FIRST AMERICAN INVESTMENT FUNDS INC, 497, 1998-05-15

FIRST AMERICAN INVESTMENT FUNDS INC
497, 1998-05-15

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JANUARY 31, 1998 AS SUPPLEMENTED ON MAY 15, 1998

EQUITY FUNDS
CLASS A AND CLASS B SHARES

Balanced Fund Small Cap Growth Fund
Real Estate Securities Fund Small Cap Value Fund
Equity Income Fund Micro Cap Value Fund
Equity Index Fund International Index Fund
Large Cap Value Fund International Fund
Large Cap Growth Fund Health Sciences Fund
Mid Cap Value Fund Technology Fund
Regional Equity Fund

FIRST AMERICAN INVESTMENT FUNDS, INC.
PROSPECTUS

[LOGO] FIRST AMERICAN
THE POWER OF DISCIPLINED INVESTING(R)

<PAGE>

TABLE OF CONTENTS

Summary 2
.............................................
Fees and Expenses 6
.............................................
Financial Highlights 11
.............................................
The Funds 22
.............................................
Investment Objectives and Policies 22
.............................................
Management 37
.............................................
Distributor 42
.............................................
Investing in the Funds 43
.............................................
Redeeming Shares 50
.............................................
Determining the Price of Shares 52
.............................................
Federal Income Taxes 53
.............................................
Fund Shares 54
.............................................
Calculation of Performance Data 55
.............................................
Performance Information for Successors to
Common Trust Funds 56
.............................................
Special Investment Methods 56
.............................................
Information Concerning Compensation
Paid to U.S. Bank National Association
and Other Affiliates 65
.............................................

<PAGE>

FIRST AMERICAN INVESTMENT FUNDS, INC.

CLASS A AND CLASS B SHARES PROSPECTUS

The shares described in this Prospectus represent interests in First
American Investment Funds, Inc., which consists of mutual funds with
several different investment portfolios and objectives. This Prospectus
relates to the Class A and Class B Shares of the following funds (the
"Funds"):

* BALANCED FUND

* REAL ESTATE SECURITIES FUND

* EQUITY INCOME FUND

* EQUITY INDEX FUND

* LARGE CAP VALUE FUND

* LARGE CAP GROWTH FUND

* MID CAP VALUE FUND

* REGIONAL EQUITY FUND

* SMALL CAP GROWTH FUND

* SMALL CAP VALUE FUND

* MICRO CAP VALUE FUND

* INTERNATIONAL INDEX FUND

* INTERNATIONAL FUND

* HEALTH SCIENCES FUND

* TECHNOLOGY FUND

SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
ANY BANK, INCLUDING U.S. BANK NATIONAL ASSOCIATION AND ANY OF ITS
AFFILIATES, NOR ARE THEY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. AN INVESTMENT
IN THE FUNDS INVOLVES INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF
PRINCIPAL, DUE TO FLUCTUATIONS IN EACH FUND'S NET ASSET VALUE.

This Prospectus concisely sets forth information about the Funds that a
prospective investor should know before investing. It should be read and
retained for future reference.

A Statement of Additional Information dated January 31, 1998 as
supplemented on May 15, 1998 for the Funds has been filed with the
Securities and Exchange Commission ("SEC") and is incorporated in its
entirety by reference in this Prospectus. To obtain copies of the
Statement of Additional Information at no charge, or to obtain other
information or make inquiries about the Funds, call (800) 637-2548 or
write SEI Investments Distribution Co., Oaks, Pennsylvania 19456. The SEC
maintains a World Wide Web site that contains reports and information
regarding issuers that file electronically with the SEC. The address of
such site is "http://www.sec.gov."

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

The date of this Prospectus is January 31, 1998 as supplemented on May 15, 1998.

<PAGE>

SUMMARY

First American Investment Funds, Inc. ("FAIF") is an open-end investment
company which offers shares in several different mutual funds. This
Prospectus provides information with respect to the Class A and Class B
Shares of the following funds (the "Funds"):

BALANCED 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 (including only
that portion of the value of the convertible securities attributable to
their fixed income characteristics) and between 0% and 25% money market
instruments.

REAL ESTATE SECURITIES FUND has an objective of providing above average
current income and long-term capital appreciation by investing primarily
in equity securities of real estate companies. Under normal market
conditions, the Fund invests at least 65% of its total assets in income
producing equity securities of publicly traded companies principally
engaged in the real estate industry. A majority of the Fund's total assets
will be invested in securities of real estate investment trusts ("REITs"),
with an expected emphasis on equity REITs.

EQUITY INCOME FUND has an objective of long-term growth of capital and
income. Under normal market conditions, the Fund invests at least 65% of its
total assets in equity securities of issuers believed by the Fund's advisor
to be characterized by sound management, the ability to finance expected
growth and the ability to pay above average dividends.

EQUITY INDEX FUND has an objective of providing investment results that
correspond to the performance of the Standard & Poor's 500 Composite Stock
Price Index (the "S&P 500"). The Fund invests primarily (at least 65% of
total assets) in common stocks included in the S&P 500. The Fund's advisor
believes that its objective can best be achieved by investing in the
common stocks of approximately 50% to 100% of the issues included in the
S&P 500, depending on the size of the Fund.

LARGE CAP VALUE FUND (formerly known as Stock Fund) has a primary
objective of capital appreciation and a secondary objective to provide
current income. Under normal market conditions, the Fund invests at least
65% of its total assets in common stocks diversified among a broad range
of industries and among companies that have a market capitalization of at
least $1 billion at the time of purchase. In selecting equity securities,
the Fund's advisor employs a value-based selection discipline, investing
in equity securities it believes are undervalued relative to other
securities in the same industry or market at the time of purchase.

LARGE CAP GROWTH FUND (formerly known as Diversified Growth Fund) has a
primary objective of long-term growth of capital and a secondary objective
to provide current income. Under normal market conditions, the Fund
invests at least 65% of its total assets in equity securities of companies
that have a market capitalization of at least $1 billion at the time of
purchase that, in the Fund's advisor's judgment, exhibit a combination of
above average growth in revenue and earnings, strong management and sound
and improving financial condition.

MID CAP VALUE FUND (formerly known as Special Equity Fund) has an
objective of capital appreciation. Under normal market conditions, the
Fund invests at least 65% of its total assets in equity securities of
mid-capitalization companies (those with market capitalizations from $1
billion to $5 billion at the time of purchase). The Fund's policy is to
invest in equity securities which the Fund's advisor believes offer the
potential for greater than average capital appreciation. In selecting
equity securities, the Fund's advisor employs a value-based selection
discipline, investing in equity securities it believes are undervalued
relative to other securities in the same industry or market at the time of
purchase.

<PAGE>

REGIONAL EQUITY FUND has an objective of capital appreciation. The Fund
seeks to achieve its objective by investing, in normal market conditions,
at least 65% of its total assets in equity securities of
small-capitalization companies (those with market capitalizations of less
than $1 billion at the time of purchase) headquartered in Minnesota, North
and South Dakota, Montana, Wisconsin, Michigan, Iowa, Nebraska, Colorado
and Illinois. The Fund invests in the securities of rapidly growing
companies within this size category and geographic area. In selecting
equity securities, the Fund's advisor employs a value-based selection
discipline, investing in equity securities it believes are undervalued
relative to other securities in the same industry or market at the time of
purchase.

SMALL CAP GROWTH FUND (formerly known as Emerging Growth Fund) has an
objective of growth of capital. Under normal market conditions, the Fund
invests at least 65% of its total assets in equity securities of
small-capitalization companies (those with market capitalizations of less
than $1 billion at the time of purchase) that exhibit, in the Fund's
advisor's opinion, outstanding potential for superior growth. Companies
that participate in sectors that are identified by the advisor as having
long-term growth potential generally are expected to make up a substantial
portion of the Fund's holdings.

SMALL CAP VALUE FUND has an objective of capital appreciation. Under normal
market conditions, the Fund invests at least 65% of its total assets in
equity securities of small-capitalization companies (those with market
capitalizations of less than $1 billion at the time of purchase). In
selecting equity securities, the Fund's advisor employs a value-based
selection discipline, investing in equity securities it believes are
undervalued relative to other securities in the same industry or market at
the time of purchase.

MICRO CAP VALUE FUND has an objective of capital appreciation. Under
normal market conditions, the Fund invests at least 65% of its total
assets in equity securities of very small-capitalization companies (those
with market capitalizations of less than $500 million at the time of
purchase). In selecting equity securities, the Fund's advisor employs a
value-based selection discipline, investing in equity securities it
believes are undervalued relative to other securities in the same industry
or market at the time of purchase.

INTERNATIONAL INDEX FUND has an objective of providing investment results
that correspond to the performance of the Morgan Stanley Europe,
Australia, Far East Composite Index (the "EAFE Index"). The Fund invests
primarily (at least 65% of total assets) in common stocks included in the
EAFE Index. The Fund's advisor believes that its objective can be best
achieved by investing in common stocks of approximately 50% to 100% of the
issues included in the EAFE Index, depending on the size of the Fund.

INTERNATIONAL FUND has an objective of long-term growth of capital. Under
normal market conditions, the Fund invests at least 65% of its total
assets in an internationally diversified portfolio of equity securities
which trade in markets other than the United States. Investments are
expected to be made primarily in developed markets and larger
capitalization companies. However, the Fund also may invest in emerging
markets where smaller capitalization companies are the norm.

HEALTH SCIENCES FUND has an objective of long-term growth of capital.
Under normal market conditions, the Fund invests at least 65% of its total
assets in equity securities of companies which the Fund's advisor
considers to be principally engaged in the development, production or
distribution of products or services connected with health care or
medicine.

TECHNOLOGY FUND has an objective of long-term growth of capital. Under
normal market conditions, the Fund invests at least 65% of its total
assets in equity securities of companies which the Fund's advisor believes
have, or will develop, products, processes or services that will provide
or will benefit significantly from technological advances and
improvements.

<PAGE>

INVESTMENT ADVISOR AND SUB-ADVISOR. U.S. Bank National Association (the
"Advisor" or "U.S. Bank") serves as investment advisor to each of the
Funds through its First American Asset Management group. Marvin & Palmer
Associates, Inc. (the "Sub-Advisor") serves as sub-advisor to
International Fund. See "Management."

DISTRIBUTOR; ADMINISTRATOR. SEI Investments Distribution Co. (the
"Distributor") serves as the distributor of the Funds' shares. SEI
Investments Management Corporation (the "Administrator") serves as the
administrator of the Funds. See "Management" and "Distributor."

OFFERING PRICES. Class A Shares of the Funds are sold at net asset value
plus a maximum sales charge of 4.50%. These sales charges are reduced on
purchases of $50,000 or more. Purchases of $1 million or more of Class A
Shares are not subject to an initial sales charge, but the Distributor and
certain securities firms, financial institutions (including, without
limitation, banks) and other industry professionals may receive a
commission of up to 1.00% on such sales. Redemptions of Class A Shares
within 24 months following such purchases will be subject to a contingent
deferred sales charge of up to 1.00% except in the case of Equity Index
Fund and International Index Fund. Class A Shares of the Funds otherwise
are redeemed at net asset value without any additional charge. Class A
Shares of each Fund are subject to a shareholder servicing fee computed at
an annual rate of 0.25% of the average daily net assets of that class. See
"Investing in the Funds -- Alternative Sales Charge Options."

Class B Shares of the Funds are sold at net asset value without an initial
sales charge. Class B Shares of each Fund are subject to Rule 12b-1
distribution and shareholder servicing fees computed at an annual rate
totaling 1.00% of the average daily net assets of that class. If Class B
Shares are redeemed within six years after purchase, they are subject to a
contingent deferred sales charge declining from 5.00% in the first year to
zero after six years. Class B Shares automatically convert into Class A
Shares approximately eight years after purchase. See "Investing in the Funds
-- Alternative Sales Charge Options."

MINIMUM INITIAL AND SUBSEQUENT INVESTMENTS. The minimum initial investment
is $1,000 ($250 for IRAs) for each Fund. Subsequent investments must be
$100 or more. Regular investment in the Funds is simplified through the
Systematic Investment Program through which monthly purchases of $100 or
more are possible. See "Investing in the Funds -- Minimum Investment
Required" and "-- Systematic Investment Program."

EXCHANGES. Shares of any Fund may be exchanged for the same class of
shares of other funds in the First American family of funds at the shares'
respective net asset values with no additional charge. See "Investing in
the Funds -- Exchange Privilege."

REDEMPTIONS. Shares of each Fund may be redeemed at any time at their net
asset value next determined after receipt of a redemption request by the
Funds' transfer agent or by an authorized financial institution, less any
applicable contingent deferred sales charge. Each Fund may, upon 60 days
written notice, redeem an account if the account's net asset value falls
below $500. See "Investing in the Funds" and "Redeeming Shares."

RISKS TO CONSIDER. Each of the Funds is subject to the risk of generally
adverse equity markets. Investors also should recognize that market prices
of equity securities generally, and of particular companies' equity
securities, frequently are subject to greater volatility than prices of
fixed income securities.

Because each of the Funds other than Equity Index Fund and International
Index Fund is actively managed to a greater or lesser degree, their
performance will reflect in part the ability of the Advisor or Sub-Advisor
to select securities which are suited to achieving their investment
objectives. Due to their active management, these Funds could underperform
other mutual funds with similar investment objectives or the market
generally.

In addition, (i) certain of the Funds are subject to risks associated with
investing in

<PAGE>

small-capitalization companies; (ii) Micro Cap Value Fund is subject to
risks associated with investing in very small-capitalization companies;
(iii) Regional Equity Fund is subject to risks associated with
concentrating its investments in a single geographic region; (iv) Real
Estate Securities Fund, Health Sciences Fund and Technology Fund are
subject to risks associated with concentrating their investments in a
single or related economic sectors; (v) Real Estate Securities Fund is
subject to risks associated with direct investments in REITs; (vi)
International Index Fund and International Fund are subject to risks
associated with investing in foreign securities and to currency risk;
(vii) Equity Income Fund may invest a significant portion of its assets in
less than investment grade convertible debt obligations; (viii) certain
Funds other than International Index Fund and International Fund may
invest specified portions of their assets in securities of foreign issuers
which are listed on a United States stock exchange or represented by
American Depositary Receipts or, in the case of Balanced Fund, are debt
obligations of foreign issuers denominated in United States dollars; and
(ix) certain Funds may invest (but not for speculative purposes) in stock
index futures contracts, options on stock indices, options on stock index
futures, index participation contracts based on the S&P 500 or the EAFE
Index, and/or exchange traded put and call options on interest rate
futures contracts and on interest rates indices. See "Investment
Objectives and Policies" and "Special Investment Methods."

SHAREHOLDER INQUIRIES. Any questions or communications regarding the Funds
or a shareholder account should be directed to the Distributor by calling
(800) 637-2548, or to the financial institution which holds shares on an
investor's behalf.

<PAGE>

FEES AND EXPENSES

CLASS A SHARE FEES AND EXPENSES

<TABLE>
<CAPTION>
REAL ESTATE EQUITY EQUITY LARGE CAP LARGE CAP
BALANCED SECURITIES INCOME INDEX VALUE GROWTH
FUND FUND FUND FUND FUND FUND
<S> <C> <C> <C> <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% 4.50% 4.50% 4.50%
Maximum sales load imposed on
reinvested dividends None None None None None None
Deferred sales load None None None None None None
Redemption fees None None None None None None
Exchange fees None None None None None None
----
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment advisory fee (after voluntary fee
waivers)(2) 0.62% 0.45% 0.53% 0.17% 0.61% 0.61%
Rule 12b-1 fees 0.25%(3) 0.25%(3) 0.25%(3) 0.25%(3) 0.25%(3) 0.25%(3)
Other expenses 0.18% 0.35% 0.22% 0.18% 0.19% 0.19%
Total fund operating expenses
(after voluntary fee waivers)(2) 1.05% 1.05% 1.00% 0.60% 1.05% 1.05%
----
EXAMPLE(4)
You would pay the following expenses on a $1,000 investment, assuming (i) the
maximum applicable sales charge for all Funds; (ii) a 5% annual return; and
(iii) redemption at the end of each time period:

1 year $ 55 $ 55 $ 55 $ 51 $ 55 $ 55
3 years $ 77 $ 77 $ 75 $ 63 $ 77 $ 77
5 years $100 $100 $ 98 $ 77 $100 $100
10 years $167 $167 $162 $117 $167 $167

</TABLE>

+ THE ADVISORY FEES, OTHER EXPENSES AND TOTAL FUND OPERATING EXPENSES SET
FORTH ABOVE REFLECT ESTIMATES OF CURRENT EXPENSES.
(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
THE DISTRIBUTOR AND CERTAIN SECURITIES FIRMS, FINANCIAL INSTITUTIONS
(INCLUDING, WITHOUT LIMITATION, BANKS) AND OTHER INDUSTRY PROFESSIONALS
MAY RECEIVE A COMMISSION OF UP TO 1.00% ON SUCH SALES. IN ADDITION, A
CONTINGENT DEFERRED SALES CHARGE OF UP TO 1.00% MAY BE IMPOSED ON SUCH
PURCHASES IN THE EVENT OF REDEMPTION WITHIN 24 MONTHS FOLLOWING THE DATE
OF THE APPLICABLE PURCHASE EXCEPT IN THE CASE OF EQUITY INDEX FUND AND
INTERNATIONAL INDEX FUND. SEE "INVESTING IN THE FUNDS -- ALTERNATIVE SALES
CHARGE OPTIONS."
(2) THE ADVISOR INTENDS TO WAIVE A PORTION OF ITS FEES ON A VOLUNTARY BASIS,
AND THE AMOUNTS SHOWN REFLECT THESE WAIVERS AS OF THE DATE OF THIS
PROSPECTUS. THE ADVISOR INTENDS TO MAINTAIN SUCH WAIVERS IN EFFECT FOR THE
CURRENT FISCAL YEAR BUT RESERVES THE RIGHT TO DISCONTINUE SUCH WAIVERS AT
ANY TIME IN ITS SOLE DISCRETION. NOTWITHSTANDING THE FOREGOING, THE
ADVISOR WILL MAINTAIN SUCH WAIVERS OF LARGE CAP VALUE FUND, EQUITY INDEX
FUND, SMALL CAP VALUE FUND AND INTERNATIONAL INDEX FUND IN EFFECT THROUGH
SEPTEMBER 30, 1998. IN ADDITION, THE ADVISOR WILL MAINTAIN SUCH WAIVERS
FOR THE APPLICABLE FUNDS AT LEAST THROUGH JULY 31, 2000 SO THAT THE TOTAL
FUND OPERATING EXPENSES DO NOT EXCEED 1.34% FOR BALANCED FUND, 1.34% FOR
LARGE CAP VALUE FUND, 1.26% FOR LARGE CAP GROWTH FUND, 1.34% FOR SMALL CAP
GROWTH FUND, AND 1.72% FOR INTERNATIONAL FUND. FOR MID CAP VALUE FUND, THE
ADVISOR HAS AGREED TO WAIVE ADVISORY FEES ON A VOLUNTARY BASIS TO THE
EXTENT NECESSARY TO KEEP TOTAL FUND OPERATING EXPENSES FOR THE CURRENT
FISCAL YEAR FROM EXCEEDING 1.15%. ABSENT ANY FEE WAIVERS, INVESTMENT
ADVISORY FEES AS AN ANNUALIZED PERCENTAGE OF AVERAGE DAILY NET ASSETS
WOULD BE 0.70% FOR EACH FUND EXCEPT INTERNATIONAL FUND, AS TO WHICH THEY
WOULD BE 1.25%; AND TOTAL FUND OPERATING EXPENSES CALCULATED ON SUCH BASIS
WOULD BE 1.13% FOR BALANCED FUND, 1.30% FOR REAL ESTATE

<PAGE>

<TABLE>
<CAPTION>
MID CAP REGIONAL SMALL CAP SMALL CAP MICRO CAP INTERNATIONAL
VALUE EQUITY GROWTH VALUE VALUE INDEX
FUND FUND FUND FUND FUND FUND

<S> <C> <C> <C> <C> <C> <C>
4.50% 4.50% 4.50% 4.50% 4.50% 4.50%

None None None None None None
None None None None None None
None None None None None None
None None None None None None

0.70% 0.70% 0.69% 0.70%+ 0.53% 0.46%+
0.25%(3) 0.25%(3) 0.25%(3) 0.25%(3) 0.25%(3) 0.25%(3)
0.19% 0.20% 0.21% 0.20%+ 0.37% 0.29%+

1.14% 1.15% 1.15% 1.15%+ 1.15% 1.00%+

$ 56 $ 56 $ 56 $ 56 $ 56 $ 55
$ 80 $ 80 $ 80 $ 80 $ 80 $ 75
$ 105 $ 105 $ 105 $ 105 $ 105 $ 98
$ 177 $ 178 $ 178 $ 178 $ 178 $ 162
</TABLE>

[WIDE TABLE CONTINUED FROM ABOVE]

HEALTH
INTERNATIONAL SCIENCES TECHNOLOGY
FUND FUND FUND

4.50% 4.50% 4.50%

None None None
None None None
None None None
None None None

1.08% 0.56% 0.68%
0.25%(3) 0.25%(3) 0.25%(3)
0.27% 0.34% 0.22%

1.60% 1.15% 1.15%

$ 61 $ 56 $ 56
$ 93 $ 80 $ 80
$ 128 $ 105 $ 105
$ 226 $ 178 $ 178

SECURITIES FUND, 1.17% FOR EQUITY INCOME FUND, 1.13% FOR EQUITY INDEX FUND,
1.14% FOR LARGE CAP VALUE FUND, 1.14% FOR LARGE CAP GROWTH FUND, 1.15% FOR
MID CAP VALUE FUND, 1.15% FOR REGIONAL EQUITY FUND, 1.16% FOR SMALL CAP
GROWTH FUND, 1.15% FOR SMALL CAP VALUE FUND, 1.32% FOR MICRO CAP VALUE FUND,
1.24% FOR INTERNATIONAL INDEX FUND, 1.77% FOR INTERNATIONAL FUND, 1.29% FOR
HEALTH SCIENCES FUND AND 1.17% FOR TECHNOLOGY FUND. "OTHER EXPENSES"
INCLUDES AN ADMINISTRATION FEE AND, FOR SMALL CAP VALUE FUND AND
INTERNATIONAL INDEX FUND, IS BASED ON ESTIMATED AMOUNTS FOR THE CURRENT
FISCAL YEAR.

(3) OF THIS AMOUNT, 0.25% IS DESIGNATED AS A SHAREHOLDER SERVICING FEE AND NONE
AS A DISTRIBUTION FEE.

(4) ABSENT THE FEE WAIVERS REFERRED TO IN (2) ABOVE, THE DOLLAR AMOUNTS FOR THE
1, 3, 5 AND 10-YEAR PERIODS WOULD BE AS FOLLOWS: BALANCED FUND $56, $79,
$104 AND $176; REAL ESTATE SECURITIES FUND, $58, $84, $113 AND $195; EQUITY
INCOME FUND, $56, $80, $106 AND $181; EQUITY INDEX FUND, $56, $79, $104 AND
$176; LARGE CAP VALUE FUND, $56, $80, $105 AND $177; LARGE CAP GROWTH FUND,
$56, $80, $105 AND $177; MID CAP VALUE FUND, $56, $80, $105 AND $177;
REGIONAL EQUITY FUND, $56, $80, $105 AND $177; SMALL CAP GROWTH FUND, $56,
$80, $106 AND $180; SMALL CAP VALUE FUND, $56, $80, $105 AND $178; MICRO CAP
VALUE FUND, $58, $85, $114 AND $197; INTERNATIONAL INDEX FUND, $57, $83,
$110 AND $188; INTERNATIONAL FUND, $62, $98, $137 AND $244; HEALTH SCIENCES
FUND, $58, $84, $113 AND $194; AND TECHNOLOGY FUND, $56, $80, $106 AND $181.

<PAGE>

FEES AND EXPENSES (CONTINUED)

CLASS B SHARE FEES AND EXPENSES

REAL ESTATE EQUITY EQUITY LARGE CAP LARGE CAP
BALANCED SECURITIES INCOME INDEX VALUE GROWTH
FUND FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on purchases
(as a percentage of offering price) None None None None None None
Maximum sales load imposed on
reinvested dividends None None None 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% 5.00% 5.00% 5.00%
Redemption fees None None None None None None
Exchange fees None None None None None None

ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment advisory fees (after voluntary
fee waivers)(1) 0.62% 0.45% 0.53% 0.17% 0.61% 0.61%
Rule 12b-1 fees 1.00%(2) 1.00%(2) 1.00%(2) 1.00%(2) 1.00%(2) 1.00%(2)
Other expenses 0.18% 0.35% 0.22% 0.18% 0.19% 0.19%
Total fund operating expenses
(after voluntary fee waivers)(3) 1.80% 1.80% 1.75% 1.35% 1.80% 1.80%

EXAMPLE:
ASSUMING REDEMPTION(3)
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 $ 64 $ 68 $ 68
3 years $ 97 $ 97 $ 95 $ 83 $ 97 $ 97
5 years $117 $117 $115 $ 94 $117 $117
10 years $192 $192 $186 $142 $192 $192
ASSUMING NO REDEMPTION(4)
You would pay the following expenses on the same investment, assuming no redemption:
1 year $ 18 $ 18 $ 18 $ 14 $ 18 $ 18
3 years $ 57 $ 57 $ 55 $ 43 $ 57 $ 57
5 years $ 97 $ 97 $ 95 $ 74 $ 97 $ 97
10 years $192 $192 $186 $142 $192 $192

</TABLE>

+ THE ADVISORY FEES, OTHER EXPENSES AND TOTAL FUND OPERATING EXPENSES SET
FORTH ABOVE REFLECT ESTIMATES OF CURRENT EXPENSES.

(1) THE ADVISOR INTENDS TO WAIVE A PORTION OF ITS FEES ON A VOLUNTARY BASIS,
AND THE AMOUNTS SHOWN REFLECT THESE WAIVERS AS OF THE DATE OF THIS
PROSPECTUS. THE ADVISOR INTENDS TO MAINTAIN SUCH WAIVERS IN EFFECT FOR THE
CURRENT FISCAL YEAR BUT RESERVES THE RIGHT TO DISCONTINUE SUCH WAIVERS AT
ANY TIME IN ITS SOLE DISCRETION. FOR MID CAP VALUE FUND, THE ADVISOR HAS
AGREED TO WAIVE ADVISORY FEES ON A VOLUNTARY BASIS TO THE EXTENT NECESSARY
TO KEEP TOTAL FUND OPERATING EXPENSES FOR THE CURRENT FISCAL YEAR FROM
EXCEEDING 1.90%. ABSENT ANY FEE WAIVERS, INVESTMENT ADVISORY FEES FOR EACH
FUND AS AN ANNUALIZED PERCENTAGE OF AVERAGE DAILY NET ASSETS WOULD BE
0.70% FOR EACH FUND EXCEPT INTERNATIONAL FUND, AS TO WHICH THEY WOULD BE
1.25%; AND TOTAL FUND OPERATING EXPENSES CALCULATED ON SUCH BASIS WOULD BE
1.88% FOR BALANCED FUND, 2.00% FOR REAL ESTATE SECURITIES FUND, 1.92% FOR
EQUITY INCOME FUND, 1.88% FOR EQUITY INDEX FUND, 1.89% FOR LARGE CAP VALUE
FUND, 1.89% FOR LARGE CAP GROWTH FUND, 1.90% FOR MID CAP VALUE FUND, 1.90%
FOR REGIONAL EQUITY FUND, 1.91% FOR SMALL CAP GROWTH FUND, 1.90% FOR SMALL
CAP VALUE FUND, 2.07% FOR MICRO CAP VALUE FUND, 1.99% FOR INTERNATIONAL
INDEX FUND, 2.52% FOR INTERNATIONAL FUND, 2.04% FOR HEALTH SCIENCES FUND
AND 1.92% FOR TECHNOLOGY FUND. "OTHER EXPENSES" INCLUDES AN ADMINISTRATION
FEE AND, FOR SMALL CAP VALUE FUND AND INTERNATIONAL INDEX FUND, IS BASED
ON ESTIMATED AMOUNTS FOR THE CURRENT FISCAL YEAR.

<PAGE>

<TABLE>
<CAPTION>
INTER-
MID CAP REGIONAL SMALL CAP SMALL CAP MICRO CAP NATIONAL INTER- HEALTH
VALUE EQUITY GROWTH VALUE VALUE INDEX NATIONAL SCIENCES TECHNOLOGY
FUND FUND FUND FUND FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
None None None None None None None None None
None None None None None None None None None
5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00%
None None None None None None None None None
None None None None None None None None None

0.70% 0.70% 0.69% 0.70%+ 0.53% 0.46%+ 1.08% 0.56% 0.68%
1.00%(2) 1.00%(2) 1.00%(2) 1.00%(2) 1.00%(2) 1.00%(2) 1.00%(2) 1.00%(2) 1.00%(2)
0.20% 0.20% 0.21% 0.20%+ 0.37% 0.29%+ 0.27% 0.34% 0.22%
1.90% 1.90% 1.90% 1.90%+ 1.90% 1.75%+ 2.35% 1.90% 1.90%

$ 69 $ 69 $ 69 $ 69 $ 69 $ 68 $ 74 $ 69 $ 69
$100 $100 $100 $100 $100 $ 95 $113 $100 $100
$123 $123 $123 $123 $123 $115 $146 $123 $123
$202 $203 $203 $203 $203 $186 $250 $203 $203

$ 19 $ 19 $ 19 $ 19 $ 19 $ 18 $ 24 $ 19 $ 19
$ 60 $ 60 $ 60 $ 60 $ 60 $ 55 $ 73 $ 60 $ 60
$103 $103 $103 $103 $103 $ 95 $126 $103 $103
$202 $203 $203 $203 $203 $186 $250 $203 $203
</TABLE>

(2) OF THIS AMOUNT, 0.25% IS DESIGNATED AS A SHAREHOLDER SERVICING FEE AND
0.75% AS A DISTRIBUTION FEE.

(3) ABSENT THE FEE WAIVERS REFERRED TO IN (1) ABOVE, THE DOLLAR AMOUNTS FOR THE
1, 3, 5 AND 10-YEAR PERIODS WOULD BE AS FOLLOWS: BALANCED FUND, $69, $99,
$122 AND $201; REAL ESTATE SECURITIES FUND, $70, $103, $128 AND $213;
EQUITY INCOME FUND, $69, $100, $124 AND $205; EQUITY INDEX FUND, $69, $99,
$122 AND $201; LARGE CAP VALUE FUND, $69, $99, $122 AND $202; LARGE CAP
GROWTH FUND, $69, $99, $122 AND $202; MID CAP VALUE FUND, $69, $100, $123
AND $203; REGIONAL EQUITY FUND, $69, $100, $123 AND $203; SMALL CAP GROWTH
FUND, $69, $100, $123 AND $204; SMALL CAP VALUE FUND, $69, $100, $123 AND
$203; MICRO CAP VALUE FUND, $71, $105, $131 AND $221; INTERNATIONAL INDEX
FUND, $70, $102, $127 AND $212; INTERNATIONAL FUND, $76, $118, $154 AND
$267; HEALTH SCIENCES FUND, $71, $104, $130 AND $218; AND TECHNOLOGY FUND,
$69, $100, $124 AND $205.
(4) ABSENT THE FEE WAIVERS REFERRED TO IN (1) ABOVE (ASSUMING NO REDEMPTION),
THE DOLLAR AMOUNTS FOR THE 1, 3, 5 AND 10-YEAR PERIODS WOULD BE AS
FOLLOWS: BALANCED FUND, $19, $59, $102 AND $202; REAL ESTATE SECURITIES
FUND, $21, $64, $110 AND $219; EQUITY INCOME FUND, $19, $60, $104 AND
$205; EQUITY INDEX FUND, $19, $59, $102 AND $202; LARGE CAP VALUE FUND,
$19, $59, $102 AND $202; LARGE CAP GROWTH FUND, $19, $59, $102 AND $202;
MID CAP VALUE FUND, $19, $60, $103 AND $203; REGIONAL EQUITY FUND, $19,
$60, $103 AND $203; SMALL CAP GROWTH FUND, $19, $60, $103 AND $204; SMALL
CAP VALUE FUND, $19, $60, $103 AND $203; MICRO CAP VALUE FUND, $21, $65,
$111 AND $221; INTERNATIONAL INDEX FUND, $20, $62, $107 AND $212;
INTERNATIONAL FUND, $26, $78, $134 AND $267; HEALTH SCIENCES FUND, $21,
$64, $110 AND $218; AND TECHNOLOGY FUND, $19, $60, $104 AND $205.

<PAGE>

---------------------------------------------------------------------------
INFORMATION CONCERNING FEES AND EXPENSES

The purpose of the preceding tables is to assist the investor in
understanding the various costs and expenses that an investor in a Fund
may bear directly or indirectly. THE EXAMPLES CONTAINED IN THE TABLES
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

<PAGE>

FINANCIAL HIGHLIGHTS

The following audited financial highlights for each of the Funds should be
read in conjunction with the Funds' financial statements, the related
notes thereto and the independent auditors' report of KPMG Peat Marwick
LLP appearing in FAIF's annual reports to shareholders dated September 30,
1997 and dated November 30, 1997 (for Small Cap Value Fund and
International Index Fund).

Further information about the Funds' performance is contained in such FAIF
annual reports which may be obtained without charge by calling (800)
637-2548 or by writing SEI Investments Distribution Co., Oaks,
Pennsylvania 19456.

<PAGE>

FINANCIAL HIGHLIGHTS (CONTINUED)

For the periods ended September 30,
For a share outstanding throughout the period

<TABLE>
<CAPTION>
REALIZED AND
UNREALIZED DIVIDENDS
NET ASSET NET GAINS OR FROM NET DISTRIBUTIONS
VALUE BEGINNING INVESTMENT (LOSSES) ON INVESTMENT FROM
OF PERIOD INCOME INVESTMENTS INCOME CAPITAL GAINS
<S> <C> <C> <C> <C> <C>
BALANCED FUND CLASS A
1997 $13.14 $0.39 $ 2.85 $(0.39) $(0.58)
1996 12.12 0.39 1.43 (0.39) (0.41)
1995 10.54 0.38 1.72 (0.37) (0.15)
1994 10.73 0.34 (0.02) (0.34) (0.17)
1993(1) 10.00 0.28 0.75 (0.28) (0.02)
CLASS B
1997 $13.10 $0.29 $ 2.84 $(0.29) $(0.58)
1996 12.09 0.31 1.42 (0.31) (0.41)
1995 10.53 0.29 1.71 (0.29) (0.15)
1994(2) 10.66 0.06 (0.12) (0.07) --
REAL ESTATE SECURITIES FUND CLASS A
1997 $11.52 $0.72 $ 3.42 $(0.65) $(0.03)
1996 10.38 0.52 1.30 (0.51) --
1995(3) 10.37 -- 0.01 -- --
CLASS B
1997 $11.46 $0.63 $ 3.38 $(0.57) $(0.03)
1996 10.37 0.44 1.27 (0.45) --
1995(3) 10.37 -- -- -- --
EQUITY INCOME FUND CLASS A
1997 $12.65 $0.40 $ 3.40 $(0.41) $(0.35)
1996 11.24 0.39 1.42 (0.39) (0.01)
1995 9.89 0.41 1.33 (0.39) --
1994(4) 9.87 0.41 -- (0.39) --
1993(5)(6) 10.00 0.57 (0.14) (0.56) --
CLASS B
1997 $12.61 $0.29 $ 3.37 $(0.30) $(0.35)
1996 11.20 0.31 1.42 (0.31) (0.01)
1995 9.88 0.33 1.32 (0.33) --
1994(2) 9.87 0.04 0.02 (0.05) --
EQUITY INDEX FUND CLASS A
1997 $15.49 $0.12 $ 5.70 $(0.12) $(0.43)
1996 13.35 0.27 2.32 (0.27) (0.18)
1995 10.68 0.25 2.76 (0.25) (0.09)
1994 10.60 0.25 0.09 (0.25) (0.01)
1993(1) 10.00 0.20 0.60 (0.20) --
CLASS B
1997 $15.43 $0.12 $ 5.67 $(0.12) $(0.43)
1996 13.30 0.17 2.31 (0.17) (0.18)
1995 10.66 0.23 2.68 (0.18) (0.09)
1994(2) 10.68 0.01 0.04 (0.07) --
LARGE CAP VALUE FUND CLASS A
1997 $22.59 $0.33 $ 7.90 $(0.32) $(1.76)
1996 19.57 0.36 4.07 (0.36) (1.05)
1995 16.51 0.33 3.64 (0.32) (0.59)
1994 16.00 0.31 1.00 (0.30) (0.50)
1993 14.04 0.22 1.99 (0.23) (0.02)
1992 13.62 0.24 0.81 (0.29) (0.34)
1991(7) 10.64 0.28 2.95 (0.22) (0.03)
1990(8) 12.09 0.25 (1.17) (0.25) (0.28)
1989(8) 10.35 0.25 1.70 (0.20) (0.01)
1988(8)(9) 10.03 0.27 0.35 (0.30) --
CLASS B
1997 $22.50 $0.18 $ 7.81 $(0.18) $(1.76)
1996 19.49 0.22 4.06 (0.22) (1.05)
1995 16.49 0.26 3.55 (0.22) (0.59)
1994(2) 16.65 0.03 (0.10) (0.09) --

</TABLE>

<PAGE>

RATIO OF
RATIO OF NET EXPENSES TO
NET ASSET RATIO OF INVESTMENT AVERAGE
DISTRIBUTIONS VALUE NET ASSETS EXPENSES TO INCOME TO NET ASSETS PORTFOLIO AVERAGE
FROM RETURN END OF TOTAL END OF AVERAGE AVERAGE (EXCLUDING TURNOVER COMMISSION
OF CAPITAL PERIOD RETURN* PERIOD (000) NET ASSETS NET ASSETS WAIVERS) RATE RATE (A)

<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ -- $ 15.41 25.80% $ 32,309 1.05% 2.74% 1.13% 84% $ 0.0700
-- 13.14 15.61 20,927 1.05 3.05 1.14 73 0.0619
-- 12.12 20.57 15,288 0.99 3.41 1.19 77 --
-- 10.54 3.02 13,734 0.77 2.63 1.24 98 --
-- 10.73 10.39+ 111,225 0.75 3.31 1.29 77 --

$ -- $ 15.36 24.93% $ 43,707 1.80% 1.99% 1.88% 84% $ 0.0700
-- 13.10 14.78 15,542 1.80 2.32 1.89 73 0.0619
-- 12.09 19.58 3,120 1.79 2.60 1.94 77 --
-- 10.53 (0.55)+ 270 1.75 2.80 2.05 98 --

$ (0.01) $ 14.97 36.77% $ 2,105 1.05% 4.46% 1.30% 14% $ 0.0700
(0.17) 11.52 18.17 226 1.05 4.36 1.76 8 0.0704
-- 10.38 0.00 1 1.05 0.00 2.59 0 --

$ (0.01) $ 14.86 35.77% $ 3,318 1.80% 3.61% 2.00% 14% $ 0.0700
(0.17) 11.46 17.00 263 1.80 4.29 2.51 8 0.0704
-- 10.37 0.00 1 1.80 0.00 3.34 0 --

$ -- $ 15.69 31.16% $ 7,276 1.00% 2.96% 1.17% 39% $ 0.0571
-- 12.65 16.41 2,581 1.00 3.25 1.20 23 0.0700
-- 11.24 18.06 1,995 0.92 3.91 1.31 23 --
-- 9.89 4.22+ 1,852 0.88 4.88 1.39 108 --
-- 9.87 4.44+ 28,786 0.75 6.09 1.36 68 --

$ -- $ 15.62 30.06% $ 6,619 1.75% 2.19% 1.92% 39% $ 0.0571
-- 12.61 15.66 3,770 1.75 2.49 1.95 23 0.0700
-- 11.20 17.10 1,233 1.75 3.05 2.06 23 --
-- 9.88 0.57+ 1 1.75 4.39 2.14 108 --

$ -- $ 20.76 39.47% $ 15,977 0.60% 1.36% 1.13% 8% $ 0.0419
-- 15.49 19.75 6,221 0.60 1.87 1.15 10 0.0377
-- 13.35 28.90 2,140 0.57 2.16 1.20 9 --
-- 10.68 3.25 758 0.35 2.23 1.23 11 --
-- 10.60 8.02+ 139,957 0.35 2.52 1.30 1 --

$ -- $ 20.67 38.45% $ 23,733 1.35% 0.61% 1.88% 8% $ 0.0419
-- 15.43 18.95 8,252 1.35 1.11 1.90 10 0.0377
-- 13.30 27.87 1,197 1.35 1.34 1.95 9 --
-- 10.66 0.48+ 29 1.35 1.68 2.03 11 --

$ -- $ 28.74 38.82 $ 50,381 1.05% 1.14% 1.14% 57% $ 0.0640
-- 22.59 23.90 22,965 1.05 1.64 1.13 40 0.0653
-- 19.57 25.26 13,076 1.00 1.89 1.19 52 --
-- 16.51 8.35 8,421 0.76 1.51 1.20 65 --
-- 16.00 15.82 134,186 0.75 1.94 1.28 48 --
-- 14.04 7.88 3,644 1.45 1.75 4.46 39 --
-- 13.62 30.49+ 2,386 1.45 2.47 7.42 76 --
-- 10.64 (8.22) 1,161 1.45 2.24 9.47 41 --
-- 12.09 20.33 323 1.24 2.26 36.39 74 --
-- 10.35 6.40+ 206 1.02 2.67 28.60 80 --

$ -- $ 28.55 37.71% $ 53,420 1.80% 0.39% 1.89% 57% $ 0.0640
-- 22.50 23.08 23,316 1.80 0.89 1.88 40 0.0653
-- 19.49 24.20 7,051 1.79 1.10 1.94 52 --
-- 16.49 (0.43)+ 346 1.75 1.58 2.01 65 --

</TABLE>

<PAGE>

FINANCIAL HIGHLIGHTS (CONTINUED)

For the periods ended September 30,
For a share outstanding throughout the period

REALIZED AND
UNREALIZED DIVIDENDS
NET ASSET VALUE NET GAINS OR FROM NET DISTRIBUTIONS
BEGINNING OF INVESTMENT (LOSSES) ON INVESTMENT FROM CAPITAL
PERIOD INCOME INVESTMENTS INCOME GAINS
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LARGE CAP GROWTH FUND CLASS A
1997 $13.63 $ 0.09 $ 4.28 $(0.10) $(0.27)
1996 11.75 0.15 1.88 (0.15) --
1995 9.09 0.15 2.66 (0.15) --
1994(4) 9.39 0.10 (0.29) (0.11) --
1993(5)(6) 10.00 0.11 (0.63) (0.09) --
Class B
1997 $13.57 $ 0.01 $ 4.18 $(0.02) $(0.27)
1996 11.73 0.08 1.84 (0.08) --
1995 9.09 0.09 2.65 (0.10) --
1994(2) 8.87 0.01 0.23 (0.02) --
MID CAP VALUE FUND CLASS A
1997 $20.41 $ 0.11 $ 6.98 $(0.11) $(3.20)
1996 17.89 0.20 3.94 (0.20) (1.42)
1995 17.30 0.35 1.60 (0.34) (1.02)
1994 15.81 0.28 2.52 (0.28) (1.03)
1993 13.61 0.23 2.32 (0.25) (0.10)
1992 12.98 0.21 1.61 (0.27) (0.92)
1991(7) 10.33 0.30 2.61 (0.26) --
1990(8) 12.96 0.47 (2.03) (0.46) (0.61)
1989(8) 11.55 0.47 1.39 (0.41) (0.04)
1988(8)(9) 10.03 0.34 1.57 (0.39) --
CLASS B
1997 $20.31 $ 0.02 $ 6.85 $(0.02) $(3.20)
1996 17.83 0.09 3.91 (0.10) (1.42)
1995 17.29 0.29 1.51 (0.24) (1.02)
1994(2) 16.51 0.01 0.85 (0.08) --
REGIONAL EQUITY FUND CLASS A
1997 $17.71 $ 0.03 $ 6.14 $(0.07) $(0.69)
1996 17.12 0.04 1.70 (0.04) (1.11)
1995 12.52 0.08 4.90 (0.06) (0.32)
1994 11.96 0.08 0.71 (0.07) (0.16)
1993(1) 10.00 0.05 1.96 (0.05) --
CLASS B
1997 $17.47 $(0.03) $ 5.97 $ -- $(0.69)
1996 16.99 (0.04) 1.64 (0.01) (1.11)
1995 12.50 0.04 4.80 (0.03) (0.32)
1994(2) 12.19 -- 0.33 (0.02) --
SMALL CAP GROWTH FUND CLASS A
1997 $14.77 $(0.07) $ 3.51 $ -- $(0.66)
1996 13.40 (0.06) 1.78 -- (0.35)
1995 10.57 0.01 2.99 (0.02) (0.15)
1994(10) 10.00 0.01 0.57 (0.01) --
CLASS B
1997 $14.53 $(0.16) $ 3.44 $ -- $(0.66)
1996 13.29 (0.12) 1.71 -- (0.35)
1995 10.55 (0.03) 2.92 -- (0.15)
1994(2) 9.89 (0.01) 0.67 -- --
SMALL CAP VALUE FUND(11) CLASS A
1997(12)(13) $17.86 $(0.03) $ 0.37 $ -- $ --
1997(14) 13.95 0.01 5.43 (0.01) (1.52)
1996(14) 13.23 0.04 1.83 (0.04) (1.11)
1995(14)(15) 10.00 0.09 3.29 (0.10) (0.05)
Class B
1997(16) $18.36 $(0.00) $(0.13) $ -- $ --
MICRO CAP VALUE FUND CLASS A
1997(17) $10.00 $ -- $ 0.96 $ -- $ --
CLASS B
1997(17) $10.00 $ -- $ 0.95 $ -- $ --

</TABLE>

<PAGE>

<TABLE>
<CAPTION>
RATIO OF
RATIO OF NET EXPENSES TO
NET ASSET NET RATIO OF INVESTMENT AVERAGE
DISTRIBUTIONS VALUE ASSETS EXPENSES TO INCOME (LOSS) NET ASSETS PORTFOLIO AVERAGE
FROM RETURN END OF TOTAL END OF AVERAGE TO AVERAGE (EXCLUDING TURNOVER COMMISSION
OF CAPITAL PERIOD RETURN* PERIOD (000) NET ASSETS NET ASSETS WAIVERS) RATE RATE (A)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ -- $ 17.63 32.69% $12,017 1.05% 0.57% 1.14% 34% $0.0633
-- 13.63 17.38 5,318 1.04 1.13 1.17 21 0.0593
-- 11.75 31.21 2,710 0.92 1.52 1.26 28 --
-- 9.09 (2.07)+ 1,900 0.90 1.15 1.33 101 --
-- 9.39 (5.18)+ 31,084 0.78 1.26 1.25 5 --

$ -- $ 17.47 31.42% $ 9,487 1.80% (0.18)% 1.89% 34% $0.0633
-- 13.57 16.41 5,775 1.79 0.36 1.92 21 0.0593
-- 11.73 30.29 819 1.75 0.58 2.01 28 --
-- 9.09 2.75+ 12 1.75 1.20 2.08 101 --

$ -- $ 24.19 39.93% $35,207 1.14% 0.58% 1.15% 82% $0.0691
-- 20.41 25.23 17,987 1.13 1.06 1.13 143 0.0673
-- 17.89 12.63 11,609 1.09 2.08 1.20 72 --
-- 17.30 18.70 7,333 0.81 1.88 1.23 116 --
-- 15.81 18.91 81,899 0.81 2.07 1.31 104 --
-- 13.61 15.17 3,586 1.50 1.61 4.18 146 --
-- 12.98 28.38+ 3,423 1.50 2.60 5.13 116 --
-- 10.33 (13.24) 2,761 1.50 4.09 4.21 113 --
-- 12.96 17.41 2,000 1.38 4.07 8.68 102 --
-- 11.55 19.56+ 578 1.20 4.02 15.60 51 --

$ -- $ 23.96 38.81% $36,649 1.90% (0.18)% 1.90% 82% $0.0691
-- 20.31 24.35 12,847 1.88 0.25 1.88 143 0.0673
-- 17.83 11.64 4,847 1.88 1.22 1.95 72 --
-- 17.29 5.22+ 370 1.68 0.47 2.03 116 --

$ -- $ 23.12 36.13% $37,677 1.15% 0.11% 1.15% 17% $0.0699
-- 17.71 10.97 25,325 1.13 0.24 1.15 36 0.0697
-- 17.12 41.17 14,917 1.05 0.58 1.20 42 --
-- 12.52 6.76 8,345 0.82 0.59 1.25 41 --
-- 11.96 20.17+ 58,427 0.80 0.59 1.30 28 --

$ -- $ 22.72 35.18% $39,683 1.90% (0.65)% 1.90% 17% $0.0699
-- 17.47 10.14 27,671 1.88 (0.52) 1.90 36 0.0697
-- 16.99 39.98 7,630 1.84 (0.25) 1.95 42 --
-- 12.50 2.73+ 185 1.80 (0.41) 2.05 41 --

$ -- $ 17.55 24.73% $ 5,270 1.15% (0.51)% 1.16% 54% $0.0681
-- 14.77 13.21 1,867 1.14 (0.52) 1.21 39 0.0700
-- 13.40 28.82 386 1.04 0.00 1.44 51 --
-- 10.57 5.88+ 91 0.79 0.23 2.84 19 --

$ -- $ 17.15 24.01% $ 1,263 1.90% (1.28)% 1.91% 54% $0.0681
-- 14.53 12.32 799 1.89 (1.26) 1.96 39 0.0700
-- 13.29 27.89 268 1.84 (0.83) 2.19 51 --
-- 10.55 6.67+ 18 1.80 (0.85) 3.59 19 --

$ -- $ 18.20 1.90%+ $19,194 1.37% (0.38)% 1.37% 3% $0.0638
-- 17.86 41.71 22,429 1.31 0.01 1.31 29 0.0519
-- 13.95 14.93 10,247 1.33 0.14 1.33 34 0.0398
-- 13.23 34.29+ 1,569 1.11 0.63 1.38 37 N/A

$ -- $ 18.23 (0.70)%+ $ 1 1.90% (1.53)% 1.90% 3% $0.0638

$ -- $ 10.96 9.60% $ 44 1.15% (0.25)% 1.32% 0% $0.0676

$ -- $ 10.95 9.50% $ 50 1.90% (1.04)% 2.07% 0% $0.0676

</TABLE>

<PAGE>

FINANCIAL HIGHLIGHTS (continued)

For the periods ended September 30,
For a share outstanding throughout the period

<TABLE>
<CAPTION>
REALIZED AND
UNREALIZED DIVIDENDS
NET ASSET VALUE NET GAINS OR FROM NET DISTRIBUTIONS
BEGINNING OF INVESTMENT (LOSSES) ON INVESTMENT FROM CAPITAL
PERIOD INCOME INVESTMENTS INCOME GAINS
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INTERNATIONAL INDEX FUND(11) CLASS A
1997(12)(13) $12.32 $ 0.05 $(1.41) $(0.02) $ --
1997(14) 10.64 0.10 1.70 (0.10)(B) (0.02)
1996(14) 10.45 0.07 0.17 (0.05) --
1995(14)(18) 10.00 -- 0.45 -- --
CLASS B(16)
1997 $11.08 $ 0.00 $(0.09) $ -- $ --
INTERNATIONAL FUND CLASS A
1997 $10.28 $ 0.01 $ 3.04 $(0.15)(B) $ --
1996 10.28 (0.02) 0.20 (0.18)(B) --
1995 10.21 -- 0.07 -- --
1994(19) 9.98 (0.01) 0.24 -- --
CLASS B
1997 $10.14 $(0.08) $ 3.01 $(0.10)(B) $ --
1996 10.20 (0.07) 0.17 (0.16)(B) --
1995 10.21 (0.03) 0.02 -- --
1994(2) 10.23 (0.01) (0.01) -- --
HEALTH SCIENCES FUND CLASS A
1997 $ 9.86 $(0.01) $ 2.30 $ -- $(0.10)
1996(20) 10.00 0.01 (0.14) (0.01) --
CLASS B
1997 $ 9.81 $(0.01) $ 2.20 $ -- $(0.10)
1996(20) 10.00 (0.02) (0.16) (0.01) --
TECHNOLOGY FUND CLASS A
1997 $19.25 $(0.11) $ 3.12 $ -- $(2.06)
1996 18.24 (0.05) 2.95 -- (1.89)
1995 11.19 (0.03) 7.31 -- (0.23)
1994(10) 10.00 (0.01) 1.20 -- --
CLASS B
1997 $18.85 $(0.20) $ 2.99 $ -- $(2.06)
1996 18.02 (0.14) 2.86 -- (1.89)
1995 11.17 (0.04) 7.12 -- (0.23)
1994(2) 9.85 (0.02) 1.34 -- --

</TABLE>

<PAGE>

<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ -- $ 10.94 (11.03)%+ $1,270 0.92% 0.98% 1.21% 0% $ 0.0207
12.32 17.03 1,605 0.98 0.90 1.28 3 0.0241
-- 10.64 2.29 2,005 1.06 0.84 1.35 6 0.0221
-- 10.45 4.50 + 20 1.40 0.23 1.54 0 N/A
$ -- $ 10.99 ( 0.36)%+ $ 1 1.29% 0.00% 1.29% 0% $ 0.0207
$ -- $ 13.18 30.03% $8,003 1.92% (0.09)% 1.92% 96% $ 0.0199
-- 10.28 1.84 1,964 1.97 (0.28) 1.97 100 0.0345
-- 10.28 0.69 876 1.93 (0.13) 2.06 57 --
-- 10.21 2.30 + 464 1.75 (0.26) 2.30 16 --
$ -- $ 12.97 29.13% $2,188 2.67% (0.94)% 2.67 96% $ 0.0199
-- 10.14 1.02 1,175 2.72 (0.96) 2.72 100 0.0345
-- 10.20 ( 0.10) 306 2.76 (0.95) 2.81 57 --
-- 10.21 ( 0.20)+ 22 2.75 (0.71) 3.05 16 --
$ -- $ 12.05 23.60% $ 849 1.15% (0.20)% 1.29% 54% $ 0.0695
-- 9.86 ( 1.32)+ 629 1.15 0.18 2.12 19 0.0700
$ -- $ 11.90 22.69% $ 516 1.90% (0.94)% 2.04% 54% $ 0.0695
-- 9.81 ( 1.86)+ 281 1.90 (0.61) 2.87 19 0.0700
$ -- $ 20.20 17.71% $5,564 1.15% (0.59)% 1.17% 150% $ 0.0675
-- 19.25 18.60 4,799 1.15 (0.85) 1.26 119 0.0700
-- 18.24 66.22 1,464 1.13 (0.61) 1.55 74 --
-- 11.19 11.90 + 61 0.80 (0.21) 3.37 43 --
$ -- $ 19.58 16.82% $8,463 1.90% (1.41)% 1.92% 150% $ 0.0675
-- 18.85 17.75 4,881 1.90 (1.60) 2.01 119 0.0700
-- 18.02 64.52 2,031 1.88 (1.41) 2.30 74 --
-- 11.17 13.40 + 2 1.80 (1.44) 4.12 43 --

</TABLE>

<PAGE>

FINANCIAL HIGHLIGHTS (CONTINUED)

* TOTAL RETURN EXCLUDES SALES CHARGES.
+ RETURNS, EXCLUDING SALES CHARGES, ARE FOR THE PERIOD INDICATED AND HAVE NOT
BEEN ANNUALIZED.
(A) BEGINNING IN 1996, AVERAGE COMMISSION RATE PAID PER SHARE IS DISCLOSED FOR
ALL APPLICABLE SECURITY PURCHASES AND SALES SUBJECT TO COMMISSIONS. THE
COMPARABILITY OF THIS INFORMATION MAY BE AFFECTED BY THE FACT THAT
COMMISSION RATES PER SHARE VARY SIGNIFICANTLY AMONG FOREIGN COUNTRIES.
(B) REPRESENTS A DISTRIBUTION OR PARTIAL DISTRIBUTION IN EXCESS OF NET
INVESTMENT INCOME DUE TO THE TAX TREATMENT OF FOREIGN CURRENCY RELATED
TRANSACTIONS.
(1) COMMENCED OPERATIONS ON DECEMBER 14, 1992. ALL RATIOS FOR THE PERIOD HAVE
BEEN ANNUALIZED.
(2) CLASS B SHARES HAVE BEEN OFFERED SINCE AUGUST 15, 1994. ALL RATIOS FOR THE
PERIOD HAVE BEEN ANNUALIZED.
(3) COMMENCED OPERATIONS ON SEPTEMBER 29, 1995. ALL RATIOS FOR THE PERIOD HAVE
BEEN ANNUALIZED.
(4) ON APRIL 28, 1994 THE BOARD OF DIRECTORS APPROVED A CHANGE IN THIS FUND'S
FISCAL YEAR END FROM NOVEMBER 30 TO SEPTEMBER 30, EFFECTIVE SEPTEMBER 30,
1994, AND SHAREHOLDERS APPROVED A CHANGE OF INVESTMENT ADVISOR FROM
BOULEVARD BANK NATIONAL ASSOCIATION TO FIRST BANK NATIONAL ASSOCIATION. ALL
RATIOS FOR THE PERIOD HAVE BEEN ANNUALIZED.
(5) FOR THE PERIOD ENDED NOVEMBER 30.
(6) COMMENCED OPERATIONS ON DECEMBER 18, 1992. ALL RATIOS FOR THE PERIOD HAVE
BEEN ANNUALIZED.
(7) ON SEPTEMBER 3, 1991, THE BOARD OF DIRECTORS OF FAIF APPROVED A CHANGE IN
FAIF'S FISCAL YEAR END FROM OCTOBER 31 TO SEPTEMBER 30, EFFECTIVE SEPTEMBER
30, 1991. ALL RATIOS FOR THE PERIOD HAVE BEEN ANNUALIZED.
(8) FOR THE PERIOD ENDED OCTOBER 31.
(9) COMMENCED OPERATIONS ON DECEMBER 22, 1987. ALL RATIOS FOR THE PERIOD HAVE
BEEN ANNUALIZED.
(10) COMMENCED OPERATIONS ON APRIL 4, 1994. ALL RATIOS FOR THE PERIOD HAVE BEEN
ANNUALIZED.
(11) THE FINANCIAL HIGHLIGHTS FOR INTERNATIONAL INDEX FUND AND SMALL CAP VALUE
FUND AS SET FORTH HEREIN INCLUDE THE HISTORICAL FINANCIAL HIGHLIGHTS OF
THE QUALIVEST INTERNATIONAL OPPORTUNITIES FUND AND THE QUALIVEST SMALL
COMPANIES VALUE FUND (CLASS A SHARES), RESPECTIVELY. THE ASSETS OF THE
QUALIVEST INTERNATIONAL OPPORTUNITIES FUND AND THE QUALIVEST SMALL
COMPANIES VALUE FUND WERE ACQUIRED BY INTERNATIONAL INDEX FUND AND SMALL
CAP VALUE FUND, RESPECTIVELY, ON NOVEMBER 21, 1997. IN CONNECTION WITH
SUCH ACQUISITION, CLASS A AND CLASS C SHARES OF THE QUALIVEST
INTERNATIONAL OPPORTUNITIES FUND AND THE QUALIVEST SMALL COMPANIES VALUE
FUND WERE EXCHANGED FOR CLASS A SHARES OF INTERNATIONAL INDEX FUND AND
SMALL CAP VALUE FUND, RESPECTIVELY.
(12) FOR THE FOUR MONTH PERIOD ENDED NOVEMBER 30, 1997. ALL RATIOS FOR THE
PERIOD HAVE BEEN ANNUALIZED.
(13) THE BOARD OF DIRECTORS OF FAIF APPROVED A CHANGE IN THE FUND'S FISCAL YEAR
END FROM JULY 31 TO NOVEMBER 30, EFFECTIVE NOVEMBER 30, 1997.
(14) FOR THE PERIOD ENDED JULY 31.
(15) COMMENCED OPERATIONS ON AUGUST 1, 1994. ALL RATIOS FOR THE PERIOD HAVE
BEEN ANNUALIZED.
(16) COMMENCED OPERATIONS ON NOVEMBER 24, 1997. ALL RATIOS FOR THE PERIOD HAVE
BEEN ANNUALIZED.
(17) COMMENCED OPERATIONS ON AUGUST 8, 1997. ALL RATIOS FOR THE PERIOD HAVE
BEEN ANNUALIZED.
(18) COMMENCED OPERATIONS ON JULY 3, 1995. ALL RATIOS FOR THE PERIOD HAVE BEEN
ANNUALIZED.
(19) CLASS A SHARES HAVE BEEN OFFERED SINCE APRIL 7, 1994. ALL RATIOS FOR THE
PERIOD HAVE BEEN ANNUALIZED.
(20) COMMENCED OPERATIONS ON JANUARY 31, 1996. ALL RATIOS FOR THE PERIOD HAVE
BEEN ANNUALIZED.

<PAGE>

(This page has been left blank intentionally.)

<PAGE>

FINANCIAL HIGHLIGHTS (CONTINUED)

The following unaudited financial highlights for Micro Cap Value Fund for the
period commencing August 8, 1997 and ending December 31, 1997 should be read in
conjunction with the Fund's unaudited financial statements and the related
notes thereto appearing in the Funds' Statement of Additional Information dated
January 31, 1998 as supplemented on May 15, 1998.

Further information about the Fund's performance for the period commencing
August 8, 1997 and ending December 31, 1997 is contained in such Statement of
Additional Information, which may be obtained without charge by calling (800)
637-2548 or by writing SEI Investments Distribution Co., Oaks, Pennsylvania
19456.

For the period ended December 31, 1997

<TABLE>
<CAPTION>
REALIZED AND DIVIDENDS
NET ASSET NET UNREALIZED FROM NET
VALUE BEGINNING INVESTMENT GAINS ON INVESTMENT
OF PERIOD INCOME INVESTMENTS INCOME
<S> <C> <C> <C> <C>
MICRO CAP VALUE FUND(1) CLASS A $ 10.00 $ -- $ (0.01) $ 0.00
MICRO CAP VALUE FUND(1) CLASS B $ 10.00 $ -- $ (0.06) $ --

</TABLE>

+ RETURNS ARE FOR THE PERIOD INDICATED AND HAVE NOT BEEN ANNUALIZED.
(A) BEGINNING IN 1997, AVERAGE COMMISSION RATE PAID PER SHARE IS DISCLOSED FOR
ALL APPLICABLE SECURITY PURCHASES AND SALES SUBJECT TO COMMISSIONS. THE
COMPARABILITY OF THIS INFORMATION MAY BE AFFECTED BY THE FACT THAT
COMMISSION RATES PER SHARE VARY SIGNIFICANTLY AMONG FOREIGN COUNTRIES.

(1) COMMENCED OPERATIONS ON AUGUST 8, 1997. ALL RATIOS FOR THE PERIOD HAVE BEEN
ANNUALIZED.

<PAGE>

<TABLE>
<CAPTION>
RATIO OF
RATIO OF NET EXPENSES TO
DISTRIBUTION NET ASSET RATIO OF INVESTMENT AVERAGE
FROM VALUE NET ASSETS EXPENSES TO INCOME TO NET ASSETS AVERAGE
CAPITAL END OF TOTAL END OF AVERAGE AVERAGE (EXCLUDING PORTFOLIO COMMISSION
GAIN PERIOD RETURN PERIOD (000) NET ASSETS NET ASSETS WAIVERS) TURNOVER RATE (A)
- --------------- ----------- -------------- -------------- ------------- -------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>

$(0.59) $ 9.40 0.08%+ $274 1.13% 0.06% 1.14% 2% $ 0.0622

$(0.59) $ 9.35 (0.46)%+ $127 1.88% (0.63)% 1.91% 2% $ 0.0622
- --------------- ------ ----- ---- ---- ----- ---- ----------- --------
</TABLE>

<PAGE>

THE FUNDS

FAIF is an open-end management investment company which offers shares in
several different mutual funds (collectively, the "FAIF Funds"), each of
which evidences an interest in a separate and distinct investment
portfolio. Shareholders may purchase shares in each FAIF Fund through
three separate classes (Class A, Class B and Class Y) which provide for
variations in distribution costs, shareholder servicing fees, voting
rights and dividends. Except for these differences among classes, each
share of each FAIF Fund represents an undivided proportionate interest in
that Fund. FAIF is incorporated under the laws of the State of Maryland,
and its principal offices are located at Oaks, Pennsylvania 19456.

This Prospectus relates only to the Class A and Class B Shares of the
Funds named on the cover hereof. Information regarding the Class Y Shares
of these Funds and regarding the Class A, Class B and Class Y Shares of
the other FAIF Funds is contained in separate prospectuses that may be
obtained from FAIF's Distributor, SEI Investments Distribution Co., Oaks,
Pennsylvania 19456, or by calling (800) 637-2548. The Board of Directors
of FAIF may authorize additional series or classes of common stock in the
future.

INVESTMENT OBJECTIVES AND POLICIES

This section describes the investment objectives and policies of the Funds.
There is no assurance that any of these objectives will be achieved. The
Funds' investment objectives are not fundamental and therefore may be
changed without a vote of shareholders. Such changes could result in a Fund
having investment objectives different from those which shareholders
considered appropriate at the time of their investment in a Fund.
Shareholders will receive written notification at least 30 days prior to any
change in a Fund's investment objectives. Each of the Funds except Real
Estate Securities Fund, Health Sciences Fund and Technology Fund is a
diversified investment company, as defined in the Investment Company Act of
1940 (the "1940 Act"). Real Estate Securities Fund, Health Sciences Fund and
Technology Fund are non-diversified companies under the 1940 Act.

If a percentage limitation on investments by a Fund stated below or in the
Statement of Additional Information is adhered to at the time of an
investment, a later increase or decrease in percentage resulting from
changes in asset values will not be deemed to violate the limitation
except in the case of the limitations on illiquid investments and
borrowing. Similarly, if a Fund is required or permitted to invest a
stated percentage of its assets in companies with no more or no less than
a stated market capitalization, deviations from the stated percentages
which result from changes in companies' market capitalizations after the
Fund purchases its shares will not be deemed to violate the limitation. A
Fund which is limited to investing in securities with specified ratings is
not required to sell a security if its rating is reduced or discontinued
after purchase, but the Fund may consider doing so. However, except in the
case of Equity Income Fund, in no event will more than 5% of any Fund's
net assets be invested in non-investment grade securities. Descriptions of
the rating categories of Standard & Poor's Rating Services, a division of
The McGraw-Hill Companies, Inc. ("Standard & Poor's") and Moody's
Investors Service, Inc. ("Moody's") are contained in the Statement of
Additional Information.

When the term "equity securities" is used in this Prospectus, it refers to
common stock and securities which are convertible into or exchangeable
for, or which carry warrants or other rights to acquire, common stock.

This section also contains information concerning certain investment risks
borne by Fund shareholders under the heading "-- Risks to Consider" below.
Further information concerning the securities in which the Funds may
invest and related matters is set forth under "Special Investment
Methods."

<PAGE>

---------------------------------------------------------------------------
BALANCED FUND

OBJECTIVE. Balanced Fund has an objective of maximizing total return
(capital appreciation plus income).

INVESTMENT POLICIES. Balanced 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 (including only
that portion of the value of convertible securities attributable to their
fixed income characteristics), and between 0% and 25% money market
instruments. The Advisor may make moderate shifts among asset classes in
order to attempt to increase returns or reduce risk.

With respect to the equity security portion of the Fund's portfolio, the
Advisor follows the same investment policies as are described below under
"-- Large Cap Value Fund -- Investment Policies."

The fixed income portion of the Fund's portfolio is invested in investment
grade debt securities, at least 65% of which are United States 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. Under normal market conditions, the weighted average
maturity of the fixed income securities held by the Fund will not exceed
15 years.

The Fund's permitted fixed income investments include notes, bonds and
discount notes of United States Government agencies or instrumentalities
(including zero coupon securities); domestic issues of corporate debt
obligations having floating or fixed rates of interest and rated at least
BBB by Standard & Poor's or Baa by Moody's, or which have been assigned an
equivalent rating by another nationally recognized statistical rating
organization, or which are of comparable quality in the judgment of the
Advisor; other investments, including mortgage-backed securities, which
are rated in one of the four highest categories by a nationally recognized
statistical rating organization or which are of comparable quality in the
judgment of the Advisor; and commercial paper which is rated A-1 by
Standard & Poor's or P-1 by Moody's or which has been assigned an
equivalent rating by another nationally recognized statistical rating
organization.

Subject to the foregoing limitations, the fixed income securities in which
the Fund may invest include (i) mortgage-backed securities (provided that
the Fund will not invest more than 10% of its total fixed income assets in
interest-only, principal-only, inverse floating rate or inverse
interest-only mortgage-backed securities); (ii) asset-backed securities;
and (iii) bank instruments. In addition, the Fund may invest up to 15% of
its total fixed income assets in foreign securities payable in United
States dollars. For information about these kinds of investments and
certain associated risks, see the related headings under "Special
Investment Methods," and for information concerning certain risks
associated with investing in fixed income securities generally, see
"Special Investment Methods -- Fixed Income Securities."

In addition, the Fund may (i) enter into repurchase agreements; (ii) in
order to attempt to reduce risk, purchase put and call options on equity
securities and on stock indices; (iii) write covered call options covering
up to 25% of the equity securities owned by the Fund and write call
options on stock indices related to such equity securities; (iv) purchase
securities on a when-issued or delayed delivery basis; (v) engage in the
lending of portfolio securities; (vi) in order to attempt to reduce risk,
invest in exchange traded put and call options on interest rate futures
contracts and on interest rate indices; (vii) in order to attempt to
reduce risk, invest in exchange traded interest rate futures and interest
rate index futures contracts; (viii) invest up to 25% of its total fixed
income assets in mortgage dollar roll transactions; and (ix) in order

<PAGE>

to attempt to reduce risk, write covered call options on interest rate
indices. For information about these investment methods, restrictions on
their use, and certain associated risks, see the related headings under
"Special Investment Methods."

For temporary defensive purposes, the Fund may, without limitation, hold
cash or invest in cash items of the kinds described under "Special
Investment Methods -- Cash Items." The Fund also may invest not more than
35% of its total assets in cash and cash items in order to utilize assets
awaiting normal investment.

---------------------------------------------------------------------------
REAL ESTATE SECURITIES FUND

OBJECTIVE. Real Estate Securities Fund has an objective of providing above
average current income and long-term capital appreciation by investing
primarily in equity securities of real estate companies.

INVESTMENT POLICIES. Under normal market conditions, Real Estate Securities
Fund invests at least 65% of its total assets in income producing equity
securities of publicly traded companies principally engaged in the real
estate industry. For this purpose, a company is deemed to be "principally
engaged" in the real estate industry if (i) it derives at least 50% of its
revenues or profits from the ownership, construction, management, financing
or sale of residential, commercial or industrial real estate, or (ii) has at
least 50% of the fair market value of its assets invested in such real
estate. The Fund seeks to invest in equity securities that provide a
dividend yield that exceeds the composite dividend yield of the securities
included in the S&P 500.

A majority of the Fund's total assets will be invested in securities of
real estate investment trusts ("REITs"). REITs are publicly traded
corporations or trusts that specialize in acquiring, holding, and managing
residential, commercial or industrial real estate. A REIT is not taxed at
the entity level on income distributed to its shareholders or unitholders
if it distributes to shareholders or unitholders at least 95% of its
taxable income for each taxable year and complies with regulatory
requirements relating to its organization, ownership, assets and income.

REITs generally can be classified as Equity REITs, Mortgage REITs, and
Hybrid REITs. An Equity REIT invests the majority of its assets directly
in real property and derives its income primarily from rents and from
capital gains on real estate appreciation which are realized through
property sales. A Mortgage REIT invests the majority of its assets in real
estate mortgage loans and derives its income primarily from interest
payments. A Hybrid REIT combines the characteristics of an Equity REIT and
a Mortgage REIT. Although the Fund can invest in all three kinds of REITs,
its emphasis is expected to be on investments in Equity REITs.

The Fund also may invest up to 35% of its total assets in fixed income
securities of the kinds described under "Special Investment Methods --
Fixed Income Securities."

Subject to the limitations stated above, the Fund may invest up to 25% of
its total assets in securities of foreign issuers which are either listed
on a United States stock exchange or represented by American Depositary
Receipts. For information about these kinds of investments and certain
associated risks, see "Special Investment Methods -- Foreign Securities."

For temporary defensive purposes, the Fund may, without limitation, hold
cash or invest in cash items of the kinds described under "Special

<PAGE>

Investment Methods -- Cash Items." The Fund also may invest not more than
35% of its total assets in cash and cash items in order to utilize assets
awaiting normal investment.

Because Real Estate Securities Fund invests primarily in the real estate
industry, it is particularly subject to risks associated with that
industry. The real estate industry has been subject to substantial
fluctuations and declines on a local, regional and national basis in the
past and may continue to be in the future. Real property values and
incomes from real property may decline due to general and local economic
conditions, overbuilding and increased competition, increases in property
taxes and operating expenses, changes in zoning laws, casualty or
condemnation losses, regulatory limitations on rents, changes in
neighborhoods and in demographics, increases in market interest rates, or
other factors. Factors such as these may adversely affect companies which
own and operate real estate directly, companies which lend to such
companies, and companies which service the real estate industry. Although
the Fund will operate as a non-diversified investment company under the
1940 Act, it intends to conduct its operations so as to qualify as a
regulated investment company under the Internal Revenue Code of 1986, as
amended (the "Code").

Because the Fund may invest a substantial portion of its assets in REITs, it
also is subject to risks associated with direct investments in REITs. Equity
REITs will be affected by changes in the values of and incomes from the
properties they own, while Mortgage REITs may be affected by the credit
quality of the mortgage loans they hold. In addition, REITs are dependent on
specialized management skills and on their ability to generate cash flow for
operating purposes and to make distributions to shareholders or unitholders.
REITs may have limited diversification and are subject to risks associated
with obtaining financing for real property, as well as to the risk of
self-liquidation. REITs also can be adversely affected by their failure to
qualify for tax-free pass-through treatment of their income under the Code
or their failure to maintain an exemption from registration under the 1940
Act. By investing in REITs indirectly through the Fund, a shareholder bears
not only a proportionate share of the expenses of the Fund, but also may
indirectly bear similar expenses of some of the REITs in which it invests.

---------------------------------------------------------------------------
EQUITY INCOME FUND

OBJECTIVE. Equity Income Fund has an objective of long-term growth of
capital and income.

INVESTMENT POLICIES. Under normal market conditions, Equity Income Fund
invests at least 65% of its total assets in equity securities of issuers
believed by the Advisor to be characterized by sound management, the
ability to finance expected growth and the ability to pay above average
dividends.

The Fund invests in equity securities that have relatively high dividend
yields and which, in the Advisor's opinion, will result in a relatively
stable Fund dividend with a growth rate sufficient to maintain the
purchasing power of the income stream. Although the Advisor anticipates
that higher yielding equity securities will generally represent the core
holdings of the Fund, the Fund may invest in lower yielding but higher
growth equity securities to the extent that the Advisor believes such
investments are appropriate to achieve portfolio balance. All securities
held by the Fund will provide current income consistent with the Fund's
investment objective.

The "equity securities" in which the Fund may invest include corporate
debt obligations which are convertible into common stock. These
convertible debt obligations may include obligations rated at the time of
purchase as low as CCC by Standard & Poor's or Caa by Moody's, or which
have been assigned an equivalent rating by another nationally recognized
statistical rating organization, or which are of comparable quality in the
judgment of the Advisor. Debt obligations rated less than BBB by Standard
& Poor's or Baa by Moody's are considered to be less than "investment
grade" and are sometimes referred to as "junk bonds." Obligations rated
CCC by

<PAGE>

Standard & Poor's or Caa by Moody's are considered to be of poor standing
and are predominantly speculative. Descriptions of Standard & Poor's and
Moody's rating categories are contained in the Statement of Additional
Information. If the rating of an obligation is reduced below the
categories set forth above after purchase or is discontinued, the Fund is
not required to sell the obligation but may consider doing so.

Purchases of less than investment grade convertible debt obligations are
intended to advance the Fund's objective of long-term growth of capital
through the "upside" potential of the obligations' conversion features and
to advance the Fund's objective of income through receipt of interest
payable on the obligations. The Fund will not invest more than 25% of its
total assets in convertible debt obligations which are rated less than
investment grade or which are of comparable quality in the judgment of the
Advisor. For the year ended September 30, 1997, the following weighted
average percentages of the Fund's total assets were invested in
convertible and nonconvertible debt obligations with the indicated
Standard & Poor's ratings or their equivalents: AAA, 0%; AA, 0%; A, 0%;
BBB, 1%; BB, 0%; B, 1%; and CCC, 0%.

Debt obligations which are rated less than investment grade generally are
subject to greater market fluctuations and greater risk of loss of income
and principal due to default by the issuer than are higher-rated
obligations. The value of these obligations tends to reflect short-term
corporate, economic, interest rate and market developments and investor
perceptions of the issuer's credit quality to a greater extent than
investment grade obligations. In addition, since the market for these
obligations is relatively new and does not have as many participants as the
market for higher-rated obligations, it may be more difficult to dispose of
or to determine the value of these obligations. In the case of a convertible
debt obligation, these risks may be present in a greater degree where the
principal amount of the obligation is greater than the current market value
of the common stock into which it is convertible.

The Fund also may invest up to 35% of its total assets in fixed income
securities of the kinds described under "Special Investment Methods --
Fixed Income Securities."

---------------------------------------------------------------------------
EQUITY INDEX FUND

OBJECTIVE. Equity Index Fund has an objective of providing investment
results that correspond to the performance of the "S&P 500."

INVESTMENT POLICIES. Equity Index Fund invests primarily (at least 65% of
total assets) in common stocks included in the S&P 500. The Advisor
believes that the Fund's objective can best be achieved by investing in
the common stocks of

<PAGE>

approximately 50% to 100% of the issues included in the S&P 500, depending
on the size of the Fund.

Standard & Poor's designates the stocks included in the S&P 500 on a
statistical basis. A particular stock's weighting in the S&P 500 is based
on its total market value (that is, its market price per share times the
number of shares outstanding) relative to that of all stocks included in
the S&P 500. From time to time, Standard & Poor's may add or delete stocks
to or from the S&P 500. Inclusion of a particular stock in the S&P 500
does not imply any opinion by Standard & Poor's as to its merits as an
investment, nor is Standard & Poor's a sponsor of or in any way affiliated
with the Fund.

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. The Fund includes a stock in its
investment portfolio in the order of the stock's weighting in the S&P 500,
starting with the most heavily weighted stock. Thus, the proportion of
Fund assets invested in a stock or industry closely approximates the
percentage of the S&P 500 represented by that stock or industry. Portfolio
turnover is expected to be well below that of actively managed mutual
funds. Inasmuch as the common stock of the Advisor's parent company U.S.
Bancorp is included in the S&P 500, such stock may be purchased by the
Fund consistent with its indexing-based policies.

Because the Fund may not always hold all of the stocks included in the S&P
500, the Fund will not duplicate the S&P 500's performance precisely.
However, there will be a close correlation between the Fund's performance
and that of the S&P 500 in both rising and falling markets. The Fund will
attempt to achieve a correlation between the performance of its portfolio
and that of the S&P 500 of at least 95%, without taking into account
expenses of the Fund. A perfect correlation would be indicated by a figure
of 100%, which would be achieved if the Fund's net asset value, including
the value of its dividends and capital gains distributions, increased or
decreased in exact proportion to changes in the S&P 500. The Fund's ability
to replicate the performance of the S&P 500 may be affected by, among other
things, changes in securities markets, the manner in which Standard & Poor's
calculates the S&P 500, the amount and timing of cash flows into and out of
the Fund, commissions, sales charges (if any) and other expenses. Although
cash flows into and out of the Fund will affect the Fund's portfolio
turnover rate and its ability to replicate the S&P 500's performance,
investment adjustments will be made, as practicably as possible, to account
for these circumstances. In the event the Fund is unable to achieve this
correlation over time, the Board of Directors of the Fund will consider
alternative strategies for the Fund.

The Fund also may invest up to 20% of its total assets, in the aggregate,
in stock index futures contracts, options on stock indices, options on
stock index futures, and index participation contracts based on the S&P
500. The Fund will not invest in these types of contracts and options for
speculative purposes, but rather to maintain sufficient liquidity to meet
redemption requests; to increase the level of Fund assets devoted to
replicating the composition of the S&P 500; and to reduce transaction
costs. These types of contracts and options and certain associated risks
are described under "Special Investment Methods -- Options Transactions."
In addition, the Fund may engage in securities lending as described under
"Special Investment Methods -- Lending of Portfolio Securities."

<PAGE>

---------------------------------------------------------------------------
LARGE CAP VALUE FUND

OBJECTIVES. Large Cap Value Fund has a primary objective of capital
appreciation. A secondary objective of the Fund is to provide current
income.

INVESTMENT POLICIES. Under normal market conditions, Large Cap Value Fund
invests at least 65% of its total assets in common stocks diversified
among a broad range of industries and among companies that have a market
capitalization of at least $1 billion at the time of purchase. In
selecting equity securities, the Advisor employs a value-based selection
discipline, investing in equity securities it believes are undervalued
relative to other securities in the same industry or market at the time of
purchase. In assessing relative value, the Advisor will consider factors
such as ratios of market price to earnings, market price to book value,
market price to assets, estimated earnings growth rate, cash flow and
liquidation value.

The Fund also may invest up to 35% of its total assets in the aggregate in
equity securities of issuers with a market capitalization of less than $1
billion and in fixed income securities of the kinds described under
"Special Investment Methods -- Fixed Income Securities."

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LARGE CAP GROWTH FUND

OBJECTIVES. Large Cap Growth Fund has a primary objective of long-term
growth of capital. A secondary objective of the Fund is to provide current
income.

INVESTMENT POLICIES. Under normal market conditions, Large Cap Growth Fund
invests at least 65% of its total assets in equity securities of companies
that have a market capitalization of at least $1 billion at the time of
purchase and that, in the Advisor's judgment, exhibit a combination of
above average growth in revenue and earnings, strong management and sound
and improving financial condition.

The Fund also may invest up to 35% of its total assets in fixed income
securities of the kinds described under "Special Investment Methods --
Fixed Income Securities."

<PAGE>

by the Fund and write call options on stock indices related to such equity
securities; (iv) purchase securities on a when-issued or delayed delivery
basis; and (v) engage in the lending of portfolio securities. For
information about these investment methods, restrictions on their use, and
certain associated risks, see the related headings under "Special
Investment Methods."

For temporary defensive purposes, the Fund may without limitation hold
cash or invest in cash items of the kinds described under "Special
Investment Methods -- Cash Items." The Fund also may invest not more than
35% of its total assets in cash and cash items in order to utilize assets
awaiting normal investment.

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MID CAP VALUE FUND

OBJECTIVE. Mid Cap Value Fund has an objective of capital appreciation.

INVESTMENT POLICIES. Under normal market conditions, Mid Cap Value Fund
invests at least 65% of its total assets in equity securities of
mid-capitalization companies. For these purposes, mid-capitalization
companies are deemed those with market capitalizations of from $1 billion to
$5 billion at the time of purchase. In selecting equity securities, the
Advisor employs a value-based selection discipline, investing in equity
securities it believes are undervalued relative to other securities in the
same industry or market at the time of purchase. In assessing relative
value, the Advisor will consider factors such as ratios of market price to
earnings, market price to book value, market price to assets, estimated
earnings growth rate, cash flow and liquidation value.

The Fund also may invest up to 35% of its total assets in fixed income
securities of the kinds described under "Special Investment Methods --
Fixed Income Securities."

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REGIONAL EQUITY FUND

OBJECTIVE. Regional Equity Fund has an objective of capital appreciation.

INVESTMENT POLICIES. Regional Equity Fund seeks to achieve its objective
by investing, in normal market conditions, at least 65% of its total
assets in equity securities of small-capitalization companies
headquartered in Minnesota, North and South Dakota, Montana, Wisconsin,
Michigan, Iowa, Nebraska, Colorado and Illinois. For these purposes,
small-capitalization companies are deemed those with market
capitalizations of less than $1 billion at the time of purchase. In
selecting equity securities, the Advisor employs a value-based selection
discipline, investing in equity securities it believes are undervalued
relative to other securities in the same industry or market at the time of
purchase. In assessing relative value, the Advisor will consider factors
such as ratios of

<PAGE>

market price to earnings, market price to book value, market price to
assets, estimated earnings growth rate, cash flow and liquidation value.

In addition to the risks associated with investing in small-capitalization
companies, see "-- Risks to Consider -- Small-Capitalization Companies"
below, the Fund's policy of concentrating its equity investments in a
geographic region means that it will be subject to adverse economic,
political or other developments in that region. Although the region in
which the Fund principally invests has a diverse industrial base
(including, but not limited to, agriculture, mining, retail,
transportation, utilities, heavy and light manufacturing, financial
services, insurance, computer technology and medical technology), this
industrial base is not as diverse as that of the country as a whole. The
Fund therefore may be less diversified by industry and company than other
funds with a similar investment objective and no geographic limitation.

The Fund also may invest up to 35% of its total assets in the aggregate in
equity securities without regard to the location of the issuer's
headquarters or the issuer's market capitalization and in fixed income
securities of the kinds described under "Special Investment Methods --
Fixed Income Securities."

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SMALL CAP GROWTH FUND

OBJECTIVE. Small Cap Growth Fund has an objective of growth of capital.

INVESTMENT POLICIES. Under normal market conditions, Small Cap Growth Fund
invests at least 65% of its total assets in equity securities of
small-capitalization companies that exhibit, in the Advisor's opinion,
outstanding potential for superior growth. For these purposes,
small-capitalization companies are deemed those with market
capitalizations of less than $1 billion at the time of purchase. Companies
that participate in sectors that are identified by the Advisor as having
long-term growth potential generally are expected to make up a substantial
portion of the Fund's holdings. These companies often have established a
market niche or have developed unique products or technologies that are
expected by the Advisor to produce superior growth in revenues and
earnings.

The Fund also may invest up to 35% of its total assets in the aggregate in
equity securities of issuers with a market capitalization of $1 billion or
more and in fixed income securities of the kinds described under "Special
Investment Methods -- Fixed Income Securities."

<PAGE>

related to such equity securities; (iv) purchase securities on a
when-issued or delayed delivery basis; and (v) engage in the lending of
portfolio securities. For information about these investment methods,
restrictions on their use, and certain associated risks, see the related
headings under "Special Investment Methods."

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SMALL CAP VALUE FUND

OBJECTIVE. Small Cap Value Fund has an objective of capital appreciation.

INVESTMENT POLICIES. Under normal market conditions, Small Cap Value Fund
invests at least 65% of its total assets in equity securities of small-
capitalization companies. For these purposes, small-capitalization companies
are deemed those with market capitalizations of less than $1 billion at the
time of purchase. In selecting equity securities, the Advisor utilizes a
value-based selection discipline, investing in equity securities it believes
are undervalued relative to other securities in the same industry or market
at the time of purchase. In assessing relative value, the Advisor will
consider such factors as ratios of market price to earnings, market price to
book value, market price to assets, estimated earnings growth rate, cash
flow and liquidation value.

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MICRO CAP VALUE FUND

OBJECTIVE. Micro Cap Value Fund has an objective of capital appreciation.

INVESTMENT POLICIES. Under normal market conditions, Micro Cap Value Fund
invests at least 65% of its total assets in equity securities of very
small-capitalization companies. For these purposes, very
small-capitalization companies are deemed those with market
capitalizations of less than $500 million at the time of purchase. In
selecting equity securities, the Advisor utilizes a value-based selection
discipline, investing in equity securities it believes are undervalued
relative to other securities in the same industry or market at the time of
purchase. In assessing relative value, the Advisor will consider such
factors as ratios of market price to earnings, market price to book value,
and market price to assets, estimated earnings growth rate, cash flow and
liquidation value.

<PAGE>

The Fund also may invest up to 35% of its total assets in the aggregate in
equity securities of issuers with a market capitalization of $500 million
or more and in fixed income securities of the kinds described under
"Special Investment Methods -- Fixed Income Securities."

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INTERNATIONAL INDEX FUND

OBJECTIVE. International Index Fund has an objective of providing
investment results that correspond to the performance of the Morgan
Stanley Europe, Australia, Far East Composite Index (the "EAFE Index").

INVESTMENT POLICIES. International Index Fund invests primarily (at least
65% of total assets) in common stocks included in the EAFE Index. The EAFE
Index includes approximately 1,077 companies representing the stock
markets of approximately 14 European countries, Australia, New Zealand,
Japan, Hong Kong and Singapore/Malaysia. The Advisor believes that the
Fund's objective can best be achieved by investing in the common stocks of
approximately 50% to 100% of the issues included in the EAFE Index,
depending on the size of the Fund. Normally, International Index Fund will
invest at least 65% of its total assets in securities traded in at least
three foreign countries.

Morgan Stanley designates the stocks included in the EAFE Index. A
particular stock's weighting in the EAFE Index is based on its total
market value (that is, its market price per share times the number of
shares outstanding) relative to that of all stocks included in the EAFE
Index. From time to time, Morgan Stanley may add or delete stocks to or
from the EAFE Index. Inclusion of a particular stock in the EAFE Index
does not imply any opinion by Morgan Stanley as to its merits as an
investment, nor is Morgan Stanley a sponsor of or in any way affiliated
with the Fund.

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 EAFE Index. The Fund includes a stock in
its investment portfolio in the order of the stock's weighting in the EAFE
Index, starting with the most heavily weighted stock. Thus, the proportion
of Fund assets invested in an industry or country closely approximates the
percentage of the EAFE Index represented by that industry or country.
Portfolio turnover is expected to be well below that of actively managed
mutual funds.

Because the Fund may not always hold all of the stocks included in the
EAFE Index, the Fund will not duplicate the EAFE Index performance
precisely. However, there will be a close correlation between the Fund's
performance and that of the EAFE Index in both rising and falling markets.
The Fund will attempt to achieve a correlation between the performance of
its portfolio and that

<PAGE>

of the EAFE Index of at least 95%, without taking into account expenses of
the Fund. A perfect correlation would be indicated by a figure of 100%,
which would be achieved if the Fund's net asset value, including the value
of its dividends and capital gains distributions, increased or decreased
in exact proportion to changes in the EAFE Index. The Fund's ability to
replicate the performance of the EAFE Index may be affected by, among
other things, changes in securities markets, the manner in which Morgan
Stanley calculates the EAFE Index, administrative and other expenses
incurred by the Fund, taxes (including foreign withholding taxes, which
will affect the Fund), the amount and timing of cash flows into and out of
the Fund, commissions, sales charges (if any) and other expenses. Although
cash flows into and out of the Fund will affect the Fund's portfolio
turnover rate and its ability to replicate the EAFE Index's performance,
investment adjustments will be made, as practicably as possible, to
account for these circumstances. In the event the Fund is unable to
achieve this correlation over time, the Board of Directors of the Fund
will consider alternative strategies for the Fund.

The Fund also may invest up to 20% of its total assets in the aggregate in
stock index futures contracts, options on stock indices, options on stock
index futures and index participation contracts based on the EAFE Index. The
Fund will not invest in these types of contracts and options for speculative
purposes, but rather to maintain sufficient liquidity to meet redemption
requests; to increase the level of Fund assets devoted to replicating the
composition of the EAFE Index; and to reduce transaction costs. These types
of contracts and options and certain associated risks are described under
"Special Investment Methods -- Options Transactions." In addition, the Fund
may enter into repurchase agreements and engage in securities lending as
described under "Special Investment Methods -- Repurchase Agreements" and
"Special Investment Methods -- Lending of Portfolio Securities."

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INTERNATIONAL FUND

OBJECTIVE. International Fund has an objective of long-term growth of
capital.

INVESTMENT POLICIES. Under normal market conditions, International Fund
invests at least 65% of its total assets in an internationally diversified
portfolio of equity securities which trade in markets other than the
United States. Generally these securities are issued by companies (i)
domiciled in countries other than the United States, or (ii) that derive
at least 50% of either their revenues or their pre-tax income from
activities outside of the United States. The securities in which the Fund
invests include common and preferred stock, securities (bonds and
preferred stock) convertible into common stock, warrants and securities
representing underlying international securities such as American
Depositary Receipts and European Depositary Receipts. The Fund also may
hold securities of other investment companies (which investments are also
subject to the advisory fee) and depositary or custodial receipts
representing beneficial interests in any of the foregoing securities.

The Fund may invest in securities of issuers in, but not limited to,
Argentina, Australia, Austria, Belgium, Brazil, Canada, Chile, China,
Colombia, the Czech Republic, Denmark, Finland, France, Germany, Greece,
Hong Kong, Hungary, India, Indonesia, Ireland, Israel, Italy, Japan,
Korea, Luxembourg, Malaysia, Mexico, the Netherlands, New Zealand, Norway,
Pakistan, Peru, the Philippines, Poland, Portugal, Singapore, South
Africa, Spain, Sri Lanka, Sweden, Switzerland, Taiwan, Thailand, Turkey,
the United Kingdom, and Venezuela. Normally, the Fund will invest at least
65% of its total assets in securities traded in at least three foreign
countries, including the

<PAGE>

countries listed above. It is possible, although not currently
anticipated, that up to 35% of the Fund's assets could be invested in
United States companies.

In investing the Fund's assets, the Sub-Advisor expects to place primary
emphasis on country selection, followed by selection of industries or
sectors within or across countries and by selection of individual stocks
corresponding to the industries or sectors selected. Investments are
expected to be made primarily in developed markets and larger
capitalization companies. However, the Fund also may invest in emerging
markets where smaller capitalization companies are the norm.

In addition, the Fund may (i) enter into repurchase agreements; (ii) in
order to attempt to reduce risk, purchase put and call options on equity
securities and on stock indices; (iii) write covered call options covering
up to 50% of the equity securities owned by the Fund and write call
options on stock indices related to such equity securities; (iv) purchase
securities on a when-issued or delayed delivery basis; (v) engage in the
lending of portfolio securities; (vi) engage in foreign currency
transactions; (vii) in order to attempt to reduce risk, purchase put and
call options on foreign currencies; (viii) write covered call options on
foreign currencies owned by the Fund; and (ix) enter into contracts for
the future purchase or delivery of securities, foreign currencies, and
indices, purchase or sell options on any such futures contracts and engage
in related closing transactions. For information about these investment
methods, restrictions on their use, and certain associated risks, see the
related headings under "Special Investment Methods."

Under normal market conditions, it is expected that the Fund will be fully
invested in equity securities and related hedging instruments (except for
short-term investments of cash for liquidity purposes and pending
investment). However, for temporary defensive purposes, the Fund may,
without limitation, hold cash or invest in cash items of the kinds
described under "Special Investment Methods -- Cash Items." The Fund also
may invest not more than 35% of its total assets in cash and cash items in
order to utilize assets awaiting normal investment.

International Fund is subject to special risks associated with investing
in foreign securities and to declines in net asset value resulting from
changes in exchange rates between the United States dollar and foreign
currencies. These risks are discussed under "Special Investment Methods --
Foreign Securities" and "-- Foreign Currency Transactions" elsewhere
herein. Because of the special risks associated with foreign investing and
the Sub-Advisor's ability to invest substantial portions of the Fund's
assets in a small number of countries, the Fund may be subject to greater
volatility than most mutual funds which invest principally in domestic
securities.

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HEALTH SCIENCES FUND

OBJECTIVE. Health Sciences Fund has an objective of long-term growth of
capital.

INVESTMENT POLICIES. Under normal market conditions, Health Sciences Fund
invests at least 65% of its total assets in equity securities of companies
which the Advisor considers to be principally engaged in the development,
production or distribution of products or services connected with health
care or medicine. Examples of these products and services include
pharmaceuticals, health care services and administration, diagnostics,
medical equipment and supplies, medical technology, and medical research
and development. The Advisor anticipates investing in companies that have
the potential for above average growth in revenue and earnings as a result
of new or unique products, processes or services, increasing demand for a
company's products or services, established market leadership, or
exceptional management. A company will be deemed "principally engaged" in
the health sciences industries if at the time of investment the Advisor
determines that at least 50% of its assets, revenues or profits are
derived from those industries.

<PAGE>

The Fund also may invest up to 35% of its total assets in fixed income
securities of the kinds described under "Special Investment Methods --
Fixed Income Securities."

Health Sciences Fund operates as a non-diversified investment company, as
defined in the 1940 Act, but intends to conduct its operations so as to
qualify as a regulated investment company for purposes of the Internal
Revenue Code of 1986, as amended. Since a relatively high percentage of the
assets of the Fund may be invested in the securities of a limited number of
issuers which will be in the same or related economic sectors, the Fund's
portfolio securities may be more susceptible to any single economic,
technological or regulatory occurrence than the portfolio securities of
diversified investment companies. Many products and services in the health
sciences industries may become rapidly obsolete due to technological and
scientific advances. In addition, the health sciences industries generally
are subject to greater governmental regulation than many other industries,
so that changes in governmental policies may have a material effect on the
demand for products and services in these industries. Regulatory approvals
generally are required before new drugs, medical devices or medical
procedures can be introduced and before health care providers can acquire
additional facilities or equipment.

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TECHNOLOGY FUND

OBJECTIVE. Technology Fund has an objective of long-term growth of
capital.

INVESTMENT POLICIES. Under normal market conditions, Technology Fund
invests at least 65% of its total assets in equity securities of companies
which the Advisor believes have, or will develop, products, processes or
services that will provide or will benefit significantly from
technological advances and improvements. The description of the technology
sector is interpreted broadly by the Advisor and may include such products
or services as inexpensive computing power, such as personal computers;
improved methods of communications, such as satellite transmission; or
labor saving machines or instruments, such as computer-aided design
equipment. The prime emphasis of the Fund is to identify those companies
positioned, in the Advisor's opinion, to benefit from technological
advances in areas such as semiconductors, minicomputers and peripheral
equipment, scientific instruments, computer software, communications, and
future automation trends in both office and factory settings.

The Fund also may invest up to 35% of its total assets in fixed income
securities of the kinds described under "Special Investment Methods --
Fixed Income Securities."

Subject to the limitations stated above, the Fund may invest up to 25% of
its total assets in securities of foreign issuers which are either listed
on a

<PAGE>

United States stock exchange or represented by American Depositary
Receipts. For information about these kinds of investments and certain
associated risks, see "Special Investment Methods -- Foreign Securities."

Technology Fund operates as a non-diversified investment company, as defined
in the 1940 Act, but intends to conduct its operations so as to qualify as a
regulated investment company for purposes of the Internal Revenue Code of
1986, as amended. Since a relatively high percentage of the assets of the
Fund may be invested in the securities of a limited number of issuers which
will be in the same or related economic sectors, the Fund's portfolio
securities may be more susceptible to any single economic, technological or
regulatory occurrence than the portfolio securities of diversified
investment companies. In addition, competitive pressures may have a
significant effect on the financial condition of companies in the technology
industry. For example, if technology continues to advance at an accelerated
rate, and the number of companies and product offerings continue to expand,
these companies could become increasingly sensitive to short product cycles
and aggressive pricing.

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RISKS TO CONSIDER

An investment in any of the Funds involves certain risks in addition to
those noted above with respect to particular Funds. These include the
following:

EQUITY SECURITIES GENERALLY. Market prices of equity securities generally,
and of particular companies' equity securities, frequently are subject to
greater volatility than prices of fixed income securities. Market prices
of equity securities as a group have dropped dramatically in a short
period of time on several occasions in the past, and they may do so again
in the future. Each of the Funds is subject to the risk of generally
adverse equity markets.

SMALL-CAPITALIZATION COMPANIES. Regional Equity Fund, Small Cap Growth
Fund, Small Cap Value Fund and Micro Cap Value Fund emphasize investments
in companies with small or very small market capitalizations, and the
remaining Funds (excluding Equity Index Fund and International Index Fund)
are permitted to invest in equity securities of such companies. The equity
securities of such companies frequently have experienced greater price
volatility in the past than those of larger-capitalization companies, and
they may be expected to do so in the future. To the extent that the Funds
invest in small or very small capitalization companies, they are subject
to this risk of greater volatility.

ACTIVE MANAGEMENT. All of the Funds other than Equity Index Fund and
International Index Fund are actively managed to a greater or lesser
degree by the Advisor or, in the case of International Fund, the
Sub-Advisor. The performance of these Funds therefore will reflect in part
the ability of the Advisor or Sub-Advisor to select securities which are
suited to achieving the Funds' investment objectives. Due to their active
management, these Funds could underperform other mutual funds with similar
investment objectives or the market generally.

FOREIGN SECURITIES. International Index Fund and International Fund are
subject to special risks associated with investing in foreign securities
and

<PAGE>

to declines in net asset value resulting from changes in exchange rates
between the United States dollar and foreign securities. These risks are
discussed under "Special Investment Methods -- Foreign Securities"
elsewhere herein. Because of the special risks associated with foreign
investing, the Funds may be subject to greater volatility than most mutual
funds which invest principally in domestic securities.

YEAR 2000. Like other mutual funds, financial and business organizations,
the Funds could be adversely affected if the computer systems used by the
Advisor, the Administrator and other service providers and entities with
computer systems that are linked to Fund records do not properly process
and calculate date-related information and data from and after January 1,
2000. This is commonly known as the "Year 2000 issue." The Funds have
undertaken a Year 2000 program that is believed by the Advisor to be
reasonably designed to assess and monitor the steps being taken by the
Funds' service providers to address the Year 2000 issue with respect to
the computer systems. However, there can be no assurance that these steps
will be sufficient to avoid any adverse impact on the Funds.

OTHER. Investors also should review "Special Investment Methods" for
information concerning risks associated with certain investment techniques
which may be utilized by the Funds.

MANAGEMENT

The Board of Directors of FAIF has the primary responsibility for overseeing
the overall management and electing the officers of FAIF. Subject to the
overall direction and supervision of the Board of Directors, the Advisor
acts as investment advisor for and manages the investment portfolios of
FAIF.

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INVESTMENT ADVISOR

U.S. Bank National Association, 601 Second Avenue South, Minneapolis,
Minnesota 55402, acts as the Funds' investment advisor through its First
American Asset Management group. The Advisor has acted as an investment
advisor to FAIF since its inception in 1987 and has acted as investment
advisor to First American Funds, Inc. since 1982 and to First American
Strategy Funds, Inc. since 1996. As of September 30, 1997, the Advisor was
managing accounts with an aggregate value of approximately $55 billion,
including mutual fund assets of approximately $20 billion. U.S. Bancorp,
601 Second Avenue South, Minneapolis, Minnesota 55402, is the holding
company for the Advisor.

Each of the Funds other than International Fund has agreed to pay the
Advisor monthly fees calculated on an annual basis equal to 0.70% of its
average daily net assets. International Fund pays the Advisor a monthly
fee calculated on the same basis equal to 1.25% of its average daily net
assets, out of which the Advisor pays the Sub-Advisor's fee. The Advisor
may, at its option, waive any or all of its fees, or reimburse expenses,
with respect to any Fund from time to time. Any such waiver or
reimbursement is voluntary and may be discontinued at any time except as
discussed under "Fees and Expenses -- Class A Share Fees and Expenses."
The Advisor also may absorb or reimburse expenses of the Funds from time
to time, in its discretion, while retaining the ability to be reimbursed
by the Funds for such amounts prior to the end of the fiscal year. This
practice would have the effect of lowering a Fund's overall expense ratio
and of increasing yield to investors, or the converse, at the time such
amounts are absorbed or reimbursed, as the case may be.

While the advisory fee payable to the Advisor with respect to
International Fund is higher than the advisory fee paid by most mutual
funds, the Advisor believes it is comparable to that paid by many funds
having similar investment objectives and policies.

The Glass-Steagall Act generally prohibits banks from engaging in the
business of underwriting, selling or distributing securities and from
being affiliated with companies principally engaged in

<PAGE>

those activities. In addition, administrative and judicial interpretations
of the Glass-Steagall Act prohibit bank holding companies and their bank
and nonbank subsidiaries from organizing, sponsoring or controlling
registered open-end investment companies that are continuously engaged in
distributing their shares. Bank holding companies and their bank and
nonbank subsidiaries may serve, however, as investment advisors to
registered investment companies, subject to a number of terms and
conditions.

Although the scope of the prohibitions and limitations imposed by the
Glass-Steagall Act has not been fully defined by the courts or the
appropriate regulatory agencies, FAIF has received an opinion from its
counsel that the Advisor is not prohibited from performing the investment
advisory services described above, and that certain broker-dealers
affiliated with the Advisor are not prohibited from serving as a
Participating Institution as described herein. In the event of changes in
federal or state statutes or regulations or judicial and administrative
interpretations or decisions pertaining to permissible activities of bank
holding companies and their bank and nonbank subsidiaries, the Advisor and
certain affiliated broker-dealers might be prohibited from continuing
these arrangements. In that event, it is expected that the Board of
Directors would make other arrangements and that shareholders would not
suffer adverse financial consequences.

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SUB-ADVISOR TO INTERNATIONAL FUND

Marvin & Palmer Associates, Inc., 1201 North Market Street, Suite 2300,
Wilmington, Delaware 19801, is Sub-Advisor to International Fund under an
agreement with the Advisor (the "Sub-Advisory Agreement"). The Sub-Advisor
is responsible for the investment and reinvestment of International Fund's
assets and the placement of brokerage transactions in connection therewith.
For its services under the Sub-Advisory Agreement, the Sub-Advisor is paid a
monthly fee by the Advisor calculated on an annual basis equal to 0.75% of
the first $100 million of International Fund's average daily net assets,
0.50% of International Fund's average daily net assets in excess of $100
million up to $300 million, 0.45% of the International Fund's average daily
net assets in excess of $300 million up to $500 million and 0.40% of
International Fund's average daily net assets in excess of $500 million.

The Sub-Advisor, a privately held company, was founded in 1986 by David F.
Marvin and Stanley Palmer. The stock of the Sub-Advisor is owned by Mr.
Marvin, Mr. Palmer and 24 other holders. The Sub-Advisor is engaged in the
management of global, non-United States and emerging markets equity
portfolios for institutional accounts. At January 1, 1998, the Sub-Advisor
managed a total of $4.6 billion in investments for 53 institutional
investors.

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PORTFOLIO MANAGERS

Balanced Fund and Large Cap Value Fund are managed by a committee
comprised of Mr. Doak, Mr. Murphy, Mr. Rovner, Mr. Dubiak, Mr. Whitcomb,
Mr. Shields and Mr. Twele, whose backgrounds are set forth below. Equity
Income Fund and Large Cap Growth Fund are managed by a committee comprised
of Mr. Bren, Mr. Doak, Mr. Dubiak, Ms. Johnson, Mr. Murphy, Mr. Whitcomb,
and Mr. Glenn Johnson, whose backgrounds also are set forth below. Health
Sciences Fund, Regional Equity Fund, Small Cap Growth Fund, Small Cap
Value Fund and Micro Cap Value Fund are managed by a committee comprised
of Mr. Dubiak, Mr. Bren, Mr. Rose, Mr. Buss, Mr. Hipple and Mr. Magdlen,
whose backgrounds also are set forth below. The remaining Funds are
managed or co-managed as indicated below.

JAMES DOAK is a member of the committees which manage four of the Funds,
as set forth above. Mr. Doak joined the Advisor in 1982 after serving for
two years as vice president of INA Capital Advisors and ten years as Vice
President of Loomis-Sayles & Co. He has managed assets for individual and
institutional clients, specializing in equity investments. Mr. Doak
received his

<PAGE>

bachelor's degree from Brown University and his master's degree in
business administration from the Wharton School of Business. He is a
Chartered Financial Analyst.

JOHN M. MURPHY, JR. is a member of the committees which manage four of the
Funds, as set forth above. Mr. Murphy is Chief Investment Officer of the
Advisor's First American Asset Management group, having joined the Advisor
in 1984. He has more than 30 years in the investment management field and
served with Investment Advisers, Inc. and Blyth, Eastman, Dillon & Co.
before joining the Advisor. Mr. Murphy received his bachelor's degree from
Regis College.

JAMES S. ROVNER is a member of the committee which manages two of the
Funds, as set forth above, and he is portfolio co-manager for Mid Cap
Value Fund, Equity Index Fund and International Index Fund. Mr. Rovner
joined the Advisor in 1986 and has managed assets for institutional and
individual clients for over 15 years, specializing in equity and balanced
investment strategies. Mr. Rovner received his bachelor's degree and his
master's degree in business administration from the University of
Wisconsin. He is a Chartered Financial Analyst.

GERALD C. BREN is a member of the committees which manage seven of the
Funds, as set forth above. Mr. Bren joined the Advisor in 1972 as an
investment analyst. Mr. Bren received his master's degree in business
administration from the University of Chicago. He is a Chartered Financial
Analyst.

ALBIN S. DUBIAK is a member of the committees which manage nine of the
Funds, as set forth above. Mr. Dubiak began his investment career as a
security trader with The First National Bank of Chicago in 1963 before
joining the Advisor as an investment analyst in 1969. Mr. Dubiak received
his bachelor's degree from Indiana University and his master's degree in
business administration from the University of Arizona.

CORI B. JOHNSON is a member of the committee which manages two of the
Funds, as set forth above, and she is portfolio co-manager for Real Estate
Securities Fund. She joined the Advisor in 1991 as a securities analyst.
Ms. Johnson received her bachelor's degree from Concordia College and her
master's degree in business administration from the University of
Minnesota. She is a Chartered Financial Analyst.

ROLAND P. WHITCOMB, JR. is a member of the committees which manage four of
the Funds, as set forth above, and he is portfolio manager for Technology
Fund. Mr. Whitcomb joined the Advisor in 1986 after serving as an account
executive with Smith Barney & Co. since 1979. Mr. Whitcomb received his
bachelor's degree from the University of Chicago. He is a Chartered
Financial Analyst.

KEVIN SHIELDS is a member of the committee which manages two of the Funds
and is portfolio co-manager for Mid Cap Value Fund. Mr. Shields joined the
Advisor in 1993 and has five years of investment industry experience. Mr.
Shields has analytic responsibilities for the banking, financial services
and insurance industries. Mr. Shields received his bachelor's degree from
Marquette University and his master's degree from the Applied Security and
Analysis program at the University of Wisconsin.

JOHN A. TWELE is a member of the committee which manages two of the Funds,
as set forth above. Prior to joining the Advisor in 1996, he was employed
in various positions at American Express Financial Advisors, Investment
Advisers, Inc., Kemper Financial, and Mercantile Trust. Mr. Twele received
his bachelor's degree from Indiana University.

DOUGLAS K. ROSE is a member of the committee which manages five of the
Funds. Mr. Rose joined the Advisor in 1996 and has 10 years of investment
industry experience. Mr. Rose has analytic responsibilities for the
business services, environmental services, leisure and restaurant/lodging
industries. Mr. Rose holds a bachelor's degree from the University of
Nebraska, and a master's degree in business administration from the
University of Minnesota. He is a Chartered Financial Analyst.

<PAGE>

ROBERT L. BUSS is a member of the committee which manages five of the
Funds. Mr. Buss joined the Advisor in 1989 and has nine years of
investment industry experience. In 1996, Mr. Buss began analytical work in
the equity research area covering electric equipment, machinery and
diversified manufacturing. Mr. Buss holds a bachelor's degree in economics
from the University of Minnesota.

ANTHONY W. HIPPLE is a member of the committee which manages five of the
Funds. Mr. Hipple is primarily responsible for portfolio analytics and
screening. Mr Hipple joined the Advisor in 1996 and has 4 years of
investment industry experience. Mr. Hipple holds a bachelor's degree from
the University of Northern Iowa and a master's degree in business
administration from the University of Iowa.

EVAN C. LUNDQUIST is a portfolio co-manager of Equity Index Fund and
International Index Fund. He joined the Advisor in 1993 and has four years
of investment industry experience. Mr. Lundquist has analytic
responsibilities for paper/forest products, metals and mining, steel,
engineering and construction, and building and appliances industries. Mr.
Lundquist received his bachelor's degree from St. Mary's College.

FRANK G. MAGDLEN is a member of the committee which manages five of the
Funds. He joined the Advisor in 1979 and has 24 years of investment industry
experience. Prior to joining the Advisor, he was with First Interstate and
Farmers Group. Mr. Magdlen received his bachelor's degree from the
University of Portland and his master's degree in business administration
from the University of Southern California. He is a Chartered Financial
Analyst and past president of the Portland Society of Financial Analysts.

GLENN E. JOHNSON is a member of the committee which manages two of the
Funds. He joined the Advisor in 1989 and has 13 years of investment
industry experience. Prior to joining the Advisor, he was an analyst with
Piper Jaffray Inc. Mr. Johnson received his bachelor's degree and his
master's degree in business administration from the University of
Minnesota. He is a Chartered Financial Analyst.

DAVID JOHNSON is a co-manager of Real Estate Securities Fund. He joined
the Advisor in 1997 and has four years of investment industry experience.
He has analytic responsibilities for REITS, business services, printing
and publishing, and advertising. Prior to joining the Advisor, he was with
the State of Wisconsin Investment Board. Mr. Johnson received his
bachelor's degree from St. Lawrence University and his master's degree in
business administration from the University of Connecticut.

A committee comprised of the following seven individuals shares the
management of International Fund on behalf of the Sub-Advisor:

DAVID F. MARVIN is Chairman of the Sub-Advisor and founded the firm
together with Mr. Palmer in 1986. Before founding the Sub-Advisor, Mr.
Marvin was Vice President in charge of DuPont Corporation's $10 billion
internally-managed pension fund. Prior to that Mr. Marvin was Associate
Portfolio Manager, and then Head Portfolio Manager, for Investors
Diversified Services' IDS Stock Fund. Mr. Marvin started in the investment
business in 1965 as a securities analyst for Chicago Title & Trust. Mr.
Marvin received his bachelor's degree from the University of Illinois and
his master's degree in business administration from Northwestern
University. He is a Chartered Financial Analyst and a member of the
Financial Analysts Federation.

STANLEY PALMER is Vice Chairman and President of the Sub-Advisor and
co-founder of the firm. Mr. Palmer was Equity Portfolio Manager for DuPont
Corporation from 1978 through 1986, an analyst and portfolio manager at
Investors Diversified Services from 1971 through 1978, and an analyst at
Harris Trust & Savings Bank from 1964 through 1971. Mr. Palmer received
his bachelor's degree from Gustavus Adolphus College and his master's
degree in business administration from the University of Iowa. He is a
Chartered Financial Analyst and a member of the Financial Analysts
Federation.

<PAGE>

TERRY B. MASON is a Senior Vice President and portfolio manager of the
Sub-Advisor. Before joining the Sub-Advisor, Mr. Mason was employed for 14
years by DuPont Corporation, the last five as international equity analyst
and international trader. Mr. Mason received his bachelor's degree from
Glassboro State College and his master's degree in business administration
from Widener University.

JAY F. MIDDLETON is a Senior Vice President and portfolio manager for the
Sub-Advisor and joined the firm in 1989. Mr. Middleton received his
bachelor's degree from Wesleyan University.

TODD D. MARVIN is a Senior Vice President and portfolio manager for the
Sub-Advisor and joined the firm in 1991. Before joining the Sub-Advisor,
Mr. Marvin was employed by Oppenheimer & Company as an analyst in
investment banking. Mr. Marvin received his bachelor's degree from
Wesleyan University.

DAVID L. SCHAEN is a Vice President and portfolio manager of the
Sub-Advisor. Before becoming a Portfolio Manager, Mr. Schaen was Head
Trader for the Sub-Advisor from 1991 to 1994 and an International Analyst
for the Sub-Advisor from 1994 to 1995. Prior to 1991 he was Head Trader
and Investment Officer at the Bank of Delaware. Mr. Schaen received his
bachelor's degree from the University of Delaware and his master's degree
in business administration from Widener University.

STEPHEN D. MARVIN is a Vice President and portfolio manager for the
Sub-Advisor and joined the firm in 1994. Before joining the Sub-Advisor, Mr.
Marvin was employed by Bear, Stearns & Company as a corporate financial
analyst. Mr. Marvin received his bachelor's degree from Carleton College.

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CUSTODIAN

The custodian of the Funds' assets is U.S. Bank National Association (the
"Custodian"), U.S. Bank Center, 180 East Fifth Street, St. Paul, Minnesota
55101. The Custodian is a subsidiary of U.S. Bancorp.

As compensation for its services to the Funds, the Custodian is paid
monthly fees equal to 0.03% of the applicable Fund's average daily net
assets (0.10% of average daily net assets in the case of International
Index Fund and International Fund). In addition, the Custodian is
reimbursed for its out-of-pocket expenses incurred while providing its
services to the Funds.

Rules adopted under the 1940 Act permit International Index Fund and
International Fund to maintain their securities and cash in the custody of
certain eligible foreign banks and depositories. International Index
Fund's and International Fund's portfolio of non-United States securities
are held by sub-custodians which are approved by the directors of FAIF or
a foreign custody manager appointed by the directors in accordance with
these rules. This determination is made pursuant to these rules following
a consideration of a number of factors including, but not limited to, the
reliability and financial stability of the institution; the ability of the
institution to perform custodian services for International Index Fund and
International Fund; the reputation of the institution in its national
market; the political and economic stability of the country in which the
institution is located; and the risks of potential nationalization or
expropriation of International Index Fund's or International Fund's
assets.

Sub-custodian fees with respect to International Index Fund and
International Fund are paid by the Custodian out of the Custodian's fees.

---------------------------------------------------------------------------
ADMINISTRATOR

<PAGE>

accounting and other services. The Administrator provides these services
for a fee calculated at an annual rate of 0.12% of each Fund's average
daily net assets, provided that to the extent that the aggregate net
assets of all First American Funds exceed $8 billion, the percentage
stated above is reduced to 0.105%. From time to time, the Administrator
may voluntarily waive its fees or reimburse expenses with respect to any
of the Funds. Any such waivers or reimbursements may be made at the
Administrator's discretion and may be terminated at any time. U.S. Bank
assists the Administrator and provides sub-administration services for the
Funds. For these services, the Administrator compensates the
sub-administrator at an annual rate of up to 0.05% of each Fund's average
daily net assets.

---------------------------------------------------------------------------

TRANSFER AGENT

DST Systems, Inc. (the "Transfer Agent") serves as the transfer agent and
dividend disbursing agent for the Funds. The address of the Transfer Agent
is 330 West Ninth Street, Kansas City, Missouri 64105. The Transfer Agent
is not affiliated with the Distributor, the Administrator or the Advisor.

Effective October 1, 1998, FAIF has appointed U.S. Bank as servicing agent
to perform certain transfer agent and dividend disbursing agent services
with respect to the Class A Shares and Class B Shares of the Funds held
through accounts at U.S. Bank and its affiliates. The Funds pay U.S. Bank
an annual fee of $15 per account for such services.

DISTRIBUTOR

SEI Investments Distribution Co. is the principal distributor for shares
of the Funds and of the other FAIF Funds. The Distributor is a
Pennsylvania corporation and is the principal distributor for a number of
investment companies. The Distributor, which is not affiliated with the
Advisor, is a wholly-owned subsidiary of SEI Investments Company and is
located at Oaks, Pennsylvania 19456.

Shares of the Funds are distributed through the Distributor and securities
firms, financial institutions (including, without limitation, banks) and
other industry professionals (the "Participating Institutions") which
enter into sales agreements with the Distributor to perform share
distribution or shareholder support services.

FAIF has adopted a Plan of Distribution for the Class A Shares pursuant to
Rule 12b-1 under the 1940 Act (the "Class A Distribution Plan") pursuant
to which the Distributor agrees to provide, or enter into written
agreements with service providers to provide, one or more specified
shareholder services to beneficial owners of shares of the Funds. The
Class A Distribution Plan authorizes the Distributor to retain the sales
charge paid upon purchase of Class A Shares, except that portion which is
reallowed to Participating Institutions. See "Investing in the Funds --
Alternative Sales Charge Options." In consideration of the services and
facilities to be provided by the Distributor or any service provider, each
Fund also pays the Distributor a shareholder servicing fee at an annual
rate of 0.25% of the Fund's Class A Shares' average daily net asset value,
which fee is computed and paid monthly. The shareholder servicing fee is
intended to compensate the Distributor for ongoing servicing and/or
maintenance of shareholder accounts and may be used by the Distributor to
provide compensation to institutions through which shareholders hold their
shares for ongoing servicing and/or maintenance of shareholder accounts.
The shareholder servicing fee may be used to provide compensation for
shareholder servicing provided by "one-stop" mutual fund networks through
which the Funds are made available. In addition, the Distributor and the
Advisor and its affiliates may provide compensation for services provided
by such networks from their own resources. From time to time, the
Distributor may voluntarily waive its fees with respect to the Class A
Shares of any of the Funds. Any such waivers may be made at the
Distributor's discretion and may be terminated at any time.

Under another distribution plan (the "Class B Distribution Plan") adopted
in accordance with

<PAGE>

Rule 12b-1 under the 1940 Act, the Funds may pay to the Distributor a
sales support fee at an annual rate of up to 0.75% of the Fund's Class B
Shares' average daily net asset value, which fee is computed and paid
monthly. The sales support fee may be used by the Distributor to provide
compensation for sales support and distribution activities with respect to
Class B Shares of the Funds. In addition to this fee, the Distributor is
paid a shareholder servicing fee of 0.25% of the average daily net assets
of the Class B Shares pursuant to a service plan (the "Class B Service
Plan"), which fee may be used by the Distributor to provide compensation
for ongoing servicing and/or maintenance of shareholder accounts with
respect to Class B Shares of the Funds. Although Class B Shares are sold
without an initial sales charge, the Distributor pays a total of 4.25% of
the amount invested (including a prepaid service fee of 0.25% of the
amount invested) to dealers who sell Class B Shares (excluding exchanges
from other Class B Shares in the First American family of funds). The
service fee payable under the Class B Service Plan is prepaid for the
first year as described above.

The Class A and Class B Distribution Plans recognize that the Advisor, the
Administrator, the Distributor, and any Participating Institution may in
their discretion use their own assets to pay for certain additional costs of
distributing Fund shares. Any arrangement to pay such additional costs may
be commenced or discontinued by any of these persons at any time. In
addition, while there is no sales charge on purchases of Class A Shares of
$1 million and more, the Advisor may pay amounts to broker-dealers from its
own assets with respect to such sales. U.S. Bancorp Investments, Inc. and
U.S. Bancorp Piper Jaffray Inc., broker-dealers affiliated with the Advisor,
are Participating Institutions.

INVESTING IN THE FUNDS
---------------------------------------------------------------------------
SHARE PURCHASES

Shares of the Funds are sold at their net asset value, next determined
after an order is received, plus any applicable sales charge, on days on
which both the New York Stock Exchange and federally-chartered banks are
open for business. Shares may be purchased as described below. The Funds
reserve the right to reject any purchase order.

THROUGH A FINANCIAL INSTITUTION. Shares may be purchased through a
financial institution which has a sales agreement with the Distributor. An
investor may call his or her financial institution to place an order.
Purchase orders must be received by the financial institution by the time
specified by the institution to be assured same day processing, and
purchase orders must be transmitted to and received by the Funds by 3:00
p.m. Central time in order for shares to be purchased at that day's price
unless the financial institution has been authorized to accept purchase
orders on behalf of the Funds. It is the financial institution's
responsibility to transmit orders promptly.

Certain financial institutions assist their clients in the purchase or
redemption of shares and charge a fee for this service. In addition,
certain financial institutions are authorized to act as the Funds' agent
for the purpose of accepting purchase orders, and the Funds will be deemed
to have received a purchase order upon receipt of the order by the
financial institution.

BY MAIL. An investor may place an order to purchase shares of the Funds
directly through the Transfer Agent. Orders by mail will be executed upon
receipt of payment by the Transfer Agent. If an investor's check does not
clear, the purchase will be cancelled and the investor could be liable for
any losses or fees incurred. Third-party checks, credit cards, credit card
checks and cash will not be accepted. When purchases are made by check,
the proceeds of redemptions of the shares purchased are not available
until the Transfer Agent is reasonably certain that the purchase payment
has cleared, which could take up to ten calendar days from the purchase
date. In order to purchase shares by mail, an investor must:

* complete and sign the new account form;

<PAGE>

* enclose a check made payable to (Fund name); and

* mail both to DST Systems, Inc., P.O. Box 419382, Kansas City, Missouri
64141-6382.

After an account is established, an investor can purchase shares by mail
by enclosing a check and mailing it to DST Systems, Inc. at the above
address.

BY WIRE. To purchase shares of a Fund by wire, call (800) 637-2548 before
3:00 p.m. Central time. All information needed will be taken over the
telephone, and the order will be considered placed when the Custodian
receives payment by wire. If the Custodian does not receive the wire by
3:00 p.m. Central time, the order will be executed the next business day.
Federal funds should be wired as follows: U.S. Bank National Association,
Minneapolis, Minnesota, ABA Number 091000022; For Credit To: DST Systems,
Inc.: Account Number #160234580266; For Further Credit To: (Investor Name
and Fund Name). Shares cannot be purchased by Federal Reserve wire on days
on which the New York Stock Exchange is closed or federally-chartered
banks are closed.

---------------------------------------------------------------------------
MINIMUM INVESTMENT REQUIRED

The minimum initial investment for each Fund is $1,000 unless the
investment is in a retirement plan, in which case the minimum investment
is $250. The minimum subsequent investment is $100. The Funds reserve the
right to waive the minimum investment requirement for employees of the
Advisor and its affiliates.

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ALTERNATIVE SALES CHARGE OPTIONS

THE TWO ALTERNATIVES: OVERVIEW. An investor may purchase shares of a Fund
at a price equal to its net asset value per share plus a sales charge
which, at the investor's election, may be imposed either (i) at the time
of the purchase (the Class A "initial sales charge alternative"), or (ii)
on a contingent deferred basis (the Class B "deferred sales charge
alternative"). Each of Class A and Class B Shares represents a Fund's
interest in its portfolio of investments. The classes have the same rights
and are identical in all respects except that (i) Class B Shares bear the
expenses of the contingent deferred sales charge arrangement and
distribution and service fees resulting from such sales arrangement, while
Class A Shares bear only shareholder servicing fees; (ii) each class has
exclusive voting rights with respect to approvals of any Rule 12b-1
distribution plan related to that specific class (although Class B
shareholders may vote on any distribution fees imposed on Class A Shares
as long as Class B Shares convert into Class A Shares); (iii) only Class B
Shares carry a conversion feature; and (iv) each class has different
exchange privileges. Sales personnel of financial institutions
distributing the Funds' shares, and other persons entitled to receive
compensation for selling shares, may receive differing compensation for
selling Class A and Class B Shares.

These alternative purchase arrangements permit an investor to choose the
method of purchasing shares that is more beneficial to that investor. The
amount of a purchase, the length of time an investor expects to hold the
shares, and whether the investor wishes to receive dividends in cash or in
additional shares, will all be factors in determining which sales charge
option is best for a particular investor. An investor should consider
whether, over the time he or she expects to maintain the investment, the
accumulated sales charges on Class B Shares prior to conversion would be
less than the initial sales charge on Class A Shares, and to what extent
the differential may be offset by the expected higher yield of Class A
Shares. Class A Shares will normally be more beneficial to an investor if
he or she qualifies for reduced sales charges as described below.
Accordingly, orders for Class B Shares for $250,000 or more ordinarily
will be treated as orders for Class A Shares or declined.

<PAGE>

The Directors of FAIF have determined that no conflict of interest
currently exists between the Class A and Class B Shares. On an ongoing
basis, the Directors, pursuant to their fiduciary duties under the 1940
Act and state laws, will seek to ensure that no such conflict arises.

----------------------------------------------------------------------------
CLASS A SHARES.

WHAT CLASS A SHARES COST. Class A Shares of each Fund are offered on a
continuous basis at their next determined offering price, which is net asset
value, plus a sales charge as set forth below:

<TABLE>
<CAPTION>
EACH FUND:
MAXIMUM
AMOUNT OF
SALES CHARGE SALES CHARGE SALES CHARGE
AS PERCENTAGE AS PERCENTAGE REALLOWED TO
OF OFFERING OF NET ASSET PARTICIPATING
PRICE VALUE INSTITUTIONS
<S> <C> <C> <C>
Less than $50,000 4.50% 4.71% 4.05%
$50,000 but less than $100,000 4.00% 4.17% 3.60%
$100,000 but less than $250,000 3.50% 3.63% 3.15%
$250,000 but less than $500,00 0 2.75% 2.83% 2.47%
$500,000 but less than $1,000,000 2.00% 2.04% 1.80%
$1,000,000 and over 0.00% 0.00% 0.00%
</TABLE>

There is no initial sales charge on purchases of Class A Shares of $1
million or more. However, Participating Institutions may receive a
commission of up to 1.00% on such sales. Redemptions of Class A Shares
purchased at net asset value within 24 months of such purchase will be
subject to a contingent deferred sales charge of up to 1.00% except in the
case of Equity Index Fund and International Index Fund. Class A Shares
that are redeemed will not be subject to this contingent deferred sales
charge to the extent that the value of the shares represents capital
appreciation of Fund assets or reinvestment of dividends or capital gain
distributions.

Net asset value is determined as of the close of normal trading on the New
York Stock Exchange (3:00 p.m. Central time) Monday through Friday except on
(i) days on which there are not sufficient changes in the value of a Fund's
portfolio securities that its net asset value might be materially affected;
(ii) days during which no shares are tendered for redemption and no orders
to purchase shares are received; and (iii) days on which the New York Stock
Exchange or federally-chartered banks are closed including, but not limited
to, the following federal holidays: New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day. In addition, net asset value will not
be calculated on Good Friday.

DEALER CONCESSION. A dealer will normally receive up to 90% of the
applicable sales charge. Any portion of the sales charge which is not paid
to a dealer will be retained by the Distributor. In addition, the
Distributor may, from time to time in its sole discretion, institute one
or more promotional incentive programs which will be paid by the
Distributor from the sales charge it receives or from any other source
available to it. Under any such program, the Distributor will provide
promotional incentives, in the form of cash or other compensation
including merchandise, airline vouchers, trips and vacation packages, to
all dealers selling shares of the Funds. Promotional incentives of these
kinds will be offered uniformly to all dealers and predicated upon the
amount of shares of the Funds sold by the dealer. Whenever 90% or more of
a sales charge is paid to a dealer, that dealer may be deemed to be an
underwriter as defined in the Securities Act of 1933.

<PAGE>

The sales charge for shares sold other than through registered
broker-dealers will be retained by the Distributor. The Distributor may
pay fees to financial institutions out of the sales charge in exchange for
sales and/or administrative services performed on behalf of the
institution's customers in connection with the initiation of customer
accounts and purchases of Fund shares.

REDUCING THE CLASS A SALES CHARGE. The sales charge can be reduced on the
purchase of Class A Shares through (i) quantity discounts and accumulated
purchases or (ii) signing a 13-month letter of intent:

* QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES: As shown in the table
above, larger purchases of Class A Shares reduce the percentage sales
charge paid. Each Fund will combine purchases made on the same day by
an investor, the investor's spouse, and the investor's children under
age 21 when it calculates the sales charge. In addition, the sales
charge, if applicable, is reduced for purchases made at one time by a
trustee or fiduciary for a single trust estate or a single fiduciary
account.

The sales charge discount applies to the total current market value of
any Fund, plus the current market value of any other FAIF Fund and any
other mutual funds having a sales charge and distributed as part of the
First American family of funds. Prior purchases and concurrent purchases
of Class A Shares of any FAIF Fund will be considered in determining the
sales charge reduction. In order for an investor to receive the sales
charge reduction on Class A Shares, the Transfer Agent must be notified
by the investor in writing or by his or her financial institution at the
time the purchase is made that Fund shares are already owned or that
purchases are being combined.

* LETTER OF INTENT: If an investor intends to purchase at least $50,000 of
Class A Shares in a Fund and other FAIF Funds over the next 13 months,
the sales charge may be reduced by signing a letter of intent to that
effect. This letter of intent includes a provision for a sales charge
adjustment depending on the amount actually purchased within the
13-month period and a provision for the Custodian to hold a percentage
equal to the particular FAIF Fund's maximum sales charge rate of the
total amount intended to be purchased in escrow (in shares) for all FAIF
Funds until the purchase is completed.

The amount held in escrow for all FAIF Funds will be applied to the
investor's account at the end of the 13-month period after deduction of
the sales load applicable to the dollar value of shares actually
purchased. In this event, an appropriate number of escrowed shares may
be redeemed in order to realize the difference in the sales charge.

A letter of intent will not obligate the investor to purchase shares,
but if he or she does, each purchase during the period will be at the
sales charge applicable to the total amount intended to be purchased.
This letter may be dated as of a prior date to include any purchases
made within the past 90 days.

SALES OF CLASS A SHARES AT NET ASSET VALUE. Purchases of a Fund's Class A
Shares by the Advisor, the Sub-Advisor or any of their affiliates, or any
of their or FAIF's officers, directors, employees, retirees, sales
representatives and partners, registered representatives of any
broker-dealer authorized to sell Fund shares, and full-time employees of
FAIF's general counsel, and members of their immediate families (i.e.,
parent, child, spouse, sibling, step or adopted relationships, and UTMA
accounts naming qualifying persons), may be made at net asset value
without a sales charge. A Fund's Class A Shares also may be purchased at
net asset value without a sales charge by fee-based registered investment
advisors, financial planners and registered broker-dealers who are
purchasing shares on behalf of their customers and by purchasers through
"one-stop" mutual fund networks through which the Funds are made
available. Class A Shares may also be purchased at net asset value without
a sales charge by certain

<PAGE>

qualified defined contribution plans whose recordkeeping and other
accounting services are performed by U.S. Bank or an affiliate of U.S.
Bank. However, Participating Institutions may receive a commission of up
to 1.25% on such sales. In addition, Class A Shares may be purchased at
net asset value without a sales charge by investors participating in asset
allocation "wrap" accounts offered by the Advisor or any of its
affiliates, and by retirement and deferred compensation plans and the
trusts used to fund such plans (including, but not limited to, those
defined in section 401(a), 403(b) and 457 of the Internal Revenue Code and
"rabbi trusts"), which plans and trusts purchase through "one-stop" mutual
fund networks.

If Class A Shares of a Fund have been redeemed, the shareholder has a
one-time right, within 30 days, to reinvest the redemption proceeds in
Class A Shares of any FAIF Fund at the next-determined net asset value
without any sales charge. The Transfer Agent must be notified by the
shareholder in writing or by his or her financial institution of the
reinvestment in order to eliminate a sales charge. If the shareholder
redeems his or her shares of a Fund, there may be tax consequences.

In addition, purchases of Class A Shares of a Fund that are funded by
proceeds received upon the redemption (within 60 days of the purchase of
Fund shares) of shares of any unrelated open-end investment company that
charges a sales load and rollovers from retirement plans that utilize the
Funds as investment options may be made at net asset value. To make such a
purchase at net asset value, an investor or the investor's broker must, at
the time of purchase, submit a written request to the Transfer Agent that
the purchase be processed at net asset value pursuant to this privilege,
accompanied by a photocopy of the confirmation (or similar evidence) showing
the redemption from the unrelated fund. The redemption of the shares of the
non-related fund is, for federal income tax purposes, a sale upon which a
gain or loss may be realized.

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CLASS B SHARES.

CONTINGENT DEFERRED SALES CHARGE. Class B Shares are sold at net asset
value without any initial sales charge. If an investor redeems Class B
Shares within eight years of purchase, he or she will pay a contingent
deferred sales charge at the rates set forth below. This charge is
assessed on an amount equal to the lesser of the then-current market value
or the cost of the shares being redeemed. Accordingly, no sales charge is
imposed on increases in net asset value above the initial purchase price
or on shares derived from reinvestment of dividends or capital gain
distributions.

CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE

First 5.00%
Second 5.00%
Third 4.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh None
Eighth None

In determining whether a particular redemption is subject to a contingent
deferred sales charge, it is assumed that the redemption is first of any
Class A Shares in the shareholder's Fund account; second, of any Class B
Shares held for more than eight years and Class B Shares acquired pursuant
to reinvestment of dividends or other distributions; and third, of Class B
Shares held longest during the eight-year period. This method should
result in the lowest possible sales charge.

The contingent deferred sales charge is waived on redemption of Class B
Shares (i) within one year following the death or disability (as defined
in the Code) of a shareholder and (ii) to the extent that the redemption
represents a minimum required distribution from an individual retirement
account or other retirement plan to a shareholder who has attained the age
of 70 1/2. A shareholder or his or her representative must notify the
Transfer Agent

<PAGE>

prior to the time of redemption if such circumstances exist and the
shareholder is eligible for this waiver.

CONVERSION FEATURE. At the end of the period ending eight years after the
beginning of the month in which the shares were issued, Class B Shares
will automatically convert to Class A Shares and will no longer be subject
to the Class B distribution and service fees. This conversion will be on
the basis of the relative net asset values of the two classes.

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SYSTEMATIC EXCHANGE PROGRAM

Shares of a Fund may also be purchased through automatic monthly deductions
from a shareholder's account in the same class of shares of Prime
Obligations Fund of First American Funds, Inc. Under a systematic exchange
program, a shareholder enters an agreement to purchase a specified class of
shares of one or more Funds over a specified period of time, and initially
purchases Prime Obligations Fund shares of the same class in an amount equal
to the total amount of the investment. On a monthly basis a specified dollar
amount of shares of Prime Obligations Fund is exchanged for shares of the
same class of the Funds specified. The systematic exchange program of
investing a fixed dollar amount at regular intervals over time has the
effect of reducing the average cost per share of the Funds. This effect also
can be achieved through the systematic investment program described below.
Because purchases of Class A Shares are subject to an initial sales charge,
it may be beneficial for an investor to execute a Letter of Intent in
connection with the systematic exchange program. A shareholder may apply for
participation in this program through his or her financial institution or by
calling (800) 637-2548.

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SYSTEMATIC INVESTMENT PROGRAM

Once a Fund account has been opened, shareholders may add to their
investment on a regular basis in a minimum amount of $100. Under this
program, funds may be automatically withdrawn periodically from the
shareholder's checking account and invested in Fund shares at the net
asset value next determined after an order is received, plus any
applicable sales charge. A shareholder may apply for participation in this
program through his or her financial institution or by calling (800)
637-2548.

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EXCHANGING SECURITIES FOR FUND SHARES

A Fund may accept securities in exchange for Fund shares. A Fund will
allow such exchanges only upon the prior approval by the Fund and a
determination by the Fund and the Advisor that the securities to be
exchanged are acceptable. Securities accepted by a Fund will be valued in
the same manner that a Fund values its assets. The basis of the exchange
will depend upon the net asset value of Fund shares on the day the
securities are valued.

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CERTIFICATES AND CONFIRMATIONS

The Transfer Agent maintains a share account for each shareholder. Share
certificates will not be issued by the Funds.

Confirmations of each purchase and redemption are sent to each
shareholder. In addition, monthly confirmations are sent to report all
transactions and dividends paid during that month for the Funds.

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DIVIDENDS AND DISTRIBUTIONS

<PAGE>

with respect to International Fund. Distributions of any net realized
long-term capital gains will be made at least once every 12 months. A
portion of the quarterly distributions paid by Real Estate Securities Fund
may be a return of capital. Dividends and distributions are automatically
reinvested in additional shares of the Fund paying the dividend on payment
dates at the ex-dividend date net asset value without a sales charge,
unless shareholders request cash payments on the new account form or by
writing to the Fund.

All shareholders on the record date are entitled to the dividend. If
shares are purchased before a record date for a dividend or a distribution
of capital gains, a shareholder will pay the full price for the shares and
will receive some portion of the purchase price back as a taxable dividend
or distribution (to the extent, if any, that the dividend or distribution
is otherwise taxable to holders of Fund shares). If shares are redeemed or
exchanged before the record date for a dividend or distribution or are
purchased after the record date, those shares are not entitled to the
dividend or distribution.

The amount of dividends payable on Class A and Class B Shares generally
will be less than the dividends payable on Class Y Shares because of the
distribution, shareholder servicing, transfer agent and/or dividend
disbursing expenses charged to Class A and Class B Shares. The amount of
dividends payable on Class A Shares generally will be more than the
dividends payable on the Class B Shares because of the higher distribution
and shareholder servicing fees paid by Class B Shares.

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EXCHANGE PRIVILEGE

Shareholders may exchange Class A or Class B Shares of a Fund for
currently available Class A or Class B Shares, respectively, of the other
FAIF Funds or of other funds in the First American family of funds. Class
A Shares of the Funds, whether acquired by direct purchase, reinvestment
of dividends on such shares, or otherwise, may be exchanged for Class A
Shares of other funds without the payment of any sales charge (i.e., at
net asset value). Exchanges of shares among the First American family of
funds must meet any applicable minimum investment of the fund for which
shares are being exchanged.

For purposes of calculating the Class B Shares' eight-year conversion
period or contingent deferred sales charges payable upon redemption, the
holding period of Class B Shares of the "old" fund and the holding period
of Class B Shares of the "new" fund are aggregated.

The ability to exchange shares of the Funds does not constitute an
offering or recommendation of shares of one fund by another fund. This
privilege is available to shareholders resident in any state in which the
fund shares being acquired may be sold. An investor who is considering
acquiring shares in another First American Fund pursuant to the exchange
privilege should obtain and carefully read a prospectus of the fund to be
acquired. Exchanges may be accomplished by a written request, or by
telephone if a preauthorized exchange authorization is on file with the
Transfer Agent, shareholder servicing agent, or financial institution.

Written exchange requests must be signed exactly as shown on the
authorization form, and the signatures may be required to be guaranteed as
for a redemption of shares by an entity described below under "Redeeming
Shares -- By Mail." None of the Funds, the Distributor, the Transfer
Agent, any shareholder servicing agent, nor any financial institution will
be responsible for further verification of the authenticity of the
exchange instructions.

Telephone exchange instructions made by an investor may be carried out
only if a telephone authorization form completed by the investor is on
file with the Transfer Agent, shareholder servicing agent, or financial
institution. Shares may be exchanged between two First American funds by
telephone only if both funds have identical shareholder registrations.

Telephone exchange instructions may be recorded and will be binding upon
the shareholder.

<PAGE>

Telephone instructions must be received by the Transfer Agent before 3:00
p.m. Central time, or by a shareholder's shareholder servicing agent or
financial institution by the time specified by it, in order for shares to
be exchanged the same day. Neither the Transfer Agent nor any Fund will be
responsible for the authenticity of exchange instructions received by
telephone if it reasonably believes those instructions to be genuine. The
Funds and the Transfer Agent will each employ reasonable procedures to
confirm that telephone instructions are genuine, and they may be liable
for losses resulting from unauthorized or fraudulent telephone
instructions if they do not employ these procedures.

Shareholders of the Funds may have difficulty in making exchanges by
telephone through brokers and other financial institutions during times of
drastic economic or market changes. If a shareholder cannot contact his or
her broker or financial institution by telephone, it is recommended that
an exchange request be made in writing and sent by overnight mail to DST
Systems, Inc., 330 West Ninth Street, Kansas City, Missouri 64105. The
exchange privilege should not be used to take advantage of short-term
swings in the securities markets. The Funds reserve the right to limit or
terminate exchange privileges as to any shareholder who makes exchanges
more than four times a year (other than through the Systematic Exchange
Program or similar periodic investment programs). The Funds may modify or
revoke the exchange privilege for all shareholders upon 60 days' prior
written notice or without notice in times of drastic economic or market
changes.

Shares of a class may be exchanged for shares of a class in which an
investor subsequently becomes eligible to participate. An example of such
an exchange would be a situation in which an individual holder of Class A
Shares subsequently opens a fiduciary, custody or agency account with a
financial institution which invests in Class Y Shares.

There are currently no additional fees or charges for the exchange
service. The Funds do not contemplate establishing such fees or charges,
but they reserve the right to do so. Shareholders will be notified of any
additional fees or charges.

REDEEMING SHARES

Each Fund redeems shares at their net asset value next determined after
the Transfer Agent receives the redemption request, reduced by any
applicable contingent deferred sales charge. Redemptions will be made on
days on which the Fund computes its net asset value. Redemption requests
can be made as described below and must be received in proper form.

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BY TELEPHONE

A shareholder may redeem shares of a Fund, if he or she elects the
privilege on the initial shareholder application, by calling his or her
financial institution to request the redemption. Shares will be redeemed
at the net asset value next determined after the Fund receives the
redemption request from the financial institution (less the amount of any
applicable contingent deferred sales charge). Redemption requests must be
received by the financial institution by the time specified by the
institution in order for shares to be redeemed at that day's net asset
value, and redemption requests must be transmitted to and received by the
Funds by 3:00 p.m. Central time in order for shares to be redeemed at that
day's net asset value unless the financial institution has been authorized
to accept redemption requests on behalf of the Funds. Pursuant to
instructions received from the financial institution, redemptions will be
made by check or by wire transfer. It is the financial institution's
responsibility to transmit redemption requests promptly.

Certain financial institutions are authorized to act as the Funds' agent
for the purpose of accepting redemption requests, and the Funds will be
deemed to have received a redemption request upon receipt of the request
by the financial institution.

<PAGE>

Shareholders who did not purchase their shares of a Fund through a
financial institution may redeem their shares by telephoning (800)
637-2548. At the shareholder's request, redemption proceeds will be paid
by check mailed to the shareholder's address of record or wire transferred
to the shareholder's account at a domestic commercial bank that is a
member of the Federal Reserve System, normally within one business day,
but in no event more than seven days after the request. Wire instructions
must be previously established on the account or provided in writing. The
minimum amount for a wire transfer is $1,000. If at any time the Funds
determine it necessary to terminate or modify this method of redemption,
shareholders will be promptly notified.

In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming shares by telephone. If this should
occur, another method of redemption should be considered. Neither the
Transfer Agent nor any Fund will be responsible for any loss, liability,
cost or expense for acting upon wire transfer instructions or telephone
instructions that it reasonably believes to be genuine. The Transfer Agent
and the Funds will each employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. These procedures may
include taping of telephone conversations. To ensure authenticity of
redemption or exchange instructions received by telephone, the Transfer
Agent examines each shareholder request by verifying the account number
and/or tax identification number at the time such request is made. The
Transfer Agent subsequently sends confirmations of both exchange sales and
exchange purchases to the shareholder for verification. If reasonable
procedures are not employed, the Transfer Agent and the Funds may be liable
for any losses due to unauthorized or fraudulent telephone transactions.

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BY MAIL

Any shareholder may redeem Fund shares by sending a written request to the
Transfer Agent, shareholder servicing agent, or financial institution. The
written request should include the shareholder's name, the Fund name, the
account number, and the share or dollar amount requested to be redeemed,
and should be signed exactly as the shares are registered. Shareholders
should call the Fund, shareholder servicing agent or financial institution
for assistance in redeeming by mail. A check for redemption proceeds
normally is mailed within one business day, but in no event more than
seven days, after receipt of a proper written redemption request.

Shareholders requesting a redemption of $5,000 or more, a redemption of
any amount to be sent to an address other than that on record with the
Fund, or a redemption payable other than to the shareholder of record,
must have signatures on written redemption requests guaranteed by:

* a trust company or commercial bank the deposits of which are insured by
the Bank Insurance Fund, which is administered by the Federal Deposit
Insurance Corporation ("FDIC");

* a member firm of the New York, American, Boston, Midwest, or Pacific
Stock Exchanges or of the National Association of Securities Dealers;

* a savings bank or savings and loan association the deposits of which are
insured by the Savings Association Insurance Fund, which is administered
by the FDIC; or

* any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.

The Funds do not accept signatures guaranteed by a notary public.

The Funds and the Transfer Agent have adopted standards for accepting
signature guarantees from the above institutions. The Funds may elect in
the future to limit eligible signature guarantees to institutions that are
members of a signature guarantee program. The Funds and the Transfer Agent
reserve the right to amend these standards at any time without notice.

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BY SYSTEMATIC WITHDRAWAL PROGRAM

Shareholders whose account value is at least $5,000 may elect to
participate in the Systematic

<PAGE>

Withdrawal Program. Under this program, Fund shares are redeemed to
provide for periodic withdrawal payments in an amount directed by the
shareholder. A shareholder may apply to participate in this program
through his or her financial institution. It is generally not in a
shareholder's best interest to participate in the Systematic Withdrawal
Program at the same time that the shareholder is purchasing additional
shares if a sales charge must be paid in connection with such purchases.

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REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR

When shares are purchased by check or with funds transmitted through the
Automated Clearing House, the proceeds of redemptions of those shares are
not available until the Transfer Agent is reasonably certain that the
purchase payment has cleared, which could take up to ten calendar days
from the purchase date.

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ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, a Fund may
redeem shares in any account, except retirement plans, and pay the proceeds,
less any applicable contingent deferred sales charge, to the shareholder if
the account balance falls below the required minimum value of $500. Shares
will not be redeemed in this manner, however, if the balance falls below
$500 because of changes in a Fund's net asset value. Before shares are
redeemed to close an account, the shareholder will be notified in writing
and allowed 60 days to purchase additional shares to meet the minimum
account requirement.

DETERMINING THE PRICE OF SHARES

Class A Shares of the Funds are sold at net asset value plus a sales
charge, while Class B Shares are sold without a front-end sales charge.
Shares are redeemed at net asset value less any applicable contingent
deferred sales charge. See "Investing in the Funds -- Alternative Sales
Charge Options."

The net asset value per share is determined as of the close of normal
trading on the New York Stock Exchange (3:00 p.m. Central time) on each
day the New York Stock Exchange and federally-chartered banks are open for
business, provided that net asset value need not be determined on days
when no Fund shares are tendered for redemption and no order for that
Fund's shares is received and on days on which changes in the value of
portfolio securities will not materially affect the current net asset
value of the Fund's shares. The price per share for purchases or
redemptions is such value next computed after the Transfer Agent or
authorized financial institution receives a purchase order or redemption
request.

It is the responsibility of Participating Institutions promptly to forward
purchase and redemption orders to the Transfer Agent. In the case of
redemptions and repurchases of shares owned by corporations, trusts or
estates, the Transfer Agent or Fund may require additional documents to
evidence appropriate authority in order to effect the redemption, and the
applicable price will be that next determined following the receipt of the
required documentation.

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DETERMINING NET ASSET VALUE

The net asset value per share for each of the Funds is determined by
dividing the value of the securities owned by the Fund plus any cash and
other assets (including interest accrued and dividends declared but not
collected), less all liabilities, by the number of Fund shares
outstanding. For the purpose of determining the aggregate net assets of
the Funds, cash and receivables will be valued at their face amounts.
Interest will be recorded as accrued and dividends will be recorded on the
ex-dividend date. Security valuations are furnished by an independent
pricing service that has been approved by the Board of Directors.
Securities listed on a securities exchange or an automated quotation
system for which quotations are readily available, including

<PAGE>

securities traded over the counter, are valued at the last quoted sale
price on the principal exchange on which they are traded on the valuation
date, or, if there is no such reported sale on the valuation date, at the
most recently quoted bid price.

Debt obligations with remaining maturities in excess of 60 days are valued
at the most recently quoted bid price. For such debt obligations the
pricing service may employ methods that utilize actual market
transactions, broker-dealer valuations, or other electronic data
processing techniques. These techniques generally consider such factors as
security prices, yields, maturities, call features, ratings and
developments relating to specific securities in arriving at security
valuations. Debt obligations with remaining maturities of 60 days or less
may be valued at their amortized cost which approximates market value. If
a security price cannot be obtained from an independent pricing service a
bid price may be obtained from an independent broker who makes a market in
the security.

Foreign securities owned by the Funds are valued at the closing prices on
the principal exchange on which they trade.

If the value for a security cannot be obtained from the sources described
above, the security's value may be determined pursuant to the fair value
procedures established by the Board of Directors.

Financial futures are valued at the settlement price established each day by
the board of exchange on which they are traded. Portfolio securities
underlying actively traded options are valued at their market price as
determined above. The current market value of any exchange traded options
held or written by a Fund, are valued at the closing bid price for a long
position or the closing ask price for a short position.

Foreign currency forward contracts are valued at the current day's
interpolated foreign exchange rate, as calculated using the current day's
exchange rate, and the thirty, sixty, ninety and one-hundred eighty day
forward rates provided by the Reuters system.

Although the methodology and procedures for determining net asset value
are identical for all classes of shares, the net asset value per share of
different classes of shares of the same Fund may differ because of the
differing distribution, shareholder servicing, transfer agent and/or
dividend disbursing expenses charged to Class A and Class B Shares.

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FOREIGN SECURITIES

Any assets or liabilities of the Funds initially expressed in terms of
foreign currencies are translated into United States dollars using current
exchange rates. Trading in securities on foreign markets may be completed
before the close of business on each business day of the Funds. Thus, the
calculation of the Funds' net asset value may not take place
contemporaneously with the determination of the prices of foreign
securities held in the Funds' portfolios. In addition, trading in
securities on foreign markets may not take place on all days on which the
New York Stock Exchange is open for business or may take place on days on
which the New York Stock Exchange is not open for business. Therefore, the
net asset value of a Fund which holds foreign securities might be
significantly affected on days when an investor has no access to the Fund.

FEDERAL INCOME TAXES

Each Fund is treated as a different entity for federal income tax
purposes. Each of the Funds intends to qualify as a regulated investment
company under the Internal Revenue Code of 1986, as amended. If so
qualified and provided certain distribution requirements are met, a Fund
will not be liable for federal income taxes to the extent it distributes
its income to its shareholders.

<PAGE>

attributable to investments in the securities of foreign issuers will not
be eligible for the 70% deduction for dividends received by corporations.

Distributions paid from a Fund's net capital gains and designated as
capital gain dividends generally are taxable as long-term capital gains in
the hands of shareholders, regardless of the length of time during which
they have held their shares. In the case of shareholders who are
individuals, estates, or trusts, each Fund will designate the portion of
each capital gain dividend that must be treated as mid-term capital gain
and the portion that must be treated as long-term capital gain.

Gain or loss realized on the sale or exchange of shares in a Fund will be
treated as capital gain or loss, provided that (as is usually the case)
the shares represented a capital asset in the hands of the shareholder.
For shareholders who are individuals, estates or trusts the gain or loss
will be considered long-term if the shareholder has held the shares for
more than 18 months and mid-term if the shareholder has held the shares
for more than one year but not more than 18 months.

A Fund may be required to "back-up" withhold 31% of any dividend,
distribution, or redemption payment made to a shareholder who fails to
furnish the Fund with the shareholder's Social Security number or other
taxpayer identification number or to certify that he or she is not subject
to back-up withholding.

International Index Fund and International Fund may be required to pay
withholding and other taxes imposed by foreign countries, generally at rates
from 10% to 40%, which would reduce each Fund's investment income. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes.

If at the end of International Index Fund's and International Fund's
taxable year more than 50% of their respective total assets consist of
securities of foreign corporations, such Fund will be eligible to file an
election with the Internal Revenue Service pursuant to which shareholders
of the Fund will be required to include their respective pro rata portions
of such foreign taxes in gross income, treat such amounts as foreign taxes
paid by them, and deduct such amounts in computing their taxable income
or, alternatively, use them as foreign tax credits against their federal
income taxes. If such an election is filed for a year, International Index
Fund and International Fund shareholders will be notified of the amounts
which they may deduct as foreign taxes paid or used as foreign tax
credits. International Fund filed this election for each of its two most
recent completed fiscal years ending September 30, 1997 and 1996.

Alternatively, if the amount of foreign taxes paid by International Index
Fund or International Fund is not large enough in future years to warrant
making the election described above, each Fund may claim the amount of
foreign taxes paid as a deduction against its own gross income. In that
case, shareholders would not be required to include any amount of foreign
taxes paid by each Fund in their income and would not be permitted either
to deduct any portion of foreign taxes from their own income or to claim
any amount of foreign tax credit for taxes paid by the Funds.

This is a general summary of the federal tax laws applicable to the Funds
and their shareholders as of the date of this Prospectus. See the
Statement of Additional Information for further details.

FUND SHARES

Each share of a Fund is fully paid, nonassessable, and transferable.
Shares may be issued as either full or fractional shares. Fractional
shares have pro rata the same rights and privileges as full shares. Shares
of the Funds have no preemptive or conversion rights.

<PAGE>

or class of shares, the shares of that Fund or class will vote as a
separate series. Examples of such issues would be proposals to alter a
fundamental investment restriction pertaining to a Fund or to approve,
disapprove or alter a distribution plan pertaining to a class of shares.

Under the laws of the State of Maryland and FAIF's Articles of
Incorporation, FAIF is not required to hold shareholder meetings unless
they (i) are required by the 1940 Act, or (ii) are requested in writing by
the holders of 25% or more of the outstanding shares of FAIF.

CALCULATION OF PERFORMANCE DATA

From time to time, any of the Funds may advertise information regarding
its performance. Each Fund may publish its "yield," its "cumulative total
return," its "average annual total return" and its "distribution rate."
Distribution rates may only be used in connection with sales literature
and shareholder communications preceded or accompanied by a Prospectus.
Each of these performance figures is based upon historical results and is
not intended to indicate future performance, and, except for "distribution
rate," is standardized in accordance with SEC regulations.

"Yield" for the Funds is computed by dividing the net investment income per
share (as defined in applicable SEC regulations) earned during a 30-day
period (which period will be stated in the advertisement) by the maximum
offering price per share on the last day of the period. Yield is an
annualized figure, in that it assumes that the same level of net investment
income is generated over a one year period. The yield formula annualizes net
investment income by providing for semi-annual compounding.

"Total return" is based on the overall dollar or percentage change in
value of a hypothetical investment in a Fund assuming reinvestment of
dividend distributions and deduction of all charges and expenses,
including, as applicable, the maximum sales charge imposed on Class A
Shares or the contingent deferred sales charge imposed on Class B Shares
redeemed at the end of the specified period covered by the total return
figure. "Cumulative total return" reflects a Fund's performance over a
stated period of time. "Average annual total return" reflects the
hypothetical annually compounded rate that would have produced the same
cumulative total return if performance had been constant over the entire
period. Because average annual returns tend to smooth out variations in a
Fund's performance, they are not the same as actual year-by-year results.
As a supplement to total return computations, a Fund may also publish
"total investment return" computations which do not assume deduction of
the maximum sales charge imposed on Class A Shares or the contingent
deferred sales charge imposed on Class B Shares.

"Distribution rate" is determined by dividing the income dividends per
share for a stated period by the maximum offering price per share on the
last day of the period. All distribution rates published for the Funds are
measures of the level of income dividends distributed during a specified
period. Thus, these rates differ from yield (which measures income
actually earned by a Fund) and total return (which measures actual income,
plus realized and unrealized gains or losses of a Fund's investments).
Consequently, distribution rates alone should not be considered complete
measures of performance.

The performance of the Class A and Class B Shares of a Fund will normally
be lower than for the Class Y Shares because Class Y Shares are not
subject to the sales charges and distribution, shareholder servicing,
transfer agent and/or dividend disbursing expenses applicable to Class A
and Class B Shares. In addition, the performance of Class A and Class B
Shares of a Fund will differ because of the different sales charge
structures of the classes and because of the differing distribution and
shareholder servicing fees charged to Class B Shares.

In reports or other communications to shareholders and in advertising
material, the performance of each Fund may be compared to recognized

<PAGE>

unmanaged indices or averages of the performance of similar securities and
to composites of such indices and averages. Also, the performance of each
Fund may be compared to that of other funds of similar size and objectives
as listed in the rankings prepared by Lipper Analytical Services, Inc. or
similar independent mutual fund rating services, and each Fund may include
in such reports, communications and advertising material evaluations
published by nationally recognized independent ranking services and
publications. For further information regarding the Funds' performance,
see "Fund Performance" in the Statement of Additional Information.

PERFORMANCE INFORMATION FOR SUCCESSORS TO COMMON TRUST FUNDS

From time to time, Small Cap Value Fund and Micro Cap Value Fund may
advertise performance information which includes performance data for
certain predecessor common trust funds.

On November 21, 1997, Small Cap Value Fund acquired the assets and assumed
all identified liabilities of the Qualivest Small Companies Value Fund.
The Qualivest Small Companies Value Fund commenced operations on August 1,
1994, when substantially all of the assets of a certain common trust fund
which was exempt from registration under the 1940 Act was transferred to
such fund.

Micro Cap Value Fund commenced operations on August 8, 1997, when
substantially all of the assets of a certain common trust fund which was
exempt from registration under the 1940 Act was transferred to the Fund.
This predecessor common trust fund was managed by Qualivest Capital
Management, Inc. prior to the acquisition of its parent company by the
Advisor's parent company. The personnel who managed this common trust fund
on behalf of Qualivest Capital Management, Inc. became employees of the
Advisor, and assumed management of the Fund, at the time the assets were
transferred from the common trust fund to the Fund.

Such performance data is deemed relevant because the respective common
trust funds were managed using investment objectives, policies and
restrictions very similar to those of their corresponding Funds. However,
the predecessor common trust funds were not subject to certain investment
restrictions that are imposed by the 1940 Act. Accordingly, if the common
trust funds had been registered under the 1940 Act, their performance
could have been adversely affected by virtue of such investment
restrictions. In addition, the predecessor common trust funds did not
incur the same expenses as the corresponding Funds.

SPECIAL INVESTMENT METHODS

This section provides additional information concerning the securities in
which the Funds may invest and related topics. Further information
concerning these matters is contained in the Statement of Additional
Information.

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CASH ITEMS

The "cash items" in which the Funds may invest, as described under
"Investment Objectives and Policies," include short-term obligations such as
rated commercial paper and variable amount master demand notes; United
States dollar-denominated time and savings deposits (including certificates
of deposit); bankers' acceptances; obligations of the United States
Government or its agencies or instrumentalities (including, in the case of
Balanced Fund, zero coupon securities); repurchase agreements collateralized
by eligible investments of a Fund; securities of other mutual funds which
invest primarily in debt obligations with remaining maturities of 13 months
or less (which investments also are subject to the advisory fee); and other
similar high-quality short-term United States dollar-denominated
obligations. The other mutual funds in which the Funds may so invest include
money market funds advised by the Advisor, subject to certain restrictions
contained

<PAGE>

in an exemptive order issued by the Securities and Exchange Commission
with respect thereto.

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REPURCHASE AGREEMENTS

Each of the Funds may enter into repurchase agreements. A repurchase
agreement involves the purchase by a Fund of securities with the agreement
that after a stated period of time, the original seller will buy back the
same securities ("collateral") at a predetermined price or yield.
Repurchase agreements involve certain risks not associated with direct
investments in securities. If the original seller defaults on its
obligation to repurchase as a result of its bankruptcy or otherwise, the
purchasing Fund will seek to sell the collateral, which could involve
costs or delays. Although collateral (which may consist of any fixed
income security which is an eligible investment for the Fund entering into
the repurchase agreement) will at all times be maintained in an amount
equal to the repurchase price under the agreement (including accrued
interest), a Fund would suffer a loss if the proceeds from the sale of the
collateral were less than the agreed-upon repurchase price. The Advisor
or, in the case of International Fund, the Sub-Advisor will monitor the
creditworthiness of the firms with which the Funds enter into repurchase
agreements.

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WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

Each of the Funds (excluding Equity Index Fund and International Index Fund)
may purchase securities on a when-issued or delayed delivery basis. When
such a transaction is negotiated, the purchase price is fixed at the time
the purchase commitment is entered, but delivery of and payment for the
securities take place at a later date. A Fund will not accrue income with
respect to securities purchased on a when-issued or delayed delivery basis
prior to their stated delivery date. Pending delivery of the securities,
each Fund will maintain in a segregated account cash or liquid high-grade
securities in an amount sufficient to meet its purchase commitments.

The purchase of securities on a when-issued or delayed delivery basis
exposes a Fund to risk because the securities may decrease in value prior
to delivery. In addition, a Fund's purchase of securities on a when-issued
or delayed delivery basis while remaining substantially fully invested
could increase the amount of the Fund's total assets that are subject to
market risk, resulting in increased sensitivity of net asset value to
changes in market prices. However, the Funds will engage in when-issued
and delayed delivery transactions only for the purpose of acquiring
portfolio securities consistent with their investment objectives, and not
for the purpose of investment leverage. A seller's failure to deliver
securities to a Fund could prevent the Fund from realizing a price or
yield considered to be advantageous.

In connection with its ability to purchase securities on a when-issued or
delayed delivery basis, Balanced Fund may, with respect to its fixed
income assets, enter into mortgage "dollar rolls" in which the Fund sells
securities and simultaneously contracts with the same counterparty to
repurchase similar (same type, coupon and maturity) but not identical
securities on a specified future date. In a mortgage dollar roll, the Fund
gives up the right to receive principal and interest paid on the
securities sold. However, the Fund would benefit to the extent of any
difference between the price received for the securities sold and the
lower forward price for the future purchase plus any fee income received.
Unless such benefits exceed the income, capital appreciation and gain or
loss due to mortgage prepayments that would have been realized on the
securities sold as part of the mortgage dollar roll, the use of this
technique will diminish the investment performance of the Fund compared
with what such performance would have been without the use of mortgage
dollar rolls. Balanced Fund will hold and maintain in a segregated account
until the settlement date cash or liquid securities in an amount equal to
the forward purchase price.

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LENDING OF PORTFOLIO SECURITIES

In order to generate additional income, each of the Funds may lend
portfolio securities representing

<PAGE>

up to one-third of the value of its total assets to broker-dealers, banks
or other institutional borrowers of securities. As with other extensions
of credit, there may be risks of delay in recovery of the securities or
even loss of rights in the collateral should the borrower of the
securities fail financially. However, the Funds will only enter into loan
arrangements with broker-dealers, banks, or other institutions which the
Advisor or, in the case of International Fund, the Sub-Advisor has
determined are creditworthy under guidelines established by the Board of
Directors. In these loan arrangements, the Funds will receive collateral
in the form of cash, United States Government securities or other
high-grade debt obligations equal to at least 100% of the value of the
securities loaned. Collateral is marked to market daily. The Funds will
pay a portion of the income earned on the lending transaction to the
placing broker and may pay administrative and custodial fees (including
fees to an affiliate of the Advisor) in connection with these loans which,
in the case of U.S. Bank, are 40% of the Funds' income from such
securities lending transactions.

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OPTIONS TRANSACTIONS

PURCHASES OF PUT AND CALL OPTIONS. The Funds may purchase put and call
options. These transactions will be undertaken only for the purpose of
reducing risk to the Funds; that is, for "hedging" purposes. Depending on
the Fund, these transactions may include the purchase of put and call
options on equity securities, on stock indices, on interest rate indices, or
(only in the case of International Fund) on foreign currencies. Options on
futures contracts are discussed below under "Futures and Options on
Futures."

A put option on a security gives the purchaser of the option the right
(but not the obligation) to sell, and the writer of the option the
obligation to buy, the underlying security at a stated price (the
"exercise price") at any time before the option expires. A call option on
a security gives the purchaser the right (but not the obligation) to buy,
and the writer the obligation to sell, the underlying security at the
exercise price at any time before the option expires. The purchase price
for a put or call option is the "premium" paid by the purchaser for the
right to sell or buy.

Options on indices are similar to options on securities except that,
rather than the right to take or make delivery of a specific security at a
stated price, an option on an index gives the holder the right to receive,
upon exercise of the option, a defined amount of cash if the closing value
of the index upon which the option is based is greater than, in the case
of a call, or less than, in the case of a put, the exercise price of the
option.

None of the Funds other than International Fund will invest more than 5%
of the value of its total assets in purchased options, provided that
options which are "in the money" at the time of purchase may be excluded
from this 5% limitation. A call option is "in the money" if the exercise
price is lower than the current market price of the underlying security or
index, and a put option is "in the money" if the exercise price is higher
than the current market price. A Fund's loss exposure in purchasing an
option is limited to the sum of the premium paid and the commission or
other transaction expenses associated with acquiring the option.

The use of purchased put and call options involves certain risks. These
include the risk of an imperfect correlation between market prices of
securities held by a Fund and the prices of options, and the risk of
limited liquidity in the event that a Fund seeks to close out an options
position before expiration by entering into an offsetting transaction.

WRITING OF CALL OPTIONS. The Funds may write (sell) covered call options
to the extent specified with respect to particular Funds under "Investment
Objectives and Policies." These transactions would be undertaken
principally to produce additional income. Depending on the Fund, these
transactions may include the writing of covered call options on equity
securities or (only in the case of International Fund) on foreign
currencies which a Fund owns or has the right to acquire or on interest
rate indices.

<PAGE>

When a Fund sells a covered call option, it is paid a premium by the
purchaser. If the market price of the security covered by the option does
not increase above the exercise price before the option expires, the
option generally will expire without being exercised, and the Fund will
retain both the premium paid for the option and the security. If the
market price of the security covered by the option does increase above the
exercise price before the option expires, however, the option is likely to
be exercised by the purchaser. In that case the Fund will be required to
sell the security at the exercise price, and it will not realize the
benefit of increases in the market price of the security above the
exercise price of the option.

The Funds also may, to the extent specified with respect to particular
Funds under "Investment Objectives and Policies," write call options on
stock indices the movements of which generally correlate with those of the
respective Funds' portfolio holdings, These transactions, which would be
undertaken principally to produce additional income, entail the risk of an
imperfect correlation between movements of the index covered by the option
and movements in the price of the Fund's portfolio securities.

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FUTURES AND OPTIONS ON FUTURES

Balanced Fund, Equity Index Fund, International Index Fund and International
Fund may engage in futures transactions and purchase options on futures to
the extent specified with under "Investment Objectives and Policies."
Depending on the Fund, these transactions may include the purchase of stock
index futures and options on stock index futures, and the purchase of
interest rate futures and options on interest rate futures. In addition,
International Fund may enter into contracts for the future delivery of
securities or foreign currencies and futures contracts based on a specific
security, class of securities, or foreign currency.

A futures contract on a security obligates one party to purchase, and the
other to sell, a specified security at a specified price on a date certain
in the future. A futures contract on an index obligates the seller to
deliver, and entitles the purchaser to receive, an amount of cash equal to
a specific dollar amount times the difference between the value of the
index at the expiration date of the contract and the index value specified
in the contract. The acquisition of put and call options on futures
contracts will, respectively, give a Fund the right (but not the
obligation), for a specified exercise price, to sell or to purchase the
underlying futures contract at any time during the option period.

A Fund may use futures contracts and options on futures in an effort to
hedge against market risks and, in the case of International Fund, as part
of its management of foreign currency transactions. In addition, Equity
Index Fund and International Index Fund may use stock index futures and
options on futures to maintain sufficient liquidity to meet redemption
requests, to increase the level of Fund assets devoted to replicating the
composition of the S&P 500 or EAFE Index, respectively, and to reduce
transaction costs.

Aggregate initial margin deposits for futures contracts, and premiums paid
for related options, may not exceed 5% of a Fund's total assets, and the
value of securities that are the subject of such futures and options (both
for receipt and delivery) may not exceed 1/3 of the market value of a
Fund's total assets. Futures transactions will be limited to the extent
necessary to maintain each Fund's qualification as a regulated investment
company under the Code.

Where a Fund is permitted to purchase options on futures, its potential
loss is limited to the amount of the premiums paid for the options. As
stated above, this amount may not exceed 5% of a Fund's total assets.
Where a Fund is permitted to enter into futures contracts obligating it to
purchase securities, currency or an index in the future at a specified
price, such Fund could lose 100% of its net assets in connection therewith
if it engaged extensively in such transactions and if the market value or
index value of the subject securities, currency or index at the delivery
or settlement

<PAGE>

date fell to zero for all contracts into which a Fund was permitted to
enter. Where a Fund is permitted to enter into futures contracts
obligating it to sell securities or currencies (as is the case with
respect only to International Fund), its potential losses are unlimited if
it does not own the securities or currencies covered by the contracts and
it is unable to close out the contracts prior to the settlement date.

Futures transactions involve brokerage costs and require a Fund to
segregate assets to cover contracts that would require it to purchase
securities or currencies. A Fund may lose the expected benefit of futures
transactions if interest rates, exchange rates or securities prices move
in an unanticipated manner. Such unanticipated changes may also result in
poorer overall performance than if the Fund had not entered into any
futures transactions. In addition, the value of a Fund's futures positions
may not prove to be perfectly or even highly correlated with the value of
its portfolio securities or foreign currencies, limiting the Fund's
ability to hedge effectively against interest rate, exchange rate and/or
market risk and giving rise to additional risks. There is no assurance of
liquidity in the secondary market for purposes of closing out futures
positions.

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FIXED INCOME SECURITIES

The fixed income securities in which Real Estate Securities Fund, Equity
Income Fund, Large Cap Value Fund, Large Cap Growth Fund, Mid Cap Value
Fund, Regional Equity Fund, Small Cap Growth Fund, Small Cap Value Fund,
Micro Cap Value Fund, Health Sciences Fund and Technology Fund may invest
include securities issued or guaranteed by the United States Government or
its agencies or instrumentalities, nonconvertible preferred stocks,
nonconvertible corporate debt securities, and short-term obligations of the
kinds described above under "Special Investment Methods -- Cash Items."
Investments in nonconvertible preferred stocks and nonconvertible corporate
debt securities will be limited to securities which are rated at the time of
purchase not less than BBB by Standard & Poor's or Baa by Moody's (or
equivalent short-term ratings), or which have been assigned an equivalent
rating by another nationally recognized statistical rating organization, or
which are of comparable quality in the judgment of the Advisor. Obligations
rated BBB, Baa or their equivalent, although investment grade, have
speculative characteristics and carry a somewhat higher risk of default than
obligations rated in the higher investment grade categories.

In addition, Equity Income Fund may invest up to 25% of its total assets,
and each of the other Funds may invest up to 5% of its net assets, in less
than investment grade convertible debt obligations. For a description of
such obligations and the risks associated therewith, see "Investment
Objectives and Policies -- Equity Income Fund."

The fixed income securities specified above, as well as the fixed income
securities in which Balanced Fund may invest as described under
"Investment Objectives and Policies," 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).

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FOREIGN SECURITIES

GENERAL. Under normal market conditions International Index Fund and
International Fund invest at least 65% of their respective total assets in
equity securities which trade in markets other than the United States. In
addition, the other Funds (excluding Equity Index Fund and Regional Equity
Fund) may invest lesser proportions of their assets in securities of
foreign issuers which are either listed on a United States securities
exchange or represented by American Depositary Receipts.

<PAGE>

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. These risks include
political, social or economic instability in the country of the issuer,
the difficulty of predicting international trade patterns, the possibility
of the imposition of exchange controls, expropriation, limits on removal
of currency or other assets, nationalization of assets, foreign
withholding and income taxation, and foreign trading practices (including
higher trading commissions, custodial charges and delayed settlements).
Foreign securities also may be subject to greater fluctuations in price
than securities issued by United States corporations. The principal
markets on which these securities trade may have less volume and
liquidity, and may be more volatile, than securities markets in the United
States.

In addition, there may be less publicly available information about a
foreign company than about a United States domiciled company. Foreign
companies generally are not subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to United
States domestic companies. There is also generally less government
regulation of securities exchanges, brokers and listed companies abroad than
in the United States. Confiscatory taxation or diplomatic developments could
also affect investment in those countries. In addition, foreign branches of
United States banks, foreign banks and foreign issuers may be subject to
less stringent reserve requirements and to different accounting, auditing,
reporting, and recordkeeping standards than those applicable to domestic
branches of United States banks and United States domestic issuers.

JAPANESE SECURITIES. Japanese securities comprised 29.2% of the EAFE Index
as of September 30, 1997. As a result, securities of Japanese companies
may represent a significant component of International Index Fund's
investment assets.

Japan is politically organized as a democratic, parliamentary republic and
has a population of approximately 122 million. The Japanese economy is
heavily industrial and export-oriented. Although Japan is dependent upon
foreign economies for raw materials, Japan's balance of payments in recent
years has been strong and positive. Japan has eight stock exchanges
located throughout the country, but over 80% of all trading is conducted
on the Tokyo Stock Exchange. Prices of stocks listed on the Japanese stock
exchanges are quoted continuously during regular business hours. Trading
commissions are at fixed scale rates which vary by the type and the value
of the transaction, but can be negotiable for large transactions.
Securities in Japan are denominated and quoted in yen. Yen are fully
convertible and transferable based on floating exchange rates into all
currencies, without administrative or legal restrictions, for both
nonresidents and residents of Japan.

A significant investment in Japanese securities by International Index
Fund may entail a higher degree of risk than with more diversified
international portfolios.

AMERICAN DEPOSITARY RECEIPTS AND EUROPEAN DEPOSITARY RECEIPTS. For many
foreign securities, United States dollar-denominated American Depositary
Receipts, which are traded in the United States on exchanges or over-the-
counter, are issued by domestic banks. American Depositary Receipts
represent the right to receive securities of foreign issuers deposited in
a domestic bank or a correspondent bank. American Depositary Receipts do
not eliminate all the risk inherent in investing in the securities of
foreign issuers. However, by investing in American Depositary Receipts
rather than directly in foreign issuers' stock, a Fund can avoid currency
risks during the settlement period for either purchases or sales. In
general, there is a large, liquid market in the United States for many
American Depositary Receipts. The information available for American
Depositary Receipts is subject to the accounting, auditing and financial
reporting standards of the domestic market or exchange on which they are
traded, which standards are more uniform and more exacting than those to
which many foreign issuers may be subject. International Index Fund and
International Fund also may invest in

<PAGE>

European Depositary Receipts, which are receipts evidencing an arrangement
with a European bank similar to that for American Depositary Receipts and
which are designed for use in the European securities markets. European
Depositary Receipts are not necessarily denominated in the currency of the
underlying security.

Certain American Depositary Receipts and European Depositary Receipts,
typically those denominated as unsponsored, require the holders thereof to
bear most of the costs of the facilities while issuers of sponsored
facilities normally pay more of the costs thereof. The depository of an
unsponsored facility frequently is under no obligation to distribute
shareholder communications received from the issuer of the deposited
securities or to pass through the voting rights to facility holders in
respect to the deposited securities, whereas the depository of a sponsored
facility typically distributes shareholder communications and passes
through voting rights.

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FOREIGN CURRENCY TRANSACTIONS

International Index Fund and International Fund invest in securities which
are purchased and sold in foreign currencies. The value of its assets as
measured in United States dollars therefore may be affected favorably or
unfavorably by changes in foreign currency exchange rates and exchange
control regulations. International Index Fund and International Fund also
will incur costs in converting United States dollars to local currencies,
and vice versa.

International Index Fund and International Fund will conduct their foreign
currency exchange transactions either on a spot (i.e., cash) basis at the
spot rate prevailing in the foreign currency exchange market, or through
forward contracts to purchase or sell foreign currencies. A forward foreign
currency exchange contract involves an obligation to purchase or sell a
specific currency at a future date certain at a specified price. These
forward currency contracts are traded directly between currency traders
(usually large commercial banks) and their customers.

International Fund may enter into forward currency contracts in order to
hedge against adverse movements in exchange rates between currencies. It
may engage in "transaction hedging" to protect against a change in the
foreign currency exchange rate between the date the Fund contracts to
purchase or sell a security and the settlement date, or to "lock in" the
United States dollar equivalent of a dividend or interest payment made in
a foreign currency. It also may engage in "portfolio hedging" to protect
against a decline in the value of its portfolio securities as measured in
United States dollars which could result from changes in exchange rates
between the United States dollar and the foreign currencies in which the
portfolio securities are purchased and sold. International Fund also may
hedge its foreign currency exchange rate risk by engaging in currency
financial futures and options transactions.

Although a foreign currency hedge may be effective in protecting the Fund
from losses resulting from unfavorable changes in exchanges rates between
the United States dollar and foreign currencies, it also would limit the
gains which might be realized by the Fund from favorable changes in
exchange rates. The Sub-Advisor's decision whether to enter into currency
hedging transactions will depend in part on its view regarding the
direction and amount in which exchange rates are likely to move. The
forecasting of movements in exchange rates is extremely difficult, so that
it is highly uncertain whether a hedging strategy, if undertaken, would be
successful. To the extent that the Sub-Advisor's view regarding future
exchange rates proves to have been incorrect, International Fund may
realize losses on its foreign currency transactions.

International Fund does not intend to enter into forward currency
contracts or maintain a net exposure in such contracts where it would be
obligated to deliver an amount of foreign currency in excess of the value
of its portfolio securities or other assets denominated in that currency.

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MORTGAGE-BACKED SECURITIES

Balanced Fund may invest in mortgage-backed securities which are Agency
Pass-Through

<PAGE>

Certificates or collateralized mortgage obligations ("CMOs"), as described
below.

Agency Pass-Through Certificates are mortgage pass-through certificates
representing undivided interests in pools of residential mortgage loans.
Distribution of principal and interest on the mortgage loans underlying an
Agency Pass-Through Certificate is an obligation of or guaranteed by the
Government National Mortgage Association ("GNMA"), the Federal National
Mortgage Association ("FNMA"), or the Federal Home Loan Mortgage
Corporation ("FHLMC"). The obligation of GNMA with respect to such
certificates is backed by the full faith and credit of the United States,
while the obligations of FNMA and FHLMC with respect to such certificates
rely solely on the assets and credit of those entities. The mortgage loans
underlying GNMA certificates are partially or fully guaranteed by the
Federal Housing Administration or the Veterans Administration, while the
mortgage loans underlying FNMA certificates and FHLMC certificates are
conventional mortgage loans which are, in some cases, insured by private
mortgage insurance companies. Agency Pass-Through Certificates may be
issued in a single class with respect to a given pool of mortgage loans or
in multiple classes.

CMOs are debt obligations typically issued by a private special-purpose
entity and collateralized by residential or commercial mortgage loans or
Agency Pass-Through Certificates. Balanced Fund will invest only in CMOs
which are rated in one of the four highest rating categories by a nationally
recognized statistical rating organization or which are of comparable
quality in the judgment of the Advisor. Because CMOs are debt obligations of
private entities, payments on CMOs generally are not obligations of or
guaranteed by any governmental entity, and their ratings and
creditworthiness typically depend, among other factors, on the legal
insulation of the issuer and transaction from the consequences of a
sponsoring entity's bankruptcy. CMOs generally are issued in multiple
classes, with holders of each class entitled to receive specified portions
of the principal payments and prepayments and/or of the interest payments on
the underlying mortgage loans. These entitlements can be specified in a wide
variety of ways, so that the payment characteristics of various classes may
differ greatly from one another. Examples of the more common classes are
provided in the Statement of Additional Information. The CMOs in which the
Fund may invest include classes which are subordinated in right of payment
to other classes, as long as they have the required rating referred to
above.

It generally is more difficult to predict the effect of changes in market
interest rates on the return on mortgaged-backed securities than to
predict the effect of such changes on the return of a conventional
fixed-rate debt instrument, and the magnitude of such effects may be
greater in some cases. The return on interest-only and principal-only
mortgage-backed securities is particularly sensitive to changes in
interest rates and prepayment speeds. When interest rates decline and
prepayment speeds increase, the holder of an interest-only mortgage-backed
security may not even recover its initial investment. Similarly, the
return on an inverse floating rate and inverse interest-only CMO is likely
to decline more sharply in periods of increasing interest rates than that
of a fixed-rate security. For these reasons, interest-only,
principal-only, inverse floating rate and inverse interest-only
mortgage-backed securities generally have greater risk than more
conventional classes of mortgage-backed securities. Balanced Fund will not
invest more than 10% of its total fixed income assets in interest-only,
principal-only, inverse floating rate or inverse interest-only mortgage
backed securities.

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ASSET-BACKED SECURITIES

Balanced Fund may invest in asset-backed securities. Asset-backed
securities generally constitute interests in, or obligations secured by, a
pool of receivables other than mortgage loans, such as automobile loans
and leases, credit card receivables, home equity loans and trade
receivables. Asset-backed securities generally are issued by a private
special-purpose entity. Their

<PAGE>

ratings and creditworthiness typically depend on the legal insulation of
the issuer and transaction from the consequences of a sponsoring entity's
bankruptcy, as well as on the credit quality of the underlying receivables
and the amount and credit quality of any third-party credit enhancement
supporting the underlying receivables or the asset-backed securities.
Asset-backed securities and their underlying receivables generally are not
issued or guaranteed by any governmental entity.

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BANK INSTRUMENTS

The bank instruments in which Balanced Fund may invest include time and
savings deposits, deposit notes and bankers' acceptances (including
certificates of deposit) in commercial or savings banks. They also include
Eurodollar Certificates of Deposit issued by foreign branches of United
States or foreign banks; Eurodollar Time Deposits, which are United States
dollar-denominated deposits in foreign branches of United States or
foreign banks; and Yankee Certificates of Deposit, which are United States
dollar-denominated certificates of deposit issued by United States
branches of foreign banks and held in the United States. For a description
of certain risks of investing in foreign issuers' securities, see "--
Foreign Securities" above. In each instance, Balanced Fund may only invest
in bank instruments issued by an institution which has capital, surplus
and undivided profits of more than $100 million or the deposits of which
are insured by the Bank Insurance Fund or the Savings Association
Insurance Fund.

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PORTFOLIO TRANSACTIONS

Portfolio transactions in the over-the-counter market will be effected
with market makers or issuers, unless better overall price and execution
are available through a brokerage transaction. It is anticipated that most
portfolio transactions involving debt securities will be executed on a
principal basis. Also, with respect to the placement of portfolio
transactions with securities firms, subject to the overall policy to seek
to place portfolio transactions as efficiently as possible and at the best
price, research services and placement of orders by securities firms for a
Fund's shares may be taken into account as a factor in placing portfolio
transactions for the Fund.

---------------------------------------------------------------------------
PORTFOLIO TURNOVER

Although the Funds do not intend generally to trade for short-term
profits, they may dispose of a security without regard to the time it has
been held when such action appears advisable to the Advisor or, in the
case of International Fund, the Sub-Advisor. The portfolio turnover rate
for a Fund may vary from year to year and may be affected by cash
requirements for redemptions of shares. High portfolio turnover rates
(100% or more) generally would result in higher transaction costs and
could result in additional tax consequences to a Fund's shareholders.

---------------------------------------------------------------------------

INVESTMENT RESTRICTIONS

The fundamental and nonfundamental investment restrictions of the Funds
are set forth in full in the Statement of Additional Information. The
fundamental restrictions include the following:

* None of the Funds will borrow money, except from banks for temporary or
emergency purposes. The amount of such borrowing may not exceed 10% of
the borrowing Fund's total assets.

* None of the Funds will borrow money for leverage purposes. For the
purpose of this investment restriction, the use of options and futures
transactions and the purchase of securities on a when-issued or delayed
delivery basis shall not be deemed the borrowing of money. If a Fund
engages in borrowing, its share price may be subject to greater
fluctuation, and the interest expense associated with the borrowing may
reduce the Fund's net income.

* None of the Funds will make short sales of securities.

<PAGE>

* None of the Funds will purchase any securities on margin except to
obtain such short-term credits as may be necessary for the clearance of
transactions and except, in the case of Small Cap Growth Fund,
Technology Fund, and International Fund as may be necessary to make
margin payments in connection with foreign currency futures and other
derivative transactions.

A fundamental policy or restriction, including those stated above, cannot
be changed without an affirmative vote of the holders of a "majority" of
the outstanding shares of the applicable Fund, as defined in the 1940 Act.

As a nonfundamental policy, none of the Funds will invest more than 15% of
its net assets in all forms of illiquid investments, as determined
pursuant to applicable SEC rules and interpretations. Section 4(2)
commercial paper and Rule 144A securities may be determined to be "liquid"
under guidelines adopted by the Board of Directors. Investing in Rule 144A
securities could have the effect of increasing the level of illiquidity in
a Fund to the extent that qualified institutional buyers become, for a
time, uninterested in purchasing these securities.

INFORMATION CONCERNING
COMPENSATION PAID TO
U.S. BANK NATIONAL
ASSOCIATION AND
OTHER AFFILIATES

U.S. Bank National Association and other affiliates of U.S. Bancorp may
act as a fiduciary with respect to plans subject to the Employee
Retirement Income Security Act of 1974 ("ERISA") and other trust and
agency accounts that invest in the Funds. These U.S. Bancorp affiliates
may receive compensation from the Funds for the services they provide to
the Funds, as described more fully in the following sections of this
Prospectus:

Investment advisory services -- see "Management-Investment Advisor"

Custodian services -- see "Management- Custodian"

Sub-administration services -- see "Management- Administrator"

Shareholder servicing -- see "Distributor"

Securities lending -- see "Special Investment Methods-Lending of Portfolio
Securities"

Transfer agent services -- see "Management- Transfer Agent"

<PAGE>

FIRST AMERICAN INVESTMENT FUNDS, INC.
Oaks, Pennsylvania 19456

Investment Advisor
U.S. BANK NATIONAL ASSOCIATION
601 Second Avenue South
Minneapolis, Minnesota 55402

Custodian
U.S. BANK NATIONAL ASSOCIATION
180 East Fifth Street
St. Paul, Minnesota 55101

Distributor
SEI INVESTMENTS DISTRIBUTION CO.
Oaks, Pennsylvania 19456

Administrator
SEI INVESTMENTS MANAGEMENT CORPORATION
Oaks, Pennsylvania 19456

Transfer Agent
DST SYSTEMS, INC.
330 West Ninth Street
Kansas City, Missouri 64105

Independent Auditors
KPMG PEAT MARWICK LLP
90 South Seventh Street
Minneapolis, Minnesota 55402

Counsel
DORSEY & WHITNEY LLP
220 South Sixth Street
Minneapolis, Minnesota 55402

FAIF-1003 (5/98) R

<PAGE>

JANUAUARY 31, 1998
AS SUPPLEMENTED ON MAY 15, 1998

EQUITY FUNDS
CLASS Y SHARES

FIRST AMERICAN
INVESTMENT FUNDS, INC.
PROSPECTUS

[LOGO] FIRST AMERICAN
THE POWER OF DISCIPLINED INVESTING (R)

<PAGE>

TABLE OF CONTENTS

Summary 2
.............................................
Fees and Expenses 6
.............................................
Financial Highlights 9
.............................................
The Funds 16
.............................................
Investment Objectives and Policies 16
.............................................
Management 31
.............................................
Distributor 36
.............................................
Purchases and Redemptions of Shares 36
.............................................
Federal Income Taxes 40
.............................................
Fund Shares 41
.............................................
Calculation of Performance Data 41
.............................................
Performance Information for Successors to
Common Trust Funds 42
.............................................
Special Investment Methods 42
.............................................
Information Concerning Compensation Paid
to U.S. Bank National Association and
Other Affiliates 51
.............................................

<PAGE>

FIRST AMERICAN INVESTMENT FUNDS, INC.

CLASS Y SHARES

PROSPECTUS

* BALANCED FUND
* REAL ESTATE SECURITIES FUND
* EQUITY INCOME FUND
* EQUITY INDEX FUND

* LARGE CAP VALUE FUND
* LARGE CAP GROWTH FUND
* MID CAP VALUE FUND

* REGIONAL EQUITY FUND

* SMALL CAP GROWTH FUND

* SMALL CAP VALUE FUND
* MICRO CAP VALUE FUND
* INTERNATIONAL INDEX FUND
* INTERNATIONAL FUND
* HEALTH SCIENCES FUND

* TECHNOLOGY FUND

This Prospectus concisely sets forth information about the Funds that a
prospective investor should know before investing. It should be read and
retained for future reference.

--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

The date of this Prospectus is January 31, 1998 as supplemented on May 15,
1998.

<PAGE>

SUMMARY

BALANCED 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 (including only
that portion of the convertible securities attributable to their fixed
income characteristics), and between 0% and 25% money market instruments.

LARGE CAP GROWTH FUND (formerly known as Diversified Growth Fund) has a
primary objective of long-term growth of capital and a secondary objective
to provide current income. Under normal market conditions, the Fund
invests at least 65% of its total assets in equity securities of companies
that have a market capitalization of at least $1 billion at the time of
purchase and that, in the Fund's advisor's judgment, exhibit a combination
of above average growth in revenue and earnings, strong management and
sound and improving financial condition.

<PAGE>

MICRO CAP VALUE FUND has an objective of capital appreciation. Under
normal market conditions, the Fund invests at least 65% of its total
assets in equity securities of very small-capitalization companies (those
with market capitalizations of less than $500 million at the time of
purchase). In selecting equity seecurities, the Fund's advisor employs a
value-based selection discipline, investing in equity securities it
believes are undervalued relative to other securities in the same industry
or market at the time of purchase.

INVESTMENT ADVISOR AND SUB-ADVISOR. U.S. Bank National Association (the
"Advisor" or "U.S.

<PAGE>

Bank") serves as investment advisor to each of the Funds through its First
American Asset Management group. Marvin & Palmer Associates, Inc. (the
"Sub-Advisor") serves as sub-advisor to International Fund. See
"Management."

ELIGIBLE INVESTORS; OFFERING PRICES. Class Y Shares are offered through
banks and certain other institutions for the investment of their own funds
and funds for which they act in a fiduciary, agency or custodial capacity.
Class Y Shares are sold at net asset value without any front-end or
deferred sales charges. See "Purchases and Redemptions of Shares."

EXCHANGES. Class Y Shares of any Fund may be exchanged for Class Y Shares
of other funds in the First American family of funds at the shares'
respective net asset values with no additional charge. See "Purchases and
Redemptions of Shares -- Exchange Privilege."

REDEMPTIONS. Shares of each Fund may be redeemed at any time at their net
asset value next determined after receipt of a redemption request by the
Funds' transfer agent, with no additional charge. See "Purchases and
Redemptions of Shares."

In addition, (i) certain of the Funds are subject to risks associated with
investing in small-capitalization companies; (ii) Micro Cap Value Fund is
subject to risks associated with investing in very small-capitalization
companies; (iii) Regional Equity Fund is subject to risks associated with
concentrating its investments in a single geographic region; (iv) Real
Estate Securities Fund, Health Sciences Fund and Technology Fund are
subject to risks associated with concentrating their investments in a
single or related economic sectors; (v) Real Estate Securities Fund is
subject to risks associated with direct investments in REITs; (vi)
International Index Fund and International Fund are subject to risks
associated with investing in foreign securities and to currency risk;
(vii) Equity Income Fund may invest a significant portion of its assets in
less than investment grade convertible debt obligations; (viii) certain
Funds other than International Index Fund and International Fund may
invest specified portions of their assets in securities of foreign issuers
which are listed on a United States stock exchange or represented by
American Depositary Receipts or, in the case of Balanced Fund, are debt
obligations of foreign issuers denominated in United States dollars; and
(ix) certain Funds may invest (but not for speculative purposes) in stock
index futures contracts, options on stock indices, options on stock index
futures, index participation contracts based on the S&P 500 or the EAFE
Index and/or exchange traded put and call options on interest rate futures
contracts and on interest rate indices. See "Investment Objectives and
Policies" and "Special Investment Methods."

<PAGE>

(This page has been left blank intentionally.)

<PAGE>

FEES AND EXPENSES

----------------------------------------------------------------------------
CLASS Y SHARE FEES AND EXPENSES

<TABLE>
<CAPTION>
REAL ESTATE EQUITY EQUITY LARGE CAP LARGE CAP
BALANCED SECURITIES INCOME INDEX VALUE GROWTH
FUND FUND FUND FUND FUND FUND
---------- ------------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on
purchases None None None None None None
Maximum sales load imposed on
reinvested dividends None None None None None None
Deferred sales load None None None None None None
Redemption fees None None None None None None
Exchange fees None None None None None None
- ----------------------------------- ---- ---- ---- ---- ---- ----
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment advisory fees
(after voluntary fee waivers)(1) 0.62% 0.45% 0.53% 0.17% 0.61% 0.61%
Rule 12b-1 fees None None None None None None
Other expenses(1) 0.18% 0.35% 0.22% 0.18% 0.19% 0.19%
Total fund operating expenses
(after voluntary fee waivers)(1) 0.80% 0.80% 0.75% 0.35% 0.80% 0.80%
- ---------------------------------- -------- ---------- -------- -------- --------- --------
EXAMPLE(2)
You would pay the following expenses on a $1,000 investment, assuming (i) a 5% annual return, and (ii)
redemption at the end of each time period:
1 year $ 8 $ 8 $ 8 $ 4 $ 8 $ 8
3 years $ 26 $ 26 $ 24 $ 11 $ 26 $ 26
5 years $ 44 $ 44 $ 42 $ 20 $ 44 $ 44
10 years $ 99 $ 99 $ 93 $ 44 $ 99 $ 99
</TABLE>

+ THE ADVISORY FEES, OTHER EXPENSES, AND TOTAL FUND OPERATING EXPENSES SET
FORTH ABOVE REFLECT ESTIMATES OF CURRENT EXPENSES.

(1) THE ADVISOR INTENDS TO WAIVE A PORTION OF ITS FEES ON A VOLUNTARY BASIS, AND
THE AMOUNTS SHOWN REFLECT THESE WAIVERS AS OF THE DATE OF THIS PROSPECTUS.
THE ADVISOR INTENDS TO MAINTAIN SUCH WAIVERS IN EFFECT FOR THE CURRENT
FISCAL YEAR BUT RESERVES THE RIGHT TO DISCONTINUE SUCH WAIVERS AT ANY TIME
IN ITS SOLE DISCRETION. NOTWITHSTANDING THE FOREGOING, THE ADVISOR WILL
MAINTAIN SUCH WAIVERS OF LARGE CAP VALUE FUND, EQUITY INDEX FUND, SMALL CAP
VALUE FUND AND INTERNATIONAL INDEX FUND IN EFFECT THROUGH SEPTEMBER 30,
1998. IN ADDITION, THE ADVISOR WILL MAINTAIN SUCH WAIVERS FOR THE APPLICABLE
FUNDS AT LEAST THROUGH JULY 31, 2000 SO THAT THE TOTAL FUND OPERATING
EXPENSES DO NOT EXCEED 1.00% FOR LARGE CAP VALUE FUND AND 1.39% FOR
INTERNATIONAL FUND. FOR MID CAP VALUE FUND, THE ADVISOR HAS AGREED TO WAIVE
ADVISORY FEES ON A VOLUNTARY BASIS TO THE EXTENT NECESSARY TO KEEP TOTAL
FUND OPERATING EXPENSES FOR THE CURRENT FISCAL YEAR FROM EXCEEDING 0.90%.
ABSENT ANY FEE WAIVERS, INVESTMENT ADVISORY FEES AS AN ANNUALIZED PERCENTAGE
OF AVERAGE DAILY NET ASSETS WOULD BE 0.70% FOR EACH FUND EXCEPT
INTERNATIONAL FUND, AS TO WHICH THEY WOULD BE 1.25%; AND TOTAL FUND
OPERATING EXPENSES CALCULATED ON SUCH BASIS WOULD BE 0.88% FOR BALANCED
FUND, 1.05% FOR REAL ESTATE SECURITIES FUND, 0.92% FOR EQUITY INCOME FUND,
0.88% FOR EQUITY INDEX FUND, 0.89% FOR LARGE CAP VALUE FUND, 0.89% FOR LARGE
CAP GROWTH FUND, 0.90% FOR MID CAP VALUE FUND, 0.90% FOR REGIONAL EQUITY
FUND, 0.91% FOR SMALL CAP GROWTH FUND, 0.90% FOR SMALL CAP VALUE FUND, 1.07%
FOR MICRO CAP VALUE FUND, 0.99% FOR INTERNATIONAL INDEX FUND, 1.52% FOR
INTERNATIONAL FUND, 1.04% FOR HEALTH SCIENCES FUND, AND 0.92% FOR TECHNOLOGY
FUND. "OTHER EXPENSES" INCLUDES AN ADMINISTRATION FEE AND, FOR SMALL CAP
VALUE FUND AND INTERNATIONAL INDEX FUND, IS BASED ON ESTIMATED AMOUNTS FOR
THE CURRENT FISCAL YEAR.

<PAGE>

<TABLE>
<CAPTION>
MID CAP REGIONAL SMALL CAP SMALL CAP MICRO CAP INTERNATIONAL HEALTH
VALUE EQUITY GROWTH VALUE VALUE INDEX INTERNATIONAL SCIENCES TECHNOLOGY
FUND FUND FUND FUND FUND FUND FUND FUND FUND
- ------------- ---------- ----------- ----------- ----------- --------------- --------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>

None None None None None None None None None

None None None None None None None None None
None None None None None None None None None
None None None None None None None None None
None None None None None None None None None
- ------------- ---------- ----------- ----------- ----------- --------------- --------------- ---------- -----------

0.70% 0.70% 0.69% 0.70%+ 0.53% 0.46%+ 1.08% 0.56% 0.68%
None None None None None None None None None
0.19% 0.20% 0.21% 0.20%+ 0.37% 0.29%+ 0.27% 0.34% 0.22%

0.89% 0.90% 0.90% 0.90%+ 0.90% 0.75%+ 1.35% 0.90% 0.90%
- ------------- ---------- ----------- ----------- ----------- --------------- --------------- ---------- -----------

$ 9 $ 9 $ 9 $ 9 $ 9 $ 8 $ 14 $ 9 $ 9
$ 28 $ 29 $ 29 $ 29 $ 29 $ 24 $ 43 $ 29 $ 29
$ 49 $ 50 $ 50 $ 50 $ 50 $ 42 $ 74 $ 50 $ 50
$ 110 $ 111 $ 111 $ 111 $ 111 $ 93 $ 162 $ 111 $ 111
</TABLE>

(2) ABSENT THE FEE WAIVERS REFERRED TO IN (1) ABOVE, THE DOLLAR AMOUNTS FOR THE
1, 3, 5 AND 10-YEAR PERIODS WOULD BE AS FOLLOWS: BALANCED FUND, $9, $28,
$49 AND $108; REAL ESTATE SECURITIES FUND, $11, $33, $58 AND $128; EQUITY
INCOME FUND, $9, $29, $51 AND $113; EQUITY INDEX FUND, $9, $28, $49 AND
$108; LARGE CAP VALUE FUND, $9, $28, $49 AND $110; LARGE CAP GROWTH FUND,
$9, $28, $49 AND $110; MID CAP VALUE FUND, $9, $29, $50 AND $111; REGIONAL
EQUITY FUND, $9, $29, $50 AND $111; SMALL CAP GROWTH FUND, $9, $29, $50
AND $112; SMALL CAP VALUE FUND, $9, $29, $50 AND $111; MICRO CAP VALUE
FUND, $11, $34, $59 AND $131; INTERNATIONAL INDEX FUND, $10, $32, $55 AND
$121; INTERNATIONAL FUND, $15, $48, $83 AND $181; HEALTH SCIENCES FUND,
$11, $33, $57 AND $127; AND TECHNOLOGY FUND, $9, $29, $51 AND $113.

<PAGE>

---------------------------------------------------------------------------
INFORMATION CONCERNING FEES AND EXPENSES

<PAGE>

FINANCIAL HIGHLIGHTS

<PAGE>

FINANCIAL HIGHLIGHTS (CONTINUED)

For the periods ended September 30,
For a share outstanding throughout the period

<TABLE>
<CAPTION>
REALIZED AND
UNREALIZED DIVIDENDS DISTRIBUTIONS
NET ASSET NET GAINS OR FROM NET FROM
VALUE BEGINNING INVESTMENT (LOSSES) ON INVESTMENT CAPITAL
OF PERIOD INCOME INVESTMENTS INCOME GAINS
----------------- ------------ ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
BALANCED FUND Class Y
1997 $ 13.15 $ 0.42 $ 2.86 $ (0.42) $ (0.58)
1996 12.13 0.42 1.43 (0.42) (0.41)
1995 10.54 0.40 1.73 (0.39) (0.15)
1994(1) 10.86 0.25 (0.32) (0.25) --
REAL ESTATE SECURITIES FUND Class Y
1997 $ 11.53 $ 0.74 $ 3.43 $ (0.67) $ (0.03)
1996 10.37 0.57 1.29 (0.53) --
1995(2) 10.00 0.13 0.39 (0.11) --
EQUITY INCOME FUND Class Y
1997 $ 12.66 $ 0.43 $ 3.40 $ (0.44) $ (0.35)
1996 11.24 0.42 1.43 (0.42) (0.01)
1995 9.89 0.41 1.35 (0.41) --
1994(3) 9.90 0.07 (0.03) (0.05) --
EQUITY INDEX FUND Class Y
1997 $ 15.47 $ 0.29 $ 5.70 $ (0.29) $ (0.43)
1996 13.34 0.31 2.31 (0.31) (0.18)
1995 10.67 0.28 2.75 (0.27) (0.09)
1994(1) 10.85 0.20 (0.18) (0.20) --
LARGE CAP VALUE FUND Class Y
1997 $ 22.60 $ 0.39 $ 7.90 $ (0.38) $ (1.76)
1996 19.56 0.42 4.09 (0.42) (1.05)
1995 16.50 0.36 3.64 (0.35) (0.59)
1994(4) 16.47 0.25 0.03 (0.25) --
- ------- -------- ------- ------- ------- -------
</TABLE>

+ RETURNS ARE FOR THE PERIOD INDICATED AND HAVE NOT BEEN ANNUALIZED.
(A) BEGINNING IN 1996, AVERAGE COMMISSION RATE PAID PER SHARE IS DISCLOSED FOR
ALL APPLICABLE SECURITIES PURCHASES AND SALES SUBJECT TO COMMISSIONS. THE
COMPARABILITY OF THIS INFORMATION MAY BE AFFECTED BY THE FACT THAT
COMMISSION RATES VARY SIGNIFICANTLY AMONG FOREIGN COUNTRIES.
(B) REPRESENTS A DISTRIBUTION OR PARTIAL DISTRIBUTION IN EXCESS OF NET
INVESTMENT INCOME DUE TO THE TAX TREATMENT OF FOREIGN CURRENCY RELATED
TRANSACTIONS.
(1) THIS CLASS OF SHARES HAS BEEN OFFERED SINCE FEBRUARY 4. 1994 (THE FUND
ITSELF HAVING COMMENCED OPERATIONS ON DECEMBER 14, 1992). ALL RATIOS FOR
THE PERIOD HAVE BEEN ANNUALIZED.
(2) COMMENCED OPERATIONS ON JUNE 30, 1995. ALL RATIOS FOR THE PERIOD HAVE BEEN
ANNUALIZED.
(3) THIS CLASS OF SHARES HAS BEEN OFFERED SINCE AUGUST 2, 1994 (THE FUND ITSELF
HAVING COMMENCED OPERATIONS ON DECEMBER 18, 1992). ALL RATIOS FOR THE
PERIOD HAVE BEEN ANNUALIZED.
(4) THIS CLASS OF SHARES HAS BEEN OFFERED SINCE FEBRUARY 4, 1994 (THE FUND
ITSELF HAVING COMMENCED OPERATIONS ON DECEMBER 22, 1987). ALL RATIOS FOR
THE PERIOD HAVE BEEN ANNUALIZED.
(5) COMMENCED OPERATIONS ON APRIL 4, 1994. ALL RATIOS FOR THE PERIOD HAVE BEEN
ANNUALIZED.

(6) THE FINANCIAL HIGHLIGHTS FOR INTERNATIONAL INDEX FUND AND SMALL CAP VALUE
FUND AS SET FORTH HEREIN INCLUDE THE HISTORICAL FINANCIAL HIGHLIGHTS OF
THE QUALIVEST INTERNATIONAL OPPORTUNITIES FUND AND THE QUALIVEST SMALL
COMPANIES VALUE FUND (CLASS Y SHARES), RESPECTIVELY. THE ASSETS OF THE
QUALIVEST INTERNATIONAL OPPORTUNITIES FUND AND THE QUALIVEST SMALL
COMPANIES VALUE FUND WERE ACQUIRED BY INTERNATIONAL INDEX FUND AND SMALL
CAP VALUE FUND, RESPECTIVELY, ON NOVEMBER 21, 1997. IN CONNECTION WITH
SUCH ACQUISITION, THE CLASS Y AND CLASS Q SHARES OF THE QUALIVEST
INTERNATIONAL OPPORTUNITIES FUND AND THE QUALIVEST SMALL COMPANIES VALUE
FUND WERE EXCHANGED FOR CLASS C SHARES (NOW DESIGNATED AS CLASS Y SHARES)
OF INTERNATIONAL INDEX FUND AND SMALL CAP VALUE FUND, RESPECTIVELY.

<PAGE>

<TABLE>
<CAPTION>
RATIO OF
RATIO OF NET EXPENSES TO
NET ASSET RATIO OF INVESTMENT AVERAGE
DISTRIBUTIONS VALUE NET ASSETS EXPENSES TO INCOME TO NET ASSETS PORTFOLIO AVERAGE
FROM RETURN END OF TOTAL END OF AVERAGE AVERAGE (EXCLUDING TURNOVER COMMISSION
OF CAPITAL PERIOD RETURN PERIOD (000) NET ASSETS NET ASSETS WAIVERS) RATE RATE (A)
- ---------------- ----------- ----------- -------------- ------------- -------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ -- $ 15.43 26.17% $ 418,087 0.80% 2.99% 0.88% 84% $ 0.0700
-- 13.15 15.89 332,786 0.80 3.31 0.89 73 0.0619
-- 12.13 20.89 192,145 0.79 3.61 0.94 77 --
-- 10.54 (0.64)+ 125,285 0.75 3.51 1.05 98 --
$ (0.01) $ 14.99 37.07% $ 40,501 0.80% 4.57% 1.05% 14% $ 0.0700
(0.17) 11.53 18.53 17,895 0.80 5.13 1.51 8 0.0704
(0.04) 10.37 5.19+ 5,756 0.80 6.01 2.34 0 --
$ -- $ 15.70 31.45% $ 369,919 0.75% 3.12% 0.92% 39% $ 0.0571
-- 12.66 16.79 64,590 0.75 3.50 0.95 23 0.0700
-- 11.24 18.24 52,126 0.75 4.11 1.06 23 --
-- 9.89 0.45+ 17,489 0.75 5.61 1.14 108 --
$ -- $ 20.74 39.85% $ 557,258 0.35% 1.62% 0.88% 8% $ 0.0419
-- 15.47 19.98 348,539 0.35 2.14 0.90 10 0.0377
-- 13.34 29.17 218,932 0.35 2.41 0.95 9 --
-- 10.67 0.18+ 163,688 0.35 2.59 1.03 11 --
$ -- $ 28.75 39.13% $1,095,262 0.80% 1.39% 0.89% 57% $ 0.0640
-- 22.60 24.32 471,206 0.80 1.90 0.88 40 0.0653
-- 19.56 25.50 312,559 0.79 2.10 0.94 52 --
-- 16.50 1.70+ 154,949 0.75 2.28 1.01 65 --
- ---------- -------- ------ ---------- ---- ---- ---- --- --------
</TABLE>

(7) FOR THE FOUR MONTH PERIOD ENDED NOVEMBER 30, 1997. ALL RATIOS FOR THE
PERIOD HAVE BEEN ANNUALIZED.
(8) THE BOARD OF DIRECTORS OF FAIF APPROVED A CHANGE IN THE FUNDS' FISCAL YEAR
END FROM JULY 31 TO NOVEMBER 30, EFFECTIVE NOVEMBER 30, 1997.
(9) FOR THE PERIOD ENDED JULY 31.
(10) COMMENCED OPERATIONS ON AUGUST 1, 1994. ALL RATIOS FOR THE PERIOD HAVE
BEEN ANNUALIZED.
(11) COMMENCED OPERATIONS ON AUGUST 8, 1997. ALL RATIOS FOR THE PERIOD HAVE
BEEN ANNUALIZED.
(12) COMMENCED OPERATIONS ON JULY 3, 1995. ALL RATIOS FOR THE PERIOD HAVE BEEN
ANNUALIZED.
(13) COMMENCED OPERATIONS ON JANUARY 31, 1996. ALL RATIOS FOR THE PERIOD HAVE
BEEN ANNUALIZED.

<PAGE>

FINANCIAL HIGHLIGHTS (CONTINUED)

For the periods ended September 30,
For a share outstanding throughout the period

<TABLE>
<CAPTION>
REALIZED AND
UNREALIZED DIVIDENDS
NET ASSET NET GAINS OR FROM NET DISTRIBUTIONS
VALUE BEGINNING INVESTMENT (LOSSES) ON INVESTMENT FROM CAPITAL
OF PERIOD INCOME INVESTMENTS INCOME GAINS
----------------- ------------ ------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
LARGE CAP GROWTH FUND Class Y
1997 $ 13.66 $ 0.12 $ 4.26 $ (0.13) $ (0.27)
1996 11.78 0.18 1.88 (0.18) --
1995 9.10 0.17 2.67 (0.16) --
1994(3) 8.92 0.03 0.18 (0.03) --
MID CAP VALUE FUND Class Y
1997 $ 20.43 $ 0.16 $ 6.98 $ (0.16) $ (3.20)
1996 17.89 0.25 3.95 (0.24) (1.42)
1995 17.30 0.38 1.61 (0.38) (1.02)
1994(4) 16.34 0.22 0.96 (0.22) --
REGIONAL EQUITY FUND Class Y
1997 $ 17.75 $ 0.05 $ 6.18 $ (0.13) $ (0.69)
1996 17.13 0.09 1.70 (0.06) $ (1.11)
1995 12.52 0.11 4.90 (0.08) (0.32)
1994(1) 12.41 0.07 0.11 (0.07) --
SMALL CAP GROWTH FUND Class Y
1997 $ 14.79 $ (0.04) $ 3.55 $ -- $ (0.66)
1996 13.41 (0.03) 1.77 (0.01) (0.35)
1995 10.56 0.03 2.99 (0.02) (0.15)
1994(5) 10.00 0.01 0.56 (0.01) --
SMALL CAP VALUE FUND(6) Class Y
1997(7)(8) $ 17.87 $ (0.01) $ 0.37 $ -- $ --
1997(9) 13.96 0.04 5.43 (0.04) (1.52)
1996(9) 13.26 0.06 1.81 (0.06) (1.11)
1995(9)(10) 10.00 0.13 3.30 (0.12) (0.05)
MICRO CAP VALUE FUND Class Y
1997(11) $ 10.00 $ -- $ 0.95 $ -- $ --
INTERNATIONAL INDEX FUND(6) Class Y
1997(7)(8) $ 12.37 $ 0.06 $ (1.41) $ (0.03) $ --
1997(9) 10.69 0.13 1.70 (0.13)(B) (0.02)
1996(9) 10.48 0.09 0.18 (0.06) --
1995(9)(12) 10.00 0.01 0.47 -- --
INTERNATIONAL FUND Class Y
1997 $ 10.31 $ 0.03 $ 3.06 $ (0.17)(B) $ --
1996 10.30 (0.01) 0.22 (0.20)(B) --
1995 10.22 0.01 0.07 -- --
1994(5) 10.00 (0.01) 0.23 -- --
HEALTH SCIENCES FUND Class Y
1997 $ 9.87 $ (0.01) $ 2.33 $ (0.01) $ (0.10)
1996(13) 10.00 0.03 (0.15) (0.01) --
TECHNOLOGY FUND Class Y
1997 $ 19.29 $ (0.06) $ 3.12 $ -- $ (2.06)
1996 18.24 (0.04) 2.98 -- (1.89)
1995 11.19 (0.03) 7.31 -- (0.23)
1994(5) 10.00 (0.01) 1.20 -- --
- -------- -------- ------- ------- -------- -------
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
RATIO OF
RATIO OF NET EXPENSES TO
NET ASSET RATIO OF INVESTMENT AVERAGE
DISTRIBUTIONS VALUE NET ASSETS EXPENSES TO INCOME (LOSS) NET ASSETS PORTFOLIO AVERAGE
FROM RETURN END OF TOTAL END OF AVERAGE TO AVERAGE (EXCLUDING TURNOVER COMMISSION
OF CAPITAL PERIOD RETURN PERIOD (000) NET ASSETS NET ASSETS WAIVERS) RATE RATE (A)
- ---------------- ----------- --------------- -------------- ------------- --------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ -- $ 17.64 32.75% $681,151 0.80% 0.77% 0.89% 34% $ 0.0633
-- $ 13.66 17.58 255,900 0.79 1.39 0.92 21 0.0593
-- 11.78 31.57 132,854 0.75 1.69 1.01 28 --
-- 9.10 2.36 + 31,875 0.75 2.37 1.08 101 --
$ -- $ 24.21 40.25% $509,308 0.89% 0.82% 0.90% 82% $ 0.0691
-- 20.43 25.61 247,828 0.88 1.35 0.88 143 0.0673
-- 17.89 12.84 201,786 0.88 2.30 0.95 72 --
-- 17.30 7.31 + 128,806 0.79 1.93 1.03 116 --
$ -- $ 23.16 36.49% $351,007 0.90% 0.35% 0.90% 17% $ 0.0699
-- 17.75 11.27 259,138 0.88 0.49 0.90 36 0.0697
-- 17.13 41.40 188,583 0.84 0.78 0.95 42 --
-- 12.52 1.46 + 96,045 0.80 0.82 1.05 41 --
$ -- $ 17.64 25.19% $151,607 0.90% (0.28)% 0.91% 54% $ 0.0681
-- 14.79 13.39 73,025 0.89 (0.24) 0.96 39 0.0700
-- 13.41 29.16 41,716 0.84 0.20 1.19 51 --
-- 10.56 5.68 + 6,849 0.80 0.23 2.59 19 --
$ -- $ 18.23 2.01%+ $461,046 1.06% (0.06)% 1.06% 3% $ 0.0638
-- 17.87 41.96 449,988 1.06 0.25 1.06 29 0.0519
-- 13.96 14.94 297,793 1.08 0.41 1.08 34 0.0398
-- 13.26 34.76 + 209,626 0.60 1.20 1.12 37 N/A
$ -- $ 10.95 9.50% $246,601 0.90% (0.02)% 1.07% 0% $ 0.0676
$ -- $ 10.99 (10.93)%+ $155,976 0.66% 1.23% 0.95% 0% $ 0.0207
-- 12.37 17.24 210,538 0.73 1.15 1.03 3 0.0241
-- 10.69 2.56 142,478 0.81 1.18 1.10 6 0.0221
-- 10.48 4.80 + 60,073 1.18 1.32 1.39 0 N/A
$ -- $ 13.23 30.38% $217,414 1.67% 0.06% 1.67% 96% $ 0.0199
-- 10.31 2.11 135,238 1.72 (0.06) 1.72 100 0.0345
-- 10.30 0.78 94,400 1.74 0.12 1.81 57 --
-- 10.22 2.20 + 47,963 1.75 (0.19) 2.05 16 --
$ -- $ 12.08 23.89% $ 41,243 0.90% 0.06% 1.04% 54% $ 0.0695
-- 9.87 ( 1.20)%+ $ 12,485 0.90 0.43 1.87 19 $ 0.0700
$ -- $ 20.29 17.95% $148,659 0.90% (0.41)% 0.92% 150% $ 0.0675
-- 19.29 18.85 64,602 0.90 (0.60) 1.01 119 0.0700
-- 18.24 66.22 29,272 0.88 (0.35) 1.30 74 --
-- 11.19 11.90%+ 6,491 0.80 (0.21) 3.12 43 --
- -------- -------- ------- -------- ---- ----- ---- --- ---------
</TABLE>

<PAGE>

FINANCIAL HIGHLIGHTS (CONTINUED)

The following unaudited financial highlights for Micro Cap Value Fund for
the period commencing August 8, 1997 and ending December 31, 1997 should be
read in conjunction with the Fund's unaudited financial statements and the
related notes thereto appearing in the Funds' Statement of Additional
Information dated January 31, 1998 as supplemented on May 15, 1998.

Further information about the Fund's performance for the period commencing
August 8, 1997 and ending December 31, 1997 is contained in such Statement
of Additional Information, which may be obtained without charge by calling
(800) 637-2548 or by writing SEI Investments Distribution Co., Oaks,
Pennsylvania 19456.

For the period ended December 31, 1997

<TABLE>
<CAPTION>
REALIZED AND DIVIDENDS
NET ASSET NET UNREALIZED FROM NET
VALUE BEGINNING INVESTMENT GAINS ON INVESTMENT
OF PERIOD INCOME INVESTMENTS INCOME
----------------- ------------ -------------- -----------
<S> <C> <C> <C> <C>
MICRO CAP VALUE FUND(1) Class Y $ 10.00 $ 0.01 $ (0.04) $ (0.01)
- -------------------------------- ------- ------ ------- -------
</TABLE>

+ RETURN IS FOR THE PERIOD INDICATED AND HAS NOT BEEN ANNUALIZED.

(A) BEGINNING IN 1997, AVERAGE COMMISSION RATE PAID PER SHARE IS DISCLOSED FOR
ALL APPLICABLE SECURITIES PURCHASES AND SALES SUBJECT TO COMMISSIONS. THE
COMPARABILITY OF THIS INFORMATION MAY BE AFFECTED BY THE FACT THAT
COMMISSION RATES VARY SIGNIFICANTLY AMONG FOREIGN COUNTRIES.

(1) COMMENCED OPERATIONS ON AUGUST 8, 1997. ALL RATIOS FOR THE PERIOD HAVE BEEN
ANNUALIZED.

<PAGE>

<TABLE>
<CAPTION>
RATIO OF
RATIO OF NET EXPENSES TO
DISTRIBUTION NET ASSET RATIO OF INVESTMENT AVERAGE
FROM VALUE NET ASSETS EXPENSES TO INCOME TO NET ASSETS AVERAGE
CAPITAL END OF TOTAL END OF AVERAGE AVERAGE (EXCLUDING PORTFOLIO COMMISSION
GAIN PERIOD RETURN PERIOD (000) NET ASSETS NET ASSETS WAIVERS) TURNOVER RATE (A)
- --------------- ----------- --------------- -------------- ------------- -------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>

$(0.59) $ 9.37 (0.19)%+ $200,228 0.88% 0.17% 0.97% 2% $ 0.0622
- --------------- ------ ----- -------- ---- ---- ---- ----------- --------
</TABLE>

<PAGE>

THE FUNDS

This Prospectus relates only to the Class Y Shares of the Funds named on
the cover hereof. Information regarding the Class A and Class B Shares of
these Funds and regarding the Class A, Class B and Class Y Shares of the
other FAIF Funds is contained in separate prospectuses that may be
obtained from FAIF's Distributor, SEI Investments Distribution Co., Oaks,
Pennsylvania 19456, or by calling (800) 637-2548. The Board of Directors
of FAIF may authorize additional series or classes of common stock in the
future.

INVESTMENT OBJECTIVES AND POLICIES

This section describes the investment objectives and policies of the Funds.
There is no assurance that any of these objectives will be achieved. The
Funds' investment objectives are not fundamental and therefore may be
changed without a vote of shareholders. Such changes could result in a Fund
having investment objectives different from those which shareholders
considered appropriate at the time of their investment in a Fund.
Shareholders will receive written notification at least 30 days prior to any
change in a Fund's investment objectives. Each of the Funds except Real
Estate Securities Fund, Health Sciences Fund, and Technology Fund is a
diversified investment company, as defined in the Investment Company Act of
1940 (the "1940 Act"). Real Estate Securities Fund, Health Sciences Fund,
and Technology Fund are non-diversified companies under the 1940 Act.

If a percentage limitation on investments by a Fund stated below or in the
Statement of Additional Information is adhered to at the time of an
investment, a later increase or decrease in percentage resulting from
changes in asset values will not be deemed to violate the limitation
except in the case of the limitations on illiquid investments and
borrowing. Similarly, if a Fund is required or permitted to invest a
stated percentage of its assets in companies with no more or no less than
a stated market capitalization, deviations from the stated percentages
which result from changes in companies' market capitalizations after the
Fund purchases their shares will not be deemed to violate the limitation.
A Fund which is limited to investing in securities with specified ratings
is not required to sell a security if its rating is reduced or
discontinued after purchase, but the Fund may consider doing so. However,
except in the case of Equity Income Fund, in no event will more than 5% of
any Fund's net assets be invested in non-investment grade securities.
Descriptions of the rating categories of Standard & Poor's Rating
Services, a division of The McGraw-Hill Companies, Inc. ("Standard &
Poor's") and Moody's Investors Service, Inc. ("Moody's") are contained in
the Statement of Additional Information.

This section also contains information concerning certain investment risks
borne by Fund shareholders under the heading "-- Risks to Consider."
Further information concerning the securities in which the Funds may
invest and related matters is set forth under "Special Investment
Methods."

<PAGE>

---------------------------------------------------------------------------
BALANCED FUND

OBJECTIVE. Balanced Fund has an objective of maximizing total return
(capital appreciation plus income).

With respect to the equity security portion of the Fund's portfolio, the
Advisor follows the same investment policies as are described below under
"-- Large Cap Value Fund -- Investment Policies."

The fixed income portion of the Fund's portfolio is invested in investment
grade debt securities, at least 65% of which are United States 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. Under normal market conditions, the weighted average maturity
of the fixed income securities held by the Fund will not exceed 15 years.

<PAGE>

---------------------------------------------------------------------------
REAL ESTATE SECURITIES FUND

The Fund also may invest up to 35% of its total assets in fixed income
securities of the kinds described under "Special Investment Methods --
Fixed Income Securities."

For temporary defensive purposes, the Fund may without limitation hold
cash or invest in cash items of the kinds described under "Special

<PAGE>

Investment Methods -- Cash Items." The Fund also may invest not more than
35% of its total assets in cash and cash items in order to utilize assets
awaiting normal investment.

---------------------------------------------------------------------------
EQUITY INCOME FUND

OBJECTIVE. Equity Income Fund has an objective of long-term growth of
capital and income.

<PAGE>

The Fund also may invest up to 35% of its total assets in fixed income
securities of the kinds described under "Special Investment Methods --
Fixed Income Securities."

---------------------------------------------------------------------------
EQUITY INDEX FUND

OBJECTIVE. Equity Index Fund has an objective of providing investment
results that correspond to the performance of the Standard & Poor's 500
Composite Stock Price Index (the "S&P 500").

<PAGE>

approximately 50% to 100% of the issues included in the S&P 500, depending
on the size of the Fund.

The Fund also may invest up to 20% of its total assets in the aggregate in
stock index futures contracts, options on stock indices, options on stock
index futures, and index participation contracts based on the S&P 500. The
Fund will not invest in these types of contracts and options for
speculative purposes, but rather to maintain sufficient liquidity to meet
redemption requests; to increase the level of Fund assets devoted to
replicating the composition of the S&P 500; and to reduce transaction
costs. These types of contracts and options and certain associated risks
are described under "Special Investment Methods -- Options Transactions."
In addition, the Fund may engage in securities lending as described under
"Special Investment Methods -- Lending of Portfolio Securities."

<PAGE>

---------------------------------------------------------------------------

LARGE CAP VALUE FUND

OBJECTIVES. Large Cap Value Fund has a primary objective of capital
appreciation. A secondary objective of the Fund is to provide current
income.

---------------------------------------------------------------------------

LARGE CAP GROWTH FUND

OBJECTIVES. Large Cap Growth Fund has a primary objective of long-term
growth of capital. A secondary objective of the Fund is to provide current
income.

INVESTMENT POLICIES. Under normal market conditions, Large Cap Growth Fund
invests at least 65% of its total assets in equity securities of companies
that have a market capitalization of at least $1 billion at the time of
purchase that, in the Advisor's judgment, exhibit a combination of above
average growth in revenue and earnings, strong management and sound and
improving financial condition.

The Fund also may invest up to 35% of its total assets in fixed income
securities of the kinds described under "Special Investment Methods --
Fixed Income Securities."

<PAGE>

---------------------------------------------------------------------------

MID CAP VALUE FUND

OBJECTIVE. Mid Cap Value Fund has an objective of capital appreciation.

The Fund also may invest up to 35% of its total assets in fixed income
securities of the kinds described under "Special Investment Methods --
Fixed Income Securities."

---------------------------------------------------------------------------
REGIONAL EQUITY FUND

OBJECTIVE. Regional Equity Fund has an objective of capital appreciation.

<PAGE>

market price to earnings, market price to book value, market price to
assets, estimated earnings growth rate, cash flow and liquidation value.

---------------------------------------------------------------------------

SMALL CAP GROWTH FUND

OBJECTIVE. Small Cap Growth Fund has an objective of growth of capital.

<PAGE>

---------------------------------------------------------------------------
SMALL CAP VALUE FUND

OBJECTIVE. Small Cap Value Fund has an objective of capital appreciation.

INVESTMENT POLICIES. Under normal market conditions, Small Cap Value Fund
invests at least 65% of its total assets in equity securities of small-
capitalization companies. For these purposes, small-capitalization companies
are deemed those with market capitalization of less than $1 billion at the
time of purchase. In selecting equity securities, the Advisor utilizes a
value-based selection discipline, investing in equity securities it believes
are undervalued relative to other securities in the same industry or market
at time of purchase. In assessing relative value, the Advisor will consider
such factors as ratios of market price to earnings, market price to book
value, market price to assets, estimated earnings growth rate, cash flow and
liquidation value.

---------------------------------------------------------------------------
MICRO CAP VALUE FUND

OBJECTIVE. Micro Cap Value Fund has an objective of capital appreciation.

INVESTMENT POLICIES. Under normal market conditions, Micro Cap Value Fund
invests at least 65% of its total assets in equity securities of very
small-capitalization companies. For these purposes, very
small-capitalization companies are deemed those with market
capitalizations of less than $500 million at the time of purchase. In
selecting equity securities, the Advisor utilizes a value-based selection
discipline, investing in equity securities it believes are undervalued
relative to other securities in the same industry or market at time of
purchase. In assessing relative value, the Advisor will consider such
factors as ratios of market price to earnings, market price to book value,
market price to assets, estimated earnings growth rate, cash flow and
liquidation value.

<PAGE>

---------------------------------------------------------------------------
INTERNATIONAL INDEX FUND

<PAGE>

of the EAFE Index of at least 95%, without taking into account expenses of
the Fund. A perfect correlation would be indicated by a figure of 100%,
which would be achieved if the Fund's net asset value, including the value
of its dividends and capital gains distributions, increased or decreased
in exact proportion to changes in the EAFE Index. The Fund's ability to
replicate the performance of the EAFE Index may be affected by, among
other things, changes in securities market, the manner in which Morgan
Stanley calculates the EAFE Index, administrative and other expenses
incurred by the Fund, taxes (including foreign withholding taxes, which
will affect the Fund), the amount and timing of cash flows into and out of
the Fund, commissions, sales charges (if any) and other expenses. Although
cash flows into and out of the Fund will affect the Fund's portfolio
turnover rate and its ability to replicate the EAFE Index's performance,
investment adjustments will be made, as practicably as possible, to
account for these circumstances. In the event the Fund is unable to
achieve this correlation over time, the Board of Directors of the Fund
will consider alternative strategies for the Fund.

---------------------------------------------------------------------------
INTERNATIONAL FUND

OBJECTIVE. International Fund has an objective of long-term growth of
capital.

<PAGE>

countries listed above. It is possible, although not currently
anticipated, that up to 35% of the Fund's assets could be invested in
United States companies.

In addition, the Fund may (i) enter into repurchase agreements; (ii) in
order to attempt to reduce risk, purchase put and call options on equity
securities and on stock indices; (iii) write covered call options covering
up to 50% of the equity securities owned by the Fund and write call
options on stock indices related to such equity securities; (iv) purchase
securities on a when-issued or delayed delivery basis; (v) engage in the
lending of portfolio securities; (vi) engage in foreign currency
transactions; (vii) in order to attempt to reduce risk, purchase put and
call options on foreign currencies; (viii) write covered call options on
foreign currencies owned by the Fund; and (ix) enter into contracts for
the future purchase or delivery of securities, foreign currencies, and
indices, purchase or sell options on any such futures contracts and engage
in related closing transactions. For information about these investment
methods, restrictions on their use, and certain associated risks, see the
related headings under "Special Investment Methods."

---------------------------------------------------------------------------
HEALTH SCIENCES FUND

OBJECTIVE. Health Sciences Fund has an objective of long-term growth of
capital.

<PAGE>

The Fund also may invest up to 35% of its total assets in fixed income
securities of the kinds described under "Special Investment Methods --
Fixed Income Securities."

Health Sciences Fund operates as a non-diversified investment company, as
defined in the 1940 Act, but intends to conduct its operations so as to
qualify as a regulated investment company for purposes of the Code. Since a
relatively high percentage of the assets of the Fund may be invested in the
securities of a limited number of issuers which will be in the same or
related economic sectors, the Fund's portfolio securities may be more
susceptible to any single economic, technological or regulatory occurrence
than the portfolio securities of diversified investment companies. Many
products and services in the health sciences industries may become rapidly
obsolete due to technological and scientific advances. In addition, the
health sciences industries generally are subject to greater governmental
regulation than many other industries, so that changes in governmental
policies may have a material effect on the demand for products and services
in these industries. Regulatory approvals generally are required before new
drugs, medical devices or medical procedures can be introduced and before
health care providers can acquire additional facilities or equipment.

---------------------------------------------------------------------------
TECHNOLOGY FUND

OBJECTIVE. Technology Fund has an objective of long-term growth of
capital.

The Fund also may invest up to 35% of its total assets in fixed income
securities of the kinds described under "Special Investment Methods --
Fixed Income Securities."

Subject to the limitations stated above, the Fund may invest up to 25% of
its total assets in securities of foreign issuers which are either listed
on a

<PAGE>

Technology Fund operates as a non-diversified investment company, as defined
in the 1940 Act, but intends to conduct its operations so as to qualify as a
regulated investment company for purposes of the Code. Since a relatively
high percentage of the assets of the Fund may be invested in the securities
of a limited number of issuers which will be in the same or related economic
sectors, the Fund's portfolio securities may be more susceptible to any
single economic, technological or regulatory occurrence than the portfolio
securities of diversified investment companies. In addition, competitive
pressures may have a significant effect on the financial condition of
companies in the technology industry. For example, if technology continues
to advance at an accelerated rate, and the number of companies and product
offerings continue to expand, these companies could become increasingly
sensitive to short product cycles and aggressive pricing.

---------------------------------------------------------------------------
RISKS TO CONSIDER

An investment in any of the Funds involves certain risks in addition to
those noted above with respect to particular Funds. These include the
following:

FOREIGN SECURITIES. International Index Fund and International Fund are
subject to special risks associated with investing in foreign securities
and

<PAGE>

YEAR 2000 Like other mutual funds, financial and business organizations,
the Funds could be adversely affected if the computer systems used by the
Advisor, the Administrator and other service providers and entities with
computer systems that are linked to Fund records do not properly process
and calculate date-related information and data from and after January 1,
2000. This is commonly known as the "Year 2000 issue." The Funds have
undertaken a Year 2000 program that is believed by the Advisor to be
reasonably designed to assess and monitor the steps being taken by the
Funds' service providers to address the Year 2000 issue with respect to
the computer systems they use. However, there can be no assurance that
these steps will be sufficient to avoid any adverse impact on the Funds.

OTHER. Investors also should review "Special Investment Methods" for
information concerning risks associated with certain investment techniques
which may be utilized by the Funds.

MANAGEMENT

---------------------------------------------------------------------------

INVESTMENT ADVISOR

Each of the Funds other than International Fund has agreed to pay the
Advisor monthly fees calculated on an annual basis equal to 0.70% of its
average daily net assets. International Fund pays the Advisor a monthly
fee calculated on the same basis equal to 1.25% of its average daily net
assets, out of which the Advisor pays the Sub-Advisor's fee. The Advisor
may, at its option, waive any or all of its fees, or reimburse expenses,
with respect to any Fund from time to time. Any such waiver or
reimbursement is voluntary and may be discontinued at any time except as
discussed under "Fees and Expenses -- Class Y Share Fees and Expenses."
The Advisor also may absorb or reimburse expenses of the Funds from time
to time, in its discretion, while retaining the ability to be reimbursed
by the Funds for such amounts prior to the end of the fiscal year. This
practice would have the effect of lowering a Fund's overall expense ratio
and of increasing yield to investors, or the converse, at the time such
amounts are absorbed or reimbursed, as the case may be.

The Glass-Steagall Act generally prohibits banks from engaging in the
business of underwriting, selling or distributing securities and from
being affiliated with companies principally engaged in

<PAGE>

Although the scope of the prohibitions and limitations imposed by the
Glass-Steagall Act has not been fully defined by the courts or the
appropriate regulatory agencies, FAIF has received an opinion from its
counsel that the Advisor is not prohibited from performing the investment
advisory services described above. In the event of changes in federal or
state statutes or regulations or judicial and administrative
interpretations or decisions pertaining to permissible activities of bank
holding companies and their bank and nonbank subsidiaries, the Advisor
might be prohibited from continuing these arrangements. In that event, it
is expected that the Board of Directors would make other arrangements and
that shareholders would not suffer adverse financial consequences.

---------------------------------------------------------------------------

SUB-ADVISOR TO INTERNATIONAL FUND

Marvin & Palmer Associates, Inc., 1201 North Market Street, Suite 2300,
Wilmington, Delaware 19801, is Sub-Advisor to International Fund under an
agreement with the Advisor (the "Sub-Advisory Agreement"). The Sub-Advisor
is responsible for the investment and reinvestment of International Fund's
assets and the placement of brokerage transactions in connection therewith.
For its services under the Sub-Advisory Agreement, the Sub-Advisor is paid a
monthly fee by the Advisor calculated on an annual basis equal to 0.75% of
the first $100 million of International Fund's average daily net assets,
0.50% of International Fund's average daily net assets in excess of $100
million up to $300 million, 0.45% of International Fund's average daily net
assets in excess of $300 million up to $500 million and 0.40% of
International Fund's average daily net assets in excess of $500 million.

---------------------------------------------------------------------------
PORTFOLIO MANAGERS

Balanced Fund and Large Cap Value Fund are managed by a committee
comprised of Mr. Doak, Mr. Murphy, Mr. Rovner, Mr. Dubiak, Mr. Whitcomb,
Mr. Shields and Mr. Twele, whose backgrounds are set forth below. Equity
Income Fund and Large Cap Growth Fund are managed by a committee comprised
of Mr. Bren, Mr. Doak, Mr. Dubiak, Ms. Johnson, Mr. Murphy, Mr. Whitcomb
and Mr. Glenn Johnson, whose backgrounds also are set forth below. Health
Sciences Fund, Regional Equity Fund, Small Cap Growth Fund, Small Cap
Value Fund and Micro Cap Value Fund are managed by a committee comprised
of Mr. Dubiak, Mr. Bren, Mr. Rose, Mr. Buss, Mr. Hipple and Mr. Magdlen,
whose backgrounds also are set forth below. The remaining Funds are
managed or co-managed as indicated below.

<PAGE>

the Wharton School of Business. He is a Chartered Financial Analyst.

ROLAND P. WHITCOMB, JR. is a member of the committees which manage four of
the Funds, as set forth above, and he is portfolio co-manager for
Technology Fund. Mr. Whitcomb joined the Advisor in 1986 after serving as
an account executive with Smith Barney & Co. since 1979. Mr. Whitcomb
received his bachelor's degree from the University of Chicago. He is a
Chartered Financial Analyst.

DOUGLAS K. ROSE is a member of the committee which manages five of the
Funds. Mr. Rose joined the Advisor in 1996 and has ten years of investment
industry experience. Mr. Rose has analytic responsibilities for business
services, environmental services, leisure and restaurant/lodging
industries. Mr. Rose holds a bachelor's degree from the University of
Nebraska, and master's degree in business administration from the
University of Minnesota. He is a Chartered Financial Analyst.

ROBERT L. BUSS is a member of the committee which manages five of the
Funds. Mr. Buss joined

<PAGE>

the Advisor in 1989 and has nine years of investment industry experience.
In 1996, Mr. Buss began analytical work in the equity research area
covering electric equipment, machinery and diversified manufacturing. Mr.
Buss holds a bachelor's degree in economics from the University of
Minnesota.

ANTHONY W. HIPPLE is a member of the committee which manages five of the
Funds. Mr. Hipple is primarily responsible for portfolio analytics and
screening. Mr. Hipple joined the Advisor in 1996 and has four years of
investment industry experience. Mr. Hipple holds a bachelor's degree from
the University of Northern Iowa and a master's degree in business
administration from the University of Iowa.

EVAN C. LUNDQUIST is portfolio co-manager of Equity Index Fund and
International Index Fund. He joined the Advisor in 1993 and has four years
of investment industry experience. Mr. Lundquist has analytic
responsibilities for paper/forest products, metals and mining, steel,
engineering and construction, and building and appliances industries. Mr.
Lundquist received his bachelor's degree from St. Mary's College.

DAVID JOHNSON is a co-manager of Real Estate Securities Fund. He joined
the Advisor in 1997 and has four years of investment industry experience.
He has analytic responsibilities for REITs, business services, printing
and publishing, and advertising. Prior to joining the Advisor, he was with
the State of Wisconsin Investment Board. He received his bachelor's degree
from St. Lawrence University and his master's degree in business
administration from the University of Connecticut.

A committee comprised of the following seven individuals shares the
management of International Fund on behalf of the Sub-Advisor:

TERRY B. MASON is a Senior Vice President and portfolio manager of the
Sub-Advisor. Before

<PAGE>

joining the Sub-Advisor, Mr. Mason was employed for 14 years by DuPont
Corporation, the last five as international equity analyst and
international trader. Mr. Mason received his bachelor's degree from
Glassboro State College and his master's degree in business administration
from Widener University.

JAY F. MIDDLETON is a Senior Vice President and portfolio manager for the
Sub-Advisor and joined the firm in 1989. Mr. Middleton received his
bachelor's degree from Wesleyan University.

---------------------------------------------------------------------------
CUSTODIAN

Sub-custodian fees with respect to International Index Fund and
International Fund are paid by the Custodian out of the Custodian's fees.

---------------------------------------------------------------------------
ADMINISTRATOR

<PAGE>

aggregate net assets of all First American Funds exceed $8 billion, the
percentage stated above is reduced to 0.105%. From time to time, the
Administrator may voluntarily waive its fees or reimburse expenses with
respect to any of the Funds. Any such waivers or reimbursements may be
made at the Administrator's discretion and may be terminated at any time.
U.S. Bank assists the Administrator and provides sub-administration
services for the Funds. For these services, the Administrator compensates
the sub-administrator at an annual rate of up to 0.05% of each Fund's
average daily net assets.

---------------------------------------------------------------------------
TRANSFER AGENT

DISTRIBUTOR

The Distributor, the Administrator and the Advisor may in their discretion
use their own assets to pay for certain costs of distributing Fund shares.
Any arrangement to pay such additional costs may be commenced or
discontinued by any of these persons at any time. In addition, the
Distributor and the Advisor and its affiliates may provide compensation from
their own resources for shareholder services provided by third parties,
including "one-stop" mutual fund networks through which the Funds are made
available.

PURCHASES AND REDEMPTIONS OF SHARES

---------------------------------------------------------------------------
SHARE PURCHASES AND REDEMPTIONS

Shares of the Funds are sold and redeemed on days on which both the New
York Stock Exchange and federally-chartered banks are open for business
("Business Days").

Payment for shares can be made only by wire transfer. All information
needed will be taken over the telephone, and the order will be considered
placed when the Custodian receives payment by wire. Federal funds should
be wired as follows: U.S. Bank National Association, Minneapolis,
Minnesota, ABA Number 091000022; For Credit To: DST Systems, Inc.: Account
Number 160234580266; For Further Credit To: (Investor Name and Fund Name).
Shares cannot be purchased by Federal Reserve wire on days on which the
New York Stock Exchange is closed or federally-chartered banks are closed.
Purchase orders will be effective and eligible to receive dividends
declared the same day if the Transfer Agent receives an order before 3:00
p.m. Central time and the Custodian receives Federal funds before the
close of business that day. Otherwise, the purchase order will be
effective the next Business Day. The Funds reserve the right to reject a
purchase order.

Shares may be purchased through a financial institution which has a sales
agreement with the Distributor. An investor may call its financial
institution to place an order. Purchase orders must be received by the
financial institution by the time specified by the institution to be
assured same day processing, and purchase orders must be transmitted to
and received by the Funds by 3:00 p.m. Central time in order for shares to
be purchased at that day's price. It is the financial institution's
responsibility to transmit orders promptly.

The Funds are required to redeem for cash all full and fractional shares
of the Funds. Redemption

<PAGE>

requests may be made any time before 3:00 p.m. Central time in order to
receive that day's redemption price. For redemption orders received before
3:00 p.m. Central time, payment will ordinarily be made the next Business
Day by transfer of Federal funds, but payment may be made up to 7 days
after the request.

---------------------------------------------------------------------------
WHAT SHARES COST

Class Y Shares of the Funds are sold and redeemed at net asset value. The
net asset value per share is determined as of the close of normal trading
on the New York Stock Exchange (3:00 p.m. Central time) on each Business
Day, provided that net asset value need not be determined on days when no
Fund shares are tendered for redemption and no order for that Fund's
shares is received and on days on which changes in the value of portfolio
securities will not materially affect the current net asset value of the
Fund's shares. The price per share for purchases or redemptions is such
value next computed after the Transfer Agent receives the purchase order
or redemption request. In the case of redemptions and repurchases of
shares owned by corporations, trusts or estates, the Transfer Agent may
require additional documents to evidence appropriate authority in order to
effect the redemption, and the applicable price will be that next
determined following the receipt of the required documentation.

DETERMINING NET ASSET VALUE. The net asset value per share for each of the
Funds is determined by dividing the value of the securities owned by the
Fund plus any cash and other assets (including interest accrued and
dividends declared but not collected), less all liabilities, by the number
of Fund shares outstanding. For the purpose of determining the aggregate net
assets of the Funds, cash and receivables will be valued at their face
amounts. Interest will be recorded as accrued and dividends will be recorded
on the ex-dividend date. Security valuations are furnished by an independent
pricing service that has been approved by the Board of Directors. Securities
listed on a securities exchange or an automated quotation system for which
quotations are readily available, including securities traded over the
counter, are valued at the last quoted sale price on the principal exchange
on which they are traded on the valuation date, or, if there is no such
reported sale on the valuation date, at the most recently quoted bid price.

Debt obligations with remaining maturities in excess of sixty days are
valued at the most recently quoted bid price. For such debt obligations
the pricing service may employ methods that utilize actual market
transactions, broker-dealer valuations, or other electronic data
processing techniques. These techniques generally consider such factors as
security prices, yields, maturities, call features, ratings and
developments relating to specific securities in arriving at security
valuations. Debt obligations with remaining maturities of sixty days or
less may be valued at their amortized cost which approximates market
value. If a security price cannot be obtained from an independent pricing
service a bid price may be obtained from an independent broker who makes a
market in the security.

Foreign securities owned by the Funds are valued at the closing prices on
the principal exchange on which they trade.

If the value for a security cannot be obtained from the sources described
above, the security's value may be determined pursuant to the fair value
procedures established by the Board of Directors.

Financial futures are valued at the settlement price established each day
by the board of exchange on which they are traded. Portfolio securities
underlying actively traded options are valued at their market price as
determined above. The current market value of any exchange traded options
held or written by a Fund, are valued at the closing bid price for a long
position or the closing ask price for a short position.

<PAGE>

Although the methodology and procedures for determining net asset value
are identical for all classes of shares, the net asset value per share of
different classes of shares of the same Fund may differ because of the
distribution, shareholder servicing, transfer agent and/or dividend
disbursing expenses charged to Class A and Class B Shares.

FOREIGN SECURITIES. Any assets or liabilities of the Funds initially
expressed in terms of foreign currencies are translated into United States
dollars using current exchange rates. Trading in securities on foreign
markets may be completed before the close of business on each business day
of the Funds. Thus, the calculation of the Funds' net asset value may not
take place contemporaneously with the determination of the prices of
foreign securities held in the Funds' portfolios. In addition, trading in
securities on foreign markets may not take place on all days on which the
New York Stock Exchange is open for business or may take place on days on
which the New York Stock Exchange is not open for business. Therefore, the
net asset value of a Fund which holds foreign securities might be
significantly affected on days when an investor has no access to the Fund.

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EXCHANGING SECURITIES FOR FUND SHARES

A Fund may accept securities in exchange for Fund shares. A Fund will allow
such exchanges only upon the prior approval by the Fund and a determination
by the Fund and the Advisor that the securities to be exchanged are
acceptable. Securities accepted by a Fund will be valued in the same manner
that a Fund values its assets. The basis of the exchange will depend upon
the net asset value of Fund shares on the day the securities are valued.

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CERTIFICATES AND CONFIRMATIONS

The Transfer Agent maintains a share account for each shareholder. Share
certificates will not be issued by the Funds.

Confirmations of each purchase and redemption are sent to each
shareholder. In addition, monthly confirmations are sent to report all
transactions and dividends paid during that month for the Funds.

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DIVIDENDS AND DISTRIBUTIONS

Dividends are declared and paid monthly with respect to Balanced Fund,
Equity Income Fund, Equity Index Fund, Large Cap Value Fund, Large Cap
Growth Fund and Mid Cap Value Fund, to all shareholders of record on the
record date. Dividends are declared and paid quarterly with respect to
Real Estate Securities Fund, Small Cap Growth Fund, Small Cap Value Fund,
Micro Cap Value Fund, International Index Fund, Health Sciences Fund, and
Technology Fund, and annually with respect to International Fund.
Distributions of any net realized long-term capital gains will be made at
least once every 12 months. A portion of the quarterly distributions paid
by Real Estate Securities Fund may be a return of capital. Dividends and
distributions are automatically reinvested in additional shares of the
Fund paying the dividend on payment dates at the ex-dividend date net
asset value without a sales charge, unless shareholders request cash
payments on the new account form or by writing to the Fund.

The amount of dividends payable on Class Y Shares generally will be more
than the dividends payable on Class A or Class B Shares because of the
distribution, shareholder servicing, transfer agent and/or dividend
disbursing expenses charged to Class A and Class B Shares.

<PAGE>

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EXCHANGE PRIVILEGE

Shareholders may exchange Class Y Shares of a Fund for currently available
Class Y Shares of the other FAIF Funds or of other funds in the First
American family of funds at net asset value. Exchanges of shares among the
First American family of funds must meet any applicable minimum investment
of the fund for which shares are being exchanged.

The ability to exchange shares of the Funds does not constitute an
offering or recommendation of shares of one fund by another fund. This
privilege is available to shareholders resident in any state in which the
fund shares being acquired may be sold. An investor who is considering
acquiring shares in another First American fund pursuant to the exchange
privilege should obtain and carefully read a prospectus of the fund to be
acquired. Exchanges may be accomplished by a written request, or by
telephone if a preauthorized exchange authorization is on file with the
Transfer Agent, shareholder servicing agent, or financial institution.

Written exchange requests must be signed exactly as shown on the
authorization form. None of the Funds, the Distributor, the Transfer
Agent, any shareholder servicing agent, nor any financial institution will
be responsible for further verification of the authenticity of the
exchange instructions.

Telephone exchange instructions made by an investor may be carried out only
if a telephone authorization form completed by the investor is on file with
the Transfer Agent, shareholder servicing agent or financial institution.
Shares may be exchanged between two Funds by telephone only if both Funds
have identical shareholder registrations.

Telephone exchange instructions may be recorded and will be binding upon
the shareholder. Telephone instructions must be received by the Transfer
Agent before 3:00 p.m. Central time, or by a shareholder's shareholder
servicing agent or financial institution by the time specified by it, in
order for shares to be exchanged the same day. Neither the Transfer Agent
nor any Fund will be responsible for the authenticity of exchange
instructions received by telephone if it reasonably believes those
instructions to be genuine. The Funds and the Transfer Agent will each
employ reasonable procedures to confirm that telephone instructions are
genuine, and they may be liable for losses resulting from unauthorized or
fraudulent telephone instructions if they do not employ these procedures.

Shareholders of the Funds may have difficulty in making exchanges by
telephone through brokers and other financial institutions during times of
drastic economic or market changes. If a shareholder cannot contact his or
her broker or financial institution by telephone, it is recommended that
an exchange request be made in writing and sent by overnight mail to DST
Systems, Inc., 330 West Ninth Street, Kansas City, Missouri 64105. The
exchange privilege should not be used to take advantage of short-term
swings in the securities markets. The Funds reserve the right to limit or
terminate exchange privileges as to any shareholder who makes exchanges
more than four times a year (other than through periodic investment
programs). The Funds may modify or revoke the exchange privilege for all
shareholders upon 60 days' prior written notice or without notice in times
of drastic economic or market changes.

Shares of a class in which an investor is no longer eligible to
participate may be exchanged for shares of a class in which that investor
is eligible to participate. An example of this kind of exchange would be a
situation in which Class Y Shares of a Fund held by a financial
institution in a trust or agency capacity for one or more individual
beneficiaries are exchanged for Class A Shares of that Fund and
distributed to the individual beneficiaries.

There are currently no additional fees or charges for the exchange
service. The Funds do not contemplate establishing such fees or charges,
but they reserve the right to do so. Shareholders will

<PAGE>

be notified of any modification or termination of the exchange privilege
and of the imposition of any additional fees or charges.

FEDERAL INCOME TAXES

Each Fund is treated as a different entity for federal income tax
purposes. Each of the Funds intends to qualify as a regulated investment
company under the Internal Revenue Code of 1986, as amended (the "Code").
If so qualified and provided certain distribution requirements are met, a
Fund will not be liable for federal income taxes to the extent it
distributes its income to its shareholders.

Distributions paid from the net investment income and from any net
realized short-term capital gains of a Fund, will be taxable to
shareholders as ordinary income, whether received in cash or in additional
shares. Dividends paid by the Funds attributable to investments in the
securities of foreign issuers will not be eligible for the 70% deduction
for dividends received by corporations.

Distributions paid from a Fund's net capital gains and designed as capital
gain dividends generally are taxable as long-term capital gains in the
hands of shareholders, regardless of the length of time during which they
have held their shares. In the case of shareholders who are individuals,
estates, or trusts, each Fund will designate the portion of each capital
gain dividend that must be treated as mid-term capital gain and the
portion that must be treated as long-term capital gain.

Gain or loss realized on the sale or exchange of shares in a Fund will be
treated as capital gain or loss, provided that (as is usually the case) the
shares represented a capital asset in the hands of the shareholder. For
shareholders who are individuals, estates or trusts, the gain or loss will
be considered long-term if the shareholder has held the shares for more than
18 months and mid-term if the shareholder has held the shares for more than
one year but not more than 18 months.

International Index Fund and International Fund may be required to pay
withholding and other taxes imposed by foreign countries, generally at
rates from 10% to 40%, which would reduce each Fund's investment income.
Tax conventions between certain countries and the United States may reduce
or eliminate such taxes.

Alternatively, if the amount of foreign taxes paid by International Index
Fund or International Fund is not large enough in future years to warrant
making the election described above, each Fund may claim the amount of
foreign taxes paid as a deduction against its own gross income. In that
case, shareholders would not be permitted either to deduct any portion of
foreign taxes from their own income or to claim any amount of foreign tax
credit for taxes paid by the Funds.

This is a general summary of the federal tax laws applicable to the Funds
and their shareholders as of the date of this Prospectus. See the
Statement of Additional Information for further details.

<PAGE>

FUND SHARES

Each share of a Fund has one vote. On some issues, such as the election of
directors, all shares of all FAIF Funds vote together as one series. The
shares do not have cumulative voting rights. Consequently, the holders of
more than 50% of the shares voting for the election of directors are able
to elect all of the directors if they choose to do so. On issues affecting
only a particular Fund or class of shares, the shares of that Fund or
class will vote as a separate series. Examples of such issues would be
proposals to alter a fundamental investment restriction pertaining to a
Fund or to approve, disapprove or alter a distribution plan pertaining to
a class of shares.

CALCULATION OF PERFORMANCE DATA

From time to time, any of the Funds may advertise information regarding its
performance. Each Fund may publish its "yield," its "cumulative total
return," its "average annual total return" and its "distribution rate."
Distribution rates may only be used in connection with sales literature and
shareholder communications preceded or accompanied by a Prospectus. Each of
these performance figures is based upon historical results and is not
intended to indicate future performance, and, except for "distribution
rate," is standardized in accordance with SEC regulations.

"Yield" for the Funds is computed by dividing the net investment income
per share (as defined in applicable SEC regulations) earned during a
30-day period (which period will be stated in the advertisement) by the
maximum offering price per share on the last day of the period. Yield is
an annualized figure, in that it assumes that the same level of net
investment income is generated over a one year period. The yield formula
annualizes net investment income by providing for semi-annual compounding.

"Total return" is based on the overall dollar or percentage change in
value of a hypothetical investment in a Fund assuming reinvestment of
dividend distributions and deduction of all charges and expenses.
"Cumulative total return" reflects a Fund's performance over a stated
period of time. "Average annual total return" reflects the hypothetical
annually compounded rate that would have produced the same cumulative
total return if performance had been constant over the entire period.
Because average annual returns tend to smooth out variations in a Fund's
performance, they are not the same as actual year-by-year results.

The performance of the Class Y Shares of a Fund will normally be higher
than for the Class A and Class B Shares because Class Y Shares are not
subject to the sales charges and distribution, shareholder servicing,
transfer agent and/or dividend disbursing expenses applicable to Class A
and Class B Shares.

In reports or other communications to shareholders and in advertising
material, the performance of

<PAGE>

each Fund may be compared to recognized unmanaged indices or averages of
the performance of similar securities and to composites of such indices
and averages. Also, the performance of each Fund may be compared to that
of other funds of similar size and objectives as listed in the rankings
prepared by Lipper Analytical Services, Inc. or similar independent mutual
fund rating services, and each Fund may include in such reports,
communications and advertising material evaluations published by
nationally recognized independent ranking services and publications. For
further information regarding the Funds' performance, see "Fund
Performance" in the Statement of Additional Information.

PERFORMANCE INFORMATION FOR SUCCESSORS TO COMMON TRUST FUNDS

From time to time, Small Cap Value Fund and Micro Cap Value Fund may
advertise performance information which includes performance data for
certain predecessor common trust funds.

Micro Cap Value Fund commenced operations on August 8, 1997, when
substantially all of the assets of a certain common trust fund which was
exempt from registration under the 1940 Act was transferred to the Fund.
This predecessor common trust fund was managed by Qualivest Capital
Management, Inc. prior to the acquisition of its parent company by the
Advisor's parent company. The personnel who managed the common trust fund on
behalf of Qualivest Capital Management, Inc. became employees of the
Advisor, and assumed management of the Fund, at the time the assets were
transferred from the common trust fund to the Fund.

Such performance data is deemed relevant because the common trust funds
were managed using investment objectives, policies and restrictions very
similar to those of their corresponding Fund. However, the predecessor
common trust funds were not subject to certain investment restrictions
that are imposed by the 1940 Act. Accordingly, if the common trust funds
had been registered under the 1940 Act, their performance could have been
adversely affected by virtue of such investment restrictions. In addition,
the predecessor common trust funds did not incur the same expenses as the
corresponding Funds.

SPECIAL INVESTMENT METHODS

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CASH ITEMS

<PAGE>

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REPURCHASE AGREEMENTS

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WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

In connection with its ability to purchase securities on a when-issued or
delayed delivery basis, Balanced Fund may, with respect to its fixed
income assets, enter into mortgage "dollar rolls" in which the Fund sells
securities and simultaneously contracts with the same counter party to
repurchase similar (same type, coupon and maturity) but not identical
securities on a specified future date. In a mortgage dollar roll, the Fund
gives up the right to receive principal and interest paid on the
securities sold. However, the Fund would benefit to the extent of any
difference between the price received for the securities sold and the
lower forward price for the future purchase plus any fee income received.
Unless such benefits exceed the income, capital appreciation and gain or
loss due to mortgage prepayments that would have been realized on the
securities sold as part of a mortgage dollar roll, the use of this
technique will diminish the investment performance of the Fund compared
with what such performance would have been without the use of mortgage
dollar rolls. Balanced Fund will hold and maintain in a segregated account
until the settlement date cash or liquid securities in an amount equal to
the forward purchase price.

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LENDING OF PORTFOLIO SECURITIES

In order to generate additional income, each of the Funds may lend
portfolio securities representing

<PAGE>

up to one-third of the value of its total assets to broker-dealers, banks
or other institutional borrowers of securities. As with other extensions
of credit, there may be risks of delay in recovery of the securities or
even loss of rights in the collateral should the borrower of the
securities fail financially. However, the Funds will only enter into loan
arrangements with broker-dealers, banks, or other institutions which the
Advisor or, in the case of International Fund, the Sub-Advisor has
determined are creditworthy under guidelines established by the Board of
Directors. In these loan arrangements, the Funds will receive collateral
in the form of cash, United States Government securities or other
high-grade debt obligations equal to at least 100% of the value of the
securities loaned. Collateral is marked to market daily. The Funds will
pay a portion of the income earned on the lending transaction to the
placing broker and may pay administrative and custodial fees (including
fees to an affiliate of the Advisor) in connection with these loans,
which, in the case of U.S. Bank, are 40% of the Fund's income from such
securities lending transactions.

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OPTIONS TRANSACTIONS

<PAGE>

The Funds also may, to the extent specified with respect to particular
Funds under "Investment Objectives and Policies," write call options on
stock indices the movements of which generally correlate with those of the
respective Funds' portfolio holdings. These transactions, which would be
undertaken principally to produce additional income, entail the risk of an
imperfect correlation between movements of the index covered by the option
and movements in the price of the Fund's portfolio securities.

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FUTURES AND OPTIONS ON FUTURES

<PAGE>

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FIXED INCOME SECURITIES

The fixed income securities in which Real Estate Securities Fund, Equity
Income Fund, Large Cap Value Fund, Large Cap Growth Fund, Mid Cap Value
Fund, Regional Equity Fund, Small Cap Growth Fund, Small Cap Value Fund,
Micro Cap Value Fund, Health Sciences Fund and Technology Fund may invest
include securities issued or guaranteed by the United States Government or
its agencies or instrumentalities, nonconvertible preferred stocks,
nonconvertible corporate debt securities, and short-term obligations of the
kinds described above under "-- Cash Items." Investments in nonconvertible
preferred stocks and nonconvertible corporate debt securities will be
limited to securities which are rated at the time of purchase not less than
BBB by Standard & Poor's or Baa by Moody's (or equivalent short-term
ratings), or which have been assigned an equivalent rating by another
nationally recognized statistical rating organization, or which are of
comparable quality in the judgment of the Advisor. Obligations rated BBB,
Baa or their equivalent, although investment grade, have speculative
characteristics and carry a somewhat higher risk of default than obligations
rated in the higher investment grade categories.

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FOREIGN SECURITIES

GENERAL. Under normal market conditions International Index Fund and
International Fund invests at least 65% of their respective total assets
in equity securities which trade in markets other than the United States.
In addition, the other Funds (excluding Equity Index Fund and Regional
Equity Fund) may invest lesser proportions of their assets in securities
of foreign issuers which are either listed on a United States securities
exchange or represented by American Depositary Receipts.

<PAGE>

In addition, there may be less publicly available information about a
foreign company than about a United States domiciled company. Foreign
companies generally are not subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to United
States domestic companies. There is also generally less government
regulation of securities exchanges, brokers and listed companies abroad
than in the United States. Confiscatory taxation or diplomatic
developments could also affect investment in those countries. In addition,
foreign branches of United States banks, foreign banks and foreign issuers
may be subject to less stringent reserve requirements and to different
accounting, auditing, reporting, and recordkeeping standards than those
applicable to domestic branches of United States banks and United States
domestic issuers.

A significant investment in Japanese securities by International Index
Fund may entail a higher degree of risk than with more diversified
international portfolios.

<PAGE>

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FOREIGN CURRENCY TRANSACTIONS

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MORTGAGE-BACKED SECURITIES

Balanced Fund may invest in mortgage-backed securities which are Agency
Pass-Through

<PAGE>

Certificates or collateralized mortgage obligations ("CMOs"), as described
below.

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ASSET-BACKED SECURITIES

<PAGE>

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BANK INSTRUMENTS

The bank instruments in which Balanced Fund may invest include time and
savings deposits, deposit notes and bankers acceptances (including
certificates of deposit) in commercial or savings banks. They also include
Eurodollar Certificates of Deposit issued by foreign branches of United
States or foreign banks; Eurodollar Time Deposits, which are United States
dollar-denominated deposits in foreign branches of United States or
foreign banks; and Yankee Certificates of Deposit, which are United States
dollar-denominated certificates of deposit issued by United States
branches of foreign banks and held in the United States. For a description
of certain risks of investing in foreign issuers' securities, see "--
Foreign Securities" above. In each instance, Balanced Fund may only invest
in bank instruments issued by an institution which has capital, surplus
and undivided profits of more than $100 million or the deposits of which
are insured by the Bank Insurance Fund or the Savings Association
Insurance Fund.

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PORTFOLIO TRANSACTIONS

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PORTFOLIO TURNOVER

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INVESTMENT RESTRICTIONS

The fundamental and nonfundamental investment restrictions of the Funds
are set forth in full in the Statement of Additional Information. The
fundamental restrictions include the following:

* None of the Funds will borrow money, except from banks for temporary or
emergency purposes. The amount of such borrowing may not exceed 10% of
the borrowing Fund's total assets.

* None of the Funds will make short sales of securities.

<PAGE>

* None of the Funds will purchase any securities on margin except to
obtain such short-term credits as may be necessary for the clearance of
transactions and except, in the case of Small Cap Growth Fund,
Technology Fund, and International Fund, as may be necessary to make
margin payments in connection with foreign currency futures and other
derivative transactions.

INFORMATION CONCERNING COMPENSATION PAID
TO U.S. BANK NATIONAL ASSOCIATION
AND OTHER AFFILIATES

Investment advisory services -- see "Management-Investment Advisor"

Custodian services -- see "Management- Custodian"

Sub-administration services -- see "Management-Administrator"