders in the Reorganization will be subject to the same purchase,
exchange and redemption procedures that currently apply to Class A and Class B
shares of the Acquired Fund. These procedures are discussed in the Retail Class
Prospectus of the Acquired Fund and the Acquiring Fund which accompanies this
Prospectus/Proxy Statement under the headings "Investing in the Funds" and
"Redeeming Shares."
Class C shares of the Acquiring Fund received by Acquired Fund
shareholders in the Reorganization will be subject to the same purchase,
exchange and redemption procedures that currently apply to Class C shares of the
Acquired Fund. These procedures are discussed in the Institutional Class
Prospectus of the Acquired Fund and the Acquiring Fund which accompanies this
Prospectus/Proxy Statement under the heading "Purchases and Redemptions of
Shares."
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared and paid monthly with respect to both the
Acquired Fund and the Acquiring Fund. Distributions of any net realized
long-term capital gains are made at least once every twelve months with respect
to both Funds. Dividends and distributions for each Fund are automatically
reinvested in additional shares of the Fund unless cash payments are requested
by contacting the Fund.
<PAGE>
SHAREHOLDER VOTING RIGHTS
Class A, Class B and Class C shares of both Funds are treated as
separate classes of shares issued by the respective Funds. Class A, Class B and
Class C shares within a Fund vote together as a single class on most issues,
such as election of directors, and as separate classes on issues that affect
only a particular class, such as Rule 12b-1 distribution plans.
RISK FACTORS
Because both Funds are actively managed, their performance reflects in
part the ability of the Adviser to select securities which are suited to
achieving their investment objectives. Due to their active management, either or
both Funds could underperform other mutual funds with similar investment
objectives or the market generally. In addition, the investment objectives,
policies and restrictions of the Acquired Fund and the Acquired Fund are similar
(see "Information About the Acquired Fund and the Acquiring Fund" below),
because the risks associated with investing in both Funds are also similar.
With respect to the equity portion of both Funds, investors should
recognize that the market prices of equity securities generally, and of
particular companies' equity securities, are subject to greater volatility than
prices of fixed income securities. Each of the Funds is subject to the risk of
generally adverse equity markets.
The fixed income securities of both Funds 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 a Fund); (ii) credit risk (the risk that
the issuers of debt securities held by a 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 a Fund to reinvest the prepayment at a lower interest rate). Because
the fixed income securities in which the Acquired Fund invests consist only of
direct obligations of the United States Treasury, the Acquired Fund's fixed
income securities entail only minimal credit risk.
Both Funds may (i) enter into repurchase agreements; (ii) purchase
securities on a when-issued or delayed-delivery basis; (iii) 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; (iv)
purchase put and call options; and (v) engage in futures transactions and
purchase options on futures. Additionally, the Acquiring Fund may write covered
call options. For the special risks associated with each of these investment
methods, see the "Investment Objectives and Policies" and "Special Investment
Methods" in the Retail Class Prospectus and the Institutional Class Prospectus
relating to the Funds which accompany this Prospectus/Proxy Statement.
In addition, the Acquiring Fund may invest up to 15% of its total fixed
income assets in foreign securities payable in United States dollars. Investment
in foreign securities is subject to special investment risks that differ in some
respects from those related to investments in securities of United States
domestic issuers. Both Funds may invest in the types of instruments referred to
below under "Information About the Acquired Fund and the Acquiring Fund." For
further information concerning these types of investments and their associated
risks, see "Investment Objectives and Policies" and "Special Investment Methods"
in the Retail Class Prospectus and the Institutional Class Prospectus relating
to the Funds which accompany this Prospectus/Proxy Statement.
INFORMATION ABOUT THE REORGANIZATION
REASONS FOR THE REORGANIZATION
The Board of Directors of FAIF, including all of the "non-interested"
directors, has determined that it is advantageous to combine the Acquired Fund
with the Acquiring Fund. As discussed in detail below under "Information About
the Acquired Fund and the Acquiring Fund," the Funds have similar investment
objectives, policies and restrictions. The Funds also have the same investment
manager and the same distributor, custodian, transfer agent and auditors.
The Board of Directors of FAIF has determined that the Reorganization
is expected to provide certain benefits to the Acquired Fund and the Acquiring
Fund and is in the best interests of each Fund
<PAGE>
and its respective shareholders. The Board of Directors has also determined that
the interests of the existing shareholders of each Fund will not be diluted as a
result of the Reorganization. The Board considered, among other things, the
following factors in making such determinations:
(i) the advantages which may be realized by the Acquired Fund
and the Acquiring Fund, consisting of a potentially reduced expense
ratio before waivers, economies of scale resulting from fund growth,
and facilitation of portfolio management;
(ii) the tax-free nature of the proposed Reorganization;
(iii) the terms and conditions of the Plan, including that (a)
the exchange of Acquired Fund shares for Acquiring Fund shares will
take place on a net asset value basis; (b) no sales charge will be
incurred by Acquired Fund shareholders in connection with their
acquisition of Acquiring Fund shares in the Reorganization; and (c) the
condition to closing that the Adviser or an affiliate of the Adviser
pay any unamortized organizational expenses on the books of the
Acquired Fund;
(iv) the agreement of the Adviser to bear the costs associated
with the proposed Reorganization;
(v) the fact that the advisory fee, Rule 12b-1 fees and sales
charges would remain constant for Acquired Fund shareholders;
(vi) the Acquiring Fund's agreements that (a) former holders
of Acquired Fund Class B shares who receive Acquiring Fund Class B
shares in the Reorganization will receive credit for the period they
held Acquired Fund Class B shares in applying the six-year step-down of
the contingent deferred sales charge on Acquiring Fund Class B shares
and in determining the date upon which such shares convert to Acquiring
Fund Class A shares; and (b) in applying the 24- month 1% deferred
sales charge on purchases of Class A shares with respect to which the
front-end sales charge was waived, credit will be given for the period
a former Acquired Fund shareholder who is subject to such a deferred
sales charge held his or her shares; and
(vii) the fact that in no event will the holders of Acquired
Fund shares become subject to a less advantageous total expense "cap"
as a result of the proposed combination of Funds.
The Board also considered the potential benefits to the Adviser which could
result from the proposed Reorganization. The Board recognized that if the
Adviser determines to waive advisory fees in the future, to the extent that the
proposed Reorganization results in lower overall expense ratios before fee
waivers, the combination of Funds would have the effect of decreasing the cost
to the Adviser of providing such waivers. The Board also noted, however, that
the Adviser is not obligated to make any such waivers and that if such waivers
are not made, former shareholders of the Acquired Fund and shareholders of the
Acquiring Fund would benefit directly from any decreases in overall expense
ratios and that, in any event, the proposed Reorganization is expected to
provide other benefits to shareholders. The Board thus concluded that, despite
these potential benefits to the Adviser, the factors noted in (i) through (vii)
above render the proposed Reorganization fair to and in the best interests of
shareholders of the Acquired Fund and the Acquiring Fund.
PLAN OF REORGANIZATION
The following summary of the proposed Plan and the Reorganization is
qualified in its entirety by reference to the Plan attached to this
Prospectus/Proxy Statement as Exhibit A. The Plan provides that, as of the
Effective Time, the Acquiring Fund will acquire all of the assets and assume all
liabilities of the Acquired Fund in exchange for Acquiring Fund shares having an
aggregate net asset value equal to the aggregate value of the assets acquired
(less liabilities assumed) from the Acquired Fund. The Acquired Fund and the
Acquiring Fund are separate series of shares within FAIF, a single Maryland
corporation. As a result, for corporate law purposes, the acquisition of assets,
assumption of liabilities and exchange of shares is structured under the Plan as
a reallocation of assets and liabilities from the Acquired Fund to the Acquiring
Fund coupled with the issuance and exchange of Class A, Class B and Class C
Acquiring Fund shares in exchange for Class A, Class B and Class C Acquired Fund
shares, respectively.
<PAGE>
This reallocation of assets and liabilities and exchange of shares is
accomplished under the Plan by amending the articles of incorporation of FAIF in
the manner set forth in the amendment to FAIF's articles of incorporation as set
forth in Exhibit 1 to the Plan attached hereto as Exhibit A.
Pursuant to the Plan, each holder of Class A, Class B or Class C shares
of the Acquired Fund will receive, at the Effective Time, Class A, Class B or
Class C shares of the Acquiring Fund, as applicable, with an aggregate net asset
value equal to the aggregate net asset value of the Acquired Fund shares owned
by such shareholder immediately prior to the Effective Time. At the Effective
Time, the Acquiring Fund will issue and distribute, at the direction of the
Acquired Fund's Board of Directors, to the Acquired Fund's shareholders of
record, determined as of the Effective Time, the Acquiring Fund Shares issued in
exchange for the Acquired Fund Shares as described above. Thereafter, no
additional shares representing interests in the Acquired Fund will be issued,
and the Acquired Fund will be deemed to be liquidated.
Under the Plan, the net asset value per share of the Acquired Fund's
and the Acquiring Fund's Class A, Class B and Class C shares will be computed as
of the Effective Time using the valuation procedures set forth in FAIF's amended
and restated articles of incorporation and bylaws and then current Prospectuses
and Statement of Additional Information and as may be required by the Investment
Company Act. The distribution of Acquiring Fund shares to former Acquired Fund
shareholders described above will be accomplished by the establishment of
accounts on the share records of the Acquiring Fund in the names of Acquired
Fund shareholders, each representing the respective classes and numbers of full
and fractional Acquiring Fund shares due such shareholders.
The Plan provides that no sales charges will be incurred by Acquired
Fund shareholders in connection with the acquisition by them of Acquiring Fund
shares pursuant thereto. The Plan also provides that in determining contingent
deferred sales charges applicable to Class B shares issued by the Acquiring Fund
in the Reorganization and the date upon which such shares convert to Class A
shares, the Acquiring Fund will give credit for the period during which the
holders thereof held the Class B shares of the Acquired Fund in exchange for
which such Acquiring Fund shares were issued. In addition, the Plan provides
that if Class A shares of the Acquiring Fund are distributed in the
Reorganization to former holders of Class A shares of the Acquired Fund with
respect to which the front-end sales charge was waived due to a purchase of $1
million or more, the Acquiring Fund will give credit for the period during which
the holder thereof held such Acquired Fund shares in determining whether a
deferred sales charge is payable upon the sale of such Class A shares of the
Acquiring Fund.
The Acquired Fund contemplates that it will make a distribution,
immediately prior to the Effective Time, of all of its net income and net
realized capital gains, if any, not previously distributed. This distribution
will be taxable to Acquired Fund shareholders subject to taxation.
The consummation of the Reorganization is subject to the conditions set
forth in the Plan, including, among others: (i) approval of the Plan, which
includes the related amendment of FAIF's articles of incorporation attached to
the Plan, by the shareholders of the Acquired Fund; (ii) the delivery of the
opinion of counsel described below under "-- Federal Income Tax Consequences;"
(iii) the accuracy as of the Effective Time of the representations and
warranties made by the Acquired Fund and the Acquiring Fund in the Plan; and
(iv) the delivery of customary closing certificates. See the Plan attached
hereto as Exhibit A for a complete listing of the conditions to the consummation
of the Reorganization. The Plan may be terminated and the Reorganization
abandoned at any time prior to the Effective Time, before or after approval by
shareholders of the Acquired Fund, by resolution of the Board of Directors of
FAIF, if circumstances should develop that, in the opinion of the Board, make
proceeding with the consummation of the Plan and Reorganization not in the best
interests of either Fund's shareholders.
The Plan provides that the Adviser will pay all expenses incurred in
connection with the Reorganization, and neither Fund will be liable for such
expenses. The Plan also provides that the Adviser will pay the Acquired Fund an
amount equal to the unamortized organizational expenses, if any, on the books of
the Acquired Fund, and such unamortized organizational expenses shall not be
reflected in the calculation of the net asset values per share of the Acquired
Fund's shares for purposes of the exchange of shares under the Plan.
<PAGE>
Approval of the Plan will require the affirmative vote of a majority of
the outstanding shares of each class of the Acquired Fund, voting as separate
classes. Approval of the Plan by Acquired Fund shareholders will be deemed
approval of the amendment to the amended and restated articles of incorporation
of FAIF attached to the Plan. If the Plan is not approved, the Board of
Directors of FAIF will consider other possible courses of action. Acquired Fund
shareholders are not entitled to assert dissenters' rights of appraisal in
connection with the Plan or Reorganization. See "Voting Information -- No
Dissenters' Rights of Appraisal" below.
DESCRIPTION OF ACQUIRING FUND SHARES
The Class A, Class B and Class C shares of the Acquiring Fund issued in
the Reorganization will represent shares of common stock, $.0001 par value, in
the Acquiring Fund, which is an open-end mutual fund and a series of FAIF. FAIF
is an open-end management investment company incorporated under the laws of the
State of Maryland. Each share of the Acquiring Fund issued in the Reorganization
will be fully paid, nonassessable, and transferable. Shares may be issued as
either full or fractional shares. Fractional shares have pro rata the same
rights and privileges as full shares. Shares of the Acquiring Fund have no
preemptive or conversion rights.
Each share of the Acquiring Fund has one vote. On some issues, such as
the election of directors, all shares of all series of FAIF vote together as one
series. The shares do not have cumulative voting rights. Consequently, the
holders of more than 50% of the shares voting for the election of directors are
able to elect all of the directors if they choose to do so. On issues affecting
only a particular series or class within a series, the shares of that series or
class will vote as a separate series or class. Examples of such issues would be
proposals to alter a fundamental investment restriction pertaining to a series
or to approve, disapprove or alter a distribution plan pertaining to a class.
Under the laws of the State of Maryland and FAIF's articles of
incorporation, FAIF is not required to hold shareholder meetings unless they (i)
are required by the Investment Company Act, or (ii) are requested in writing by
the holders of 25% or more of the outstanding shares of FAIF.
FEDERAL INCOME TAX CONSEQUENCES
It is intended that the exchange of Acquiring Fund shares for the
Acquired Fund's net assets and the distribution of such shares to the Acquired
Fund's shareholders upon liquidation of the Acquired Fund will be treated as a
tax-free reorganization under the Code and that, for federal income tax
purposes, no income, gain or loss will be recognized by the Acquired Fund's
shareholders (except that the Acquired Fund contemplates that it will make a
distribution, immediately prior to the Effective Time, of all of its net income
and net realized capital gains, if any, not previously distributed, and this
distribution will be taxable to Acquired Fund shareholders subject to taxation).
FAIF has not asked, nor does it plan to ask, the Internal Revenue Service to
rule on the tax consequences of the Reorganization.
As a condition to the closing of the Reorganization, the two Funds will
receive an opinion from Dorsey & Whitney LLP, counsel to the Funds, based in
part on certain representations to be furnished by each Fund and their Adviser,
substantially to the effect that the federal income tax consequences of the
Reorganization will be as follows:
(i) the Reorganization will constitute a reorganization within the
meaning of Section 368(a)(1)(C) of the Code, and the Acquiring
Fund and the Acquired Fund each will qualify as a party to the
Reorganization under Section 368(b) of the Code;
(ii) Acquired Fund shareholders will recognize no income, gain or
loss upon receipt, pursuant to the Reorganization, of
Acquiring Fund shares. Acquired Fund shareholders subject to
taxation will recognize income upon receipt of any net
investment income or net capital gains of the Acquired Fund
which are distributed by the Acquired Fund prior to the
Effective Time;
(iii) the tax basis of the Acquiring Fund shares received by each
Acquired Fund shareholder pursuant to the Reorganization will
be equal to the tax basis of the Acquired Fund shares
exchanged therefor;
<PAGE>
(iv) the holding period of the Acquiring Fund shares received by
each Acquired Fund shareholder pursuant to the Reorganization
will include the period during which the Acquired Fund
shareholder held the Acquired Fund shares exchanged therefor,
provided that the Acquired Fund shares were held as a capital
asset at the Effective Time;
(v) the Acquired Fund will recognize no income, gain or loss by
reason of the Reorganization;
(vi) the Acquiring Fund will recognize no income, gain or loss by
reason of the Reorganization;
(vii) the tax basis of the assets received by the Acquiring Fund
pursuant to the Reorganization will be the same as the basis
of those assets in the hands of the Acquired Fund as of the
Effective Time;
(viii) the holding period of the assets received by the Acquiring
Fund pursuant to the Reorganization will include the period
during which such assets were held by the Acquired Fund; and
(ix) the Acquiring Fund will succeed to and take into account the
earnings and profits, or deficit in earnings and profits, of
the Acquired Fund as of the Effective Time.
The foregoing advice is based in part upon certain representations
furnished by FAIF and the Adviser, of which three principal ones are: (a) that
assets representing at least 90% of the fair market value of the Acquired Fund's
net assets and at least 70% of the fair market value of the Acquired Fund's
gross assets at the Effective Time are exchanged solely for Acquiring Fund
shares with unrestricted voting rights, (b) that there is no plan or intention
by the shareholders of the Acquired Fund who own beneficially 5% or more of the
outstanding shares of the Acquired Fund and, to the best knowledge of FAIF,
there is no plan or intention on the part of the remaining Acquired Fund
shareholders to sell, exchange or otherwise dispose of a number of Acquiring
Fund shares to be received pursuant to the Reorganization that would reduce such
shareholders' interest to a number of Acquiring Fund shares having, in the
aggregate, a value as of the Effective Time of less than 50% of the total value
of the Acquired Fund shares outstanding immediately prior to the consummation of
the Reorganization and (c) following the Reorganization, the Acquiring Fund will
either continue the historic business of the Acquired Fund or use a significant
portion of the historic business assets of the Acquired Fund in a business
carried on by the Acquired Fund.
Shareholders of the Acquired Fund should consult their tax advisors
regarding the effect, if any, of the proposed Reorganization in light of their
individual circumstances. Since the foregoing discussion only relates to the
federal income tax consequences of the Reorganization, shareholders of the
Acquired Fund should consult their tax advisors as to state and local tax
consequences, if any, of the Reorganization.
RECOMMENDATION AND VOTE REQUIRED
The Board of Directors of FAIF, including the "non-interested"
directors, recommends that shareholders of the Acquired Fund approve the Plan.
Approval of the Plan will require the affirmative vote of a majority of the
outstanding shares of each class of the Acquired Fund, voting as separate
classes. Approval of the Plan by Acquired Fund shareholders will be deemed
approval of the amendment to the amended and restated articles of incorporation
of FAIF attached to the Plan.
<PAGE>
INFORMATION ABOUT THE ACQUIRED FUND AND THE ACQUIRING FUND
Information concerning the Acquiring Fund and the Acquired Fund is
incorporated herein by reference from the current Retail Class Prospectus and
the current Institutional Class Prospectus, each related to both the Acquiring
Fund and the Acquired Fund and dated January 31, 1997, accompanying this
Prospectus/Proxy Statement and forming part of the Registration Statement of
FAIF on Form N-1A which has been filed with the Commission.
The Acquiring Fund, the Acquired Fund and FAIF are subject to the
informational requirements of the Securities Exchange Act of 1934 (the "Exchange
Act") and in accordance therewith file reports and other information including
proxy materials, reports and charter documents with the Commission. These proxy
materials, reports and other information filed by the Acquiring Fund, the
Acquired Fund and FAIF can be inspected and copies obtained at the Public
Reference Facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the New York Regional Office of the Commission at
Seven World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material can also be obtained from the Public Reference Branch, Office of
Consumer Affairs and Information Services, Securities and Exchange Commission,
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The
Commission maintains a website that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission; the address of this site is http://www.sec.gov.
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
The Acquired Fund and the Acquiring Fund are both diversified, open-end
funds with investment objectives which are similar, in that both Funds seek to
maximize total return by investing in a portfolio that includes equity and fixed
income securities. Specifically:
* The Acquired Fund has an objective of maximizing total return
over the long term by allocating its assets principally among
common stocks, bonds, and short-term instruments. There are no
limitations on the proportions in which the Fund's investment
Adviser may allocate the Fund's investments among these three
classes of assets, and the Fund may at times be fully invested
in a single asset class if the Fund's investment Adviser
believes that it offers the most favorable total return
outlook.
* The Acquiring Fund has an objective of maximizing total return
(capital appreciation plus income). The Fund seeks to achieve
its objective by investing in a balanced portfolio of equity
securities and fixed income securities. Over the long term, it
is anticipated that the Fund's asset mix will average
approximately 60% equity securities and 40% fixed income
securities, with the asset mix normally ranging between 40%
and 75% equity securities, between 25% and 60% fixed income
securities, and between 0% and 25% money market instruments.
The investment policies of the Funds are similar in that both focus on
the allocation of assets among the same three asset categories. In addition,
although the investment restrictions and limitations of the Funds are also
substantially similar, they involve certain differences that reflect the
differences in the general investment policies utilized by the Funds as
described below.
While the Acquiring Fund's strategy is anticipated to consist of an
average asset mix over the long term of 60% equity securities and 40% fixed
income securities, the Acquired Fund's investment allocations (which, like the
Acquiring Fund's, may include short-term instruments) are allocated according to
the Adviser's judgment as to the most favorable total return outlook, without
regard to general guidelines as to the anticipated asset mix. In the case of the
Acquired Fund, asset allocation decisions are based on the Adviser's proprietary
quantitative model, which predicts future asset class returns based on
historical experience using probability theory.
With respect to the equity portion of the Funds' investment
allocations, the Acquiring Fund follows a strategy whereby, under normal market
conditions, the Fund invests at least 65% of its total assets in stocks
diversified among a broad range of industries and among companies that have a
market capitalization of at least $500 million. In selecting equity securities,
the Adviser employs a value-based selection discipline for the Acquiring Fund.
The equity portion of the Acquiring Fund's portfolio essentially mirrors the
holdings of FAIF's flagship Stock Fund. Within its equity asset class, the
Acquired Fund follows a strict indexing discipline which seeks to produce a
total return approximating that of the S&P 500. In order to achieve this result,
the Fund is managed by utilizing a computer program that identifies which stocks
should be purchased or sold in order to replicate, as closely as possible, the
composition of the S&P 500.
<PAGE>
With respect to the fixed income portion of the Funds' investment
allocations, the Acquiring Fund's portfolio (i) is invested in investment grade
securities, at least 65% of which are U.S. Government obligations and corporate
debt obligations and mortgage-related securities rated at least A by Standard &
Poor's or Moody's or which have been assigned an equivalent rating by another
nationally recognized statistical rating organization, and (ii) under normal
market conditions, has a weighted average maturity not exceeding 15 years. The
fixed income portion of the Acquiring Fund's portfolio essentially mirrors the
holdings of FAIF's Fixed Income Fund. In contrast to the Acquired Fund, the
Acquiring Fund may invest up to 15% of its total fixed income assets in foreign
securities payable in United States dollars. The Acquired Fund's fixed income
portfolio may consist of direct obligations of the United States Treasury, in
any maturity. The Adviser thus has discretion in determining the weighted
average maturity of the investments within this asset class of the Acquired
Fund.
Both Funds may hold cash or invest in cash items. The Acquiring
Fund may invest not more than 35% of its total assets in cash and cash items in
order to utilize assets awaiting normal reinvestment. In addition, both Funds
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) purchase securities on a when-issued or delayed-delivery basis; (iv)
engage in the lending of portfolio securities; and (v) in order to reduce risk,
invest in exchange traded put and call options on interest rate futures
contracts and on interest rate indices. In addition, the Acquiring Fund may
write covered call options covering up to 25% of the equity securities owned by
the Fund and write call options on stock indices related to such equity
securities, and in order to attempt to reduce risk, write covered call options
on interest rate indices. The Acquired Fund may also invest in interest rate and
stock index futures in order to manage allocations among asset classes
efficiently.
For a complete discussion of the investment objectives, policies and
restrictions of the respective Funds, see the Retail Class Prospectus and the
Institutional Class Prospectus accompanying this Prospectus/Proxy Statement and
the Statement of Additional Information referred to under "Incorporation by
Reference."
CAPITALIZATION
The following table shows the capitalization of the Acquired Fund and
of the Acquiring Fund as of June 30, 1997 and on a pro forma basis as of that
date, giving effect to the proposed Reorganization:
(In thousands, except per share values)
ACQUIRED ACQUIRING
FUND FUND PRO FORMA
---- ---- ---------
CLASS A SHARES
Net assets........................ $2,296 $29,798 $32,094
Net asset value per share......... $12.92 $14.93 $14.93
Shares outstanding................ 178 1,996 2,150
CLASS B SHARES
Net assets........................ $4,595 $36,974 $41,569
Net asset value per share......... $12.86 $14.87 $14.87
Shares outstanding................ 357 2,486 2,795
CLASS C SHARES
Net assets........................ $111,814 $399,382 $511,196
Net asset value per share......... $12.92 $14.95 $14.95
Shares outstanding................ 8,655 26,720 34,200
<PAGE>
VOTING INFORMATION
GENERAL
This Prospectus/Proxy Statement is furnished in connection with a
solicitation of proxies by the Board of Directors of FAIF to be used at the
Meeting of Acquired Fund shareholders to be held at 10:00 a.m., Eastern Time, on
October 31, 1997, at the offices of SEI Investments Company, Oaks, Pennsylvania
and at any adjournments thereof. This Prospectus/Proxy Statement, along with a
Notice of Special Meeting and a proxy card, is first being mailed to
shareholders of the Acquired Fund on or about September 16, 1997. Only
shareholders of record as of the close of business on September 2, 1997 (the
"Record Date") will be entitled to notice of, and to vote at, the Meeting or any
adjournment thereof. If the enclosed form of proxy is properly executed and
returned on time to be voted at the Meeting, the proxies named therein will vote
the shares represented by the proxy in accordance with the instructions marked
thereon. Unmarked proxies will be voted "for" the proposed Plan and
Reorganization. A proxy may be revoked by giving written notice, in person or by
mail, of revocation before the Meeting to FAIF at its principal executive
offices, Oaks, Pennsylvania 19456, or by properly executing and submitting a
later-dated proxy, or by voting in person at the Meeting.
If a shareholder executes and returns a proxy but abstains from voting,
the shares held by such shareholder will be deemed present at the Meeting for
purposes of determining a quorum and will be included in determining the total
number of votes cast. If a proxy is received from a broker or nominee indicating
that such person has not received instructions from the beneficial owner or
other person entitled to vote Acquired Fund shares (i.e., a broker "non-vote"),
the shares represented by such proxy will not be considered present at the
Meeting for purposes of determining a quorum and will not be included in
determining the number of votes cast. Brokers and nominees will not have
discretionary authority to vote shares for which instructions are not received
from the beneficial owner.
Approval of the Plan and Reorganization will require the affirmative
vote described above under "Information About the Reorganization --
Recommendation and Vote Required."
<PAGE>
As of September 2, 1997 (i) the Acquired Fund had the following numbers
of shares outstanding and entitled to vote at the Meeting: Class A, 177,094.3040
shares; Class B, 380,250.7630 shares; and Class C, 8,364,393.2120 shares; (ii)
the Acquiring Fund had the following numbers of shares outstanding: Class A,
2,022,375.7420 shares; Class B, 2,694,064.1860 shares; and Class C,
26,930,968.7160 shares; and (iii) the directors and officers of the respective
Funds as a group owned less than one percent of the outstanding shares of either
Fund or any class thereof. The following table sets forth information concerning
those persons known by the respective Funds to own of record or beneficially
more than 5% of the outstanding shares of either Fund or any class thereof
(including 25% holders) as of such date:
PERCENTAGE
NUMBER AND CLASS OWNERSHIP
NAME AND ADDRESS OF HOLDER OF SHARES OWNED OF CLASS
-------------------------- --------------- --------
ACQUIRED FUND:
Var & Co. ............................. 4,118,478.9840 49.24%
P.O. Box 64482 Class C*
St. Paul, MN 55164-0482
Var & Co. ............................. 2,808,372.6760 33.58%
P.O. Box 64482 Class C*
St. Paul, MN 55164-0482
First Trust National Association as.... 1,424,804.5400 17.03%
Fiduciary for First Trust Retirement Class C*
180 East 5th Street
St. Paul, MN 55101-1631
David A. Baumgarten.................... 13,436.2320 7.59%
1660 North Prospect Avenue Class A*
Apt. 2806
Milwaukee, WI 53202-2487
Miller Fashions, Inc................... 12,038.0150 6.80%
601 Shoreacres Dr. Class A*
Apt. 208
Fairmont, MN 56031-2244
ACQUIRING FUND:
Var & Co. ............................. 15,822,439.8540 58.75%
P.O. Box 64482 Class C*
St. Paul, MN 55164-0482
First Trust National Association....... 10,812,952.2730 40.15%
as Fiduciary for First Trust Retirement Class C*
180 East 5th Street
St. Paul, MN 55101-1631
* RECORD OWNERSHIP ONLY.
<PAGE>
Proxies are solicited by mail. Additional solicitations may be made by
telephone or personal contact by officers or employees of the Distributor and
its affiliates. The cost of solicitation will be born by the Adviser.
In the event that sufficient votes to approve the Plan and
Reorganization are not received by the date set for the Meeting, the persons
named as proxies may propose one or more adjournments of the Meeting for up to
120 days to permit further solicitation of proxies. In determining whether to
adjourn the Meeting, the following factors may be considered: the percentage of
votes actually cast, the percentage of negative votes actually cast, the nature
of any further solicitation and the information to be provided to shareholders
with respect to the reasons for the solicitation. Any such adjournment will
require the affirmative vote of a majority of the shares present in person or by
proxy and entitled to vote at the Meeting. The persons named as proxies will
vote upon such adjournment after consideration of the best interests of all
shareholders.
INTERESTS OF CERTAIN PERSONS
The following receive payments from the Acquired Fund and the Acquiring
Fund for services rendered pursuant to contractual arrangements with each of the
Funds: First Bank National Association, as the Adviser of each Fund, receives
payments for its investment advisory and management services; SEI Investments
Distribution Co., as the Distributor for each Fund, receives payments for
providing distribution services; SEI Investments Management Corporation, in its
capacity as the Administrator for each Fund, receives payments for providing
shareholder servicing, legal and accounting and other administrative personnel
and services; DST Systems, Inc., in its capacity as transfer and dividend
disbursing agent for each Fund, receives payments for providing transfer agency
and dividend disbursing services; and First Trust National Association, a
subsidiary of U.S. Bancorp, receives payments for providing custodial services
for each Fund, and may also act as securities lending agent in connection with
the Funds' securities lending transactions and receive, as compensation for such
services, fees based on a percentage of the Funds' income from such securities
lending transactions.
NO DISSENTERS' RIGHTS OF APPRAISAL
Under the Maryland General Corporation Law and Investment Company Act
Release No. 8752 (April 10, 1975), Acquired Fund shareholders are not entitled
to assert dissenters' rights of appraisal in connection with the Plan or
Reorganization.
FINANCIAL STATEMENTS AND EXPERTS
The audited statement of net assets of the Acquiring Fund and the
Acquired Fund as of September 30, 1996, and the related statement of operations
for the year then ended, changes in net assets for each of the years in the
two-year period then ended and the financial highlights for the periods
indicated therein, as included in the Statement of Additional Information of
FAIF dated January 31, 1997, have been incorporated by reference into this
Prospectus/Proxy Statement in reliance on the report of KPMG Peat Marwick LLP,
independent auditors for the Acquiring Fund, given on the authority of such firm
as experts in accounting and auditing. In addition, the unaudited financial
statements for the Acquiring Fund and the Acquired Fund for the six-month period
ending March 31, 1997, as included in the Semi-Annual Report of FAIF for the
six-month period ending March 31, 1997, are incorporated herein by reference.
LEGAL MATTERS
Certain legal matters concerning the issuance of the shares of the
Acquiring Fund to be issued in the Reorganization will be passed upon by Dorsey
& Whitney LLP, 220 South Sixth Street, Minneapolis, Minnesota 55402.
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
ASSET ALLOCATION FUND AND BALANCED FUND
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as
of this 1st day of September, 1997, by and between Class G (also known as
"Balanced Fund") (the "Acquiring Fund") of First American Investment Funds,
Inc., a Maryland corporation ("FAIF"), and Class F (also known as "Asset
Allocation Fund") (the "Acquired Fund") of FAIF. The shares of the Acquiring
Fund and the Acquired Fund designated in FAIF's amended and restated articles of
incorporation, as supplemented by articles supplementary thereto filed through
the date hereof, are referred to herein by the names set forth in Article V,
Section 3 of FAIF's bylaws, as follows:
Designation in Articles of
Incorporation or Articles Supplementary Name Assigned in Bylaws
--------------------------------------- -----------------------
Class G Common Shares..................... Balanced Fund, Class A
Class G, Series 2 Common Shares........... Balanced Fund, Class C
Class G, Series 3 Common Shares........... Balanced Fund, Class B
Class F Common Shares..................... Asset Allocation Fund, Class A
Class F, Series 2 Common Shares........... Asset Allocation Fund, Class C
Class F, Series 3 Common Shares........... Asset Allocation Fund, Class B
This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation pursuant to Sections 368(a)(1)(C) of the United
States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization (the "Reorganization") will consist of the consolidation of the
Acquired Fund with and into the Acquiring Fund by means of the exchange of
shares of common stock, par value $.0001 per share, of the Acquiring Fund (the
"Acquiring Fund Shares"), having an aggregate net asset value equal to the
aggregate net asset value of the Acquired Fund, for all of the issued and
outstanding shares of common stock, par value $.0001 per share, of the Acquired
Fund (the "Acquired Fund Shares"), all upon the terms and conditions hereinafter
set forth in this Agreement. The exchange of Acquiring Fund Shares for Acquired
Fund Shares will be effected pursuant to an amendment to FAIF's Articles of
Incorporation in the form attached hereto as Exhibit 1 (the "Amendment") to be
adopted in accordance with the Maryland General Corporation Law.
WITNESSETH:
WHEREAS, FAIF is a registered, open-end management investment company
that offers its shares of common stock in multiple series (each of which series
represents a separate and distinct portfolio of assets and liabilities);
WHEREAS, each of the Acquiring Fund and the Acquired Fund series of
FAIF offers Class A shares, Class B shares and Class C shares;
WHEREAS, the Acquired Fund owns securities which generally are assets
of the character in which the Acquiring Fund is permitted to invest;
WHEREAS, the Board of Directors of FAIF has determined that the
consolidation of the Acquired Fund with and into the Acquiring Fund by means of
the exchange of Class A, Class B and Class C Acquiring Fund Shares for all of
the issued and outstanding Class A, Class B and Class C Acquired Fund Shares,
respectively, on the basis set forth herein is in the best interests of the
Acquired Fund shareholders and the Acquiring Fund shareholders;
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. EXCHANGE OF SHARES; REALLOCATION OF ASSETS AND LIABILITIES
1.1 Subject to the requisite approval by the Acquired Fund shareholders
and to the other terms and conditions herein set forth and on the basis of the
representations and warranties contained herein,
<PAGE>
the Acquired Fund and the Acquiring Fund agree that at the Effective Time (as
defined in Section 3.1), (a) each issued and outstanding Class A Acquired Fund
Share shall be, without further action, exchanged for that number of Class A
Acquiring Fund Shares calculated in accordance with Article 2 hereof and the
Amendment; (b) each issued and outstanding Class B Acquired Fund Share shall be,
without further action, exchanged for that number of Class B Acquiring Fund
Shares calculated in accordance with Article 2 hereof and the Amendment; and (c)
each issued and outstanding Class C Acquired Fund Share shall be, without
further action, exchanged for that number of Class C Acquiring Fund Shares
calculated in accordance with Article 2 hereof and the Amendment.
1.2 (a) At the Effective Time, the assets and liabilities belonging to
the Acquired Fund and its respective classes shall become, without further
action, assets and liabilities belonging to the Acquiring Fund and its
respective classes, all in accordance with Article IV, Section 1(d)(i) and (ii)
of FAIF's amended and restated articles of incorporation. For purposes of the
foregoing, the terms "assets belonging to" and "liabilities belonging to" have
the meanings assigned to them in said Article IV, Section 1(d)(i) and (ii). Such
assets belonging to the Acquired Fund to become assets belonging to the
Acquiring Fund shall consist of all of Acquired Fund's property, including, but
not limited to, all cash, securities, commodities and futures interests and
dividends or interest receivable which are assets belonging to the Acquired Fund
as of the Effective Time. All of said assets shall be set forth in detail in an
unaudited statement of assets and liabilities of the Acquired Fund as of the
Effective Time (the "Effective Time Statement"). The Effective Time Statement
shall, with respect to the listing of the Acquired Fund's portfolio securities,
detail the adjusted tax basis of such securities by lot, the respective holding
periods of such securities and the current and accumulated earnings and profits
of the Acquired Fund. The Effective Time Statement shall be prepared in
accordance with generally accepted accounting principles (except for footnotes)
consistently applied.
(b) The Acquired Fund has provided the Acquiring Fund with a list of
all of the Acquired Fund's assets as of the date of execution of this Agreement.
The Acquired Fund reserves the right to sell any of these securities prior to
the Effective Time and to acquire additional securities in the ordinary course
of its business.
1.3 Pursuant to Section 1.2(a), at the Effective Time the liabilities,
expenses, costs, charges and reserves (including, but not limited to, expenses
incurred in the ordinary course of the Acquired Fund's operations, such as
accounts payable relating to custodian and transfer agency fees, investment
management and administrative fees, legal and audit fees, and expenses of state
securities registration of the Acquired Fund's shares) as reflected in the
Effective Time Statement shall become liabilities, expenses, costs, charges and
reserves of the Acquiring Fund.
1.4 At the Effective Time and pursuant to the plan of reorganization
adopted herein, the Acquiring Fund will issue and distribute (as provided in
Article 2) to the Acquired Fund or, at the direction of the Acquired Fund's
Board of Directors, to the Acquired Fund's shareholders of record, determined as
of the Effective Time (the "Acquired Fund Shareholders"), the Acquiring Fund
Shares issued in exchange for the Acquired Fund Shares pursuant to Section 1.1
and Article 2. Thereafter, no additional shares representing interests in the
Acquired Fund shall be issued, and the Acquired Fund shall be deemed to be
liquidated. Such distribution shall be accomplished by the issuance of such
Acquiring Fund Shares to open accounts on the share records of the Acquiring
Fund in the names of the Acquired Fund Shareholders representing the numbers and
classes of Acquiring Fund Shares due each such shareholder. All issued and
outstanding shares of the Acquired Fund will simultaneously be cancelled on the
books of the Acquired Fund, although from and after the Effective Time share
certificates representing interests in the Acquired Fund will represent those
numbers and classes of Acquiring Fund Shares as determined in accordance with
Article 2. Unless requested by Acquired Fund Shareholders, the Acquiring Fund
will not issue certificates representing the Acquiring Fund Shares in connection
with such exchange.
1.5 Ownership of Acquiring Fund Shares will be shown on the books of
the Acquiring Fund. Shares of the Acquiring Fund will be issued in the manner
described in the Acquiring Fund's Prospectuses and Statement of Additional
Information (in effect as of the Effective Time), except that no sales charges
will be incurred by the Acquired Fund Shareholders in connection with the
acquisition by the Acquired Fund Shareholders of Acquiring Fund Shares pursuant
to this Agreement.
<PAGE>
1.6 The Acquiring Fund agrees that in determining contingent deferred
sales charges applicable to Class B shares issued by it in the Reorganization
and the date upon which such shares convert to Class A shares, it shall give
credit for the period during which the holders thereof held the Class B shares
of the Acquired Fund in exchange for which such Acquiring Fund shares were
issued. In the event that Class A shares of the Acquiring Fund are distributed
in the Reorganization to former holders of Class A shares of the Acquired Fund
with respect to which the front-end sales charge was waived due to a purchase of
$1 million or more, the Acquiring Fund agrees that in determining whether a
deferred sales charge is payable upon the sale of such Class A shares of the
Acquiring Fund it shall give credit for the period during which the holder
thereof held such Acquired Fund shares.
1.7 Any reporting responsibility of the Acquired Fund, including, but
not limited to, the responsibility for filing of regulatory reports, tax
returns, or other documents with the Securities and Exchange Commission (the
"Commission"), any state securities commissions, and any federal, state or local
tax authorities or any other relevant regulatory authority, is and shall remain
the responsibility of the Acquired Fund.
2. EXCHANGE RATIOS; VALUATION; ISSUANCE OF ACQUIRING FUND SHARES
2.1 The net asset value per share of the Acquired Fund's and the
Acquiring Fund's Class A shares, Class B shares and Class C shares shall be
computed as of the Effective Time using the valuation procedures set forth in
FAIF's amended and restated articles of incorporation and bylaws and
then-current Prospectuses and Statement of Additional Information and as may be
required by the Investment Company Act of 1940, as amended (the "1940 Act").
2.2(a) The total number of the Acquiring Fund's Class A shares to be
issued (including fractional shares, if any) in exchange for the Acquired Fund's
Class A shares shall be determined as of the Effective Time by multiplying the
number of the Acquired Fund's Class A shares outstanding immediately prior to
the Effective Time times a fraction, the numerator of which is the net asset
value per share of the Acquired Fund's Class A shares immediately prior to the
Effective Time, and the denominator of which is the net asset value per share of
the Acquiring Fund's Class A shares immediately prior to the Effective Time,
each as determined pursuant to Section 2.1.
(b) The total number of the Acquiring Fund's Class B shares to be
issued (including fractional shares, if any) in exchange for the Acquired Fund's
Class B shares shall be determined as of the Effective Time by multiplying the
number of the Acquired Fund's Class B shares outstanding immediately prior to
the Effective Time times a fraction, the numerator of which is the net asset
value per share of the Acquired Fund's Class B shares immediately prior to the
Effective Time, and the denominator of which is the net asset value per share of
the Acquiring Fund's Class B shares immediately prior to the Effective Time,
each as determined pursuant to Section 2.1.
(c) The total number of the Acquiring Fund's Class C shares to be
issued (including fractional shares, if any) in exchange for the Acquired Fund's
Class C shares shall be determined as of the Effective Time by multiplying the
number of the Acquired Fund's Class C shares outstanding immediately prior to
the Effective Time times a fraction, the numerator of which is the net asset
value per share of the Acquired Fund's Class C shares immediately prior to the
Effective Time, and the denominator of which is the net asset value per share of
the Acquiring Fund's Class C shares immediately prior to the Effective Time,
each as determined pursuant to Section 2.1.
2.3 At the Effective Time, the Acquiring Fund shall issue and
distribute to the Acquired Fund Shareholders of the respective classes pro rata
within such classes (based upon the ratio that the number of Acquired Fund
shares of the respective classes owned by each Acquired Fund Shareholder
immediately prior to the Effective Time bears to the total number of issued and
outstanding Acquired Fund shares of the respective classes immediately prior to
the Effective Time) the full and fractional Acquiring Fund Shares of the
respective classes to be issued by the Acquiring Fund pursuant to Section 2.2.
Accordingly, each Class A Acquired Fund Shareholder shall receive, at the
Effective Time, Class A Acquiring Fund Shares with an aggregate net asset value
equal to the aggregate net asset value of the Class A Acquired Fund Shares owned
by such Acquired Fund Shareholder immediately prior to the Effective Time; each
Class B Acquired Fund Shareholder shall receive, at the Effective Time, Class B
Acquiring Fund Shares with an aggregate net asset value equal to the aggregate
net asset value of the
<PAGE>
Class B Acquired Fund Shares owned by such Acquired Fund Shareholder immediately
prior to the Effective Time; and each Class C Acquired Fund Shareholder shall
receive, at the Effective Time, Class C Acquiring Fund Shares with an aggregate
net asset value equal to the aggregate net asset value of the Class C Acquired
Fund Shares owned by such Acquired Fund Shareholder immediately prior to the
Effective Time.
3. EFFECTIVE TIME OF CLOSING
3.1 The closing of the transactions contemplated by this Agreement (the
"Closing") shall occur as of the close of normal trading on the New York Stock
Exchange (the "Exchange") (currently, 4:00 p.m. Eastern time) on the first day
upon which the conditions to closing shall have been satisfied, or at such time
on such later date as provided herein or as the parties otherwise may agree in
writing (such time and date being referred to herein as the "Effective Time").
All acts taking place at the Closing shall be deemed to take place
simultaneously as of the Effective Time unless otherwise agreed to by the
parties. The Closing shall be held at the offices of Dorsey & Whitney LLP, 220
South Sixth Street, Minneapolis, Minnesota 55402, or at such other place as the
parties may agree.
3.2 The custodian for the Acquiring Fund (the "Custodian") shall
deliver at the Closing a certificate of an authorized officer stating that it
holds the Acquired Fund's portfolio securities, cash, and any other assets being
allocated to the Acquiring Fund pursuant to this Agreement.
3.3 In the event that the Effective Time occurs on a day on which (a)
the Exchange or another primary trading market for portfolio securities of the
Acquiring Fund or the Acquired Fund shall be closed to trading or trading
thereon shall be restricted, or (b) trading or the reporting of trading on the
Exchange or elsewhere shall be disrupted so that accurate appraisal of the value
of the net assets of the Acquiring Fund or the Acquired Fund is impracticable,
the Effective Time shall be postponed until the close of normal trading on the
Exchange on the first business day when trading shall have been fully resumed
and reporting shall have been restored.
3.4 The Acquired Fund shall deliver at the Closing its certificate
stating that the records maintained by its transfer agent (which shall be made
available to the Acquiring Fund) contain the names and addresses of the Acquired
Fund Shareholders and the number of outstanding Acquired Fund shares owned by
each such shareholder as of the Effective Time. The Acquiring Fund shall certify
at the Closing that the Acquiring Fund Shares required to be issued by it
pursuant to this Agreement have been issued and delivered as required herein. At
the Closing, each party shall deliver to the other such bills of sale, liability
assumption agreements, checks, assignments, share certificates, if any, receipts
or other documents as such other party or its counsel may reasonably request.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS
4.1 The Acquired Fund represents, warrants and covenants to the
Acquiring Fund as follows:
(a) FAIF is a corporation duly organized, validly existing and in good
standing under the laws of the State of Maryland;
(b) FAIF is a registered investment company classified as a management
company of the open-end type, and its registration with the Commission as an
investment company under the 1940 Act, and of each series of shares offered by
FAIF under the Securities Act of 1933, as amended (the "1933 Act"), is in full
force and effect;
(c) Shares of the Acquired Fund are registered in all jurisdictions in
which they are required to be registered under applicable state securities laws
and any other applicable laws, and said registrations, including any periodic
reports or supplemental filings, are complete and current, and all fees required
to be paid have been paid, and the Acquired Fund is in good standing, is not
subject to any stop orders, and is fully qualified to sell its shares in any
state in which its shares have been registered;
(d) The Acquired Fund is not in violation, and the execution, delivery
and performance of this Agreement will not result in a violation, of FAIF's
amended and restated articles of incorporation or bylaws or of any material
agreement, indenture, instrument, contract, lease or other undertaking to which
the Acquired Fund is a party or by which it is bound;
<PAGE>
(e) No material litigation or administrative proceeding or
investigation of or before any court or governmental body is presently pending
or, to the Acquired Fund's knowledge, threatened against the Acquired Fund or
any of its properties or assets. The Acquired Fund is not a party to or subject
to the provisions of any order, decree or judgment of any court or governmental
body which materially and adversely affects its business or its ability to
consummate the transactions herein contemplated;
(f) The statement of assets and liabilities of the Acquired Fund as at
September 30, 1996 has been audited by KPMG Peat Marwick LLP, independent
accountants, and is in accordance with generally accepted accounting principles
consistently applied, and such statement (a copy of which has been furnished to
the Acquiring Fund) presents fairly, in all material respects, the financial
position of the Acquired Fund as at such date, and there are no known material
contingent liabilities of the Acquired Fund as at such date not disclosed
therein;
(g) Since September 30, 1996, there has not been any material adverse
change in the Acquired Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business, except
as otherwise disclosed to the Acquiring Fund. For the purposes of this paragraph
(g), a decline in net asset value per share of the Acquired Fund, the discharge
or incurrence of Acquired Fund liabilities in the ordinary course of business,
or the redemption of Acquired Fund shares by Acquired Fund Shareholders shall
not constitute such a material adverse change;
(h) All material federal and other tax returns and reports of the
Acquired Fund required by law to have been filed prior to the Effective Time
shall have been filed and shall be correct, and all federal and other taxes
shown as due or required to be shown as due on said returns and reports shall
have been paid or provision shall have been made for the payment thereof, and,
to the best of the Acquired Fund's knowledge, no such return is currently or
shall be under audit and no assessment shall have been asserted with respect to
such returns;
(i) For each taxable year of its operation, the Acquired Fund has met
the requirements of Subchapter M of the Code for qualification and treatment as
a regulated investment company, and the Acquired Fund intends to meet the
requirements of Subchapter M of the Code for qualification and treatment as a
regulated investment company for its final, partial taxable year;
(j) All issued and outstanding shares of the Acquired Fund are, and at
the Effective Time will be, duly and validly issued and outstanding, fully paid
and non-assessable. All of the issued and outstanding shares of the Acquired
Fund will, at the Effective Time, be held by the persons and in the amounts set
forth in the records of the Acquired Fund, as provided in Section 3.4. The
Acquired Fund does not have outstanding any options, warrants or other rights to
subscribe for or purchase any of the Acquired Fund shares, and there is not
outstanding any security convertible into any of the Acquired Fund shares;
(k) At the Effective Time, the Acquired Fund will have good and
marketable title to the Acquired Fund's assets to be allocated to the Acquiring
Fund pursuant to Section 1.2, and from and after the Effective Time the
Acquiring Fund will have good and marketable title thereto, subject to no
restrictions on the transfer thereof, including such restrictions as might arise
under the 1933 Act other than as disclosed to the Acquiring Fund in the
Effective Time Statement;
(l) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Effective Time by all necessary action on the
part of FAIF's Board of Directors, and, subject to the approval of the Acquired
Fund Shareholders, this Agreement will constitute a valid and binding obligation
of the Acquired Fund, enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance and other laws relating to or affecting creditors' rights and to the
application of equitable principles in any proceeding, whether at law or in
equity;
(m) The information to be furnished by the Acquired Fund for use in
registration statements, proxy materials and other documents which may be
necessary in connection with the transactions contemplated hereby shall be
accurate and complete in all material respects;
(n) All information pertaining to the Acquired Fund and its agents and
affiliates and included in the Registration Statement referred to in Section 5.5
(or supplied by the Acquired Fund, its agents or affiliates for inclusion in
said Registration Statement), on the effective date of said Registration
<PAGE>
Statement and up to and including the Effective Time, will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which such statements are made, not materially misleading
(other than as may timely be remedied by further appropriate disclosure);
(o) Since September 30, 1996, there have been no material changes by
the Acquired Fund in accounting methods, principles or practices, including
those required by generally accepted accounting principles, except as disclosed
in writing to the Acquiring Fund; and
(p) The Effective Time Statement will be prepared in accordance with
generally accepted accounting principles (except for footnotes) consistently
applied and will present accurately the assets and liabilities of the Acquired
Fund as of the Effective Time, and the values of the Acquired Fund's assets and
liabilities to be set forth in the Effective Time Statement will be computed as
of the Effective Time using the valuation procedures set forth in the Acquired
Fund's amended and restated articles of incorporation and bylaws and
then-current Prospectuses and Statement of Additional Information and as may be
required by the 1940 Act.
4.2 The Acquiring Fund represents, warrants and covenants to the
Acquired Fund as follows:
(a) FAIF is a corporation duly organized, validly existing and in good
standing under the laws of the State of Maryland;
(b) FAIF is a registered investment company classified as a management
company of the open-end type, and its registration with the Commission as an
investment company under the 1940 Act, and of each series of shares offered by
FAIF under the 1933 Act, is in full force and effect;
(c) At or before the Effective Time, shares of the Acquiring Fund
(including, but not limited to, the Acquiring Fund Shares) will be registered in
all jurisdictions in which they will be required to be registered under
applicable state securities laws and any other applicable laws (including, but
not limited to, all jurisdictions necessary to effect the Reorganization), and
said registrations, including any periodic reports or supplemental filings, will
be complete and current, and all fees required to be paid will have been paid,
and the Acquiring Fund will be in good standing, and will not be subject to any
stop orders, and will be fully qualified to sell its shares in any state in
which its shares will have been registered;
(d) The Prospectuses and Statement of Additional Information of the
Acquiring Fund, as of the date hereof and up to and including the Effective
Time, conform and will conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations of
the Commission thereunder and do not and will not include any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not materially misleading;
(e) The Acquiring Fund is not in violation, and the execution, delivery
and performance of this Agreement will not result in a violation, of FAIF's
amended and restated articles of incorporation or bylaws or of any material
agreement, indenture, instrument, contract, lease or other undertaking to which
the Acquiring Fund is a party or by which it is bound;
(f) No material litigation or administrative proceeding or
investigation of or before any court or governmental body is presently pending
or, to the Acquiring Fund's knowledge, threatened against the Acquiring Fund or
any of its properties or assets. The Acquiring Fund is not a party to or subject
to the provisions of any order, decree or judgment of any court or governmental
body which materially and adversely affects its business or its ability to
consummate the transactions herein contemplated;
(g) The statement of assets and liabilities of the Acquiring Fund as of
September 30, 1996 has been audited by KPMG Peat Marwick LLP, independent
accountants, and is in accordance with generally accepted accounting principles
consistently applied, and such statement (a copy of which has been furnished to
the Acquired Fund) presents fairly, in all material respects, the financial
position of the Acquiring Fund as at such date, and there are no known material
contingent liabilities of the Acquiring Fund as at such date not disclosed
therein;
(h) Since September 30, 1996, there has not been any material adverse
change in the Acquiring Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary
<PAGE>
course of business, except as otherwise disclosed to the Acquired Fund. For the
purposes of this paragraph (h), a decline in net asset value per share of the
Acquiring Fund, the discharge or incurrence of Acquiring Fund liabilities in the
ordinary course of business, or the redemption of Acquiring Fund Shares by
Acquiring Fund shareholders shall not constitute a material adverse change;
(i) All material federal and other tax returns and reports of the
Acquiring Fund required by law to have been filed prior to the Effective Time
shall have been filed and shall be correct, and all federal and other taxes
shown as due or required to be shown as due on said returns and reports shall
have been paid or provision shall have been made for the payment thereof, and to
the best of the Acquiring Fund's knowledge no such return is currently or shall
be under audit and no assessment shall have been asserted with respect to such
returns;
(j) For each taxable year of its operation, the Acquiring Fund has met
the requirements of Subchapter M of the Code for qualification and treatment as
a regulated investment company, and the Acquiring Fund intends to meet the
requirements of Subchapter M of the Code for qualification and treatment as a
regulated investment company in the current and future years;
(k) All issued and outstanding shares of the Acquiring Fund are, and at
Effective Time will be, duly and validly issued and outstanding, fully paid and
non-assessable;
(l) The Acquiring Fund Shares to be issued and delivered to the
Acquired Fund, for the account of the Acquired Fund Shareholders, pursuant to
the terms of this Agreement, at the Effective Time will have been duly
authorized and, when so issued and delivered, will be duly and validly issued
Acquiring Fund Shares and will be fully paid and non-assessable;
(m) The Acquiring Fund does not have outstanding any options, warrants
or other rights to subscribe for or purchase any of the Acquiring Fund Shares,
and there is not outstanding any security convertible into any of the Acquiring
Fund Shares (other than Class B shares which automatically convert to Class A
shares after a specified period);
(n) At the Effective Time, the Acquiring Fund will have good and
marketable title to the Acquiring Fund's assets;
(o) Since September 30, 1996, there have been no material changes by
the Acquiring Fund in accounting methods, principles or practices, including
those required by generally accepted accounting principles, except as disclosed
in writing to the Acquired Fund;
(p) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Effective Time by all necessary action on the
part of the Board of Directors of FAIF, as issuer of the Acquiring Fund Shares,
and this Agreement will constitute a valid and binding obligation of the
Acquiring Fund enforceable in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance and other laws relating to or affecting creditors' rights and to the
application of equitable principles in any proceeding, whether at law or in
equity. Consummation of the transactions contemplated by this Agreement does not
require the approval of the Acquiring Fund's shareholders;
(q) The information to be furnished by the Acquiring Fund for use in
registration statements, proxy materials and other documents which may be
necessary in connection with the transactions contemplated hereby shall be
accurate and complete in all material respects;
(r) Following the Reorganization, the Acquiring Fund shall determine
its net asset value per share in accordance with the valuation procedures set
forth in the Acquiring Fund's amended and restated articles of incorporation,
bylaws and Prospectuses and Statement of Additional Information (as the same may
be amended from time to time) and as may be required by the 1940 Act; and
(s) The Registration Statement referred to in Section 5.5, on its
effective date and up to and including the Effective Time, will (i) conform in
all material respects to the applicable requirements of the 1933 Act, the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and the 1940 Act
and the rules and regulations of the Commission thereunder, and (ii) not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which such statements were made, not materially
<PAGE>
misleading (other than as may timely be remedied by further appropriate
disclosure); provided, however, that the representations and warranties in
clause (ii) of this paragraph shall not apply to statements in (or omissions
from) the Registration Statement concerning the Acquired Fund.
5. FURTHER COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1 Each of the Acquired Fund and the Acquiring Fund will operate its
business in the ordinary course between the date hereof and the Effective Time,
it being understood that such ordinary course of business will include the
declaration and payment of customary dividends and distributions, and any other
distributions that may be advisable (which may include distributions prior to
the Effective Time of net income and/or net realized capital gains not
previously distributed).
5.2 The Acquired Fund will call a meeting of its shareholders to
consider and act upon this Agreement and to take all other action necessary to
obtain approval of the transactions contemplated herein.
5.3 The Acquired Fund will assist the Acquiring Fund in obtaining such
information as the Acquiring Fund reasonably requests concerning the beneficial
ownership of the Acquired Fund shares.
5.4 Subject to the provisions of this Agreement, the Acquiring Fund and
the Acquired Fund will each take, or cause to be taken, all actions, and do or
cause to be done, all things reasonably necessary, proper or advisable to
consummate and make effective the transactions contemplated by this Agreement.
5.5 The Acquired Fund will provide the Acquiring Fund with information
reasonably necessary with respect to the Acquired Fund and its agents and
affiliates for the preparation of the Registration Statement on Form N-14 of the
Acquiring Fund (the "Registration Statement"), in compliance with the 1933 Act,
the 1934 Act and the 1940 Act.
5.6 The Acquiring Fund agrees to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act, the 1940 Act and such
of the state blue sky or securities laws as may be necessary in order to conduct
its operations after the Effective Time.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of the Acquired Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder at or
before the Effective Time, and, in addition thereto, the following further
conditions (any of which may be waived by the Acquired Fund, in its sole and
absolute discretion):
6.1 All representations and warranties of the Acquiring Fund contained
in this Agreement shall be true and correct as of the date hereof and, except as
they may be affected by the transactions contemplated by this Agreement, as of
the Effective Time with the same force and effect as if made at such time; and
6.2 The Acquiring Fund shall have delivered to the Acquired Fund a
certificate executed in its name by its President or a Vice President, in a form
reasonably satisfactory to the Acquired Fund and dated as of the date of the
Closing, to the effect that the representations and warranties of the Acquiring
Fund made in this Agreement are true and correct at the Effective Time, except
as they may be affected by the transactions contemplated by this Agreement and
as to such other matters as the Acquired Fund shall reasonably request.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to complete the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquired Fund of all of the obligations to be performed by it hereunder at or
before the Effective Time and, in addition thereto, the following conditions
(any of which may be waived by the Acquiring Fund, in its sole and absolute
discretion):
7.1 All representations and warranties of the Acquired Fund contained
in this Agreement shall be true and correct as of the date hereof and, except as
they may be affected by the transactions contemplated by this Agreement, as of
the Effective Time with the same force and effect as if made at such time;
<PAGE>
7.2 The Acquiring Fund shall have received, and certified as to its
receipt of, the Effective Time Statement;
7.3 The Acquired Fund shall have delivered to the Acquiring Fund a
certificate executed in its name by its President or a Vice President, in form
and substance satisfactory to the Acquiring Fund and dated as of the date of the
Closing, to the effect that the representations and warranties of the Acquired
Fund made in this Agreement are true and correct at and as of the Effective
Time, except as they may be affected by the transactions contemplated by this
Agreement, and as to such other matters as the Acquiring Fund shall reasonably
request;
7.4 At or prior to the Effective Time, the Acquired Fund's investment
adviser, or an affiliate thereof, shall have paid or agreed to pay the Acquired
Fund an amount equal to the unamortized organizational expenses, if any, on the
books of the Acquired Fund, and such unamortized organizational expenses shall
not be reflected in the Effective Time Statement; and
7.5 At or prior to the Effective Time, the Acquired Fund's investment
adviser, or an affiliate thereof, shall have reimbursed or agreed to reimburse
the Acquired Fund by the amount, if any, that the expenses incurred by the
Acquired Fund (or accrued up to the Effective Time) exceed any applicable
contractual or state-imposed expense limitations.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND THE
ACQUIRED FUND
The following shall constitute further conditions precedent to the
consummation of the Reorganization:
8.1 This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
the Acquired Fund in accordance with the provisions of its amended and restated
articles of incorporation and bylaws and applicable law, and certified copies of
the resolutions evidencing such approval shall have been delivered to the
Acquiring Fund. Notwithstanding anything herein to the contrary, neither the
Acquiring Fund nor the Acquired Fund may waive the conditions set forth in this
Section 8.1;
8.2 FAIF shall have obtained such exemptive relief from the provisions
of Section 17 of the 1940 Act as may, in the view of its counsel, be required in
order to consummate the transactions contemplated hereby;
8.3 The Acquiring Fund's investment adviser shall have paid or agreed
to pay the costs incurred by FAIF in connection with the Reorganization,
including the fees and expenses associated with the preparation and filing of
the application for exemptive relief referred to in Section 8.2 above and the
Registration Statement referred to in Section 5.5 above, and the expenses of
printing and mailing the prospectus/proxy statement, soliciting proxies and
holding the shareholders meeting required to approve the transactions
contemplated by this Agreement;
8.4 As of the Effective Time, no action, suit or other proceeding shall
be threatened or pending before any court or governmental agency in which it is
sought to restrain or prohibit, or obtain damages or other relief in connection
with, this Agreement or the transactions contemplated herein;
8.5 All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities deemed necessary by
the Acquiring Fund or the Acquired Fund to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain any such consent, order or permit would not
involve a risk of a material adverse effect on the assets or properties of the
Acquiring Fund or the Acquired Fund, provided that either party hereto may for
itself waive any of such conditions;
8.6 The Registration Statement shall have become effective under the
1933 Act, and no stop orders suspending the effectiveness thereof shall have
been issued and, to the best knowledge of the parties hereto, no investigation
or proceeding for that purpose shall have been instituted or be pending,
threatened or contemplated under the 1933 Act;
8.7 The parties shall have received the opinion of Dorsey & Whitney LLP
addressed to the Acquired Fund and the Acquiring Fund, dated as of the date of
the Closing, and based in part on certain
<PAGE>
representations to be furnished by the Acquired Fund, the Acquiring Fund, and
their investment adviser and other service providers, substantially to the
effect that:
(i) the Reorganization will constitute a reorganization within the
meaning of Section 368(a)(1)(C) of the Code, and the Acquiring
Fund and the Acquired Fund each will qualify as a party to the
Reorganization under Section 368(b) of the Code;
(ii) the Acquired Fund Shareholders will recognize no income, gain
or loss upon receipt, pursuant to the Reorganization, of the
Acquiring Fund Shares. Acquired Fund Shareholders subject to
taxation will recognize income upon receipt of any net
investment income or net capital gains of the Acquired Fund
which are distributed by the Acquired Fund prior to the
Effective Time;
(iii) the tax basis of the Acquiring Fund Shares received by each
Acquired Fund Shareholder pursuant to the Reorganization will
be equal to the tax basis of the Acquired Fund Shares
exchanged therefor;
(iv) the holding period of the Acquiring Fund Shares received by
each Acquired Fund Shareholder pursuant to the Reorganization
will include the period during which the Acquired Fund
Shareholder held the Acquired Fund Shares exchanged therefor,
provided that the Acquired Fund shares were held as a capital
asset at the Effective Time;
(v) the Acquired Fund will recognize no income, gain or loss by
reason of the Reorganization;
(vi) the Acquiring Fund will recognize no income, gain or loss by
reason of the Reorganization;
(vii) the tax basis of the assets received by the Acquiring Fund
pursuant to the Reorganization will be the same as the basis
of those assets in the hands of the Acquired Fund as of the
Effective Time;
(viii) the holding period of the assets received by the Acquiring
Fund pursuant to the Reorganization will include the period
during which such assets were held by the Acquired Fund; and
(ix) the Acquiring Fund will succeed to and take into account the
earnings and profits, or deficit in earnings and profits, of
the Acquired Fund as of the Effective Time; and
8.8 The Amendment shall have been filed in accordance with the
applicable provisions of Maryland law.
9. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
9.1 The Acquiring Fund and the Acquired Fund agree that neither party
has made any representation, warranty or covenant not set forth herein and that
this Agreement constitutes the entire agreement between the parties.
9.2 The representations and warranties contained in this Agreement or
in any document delivered pursuant hereto or in connection herewith shall
survive the consummation of the transactions contemplated hereunder.
10. TERMINATION
This Agreement and the transactions contemplated hereby may be
terminated and abandoned by either party by resolution of FAIF's Board of
Directors at any time prior to the Effective Time, if circumstances should
develop that, in the good faith opinion of such Board, make proceeding with the
Agreement not in the best interest of the shareholders of the Acquired Fund or
the Acquiring Fund.
11. AMENDMENTS
This agreement may be amended, modified or supplemented in such manner
as may be mutually agreed upon in writing by the authorized officers of the
Acquired Fund and the Acquiring Fund;
<PAGE>
provided, however, that following the meeting of the Acquired Fund Shareholders
called by the Acquired Fund pursuant to Section 5.2 of this Agreement, no such
amendment may have the effect of changing the provisions for determining the
number of the Acquiring Fund Shares to be issued to the Acquired Fund
Shareholders under this Agreement to the detriment of such shareholders without
their further approval.
12. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be deemed duly given
if delivered or mailed by registered mail, postage prepaid, addressed to the
Acquiring Fund or the Acquired Fund, Oaks, Pennsylvania 19456, Attention:
President (with a copy to Dorsey & Whitney LLP, 220 South Sixth Street,
Minneapolis, Minnesota 55402, Attention: James D. Alt).
13. HEADINGS; COUNTERPARTS; ASSIGNMENT; MISCELLANEOUS
13.1 The Article and Section headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original and all of which together shall constitute
one and the same agreement.
13.3 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the prior written consent of the other party. Nothing herein
expressed or implied is intended or shall be construed to confer upon or give
any person, firm or corporation, other than the parties hereto and their
respective successors and assigns, any rights or remedies under or by reason of
this Agreement.
13.4 The validity, interpretation and effect of this Agreement shall
be governed exclusively by the laws of the State of Minnesota, without giving
effect to the principles of conflict of laws thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its President or a Vice President.
FIRST AMERICAN INVESTMENT FUNDS, INC.
on behalf of its
ASSET ALLOCATION FUND
By
----------------------------------
Kathryn L. Stanton, Vice President
FIRST AMERICAN INVESTMENT FUNDS, INC.
on behalf of its
BALANCED FUND
By
----------------------------------
Kathryn L. Stanton, Vice President
<PAGE>
EXHIBIT 1 TO AGREEMENT AND PLAN OF REORGANIZATION
ARTICLES OF AMENDMENT
TO
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
FIRST AMERICAN INVESTMENT FUNDS, INC.
The undersigned officer of First American Investment Funds, Inc. (the
"Corporation"), a Maryland corporation, hereby certifies that the following
amendments to the Corporation's Amended and Restated Articles of Incorporation
have been advised by the Corporation's Board of Directors and approved by the
Corporation's stockholders in the manner required by the Maryland General
Corporation Law:
WHEREAS, the Corporation is registered as an open end management
investment company (i.e., a mutual fund) under the Investment Company
Act of 1940 and offers its shares to the public in several classes,
each of which represents a separate and distinct portfolio of assets;
and
WHEREAS, it is desirable and in the best interests of the holders of
the Class F shares of the Corporation (also known as "Asset Allocation
Fund") that the assets belonging to such class be sold to a separate
portfolio of the Corporation which is known as "Balanced Fund" and
which is represented by the Corporation's Class G shares, in exchange
for shares of Balanced Fund which are to be delivered to former Asset
Allocation Fund holders; and
WHEREAS, Asset Allocation Fund and Balanced Fund have entered into an
Agreement and Plan of Reorganization providing for the foregoing
transactions; and
WHEREAS, the Agreement and Plan of Reorganization requires that, in
order to bind all holders of shares of Asset Allocation Fund to the
foregoing transactions, and in particular to bind such holders to the
exchange of their Asset Allocation Fund shares for Balanced Fund
shares, it is necessary to adopt an amendment to the Corporation's
Amended and Restated Articles of Incorporation.
NOW, THEREFORE, BE IT RESOLVED, that the Corporation's Amended and
Restated Articles of Incorporation be, and the same hereby are, amended
to add the following Article IV(B) immediately following Article IV
thereof:
ARTICLE IV(B). (a) For purposes of this Article IV(B), the
following terms shall have the following meanings:
"Corporation" means this corporation.
"Acquired Fund" means the Corporation's Asset Allocation Fund,
which is represented by the Corporation's Class F shares.
"Class A Acquired Fund Shares" means the Corporation's Class F
Common Shares.
"Class B Acquired Fund Shares" means the Corporation's Class
F, Series 3 Common Shares.
"Class C Acquired Fund Shares" means the Corporation's Class
F, Series 2 Common Shares.
"Acquiring Fund" means the Corporation's Balanced Fund, which
is represented by the Corporation's Class G shares.
"Class A Acquiring Fund Shares" means the Corporation's Class
G Common Shares.
"Class B Acquiring Fund Shares" means the Corporation's Class
G, Series 3 Common Shares.
"Class C Acquiring Fund Shares" means the Corporation's Class
G, Series 2 Common Shares.
"Effective Time" means 4:00 p.m. Eastern time on the date upon
which these Articles of Amendment are filed with the Maryland
State Department of Assessments and Taxation.
(b) At the Effective Time, the assets belonging to the Acquired Fund,
the liabilities belonging to the Acquired Fund, and the General Assets and
General Liabilities allocated to the Acquired Fund, shall
<PAGE>
become, without further action, assets belonging to the Acquiring Fund,
liabilities belonging to the Acquiring Fund, and General Assets and General
Liabilities allocated to the Acquiring Fund. For purposes of the foregoing, the
terms "assets belonging to," "liabilities belonging to," "General Assets" and
"General Liabilities" have the meanings assigned to them in Article IV, Section
1(d)(i) and (ii) of the Corporation's Amended and Restated Articles of
Incorporation.
(c) At the Effective Time, each issued and outstanding Acquired Fund
share shall be, without further action, exchanged for those numbers and classes
of Acquiring Fund shares calculated in accordance with paragraph (d) below.
(d) The numbers of Class A, Class B and Class C Acquiring Fund Shares
to be issued in exchange for the Class A, Class B and Class C Acquired Fund
Shares shall be determined as follows:
(i) The net asset value per share of the Acquired Fund's and
the Acquiring Fund's Class A Shares, Class B Shares and Class C Shares
shall be computed as of the Effective Time using the valuation
procedures set forth in the Corporation's articles of incorporation and
bylaws and then-current Prospectuses and Statement of Additional
Information and as may be required by the Investment Company Act of
1940, as amended (the "1940 Act").
(ii) The total number of Class A Acquiring Fund Shares to be
issued (including fractional shares, if any) in exchange for the Class
A Acquired Fund Shares shall be determined as of the Effective Time by
multiplying the number of Class A Acquired Fund Shares outstanding
immediately prior to the Effective Time times a fraction, the numerator
of which is the net asset value per share of Class A Acquired Fund
Shares immediately prior to the Effective Time, and the denominator of
which is the net asset value per share of the Class A Acquiring Fund
Shares immediately prior to the Effective Time, each as determined
pursuant to (i) above.
(iii) The total number of Class B Acquiring Fund Shares to be
issued (including fractional shares, if any) in exchange for the Class
B Acquired Fund Shares shall be determined as of the Effective Time by
multiplying the number of Class B Acquired Fund Shares outstanding
immediately prior to the Effective Time times a fraction, the numerator
of which is the net asset value per share of Class B Acquired Fund
Shares immediately prior to the Effective Time, and the denominator of
which is the net asset value per share of the Class B Acquiring Fund
Shares immediately prior to the Effective Time, each as determined
pursuant to (i) above.
(iv) The total number of Class C Acquiring Fund Shares to be
issued (including fractional shares, if any) in exchange for the Class
C Acquired Fund Shares shall be determined as of the Effective Time by
multiplying the number of Class C Acquired Fund Shares outstanding
immediately prior to the Effective Time times a fraction, the numerator
of which is the net asset value per share of Class C Acquired Fund
Shares immediately prior to the Effective Time, and the denominator of
which is the net asset value per share of the Class C Acquiring Fund
Shares immediately prior to the Effective Time, each as determined
pursuant to (i) above.
(v) At the Effective Time, the Acquired Fund shall issue and
distribute to the Acquired Fund shareholders of the respective classes
pro rata within such classes (based upon the ratio that the number of
Acquired Fund shares of the respective classes owned by each Acquired
Fund shareholder immediately prior to the Effective Time bears to the
total number of issued and outstanding Acquired Fund shares of the
respective classes immediately prior to the Effective Time) the full
and fractional Acquiring Fund shares of the respective classes issued
by the Acquiring Fund pursuant to (ii) through (iv) above. Accordingly,
each Class A Acquired Fund shareholder shall receive, at the Effective
Time, Class A Acquiring Fund Shares with an aggregate net asset value
equal to the aggregate net asset value of the Class A Acquired Fund
Shares owned by such Acquired Fund shareholder immediately prior to the
Effective Time; each Class B Acquired Fund shareholder shall receive,
at the Effective Time, Class B Acquiring Fund Shares with an aggregate
net asset value equal to the aggregate net asset value of the Class B
Acquired Fund Shares owned by such Acquired Fund shareholder
immediately prior to the Effective Time; and each Class C Acquired Fund
shareholder shall receive, at the Effective Time, Class C Acquiring
Fund Shares with an aggregate net asset value equal to the aggregate
net asset value of the Class C Acquired Fund Shares owned by such
Acquired Fund shareholder immediately prior to the Effective Time.
<PAGE>
(e) The distribution of Acquiring Fund shares to Acquired Fund
shareholders provided for in paragraphs (c) and (d) above shall be accomplished
by the issuance of such Acquiring Fund shares to open accounts on the share
records of the Acquiring Fund in the names of the Acquired Fund shareholders
representing the numbers and classes of Acquiring Fund shares due each such
shareholder pursuant to the foregoing provisions. All issued and outstanding
shares of the Acquired Fund shall simultaneously be cancelled on the books of
the Acquired Fund and retired. From and after the Effective Time, share
certificates formerly representing Acquired Fund shares shall represent the
numbers and classes of Acquiring Fund shares determined in accordance with the
foregoing provisions.
(f) From and after the Effective Time, the Acquired Fund shares
cancelled and retired pursuant to paragraph (e) above shall have the status of
authorized and unissued Class F common shares of the Corporation, without
designation as to series.
The undersigned officer of the Corporation hereby acknowledges, in the
name and on behalf of the Corporation, the foregoing Articles of Amendment to be
the corporate act of the Corporation and further certifies that, to the best of
his or her knowledge, information and belief, the matters and facts set forth
therein with respect to the approval thereof are true in all material respects,
under the penalties of perjury.
IN WITNESS WHEREOF, the Corporation has caused these Article of
Amendment to be signed in its name and on its behalf by its President or a Vice
President and witnessed by its Secretary or an Assistant Secretary on
______, 1997.
FIRST AMERICAN INVESTMENT FUNDS, INC
By
----------------------------------
Its
----------------------------------
WITNESS:
- ----------------------------------
Secretary
<PAGE>
PROSPECTUS/PROXY STATEMENT
SEPTEMBER 16, 1997
PROPOSED ACQUISITION OF ASSETS OF
ASSET ALLOCATION FUND
A SEPARATELY MANAGED SERIES OF
FIRST AMERICAN INVESTMENT FUNDS, INC.
BY AND IN EXCHANGE FOR SHARES OF
BALANCED FUND
A SEPARATELY MANAGED SERIES OF
FIRST AMERICAN INVESTMENT FUNDS, INC.
TABLE OF CONTENTS
PAGE
INCORPORATION BY REFERENCE.................................... 4
SUMMARY....................................................... 5
RISK FACTORS.................................................. 14
INFORMATION ABOUT THE REORGANIZATION.......................... 16
INFORMATION ABOUT THE ACQUIRED FUND AND THE ACQUIRING FUND.... 20
VOTING INFORMATION............................................ 23
FINANCIAL STATEMENTS AND EXPERTS.............................. 25
LEGAL MATTERS................................................. 26
EXHIBIT A -- AGREEMENT AND PLAN OF REORGANIZATION
The following documents accompany this Prospectus/Proxy Statement:
Equity Funds Retail Class Prospectus dated January 31, 1997, of First American
Investment Funds, Inc.
Equity Funds Institutional Class Prospectus dated January 31, 1997, of First
American Investment Funds, Inc.
Semi-Annual Report for the quarter ended March 31, 1997, of First American
Investment Funds, Inc.
Annual Report for the fiscal year ended September 30, 1996, of First American
Investment Funds, Inc.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
DATED SEPTEMBER 16, 1997
PROPOSED ACQUISITION OF ASSETS OF
ASSET ALLOCATION FUND
A SEPARATELY MANAGED SERIES OF
FIRST AMERICAN INVESTMENT FUNDS, INC.
OAKS, PENNSYLVANIA 19456
(800) 637-2548
BY AND IN EXCHANGE FOR SHARES OF
BALANCED FUND
A SEPARATELY MANAGED SERIES OF
FIRST AMERICAN INVESTMENT FUNDS, INC.
OAKS, PENNSYLVANIA 19456
(800) 637-2548
This Statement of Additional Information relates to the proposed
Agreement and Plan of Reorganization providing for (a) the acquisition of all of
the assets and the assumption of all liabilities of Asset Allocation Fund (the
"Acquired Fund"), a separately managed series of First American Investment
Funds, Inc. ("FAIF") by Balanced Fund (the "Acquiring Fund"), a separately
managed series of FAIF, in exchange for shares of common stock of the Acquiring
Fund having an aggregate net asset value equal to the aggregate value of the
assets acquired (less the liabilities assumed) of the Acquired Fund and (b) the
liquidation of the Acquired Fund and the pro rata distribution of the Acquiring
Fund shares to Acquired Fund shareholders. This Statement of Additional
Information consists of this cover page and the following documents, each of
which is incorporated by reference herein:
1. Statement of Additional Information of FAIF dated January 31,
1997, containing additional information concerning the Retail
Classes and the Institutional Class of both the Acquired Fund
and the Acquiring Fund.
2. Annual report of FAIF for the fiscal year ended September 30,
1996, relating to the Retail Classes and the Institutional
Class of both the Acquiring Fund and the Acquired Fund.
3. Semi-Annual report of FAIF for the six months ended March 31,
1997, relating to the Retail Classes and the Institutional
Class of both the Acquired Fund and the Acquiring Fund.
This Statement of Additional Information is not a prospectus. A
Prospectus/Proxy Statement dated September 16, 1997 relating to the
above-referenced transaction may be obtained without charge by writing or
calling the Acquired Fund or the Acquiring Fund at the addresses or telephone
numbers noted above. This Statement of Additional Information relates to, and
should be read in conjunction with, such Prospectus/Proxy Statement.
Note: In the SEC filing package, Items No. 2 and No. 3 referred to above are
included in Part A as materials to be delivered with the Prospectus/Proxy
Statement. A copy of Item No. 2 and No. 3 also will be delivered to any person
requesting the Statement of Additional Information.
<PAGE>
FIRST AMERICAN INVESTMENT FUNDS, INC.
BALANCED FUND
INTRODUCTION TO PRO FORMA COMBINING STATEMENTS
MARCH 31, 1997
The accompanying unaudited pro forma combining Statement of Assets and
Liabilities, Statement of Operations and Schedule of Investments, reflect the
accounts of First American Asset Allocation Fund (Asset Allocation) and the
First American Balanced Fund (Balanced).
These statements have been derived from the underlying accounting records for
Asset Allocation Fund and the Balanced Fund used in calculating net asset values
for the twelve-month period ended March 31, 1997. The pro forma combining
Statement of Operations have been prepared based upon the fee and expense
structure of the Balanced Fund.
Under the proposed merger agreement and plan of reorganization, all outstanding
shares of each class of the Asset Allocation Fund will be issued in exchange for
shares of the respective classes of the Balanced Fund.
<PAGE>
First American Investment Funds, Inc.
Balanced Fund
Pro Forma Combining Statement of Assets and Liabilities
03/31/97
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma
Asset Adjustments Pro Forma
Allocation Balanced (Note 2) Combined
(000) (000) (000) (000)
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Assets:
Total Investments (Cost $106,192,
$366,983 and $473,175,
respectively) $ 116,351 $ 407,221 $ 0 $ 523,572
Receivables:
Accrued Income 863 2,230 0 3,093
Investment Securities Sold 0 1,339 0 1,339
Capital Shares Sold 58 950 0 1,008
Other Assets 5 12 0 17
--------- --------- --------- ---------
Total Assets 117,277 411,752 0 529,029
--------- --------- --------- ---------
Liabilities:
Payables
Investment Securities Purchased 0 1,347 0 1,347
Capital Shares Redeemed 65 3,455 0 3,520
Accrued Expenses 92 340 0 432
--------- --------- --------- ---------
Total Liabilities 157 5,142 0 5,299
--------- --------- --------- ---------
Net Assets applicable to:
Balanced Institutional Class
($.0001 par value - 2 billion authorized)
based on 26,561,092 and 34,910,804
outstanding shares, respectively 0 302,576 90,963 (a) 393,539
Balanced Class A
($.0001 par value - 2 billion authorized)
based on 1,878,029 and 2,042,627
outstanding shares, respectively 0 21,109 2,073 (a) 23,182
Balanced Class B
($.0001 par value - 2 billion authorized)
based on 2,066,266 and 2,339,300
outstanding shares, respectively 0 26,508 3,606 (a) 30,114
Asset Allocation Institutional Class
($.0001 par value - 2 billion authorized)
based on 9,371,396 outstanding shares 90,963 0 (90,963)(a) 0
Asset Allocation Class A
($.0001 par value - 2 billion authorized)
based on 184,549 outstanding shares 2,073 0 (2,073)(a) 0
Assset Allocation Class B
($.0001 par value - 2 billion authorized)
based on 306,500 outstanding shares 3,606 0 (3,606)(a) 0
Undistributed net investment income 122 184 0 306
Accumulated net realized gain
on investments 10,197 15,995 0 26,192
Net unrealized appreciation
of investments 10,159 40,238 0 50,397
--------- --------- --------- ---------
$ 117,120 $ 406,610 $ 0 $ 523,730
========= ========= ========= =========
Total Net Assets
Net Asset Value,
offering price and redemption price per share -
Institutional Class $ 11.88 $ 13.33 $ 13.33
========= ========= =========
Net Asset Value
and redemption price per share - Class A $ 11.88 $ 13.32 $ 13.32
========= ========= =========
Net Asset Value
and offering price per share - Class B $ 11.83 $ 13.28 $ 13.28
========= ========= =========
</TABLE>
See accompanying notes to financial statements
<PAGE>
First American Investment Funds, Inc.
Balanced Fund
Pro Forma Combining Statement of Operations
For the Year Ended March 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Adjustments
Asset (Note 2) Pro Forma
Allocation Balanced Debit Credit Combined
(000) (000) (000) (000) (000)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Investment Income:
Interest $ 1,395 $ 8,025 $ 0 $ 0 $ 9,420
Dividends 648 3,332 0 0 3,980
-------- -------- -------- -------- --------
Total investment income 2,043 11,357 0 0 13,400
-------- -------- -------- -------- --------
Expenses:
Investment advisory fees 369 1,936 0 0 2,305
Waiver of investment advisory fees (128) (255) 24(b) 0 (359)
Administrative fees 63 329 0 0 392
Transfer agent fees 28 59 0 10(c) 77
Amortization of organizational costs 5 5 0 (5)(c) 5
Custodian fees 61 18 0 0 79
Directors' fees 2 9 0 0 11
Registration fees 7 54 0 5(c) 56
Professional fees 5 26 0 1(c) 30
Printing 3 18 0 1(c) 20
Distribution fees - Retail Class A 3 44 0 0 47
Distribution fees - Retail Class B 15 83 0 0 98
Other 3 13 0 2(c) 14
-------- -------- -------- -------- --------
Net expenses 436 2,339 24 24 2,775
-------- -------- -------- -------- --------
Net investment income 1,607 9,018 (24) (24) 10,625
-------- -------- -------- -------- --------
Net Realized and Unrealized Gains (Losses) on Investments
and Foreign Currency Transactions
Net realized gain on Investments 4,611 13,465 0 0 18,076
Net change in unrealized appreciation (depreciation) of investments (125) 18,484 0 0 18,359
-------- -------- -------- -------- --------
Net Gain on Investments 4,486 31,949 0 0 36,435
======== ======== ======== ======== ========
Net Increase in Net Assets Resulting from Operations $ 6,093 $ 40,967 ($ 24) ($ 24) $ 47,060
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
FIRST AMERICAN INVESTMENT FUNDS, INC.
BALANCED FUND
NOTES TO PRO FORMA STATEMENTS
(UNAUDITED)
1. BASIS OF COMBINATION
The unaudited pro forma combining Statement of Assets and Liabilities, Statement
of Operations and Schedule of Investments, give effect to the proposed merger of
the First American Asset Allocation Fund (Asset Allocation) with the First
American Balanced Fund (Balanced). The proposed merger will be accounted for by
the method of accounting for tax free mergers of investment companies (sometimes
referred to as the pooling without restatement method). The acquisition will be
accomplished by an exchange of all outstanding shares of each class for Asset
Allocation Fund in exchange for shares of the respective classes of the Balanced
Fund.
The pro forma combining schedule of investments does not reflect any changes
which could occur before or after the acquisition closing date due to changes in
market conditions or differences in investment management practices of Balanced
compared with the Asset Allocation. However, aside from portfolio decisions made
as a result of market condition changes that have or may occur between the date
of the pro forma financial statements and the acquisition closing date,
management does not have any specific plans at this time regarding the
disposition of investments presented in the pro forma schedule of investments
that would have a material impact on the presentation of such schedule.
The pro forma combining statements should be read in conjunction with the
historical financial statements of the constituent funds and the notes thereto
incorporated by reference in the Statement of Additional Information.
Asset Allocation Fund and Balanced Fund are portfolios offered by First American
Investment Funds, Inc. (FAIF) a diversified, open-end, management investment
company registered under the Investment Company Act of 1940, as amended. FAIF
presently includes a series of twenty funds.
2. PRO FORMA ADJUSTMENTS
(a) The pro forma combining statements of assets and liabilities
assumes the issuance of additional shares of the Fund as if
the reorganization were to have taken place on March 31, 1997
and is based on the net asset value of the acquiring fund.
Transactions in shares of capital stock are as follows:
184,529, 306,500 and 9,371,396 Class A, Class B and
Institutional Class shares, respectively, of Asset Allocation
Fund exchanged for 164,598, 273,034 and 8,349,712 Class A,
Class B and Institutional Class shares, respectively, of
Balanced Fund.
(b) The pro forma adjustments to the waiver of investment advisory
fees reflect the fact that First Bank National Association
(FBNA) has agreed to waive fees and reimburse expenses through
September 30, 1998, to the extent necessary to maintain
overall total Fund operating expense ratios at
<PAGE>
the pro forma expense levels of 1.05%, 1.80% and 0.80% for
Class A, Class B and Institutional Class shares, respectively.
(c) The pro forma adjustments to transfer agent fees, registration
fees, professional fees, printing expenses and other expenses
reflect the expected savings due to the combination of the
Funds. The pro forma adjustment to amortization of
organization costs reflects the elimination of any remaining
unamortized organization costs included as assets on the books
of Asset Allocation during the period.
<PAGE>
First American Investment Funds, Inc.
Balanced Fund
Pro Forma Combining Schedule of Investments
03/31/97
(Unaudited)
<TABLE>
<CAPTION>
Par/Shares Value
---------- -----
Asset Pro Forma Asset Pro Forma
Balanced Allocation Combined Balanced Allocation Combined
(000) (000) (000) Security Maturity (000) (000) (000)
----- ----- ----- -------- -------- ----- ----- -----
COMMON STOCKS - 48.1% (Percentages represent pro forma value of investments compared to pro forma net assets)
AEROSPACE & DEFENSE - 0.7%
<S> <C> <C> <C> <C> <C> <C>
0 1,404 1,404 LOCKHEED MARTIN $ 0 $ 118 $ 118
71,800 1,700 73,500 RAYTHEON CO 3,240 77 3,317
---------------------------------------
TOTAL AEROSPACE &
DEFENSE 3,240 195 3,435
---------------------------------------
AGRICULTURE - 0.0%
0 600 600 PIONEER HI-BRED INTL INC 0 38 38
---------------------------------------
AIR TRANSPORTATION - 0.1%
0 700 700 AMR CORP. 0 58 58
0 500 500 DELTA AIRLINES INC 0 42 42
0 800 800 FEDERAL EXPRESS CORP 0 42 42
0 1,100 1,100 SOUTHWEST AIRLINES CO 0 24 24
0 500 500 US AIRWAYS GROUP 0 12 12
---------------------------------------
TOTAL AIR TRANSPORTATION 0 178 178
---------------------------------------
AIRCRAFT - 0.1%
0 2,100 2,100 ALLIED SIGNAL INC 0 150 150
0 2,596 2,596 BOEING CO 0 256 256
0 500 500 GENERAL DYNAMICS CORP 0 34 34
0 1,500 1,500 MCDONNELL DOUGLAS CORP 0 91 91
0 400 400 NORTHROP CORP 0 30 30
0 600 600 TEXTRON INC 0 63 63
0 1,800 1,800 UNITED TECHNOLOGIES 0 135 135
---------------------------------------
TOTAL AIRCRAFT 0 759 759
---------------------------------------
APPAREL/ TEXTILES - 0.0%
0 600 600 FRUIT OF THE LOOM CL A 0 25 25
0 500 500 LIZ CLAIBORNE INC 0 22 22
0 300 300 RUSSELL CORP 0 11 11
0 100 100 SPRINGS INDS INC 0 4 4
0 500 500 V F CORP 0 33 33
---------------------------------------
TOTAL APPAREL/ TEXTILES 0 95 95
---------------------------------------
AUTOMOTIVE - 1.1%
0 5,300 5,300 CHRYSLER CORP 0 159 159
0 700 700 DANA CORP. 0 23 23
0 600 600 EATON CORP 0 43 43
0 500 500 ECHLIN INC 0 17 17
0 300 300 FLEETWOOD ENTERPRISES 0 7 7
0 8,600 8,600 FORD MOTOR COMPANY 0 270 270
89,800 5,500 95,300 GENERAL MOTORS CORP 4,973 305 5,278
0 500 500 NAVISTAR INTL CORP 0 5 5
0 300 300 PACCAR INC 0 20 20
0 900 900 TRW INC 0 47 47
---------------------------------------
TOTAL AUTOMOTIVE 4,973 896 5,869
---------------------------------------
See accompanying notes to financial statements.
<PAGE>
BANKS - 3.5%
0 800 800 AHMANSON H F & CO $ 0 $ 29 $ 29
0 3,077 3,077 BANC ONE 0 122 122
0 2,900 2,900 BANK NEW YORK INC 0 107 107
69,800 1,100 70,900 BANK OF BOSTON CORP 4,677 74 4,751
0 2,600 2,600 BANKAMERICA CORP 0 262 262
0 600 600 BANKERS TRUST N.Y. CORP. 0 49 49
0 1,400 1,400 BARNETT BANKS INC 0 65 65
54,600 3,208 57,808 CHASE MANHATTAN NEW 5,112 300 5,412
44,400 3,400 47,800 CITICORP 4,806 368 5,174
0 800 800 COMERICA INC 0 45 45
0 1,600 1,600 CORESTATES FIN. CORP. 0 76 76
0 800 800 FIFTH THIRD BANK 0 62 62
0 1,000 1,000 FIRST BANK SYSTEM INC 0 73 73
0 2,353 2,353 FIRST CHICAGO NBD 0 127 127
0 2,120 2,120 FIRST UNION CORP 0 172 172
0 1,894 1,894 FLEET FINANCIAL GROUP 0 108 108
0 400 400 GOLDEN WEST FINANCIAL 0 25 25
0 1,000 1,000 GREAT WESTERN FINANCIAL 0 40 40
0 1,600 1,600 KEYCORP 0 78 78
0 2,400 2,400 MBNA CORP 0 67 67
0 900 900 MELLON BANK 0 65 65
0 1,400 1,400 MORGAN J P & CO 0 138 138
0 1,600 1,600 NATIONAL CITY CORP. 0 75 75
0 5,656 5,656 NATIONSBANK CORP 0 313 313
0 2,700 2,700 NORWEST CORP. 0 125 125
0 2,500 2,500 PNC BANK CORP 0 100 100
0 400 400 REPUBLIC NEW YORK CORP 0 35 35
0 1,600 1,600 SUNTRUST BANKS 0 74 74
0 1,100 1,100 US BANCORP OREGON 0 59 59
0 1,200 1,200 WACHOVIA CORP NEW 0 65 65
0 699 699 WELLS FARGO & CO 0 199 199
---------------------------------------
TOTAL BANKS 14,595 3,497 18,092
---------------------------------------
BEAUTY PRODUCTS - 0.2%
0 400 400 ALBERTO CULVER CLASS B 0 10 10
0 1,000 1,000 AVON PRODS INC. 0 52 52
0 1,100 1,100 COLGATE PALMOLIVE CO. 0 110 110
0 500 500 ECOLAB INC 0 19 19
0 800 800 INTERNATIONAL FLAVORS 0 35 35
0 5,000 5,000 PROCTER & GAMBLE CO 0 575 575
---------------------------------------
TOTAL BEAUTY PRODUCTS 0 801 801
---------------------------------------
BROADCASTING, NEWSPAPERS & ADVERTISING - 0.1%
0 2,400 2,400 COMCAST SPECIAL A 0 40 40
0 600 600 INTERPUBLIC GROUP 0 32 32
0 2,593 2,593 VIACOM INC CLASS B 0 86 86
0 4,800 4,800 TELE-COMMUNICATIONS INC 0 58 58
---------------------------------------
TOTAL BROADCASTING,
NEWSPAPERS & ADVERTISING 0 216 216
---------------------------------------
BUILDING & CONSTRUCTION - 0.0%
0 200 200 CENTEX CORP. 0 7 7
0 600 600 FLUOR CORP 0 31 31
0 300 300 FOSTER WHEELER CORP 0 11 11
See accompanying notes to financial statements.
<PAGE>
BUILDING & CONSTRUCTION (CONTINUED)
0 900 900 HALLIBURTON CO $ 0 $ 61 $ 61
0 300 300 KAUFMAN & BROAD HOME CORP 0 4 4
0 200 200 PULTE CORP 0 6 6
0 400 400 OWENS CORNING 0 16 16
---------------------------------------
TOTAL BUILDING & CONSTRUCTION 0 136 136
---------------------------------------
CHEMICALS - 2.1%
0 800 800 AIR PROD & CHEM INC. 0 54 54
0 1,800 1,800 DOW CHEMICAL CO 0 144 144
0 4,100 4,100 DUPONT E I DE NEMOURS 0 435 435
0 600 600 EASTMAN CHEMICAL CO 0 32 32
0 300 300 FMC CORP 0 18 18
81,000 600 81,600 GRACE W.R. & CO 3,837 28 3,865
0 500 500 GREAT LAKES CHEMICAL 0 23 23
19,800 700 20,500 HERCULES INC. 837 30 867
0 4,300 4,300 MONSANTO COMPANY 0 164 164
0 1,000 1,000 MORTON INTERNATIONAL 0 42 42
0 500 500 NALCO CHEMICAL COMPANY 0 19 19
0 91,700 1,300 PPG INDUSTRIES 4,952 70 5,022
0 1,100 1,100 PRAXAIR INC 0 49 49
0 500 500 ROHM & HAAS CO. 0 37 37
0 900 900 UNION CARBIDE CORP 0 40 40
---------------------------------------
TOTAL CHEMICALS 9,626 1,185 10,811
---------------------------------------
COMMUNICATIONS EQUIPMENT - 1.0%
0 675 675 ANDREW CORP 0 24 24
0 900 900 DSC COMMUNICATIONS CO. 0 19 19
0 1,000 1,000 GENERAL INSTRUMENT CORP 0 23 23
0 400 400 GENERAL SIGNAL CORP 0 16 16
0 300 300 HARRIS CORP DEL 0 23 23
0 900 900 ITT INDUSTRIES INC 0 20 20
76,700 4,300 81,000 MOTOROLA INC 4,468 260 4,728
0 1,900 1,900 NORTHERN TELECOM LTD 0 124 124
0 600 600 SCIENTIFIC ATLANTA INC. 0 9 9
0 1,300 1,300 TELLABS INC 0 47 47
--------------------------------------
TOTAL COMMUNICATIONS EQUIPMENT 4,468 565 5,033
--------------------------------------
COMPUTERS & SERVICES - 2.9%
0 900 900 AMDAHL CORP 0 8 8
0 900 900 APPLE COMPUTERS 0 16 16
0 1,400 1,400 BAY NETWORKS INC 0 25 25
0 1,100 1,100 CABLETRON SYSTEM INC. 0 32 32
0 500 500 CERIDIAN CORP 0 18 18
57,100 2,000 59,100 COMPAQ COMPUTERS 4,375 153 4,528
0 300 300 DATA GENERAL CORP. 0 5 5
0 1,300 1,300 DELL COMPUTER CORP 0 88 88
0 1,100 1,100 DIGITAL EQUIPMENT 0 30 30
0 1,700 1,700 EMC CORPORATION 0 60 60
0 7,400 7,400 HEWLETT PACKARD CO 0 394 394
41,900 3,800 45,700 IBM CORPORATION 5,756 522 6,278
0 300 300 INTERGRAPH CORP 0 2 2
0 1,100 1,100 PITNEY BOWES INC 0 65 65
0 1,800 1,800 SEAGATE TECHNOLOGY 0 81 81
0 1,288 1,288 SILICON GRAPHICS 0 25 25
0 900 900 TANDEM COMPUTERS 0 11 11
0 400 400 TANDY CORP. 0 20 20
0 1,300 1,300 UNISYS CORP 0 8 8
64,400 0 64,400 US ROBOTICS 3,566 0 3,566
---------------------------------------
TOTAL COMPUTERS & SERVICES 13,697 1,563 15,260
---------------------------------------
See accompanying notes to financial statements.
<PAGE>
CONSUMER PRODUCTS - 0.7%
0 400 400 STRIDE RITE CORP $ 0 $ 6 $ 6
105,300 500 105,800 TUPPERWARE CORP 3,528 17 3,545
---------------------------------------
TOTAL CONSUMER PRODUCTS 3,528 23 3,551
---------------------------------------
CONTAINERS & PACKAGING - 0.6%
120,700 200 120,900 BALL CORP 3,199 5 3,204
0 98,700 0 EMIS 3,948 - 3,948
0 900 900 CROWN CORK & SEAL INC 0 46 46
0 1,200 1,200 NEWELL COMPANY 0 40 40
---------------------------------------
TOTAL CONTAINERS &
PACKAGING 7,147 91 7,238
---------------------------------------
DRUGS - 3.0%
0 5,700 5,700 ABBOTT LABS 0 320 320
0 500 500 ALLERGAN INC 0 15 15
0 600 600 ALZA CORP 0 16 16
84,100 4,700 88,800 AMERICAN HOME PRODUCTS 5,046 282 5,328
0 1,900 1,900 AMGEN INC. 0 106 106
63,600 7,600 71,200 BRISTOL-MYERS SQUIBB CO 3,752 448 4,200
0 9,700 9,700 JOHNSON & JOHNSON 0 513 513
0 4,044 4,044 LILLY ELI & CO 0 333 333
0 8,800 8,800 MERCK & CO 0 741 741
83,300 3,725 87,025 PHARMACIA & UPJOHN 3,051 136 3,187
0 4,700 4,700 PFIZER 0 395 395
0 2,700 2,700 SCHERING PLOUGH CORP 0 196 196
0 2,000 2,000 WARNER LAMBERT CO 0 173 173
---------------------------------------
TOTAL DRUGS 11,849 3,674 15,523
---------------------------------------
ELECTRICAL SERVICES - 0.2%
0 1,400 1,400 AMERICAN ELEC PWR INC 0 58 58
0 1,100 1,100 BALTIMORE GAS & ELEC. 0 29 29
0 1,100 1,100 CAROLINA POWER & LIGHT 0 40 40
0 1,500 1,500 CENTRAL & SOUTH WEST CORP 0 32 32
0 1,111 1,111 CINERGY CORP 0 38 38
0 1,700 1,700 CONSOLIDATED EDISON 0 51 51
0 1,300 1,300 DOMINION RESOURCES 0 47 47
0 1,100 1,100 DTE ENERGY COMPANY 0 30 30
0 1,500 1,500 DUKE ENERGY CORP 0 66 66
0 3,200 3,200 EDISON INTERNATIONAL 0 72 72
0 1,700 1,700 ENTERGY CORP 0 42 42
0 1,300 1,300 FPL GROUP INC 0 57 57
0 900 900 GPU, INC 0 29 29
0 1,700 1,700 HOUSTON INDS INC 0 35 35
0 1,100 1,100 NIAGARA MOHAWK PWR CO 0 9 9
0 500 500 NORTHERN STATES POWER 0 24 24
0 1,100 1,100 OHIO EDISON CO. 0 23 23
0 2,200 2,200 PACIFICORP 0 47 47
0 1,600 1,600 PECO ENERGY COMPANY 0 33 33
0 3,000 3,000 PG&E CORP 0 70 70
0 1,200 1,200 PP&L RESOURCES INC. 0 24 24
0 1,700 1,700 PUBLIC SERVICE ENTERPRISE 0 45 45
0 300 300 RAYCHEM CORP. 0 25 25
0 4,900 4,900 SOUTHERN CO 0 104 104
0 1,600 1,600 TEXAS UTILITIES 0 55 55
0 400 400 THOMAS & BETTS CORP 0 17 17
0 1,600 1,600 UNICOM CORPORATION 0 31 31
0 700 700 UNION ELECTRIC 0 26 26
---------------------------------------
TOTAL ELECTRICAL SERVICES 0 1,159 1,159
---------------------------------------
See accompanying notes to financial statements.
<PAGE>
ENTERTAINMENT - 0.1%
0 4,900 4,900 WALT DISNEY CO $ 0 $ 358 $ 358
0 750 750 HARRAH'S ENTERTAINMENT 0 13 13
0 300 300 KING WORLD PRODUCTIONS 0 11 11
---------------------------------------
TOTAL ENTERTAINMENT 0 382 382
---------------------------------------
ENVIRONMENTAL SERVICES - 0.0%
0 1,600 1,600 BROWNING-FERRIS INDS 0 46 46
0 2,300 2,300 LAIDLAW INC, CL B 0 32 32
0 3,500 3,500 WMX TECHNOLOGIES INC 0 107 107
---------------------------------------
TOTAL ENVIRONMENTAL SERVICES 0 185 185
---------------------------------------
FINANCIAL SERVICES - 0.8%
0 3,500 3,500 AMERICAN EXPRESS CO 0 210 210
0 400 400 BENEFICIAL 0 26 26
0 800 800 BLOCK H&R, INC 0 23 23
0 2,392 2,392 DEAN WITTER DISCOVER & CO 0 83 83
0 8,000 8,000 FANNIE MAE 0 289 289
0 5,200 5,200 FEDERAL HOME LOAN 0 142 142
0 1,000 1,000 GREEN TREE FINANCIAL 0 34 34
35,600 700 36,300 HOUSEHOLD INTL CORP 3,057 60 3,117
0 900 900 ITT HARTFORD GROUP INC 0 65 65
0 1,200 1,200 MERRILL LYNCH & CO 0 103 103
0 1,100 1,100 MORGAN STANLEY GROUP 0 65 65
0 800 800 SALOMON, INC 0 40 40
0 485 485 TRANSAMERICA CORP. 0 43 43
---------------------------------------
TOTAL FINANCIAL SERVICES 3,057 1,183 4,240
----------------------------------------
FOOD, BEVERAGE & TOBACCO - 3.7%
0 1,200 1,200 AMERICAN BRANDS 0 61 61
0 3,600 3,600 ANHEUSER BUSCH CO INC 0 152 152
0 3,937 3,937 ARCHER DANIELS MIDLAND 0 70 70
0 500 500 BROWN-FORMAN CORP CL. B 0 24 24
0 1,000 1,000 CPC INT'L 0 82 82
0 3,400 3,400 CAMPBELL SOUP CO. 0 158 158
0 18,100 18,100 COCA-COLA COMPANY 0 1,011 1,011
112,600 1,800 114,400 CONAGRA INC. 6,109 98 6,207
0 300 300 COORS ADOLPH CO. 0 6 6
92,300 0 92,300 DOLE FOOD COMPANY 3,484 0 3,484
0 1,100 1,100 GENERAL MILLS INC 0 68 68
0 2,650 2,650 HEINZ H J CO 0 105 105
0 1,100 1,100 HERSHEY FOODS INC 0 55 55
0 1,500 1,500 KELLOGG CO 0 101 101
0 11,300 11,300 PEPSICO INC 0 369 369
0 5,900 5,900 PHILIP MORRIS COS INC 0 673 673
0 1,000 1,000 QUAKER OATS COMPANY 0 36 36
0 800 800 RALSTON PURINA GROUP 0 62 62
152,200 3,500 155,700 SARA LEE CORP 6,164 142 6,306
0 2,700 2,700 SEAGRAM LTD 0 103 103
0 1,400 1,400 UST INCORPORATED 0 39 39
0 1,200 1,200 UNILEVER NV - NY SHARES 0 223 223
0 800 800 WRIGLEY WM. JR. CO. 0 47 47
0 800 800 WHITMAN CORP. 0 20 20
---------------------------------------
TOTAL FOOD, BEVERAGE &
TOBACCO 15,757 3,705 19,462
---------------------------------------
See accompanying notes to financial statements.
<PAGE>
GAS/NATURAL GAS - 0.1%
0 800 800 COASTAL CORP $ 0 $ 38 $ 38
0 400 400 COLUMBIA GAS SYSTEM INC. 0 23 23
0 700 700 CONSOLIDATED NATL GAS 0 35 35
0 100 100 EASTERN ENTERPRISES 0 3 3
0 1,900 1,900 ENRON CORP 0 72 72
0 400 400 NICOR INC 0 13 13
0 1,100 1,100 NORAM ENERGY CORPORATION 0 16 16
0 200 200 ONEOK INC. 0 5 5
0 600 600 PACIFIC ENTERPRISES 0 18 18
0 1,100 1,100 PANENERGY CORPORATION 0 47 47
0 300 300 PEOPLES ENERGY CORP 0 10 10
0 600 600 SONAT INC. 0 33 33
0 1,100 1,100 WILLIAMS COMPANIES INC 0 49 49
---------------------------------------
TOTAL GAS/NATURAL GAS 0 362 362
---------------------------------------
GLASS PRODUCTS - 0.8%
93,400 1,700 95,100 CORNING INCORPORATED 4,145 75 4,220
---------------------------------------
HOME APPLIANCES - 0.0%
0 700 700 MAYTAG CO 0 14 14
0 300 300 NATIONAL SERVICES INDUS 0 12 12
0 1,200 1,200 SHERWIN WILLIAMS CO 0 32 32
0 400 400 SNAP ON TOOLS CORP. 0 16 16
0 600 600 STANLEY WORKS 0 23 23
0 500 500 WHIRLPOOL CORP 0 24 24
---------------------------------------
TOTAL HOME APPLIANCES 0 121 121
---------------------------------------
HOTELS & LODGING - 0.0%
0 900 900 HFS, INC 0 53 53
0 1,800 1,800 HILTON HOTELS CORP 0 44 44
0 900 900 MARRIOTT CORP INTL 0 45 45
---------------------------------------
TOTAL HOTELS & LODGING 0 142 142
---------------------------------------
HOUSEHOLD FURNITURE & FIXTURES - 0.0%
0 1,200 1,200 MASCO CORP 0 43 43
---------------------------------------
HOUSEHOLD PRODUCTS - 0.1%
0 400 400 CLOROX CO 0 45 45
0 4,000 4,000 GILLETTE COMPANY 0 291 291
---------------------------------------
TOTAL HOUSEHOLD PRODUCTS 0 336 336
---------------------------------------
INSURANCE - 3.9%
56,400 1,081 57,481 AETNA INCORPORATED 4,843 93 4,936
0 3,290 3,290 ALLSTATE CORP 0 195 195
52,100 0 52,100 AMBAC FINANCIAL GROUP INC 3,360 0 3,360
0 1,500 1,500 AMERICAN GENERAL CORP 0 61 61
0 3,425 3,425 AMERICAN INT'L GROUP 0 402 402
0 800 800 AON CORP. 0 49 49
0 1,300 1,300 CHUBB CORP 0 70 70
24,900 500 25,400 CIGNA CORP. 3,638 73 3,711
0 1,200 1,200 CONSECO INC. COMMON 0 43 43
18,900 600 19,500 GENERAL RE CORP 2,986 95 3,081
0 550 550 JEFFERSON PILOT CORP 0 30 30
0 800 800 LINCOLN NATL CORP 0 43 43
0 800 800 LOEWS CORPORATION 0 71 71
See accompanying notes to financial statements.
<PAGE>
INSURANCE (CONTINUED)
0 500 500 MARSH & MCLENNAN CO $ 0 $ 57 $ 57
0 300 300 MBIA INC 0 29 29
0 400 400 MGIC INVT CORP WIS 0 28 28
0 700 700 PROVIDIAN CORPORATION 0 37 37
0 900 900 SAFECO CORP 0 36 36
0 600 600 ST. PAUL COMPANIES INC 0 39 39
118,500 0 118,500 TIG HOLDINGS INC 3,762 0 3,762
0 500 500 TORCHMARK CORP 0 28 28
0 4,635 4,635 TRAVELERS INCORPORATED 0 222 222
0 1,300 1,300 UNITED HEALTHCARE CORP. 0 62 62
0 500 500 UNUM CORP 0 37 37
0 800 800 USF&G CORP 0 17 17
0 250 250 USLIFE CORP 0 12 12
---------------------------------------
TOTAL INSURANCE 18,589 1,829 20,418
---------------------------------------
JEWELRY, PRECIOUS METALS - 0.0%
0 300 300 JOSTENS 0 7 7
---------------------------------------
LEISURE - 1.0%
191,100 700 191,800 BRUNSWICK CORP. 5,136 19 5,155
---------------------------------------
LUMBER & WOOD PRODUCTS - 0.0%
0 800 800 LOUISIANA PAC CORP. 0 17 17
---------------------------------------
MACHINERY - 2.0%
0 1,300 1,300 APPLIED MATERIALS INC 0 60 60
0 1,100 1,100 BAKER HUGHES INC. 0 42 42
0 600 600 BLACK & DECKER 0 19 19
0 200 200 BRIGGS & STRATTON CORP 0 9 9
95,800 500 96,300 CASE CORPORATION 4,862 25 4,887
0 1,400 1,400 CATERPILLAR INC. 0 112 112
0 300 300 CINCINNATI MILACRON 0 6 6
0 350 350 CRANE CO. 0 11 11
0 300 300 CUMMINS ENGINE INC. 0 15 15
0 1,900 1,900 DEERE & CO 0 83 83
0 800 800 DOVER CORP 0 42 42
0 1,300 1,300 DRESSER INDS INC 0 39 39
0 3,200 3,200 EMERSON ELECTRIC CO. 0 144 144
24,400 12,000 36,400 GENERAL ELECTRIC 2,422 1,191 3,613
0 200 200 GIDDINGS & LEWIS 0 3 3
0 400 400 HARNISCHFEGER INDUS 0 19 19
0 800 800 INGERSOLL RAND CO 0 35 35
0 400 400 MCDERMOTT INTL INC 0 9 9
0 105 105 NACCO IND 0 5 5
0 900 900 PALL CORP 0 21 21
0 500 500 PARKER HANNIFIN CORP 0 21 21
0 1,200 1,200 TENNECO INC. 0 47 47
0 200 200 TIMKEN CO. 0 11 11
0 200 200 TRINOVA CORP 0 7 7
0 1,200 1,200 TYCO INTL LTD 0 66 66
27,900 0 27,900 YORK INTERNATIONAL CORP 1,168 0 1,168
---------------------------------------
TOTAL MACHINERY 8,452 2,042 10,494
---------------------------------------
MEASURING DEVICES - 0.0%
0 900 900 HONEYWELL INC. 0 61 61
0 300 300 JOHNSON CONTROLS 0 24 24
0 300 300 MILLIPORE CORP 0 13 13
See accompanying notes to financial statements.
<PAGE>
MEASURING DEVICES (CONTINUED)
0 300 300 PERKIN ELMER CORP. $ 0 $ 19 $ 19
0 200 200 TEKTRONIX, INC. 0 10 10
0 1,100 1,100 THERMO ELECTRON CORP 0 34 34
---------------------------------------
TOTAL MEASURING DEVICES 0 161 161
---------------------------------------
MEDICAL PRODUCTS & SERVICES - 0.1%
0 400 400 BARD C.R. INC 0 11 11
0 400 400 BAUSCH & LOMB 0 16 16
0 2,000 2,000 BAXTER INTERNATIONAL 0 86 86
0 900 900 BECTON DICKINSON & CO 0 41 41
0 700 700 BEVERLY ENTERPRISES 0 10 10
0 800 800 BIOMET 0 14 14
0 1,300 1,300 BOSTON SCIENTIFIC 0 80 80
0 4,905 4,905 COLUMBIA/HCA HEALTHCARE 0 165 165
0 500 500 GUIDANT CORPORATION 0 31 31
0 2,400 2,400 HEALTHSOUTH CORPORATION 0 46 46
0 1,200 1,200 HUMANA INC 0 26 26
0 500 500 MALLINCKRODT INC. 0 21 21
0 500 500 MANOR CARE INC. 0 12 12
0 1,700 1,700 MEDTRONIC INC 0 106 106
0 550 550 ST JUDE MED INC 0 18 18
0 2,200 2,200 TENET HEALTHCARE CORP 0 54 54
0 500 500 U.S. SURGICAL CORP 0 15 15
---------------------------------------
TOTAL MEDICAL PRODUCTS 0 752 752
---------------------------------------
METALS & MINING - 0.0%
0 650 650 CYPRUS AMAX MINERALS CO 0 15 15
0 1,400 1,400 FREEPORT-MCMORAN - B 0 43 43
---------------------------------------
TOTAL METALS & MINING 0 58 58
---------------------------------------
MISCELLANEOUS BUSINESS SERVICES - 0.3%
0 1,300 1,300 3COM CORPORATION 0 43 43
0 2,100 2,100 AUTO DATA PROCESS 0 88 88
0 300 300 AUTODESK INC 0 9 9
0 4,700 4,700 CISCO SYSTEMS INC 0 226 226
0 2,675 2,675 COMPUTER ASSOCIATES INTL 0 104 104
0 600 600 COMPUTER SCIENCES CORP 0 37 37
0 2,850 2,850 CUC INTERNATIONAL INC 0 64 64
0 3,300 3,300 FIRST DATA CORP. 0 112 112
0 8,700 8,700 MICROSOFT INC. 0 798 798
0 2,500 2,500 NOVELL INC 0 24 24
0 4,750 4,750 ORACLE CORPORATION 0 183 183
0 400 400 SAFETY-KLEEN INC. 0 6 6
0 200 200 SHARED MED SYS CORP 0 9 9
0 2,700 2,700 SUN MICROSYSTEMS 0 78 78
---------------------------------------
TOTAL MISC. BUSINES SERVICES 0 1,781 1,781
---------------------------------------
MISCELLANEOUS CONSUMER SERVICES - 0.0%
0 1,700 1,700 SERVICE CORP., INTL 0 51 51
---------------------------------------
MULTI-INDUSTRY - 0.6%
0 900 900 ITT 0 53 53
31,600 3,000 34,600 MINNESOTA MNG & MFG CO 2,670 254 2,924
---------------------------------------
TOTAL MULTI-INDUSTRY 2,670 307 2,977
---------------------------------------
OFFICE PRODUCTS & SUPPLIES - 0.0%
0 1,000 1,000 IKON OFFICE SOLUTIONS 0 34 34
---------------------------------------
See accompanying notes to financial statements.
<PAGE>
OIL-DOMESTIC - 0.1%
0 500 500 ASHLAND INCORPORATED $ 0 $ 20 $ 20
0 1,200 1,200 ATLANTIC RICHFIELD CO 0 162 162
0 400 400 KERR MCGEE CORP 0 25 25
0 300 300 LOUISIANA LD & EXPL 0 14 14
0 300 300 PENNZOIL CO 0 16 16
0 1,900 1,900 PHILLIPS PETRO CO 0 78 78
0 492 492 SUN INC. 0 13 13
0 2,100 2,100 USX-MARATHON GROUP INC 0 59 59
0 1,800 1,800 UNOCAL CORP 0 69 69
---------------------------------------
TOTAL OIL-DOMESTIC 0 456 456
---------------------------------------
OIL- INTERNATIONAL - 5.3%
59,500 700 60,200 AMERADA HESS CO 3,153 37 3,190
0 3,600 3,600 AMOCO CORP 0 312 312
0 4,800 4,800 CHEVRON CORPORATION 0 334 334
53,100 0 53,100 ELF AQUITAINE ADR 2,615 0 2,615
42,400 9,100 51,500 EXXON CORP 4,569 981 5,550
33,100 2,900 36,000 MOBIL CORP 4,324 379 4,703
26,900 3,900 30,800 ROYAL DUTCH PETE CO 4,707 683 5,390
0 1,800 1,800 SCHLUMBERGER LTD 0 193 193
45,800 1,900 47,700 TEXACO INC 5,015 208 5,223
---------------------------------------
TOTAL OIL-INTERNATIONAL 24,383 3,127 27,510
---------------------------------------
PAPER & PAPER PRODUCTS - 0.1%
800 800 AVERY DENNISON CORP. 0 31 31
98,700 0 98,700 BEMIS COMPANY 0 16 16
0 400 400 BOISE CASCADE CORP. 0 12 12
0 700 700 CHAMPION INTL CORP. 0 32 32
0 700 700 GEORGIA PAC CORP 0 51 51
0 2,200 2,200 INTERNATIONAL PAPER CO 0 86 86
0 600 600 JAMES RIVER CORP 0 17 17
0 2,016 2,016 KIMBERLY-CLARK CORP 0 200 200
0 400 400 MEAD CORP 0 21 21
0 200 200 POTLATCH CORP. 0 8 8
0 700 700 STONE CONTAINER CORP 0 8 8
0 400 400 TEMPLE INLAND CO 0 21 21
0 500 500 UNION CAMP CORP 0 24 24
0 700 700 WESTVACO CORP. 0 18 18
0 1,400 1,400 WEYERHAEUSER COMPANY 0 62 62
0 400 400 WILLAMETTE INDUSTRIES INC 0 25 25
---------------------------------------
TOTAL PAPER & PAPER PRODUCTS 0 632 632
---------------------------------------
PETROLEUM & FUEL PRODUCTS - 0.1%
0 900 900 BURLINGTON RESOURCES 0 38 38
0 500 500 ENSERCH CORP 0 10 10
0 200 200 HELMERICH & PAYNE INC 0 9 9
0 2,400 2,400 OCCIDENTAL PETRO CORP 0 59 59
0 800 800 ORYX ENERGY CO. 0 15 15
0 600 600 ROWAN COS INC 0 14 14
0 700 700 SANTA FE ENERGY RESOURCES 0 10 10
0 1,786 1,786 UNION PACIFIC RES. GP.INC 0 48 48
0 400 400 WESTERN ATLAS INC 0 24 24
---------------------------------------
PERTOLEUM & FUEL PRODUTS 0 227 227
---------------------------------------
See accompanying notes to financial statements.
<PAGE>
PHOTOGRAPHIC EQUIPMENT & SUPPLIES - 0.1%
0 2,400 2,400 EASTMAN KODAK COMPANY $ 0 $ 182 $ 182
0 300 300 POLAROID CORP 0 12 12
0 2,400 2,400 XEROX CORP 0 137 137
---------------------------------------
TOTAL PHOTOGRAPHIC EQUIPMENT
& SUPPLIES 0 331 331
---------------------------------------
PRECIOUS METALS - 0.0%
0 2,600 2,600 BARRICK GOLD CORP 0 62 62
0 1,600 1,600 BATTLE MOUNTAIN GOLD 0 11 11
0 1,000 1,000 ECHO BAY MINES LTD 0 7 7
0 1,100 1,100 HOMESTAKE MNG CO 0 17 17
0 722 722 NEWMONT MINING CORP 0 28 28
0 1,700 1,700 PLACER DOME INC 0 31 31
0 1,000 1,000 SANTA FE PACIFIC GOLD 0 17 17
---------------------------------------
TOTAL PRECIOUS METALS 0 173 173
---------------------------------------
PRINTING & PUBLISHING - 0.8%
0 500 500 AMERICAN GREETINGS CORP 0 16 16
0 600 600 DELUXE CORP 0 19 19
0 1,100 1,100 DONNELLEY R R & SONS 0 38 38
0 700 700 DOW JONES & CO INC 0 28 28
0 1,000 1,000 GANNETT CO 0 86 86
0 200 200 JOHN HARLAND 0 5 5
85,400 700 86,100 KNIGHT-RIDDER INC 3,405 28 3,433
0 700 700 MCGRAW HILL INC. 0 36 36
0 400 400 MEREDITH CORP 0 9 9
0 700 700 MOORE CORP 0 14 14
0 700 700 NEW YORK TIMES CL A 0 31 31
0 4,100 4,100 TIME WARNER INC 0 177 177
0 700 700 TIMES MIRROR-NEW CL A 0 38 38
0 900 900 TRIBUNE COMPANY 0 36 36
---------------------------------------
TOTAL PRINTING & PUBLISHING 3,405 561 3,966
---------------------------------------
PROFESSIONAL SERVICES - 0.0%
0 1,200 1,200 COGNIZANT CORP 0 35 35
0 1,200 1,200 DUN & BRADSTREET 0 30 30
0 300 300 EG & G INC 0 6 6
---------------------------------------
TOTAL PROFESSIONAL SERVICES 0 71 71
---------------------------------------
RAILROADS - 1.4%
57,900 1,143 59,043 BURLINGTON NORTHERN SANTA 4,285 85 4,370
117,200 0 117,200 CANADIAN PACIFIC LTD 2,813 0 2,813
0 602 602 CONRAIL, INC 0 68 68
0 1,600 1,600 CSX CORP. 0 74 74
0 900 900 NORFOLK SOUTHERN CORP 0 77 77
0 1,800 1,800 UNION PACIFIC CORP 0 102 102
---------------------------------------
TOTAL RAILROADS 7,098 406 7,504
---------------------------------------
REAL ESTATE INVESTMENT TRUSTS - 2.3%
65,900 0 65,900 DUKE REALTY INVMTS 2,677 0 2,677
86,200 0 86,200 EQUITY RES PROPS TRUST 3,825 0 3,825
186,300 0 186,300 SIMON DEBARTOLO GROUP 5,636 0 5,636
---------------------------------------
TOTAL REAL ESTATE INVESTMENT
TRUSTS 12,138 0 12,138
---------------------------------------
See accompanying notes to financial statements.
<PAGE>
REPAIR SERVICES - 0.0%
0 600 600 RYDER SYS INC $ 0 $ 18 $ 18
---------------------------------------
RETAIL - 2.2%
0 1,800 1,800 ALBERTSONS INC 0 61 61
0 1,100 1,100 AMERICAN STORES CO NE 0 49 49
0 1,100 1,100 AUTOZONE INC. 0 25 25
0 800 800 CHARMING SHOPPES INC. 0 4 4
0 700 700 CIRCUIT CITY STORES 0 23 23
0 1,500 1,500 COSTCO COMPANIES 0 41 41
0 800 800 CVS CORPORATION 0 37 37
0 1,200 1,200 DARDEN RESTAURANTS INC 0 9 9
0 1,600 1,600 DAYTON HUDSON CORP 0 67 67
0 800 800 DILLARD DEPT STORES CL A 0 25 25
0 1,500 1,500 FEDERATED DEPT STORES 0 49 49
0 2,100 2,100 GAP INC 0 70 70
0 400 400 GIANT FOOD INC 0 13 13
0 300 300 GREAT ATLANTIC & PAC 0 8 8
0 500 500 HARCOURT GENERAL INC 0 23 23
0 900 900 HASBRO INC 0 25 25
0 3,533 3,533 HOME DEPOT 0 189 189
0 3,500 3,500 K MART CORP 0 42 42
0 900 900 KROGER CO 0 46 46
0 1,946 1,946 LIMITED INC 0 36 36
0 300 300 LONGS DRUG STORES INC. 0 7 7
0 1,300 1,300 LOWES COS. INC. 0 49 49
0 1,968 1,968 MATTEL INC 0 47 47
0 1,800 1,800 MAY DEPT STORES 0 82 82
0 5,100 5,100 MCDONALD'S CORP 0 241 241
0 300 300 MERCANTILE STORES INC 0 14 14
0 600 600 NORDSTROM CORP 0 23 23
0 1,900 1,900 PENNEY J C INC 0 90 90
0 500 500 PEP BOYS 0 15 15
0 900 900 RITE AID CORP 0 38 38
77,400 2,900 80,300 SEARS ROEBUCK & CO 3,889 146 4,035
0 600 600 TJX COMPANY 0 26 26
191,600 2,100 193,700 TOYS R US 5,365 59 5,424
0 16,700 16,700 WAL-MART STORES INC 0 466 466
0 1,800 1,800 WALGREEN CO 0 75 75
0 900 900 WENDYS INTL INC 0 19 19
0 1,100 1,100 WINN DIXIE STORES INC 0 36 36
0 1,000 1,000 WOOLWORTH F W CO 0 23 23
---------------------------------------
TOTAL RETAIL 9,254 2,298 11,552
---------------------------------------
RUBBER & PLASTIC - 0.1%
0 300 300 ARMSTRONG WORLD INDS 0 19 19
0 600 600 COOPER TIRE AND RUBBER 0 11 11
0 400 400 GOODRICH B F CO 0 15 15
0 1,100 1,100 GOODYEAR TIRE & RUBR 0 57 57
0 900 900 ILLINOIS TOOL WKS INC 0 73 73
0 2,100 2,100 NIKE CL B 0 130 130
0 400 400 REEBOK INT'L LTD 0 18 18
0 1,100 1,100 RUBBERMAID, INC 0 27 27
---------------------------------------
TOTAL RUBBER & PLASTIC 0 350 350
---------------------------------------
SEMI-CONDUCTORS/INSTRUMENTS - 1.0%
0 1,000 1,000 ADVANCED MICRO DEVICES 0 42 42
0 1,600 1,600 AMP INC 0 55 55
0 6,000 6,000 INTEL CORP 0 835 835
See accompanying notes to financial statements.
<PAGE>
SEMI-CONDUCTORS/INSTRUMENTS (CONTINUED)
0 900 900 LSI LOGIC $ 0 $ 31 $ 31
0 1,500 1,500 MICRON TECHNOLOGY INC 0 61 61
0 1,000 1,000 NATIONAL SEMICONDUCTOR 0 28 28
0 1,600 1,600 ROCKWELL INT'L CORP 0 104 104
60,200 0 60,200 SGS-THOMSON MICROELEC 3,981 0 3,981
0 1,400 1,400 TEXAS INSTRUMENTS INC. 0 105 105
---------------------------------------
TOTAL SEMI-CONDUCTORS/
INSTRUMENTS 3,981 1,261 5,242
---------------------------------------
SPECIALTY CONSTRUCTION - 1.0%
138,300 0 138,300 MASCO 4,944 0 4,944
---------------------------------------
SPECIALTY MACHINERY - 0.0%
0 778 778 COOPER INDUSTRIES INC. 0 34 34
0 4,600 4,600 WESTINGHOUSE ELECTRIC 0 82 82
---------------------------------------
TOTAL SPECIALTY MACHINERY 0 116 116
---------------------------------------
STEEL & STEEL WORKS - 0.1%
0 1,700 1,700 ALCAN ALUMINUM LTD 0 58 58
0 1,254 1,254 ALLEGHENY TELEDYNE INC 0 35 35
0 1,300 1,300 ALUMINUM COMPANY AMERICA 0 88 88
0 800 800 ARMCO, INC. 0 3 3
0 300 300 ASARCO INC. 0 8 8
0 800 800 BETHLEHEM STEEL CORP 0 7 7
0 1,100 1,100 ENGELHARD CORP 0 23 23
0 1,200 1,200 INCO LIMITED 0 39 39
0 400 400 INLAND STEEL INDUSTRIES 0 8 8
0 600 600 NUCOR CORPORATION 0 27 27
0 500 500 PHELPS DODGE CORP. 0 37 37
0 500 500 REYNOLDS METALS CO. 0 31 31
0 700 700 WORTHINGTON IND. INC. 0 13 13
0 600 600 USX-U.S. STEEL GROUP INC 0 16 16
---------------------------------------
TOTAL STEEL & STEEL WORKS 0 393 393
---------------------------------------
TELEPHONES & TELECOMMUNICATION - 2.9%
0 3,700 3,700 AIRTOUCH COM. INC. 0 85 85
0 1,400 1,400 ALLTEL CORP. 0 46 46
0 4,000 4,000 AMERITECH CORP 0 246 246
0 11,800 11,800 AT&T CORP 0 410 410
0 3,200 3,200 BELL ATLANTIC CORP 0 195 195
0 7,200 7,200 BELLSOUTH CORP 0 304 304
81,500 0 81,500 CENTURY TELEPHONE ENTER 2,404 0 2,404
225,700 0 225,700 DEUTSCHE TELEKOM 4,937 0 4,937
0 1,200 1,200 FRONTIER CORPORATION 0 21 21
0 7,000 7,000 GTE CORP 0 326 326
0 4,663 4,663 LUCENT TECHNOLOGIES INC 0 246 246
0 5,000 5,000 MCI COMM CO 0 178 178
105,200 3,200 108,400 NYNEX CORP 4,800 146 4,946
0 3,100 3,100 PACIFIC TELESIS GROUP 0 117 117
0 4,400 4,400 SBC COMMUNICATIONS INC. 0 232 232
0 3,100 3,100 SPRINT CORP 0 141 141
0 3,500 3,500 US WEST COMMUNICATIONS 0 119 119
0 4,600 4,600 US WEST MEDIA GROUP 0 86 86
0 6,400 6,400 WORLDCOM INC 0 141 141
---------------------------------------
TOTAL TELEPHONES &
TELECOMMUNICATION 12,141 3,039 15,180
---------------------------------------
See accompanying notes to financial statements.
<PAGE>
TRUCKING - 0.0%
0 300 300 CALIBER SYSTEM INC. $ 0 $ 8 $ 8
---------------------------------------
WHOLESALE - 0.8%
0 300 300 FLEMING CO 0 5 5
0 900 900 GENUINE PARTS CO 0 42 42
51,400 400 51,800 GRAINGER (W.W.) INC. 3,804 30 3,834
0 700 700 SIGMA ALDRICH 0 22 22
0 500 500 SUPERVALU INC 0 15 15
0 1,300 1,300 SYSCO CORP 0 44 44
---------------------------------------
TOTAL WHOLESALE 3,804 158 3,962
---------------------------------------
TOTAL COMMON STOCKS 212,077 42,288 254,365
----------------------------------------
U.S. TREASURY OBLIGATIONS - 31.8%
25,085 0 25,085 U.S. TREASURY BOND 2/15/2023 24,789 0 24,789
12,615 0 12,615 U.S. TREASURY NOTE 2/15/2003 12,280 0 12,280
3,750 0 3,750 U.S. TREASURY NOTE 8/15/2004 3,826 0 3,826
17,350 0 17,350 U.S. TREASURY NOTE 10/31/99 17,722 0 17,722
0 7,603 7,603 U.S. TREASURY NOTE 5/15/2005 0 7,406 7,406
10,095 5,627 15,722 U.S. TREASURY NOTE 8/15/2005 9,815 5,471 15,286
23,340 0 23,340 U.S. TREASURY NOTE 9/30/97 23,343 0 23,343
0 10,283 10,283 U.S. TREASURY NOTE 1/15/2005 0 9,580 9,580
24,620 0 24,620 U.S. TREASURY NOTE 3/31/2001 24,317 0 24,317
0 5,744 5,744 U.S. TREASURY NOTE 10/15/2006 0 5,566 5,566
21,415 0 21,415 U.S. TREASURY NOTE 10/31/98 21,256 0 21,256
265 0 265 U.S. TREASURY STRIP 2/15/99 236 0 236
-------------------------------------
TOTAL TREASURY OBLIGATIONS 137,584 28,023 165,607
-------------------------------------
COMMERCIAL PAPER - 2.0%
0 10,000 10,000 RECEIVABLES CAP 05/02/97 0 9,950 9,950
-------------------------------------
OTHER MORTGAGE BACKED OBLIGATIONS - 2.1%
312 0 312 DREXEL BURNHAM REMIC 08/01/2018 318 0 318
2,675 0 2,675 GE CAP MTG REMIC 7% 05/25/2024 2,563 0 2,563
1,220 0 1,220 GE CAP MTS REMIC 6.50% 03/25/2024 1,207 0 1,207
6,425 0 6,425 PRDNTL HOME LOAN 11/25/99 6,356 0 6,356
294 0 294 RESIDENTIAL FUNDNG 11/25/2007 292 0 292
------------------------------------------
TOTAL OTHER MORTGAGE-
BACKED OBLIGATIONS 10,736 0 10,736
------------------------------------------
CORPORATE OBLIGATIONS - 2.0%
2,825 0 2,825 CIGNA CORP. 01/15/2003 2,815 0 2,815
860 0 860 GENERAL FOODS 06/15/2001 820 0 820
5,075 0 5,075 SANTANDER FINANCIAL 05/30/2006 4,961 0 4,961
1,700 0 1,700 TORCHMARK CORP. 05/15/2023 1,621 0 1,621
------------------------------------------
TOTAL CORPORATE OBLIGATIONS 10,217 0 10,217
------------------------------------------
U.S GOV'T AGENCY MORTGAGE BACKED OBLIGATIONS - 1.0%
2,700 0 2,700 FHLMC CMO 11/15/2008 2,485 0 2,485
2,700 0 2,700 FNMA CMO/REMIC 10/25/2018 2,604 0 2,604
-----------------------------------------
TOTAL U.S. GOVERNMENT
AGENCY MORTGAGE-BACKED
OBLIGATIONS 5,089 0 5,089
-----------------------------------------
See accompanying notes to financial statements.
<PAGE>
RELATED PARTY MONEY MARKET FUNDS - 8.2%
13,103 5,443 18,545 FIRST AM. GOVERNMENT OBLIGATIONS $ 13,103 $ 5,443 $ 18,546
18,415 5,588 24,004 FIRST AM. PRIME OBLIGATIONS 18,415 5,588 24,003
------------------------------------------
TOTAL RELATED PARTY
MONEY MARKET FUNDS 31,518 11,031 42,549
------------------------------------------
REPURCHASE AGREEMENT - 4.8%
0 25,059 25,059 MERRILL LYNCH 0 25,059 25,059
------------------------------------------
TOTAL INVESTMENTS
(Cost $366,983, $106,192, and
$473,175 respectively) $407,221 $116,351 $523,572
==========================================
See accompanying notes to financial statements.
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