-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SS/QhI1bMvaDoQT5EeGLxTEByZWMzpWSu4vmguS3unoOE0oUNEAIAJu6iWELRJWu nXtyDqCyi7awL9ndiI510Q== 0000897101-95-000438.txt : 19951120 0000897101-95-000438.hdr.sgml : 19951120 ACCESSION NUMBER: 0000897101-95-000438 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 61 FILED AS OF DATE: 19951116 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST AMERICAN INVESTMENT FUNDS INC CENTRAL INDEX KEY: 0000820892 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MD FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1933 Act SEC FILE NUMBER: 033-16905 FILM NUMBER: 95594067 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-05309 FILM NUMBER: 95594068 BUSINESS ADDRESS: STREET 1: 32 SOUTH ST CITY: BALTIMORE STATE: MD ZIP: 21202 BUSINESS PHONE: 6102541000 FORMER COMPANY: FORMER CONFORMED NAME: SECURAL MUTUAL FUNDS INC DATE OF NAME CHANGE: 19910627 485APOS 1 1933 Act Registration No. 33-16905 1940 Act Registration No. 811-5309 As filed with the Securities and Exchange Commission on November 16, 1995 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x] Pre-Effective Amendment No. [ ] Post-Effective Amendment No. 24 [x] and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x] Amendment No. 25 FIRST AMERICAN INVESTMENT FUNDS, INC. (Exact Name of Registrant as Specified in Charter) 680 EAST SWEDESFORD ROAD, WAYNE, PENNSYLVANIA 19087 (Address of Principal Executive Offices) (Zip Code) (610) 254-1924 (Registrant's Telephone Number, including Area Code) DAVID LEE C/O SEI CORPORATION, 680 EAST SWEDESFORD ROAD, WAYNE, PENNSYLVANIA 19087 (Name and Address of Agent for Service) Copies to: Kathryn Stanton, Esq. Michael J. Radmer, Esq. SEI Corporation James D. Alt, Esq. 680 East Swedesford Road Dorsey & Whitney Wayne, Pennsylvania 19087 220 South Sixth Street Minneapolis, Minnesota 55402 It is proposed that this filing shall become effective (check appropriate box): [ ] immediately upon filing pursuant to paragraph (b) of rule 485 [ ] on (date) pursuant to paragraph (b) of rule 485 [ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485 [ ] on (date) pursuant to paragraph (a)(1) of Rule 485 [ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485 [x] on January 31, 1995 pursuant to paragraph (a)(2) of Rule 485 Registrant has registered an indefinite number or amount of securities under the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act of 1940. A Rule 24f-2 Notice was filed with the Securities and Exchange Commission on November 14, 1995. FIRST AMERICAN INVESTMENT FUNDS, INC. CROSS REFERENCE SHEET FOR ITEMS REQUIRED BY FORM N-1A NOTE: PART A of this Registration Statement consists of six Prospectuses, as follows: 1. Retail Class Prospectus relating to Class A and Class B Shares of the following funds (the "Equity Funds"): Stock Fund, Equity Index Fund, Balanced Fund, Asset Allocation Fund, Equity Income Fund, Diversified Growth Fund, Emerging Growth Fund, Regional Equity Fund, Special Equity Fund, Technology Fund, Health Sciences Fund, Real Estate Securities Fund, and International Fund. 2. Institutional Class Prospectus relating to Class C Shares of the Equity Funds. 3. Retail Class Prospectus relating to Class A and Class B Shares of the following funds (the "Taxable Fixed Income Funds"): Limited Term Income Fund, Intermediate Term Income Fund, Fixed Income Fund, and Intermediate Government Bond Fund. 4. Institutional Class Prospectus relating to Class C Shares of the Taxable Fixed Income Funds. 5. Retail Class Prospectus relating to Class A and Class B Shares of the following funds (the "Tax Free Funds"): Intermediate Tax Free Fund, Minnesota Insured Intermediate Tax Free Fund, and Colorado Intermediate Tax Free Fund. 6. Institutional Class Prospectus relating to Class C Shares of the Tax Free Funds. PART B of this Registration Statement consists of one Statement of Additional Information, which relates to all six of the Prospectuses listed above. CROSS REFERENCE SHEET FOR THE EQUITY FUNDS: ITEM NUMBER OF FORM N-1A PART A CAPTION IN PROSPECTUS RETAIL CLASSES PROSPECTUS 1 Cover Page 2 Summary; Fees and Expenses 3 Financial Highlights 4 The Funds; Investment Objectives and Policies; Special Investment Methods 5 Management; Distributor 5A Included in Annual Report to Shareholders 6 Fund Shares; Investing in the Funds; Federal Income Taxes 7 Distributor; Investing in the Funds; Determining the Price of Shares 8 Redeeming Shares 9 Not Applicable INSTITUTIONAL CLASS PROSPECTUS 1 Cover Page 2 Summary; Fees and Expenses 3 Financial Highlights 4 The Funds; Investment Objectives and Policies; Special Investment Methods 5 Management; Distributor 5A Included in Annual Report to Shareholders 6 Fund Shares; Purchases and Redemptions of Shares; Federal Income Taxes 7 Distributor; Purchases and Redemptions of Shares 8 Purchases and Redemptions of Shares 9 Not Applicable CAPTION IN STATEMENT PART B OF ADDITIONAL INFORMATION 10 Cover Page 11 Table of Contents 12 General Information 13 Additional Information Concerning Fund Investments; Investment Restrictions 14 Directors and Executive Officers 15 Capital Stock 16 Investment Advisory and Other Services 17 Portfolio Transactions and Allocation of Brokerage 18 Not Applicable 19 Net Asset Value and Public Offering Price 20 Taxation 21 Investment Advisory and Other Services 22 Fund Performance 23 Financial Statements CROSS REFERENCE SHEET FOR THE TAXABLE FIXED INCOME FUNDS: ITEM NUMBER OF FORM N-1A PART A CAPTION IN PROSPECTUS RETAIL CLASSES PROSPECTUS 1 Cover Page 2 Summary; Fees and Expenses 3 Financial Highlights 4 The Funds; Investment Objectives and Policies; Special Investment Methods 5 Management; Distributor 5A Included in Annual Report to Shareholders 6 Fund Shares; Investing in the Funds; Federal Income Taxes 7 Distributor; Investing in the Funds; Determining the Price of Shares 8 Redeeming Shares 9 Not Applicable INSTITUTIONAL CLASS PROSPECTUS 1 Cover Page 2 Summary; Fees and Expenses 3 Financial Highlights 4 The Funds; Investment Objectives and Policies; Special Investment Methods 5 Management; Distributor 5A Included in Annual Report to Shareholders 6 Fund Shares; Purchases and Redemptions of Shares; Federal Income Taxes 7 Distributor; Purchases and Redemptions of Shares 8 Purchases and Redemptions of Shares 9 Not Applicable CAPTION IN STATEMENT PART B OF ADDITIONAL INFORMATION 10 Cover Page 11 Table of Contents 12 General Information 13 Additional Information Concerning Fund Investments; Investment Restrictions 14 Directors and Executive Officers 15 Capital Stock 16 Investment Advisory and Other Services 17 Portfolio Transactions and Allocation of Brokerage 18 Not Applicable 19 Net Asset Value and Public Offering Price 20 Taxation 21 Investment Advisory and Other Services 22 Fund Performance 23 Financial Statements CROSS REFERENCE SHEET FOR THE TAX FREE FUNDS: ITEM NUMBER OF FORM N-1A PART A CAPTION IN PROSPECTUS RETAIL CLASSES PROSPECTUS 1 Cover Page 2 Summary; Fees and Expenses 3 Financial Highlights 4 The Funds; Investment Objectives and Policies; Special Investment Methods 5 Management; Distributor 5A Included in Annual Report to Shareholders 6 Fund Shares; Investing in the Funds; Income Taxes 7 Distributor; Investing in the Funds; Determining the Price of Shares 8 Redeeming Shares 9 Not Applicable INSTITUTIONAL CLASS PROSPECTUS 1 Cover Page 2 Summary; Fees and Expenses 3 Financial Highlights 4 The Funds; Investment Objectives and Policies; Special Investment Methods 5 Management; Distributor 5A Included in Annual Report to Shareholders 6 Fund Shares; Purchases and Redemptions of Shares; Income Taxes 7 Distributor; Purchases and Redemptions of Shares 8 Purchases and Redemptions of Shares 9 Not Applicable CAPTION IN STATEMENT PART B OF ADDITIONAL INFORMATION 10 Cover Page 11 Table of Contents 12 General Information 13 Additional Information Concerning Fund Investments; Investment Restrictions 14 Directors and Executive Officers 15 Capital Stock 16 Investment Advisory and Other Services 17 Portfolio Transactions and Allocation of Brokerage 18 Not Applicable 19 Net Asset Value and Public Offering Price 20 Taxation 21 Investment Advisory and Other Services 22 Fund Performance 23 Financial Statements FIRST AMERICAN INVESTMENT FUNDS, INC. EQUITY FUNDS RETAIL CLASS STOCK FUND EQUITY INDEX FUND BALANCED FUND ASSET ALLOCATION FUND EQUITY INCOME FUND DIVERSIFIED GROWTH FUND EMERGING GROWTH FUND REGIONAL EQUITY FUND SPECIAL EQUITY FUND TECHNOLOGY FUND HEALTH SCIENCES FUND REAL ESTATE SECURITIES FUND INTERNATIONAL FUND PROSPECTUS JANUARY 31, 1996 [LOGO] FIRST AMERICAN FUNDS The power of disciplined investing TABLE OF CONTENTS PAGE SUMMARY 4 FEES AND EXPENSES 8 Class A Share Fees and Expenses 8 Class B Share Fees and Expenses 10 Information Concerning Fees and Expenses 12 FINANCIAL HIGHLIGHTS 14 THE FUNDS 18 INVESTMENT OBJECTIVES AND Policies 18 Stock Fund 19 Equity Index Fund 20 Balanced Fund 21 Asset Allocation Fund 23 Equity Income Fund 24 Diversified Growth Fund 26 Emerging Growth Fund 27 Regional Equity Fund 28 Special Equity Fund 29 Technology Fund 30 Health Sciences Fund 31 Real Estate Securities Fund 33 International Fund 34 Risks to Consider 36 MANAGEMENT 37 Investment Adviser 37 Sub-Adviser to International Fund 38 Portfolio Managers 38 Custodian 42 Administrator 42 Transfer Agent 43 DISTRIBUTOR 43 INVESTING IN THE FUNDS 44 Share Purchases 44 Minimum Investment Required 45 Alternative Sales Charge Options 45 Systematic Investment Program 51 Exchanging Securities for Fund Shares 51 Certificates and Confirmations 51 Dividends and Distributions 51 Exchange Privilege 52 REDEEMING SHARES 54 By Telephone 54 By Mail 55 By Systematic Withdrawal Program 55 Redemption Before Purchase Instruments Clear 56 Accounts with Low Balances 56 DETERMINING THE PRICE OF SHARES 56 Determining Net Asset Value 57 Foreign Securities 57 FEDERAL INCOME TAXES 58 FUND SHARES 59 CALCULATION OF PERFORMANCE DATA 60 SPECIAL INVESTMENT METHODS 61 Cash Items 61 Repurchase Agreements 62 When-Issued and Delayed-Delivery Transactions 62 Lending of Portfolio Securities 63 Options Transactions 63 Futures and Options on Futures 64 Fixed Income Securities 65 Foreign Securities 66 Foreign Currency Transactions 68 Mortgage-Backed Securities 69 Asset-Backed Securities 70 Bank Instruments 70 Portfolio Transactions 71 Portfolio Turnover 71 Investment Restrictions 71 FIRST AMERICAN INVESTMENT FUNDS, INC. 680 EAST SWEDESFORD ROAD, WAYNE, PENNSYLVANIA 19087 RETAIL CLASSES PROSPECTUS The shares described in this Prospectus represent interests in First American Invesetment 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"): * Stock Fund * Regional Equity Fund * Equity Index Fund * Special Equity Fund * Balanced Fund * Technology Fund * Asset Allocation Fund * Health Sciences Fund * Equity Income Fund * Real Estate Securities Fund * Diversified Growth Fund * International Fund * Emerging Growth Fund SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK, INCLUDING FIRST BANK NATIONAL ASSOCIATION AND ANY OF ITS AFFILIATES, NOR ARE THEY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. AN INVESTMENT IN THE 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, 1996 for the Funds has been filed with the Securities and Exchange Commission and is incorporated in its entirety by reference in this Prospectus. To obtain copies of the Statement of Additional Information at no charge, or to obtain other information or make inquiries about the Funds, call (800) 637-2548 or write SEI Financial Services Company, 680 East Swedesford Road, Wayne, Pennsylvania 19087. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is January 31, 1996. 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"): 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 80% of its total assets in equity securities diversified among a broad range of industries and among companies that have a market capitalization of at least $500 million. In selecting equity securities, the Fund's adviser employs a value-based selection discipline. 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 substantially in common stocks included in the S&P 500. The Fund's adviser believes that its objective can best be achieved by investing in the common stocks of approximately 250 to 500 of the issues included in the S&P 500. 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, and between 0% and 25% money market instruments. ASSET ALLOCATION FUND has an objective of maximizing total return over the long term by allocating its assets principally among common stocks, bonds, and short-term instruments. There are no limitations on the proportions in which the Fund's adviser may allocate the Fund's investments among these three classes of assets, and the Fund may at times be fully invested in a single asset class if the adviser believes that it offers the most favorable total return outlook. EQUITY INCOME FUND has an objective of long-term growth of capital and income. Under normal market conditions, the Fund invests at least 80% of its total assets in equity securities of issuers believed by the Fund's adviser to be characterized by sound management, the ability to finance expected growth and the ability to pay above average dividends. 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 80% of its total assets in equity securities of a diverse group of companies that will provide representation across all economic sectors included in the S&P 500. The adviser may overweight the Fund's portfolio holdings in sectors that it believes provide above average total return potential. 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-sized companies that exhibit, in the adviser's opinion, outstanding potential for superior growth. Companies that participate in sectors that are identified by the adviser as having long-term growth potential generally are expected to make up a substantial portion of the Fund's holdings. 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-sized companies 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. 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. The Fund's policy is to invest in equity securities which the Fund's adviser believes offer the potential for greater than average capital appreciation. The adviser believes that this policy can best be achieved by investing in the equity securities of companies where fundamental changes are occurring, are likely to occur, or have occurred and where, in the opinion of the adviser, the changes have not been adequately reflected in the price of the securities. TECHNOLOGY FUND has an objective of long-term growth of capital. Under normal market conditions, the Fund invests at least 80% of its total assets in equity securities of companies which the Fund's adviser believes have, or will develop, products, processes or services that will provide or will benefit significantly from technological advances and improvements. HEALTH SCIENCES FUND has an objective of long-term growth of capital. Under normal market conditions, the Fund invests at least 80% of its total assets in equity securities of companies which the Fund's adviser considers to be principally engaged in the development, production or distribution of products or services connected with health care or medicine. 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. 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. INVESTMENT ADVISER AND SUB-ADVISER First Bank National Association (the "Adviser") serves as investment adviser to each of the Funds. Marvin & Palmer Associates, Inc. (the "Sub-Adviser") serves as sub-adviser to International Fund. See "Management." DISTRIBUTOR; ADMINISTRATOR SEI Financial Services Company (the "Distributor") serves as the distributor of the Funds' shares. SEI Financial 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 a contingent deferred sales charge of 1.00% will be imposed on such purchases in the event of redemption within 24 months following the purchase. Class A Shares of the Funds otherwise are redeemed at net asset value without any additional charge. Class A Shares of each Fund are subject to a Rule 12b-1 distribution and service fee computed at an annual rate of 0.25% of the average daily net assets of that class. See "Investing in the 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 service fees computed at an annual rate totaling 1.00% of the average daily net assets of that class. If Class B Shares are redeemed within six years after purchase, they are subject to a contingent deferred sales charge declining from 5.00% in the first year to zero after six years. Class B Shares automatically convert into Class A Shares approximately eight years after purchase. See "Investing in the 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 FAIF 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, 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 is actively managed to a greater or lesser degree, their performance will reflect in part the ability of the Adviser or Sub-Adviser 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 smaller-capitalization companies; (ii) Regional Equity Fund is subject to risks associated with concentrating its investments in a single geographic region; (iii) Technology Fund, Health Sciences Fund and Real Estate Securities Fund are subject to risks associated with concentrating their investments in a single or related economic sectors; (iv) Real Estate Securities Fund is subject to risks associated with direct investments in REITs; (v) International Fund is subject to risks associated with investing in foreign securities and to currency risk; (vi) Equity Income Fund may invest a portion of its assets in less than investment grade convertible debt obligations; (vii) certain Funds other than 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 Depository Receipts or, in the case of Balanced Fund, are debt obligations of foreign issuers denominated in United States dollars; and (viii) 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, 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. FEES AND EXPENSES RETAIL CLASSES CLASS A SHARE FEES AND EXPENSES
EQUITY ASSET EQUITY STOCK INDEX BALANCED ALLOCATION INCOME DIVERSIFIED FUND FUND FUND FUND FUND GROWTH FUND 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(1) 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 and reimbursements)(2) 0.57% 0.12% 0.57% 0.49% 0.40% 0.50% Rule 12b-1 fees 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% Other expenses (after voluntary fee waivers and reimbursements)(2) 0.23% 0.23% 0.23% 0.31% 0.35% 0.30% Total fund operating expenses (after voluntary fee waivers and reimbursements)(2) 1.05% 0.60% 1.05% 1.05% 1.00% 1.05% EXAMPLE(3) 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 $ 51 $ 55 $ 55 $ 55 $ 55 3 years $ 77 $ 63 $ 77 $ 77 $ 75 $ 77 5 years $ 100 $ 77 $ 100 $ 100 $ 98 $ 100 10 years $ 167 $ 117 $ 167 $ 167 $ 162 $ 167
REAL EMERGING REGIONAL SPECIAL HEALTH ESTATE GROWTH EQUITY EQUITY TECHNOLOGY SCIENCES SECURITIES FUND FUND FUND FUND FUND FUND INTERNATIONAL FUND 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% 4.50% Maximum sales load imposed on reinvested dividends None None None None None None None Deferred sales load(1) None None None None None None None Redemption fees None None None None None None None Exchange fees None None None None None None None ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS) Investment advisory fee (after voluntary fee waivers and reimbursements)(2) 0.40% 0.66% 0.65% 0.30% 0.23% 0.00% 1.19% Rule 12b-1 fees 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% Other expenses (after voluntary fee waivers and reimbursements)(2) 0.50% 0.24% 0.25% 0.60% 0.67% 0.80% 0.56% Total fund operating expenses (after voluntary fee waivers and reimbursements)(2) 1.15% 1.15% 1.15% 1.15% 1.15% 1.05% 2.00% EXAMPLE(3) 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 $ 56 $ 56 $ 56 $ 56 $ 56 $ 55 $ 64 3 years $ 80 $ 80 $ 80 $ 80 $ 80 $ 77 $ 105 5 years $ 105 $ 105 $ 105 $ 105 $ 105 $ 100 $ 148 10 years $ 178 $ 178 $ 178 $ 178 $ 178 $ 167 $ 267
(1) The rules of the Securities and Exchange Commission require that the maximum sales charge be reflected in the above table. However, certain investors may qualify for reduced sales charges. Purchases of $1 million or more of Class A Shares are not subject to an initial sales charge, but a contingent deferred sales charge of 1.00% will be imposed in the case of redemption within 24 months following the purchase. See "Investing in the Funds -- Alternative Sales Charge Options." (2) The Adviser and the Administrator intend to waive a portion of their fees and/or reimburse expenses on a voluntary basis, and the amounts shown reflect these waivers and reimbursements as of the date of this Prospectus. Each of these persons intends to maintain such waivers and reimbursements in effect for the current fiscal year but reserves the right to discontinue such waivers and reimbursements at any time in its sole discretion. Absent any fee waivers, investment advisory fees as an annualized percentage of average daily net assets would be 0.70% 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 1.19% for Stock Fund, 1.20% for Equity Index Fund, 1.19% for Balanced Fund, 1.26% for Asset Allocation Fund, 1.31% for Equity Income Fund, 1.26% for Diversified Growth Fund, 1.44% for Emerging Growth Fund, 1.20% for Regional Equity Fund, 1.20% for Special Equity Fund, 1.55% for Technology Fund, 1.62% for Health Sciences Fund, 2.59% for Real Estate Securities Fund, and 2.06% for International Fund. Other expenses includes an administration fee and is based on estimated amounts for the current fiscal year. (3) Absent the fee waivers and reimbursements referred to in (2) above, the dollar amounts for the 1, 3, 5 and 10-year periods would be as follows: Stock Fund, $57, $81, $107 and $183; Equity Index Fund, $57, $81, $108 and $184; Balanced Fund, $57, $81, $107 and $183; Asset Allocation Fund, $57, $83, $111 and $190; Equity Income Fund, $58, $85, $114 and $196; Diversified Growth Fund, $57, $83, $111 and $190; Emerging Growth Fund, $59, $89, $120 and $210; Regional Equity Fund, $57, $81, $108 and $184; Special Equity Fund, $57, $81, $108 and $184; Technology Fund, $60, $92, $126 and $221; Health Sciences Fund, $61, $94, $129, and $229; Real Estate Securities Fund, $70, $122, $176 and $324; and International Fund, $65, $107, $151 and $273. CLASS B SHARE FEES AND EXPENSES
EQUITY ASSET EQUITY STOCK INDEX BALANCED ALLOCATION INCOME DIVERSIFIED FUND FUND FUND FUND FUND GROWTH FUND 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 and reimbursements)(1) 0.57% 0.12% 0.57% 0.49% 0.40% 0.50% Rule 12b-1 fees 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% Other expenses (after voluntary fee waivers and reimbursements)(1) 0.23% 0.23% 0.23% 0.31% 0.35% 0.30% Total fund operating expenses (after voluntary fee waivers and reimbursements)(1) 1.80% 1.35% 1.80% 1.80% 1.75% 1.80% EXAMPLE: ASSUMING REDEMPTION(2) You would pay the following expenses on a $1,000 investment, assuming (i) a 5% annual return; (ii) redemption at the end of each time period; and (iii) payment of the maximum applicable contingent deferred sales charge of 5% in year 1, 4% in year 3, 2% in year 5, and automatic conversion to Class A shares at the end of year 8: 1 year $ 68 $ 64 $ 68 $ 68 $ 68 $ 68 3 years $ 97 $ 83 $ 97 $ 97 $ 95 $ 97 5 years $ 117 $ 94 $ 117 $ 117 $ 115 $ 117 10 years $ 192 $ 142 $ 192 $ 192 $ 186 $ 192 ASSUMING NO REDEMPTION(3) You would pay the following expenses on the same investment, assuming no redemption: 1 year $ 18 $ 14 $ 18 $ 18 $ 18 $ 18 3 years $ 57 $ 43 $ 57 $ 57 $ 55 $ 57 5 years $ 97 $ 74 $ 97 $ 97 $ 95 $ 97 10 years $ 192 $ 142 $ 192 $ 192 $ 186 $ 192
REAL EMERGING REGIONAL SPECIAL HEALTH ESTATE GROWTH EQUITY EQUITY TECHNOLOGY SCIENCES SECURITIES FUND FUND FUND FUND FUND FUND INTERNATIONAL FUND SHAREHOLDER TRANSACTION EXPENSES Maximum sales load imposed on purchases (as a percentage of offering price) None None None None None None None Maximum sales load imposed on reinvested dividends None 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% 5.00% Redemption fees None None None None None None None Exchange fees None None None None None None None ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS) Investment advisory fees (after voluntary fee waivers and reimbursements)(1) 0.40% 0.66% 0.65% 0.30% 0.23% 0.00% 1.19% Rule 12b-1 fees 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% Other expenses (after voluntary fee waivers and reimbursements)(1) 0.50% 0.24% 0.25% 0.60% 0.67% 0.80% 0.56% Total fund operating expenses (after voluntary fee waivers and reimbursements)(1) 1.90% 1.90% 1.90% 1.90% 1.90% 1.80% 2.75% EXAMPLE: ASSUMING REDEMPTION(2) You would pay the following expenses on a $1,000 investment, assuming (i) a 5% annual return; (ii) redemption at the end of each time period; and (iii) payment of the maximum applicable contingent deferred sales charge of 5% in year 1, 4% in year 3, 2% in year 5, and automatic conversion to Class A shares at the end of year 8: 1 year $ 69 $ 69 $ 69 $ 69 $ 69 $ 68 $ 78 3 years $ 100 $ 100 $ 100 $ 100 $ 100 $ 97 $ 125 5 years $ 123 $ 123 $ 123 $ 123 $ 123 $ 117 $ 165 10 years $ 202 $ 202 $ 202 $ 202 $ 202 $ 192 $ 290 ASSUMING NO REDEMPTION(3) You would pay the following expenses on the same investment, assuming no redemption: 1 year $ 19 $ 19 $ 19 $ 19 $ 19 $ 18 $ 28 3 years $ 60 $ 60 $ 60 $ 60 $ 60 $ 57 $ 85 5 years $ 103 $ 103 $ 103 $ 103 $ 103 $ 97 $ 145 10 years $ 202 $ 202 $ 202 $ 202 $ 202 $ 192 $ 290
(1) The Adviser and the Administrator intend to waive a portion of their fees and/or reimburse expenses on a voluntary basis, and the amounts shown reflect these waivers and reimbursements as of the date of this Prospectus. Each of these persons intends to maintain such waivers and reimbursements in effect for the current fiscal year but reserves the right to discontinue such waivers and reimbursements at any time in its sole discretion. 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 1.94% for Stock Fund, 1.95% for Equity Index Fund, 1.94% for Balanced Fund, 2.01% for Asset Allocation Fund, 2.06% for Equity Income Fund, 2.01% for Diversified Growth Fund, 2.19% for Emerging Growth Fund, 1.95% for Regional Equity Fund, 1.95% for Special Equity Fund, 2.30% for Technology Fund 2.37% for Health Sciences Fund, 3.34% for Real Estate Securities Fund, and 2.81% for International Fund. Other expenses includes an administration fee and is based on estimated amounts for the current fiscal year. (2) Absent the fee waivers and reimbursements referred to in (1) above, the dollar amounts for the 1, 3, 5 and 10-year periods would be as follows: Stock Fund, $70, $101, $125 and $207; Equity Index Fund, $70, $101, $125 and $208; Balanced Fund, $70, $101, $125 and $207; Asset Allocation Fund, $70, $103, $128 and $214; Equity Income Fund; $71, $105, $131 and $219; Diversified Growth Fund, $70, $103, $128 and $214; Emerging Growth Fund, $72, $109, $137 and $233; Regional Equity Fund, $70, $101, $125 and $208; Special Equity Fund, $70, $101, $125 and $208; Technology Fund, $73, $112, $143 and $244; Health Sciences Fund, $74, $114, $147 and $252; Real Estate Securities Fund, $84, $143, $194 and $346; and International Fund, $78, $127, $168 and $296. (3) Absent the fee waivers and reimbursements referred to in (1) above, the dollar amounts for the 1, 3, 5 and 10-year periods would be as follows: Stock Fund, $20, $61, $105 and $207; Equity Index Fund, $20, $61, $105 and $208; Balanced Fund, $20, $61, $105 and $207; Asset Allocation Fund, $20, $63, $108 and $214; Equity Income Fund; $21, $65, $111 and $219; Diversified Growth Fund, $20, $63, $108 and $214; Emerging Growth Fund, $22, $69, $117 and $233; Regional Equity Fund, $20, $61, $105 and $208; Special Equity Fund, $20, $61, $105 and $208; Technology Fund, $23, $72, $123 and $244; Health Sciences Fund, $24, $74, $127 and $252; Real Estate Securities Fund, $34, $103, $174 and $346; and International Fund, $28, $87, $148 and $296. 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. The information set forth in the foregoing tables and examples relates only to the Class A and Class B Shares of the Funds. The Funds also offer Class C Shares which are subject to the same expenses except that they bear no sales loads and distribution fees. The examples in the above tables are based on projected annual Fund operating expenses after voluntary fee waivers and expense reimbursements by the Adviser, the Distributor and the Administrator. Although these persons intend to maintain such waivers in effect for the current fiscal year, any such waivers are voluntary and may be discontinued at any time. Prior to fee waivers, investment advisory fees accrue at the annual rate as a percentage of average daily net assets of 0.70% for each of the Funds except International Fund, as to which they are 1.25%. The Class A Shares of each Fund may pay distribution and service fees to the Distributor in an amount equaling 0.25% per year of each such class's average daily net assets, and the Class B Shares of each Fund bear distribution and servicing fees totaling 1.00% per year of each such class's average daily net assets. The Distributor also receives the sales charge for distributing the Funds' Class A Shares. Due to the distribution fees paid by these classes of shares, long-term shareholders may pay more than the equivalent of the maximum front-end sales charges otherwise permitted by NASD rules. For additional information, see "Distributor." Other expenses include fees paid by each Fund to the Administrator for providing various services necessary to operate the Funds. These include shareholder servicing and certain accounting and other services. The Administrator provides these services for a fee calculated at an annual rate of 0.12% of average daily net assets of each Fund subject to a minimum of $50,000 per Fund per fiscal year; provided, that to the extent that the aggregate net assets of all First American funds exceed $8 billion, the percentage stated above is reduced to 0.105%. Other expenses of the Funds also includes the cost of maintaining shareholder records, furnishing shareholder statements and reports, and other services. Investment advisory fees, administrative fees and other expenses are reflected in the Funds' daily dividends and are not charged to individual shareholder accounts. FINANCIAL HIGHLIGHTS The following audited financial highlights 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 the Statement of Additional Information. Further information about the Funds' performance is contained in FAIF's annual report to shareholders, which may be obtained without charge by calling (800) 637-2548 or by writing SEI Financial Services Company, 680 East Swedesford Road, Wayne, Pennsylvania 19087. 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 NET ASSET BEGINNING OF INVESTMENT (LOSSES) ON INVESTMENT FROM CAPITAL VALUE END PERIOD INCOME INVESTMENTS INCOME GAINS OF PERIOD STOCK FUND Class A 1995 $16.51 $0.33 $ 3.64 $(0.32) $(0.59) $19.57 1994 16.00 0.31 1.00 (0.30) (0.50) 16.51 1993 14.04 0.22 1.99 (0.23) (0.02) 16.00 1992 13.62 0.24 0.81 (0.29) (0.34) 14.04 1991(6) 10.64 0.28 2.95 (0.22) (0.03) 13.62 1990(7) 12.09 0.25 (1.17) (0.25) (0.28) 10.64 1989(7) 10.35 0.25 1.70 (0.20) (0.01) 12.09 1988(7)(8) 10.03 0.27 0.35 (0.30) -- 10.35 Class B 1995 $16.49 $0.26 $ 3.55 $(0.22) $(0.59) $19.49 1994(2) 16.65 0.03 (0.10) (0.09) -- 16.49 EQUITY INDEX FUND Class A 1995 $10.68 $0.25 $ 2.76 $(0.25) $(0.09) $13.35 1994 10.60 0.25 0.09 (0.25) (0.01) 10.68 1993(1) 10.00 0.20 0.60 (0.20) -- 10.60 Class B 1995 $10.66 $0.23 $ 2.68 $(0.18) $(0.09) $13.30 1994(2) 10.68 0.01 0.04 (0.07) -- 10.66 BALANCED FUND Class A 1995 $10.54 $0.38 $ 1.72 $(0.37) $(0.15) $12.12 1994 10.73 0.34 (0.02) (0.34) (0.17) 10.54 1993(1) 10.00 0.28 0.75 (0.28) (0.02) 10.73 Class B 1995 $10.53 $0.29 $ 1.71 $(0.29) $(0.15) $12.09 1994(2) 10.66 0.06 (0.12) (0.07) -- 10.53 ASSET ALLOCATION FUND Class A 1995 $10.39 $0.36 $ 1.58 $(0.35) $(0.25) $11.73 1994 10.60 0.27 (0.08) (0.26) (0.14) 10.39 1993(1) 10.00 0.19 0.60 (0.19) -- 10.60 Class B 1995 $10.37 $0.27 $ 1.57 $(0.28) $(0.25) $11.68 1994(2) 10.40 0.05 (0.03) (0.05) -- 10.37
(table continued)
RATIO OF RATIO OF NET EXPENSES TO RATIO OF INVESTMENT AVERAGE NET NET ASSETS EXPENSES TO INCOME TO ASSETS PORTFOLIO END OF AVERAGE NET AVERAGE NET (EXCLUDING TURNOVER RATE TOTAL RETURN PERIOD (000) ASSETS ASSETS WAIVERS) STOCK FUND STOCK FUND Class A 1995 25.26% $ 13,076 1.00% 1.89% 1.19% 52% 1994 8.35% 8,421 0.76 1.51 1.20 65 1993 15.82% 134,186 0.75 1.94 1.28 48 1992 7.88% 3,644 1.45 1.75 4.46 39 1991(6) 30.49%+ 2,386 1.45 2.47 7.42 76 1990(7) (8.22%) 1,161 1.45 2.24 9.47 41 1989(7) 20.33% 323 1.24 2.26 36.39 74 1988(7)(8) 6.40%+ 206 1.02 2.67 28.60 80 Class B 1995 24.20% $ 7,051 1.79% 1.10% 1.94% 52% 1994(2) (0.43%)+ 346 1.75 1.58 2.01 65 EQUITY INDEX FUND Class A 1995 28.90% $ 2,140 0.57% 2.16% 1.20% 9% 1994 3.25% 758 0.35 2.23 1.23 11 1993(1) 8.02%+ 139,957 0.35 2.52 1.30 1 Class B 1995 27.87% $ 1,197 1.35% 1.34% 1.95% 9% 1994(2) 0.48%+ 29 1.35 1.68 2.03 11 BALANCED FUND Class A 1995 20.57% $ 15,288 0.99% 3.41% 1.19% 77% 1994 3.02% 13,734 0.77 2.63 1.24 98 1993(1) 10.39%+ 111,225 0.75 3.31 1.29 77 Class B 1995 19.58% $ 3,120 1.79% 2.60% 1.94% 77% 1994(2) (0.55%)+ 270 1.75 2.80 2.05 98 ASSET ALLOCATION FUND Class A 1995 19.51% $ 993 0.99% 3.29% 1.26% 87% 1994 1.81% 707 0.75 2.01 1.29 32 1993(1) 8.01%+ 56,393 0.75 2.40 1.34 31 Class B 1995 18.51% $ 571 1.79% 2.35% 2.01% 87% 1994(2) 0.19% 11 1.75 1.94 2.12 32
+ Returns, excluding sales charges, are for the period indicated and have not been annualized. (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) 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. All ratios for the period have been annualized. (4) For the period ended November 30. (5) Commenced operations on December 18, 1992. All ratios for the period have been annualized. (6) 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. (7) For the period ended October 31. (8) Commenced operations on December 22, 1987. All ratios for the period have been annualized. (9) Commenced operations on April 4, 1994. All ratios for the period have been annualized. (10) Class A shares have been offered since April 7, 1994. All ratios for the period have been annualized. (11) Commenced operations on September 29, 1995. All ratios for the period have been annualized. FINANCIAL HIGHLIGHTS 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 NET ASSET BEGINNING OF INVESTMENT (LOSSES) ON INVESTMENT FROM CAPITAL VALUE END PERIOD INCOME INVESTMENTS INCOME GAINS OF PERIOD EQUITY INCOME FUND Class A 1995 $ 9.89 $ 0.41 $ 1.33 $(0.39) $ -- $11.24 1994(3) 9.87 0.41 -- (0.39) -- 9.89 1993(4)(5) 10.00 0.57 (0.14) (0.56) -- 9.87 Class B 1995 $ 9.88 $ 0.33 $ 1.32 $(0.33) $ -- $11.20 1994(2) 9.87 0.04 0.02 (0.05) -- 9.88 DIVERSIFIED GROWTH FUND Class A 1995 $ 9.09 $ 0.15 $ 2.66 $(0.15) $ -- $11.75 1994(3) 9.39 0.10 (0.29) (0.11) -- 9.09 1993(4)(5) 10.00 0.11 (0.63) (0.09) -- 9.39 Class B 1995 $ 9.09 $ 0.09 $ 2.65 $(0.10) $ -- $11.73 1994(2) 8.87 0.01 0.23 (0.02) -- 9.09 EMERGING GROWTH FUND Class A 1995 $10.57 $ 0.01 $ 2.99 $(0.02) $(0.15) $13.40 1994(9) 10.00 0.01 0.57 (0.01) -- 10.57 Class B 1995 $10.55 $(0.03) $ 2.92 $ -- $(0.15) $13.29 1994(2) 9.89 (0.01) 0.67 -- -- 10.55 REGIONAL EQUITY FUND Class A 1995 $12.52 $ 0.08 $ 4.90 $(0.06) $(0.32) $17.12 1994 11.96 0.08 0.71 (0.07) (0.16) 12.52 1993(1) 10.00 0.05 1.96 (0.05) -- 11.96 Class B 1995 $12.50 $ 0.04 $ 4.80 $(0.03) $(0.32) $16.99 1994(2) 12.19 -- 0.33 (0.02) -- 12.50 SPECIAL EQUITY FUND Class A 1995 $17.30 $ 0.35 $ 1.60 $(0.34) $(1.02) $17.89 1994 15.81 0.28 2.52 (0.28) (1.03) 17.30 1993 13.61 0.23 2.32 (0.25) (0.10) 15.81 1992 12.98 0.21 1.61 (0.27) (0.92) 13.61 1991(6) 10.33 0.30 2.61 (0.26) -- 12.98 1990(7) 12.96 0.47 (2.03) (0.46) (0.61) 10.33 1989(7) 11.55 0.47 1.39 (0.41) (0.04) 12.96 1988(7)(8) 10.03 0.34 1.57 (0.39) -- 11.55 Class B 1995 $17.29 $ 0.29 $ 1.51 $(0.24) $(1.02) $17.83 1994(2) 16.51 0.01 0.85 (0.08) -- 17.29 TECHNOLOGY FUND Class A 1995 $11.19 $(0.03) $ 7.31 $ -- $(0.23) $18.24 1994(9) 10.00 (0.01) 1.20 -- -- 11.19 Class B 1995 $11.17 $(0.04) $ 7.12 $ -- $(0.23) $18.02 1994(2) 9.85 (0.02) 1.34 -- -- 11.17 REAL ESTATE SECURITIES FUND Class A 1995(11) $10.37 $ -- $ 0.01 $ -- $ -- $10.38 Class B 1995(11) $10.37 $ -- $ -- $ -- $ -- $10.37 INTERNATIONAL FUND Class A 1995 $10.21 $ -- $ 0.07 $ -- $ -- $10.28 1994(10) 9.98 (0.01) 0.24 -- -- 10.21 Class B 1995 $10.21 $(0.03) $ 0.02 $ -- $ -- $10.20 1994(2) 10.23 (0.01) (0.01) -- -- 10.21
(table continued)
RATIO OF RATIO OF NET EXPENSES TO RATIO OF INVESTMENT AVERAGE NET NET ASSETS EXPENSES TO INCOME (LOSS) ASSETS END OF AVERAGE NET TO AVERAGE (EXCLUDING PORTFOLIO TOTAL RETURN PERIOD (000) ASSETS NET ASSETS WAIVERS) TURNOVER RATE EQUITY INCOME FUND Class A 1995 18.06% $ 1,995 0.92% 3.91% 1.31% 23% 1994(3) 4.22%+ 1,852 0.88 4.88 1.39 108 1993(4)(5) 4.44%+ 28,786 0.75 6.09 1.36 68 Class B 1995 17.10% $ 1,233 1.75% 3.05% 2.06% 23% 1994(2) 0.57%+ 1 1.75 4.39 2.14 108 DIVERSIFIED GROWTH FUND Class A 1995 31.21% $ 2,710 0.92% 1.52% 1.26% 28% 1994(3) (2.07%)+ 1,900 0.90 1.15 1.33 101 1993(4)(5) (5.18%)+ 31,084 0.78 1.26 1.25 5 Class B 1995 30.29% $ 819 1.75% 0.58% 2.01% 28% 1994(2) 2.75%+ 12 1.75 1.20 2.08 101 EMERGING GROWTH FUND Class A 1995 28.82% $ 386 1.04% 0.00% 1.44% 51% 1994(9) 5.88%+ 91 0.79 0.23 2.84 19 Class B 1995 27.89% $ 268 1.84% (0.83)% 2.19% 51% 1994(2) 6.67%+ 18 1.80 (0.85) 3.59 19 REGIONAL EQUITY FUND Class A 1995 41.17% $14,917 1.05% 0.58% 1.20% 42% 1994 6.76% 8,345 0.82 0.59 1.25 41 1993(1) 20.17%+ 58,427 0.80 0.59 1.30 28 Class B 1995 39.98% $ 7,630 1.84% (0.25)% 1.95% 42% 1994(2) 2.73%+ 185 1.80 (0.41) 2.05 41 SPECIAL EQUITY FUND Class A 1995 12.63% $11,609 1.09% 2.08% 1.20% 72% 1994 18.70% 7,333 0.81 1.88 1.23 116 1993 18.91% 81,899 0.81 2.07 1.31 104 1992 15.17% 3,586 1.50 1.61 4.18 146 1991(6) 28.38%+ 3,423 1.50 2.60 5.13 116 1990(7) (13.24%) 2,761 1.50 4.09 4.21 113 1989(7) 17.41% 2,000 1.38 4.07 8.68 102 1988(7)(8) 19.56%+ 578 1.20 4.02 15.60 51 Class B 1995 11.64% $ 4,847 1.88% 1.22% 1.95% 72% 1994(2) 5.22%+ 370 1.68 0.47 2.03 116 TECHNOLOGY FUND Class A 1995 66.22% $ 1,464 1.13% (0.61)% 1.55% 74% 1994(9) 11.90%+ 61 0.80 (0.21) 3.37 43 Class B 1995 64.52% $ 2,031 1.88% (1.41)% 2.30% 74% 1994(2) 13.40%+ 2 1.80 (1.44) 4.12 43 REAL ESTATE SECURITIES FUND Class A 1995(11) 0.00% $ 1 1.05% 0.00% 2.59% 0% Class B 1995(11) 0.00% $ 1 1.80% 0.00% 3.34% 0% INTERNATIONAL FUND Class A 1995 0.69% $ 876 1.93% (0.13)% 2.06% 57% 1994(10) 2.30%+ 464 1.75 (0.26) 2.30 16 Class B 1995 (0.10)% $ 306 2.76% (0.95)% 2.81% 57% 1994(2) (0.20)%+ 22 2.75 (0.71) 3.05 16
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 C) which provide for variations in distribution costs, voting rights and dividends. Except for these differences among classes, each share of each FAIF Fund represents an undivided proportionate interest in that fund. FAIF is incorporated under the laws of the State of Maryland, and its principal offices are located at 680 East Swedesford Road, Wayne, Pennsylvania 19087. This Prospectus relates only to the Class A and Class B Shares of the Funds named on the cover hereof. Information regarding the Class C Shares of these Funds and regarding the Class A, Class B and Class C Shares of the other FAIF Funds is contained in separate prospectuses that may be obtained from FAIF's Distributor, SEI Financial Services Company, 680 East Swedesford Road, Wayne, Pennsylvania 19087, or by calling (800) 637-2548. The Board of Directors of FAIF may authorize additional series or classes of common stock in the future. INVESTMENT 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 Technology Fund, Health Sciences Fund, and Real Estate Securities Fund is a diversified investment company, as defined in the Investment Company Act of 1940 (the "1940 Act"). Technology Fund, Health Sciences Fund, and Real Estate Securities 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. Similarly, if the 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 Corporation ("Standard & Poor's") and Moody's Investors Service, Inc. ("Moody's") are contained in the Statement of Additional Information. When the term "equity securities" is used in this Prospectus, it refers to common stock and securities which are convertible into or exchangeable for, or which carry warrants or other rights to acquire, common stock. This section also contains information concerning certain investment risks borne by Fund shareholders under the heading "-- Risks to Consider." Further information concerning the securities in which the Funds may invest and related matters is set forth under "Special Investment Methods." STOCK FUND OBJECTIVES. Stock 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, Stock Fund invests at least 80% of its total assets in equity securities (and at least 65% in common stocks) diversified among a broad range of industries and among companies that have a market capitalization of at least $500 million. In selecting equity securities, the Adviser employs a value-based selection discipline. The Adviser anticipates investing in equity securities of companies it believes are selling at less than fair value and offer the potential for appreciation as a result of improved profitability reflecting corporate restructuring or elimination of unprofitable operations, change in management or management goals, or improving demand for the companies' goods or services. The Fund also may invest up to 20% of its total assets in the aggregate in equity securities of issuers with a market capitalization of less than $500 million and 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." In addition, the Fund may (i) enter into repurchase agreements; (ii) in order to attempt to reduce risk, purchase put and call options on equity securities and on stock indices; (iii) write covered call options covering up to 25% of the equity securities owned by the Fund; (iv) purchase securities on a when-issued or delayed-delivery basis; and (v) engage in the lending of portfolio securities. For information about these investment methods, restrictions on their use, and certain associated risks, see the related headings under "Special Investment Methods." For temporary defensive purposes during times of unusual market conditions, the Fund may without limitation hold cash or invest in cash items of the kinds described under "Special Investment Methods -- Cash Items." The Fund also may invest not more than 35% of its total assets in cash and cash items in order to utilize assets awaiting normal investment. 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"). INVESTMENT POLICIES. Equity Index Fund invests substantially (at least 65% of total assets) in common stocks included in the S&P 500. The Adviser believes that the Fund's objective can best be achieved by investing in the common stocks of approximately 250 to 500 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 Adviser's parent company First Bank System, Inc. is included in the S&P 500, such stock may be purchased by the Fund consistent with its indexing-based policies. Although the Fund will not duplicate the S&P 500's performance precisely, it is anticipated that 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, and the amount and timing of cash flows into and out of the Fund. 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. 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 order to maintain liquidity during times of unusual market conditions, the Fund also may invest temporarily in cash and cash items of the kinds described under "Special Investment Methods -- Cash Items." 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. The asset mix of the Fund normally will range 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. Over the long term, it is anticipated that the Fund's asset mix will average approximately 60% equity securities and 40% fixed income securities. The Adviser 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 Adviser follows the same investment policies as are described above under "-- Stock 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; 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 Adviser; 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 Adviser; 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. Unrated securities will not exceed 10% in the aggregate of the value of the total fixed income securities held by the Fund. 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 or inverse floating rate 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; (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; and (vii) in order 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 during times of unusual market conditions, the Fund may without limitation hold cash or invest in cash items of the kinds described under "Special Investment Methods -- Cash Items." The Fund also may invest not more than 35% of its total assets in cash and cash items in order to utilize assets awaiting normal investment. ASSET ALLOCATION FUND OBJECTIVE. Asset Allocation Fund has an objective of maximizing total return over the long term by allocating its assets principally among common stocks, bonds, and short-term instruments. INVESTMENT POLICIES. Asset Allocation Fund allocates its investments principally among (i) common stocks included in the S&P 500, (ii) direct obligations of the United States Treasury, and (iii) short-term instruments. There are no limitations on the proportions in which the Adviser may allocate the Fund's investments among these three classes of assets. The Fund thus is not a "balanced" fund, in that it is not required to allocate its investments in specific proportions or ranges among these asset classes. The Adviser regularly reviews the Fund's investment allocation and varies the allocation to emphasize the asset class or classes that, in the Adviser's then-current judgment, provide the most favorable total return outlook. There is no limitation on the amount that may be invested in any one asset class, and the Fund may at times be fully invested in a single asset class if the Adviser believes that it offers the most favorable total return outlook. In making asset allocation decisions, the Adviser utilizes a proprietary quantitative model which predicts future asset class returns based on historical experience using probability theory. By investing in common stocks intended to approximate the total return of the S&P 500, as described below, the Adviser attempts to minimize the risk of individual equity security selection in the common stock class. By limiting the bond class to direct obligations of the United States Treasury, the Adviser attempts to eliminate credit risk from this class. Within the common stock asset class, the Adviser seeks to produce a total return approximating that of the S&P 500. In order to achieve this result, the Adviser follows the same indexing-based policies for this asset class as are described above under "-- Equity Index Fund -- Investment Policies." Inasmuch as the common stock of the Adviser's parent company First Bank System, Inc. is included in the S&P 500, such stock may be purchased by the Fund consistent with its indexing-based policies. Within the bond asset class, the Fund may invest in any maturity of direct obligations of the United States Treasury. The Adviser thus has discretion in determining the weighted average maturity of the investments within this asset class. For information concerning certain risks associated with investing in fixed income securities generally, see "Special Investment Methods -- Fixed Income Securities." Within the short-term asset class, the Fund may hold cash or invest in cash items of the kinds described under "Special Investment Methods -- Cash Items." 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) purchase securities on a when-issued or delayed-delivery basis; (iv) engage in the lending of portfolio securities; (v) 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; and (vi) in order to manage allocations among asset classes efficiently, invest in interest rate and stock index futures. For information about these investment methods, restrictions on their use, and certain associated risks, see the related headings under "Special Investment Methods." 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 80% of its total assets in equity securities of issuers believed by the Adviser 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 Adviser'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 Adviser 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 Adviser 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 Adviser. 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 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 Adviser. For the year ended September 30, 1995, 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, 4%; BB, 0%; B, 7%; 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 20% 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." In addition, the Fund may (i) enter into repurchase agreements; (ii) in order to attempt to reduce risk, purchase put and call options on equity securities and on stock indices; (iii) write covered call options covering up to 25% of the equity securities owned by the Fund; (iv) purchase securities on a when-issued or delayed-delivery basis; and (v) engage in the lending of portfolio securities. For information about these investment methods, restrictions on their use, and certain associated risks, see the related headings under "Special Investment Methods." For temporary defensive purposes during times of unusual market conditions, the Fund may without limitation hold cash or invest in cash items of the kinds described under "Special Investment Methods -- Cash Items." The Fund also may invest not more than 35% of its total assets in cash and cash items in order to utilize assets awaiting normal investment. DIVERSIFIED GROWTH FUND OBJECTIVES. Diversified 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, Diversified Growth Fund invests at least 80% of its total assets in equity securities of a diverse group of companies that will provide representation across all economic sectors included in the S&P 500. The Adviser may overweight the Fund's portfolio holdings in sectors that it believes provide above average total return potential and may underweight the Fund's holdings in those sectors that it believes have a lower total return potential. Within a given sector, the Fund's assets are invested in securities of those companies that, in the Adviser'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 20% 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." In addition, the Fund may (i) enter into repurchase agreements; (ii) in order to attempt to reduce risk, purchase put and call options on equity securities and on stock indices; (iii) write covered call options covering up to 25% of the equity securities owned by the Fund; (iv) purchase securities on a when-issued or delayed-delivery basis; and (v) engage in the lending of portfolio securities. For information about these investment methods, restrictions on their use, and certain associated risks, see the related headings under "Special Investment Methods." For temporary defensive purposes during times of unusual market conditions, the Fund may without limitation hold cash or invest in cash items of the kinds described under "Special Investment Methods -- Cash Items." The Fund also may invest not more than 35% of its total assets in cash and cash items in order to utilize assets awaiting normal investment. EMERGING GROWTH FUND OBJECTIVE. Emerging Growth Fund has an objective of growth of capital. INVESTMENT POLICIES. Under normal market conditions, Emerging Growth Fund invests at least 65% of its total assets in equity securities of small-sized companies that exhibit, in the Adviser's opinion, outstanding potential for superior growth. For these purposes, small-sized companies are deemed those with market capitalizations of less than $1 billion. Companies that participate in sectors that are identified by the Adviser 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 Adviser 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." 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." In addition, the Fund may (i) enter into repurchase agreements; (ii) in order to attempt to reduce risk, purchase put and call options on equity securities and on stock indices; (iii) write covered call options covering up to 25% of the equity securities owned by the Fund; (iv) purchase securities on a when-issued or delayed-delivery basis; and (v) engage in the lending of portfolio securities. For information about these investment methods, restrictions on their use, and certain associated risks, see the related headings under "Special Investment Methods." For temporary defensive purposes during times of unusual market conditions, the Fund may without limitation hold cash or invest in cash items of the kinds described under "Special Investment Methods -- Cash Items." The Fund also may invest not more than 35% of its total assets in cash and cash items in order to utilize assets awaiting normal investment. 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-sized companies headquartered in Minnesota, North and South Dakota, Montana, Wisconsin, Michigan, Iowa, Nebraska, Colorado and Illinois. The Adviser anticipates investing primarily in the securities of rapidly growing small-sized companies which generally will have the following characteristics, in the Adviser's opinion: (i) company-specific fundamentals that grow shareholder value, (ii) experienced, shareholder-oriented management, and (iii) undervaluation by the market. For these purposes, small-sized companies are deemed those with market capitalizations of less than $1 billion. In addition to the risks associated with investing in smaller-capitalization companies, see "-- Risk Factors -- Smaller-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." In addition, the Fund may (i) enter into repurchase agreements; (ii) in order to attempt to reduce risk, purchase put and call options on equity securities and on stock indices; (iii) write covered call options covering up to 25% of the equity securities owned by the Fund; (iv) purchase securities on a when-issued or delayed-delivery basis; and (v) engage in the lending of portfolio securities. For information about these investment methods, restrictions on their use, and certain associated risks, see the related headings under "Special Investment Methods." For temporary defensive purposes during times of unusual market conditions, the Fund may without limitation hold cash or invest in cash items of the kinds described under "Special Investment Methods -- Cash Items." The Fund also may invest not more than 35% of its total assets in cash and cash items in order to utilize assets awaiting normal investment. SPECIAL EQUITY FUND OBJECTIVE. Special Equity Fund has an objective of capital appreciation. INVESTMENT POLICIES. Under normal market conditions, Special Equity Fund invests at least 65% of its total assets in equity securities. The Fund's policy is to invest in equity securities which the Adviser believes offer the potential for greater than average capital appreciation. The Adviser believes that this policy can best be achieved by investing in the equity securities of companies where fundamental changes are occurring, are likely to occur, or have occurred and where, in the opinion of the Adviser, the changes have not been adequately reflected in the price of the securities and thus are considered by the Adviser to be undervalued. Undervalued securities may include securities of companies which (i) have been unpopular for some time but where, in the Adviser's opinion, recent developments (such as those listed in the next sentence) suggest the possibility of improved operating results; (ii) have recently experienced marked popularity but which, in the opinion of the Adviser, have temporarily fallen out of favor for reasons that are considered by the Adviser to be non-recurring or short-term; and (iii) appear to the Adviser to be undervalued in relation to popular securities of other companies in the same industry. Typically, but not exclusively, the Adviser will consider investing in undervalued issues in which it sees the possibility of substantially improved market price due to increasing demand for an issuer's products or services, the development of new or improved products or services, the probability of increased operating efficiencies, the elimination of unprofitable products or operations, changes in management or management goals, fundamental changes in the industry in which the issuer operates, new or increased emphasis on research and development, or possible mergers or acquisitions. In selecting securities judged to be undervalued and in investing in potential "turnaround" situations, the Adviser will be acting on opinions and exercising judgments which may be contrary to those of the majority of investors. These opinions and judgments involve the risks of either (i) a correct judgment by the majority, in which case losses may be incurred or profits may be limited, or (ii) a long delay before majority recognition of the accuracy of the Adviser's judgment, in which case capital invested by the Fund in an individual security or group of securities may be nonproductive for an extended period. 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." In addition, the Fund may (i) enter into repurchase agreements; (ii) in order to attempt to reduce risk, purchase put and call options on equity securities and on stock indices; (iii) write covered call options covering up to 25% of the equity securities owned by the Fund; (iv) purchase securities on a when-issued or delayed-delivery basis; and (v) engage in the lending of portfolio securities. For information about these investment methods, restrictions on their use, and certain associated risks, see the related headings under "Special Investment Methods." For temporary defensive purposes during times of unusual market conditions, the Fund may without limitation hold cash or invest in cash items of the kinds described under "Special Investment Methods -- Cash Items." The Fund also may invest not more than 35% of its total assets in cash and cash items in order to utilize assets awaiting normal investment. 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 80% of its total assets in equity securities of companies which the Adviser 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 Adviser 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 Adviser'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 20% 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." In addition, the Fund may (i) enter into repurchase agreements; (ii) in order to attempt to reduce risk, purchase put and call options on equity securities and on stock indices; (iii) write covered call options covering up to 25% of the equity securities owned by the Fund; (iv) purchase securities on a when-issued or delayed-delivery basis; and (v) engage in the lending of portfolio securities. For information about these investment methods, restrictions on their use, and certain associated risks, see the related headings under "Special Investment Methods." For temporary defensive purposes during times of unusual market conditions, the Fund may without limitation hold cash or invest in cash items of the kinds described under "Special Investment Methods -- Cash Items." The Fund also may invest not more than 35% of its total assets in cash and cash items in order to utilize assets awaiting normal investment. 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. 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 80% of its total assets in equity securities of companies which the Adviser 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 Adviser 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 Adviser determines that at least 50% of its assets, revenues or profits are derived from those industries. The Fund also may invest up to 20% 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." In addition, the Fund may (i) enter into repurchase agreements; (ii) in order to attempt to reduce risk, purchase put and call options on equity securities and on stock indices; (iii) write covered call options covering up to 25% of the equity securities owned by the Fund; (iv) purchase securities on a when-issued or delayed-delivery basis; and (v) engage in the lending of portfolio securities. For information about these investment methods, restrictions on their use, and certain associated risks, see the related headings under "Special Investment Methods." For defensive purposes during times of unusual market conditions, the Fund may without limitation hold cash or invest in cash items of the kinds described under "Special Investment Methods -- Cash Items." The Fund also may invest not more than 35% of its total assets in cash and cash items in order to utilize assets awaiting normal investment. 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. 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." In addition, the Fund may (i) enter into repurchase agreements; (ii) in order to attempt to reduce risk, purchase put and call options on equity securities and on stock indices; (iii) write covered call options covering up to 25% of the equity securities owned by the Fund; (iv) purchase securities on a when-issued or delayed-delivery basis; and (v) engage in the lending of portfolio securities. For information about these investment methods, restrictions on their use, and certain associated risks, see the related headings under "Special Investment Methods." For temporary defensive purposes during times of unusual market conditions, the Fund may without limitation hold cash or invest in cash items of the kinds described under "Special Investment Methods -- Cash Items." The Fund also may invest not more than 35% of its total assets in cash and cash items in order to utilize assets awaiting normal investment. 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. 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. 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, Canada, Chile, China, Columbia, the Czech Republic, Denmark, Finland, France, Germany, Hong Kong, India, Indonesia, Ireland, Israel, Italy, Japan, Korea, Luxembourg, Malaysia, Mexico, the Netherlands, New Zealand, Norway, Peru, the Philippines, Singapore, Spain, Sweden, Switzerland, Taiwan, Thailand, 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 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-Adviser 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; (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 during times of unusual market conditions, the Fund may without limitation hold cash or invest in cash items of the kinds described under "Special Investment Methods - -- Cash Items." 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 here. Because of the special risks associated with foreign investing and the Sub-Adviser'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. 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. SMALLER-CAPITALIZATION COMPANIES. Emerging Growth Fund and Regional Equity Fund emphasize investments in companies with relatively small market capitalizations, and the remaining Funds (excluding Equity Index Fund and Asset Allocation Fund) are permitted to invest in equity securities of such companies. The equity securities of smaller-capitalization 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 smaller-capitalization companies, they are subject to this risk of greater volatility. ACTIVE MANAGEMENT. All of the Funds other than Equity Index Fund are actively managed to a greater or lesser degree by the Adviser or, in the case of International Fund, the Sub-Adviser. The performance of these Funds therefore will reflect in part the ability of the Adviser or Sub-Adviser 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. 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 Adviser acts as investment adviser for and manages the investment portfolios of FAIF. INVESTMENT ADVISER First Bank National Association, 601 Second Avenue South, Minneapolis, Minnesota 55480, acts as the Funds' investment adviser through its First Asset Management group. The Adviser has acted as an investment adviser to FAIF since its inception in 1987 and has acted as investment adviser to First American Funds, Inc. since 1982. As of September 30, 1995, the Adviser was managing accounts with an aggregate value of approximately $29 billion, including mutual fund assets in excess of $7 billion. First Bank System, Inc., 601 Second Avenue South, Minneapolis, Minnesota 55480, is the holding company for the Adviser. Each of the Funds other than International Fund has agreed to pay the Adviser monthly fees calculated on an annual basis equal to 0.70% of its average daily net assets. International Fund pays the Adviser a monthly fee calculated on the same basis equal to 1.25% of its average daily net assets, out of which the Adviser pays the Sub-Adviser's fee. The Adviser 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. The Adviser 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 Adviser with respect to International Fund is higher than the advisory fee paid by most mutual funds, the Adviser 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 those activities. In addition, administrative and judicial interpretations of the Glass-Steagall Act prohibit bank holding companies and their bank and nonbank subsidiaries from organizing, sponsoring or controlling registered open-end investment companies that are continuously engaged in distributing their shares. Bank holding companies and their bank and nonbank subsidiaries may serve, however, as investment advisers to registered investment companies, subject to a number of terms and conditions. Although the scope of the prohibitions and limitations imposed by the Glass-Steagall Act has not been fully defined by the courts or the appropriate regulatory agencies, the Funds have received an opinion from their counsel that the Adviser is not prohibited from performing the investment advisory services described above, and that FBS Investment Services, Inc. ("ISI"), a wholly owned broker-dealer subsidiary of the Adviser, is not prohibited from serving as a Participating Institution as described herein. In the event of changes in federal or state statutes or regulations or judicial and administrative interpretations or decisions pertaining to permissible activities of bank holding companies and their bank and nonbank subsidiaries, the Adviser and ISI might be prohibited from continuing these arrangements. In that event, it is expected that the Board of Directors would make other arrangements and that shareholders would not suffer adverse financial consequences. SUB-ADVISER TO INTERNATIONAL FUND Marvin & Palmer Associates, Inc., 1201 North Market Street, Suite 2300, Wilmington, Delaware 19801, is Sub-Adviser to International Fund under an agreement with the Adviser (the "Sub-Advisory Agreement"). The Sub-Adviser 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-Adviser is paid a monthly fee by the Adviser calculated on an annual basis equal to 0.75% of the first $100 million of International Fund's average daily net assets, 0.70% of the second $100 million of International Fund's average daily net assets, 0.65% of the third $100 million of International Fund's average daily net assets, and 0.60% of International Fund's average daily net assets in excess of $300 million. The Sub-Adviser, a privately held company, was founded in 1986 by David F. Marvin and Stanley Palmer. The stock of the Sub-Adviser is owned by Mr. Marvin, Mr. Palmer and 21 other holders. The Sub-Adviser is engaged in the management of global, non-United States and emerging markets equity portfolios for institutional accounts. At September 30, 1995, the Sub-Adviser managed a total of $3.1 billion in investments for 55 institutional investors. PORTFOLIO MANAGERS Stock Fund, Equity Index Fund and Balanced Fund are managed by a committee comprised of Mr. Doak, Mr. Jensen, Ms. Lilly, Mr. Murphy, Mr. Rinkoff and Mr. Rovner, whose backgrounds are set forth below. Asset Allocation Fund, Equity Income Fund and Diversified Growth Fund are managed by a committee comprised of Mr. Bren, Mr. Doak, Mr. Dubiak, Ms. Halbe, Ms. Hoyme, Ms. Johnson, Mr. Murphy and Mr. Whitcomb, 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 six of the Funds, as set forth above. Jim joined the Adviser 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, and served as the analyst and portfolio manager for Stock Fund since its inception in December 1987. Jim received his 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. RICHARD W. JENSEN is a member of the committee which manages three of the Funds, as set forth above, and he supervises and monitors the performance of the Sub-Adviser with respect to International Fund. He is Senior Managing Director and a portfolio manager with the Adviser, having joined it in 1967. Prior to that time he was employed by Merrill Lynch, Pierce, Fenner & Smith and Irving Trust Company. He received his bachelor's degree from the University of Minnesota and is a Chartered Financial Analyst. ELIZABETH M. LILLY is a member of the committee which manages three of the Funds, as set forth above, and she is co-manager of Regional Equity Fund. Beth joined the Adviser in 1992 after several years in the investment industry with The St. Paul Companies, Fund American Companies and Goldman Sachs & Co. She received her bachelor's degree from Hobart /William Smith College and is a Chartered Financial Analyst. JOHN M. MURPHY, JR. is a member of the committees which manage six of the Funds, as set forth above. John is Chief Investment Officer of the Adviser's First Asset Management group, having joined the Adviser 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 Adviser. He received his bachelor's degree from Regis College. RICHARD J. RINKOFF is a member of the committee which manages three of the Funds, as set forth above, and he is portfolio co-manager for Regional Equity Fund. Rick joined the Adviser in 1977 after serving as an investment officer for two years for Pittsburgh National Bank. Since then, he has managed assets for individuals and institutional clients of the Adviser, specializing in managing investments in regional equities. He has served as portfolio manager for the regional fund management style since 1981. Rick received his bachelor's degree in mathematics and his master's degree in business from Carnegie-Mellon University. He is a Chartered Financial Analyst. JAMES S. ROVNER is a member of the committee which manages three of the Funds, as set forth above, and he is portfolio manager for Special Equity Fund. Jim joined the Adviser in 1986 and has managed assets for institutional and individual clients for over 15 years, specializing in equity and balanced investment strategies. Jim 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 committee which manages three of the Funds, as set forth above, and he is portfolio co-manager for Emerging Growth Fund and Health Sciences Fund. Gerald joined the Adviser in 1972 as an investment analyst. He received his master's degree in business administration from the University of Chicago in 1972 and his Chartered Financial Analyst certification in 1977. ALBIN S. DUBIAK is a member of the committee which manages three of the Funds, as set forth above, and he is portfolio co-manager for Emerging Growth Fund. Al began his investment career as a security trader with The First National Bank of Chicago in 1963 before joining the Adviser as an investment analyst in 1969. Al received his bachelor's degree from Indiana University in 1962 and his master's degree in business administration from the University of Arizona in 1969. JOYCE A.K. HALBE is a member of the committee which manages three of the Funds, as set forth above, and she is co-manager of Health Sciences Fund. Joyce joined the Adviser in 1990 after serving as a trust investment officer at Norwest Bank Minnesota, N.A. and as a research analyst at Edward D. Jones and Company. She received her master of science degree and her master's degree in business administration from the University of Wisconsin -- Madison. She is a Chartered Financial Analyst. MARY M. HOYME is a member of the committee which manages three of the Funds, as set forth above, and she is portfolio manager for Real Estate Securities Fund. Mary joined the Adviser in 1989 as a research analyst, prior to which she was employed for seven years as an equity and economic analyst with IDS Financial Services. She received her bachelor's degree from the University of Wisconsin -- Eau Claire and her master's degree in business administration from the College of St. Thomas. She is a Chartered Financial Analyst. CORI B. JOHNSON is a member of the committee which manages three of the Funds, as set forth above. Cori has been managing assets using quantitative analysis techniques since 1992. She joined the Adviser in 1991 as a securities analyst. Cori 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 is a member of the committee which manages three of the Funds, as set forth above, and he is portfolio co-manager for Technology Fund. Roland joined the Adviser in 1986 after serving as an account executive with Smith Barney & Co. since 1979. He received his bachelor's degree from the University of Chicago and is a Chartered Financial Analyst. JEFF A. JOHNSON is portfolio co-manager for Technology Fund. Jeff has been employed by the Adviser in investment management since 1991 and in commercial lending from 1985 to 1991. He received his master of arts degree from the University of Iowa. A committee comprised of the following five individuals shares the management of International Fund on behalf of the Sub-Adviser: DAVID F. MARVIN is Chairman of the Sub-Adviser and founded the firm together with Mr. Palmer in 1986. Before founding the Sub-Adviser, 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. He 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 President of the Sub-Adviser 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. He 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. TERRY B. MASON is a Vice President and Portfolio Manager of the Sub-Adviser. Before joining the Sub-Adviser, Mr. Mason was employed for 14 years by DuPont Corporation, the last five as international equity analyst and international trader. He 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 Vice President and Portfolio Manager for the Sub-Adviser and joined the firm in 1989. He received his bachelor's degree from Wesleyan University. TODD D. MARVIN is a Vice President and Portfolio Manager for the Sub-Adviser and joined the firm in 1991. Before joining the Sub-Adviser, Mr. Marvin was employed by Oppenheimer & Company as an analyst in investment banking. Mr. Marvin received his bachelor's degree from Wesleyan University. CUSTODIAN The custodian of the Funds' assets is First Trust National Association (the "Custodian"), First Trust Center, 180 East Fifth Street, St. Paul, Minnesota 55101. The Custodian is a subsidiary of First Bank System, Inc., which also controls the Adviser. As compensation for its services to Stock Fund, Equity Index Fund, Balanced Fund, Asset Allocation Fund, Regional Equity Fund, and Special Equity Fund, the Custodian is paid the following fees: (i) an annual administration fee of $750 per Fund; (ii) an issue held fee, computed as of the end of each month, at the annual rate of $30 per securities issue held by each Fund; (iii) transaction fees, consisting of (a) a securities buy/sell/maturity fee of $15 per each such transaction, and (b) a payment received fee of $12 for each principal pay down payment received on collateralized mortgage pass-through instruments; (iv) a wire transfer fee of $10 per transaction; (v) a cash management fee, for "sweeping" cash into overnight investments, at an annual rate of 0.25% of the amounts so invested; and (vi) a remittance fee, for payment of each Fund's expenses, of $3.50 per each check drawn for such remittances. The Custodian is paid monthly fees equal to 0.03% of the average daily net assets of Equity Income Fund, Diversified Growth Fund, Emerging Growth Fund, Technology Fund, Health Sciences Fund, and Real Estate Securities Fund and 0.25% of the average daily net assets of International Fund. Sub-custodian fees with respect to International Fund are paid by the Custodian out of this amount. 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 Fund to maintain its securities and cash in the custody of certain eligible foreign banks and depositories. International Fund's portfolio of non-United States securities are held by sub-custodians which are approved by the directors of FAIF 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 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 Fund's assets. ADMINISTRATOR The administrator for the Funds is SEI Financial Management Corporation (the "Administrator"), 680 East Swedesford Road, Wayne, Pennsylvania 19087. The Administrator, a wholly-owned subsidiary of SEI Corporation, provides the Funds with certain administrative services necessary to operate the Funds. These services include shareholder servicing and certain accounting and other services. The Administrator provides these services for a fee calculated at an annual rate of 0.12% of each Fund's average daily net assets, subject to a minimum administrative fee during each fiscal year of $50,000 per Fund; 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. 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 210 West 10th Street, Kansas City, Missouri 64105. The Transfer Agent is not affiliated with the Distributor, the Administrator or the Adviser. DISTRIBUTOR SEI Financial Services Company is the principal distributor for shares of the 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 is a wholly-owned subsidiary of SEI Corporation and is located at 680 East Swedesford Road, Wayne, Pennsylvania 19087. The Distributor is not affiliated with the Adviser, First Bank System, Inc., the Custodian or their respective affiliates. Shares of the 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"). 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." Under the Class A Distribution Plan, each Fund also pays the Distributor a distribution fee monthly at an annual rate of 0.25% of the Fund's Class A Shares' average daily net assets, which fee may be used by the Distributor to provide compensation for sales support and distribution activities with respect to Class A Shares of the Funds. From time to time, the Distributor may voluntarily waive its distribution 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 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 average daily net assets of the Class B Shares of the Funds, which fee may be used by the Distributor to provide compensation for sales support and distribution activities with respect to Class B Shares of the Funds. This fee is calculated and paid each month based on the average daily net assets for that month. In addition to this fee, the Distributor may be paid a shareholder servicing fee of 0.25% of the average daily net assets of the Class B Shares pursuant to a service plan (the "Class B Service Plan"), which fee may be used by the Distributor to provide compensation for personal, ongoing servicing and/or maintenance of shareholder accounts with respect to Class B Shares of the 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). The service fee payable under the Class B Service Plan is prepaid for the first year as described above. The Class A and Class B Distribution Plans recognize that the Adviser, the Administrator, the Distributor, and any Participating Institution may in their discretion use their own assets to pay for certain additional costs of distributing Fund shares. Any arrangement to pay such additional costs may be commenced or discontinued by any of these persons at any time. In addition, while there is no sales charge on purchases of Class A Shares of $1 million and more, the Adviser may pay amounts to broker-dealers from its own assets with respect to such sales. ISI, a subsidiary of the Adviser, is a Participating Institution. INVESTING IN THE 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 the New York Stock Exchange is open for business. Shares may be purchased as described below. The Funds reserve the right to reject any purchase request. 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. It is the financial institution's responsibility to transmit orders promptly. BY MAIL. An investor may place an order to purchase shares of the Funds directly through the Transfer Agent. Orders by mail are considered received after payment by check is converted by the Funds into federal funds. In order to purchase shares by mail, an investor must: * complete and sign the new account form; * enclose a check made payable to (Fund name); and * mail both to 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 to place an order. All information needed will be taken over the telephone, and the order will be considered received when the Custodian receives payment by wire. Federal funds should be wired as follows: First Bank National Association, Minneapolis, Minnesota, ABA Number 091000022; For Credit to: DST Systems: Account Number 6023458026; For Further Credit To: (Investor Name and Fund Name). Shares cannot be purchased by Federal Reserve wire on days on which the New York Stock Exchange is closed and on federal holidays upon which wire transfers are restricted. MINIMUM INVESTMENT REQUIRED The minimum initial investment for 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 First Bank National Association, First Trust National Association and First Bank System, Inc. and their respective affiliates. ALTERNATIVE SALES CHARGE OPTIONS THE TWO ALTERNATIVES: OVERVIEW. An investor may purchase shares of 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 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; (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. 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: EACH FUND:
SALES CHARGE MAXIMUM AMOUNT AS PERCENTAGE SALES CHARGE AS OF SALES OF OFFERING PERCENTAGE OF CHARGE REALLOWED PRICE NET ASSET VALUE TO PARTICIPATING INSTITUTIONS Less than $50,000 4.50% 4.75% 4.05% $50,000 but less than $100,000 4.00% 4.17% 3.60% $100,000 but less than $250,000 3.50% 3.63% 3.15% $250,000 but less than $500,000 2.75% 2.83% 2.47% $500,000 but less than $1,000,000 2.00% 2.04% 1.80% $1,000,000 and over 0.00% 0.00% 0.00%
There is no initial sales charge on purchases of Class A Shares of $1 million or more. However, Participating Institutions will receive a commission of 1.00% on such sales. Redemptions of Class A Shares purchased at net asset value within 24 months of purchase will be subject to a contingent deferred sales charge of 1.00%. However, Class A Shares that are redeemed will not be subject to this contingent deferred sales charge to the extent that the value of the shares represents capital appreciation of Fund assets or reinvestment of dividends or capital gain distributions. Net asset value is determined at 3:00 p.m. Central time Monday through Friday except on (i) days on which there are not sufficient changes in the value of 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) on the following federal holidays: New Year's Day, Presidents' Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. In addition, net asset value will not be calculated on Good Friday. DEALER CONCESSION. A dealer will normally receive up to 90% of the applicable sales charge. Any portion of the sales charge which is not paid to a dealer will be retained by the Distributor. In addition, the Distributor may, from time to time in its sole discretion, institute one or more promotional incentive programs which will be paid by the Distributor from the sales charge it receives or from any other source available to it. Under any such program, the Distributor will provide promotional incentives, in the form of cash or other compensation including merchandise, airline vouchers, trips and vacation packages, to all dealers selling shares of the 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. 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 Adviser, the Sub-Adviser 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 advisers, financial planners and registered broker/dealers who are purchasing shares on behalf of their customers. 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. 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 SUBJECT TO YEAR SINCE PURCHASE CHARGE First 5.00% Second 5.00% Third 4.00% Fourth 3.00% Fifth 2.00% Sixth 1.00% Seventh None Eighth None
In determining whether a particular redemption is subject to a contingent deferred sales charge, it is assumed that the redemption is first of any Class A Shares in the shareholder's Fund account; second, of any Class B Shares held for more than eight years and Class B Shares acquired pursuant to reinvestment of dividends or other distributions; and third, of Class B Shares held longest during the eight-year period. This method should result in the lowest possible sales charge. The contingent deferred sales charge is waived on redemption of Class B Shares (i) within one year following the death or disability (as defined in the Internal Revenue Code) of a shareholder, and (ii) to the extent that the redemption represents a minimum required distribution from an individual retirement account or other retirement plan to a shareholder who has attained the age of 70 1/2 . A shareholder or his or her representative must notify the Transfer Agent prior to the time of redemption if such circumstances exist and the shareholder is eligible for this waiver. CONVERSION FEATURE. At the end of the period ending eight years after the beginning of the month in which the shares were issued, Class B Shares will automatically convert to Class A Shares and will no longer be subject to the Class B distribution and service fees. This conversion will be on the basis of the relative net asset values of the two classes. DOLLAR COST AVERAGING. Class B Shares may also be purchased through automatic monthly deductions from a shareholder's account in Class B Shares of Prime Obligations Fund of First American Funds, Inc. Under a dollar cost averaging program, a shareholder enters an agreement to purchase Class B Shares of one or more Funds over a period of time not to exceed twelve months, and initially purchases Prime Obligations Class B Shares in an amount equal to the total amount of the investment. On a monthly basis a specified dollar amount of Class B Shares of Prime Obligations Fund is exchanged for the Class B Shares of the Funds specified. This 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. A shareholder may apply for participation in this program through his or her financial institution or by calling (800) 637-2548. SYSTEMATIC INVESTMENT PROGRAM Once a Fund account has been opened, shareholders may add to their investment on a regular basis in a minimum amount of $100. Under this program, funds may be automatically withdrawn periodically from the shareholder's checking account and invested in Fund shares at the net asset value next determined after an order is received, plus any applicable sales charge. A shareholder may apply for participation in this program through his or her financial institution or call (800) 637-2548. EXCHANGING SECURITIES FOR FUND SHARES 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 Adviser 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. 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. DIVIDENDS AND DISTRIBUTIONS Dividends are declared and paid monthly with respect to Stock Fund, Equity Index Fund, Balanced Fund, Asset Allocation Fund, Equity Income Fund, Diversified Growth Fund and Special Equity Fund, to all shareholders of record on the record date. Dividends are declared paid quarterly with respect to Emerging Growth Fund, Regional Equity Fund, Technology Fund, Health Sciences Fund, and Real Estate Securities 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. All shareholders on the record date are entitled to the dividend. If shares are purchased before a record date for a dividend or a distribution of capital gains, a shareholder will pay the full price for the shares and will receive some portion of the purchase price back as a taxable dividend or distribution (to the extent, if any, that the dividend or distribution is otherwise taxable to holders of Fund shares). If shares are redeemed or exchanged before the record date for a dividend or distribution or are purchased after the record date, those shares are not entitled to the dividend or distribution. The amount of dividends payable on Class A and Class B Shares generally will be less than the dividends payable on Class C Shares because of the distribution expenses charged to Class A and Class B Shares. The amount of dividends payable on Class A Shares generally will be more than the dividends payable on the Class B Shares because of the distribution and service fees paid by Class B Shares. EXCHANGE PRIVILEGE Shareholders may exchange Class A or Class B Shares of 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. 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 FAIF Funds must meet any applicable minimum investment of the fund for which shares are being exchanged. For purposes of calculating the Class B Shares' eight-year conversion period or contingent deferred sales charges payable upon redemption, the holding period of Class B Shares of the "old" fund and the holding period of Class B Shares of the "new" fund are aggregated. The ability to exchange shares of the 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 -- Directly From the Funds -- Signatures." Neither the Funds, the Distributor, the Transfer Agent, any shareholder servicing agent, or any financial institution will be responsible for further verification of the authenticity of the exchange instructions. Telephone exchange instructions made by an investor may be carried out only if a telephone authorization form completed by the investor is on file with the Transfer Agent, shareholder servicing agent, or financial institution. Shares may be exchanged between two FAIF Funds by telephone only if both FAIF Funds have identical shareholder registrations. Telephone exchange instructions may be recorded and will be binding upon the shareholder. Telephone instructions must be received by the Transfer Agent before 3:00 p.m. Central time, or by a shareholder's shareholder servicing agent or financial institution by the time specified by it, in order 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., 210 West 10th Street, Kansas City, Missouri 64105. Shareholders who become eligible to purchase Class C Shares may exchange Class A Shares for Class C Shares. An example of such an exchange would be a situation in which an individual holder of Class A Shares subsequently opens a custody or agency account with a financial institution which invests in Class C Shares. The terms of any exchange privilege may be modified or terminated by the Funds at any time. 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 modification or termination of the exchange privilege and of the imposition of any additional fees or changes. 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. BY TELEPHONE A shareholder may redeem shares of a Fund by calling his or her financial institution to request the redemption. Shares will be redeemed at the net asset value next determined after the Fund receives the redemption request from the financial institution. Redemption requests must be received by the financial institution by the time specified by the institution in order for shares to be redeemed at that day's net asset value, and redemption requests must be transmitted to and received by the Funds by 3:00 p.m. Central time in order for shares to be redeemed at that day's net asset value. Pursuant to instructions received from the financial institution, redemptions will be made by check or by wire transfer. It is the financial institution's responsibility to transmit redemption requests promptly. Shareholders who did not purchase their shares of 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. 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 the authenticity of redemption 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. These procedures may include taping of telephone conversations. BY MAIL Any shareholder may redeem Fund shares by sending a written request to the Transfer Agent, shareholder servicing agent, or financial institution. The written request should include the shareholder's name, the Fund name, the account number, and the share or dollar amount requested to be redeemed, and should be signed exactly as the shares are registered. Shareholders should call the Fund, shareholder servicing agent or financial institution for assistance in redeeming by mail. A check for redemption proceeds normally is mailed within one business day, but in no event more than seven days, after receipt of a proper written redemption request. Shareholders requesting a redemption of $5,000 or more, a redemption of any amount to be sent to an address other than that on record with the Fund, or a redemption payable other than to the shareholder of record, must have signatures on written redemption requests guaranteed by: * a trust company or commercial bank the deposits of which are insured by the Bank Insurance Fund, which is administered by the Federal Deposit Insurance Corporation ("FDIC"); * a member firm of the New York, American, Boston, Midwest, or Pacific Stock Exchanges or of the National Association of Securities Dealers; * a savings bank or savings and loan association the deposits of which are insured by the Savings Association Insurance Fund, which is administered by the FDIC; or * any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The 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. BY SYSTEMATIC WITHDRAWAL PROGRAM Shareholders whose account value is at least $5,000 may elect to participate in the Systematic Withdrawal Program. Under this program, Fund shares are redeemed to provide for periodic withdrawal payments in an amount directed by the shareholder. A shareholder may apply to participate in this program through his or her financial institution. It is generally not in a shareholder's best interest to participate in the Systematic Withdrawal Program at the same time that the shareholder is purchasing additional shares if a sales charge must be paid in connection with such purchases. Because automatic withdrawals with respect to Class B Shares are subject to the contingent deferred sales charge, it may not be in the best interest of a Class B shareholder to participate in the Systematic Withdrawal Program. REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR When shares are purchased by check or with funds transmitted through the Automated Clearing House, the proceeds of redemptions of those shares are not available until the Transfer Agent is reasonably certain that the purchase payment has cleared, which could take up to ten calendar days from the purchase date. ACCOUNTS WITH LOW BALANCES Due to the high cost of maintaining accounts with low balances, 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 earlier of the close of the New York Stock Exchange or 3:00 p.m. Central time on each day the New York Stock Exchange is open for business, provided that net asset value need not be determined on days when no Fund shares are tendered for redemption and no order for 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. It is the responsibility of Participating Institutions promptly to forward purchase and redemption orders to the Transfer Agent. In the case of redemptions and repurchases of shares owned by corporations, trusts or estates, the Transfer Agent or Fund may require additional documents to evidence appropriate authority in order to effect the redemption, and the applicable price will be that next determined following the receipt of the required documentation. DETERMINING NET ASSET VALUE The net asset value per share for 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. Investments in equity securities which are traded on a national securities exchange (or reported on the NASDAQ national market system) are stated at the last quoted sales price if readily available for such equity securities on each business day; other equity securities traded in the over-the-counter market and listed equity securities for which no sale was reported on that date are stated at the last quoted bid price. Debt obligations exceeding 60 days to maturity which are actively traded are valued by an independent pricing service at the most recently quoted bid price. Debt obligations with 60 days or less remaining until maturity may be valued at their amortized cost. Foreign securities are valued based upon quotation from the primary market in which they are traded. When market quotations are not readily available, securities are valued at fair value as determined in good faith by procedures established and approved by the Board of Directors. Portfolio securities underlying actively traded options are valued at their market price as determined above. The current market value of any exchange traded option held or written by a Fund is its last sales price on the exchange prior to the time when assets are valued, unless the bid price is higher or the asked price is lower, in which event the bid or asked price is used. In the absence of any sales that day, options will be valued at the current closing bid price. 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 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. If events materially affecting the value of foreign securities occur between the time when their price is determined and the time when the Funds' net asset value is calculated, such securities will be valued at fair value as determined in good faith by or under the direction of the Board of Directors. 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 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 intends to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), during its current taxable year in order to be relieved of payment of federal income taxes on amounts of taxable income it distributes to shareholders. Dividends paid from each Fund's net investment income and net short-term capital gains will be taxable to shareholders as ordinary income, whether or not the shareholder elects to have such dividends automatically reinvested in additional shares. Dividends paid by the Funds attributable to investments in the securities of foreign issuers or REITs will not be eligible for the 70% deduction for dividends received by corporations. Dividends paid from the net capital gains of each Fund and designated as capital gain dividends will be taxable to shareholders as long-term capital gains, regardless of the length of time for which they have held their shares in the Fund. Long-term capital gains of individuals are currently subject to a maximum tax rate of 28%. As of the date of this Prospectus, both the U.S. Senate and the U.S. House have enacted bills that would reduce the effective tax rates on long-term capital gains of individuals. At this time, it is impossible to predict whether such a provision will be enacted into law, or what its effective date would be. Gain or loss realized upon the sale of shares in the Funds will be treated as capital gain or loss, provided that the shares represented a capital asset in the hands of the shareholder. Such gain or loss will be long-term gain or loss if the shares were held for more than one year. 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 the 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 Fund's taxable year more than 50% of its total assets consist of securities of foreign corporations, it 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 Fund shareholders will be notified of the amounts which they may deduct as foreign taxes paid or use as foreign tax credits. Alternatively, if the amount of foreign taxes paid by International Fund is not large enough to warrant its making the election described above, the 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 the 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 Fund. Each Fund is required by federal law to withhold 31% of reportable payments (including dividends, capital gain distributions, and redemptions) paid to certain accounts whose owners have not complied with IRS regulations. In order to avoid this withholding requirement, each shareholder will be asked to certify on the shareholder's account application that the social security or taxpayer identification number provided is correct and that the shareholder is not subject to backup withholding for previous underreporting to the IRS. This is a general summary of the federal tax laws applicable to the Funds and their shareholders as of the date of this Prospectus. See the Statement of Additional Information for further details. Before investing in the Funds, an investor should consult his or her tax adviser about the consequences of state and local tax laws. 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. 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, the shares of that Fund or Class will vote as a separate series. Examples of such issues would be proposals to alter a fundamental investment restriction pertaining to a Fund or to approve, disapprove or alter a distribution plan pertaining to a Class. Under the laws of the State of Maryland and FAIF's Articles of Incorporation, FAIF is not required to hold shareholder meetings unless they (i) are required by the 1940 Act, or (ii) are requested in writing by the holders of 25% or more of the outstanding shares of FAIF. CALCULATION OF PERFORMANCE DATA From time to time, 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 Securities and Exchange Commission ("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 C Shares because Class C Shares are not subject to the sales charges and distribution expenses applicable to Class A and Class B Shares. In addition, the performance of Class A and Class B Shares of a Fund will differ because of the different sales charge structures of the classes and because of the higher distribution and service fees charged to Class B Shares. In reports or other communications to shareholders and in advertising material, the performance of each Fund may be compared to recognized unmanaged indices or averages of the performance of similar securities. 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. 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. 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 and time deposits (including certificates of deposit); bankers acceptances; obligations of the United States Government or its agencies or instrumentalities; repurchase agreements collateralized by eligible investments of 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. 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 Adviser or, in the case of International Fund, the Sub-Adviser will monitor the creditworthiness of the firms with which the Funds enter into repurchase agreements. WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS Each of the Funds (excluding Equity 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. LENDING OF PORTFOLIO SECURITIES In order to generate additional income, each of the Funds (excluding Equity Index Fund) may lend portfolio securities representing up to one-third of the value of its total assets to broker-dealers, banks or other institutional borrowers of securities. As with other extensions of credit, there may be risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail financially. However, the Funds will only enter into loan arrangements with broker-dealers, banks, or other institutions which the Adviser or, in the case of International Fund, the Sub-Adviser 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 in connection with these loans. 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 COVERED 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. 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. FUTURES AND OPTIONS ON FUTURES Equity Index Fund, Balanced Fund, Asset Allocation 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 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, 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 Internal Revenue Code of 1986, as amended. 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. FIXED INCOME SECURITIES The fixed income securities in which Stock Fund, Equity Income Fund, Diversified Growth Fund, Emerging Growth Fund, Regional Equity Fund, Special Equity Fund, Technology Fund, Health Sciences Fund, and Real Estate Securities Fund may invest include securities issued or guaranteed by the United States Government or its agencies or instrumentalities, nonconvertible preferred stocks, nonconvertible corporate debt securities, and short-term obligations of the kinds described above under "-- Cash Items." Investments in nonconvertible preferred stocks and nonconvertible corporate debt securities will be limited to securities which are rated at the time of purchase not less than BBB by Standard & Poor's or Baa by Moody's (or equivalent short-term ratings), or which have been assigned an equivalent rating by another nationally recognized statistical rating organization, or which are of comparable quality in the judgment of the Adviser. Obligations rated BBB, Baa or their equivalent, although investment grade, have speculative characteristics and carry a somewhat higher risk of default than obligations rated in the higher investment grade categories. Equity Income Fund also may invest a portion of its 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 and Asset Allocation 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). FOREIGN SECURITIES GENERAL. Under normal market conditions International Fund invests at least 65% of its total assets in equity securities which trade in markets other than the United States. In addition, the other Funds (excluding Equity Index Fund, Asset Allocation Fund, Regional Equity Fund and Real Estate Securities 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. 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. 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 Fund also may invest in 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. FOREIGN CURRENCY TRANSACTIONS International Fund invests 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 Fund also will incur costs in converting United States dollars to local currencies, and vice versa. International Fund will conduct its 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-Adviser'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-Adviser'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. MORTGAGE-BACKED SECURITIES With respect to the fixed income portion of its portfolio, Balanced Fund may invest in mortgage-backed securities which are Agency Pass-Through 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 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 Adviser. 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 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 and inverse floating rate 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 or inverse floating rate mortgage backed securities. ASSET-BACKED SECURITIES With respect to the fixed income portion of its portfolio, 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 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. 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. 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 Adviser or, in the case of International Fund, the Sub-Adviser. 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 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, except for Asset Allocation Fund, which may borrow in amounts not to exceed 33-1/3% of its 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. * None of the Funds will mortgage, pledge or hypothecate its assets, except in an amount not exceeding 15% of the value of its total assets to secure temporary or emergency borrowing. * None of the Funds will make short sales of securities. * 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 Emerging 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 Securities and Exchange Commission rules and interpretations. Section 4(2) commercial paper may be determined to be "liquid" under guidelines adopted by the Board of Directors. Rule 144A securities may in the future be determined to be "liquid" under guidelines adopted by the Board of Directors if the current position of certain state securities regulators regarding such securities is modified. Investing in Rule 144A securities could have the effect of increasing the level of illiquidity in a Fund to the extent that qualified institutional buyers become, for a time, uninterested in purchasing these securities. Pursuant to an undertaking to certain state securities regulators, Real Estate Securities Fund will purchase securities that meet the investment objectives and policies of the Fund, are acquired for investment and not for resale, that are liquid and not restricted as to transfer, and that have a value that is readily ascertainable as evidenced by a listing on the New York Stock Exchange, the American Stock Exchange, or NASDAQ. FIRST AMERICAN INVESTMENT FUNDS, INC. 680 East Swedesford Road Wayne, Pennsylvania 19087 INVESTMENT ADVISER FIRST BANK NATIONAL ASSOCIATION 601 Second Avenue South Minneapolis, Minnesota 55402 CUSTODIAN FIRST TRUST NATIONAL ASSOCIATION 180 East Fifth Street St. Paul, Minnesota 55101 DISTRIBUTOR SEI FINANCIAL SERVICES COMPANY 680 East Swedesford Road Wayne, Pennsylvania 19087 ADMINISTRATOR SEI FINANCIAL MANAGEMENT CORPORATION 680 East Swedesford Road Wayne, Pennsylvania 19087 TRANSFER AGENT DST SYSTEMS, INC. 210 West 10th Street Kansas City, Missouri 64105 INDEPENDENT AUDITORS KPMG PEAT MARWICK LLP 90 South Seventh Street Minneapolis, Minnesota 55402 COUNSEL DORSEY & WHITNEY P.L.L.P. 220 South Sixth Street Minneapolis, Minnesota 55402 FAIF-1003 (1/96) R FIRST AMERICAN INVESTMENT FUNDS, INC. EQUITY FUNDS INSTITUTIONAL CLASS STOCK FUND EQUITY INDEX FUND BALANCED FUND ASSET ALLOCATION FUND EQUITY INCOME FUND DIVERSIFIED GROWTH FUND EMERGING GROWTH FUND REGIONAL EQUITY FUND SPECIAL EQUITY FUND TECHNOLOGY FUND HEALTH SCIENCES FUND REAL ESTATE SECURITIES FUND INTERNATIONAL FUND PROSPECTUS JANUARY 31, 1996 [LOGO] The power of disciplined investing TABLE OF CONTENTS PAGE SUMMARY 4 FEES AND EXPENSES 8 Class C Share Fees and Expenses 8 Information Concerning Fees and Expenses 10 FINANCIAL HIGHLIGHTS 12 THE FUNDS 16 INVESTMENT OBJECTIVES AND POLICIES 16 Stock Fund 17 Equity Index Fund 18 Balanced Fund 19 Asset Allocation Fund 21 Equity Income Fund 22 Diversified Growth Fund 23 Emerging Growth Fund 24 Regional Equity Fund 25 Special Equity Fund 26 Technology Fund 27 Health Sciences Fund 29 Real Estate Securities Fund 30 International Fund 32 Risks to Consider 33 MANAGEMENT 34 Investment Adviser 34 Sub-Adviser to International Fund 35 Portfolio Managers 36 Custodian 39 Administrator 40 Transfer Agent 40 DISTRIBUTOR 40 PURCHASES AND REDEMPTIONS OF SHARES 40 Share Purchases and Redemptions 40 What Shares Cost 41 Exchanging Securities for Fund Shares 42 Certificates and Confirmations 43 Dividends and Distributions 43 Exchange Privilege 43 FEDERAL INCOME TAXES 44 FUND SHARES 45 CALCULATION OF PERFORMANCE DATA 46 SPECIAL INVESTMENT METHODS 47 Cash Items 47 Repurchase Agreements 47 When-Issued and Delayed-Delivery Transactions 48 Lending of Portfolio Securities 48 Options Transactions 49 Futures and Options on Futures 50 Fixed Income Securities 51 Foreign Securities 52 Foreign Currency Transactions 53 Mortgage-Backed Securities 54 Asset-Backed Securities 56 Bank Instruments 56 Portfolio Transactions 56 Portfolio Turnover 57 Investment Restrictions 57 FIRST AMERICAN INVESTMENT FUNDS, INC. 680 East Swedesford Road, Wayne, Pennsylvania 19087 INSTITUTIONAL CLASS PROSPECTUS The shares described in this Prospectus represent interests in First American Investment Funds, Inc., which consists of mutual funds with several different investment portfolios and objectives. This Prospectus relates to the Class C Shares of the following funds (the "Funds"): * STOCK FUND * EQUITY INDEX FUND * BALANCED FUND * ASSET ALLOCATION FUND * EQUITY INCOME FUND * DIVERSIFIED GROWTH FUND * EMERGING GROWTH FUND * REGIONAL EQUITY FUND * SPECIAL EQUITY FUND * TECHNOLOGY FUND * HEALTH SCIENCES FUND * REAL ESTATE SECURITIES FUND * INTERNATIONAL FUND Class C Shares of the Funds are offered through banks and certain other institutions for the investment of their own funds and funds for which they act in a fiduciary, agency or custodial capacity. SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK, INCLUDING FIRST BANK NATIONAL ASSOCIATION AND ANY OF ITS AFFILIATES, NOR ARE THEY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. AN INVESTMENT IN THE 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, 1996 for the Funds has been filed with the Securities and Exchange Commission and is incorporated in its entirety by reference in this Prospectus. To obtain copies of the Statement of Additional Information at no charge, or to obtain other information or make inquiries about the Funds, call (800) 637-2548 or write SEI Financial Services Company, 680 East Swedesford Road, Wayne, Pennsylvania 19087. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is January 31, 1996. SUMMARY First American Investment Funds, Inc. ("FAIF") is an open-end investment company which offers shares in several different mutual funds. This Prospectus provides information with respect to the Class C Shares of the following funds (the "Funds"): 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 80% of its total assets in equity securities diversified among a broad range of industries and among companies that have a market capitalization of at least $500 million. In selecting equity securities, the Fund's adviser employs a value-based selection discipline. 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 substantially in common stocks included in the S&P 500. The Fund's adviser believes that its objective can best be achieved by investing in the common stocks of approximately 250 to 500 of the issues included in the S&P 500. 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, and between 0% and 25% money market instruments. ASSET ALLOCATION FUND has an objective of maximizing total return over the long term by allocating its assets principally among common stocks, bonds, and short-term instruments. There are no limitations on the proportions in which the Fund's adviser may allocate the Fund's investments among these three classes of assets, and the Fund may at times be fully invested in a single asset class if the adviser believes that it offers the most favorable total return outlook. EQUITY INCOME FUND has an objective of long-term growth of capital and income. Under normal market conditions, the Fund invests at least 80% of its total assets in equity securities of issuers believed by the Fund's adviser to be characterized by sound management, the ability to finance expected growth and the ability to pay above average dividends. 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 80% of its total assets in equity securities of a diverse group of companies that will provide representation across all economic sectors included in the S&P 500. The adviser may overweight the Fund's portfolio holdings in sectors that it believes provide above average total return potential. 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-sized companies that exhibit, in the adviser's opinion, outstanding potential for superior growth. Companies that participate in sectors that are identified by the adviser as having long-term growth potential generally are expected to make up a substantial portion of the Fund's holdings. 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-sized companies 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. 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. The Fund's policy is to invest in equity securities which the Fund's adviser believes offer the potential for greater than average capital appreciation. The adviser believes that this policy can best be achieved by investing in the equity securities of companies where fundamental changes are occurring, are likely to occur, or have occurred and where, in the opinion of the adviser, the changes have not been adequately reflected in the price of the securities. TECHNOLOGY FUND has an objective of long-term growth of capital. Under normal market conditions, the Fund invests at least 80% of its total assets in equity securities of companies which the Fund's adviser believes have, or will develop, products, processes or services that will provide or will benefit significantly from technological advances and improvements. HEALTH SCIENCES FUND has an objective of long-term growth of capital. Under normal market conditions, the Fund invests at least 80% of its total assets in equity securities of companies which the Fund's adviser considers to be principally engaged in the development, production or distribution of products or services connected with health care or medicine. 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. 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. INVESTMENT ADVISER AND SUB-ADVISER First Bank National Association (the "Adviser") serves as investment adviser to each of the Funds. Marvin & Palmer Associates, Inc. (the "Sub-Adviser") serves as sub-adviser to International Fund. See "Management." DISTRIBUTOR; ADMINISTRATOR SEI Financial Services Company (the "Distributor") serves as the distributor of the Funds' shares. SEI Financial Management Corporation (the "Administrator") serves as the administrator of the Funds. See "Management" and "Distributor." ELIGIBLE INVESTORS; OFFERING PRICES Class C Shares are offered through banks and certain other institutions for the investment of their own funds and funds for which they act in a fiduciary, agency or custodial capacity. Class C Shares are sold at net asset value without any front-end or deferred sales charges. See "Purchases and Redemptions of Shares." EXCHANGES Class C Shares of any Fund may be exchanged for Class C Shares of other FAIF funds at the shares' respective net asset values with no additional charge. See "Purchases and Redemptions of Shares -- Exchange Privilege." REDEMPTIONS Shares of 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." 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 is actively managed to a greater or lesser degree, their performance will reflect in part the ability of the Adviser or Sub-Adviser 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 smaller-capitalization companies; (ii) Regional Equity Fund is subject to risks associated with concentrating its investments in a single geographic region; (iii) Technology Fund, Health Sciences Fund and Real Estate Securities Fund are subject to risks associated with concentrating their investments in a single or related economic sectors; (iv) Real Estate Securities Fund is subject to risks associated with direct investments in REITs; (v) International Fund is subject to risks associated with investing in foreign securities and to currency risk; (vi) Equity Income Fund may invest a portion of its assets in less than investment grade convertible debt obligations; (vii) certain Funds other than 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 Depository Receipts or, in the case of Balanced Fund, are debt obligations of foreign issuers denominated in United States dollars; and (viii) 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, 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." 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. FEES AND EXPENSES INSTITUTIONAL CLASSES CLASS C SHARE FEES AND EXPENSES
EQUITY ASSET EQUITY DIVERSIFIED STOCK INDEX BALANCED ALLOCATION INCOME GROWTH FUND FUND FUND FUND FUND FUND 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 and reimbursements)(1) 0.57% 0.12% 0.57% 0.49% 0.40% 0.50% Rule 12b-1 fees None None None None None None Other expenses (after voluntary fee waivers)(1) 0.23% 0.23% 0.23% 0.31% 0.35% 0.30% Total fund operating expenses (after voluntary fee waivers and reimbursements)(1) 0.80% 0.35% 0.80% 0.80% 0.75% 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 $ 4 $ 8 $ 8 $ 8 $ 8 3 years $ 26 $ 11 $ 26 $ 26 $ 24 $ 26 5 years $ 44 $ 20 $ 44 $ 44 $ 42 $ 44 10 years $ 99 $ 44 $ 99 $ 99 $ 93 $ 99
EMERGING REGIONAL SPECIAL HEALTH REAL ESTATE GROWTH EQUITY EQUITY TECHNOLOGY SCIENCES SECURITIES FUND FUND FUND FUND FUND FUND INTERNATIONAL FUND SHAREHOLDER TRANSACTION EXPENSES Maximum sales load imposed on purchases None None None None None None None Maximum sales load imposed on reinvested dividends None None None None None None None Deferred sales load None None None None None None None Redemption fees None None None None None None None Exchange fees None None None None None None None ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS) Investment advisory fees (after voluntary fee waivers and reimbursements)(1) 0.40% 0.66% 0.65% 0.30% 0.23% 0.00% 1.19% Rule 12b-1 fees None None None None None None None Other expenses (after voluntary fee waivers)(1) 0.50% 0.24% 0.25% 0.60% 0.67% 0.80% 0.56% Total fund operating expenses (after voluntary fee waivers and reimbursements)(1) 0.90% 0.90% 0.90% 0.90% 0.90% 0.80% 1.75% 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 $ 9 $ 9 $ 9 $ 9 $ 9 $ 8 $ 18 3 years $ 29 $ 29 $ 29 $ 29 $ 29 $ 26 $ 55 5 years $ 50 $ 50 $ 50 $ 50 $ 50 $ 44 $ 95 10 years $ 111 $ 111 $ 111 $ 111 $ 111 $ 99 $ 206
(1) The Adviser and the Administrator intend to waive a portion of their fees and/or reimburse expenses on a voluntary basis, and the amounts shown reflect these waivers and reimbursements as of the date of this Prospectus. Each of these persons intends to maintain such waivers and reimbursements in effect for the current fiscal year but reserves the right to discontinue such waivers and reimbursements at any time in its sole discretion. Absent any fee waivers, investment advisory fees as an annualized percentage of average daily net assets would be 0.70% 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 0.94% for Stock Fund, 0.95% for Equity Index Fund, 0.94% for Balanced Fund, 1.01% for Asset Allocation Fund, 1.06% for Equity Income Fund, 1.01% for Diversified Growth Fund, 1.19% for Emerging Growth Fund, 0.95% for Regional Equity Fund, 0.95% for Special Equity Fund, 1.30% for Technology Fund, 1.37% for Health Sciences Fund, 2.34% for Real Estate Securities Fund, and 1.81% for International Fund. Other expenses includes an administration fee and is based on estimated amounts for the current fiscal year. (2) Absent the fee waivers and reimbursements referred to in (1) above, the dollar amounts for the 1, 3, 5 and 10-year periods would be as follows: Stock Fund, $10, $30, $52 and $115; Equity Index Fund, $10, $30, $53 and $117; Balanced Fund, $10, $30, $52 and $115; Asset Allocation Fund, $10, $32, $56 and $124; Equity Income Fund, $11, $34, $58 and $129; Diversified Growth Fund, $10, $32, $56 and $124; Emerging Growth Fund, $12, $36, $65 and $144; Regional Equity Fund, $10, $30, $53 and $117; Special Equity Fund, $10, $30, $53 and $117; Technology Fund, $13, $41, $71 and $157; Health Sciences Fund, $14, $43, $75 and $165; Real Estate Securities Fund, $24, $73, $125 and $268; and International Fund, $18, $57, $98 and $213. 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. The information set forth in the foregoing tables and examples relates only to the Class C Shares of the Funds. The Funds also offer Class A and Class B Shares which are subject to the same expenses and, in addition, to a front-end or contingent deferred sales load and certain distribution expenses. The examples in the above tables are based on projected annual Fund operating expenses after voluntary fee waivers and expense reimbursements by the Adviser and the Administrator. Although these persons intend to maintain such waivers in effect for the current fiscal year, any such waivers are voluntary and may be discontinued at any time. Prior to fee waivers, investment advisory fees accrue at the annual rate as a percentage of average daily net assets of 0.70% for each of the Funds except International Fund, as to which they are 1.25%. Other expenses include fees paid by each Fund to the Administrator for providing various services necessary to operate the Funds. These include shareholder servicing and certain accounting and other services. The Administrator provides these services for a fee calculated at an annual rate of 0.12% of average daily net assets of each Fund subject to a minimum of $50,000 per Fund per fiscal year; provided, that to the extent that the aggregate net assets of all First American funds exceed $8 billion, the percentage stated above is reduced to 0.105%. Other expenses of the Funds also includes the cost of maintaining shareholder records, furnishing shareholder statements and reports, and other services. Investment advisory fees, administrative fees and other expenses are reflected in the Funds' daily dividends and are not charged to individual shareholder accounts. FINANCIAL HIGHLIGHTS The following audited financial highlights 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 the Statement of Additional Information. Further information about the Funds' performance is contained in FAIF's annual report to shareholders, which may be obtained without charge by calling (800) 637-2548 or by writing SEI Financial Services Company, 680 East Swedesford Road, Wayne, Pennsylvania 19087. The Financial Highlights for the Class A shares of the Funds have been provided below along with the Financial Highlights for Class C shares. Class A shares are subject to sales charges and fees that may differ from those applicable to Class C shares. 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 STOCK FUND Class C 1995 $16.50 $0.36 $ 3.64 $(0.35) $(0.59) 1994(1) 16.47 0.25 0.03 (0.25) -- Class A 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) -- EQUITY INDEX FUND Class C 1995 $10.67 $0.28 $ 2.75 $(0.27) $(0.09) 1994(1) 10.85 0.20 (0.18) (0.20) -- Class A 1995 $10.68 $0.25 $ 2.76 $(0.25) $(0.09) 1994 10.60 0.25 0.09 (0.25) (0.01) 1993(2) 10.00 0.20 0.60 (0.20) -- BALANCED FUND Class C 1995 $10.54 $0.40 $ 1.73 $(0.39) $(0.15) 1994(1) 10.86 0.25 (0.32) (0.25) -- Class A 1995 $10.54 $0.38 $ 1.72 $(0.37) $(0.15) 1994 10.73 0.34 (0.02) (0.34) (0.17) 1993(2) 10.00 0.28 0.75 (0.28) (0.02) ASSET ALLOCATION FUND Class C 1995 $10.38 $0.38 $ 1.58 $(0.37) $(0.25) 1994(1) 10.68 0.20 (0.30) (0.20) -- Class A 1995 $10.39 $0.36 $ 1.58 $(0.35) $(0.25) 1994 10.60 0.27 (0.08) (0.26) (0.14) 1993(2) 10.00 0.19 0.60 (0.19) --
(table continued)
RATIO OF RATIO OF NET EXPENSES TO RATIO OF INVESTMENT AVERAGE NET NET ASSET NET ASSETS EXPENSES TO INCOME TO ASSETS VALUE END END OF AVERAGE NET AVERAGE NET (EXCLUDING PORTFOLIO OF PERIOD TOTAL RETURN PERIOD (000) ASSETS ASSETS WAIVERS) TURNOVER RATE STOCK FUND Class C 1995 $19.56 25.50% $312,559 0.79% 2.10% 0.94% 52% 1994(1) 16.50 1.70%+ 154,949 0.75 2.28 1.01 65 Class A 1995 $19.57 25.26% $ 13,076 1.00% 1.89% 1.19% 52% 1994 16.51 8.35% 8,421 0.76 1.51 1.20 65 1993 16.00 15.82% 134,186 0.75 1.94 1.28 48 1992 14.04 7.88% 3,644 1.45 1.75 4.46 39 1991(7) 13.62 30.49%+ 2,386 1.45 2.47 7.42 76 1990(8) 10.64 (8.22%) 1,161 1.45 2.24 9.47 41 1989(8) 12.09 20.33% 323 1.24 2.26 36.39 74 1988(8)(9) 10.35 6.40%+ 206 1.02 2.67 28.60 80 EQUITY INDEX FUND Class C 1995 $13.34 29.17% $218,932 0.35% 2.41% 0.95% 9% 1994(1) 10.67 0.18%+ 163,688 0.35 2.59 1.03 11 Class A 1995 $13.35 28.90% $ 2,140 0.57% 2.16% 1.20% 9% 1994 10.68 3.25% 758 0.35 2.23 1.23 11 1993(2) 10.60 8.02%+ 139,957 0.35 2.52 1.30 1 BALANCED FUND Class C 1995 $12.13 20.89% $192,145 0.79% 3.61% 0.94% 77% 1994(1) 10.54 (0.64%)+ 125,285 0.75 3.51 1.05 98 Class A 1995 $12.12 20.57% $ 15,288 0.99% 3.41% 1.19% 77% 1994 10.54 3.02% 13,734 0.77 2.63 1.24 98 1993(2) 10.73 10.39%+ 111,225 0.75 3.31 1.29 77 ASSET ALLOCATION FUND Class C 1995 $11.72 19.75% $ 43,210 0.79% 3.53% 1.01% 87% 1994(1) 10.38 (0.90%)+ 47,227 0.75 2.91 1.12 32 Class A 1995 $11.73 19.51% $ 993 0.99% 3.29% 1.26% 87% 1994 10.39 1.81% 707 0.75 2.01 1.29 32 1993(2) 10.60 8.01%+ 56,393 0.75 2.40 1.34 31
+ Returns, excluding sales charges, are for the period indicated and have not been annualized. (1) Class C shares have been offered since February 4, 1994. All ratios for the period have been annualized. (2) Commenced operations on December 14, 1992. All ratios for the period have been annualized. (3) Class C shares have been offered since August 2, 1994. 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. 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) Commenced operations on June 30, 1995. All ratios for the period have been annualized. 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 DISTRIBUTIONS BEGINNING OF INVESTMENT (LOSSES) ON INVESTMENT FROM CAPITAL FROM RETURN PERIOD INCOME INVESTMENTS INCOME GAINS OF CAPITAL EQUITY INCOME FUND Class C 1995 $ 9.89 $ 0.41 $ 1.35 $(0.41) $ -- $ -- 1994(3) 9.90 0.07 (0.03) (0.05) -- -- Class A 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) -- -- DIVERSIFIED GROWTH FUND Class C 1995 $ 9.10 $ 0.17 $ 2.67 $(0.16) $ -- $ -- 1994(3) 8.92 0.03 0.18 (0.03) -- -- Class A 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) -- -- EMERGING GROWTH FUND Class C 1995 $10.56 $ 0.03 $ 2.99 $(0.02) $(0.15) $ -- 1994(10) 10.00 0.01 0.56 (0.01) -- -- REGIONAL EQUITY FUND Class C 1995 $12.52 $ 0.11 $ 4.90 $(0.08) $(0.32) $ -- 1994(1) 12.41 0.07 0.11 (0.07) -- -- Class A 1995 $12.52 $ 0.08 $ 4.90 $(0.06) $(0.32) $ -- 1994 11.96 0.08 0.71 (0.07) (0.16) -- 1993(2) 10.00 0.05 1.96 (0.05) -- -- SPECIAL EQUITY FUND Class C 1995 $17.30 $ 0.38 $ 1.61 $(0.38) $(1.02) $ -- 1994(1) 16.34 0.22 0.96 (0.22) -- -- Class A 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) -- -- TECHNOLOGY FUND Class C 1995 $11.19 $(0.03) $ 7.31 $ -- $(0.23) $ -- 1994(10) 10.00 (0.01) 1.20 -- -- -- REAL ESTATE SECURITIES FUND Class C 1995(12) $10.00 $ 0.13 $ 0.39 $(0.11) $ -- $(0.04) INTERNATIONAL FUND Class C 1995 $10.22 $ 0.01 $ 0.07 $ -- $ -- $ -- 1994(10) 10.00 (0.01) 0.23 -- -- --
(table continued)
RATIO OF RATIO OF NET EXPENSES TO RATIO OF INVESTMENT AVERAGE NET NET ASSET NET ASSETS EXPENSES TO INCOME (LOSS) ASSETS VALUE END END OF AVERAGE NET TO AVERAGE NET (EXCLUDING PORTFOLIO OF PERIOD TOTAL RETURN PERIOD (000) ASSETS ASSETS WAIVERS) TURNOVER RATE EQUITY INCOME FUND Class C 1995 $11.24 18.24% $ 52,126 0.75% 4.11% 1.06% 23% 1994(3) 9.89 0.45%+ 17,489 0.75 5.61 1.14 108 Class A 1995 $11.24 18.06% $ 1,995 0.92% 3.91% 1.31% 23% 1994(4) 9.89 4.22%+ 1,852 0.88 4.88 1.39 108 1993(5)(6) 9.87 4.44%+ 28,786 0.75 6.09 1.36 68 DIVERSIFIED GROWTH FUND Class C 1995 $11.78 31.57% $132,854 0.75% 1.69% 1.01% 28% 1994(3) 9.10 2.36%+ 31,875 0.75 2.37 1.08 101 Class A 1995 $11.75 31.21% $ 2,710 0.92% 1.52% 1.26% 28% 1994(4) 9.09 (2.07%)+ 1,900 0.90 1.15 1.33 101 1993(5)(6) 9.39 (5.18%)+ 31,084 0.78 1.26 1.25 5 EMERGING GROWTH FUND Class C 1995 $13.41 29.16% $ 41,716 0.84% 0.20% 1.19% 51% 1994(10) 10.56 5.68%+ 6,849 0.80 0.23 2.59 19 REGIONAL EQUITY FUND Class C 1995 $17.13 41.40% $188,583 0.84% 0.78% 0.95% 42% 1994(1) 12.52 1.46%+ 96,045 0.80 0.82 1.05 41 Class A 1995 $17.12 41.17% $ 14,917 1.05% 0.58% 1.20% 42% 1994 12.52 6.76% 8,345 0.82 0.59 1.25 41 1993(2) 11.96 20.17%+ 58,427 0.80 0.59 1.30 28 SPECIAL EQUITY FUND Class C 1995 $17.89 12.84% $201,786 0.88% 2.30% 0.95% 72% 1994(1) 17.30 7.31%+ 128,806 0.79 1.93 1.03 116 Class A 1995 $17.89 12.63% $ 11,609 1.09% 2.08% 1.20% 72% 1994 17.30 18.70% 7,333 0.81 1.88 1.23 116 1993 15.81 18.91% 81,899 0.81 2.07 1.31 104 1992 13.61 15.17% 3,586 1.50 1.61 4.18 146 1991(7) 12.98 28.38%+ 3,423 1.50 2.60 5.13 116 1990(8) 10.33 (13.24%) 2,761 1.50 4.09 4.21 113 1989(8) 12.96 17.41% 2,000 1.38 4.07 8.68 102 1988(8)(9) 11.55 19.56%+ 578 1.20 4.02 15.60 51 TECHNOLOGY FUND Class C 1995 $18.24 66.22% $ 29,272 0.88% (0.35)% 1.30% 74% 1994(10) 11.19 11.90%+ 6,491 0.80 (0.21) 3.12 43 REAL ESTATE SECURITIES FUND Class C 1995(12) $10.37 5.19%+ $ 5,756 0.80% 6.01% 2.34% 0% INTERNATIONAL FUND Class C 1995 $10.30 0.78% $ 94,400 1.74% 0.12% 1.81% 57% 1994(10) 10.22 2.20%+ 47,963 1.75 (0.19) 2.05 16
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 C) which provide for variations in distribution costs, voting rights and dividends. Except for these differences among classes, each share of each FAIF Fund represents an undivided proportionate interest in that fund. FAIF is incorporated under the laws of the State of Maryland, and its principal offices are located at 680 East Swedesford Road, Wayne, Pennsylvania 19087. This Prospectus relates only to the Class C Shares of the 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 C Shares of the other FAIF Funds is contained in separate prospectuses that may be obtained from FAIF's Distributor, SEI Financial Services Company, 680 East Swedesford Road, Wayne, Pennsylvania 19087, or by calling (800) 637-2548. The Board of Directors of FAIF may authorize additional series or classes of common stock in the future. INVESTMENT 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 Technology Fund, Health Sciences Fund, and Real Estate Securities Fund is a diversified investment company, as defined in the Investment Company Act of 1940 (the "1940 Act"). Technology Fund, Health Sciences Fund, and Real Estate Securities 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. Similarly, if the 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 Corporation ("Standard & Poor's") and Moody's Investors Service, Inc. ("Moody's") are contained in the Statement of Additional Information. When the term "equity securities" is used in this Prospectus, it refers to common stock and securities which are convertible into or exchangeable for, or which carry warrants or other rights to acquire, common stock. This section also contains information concerning certain investment risks borne by Fund shareholders under the heading "-- Risks to Consider." Further information concerning the securities in which the Funds may invest and related matters is set forth under "Special Investment Methods." STOCK FUND OBJECTIVES. Stock 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, Stock Fund invests at least 80% of its total assets in equity securities (and at least 65% in common stocks) diversified among a broad range of industries and among companies that have a market capitalization of at least $500 million. In selecting equity securities, the Adviser employs a value-based selection discipline. The Adviser anticipates investing in equity securities of companies it believes are selling at less than fair value and offer the potential for appreciation as a result of improved profitability reflecting corporate restructuring or elimination of unprofitable operations, change in management or management goals, or improving demand for the companies' goods or services. The Fund also may invest up to 20% of its total assets in the aggregate in equity securities of issuers with a market capitalization of less than $500 million and 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." In addition, the Fund may (i) enter into repurchase agreements; (ii) in order to attempt to reduce risk, purchase put and call options on equity securities and on stock indices; (iii) write covered call options covering up to 25% of the equity securities owned by the Fund; (iv) purchase securities on a when-issued or delayed-delivery basis; and (v) engage in the lending of portfolio securities. For information about these investment methods, restrictions on their use, and certain associated risks, see the related headings under "Special Investment Methods." For temporary defensive purposes during times of unusual market conditions, the Fund may without limitation hold cash or invest in cash items of the kinds described under "Special Investment Methods -- Cash Items." The Fund also may invest not more than 35% of its total assets in cash and cash items in order to utilize assets awaiting normal investment. 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"). INVESTMENT POLICIES. Equity Index Fund invests substantially (at least 65% of total assets) in common stocks included in the S&P 500. The Adviser believes that the Fund's objective can best be achieved by investing in the common stocks of approximately 250 to 500 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 Adviser's parent company First Bank System, Inc. is included in the S&P 500, such stock may be purchased by the Fund consistent with its indexing-based policies. Although the Fund will not duplicate the S&P 500's performance precisely, it is anticipated that 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, and the amount and timing of cash flows into and out of the Fund. 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. 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 order to maintain liquidity during times of unusual market conditions, the Fund also may invest temporarily in cash and cash items of the kinds described under "Special Investment Methods -- Cash Items." 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. The asset mix of the Fund normally will range 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. Over the long term, it is anticipated that the Fund's asset mix will average approximately 60% equity securities and 40% fixed income securities. The Adviser 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 Adviser follows the same investment policies as are described above under "-- Stock 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; 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 Adviser; 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 Adviser; 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. Unrated securities will not exceed 10% in the aggregate of the value of the total fixed income securities held by the Fund. 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 or inverse floating rate 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; (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; and (vii) in order attempt to 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 during times of unusual market conditions, the Fund may without limitation hold cash or invest in cash items of the kinds described under "Special Investment Methods -- Cash Items." The Fund also may invest not more than 35% of its total assets in cash and cash items in order to utilize assets awaiting normal investment. ASSET ALLOCATION FUND OBJECTIVE. Asset Allocation Fund has an objective of maximizing total return over the long term by allocating its assets principally among common stocks, bonds, and short-term instruments. INVESTMENT POLICIES. Asset Allocation Fund allocates its investments principally among (i) common stocks included in the S&P 500, (ii) direct obligations of the United States Treasury, and (iii) short-term instruments. There are no limitations on the proportions in which the Adviser may allocate the Fund's investments among these three classes of assets. The Fund thus is not a "balanced" fund, in that it is not required to allocate its investments in specific proportions or ranges among these asset classes. The Adviser regularly reviews the Fund's investment allocation and varies the allocation to emphasize the asset class or classes that, in the Adviser's then-current judgment, provide the most favorable total return outlook. There is no limitation on the amount that may be invested in any one asset class, and the Fund may at times be fully invested in a single asset class if the Adviser believes that it offers the most favorable total return outlook. In making asset allocation decisions, the Adviser utilizes a proprietary quantitative model which predicts future asset class returns based on historical experience using probability theory. By investing in common stocks intended to approximate the total return of the S&P 500, as described below, the Adviser attempts to minimize the risk of individual equity security selection in the common stock class. By limiting the bond class to direct obligations of the United States Treasury, the Adviser attempts to eliminate credit risk from this class. Within the common stock asset class, the Adviser seeks to produce a total return approximating that of the S&P 500. In order to achieve this result, the Adviser follows the same indexing-based policies for this asset class as are described above under "-- Equity Index Fund -- Investment Policies." Inasmuch as the common stock of the Adviser's parent company First Bank System, Inc. is included in the S&P 500, such stock may be purchased by the Fund consistent with its indexing-based policies. Within the bond asset class, the Fund may invest in any maturity of direct obligations of the United States Treasury. The Adviser thus has discretion in determining the weighted average maturity of the investments within this asset class. For information concerning certain risks associated with investing in fixed income securities generally, see "Special Investment Methods -- Fixed Income Securities." Within the short-term asset class, the Fund may hold cash or invest in cash items of the kinds described under "Special Investment Methods -- Cash Items." 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) purchase securities on a when-issued or delayed-delivery basis; (iv) engage in the lending of portfolio securities; (v) 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; and (vi) in order to manage allocations among asset classes efficiently, invest in interest rate and stock index futures. For information about these investment methods, restrictions on their use, and certain associated risks, see the related headings under "Special Investment Methods." 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 80% of its total assets in equity securities of issuers believed by the Adviser 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 Adviser'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 Adviser 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 Adviser 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 Adviser. 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 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 Adviser. For the year ended September 30, 1995, 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, 4%; BB, 0%; B, 7%; 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 20% 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." In addition, the Fund may (i) enter into repurchase agreements; (ii) in order to attempt to reduce risk, purchase put and call options on equity securities and on stock indices; (iii) write covered call options covering up to 25% of the equity securities owned by the Fund; (iv) purchase securities on a when-issued or delayed-delivery basis; and (v) engage in the lending of portfolio securities. For information about these investment methods, restrictions on their use, and certain associated risks, see the related headings under "Special Investment Methods." For temporary defensive purposes during times of unusual market conditions, the Fund may without limitation hold cash or invest in cash items of the kinds described under "Special Investment Methods -- Cash Items." The Fund also may invest not more than 35% of its total assets in cash and cash items in order to utilize assets awaiting normal investment. DIVERSIFIED GROWTH FUND OBJECTIVES. Diversified 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, Diversified Growth Fund invests at least 80% of its total assets in equity securities of a diverse group of companies that will provide representation across all economic sectors included in the S&P 500. The Adviser may overweight the Fund's portfolio holdings in sectors that it believes provide above average total return potential and may underweight the Fund's holdings in those sectors that it believes have a lower total return potential. Within a given sector, the Fund's assets are invested in securities of those companies that, in the Adviser'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 20% 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." In addition, the Fund may (i) enter into repurchase agreements; (ii) in order to attempt to reduce risk, purchase put and call options on equity securities and on stock indices; (iii) write covered call options covering up to 25% of the equity securities owned by the Fund; (iv) purchase securities on a when-issued or delayed-delivery basis; and (v) engage in the lending of portfolio securities. For information about these investment methods, restrictions on their use, and certain associated risks, see the related headings under "Special Investment Methods." For temporary defensive purposes during times of unusual market conditions, the Fund may without limitation hold cash or invest in cash items of the kinds described under "Special Investment Methods -- Cash Items." The Fund also may invest not more than 35% of its total assets in cash and cash items in order to utilize assets awaiting normal investment. EMERGING GROWTH FUND OBJECTIVE. Emerging Growth Fund has an objective of growth of capital. INVESTMENT POLICIES. Under normal market conditions, Emerging Growth Fund invests at least 65% of its total assets in equity securities of small-sized companies that exhibit, in the Adviser's opinion, outstanding potential for superior growth. For these purposes, small-sized companies are deemed those with market capitalizations of less than $1 billion. Companies that participate in sectors that are identified by the Adviser 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 Adviser 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." 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." In addition, the Fund may (i) enter into repurchase agreements; (ii) in order to attempt to reduce risk, purchase put and call options on equity securities and on stock indices; (iii) write covered call options covering up to 25% of the equity securities owned by the Fund; (iv) purchase securities on a when-issued or delayed-delivery basis; and (v) engage in the lending of portfolio securities. For information about these investment methods, restrictions on their use, and certain associated risks, see the related headings under "Special Investment Methods." For temporary defensive purposes during times of unusual market conditions, the Fund may without limitation hold cash or invest in cash items of the kinds described under "Special Investment Methods -- Cash Items." The Fund also may invest not more than 35% of its total assets in cash and cash items in order to utilize assets awaiting normal investment. 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-sized companies headquartered in Minnesota, North and South Dakota, Montana, Wisconsin, Michigan, Iowa, Nebraska, Colorado and Illinois. The Adviser anticipates investing primarily in the securities of rapidly growing small-sized companies which generally will have the following characteristics, in the Adviser's opinion: (i) company-specific fundamentals that grow shareholder value, (ii) experienced, shareholder-oriented management, and (iii) undervaluation by the market. For these purposes, small-sized companies are deemed those with market capitalizations of less than $1 billion. In addition to the risks associated with investing in smaller-capitalization companies, see "-- Risk Factors -- Smaller-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." In addition, the Fund may (i) enter into repurchase agreements; (ii) in order to attempt to reduce risk, purchase put and call options on equity securities and on stock indices; (iii) write covered call options covering up to 25% of the equity securities owned by the Fund; (iv) purchase securities on a when-issued or delayed-delivery basis; and (v) engage in the lending of portfolio securities. For information about these investment methods, restrictions on their use, and certain associated risks, see the related headings under "Special Investment Methods." For temporary defensive purposes during times of unusual market conditions, the Fund may without limitation hold cash or invest in cash items of the kinds described under "Special Investment Methods -- Cash Items." The Fund also may invest not more than 35% of its total assets in cash and cash items in order to utilize assets awaiting normal investment. SPECIAL EQUITY FUND OBJECTIVE. Special Equity Fund has an objective of capital appreciation. INVESTMENT POLICIES. Under normal market conditions, Special Equity Fund invests at least 65% of its total assets in equity securities. The Fund's policy is to invest in equity securities which the Adviser believes offer the potential for greater than average capital appreciation. The Adviser believes that this policy can best be achieved by investing in the equity securities of companies where fundamental changes are occurring, are likely to occur, or have occurred and where, in the opinion of the Adviser, the changes have not been adequately reflected in the price of the securities and thus are considered by the Adviser to be undervalued. Undervalued securities may include securities of companies which (i) have been unpopular for some time but where, in the Adviser's opinion, recent developments (such as those listed in the next sentence) suggest the possibility of improved operating results; (ii) have recently experienced marked popularity but which, in the opinion of the Adviser, have temporarily fallen out of favor for reasons that are considered by the Adviser to be non-recurring or short-term; and (iii) appear to the Adviser to be undervalued in relation to popular securities of other companies in the same industry. Typically, but not exclusively, the Adviser will consider investing in undervalued issues in which it sees the possibility of substantially improved market price due to increasing demand for an issuer's products or services, the development of new or improved products or services, the probability of increased operating efficiencies, the elimination of unprofitable products or operations, changes in management or management goals, fundamental changes in the industry in which the issuer operates, new or increased emphasis on research and development, or possible mergers or acquisitions. In selecting securities judged to be undervalued and in investing in potential "turnaround" situations, the Adviser will be acting on opinions and exercising judgments which may be contrary to those of the majority of investors. These opinions and judgments involve the risks of either (i) a correct judgment by the majority, in which case losses may be incurred or profits may be limited, or (ii) a long delay before majority recognition of the accuracy of the Adviser's judgment, in which case capital invested by the Fund in an individual security or group of securities may be nonproductive for an extended period. 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." In addition, the Fund may (i) enter into repurchase agreements; (ii) in order to attempt to reduce risk, purchase put and call options on equity securities and on stock indices; (iii) write covered call options covering up to 25% of the equity securities owned by the Fund; (iv) purchase securities on a when-issued or delayed-delivery basis; and (v) engage in the lending of portfolio securities. For information about these investment methods, restrictions on their use, and certain associated risks, see the related headings under "Special Investment Methods." For temporary defensive purposes during times of unusual market conditions, the Fund may without limitation hold cash or invest in cash items of the kinds described under "Special Investment Methods -- Cash Items." The Fund also may invest not more than 35% of its total assets in cash and cash items in order to utilize assets awaiting normal investment. 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 80% of its total assets in equity securities of companies which the Adviser 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 Adviser 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 Adviser'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 20% 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." In addition, the Fund may (i) enter into repurchase agreements; (ii) in order to attempt to reduce risk, purchase put and call options on equity securities and on stock indices; (iii) write covered call options covering up to 25% of the equity securities owned by the Fund; (iv) purchase securities on a when-issued or delayed-delivery basis; and (v) engage in the lending of portfolio securities. For information about these investment methods, restrictions on their use, and certain associated risks, see the related headings under "Special Investment Methods." For temporary defensive purposes during times of unusual market conditions, the Fund may without limitation hold cash or invest in cash items of the kinds described under "Special Investment Methods -- Cash Items." The Fund also may invest not more than 35% of its total assets in cash and cash items in order to utilize assets awaiting normal investment. 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. 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 80% of its total assets in equity securities of companies which the Adviser 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 Adviser 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 Adviser determines that at least 50% of its assets, revenues or profits are derived from those industries. The Fund also may invest up to 20% 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." In addition, the Fund may (i) enter into repurchase agreements; (ii) in order to attempt to reduce risk, purchase put and call options on equity securities and on stock indices; (iii) write covered call options covering up to 25% of the equity securities owned by the Fund; (iv) purchase securities on a when-issued or delayed-delivery basis; and (v) engage in the lending of portfolio securities. For information about these investment methods, restrictions on their use, and certain associated risks, see the related headings under "Special Investment Methods." For defensive purposes during times of unusual market conditions, the Fund may without limitation hold cash or invest in cash items of the kinds described under "Special Investment Methods -- Cash Items." The Fund also may invest not more than 35% of its total assets in cash and cash items in order to utilize assets awaiting normal investment. 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. 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." In addition, the Fund may (i) enter into repurchase agreements; (ii) in order to attempt to reduce risk, purchase put and call options on equity securities and on stock indices; (iii) write covered call options covering up to 25% of the equity securities owned by the Fund; (iv) purchase securities on a when-issued or delayed-delivery basis; and (v) engage in the lending of portfolio securities. For information about these investment methods, restrictions on their use, and certain associated risks, see the related headings under "Special Investment Methods." For temporary defensive purposes during times of unusual market conditions, the Fund may without limitation hold cash or invest in cash items of the kinds described under "Special Investment Methods -- Cash Items." The Fund also may invest not more than 35% of its total assets in cash and cash items in order to utilize assets awaiting normal investment. 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. 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. 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, Canada, Chile, China, Columbia, the Czech Republic, Denmark, Finland, France, Germany, Hong Kong, India, Indonesia, Ireland, Israel, Italy, Japan, Korea, Luxembourg, Malaysia, Mexico, the Netherlands, New Zealand, Norway, Peru, the Philippines, Singapore, Spain, Sweden, Switzerland, Taiwan, Thailand, 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 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-Adviser 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; (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 during times of unusual market conditions, the Fund may without limitation hold cash or invest in cash items of the kinds described under "Special Investment Methods -- Cash Items." 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 here. Because of the special risks associated with foreign investing and the Sub-Adviser'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. 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. SMALLER-CAPITALIZATION COMPANIES. Emerging Growth Fund and Regional Equity Fund emphasize investments in companies with relatively small market capitalizations, and the remaining Funds (excluding Equity Index Fund and Asset Allocation Fund) are permitted to invest in equity securities of such companies. The equity securities of smaller-capitalization 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 smaller-capitalization companies, they are subject to this risk of greater volatility. ACTIVE MANAGEMENT. All of the Funds other than Equity Index Fund are actively managed to a greater or lesser degree by the Adviser or, in the case of International Fund, the Sub-Adviser. The performance of these Funds therefore will reflect in part the ability of the Adviser or Sub-Adviser 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. 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 Adviser acts as investment adviser for and manages the investment portfolios of FAIF. INVESTMENT ADVISER First Bank National Association, 601 Second Avenue South, Minneapolis, Minnesota 55480, acts as the Funds' investment adviser through its First Asset Management group. The Adviser has acted as an investment adviser to FAIF since its inception in 1987 and has acted as investment adviser to First American Funds, Inc. since 1982. As of September 30, 1995, the Adviser was managing accounts with an aggregate value of approximately $29 billion, including mutual fund assets in excess of $7 billion. First Bank System, Inc., 601 Second Avenue South, Minneapolis, Minnesota 55480, is the holding company for the Adviser. Each of the Funds other than International Fund has agreed to pay the Adviser monthly fees calculated on an annual basis equal to 0.70% of its average daily net assets. International Fund pays the Adviser a monthly fee calculated on the same basis equal to 1.25% of its average daily net assets, out of which the Adviser pays the Sub-Adviser's fee. The Adviser 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. The Adviser 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 Adviser with respect to International Fund is higher than the advisory fee paid by most mutual funds, the Adviser 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 those activities. In addition, administrative and judicial interpretations of the Glass-Steagall Act prohibit bank holding companies and their bank and nonbank subsidiaries from organizing, sponsoring or controlling registered open-end investment companies that are continuously engaged in distributing their shares. Bank holding companies and their bank and nonbank subsidiaries may serve, however, as investment advisers to registered investment companies, subject to a number of terms and conditions. Although the scope of the prohibitions and limitations imposed by the Glass-Steagall Act has not been fully defined by the courts or the appropriate regulatory agencies, the Funds have received an opinion from their counsel that the Adviser is not prohibited from performing the investment advisory services described above. In the event of changes in federal or state statutes or regulations or judicial and administrative interpretations or decisions pertaining to permissible activities of bank holding companies and their bank and nonbank subsidiaries, the Adviser might be prohibited from continuing these arrangements. In that event, it is expected that the Board of Directors would make other arrangements and that shareholders would not suffer adverse financial consequences. SUB-ADVISER TO INTERNATIONAL FUND Marvin & Palmer Associates, Inc., 1201 North Market Street, Suite 2300, Wilmington, Delaware 19801, is Sub-Adviser to International Fund under an agreement with the Adviser (the "Sub-Advisory Agreement"). The Sub-Adviser 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-Adviser is paid a monthly fee by the Adviser calculated on an annual basis equal to 0.75% of the first $100 million of International Fund's average daily net assets, 0.70% of the second $100 million of International Fund's average daily net assets, 0.65% of the third $100 million of International Fund's average daily net assets, and 0.60% of International Fund's average daily net assets in excess of $300 million. The Sub-Adviser, a privately held company, was founded in 1986 by David F. Marvin and Stanley Palmer. The stock of the Sub-Adviser is owned by Mr. Marvin, Mr. Palmer and 21 other holders. The Sub-Adviser is engaged in the management of global, non-United States and emerging markets equity portfolios for institutional accounts. At September 30, 1995, the Sub-Adviser managed a total of $3.1 billion in investments for 55 institutional investors. PORTFOLIO MANAGERS Stock Fund, Equity Index Fund and Balanced Fund are managed by a committee comprised of Mr. Doak, Mr. Jensen, Ms. Lilly, Mr. Murphy, Mr. Rinkoff and Mr. Rovner, whose backgrounds are set forth below. Asset Allocation Fund, Equity Income Fund and Diversified Growth Fund are managed by a committee comprised of Mr. Bren, Mr. Doak, Mr. Dubiak, Ms. Halbe, Ms. Hoyme, Ms. Johnson, Mr. Murphy and Mr. Whitcomb, 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 six of the Funds, as set forth above. Jim joined the Adviser 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, and served as the analyst and portfolio manager for Stock Fund since its inception in December 1987. Jim received his 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. RICHARD W. JENSEN is a member of the committee which manages three of the Funds, as set forth above, and he supervises and monitors the performance of the Sub-Adviser with respect to International Fund. He is Senior Managing Director and a portfolio manager with the Adviser, having joined it in 1967. Prior to that time he was employed by Merrill Lynch, Pierce, Fenner & Smith and Irving Trust Company. He received his bachelor's degree from the University of Minnesota and is a Chartered Financial Analyst. ELIZABETH M. LILLY is a member of the committee which manages three of the Funds, as set forth above, and she is co-manager of Regional Equity Fund. Beth joined the Adviser in 1992 after several years in the investment industry with The St. Paul Companies, Fund American Companies and Goldman Sachs & Co. She received her bachelor's degree from Hobart /William Smith College and is a Chartered Financial Analyst. JOHN M. MURPHY, JR. is a member of the committees which manage six of the Funds, as set forth above. John is Chief Investment Officer of the Adviser's First Asset Management group, having joined the Adviser 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 Adviser. He received his bachelor's degree from Regis College. RICHARD J. RINKOFF is a member of the committee which manages three of the Funds, as set forth above, and he is portfolio co-manager for Regional Equity Fund. Rick joined the Adviser in 1977 after serving as an investment officer for two years for Pittsburgh National Bank. Since then, he has managed assets for individuals and institutional clients of the Adviser, specializing in managing investments in regional equities. He has served as portfolio manager for the regional fund management style since 1981. Rick received his bachelor's degree in mathematics and his master's degree in business from Carnegie-Mellon University. He is a Chartered Financial Analyst. JAMES S. ROVNER is a member of the committee which manages three of the Funds, as set forth above, and he is portfolio manager for Special Equity Fund. Jim joined the Adviser in 1986 and has managed assets for institutional and individual clients for over 15 years, specializing in equity and balanced investment strategies. Jim 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 committee which manages three of the Funds, as set forth above, and he is portfolio co-manager for Emerging Growth Fund and Health Sciences Fund. Gerald joined the Adviser in 1972 as an investment analyst. He received his master's degree in business administration from the University of Chicago in 1972 and his Chartered Financial Analyst certification in 1977. ALBIN S. DUBIAK is a member of the committee which manages three of the Funds, as set forth above, and he is portfolio co-manager for Emerging Growth Fund. Al began his investment career as a security trader with The First National Bank of Chicago in 1963 before joining the Adviser as an investment analyst in 1969. Al received his bachelor's degree from Indiana University in 1962 and his master's degree in business administration from the University of Arizona in 1969. JOYCE A.K. HALBE is a member of the committee which manages three of the Funds, as set forth above, and she is co-manager of Health Sciences Fund. Joyce joined the Adviser in 1990 after serving as a trust investment officer at Norwest Bank Minnesota, N.A. and as a research analyst at Edward D. Jones and Company. She received her master of science degree and her master's degree in business administration from the University of Wisconsin -- Madison. She is a Chartered Financial Analyst. MARY M. HOYME is a member of the committee which manages three of the Funds, as set forth above, and she is portfolio manager for Real Estate Securities Fund. Mary joined the Adviser in 1989 as a research analyst, prior to which she was employed for seven years as an equity and economic analyst with IDS Financial Services. She received her bachelor's degree from the University of Wisconsin -- Eau Claire and her master's degree in business administration from the College of St. Thomas. She is a Chartered Financial Analyst. CORI B. JOHNSON is a member of the committee which manages three of the Funds, as set forth above. Cori has been managing assets using quantitative analysis techniques since 1992. She joined the Adviser in 1991 as a securities analyst. Cori 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 is a member of the committee which manages three of the Funds, as set forth above, and he is portfolio co-manager for Technology Fund. Roland joined the Adviser in 1986 after serving as an account executive with Smith Barney & Co. since 1979. He received his bachelor's degree from the University of Chicago and is a Chartered Financial Analyst. JEFF A. JOHNSON is portfolio co-manager for Technology Fund. Jeff has been employed by the Adviser in investment management since 1991 and in commercial lending from 1985 to 1991. He received his master of arts degree from the University of Iowa. A committee comprised of the following five individuals shares the management of International Fund on behalf of the Sub-Adviser: DAVID F. MARVIN is Chairman of the Sub-Adviser and founded the firm together with Mr. Palmer in 1986. Before founding the Sub-Adviser, 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. He 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 President of the Sub-Adviser 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. He 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. TERRY B. MASON is a Vice President and Portfolio Manager of the Sub-Adviser. Before joining the Sub-Adviser, Mr. Mason was employed for 14 years by DuPont Corporation, the last five as international equity analyst and international trader. He 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 Vice President and Portfolio Manager for the Sub-Adviser and joined the firm in 1989. He received his bachelor's degree from Wesleyan University. TODD D. MARVIN is a Vice President and Portfolio Manager for the Sub-Adviser and joined the firm in 1991. Before joining the Sub-Adviser, Mr. Marvin was employed by Oppenheimer & Company as an analyst in investment banking. Mr. Marvin received his bachelor's degree from Wesleyan University. CUSTODIAN The custodian of the Funds' assets is First Trust National Association (the "Custodian"), First Trust Center, 180 East Fifth Street, St. Paul, Minnesota 55101. The Custodian is a subsidiary of First Bank System, Inc., which also controls the Adviser. As compensation for its services to Stock Fund, Equity Index Fund, Balanced Fund, Asset Allocation Fund, Regional Equity Fund, and Special Equity Fund, the Custodian is paid the following fees: (i) an annual administration fee of $750 per Fund; (ii) an issue held fee, computed as of the end of each month, at the annual rate of $30 per securities issue held by each Fund; (iii) transaction fees, consisting of (a) a securities buy/sell/maturity fee of $15 per each such transaction, and (b) a payment received fee of $12 for each principal pay down payment received on collateralized mortgage pass-through instruments; (iv) a wire transfer fee of $10 per transaction; (v) a cash management fee, for "sweeping" cash into overnight investments, at an annual rate of 0.25% of the amounts so invested; and (vi) a remittance fee, for payment of each Fund's expenses, of $3.50 per each check drawn for such remittances. The Custodian is paid monthly fees equal to 0.03% of the average daily net assets of Equity Income Fund, Diversified Growth Fund, Emerging Growth Fund, Technology Fund, Health Sciences Fund, and Real Estate Securities Fund and 0.25% of the average daily net assets of International Fund. Sub-custodian fees with respect to International Fund are paid by the Custodian out of this amount. 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 Fund to maintain its securities and cash in the custody of certain eligible foreign banks and depositories. International Fund's portfolio of non-United States securities are held by sub-custodians which are approved by the directors of FAIF 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 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 Fund's assets. ADMINISTRATOR The administrator for the Funds is SEI Financial Management Corporation (the "Administrator"), 680 East Swedesford Road, Wayne, Pennsylvania 19087. The Administrator, a wholly-owned subsidiary of SEI Corporation, provides the Funds with certain administrative services necessary to operate the Funds. These services include shareholder servicing and certain accounting and other services. The Administrator provides these services for a fee calculated at an annual rate of 0.12% of each Fund's average daily net assets, subject to a minimum administrative fee during each fiscal year of $50,000 per Fund; 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. 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 210 West 10th Street, Kansas City, Missouri 64105. The Transfer Agent is not affiliated with the Distributor, the Administrator or the Adviser. DISTRIBUTOR SEI Financial Services Company is the principal distributor for shares of the 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 is a wholly-owned subsidiary of SEI Corporation and is located at 680 East Swedesford Road, Wayne, Pennsylvania 19087. The Distributor is not affiliated with the Adviser, First Bank System, Inc., the Custodian or their respective affiliates. The Distributor, the Administrator and the Adviser may in their discretion use their own assets to pay for certain costs of distributing Fund shares. They also may discontinue any payment of such costs at any time. PURCHASES AND REDEMPTIONS OF SHARES SHARE PURCHASES AND REDEMPTIONS Shares of the Funds are sold and redeemed on days on which the New York Stock Exchange is open for business ("Business Days"). Payment for shares can be made only by wire transfer. Wire transfers of federal funds for share purchases should be sent to First Bank National Association, Minneapolis, Minnesota, ABA Number 091000022; For Credit to: DST Systems: Account Number 6023458026; For Further Credit To: (Investor Name and Fund Name). Shares cannot be purchased by Federal Reserve wire on days on which the New York Stock Exchange is closed and on Federal holidays upon which wire transfers are restricted. Purchase orders will be effective and eligible to receive dividends declared the same day if the Transfer Agent receives an order before 3:00 p.m. Central time and the Custodian receives Federal funds before the close of business that day. Otherwise, the purchase order will be effective the next Business Day. The net asset value per share is calculated as of 3:00 p.m. Central time each Business Day. The Funds reserve the right to reject a purchase order. The Funds are required to redeem for cash all full and fractional shares of the Funds. Redemption orders may be made any time before 3:00 p.m. Central time in order to receive that day's redemption price. For redemption orders received before 3:00 p.m. Central time, payment will ordinarily be made the same day by transfer of Federal funds, but payment may be made up to 7 days later. WHAT SHARES COST Class C Shares of the Funds are sold and redeemed at net asset value. The net asset value per share is determined as of the earlier of the close of the New York Stock Exchange or 3:00 p.m. Central time on each day the New York Stock Exchange is open for business, provided that net asset value need not be determined on days when no Fund shares are tendered for redemption and no order for 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. Investments in equity securities which are traded on a national securities exchange (or reported on the NASDAQ national market system) are stated at the last quoted sales price if readily available for such equity securities on each business day; other equity securities traded in the over-the-counter market and listed equity securities for which no sale was reported on that date are stated at the last quoted bid price. Debt obligations exceeding 60 days to maturity which are actively traded are valued by an independent pricing service at the most recently quoted bid price. Debt obligations with 60 days or less remaining until maturity may be valued at their amortized cost. Foreign securities are valued based upon quotation from the primary market in which they are traded. When market quotations are not readily available, securities are valued at fair value as determined in good faith by procedures established and approved by the Board of Directors. Portfolio securities underlying actively traded options are valued at their market price as determined above. The current market value of any exchange traded option held or written by a Fund is its last sales price on the exchange prior to the time when assets are valued, unless the bid price is higher or the asked price is lower, in which event the bid or asked price is used. In the absence of any sales that day, options will be valued at the current closing bid price. 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 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. If events materially affecting the value of foreign securities occur between the time when their price is determined and the time when the Funds' net asset value is calculated, such securities will be valued at fair value as determined in good faith by or under the direction of the Board of Directors. 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 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. 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 Adviser 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. 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. DIVIDENDS AND DISTRIBUTIONS Dividends are declared and paid monthly with respect to Stock Fund, Equity Index Fund, Balanced Fund, Asset Allocation Fund, Equity Income Fund, Diversified Growth Fund, and Special Equity Fund, to all shareholders of record on the record date. Dividends are declared paid quarterly with respect to Emerging Growth Fund, Regional Equity Fund, Technology Fund, Health Sciences Fund, and Real Estate Securities 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. All shareholders on the record date are entitled to the dividend. If shares are purchased before a record date for a dividend or a distribution of capital gains, a shareholder will pay the full price for the shares and will receive some portion of the purchase price back as a taxable dividend or distribution (to the extent, if any, that the dividend or distribution is otherwise taxable to holders of Fund shares). If shares are redeemed or exchanged before the record date for a dividend or distribution or are purchased after the record date, those shares are not entitled to the dividend or distribution. The amount of dividends payable on Class C Shares generally will be more than the dividends payable on Class A or Class B Shares because of the distribution expenses charged to Class A and Class B Shares. EXCHANGE PRIVILEGE Shareholders may exchange Class C Shares of a Fund for currently available Class C Shares of the other FAIF Funds or of other funds in the First American family at net asset value. Exchanges of shares among the FAIF Funds must meet any applicable minimum investment of the fund for which shares are being exchanged. The ability to exchange shares of the 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. 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. These procedures may include taping of telephone conversations. Shares of a class in which an investor is no longer eligible to participate may be exchanged for shares of a class in which that investor is eligible to participate. An example of this kind of exchange would be a situation in which Class C Shares of 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. FEDERAL INCOME TAXES Each Fund intends to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), during its current taxable year in order to be relieved of payment of federal income taxes on amounts of taxable income it distributes to shareholders. Dividends paid from each Fund's net investment income and net short-term capital gains will be taxable to shareholders as ordinary income, whether or not the shareholder elects to have such dividends automatically reinvested in additional shares. Dividends paid by the Funds attributable to investments in the securities of foreign issuers or REITs will not be eligible for the 70% deduction for dividends received by corporations. Dividends paid from the net capital gains of each Fund and designated as capital gain dividends will be taxable to shareholders as long-term capital gains, regardless of the length of time for which they have held their shares in the Fund. Gain or loss realized upon the sale of shares in the Fund will be treated as capital gain or loss, provided that the shares represented a capital asset in the hands of the shareholder. Such gain or loss will be long-term gain or loss if the shares were held for more than one year. 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 the 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 Fund's taxable year more than 50% of its total assets consist of securities of foreign corporations, it 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 Fund shareholders will be notified of the amounts which they may deduct as foreign taxes paid or use as foreign tax credits. Alternatively, if the amount of foreign taxes paid by International Fund is not large enough to warrant its making the election described above, the 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 the 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 Fund. 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. Before investing in the Funds, an investor should consult his or her tax adviser about the consequences of state and local tax laws. 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. 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, the shares of that Fund or Class will vote as a separate series. Examples of such issues would be proposals to alter a fundamental investment restriction pertaining to a Fund or to approve, disapprove or alter a distribution plan pertaining to a Class. Under the laws of the State of Maryland and FAIF's Articles of Incorporation, FAIF is not required to hold shareholder meetings unless they (i) are required by the 1940 Act, or (ii) are requested in writing by the holders of 25% or more of the outstanding shares of FAIF. CALCULATION OF PERFORMANCE DATA From time to time, 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 Securities and Exchange Commission ("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 C Shares of a Fund will normally be higher than for the Class A and Class B Shares because Class C Shares are not subject to the sales charges and distribution expenses applicable to Class A and Class B Shares. In reports or other communications to shareholders and in advertising material, the performance of each Fund may be compared to recognized unmanaged indices or averages of the performance of similar securities. 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. 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. 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 and time deposits (including certificates of deposit); bankers acceptances; obligations of the United States Government or its agencies or instrumentalities; repurchase agreements collateralized by eligible investments of 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. 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 Adviser or, in the case of International Fund, the Sub-Adviser will monitor the creditworthiness of the firms with which the Funds enter into repurchase agreements. WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS Each of the Funds (excluding Equity 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. LENDING OF PORTFOLIO SECURITIES In order to generate additional income, each of the Funds (excluding Equity Index Fund) may lend portfolio securities representing up to one-third of the value of its total assets to broker-dealers, banks or other institutional borrowers of securities. As with other extensions of credit, there may be risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail financially. However, the Funds will only enter into loan arrangements with broker-dealers, banks, or other institutions which the Adviser or, in the case of International Fund, the Sub-Adviser 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 in connection with these loans. 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 COVERED 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. 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. FUTURES AND OPTIONS ON FUTURES Equity Index Fund, Balanced Fund, Asset Allocation 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 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, 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 Internal Revenue Code of 1986, as amended. 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. FIXED INCOME SECURITIES The fixed income securities in which Stock Fund, Equity Income Fund, Diversified Growth Fund, Emerging Growth Fund, Regional Equity Fund, Special Equity Fund, Technology Fund, Health Sciences Fund and Real Estate Securities Fund may invest include securities issued or guaranteed by the United States Government or its agencies or instrumentalities, nonconvertible preferred stocks, nonconvertible corporate debt securities, and short-term obligations of the kinds described above under "-- Cash Items." Investments in nonconvertible preferred stocks and nonconvertible corporate debt securities will be limited to securities which are rated at the time of purchase not less than BBB by Standard & Poor's or Baa by Moody's (or equivalent short-term ratings), or which have been assigned an equivalent rating by another nationally recognized statistical rating organization, or which are of comparable quality in the judgment of the Adviser. Obligations rated BBB, Baa or their equivalent, although investment grade, have speculative characteristics and carry a somewhat higher risk of default than obligations rated in the higher investment grade categories. Equity Income Fund also may invest a portion of its 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 and Asset Allocation 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). FOREIGN SECURITIES GENERAL. Under normal market conditions International Fund invests at least 65% of its total assets in equity securities which trade in markets other than the United States. In addition, the other Funds (excluding Equity Index Fund, Asset Allocation Fund, Regional Equity Fund and Real Estate Securities 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. 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. 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 Fund also may invest in 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. FOREIGN CURRENCY TRANSACTIONS International Fund invests 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 Fund also will incur costs in converting United States dollars to local currencies, and vice versa. International Fund will conduct its 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-Adviser'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-Adviser'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. MORTGAGE-BACKED SECURITIES With respect to the fixed income portion of its portfolio, Balanced Fund may invest in mortgage-backed securities which are Agency Pass-Through 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 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 Adviser. 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 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 and inverse floating rate 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 or inverse floating rate mortgage backed securities. ASSET-BACKED SECURITIES With respect to the fixed income portion of its portfolio, 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 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. 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. 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 Adviser or, in the case of International Fund, the Sub-Adviser. 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 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, except for Asset Allocation Fund, which may borrow in amounts not to exceed 33-1/3% of its 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. * None of the Funds will mortgage, pledge or hypothecate its assets, except in an amount not exceeding 15% of the value of its total assets to secure temporary or emergency borrowing. * None of the Funds will make short sales of securities. * 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 Emerging 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 Securities and Exchange Commission rules and interpretations. Section 4(2) commercial paper may be determined to be "liquid" under guidelines adopted by the Board of Directors. Rule 144A securities may in the future be determined to be "liquid" under guidelines adopted by the Board of Directors if the current position of certain state securities regulators regarding such securities is modified. Investing in Rule 144A securities could have the effect of increasing the level of illiquidity in a Fund to the extent that qualified institutional buyers become, for a time, uninterested in purchasing these securities. Pursuant to an undertaking to certain state securities regulators, Real Estate Securities Fund will purchase securities that meet the investment objectives and policies of the Fund, are acquired for investment and not for resale, that are liquid and not restricted as to transfer, and that have a value that is readily ascertainable as evidenced by a listing on the New York Stock Exchange, the American Stock Exchange, or NASDAQ. FIRST AMERICAN INVESTMENT FUNDS, INC. 680 East Swedesford Road Wayne, Pennsylvania 19087 INVESTMENT ADVISER FIRST BANK NATIONAL ASSOCIATION 601 Second Avenue South Minneapolis, Minnesota 55402 CUSTODIAN FIRST TRUST NATIONAL ASSOCIATION 180 East Fifth Street St. Paul, Minnesota 55101 DISTRIBUTOR SEI FINANCIAL SERVICES COMPANY 680 East Swedesford Road Wayne, Pennsylvania 19087 ADMINISTRATOR SEI FINANCIAL MANAGEMENT CORPORATION 680 East Swedesford Road Wayne, Pennsylvania 19087 TRANSFER AGENT DST SYSTEMS, INC. 210 West 10th Street Kansas City, Missouri 64105 INDEPENDENT AUDITORS KPMG PEAT MARWICK LLP 90 South Seventh Street Minneapolis, Minnesota 55402 COUNSEL DORSEY & WHITNEY P.L.L.P. 220 South Sixth Street Minneapolis, Minnesota 55402 FAIF-1503 (1/96) I FIRST AMERICAN INVESTMENT FUNDS, INC. FIXED INCOME FUNDS RETAIL CLASS LIMITED TERM INCOME FUND INTERMEDIATE TERM INCOME FUND FIXED INCOME FUND INTERMEDIATE GOVERNMENT BOND FUND PROSPECTUS JANUARY 31, 1996 [LOGO] FIRST AMERICAN FUNDS The power of disciplined investing TABLE OF CONTENTS PAGE SUMMARY 4 FEES AND EXPENSES 8 Class A Share Fees and Expenses 8 Class B Share Fees and Expenses 10 Information Concerning Fees and Expenses 12 FINANCIAL HIGHLIGHTS 14 THE FUNDS 16 INVESTMENT OBJECTIVES AND POLICIES 16 Limited Term Income Fund, Intermediate Term Income Fund, and Fixed Income Fund 17 Intermediate Government Bond Fund 19 Risks to Consider 20 MANAGEMENT 22 Investment Adviser 22 Portfolio Managers 23 Custodian 23 Administrator 24 Transfer Agent 24 DISTRIBUTOR 24 INVESTING IN THE FUNDS 26 Share Purchases 26 Minimum Investment Required 27 Alternative Sales Charge Options 27 Systematic Investment Program 33 Exchanging Securities for Fund Shares 33 Certificates and Confirmations 33 Dividends and Distributions 34 Exchange Privilege 34 REDEEMING SHARES 36 By Telephone 36 By Mail 37 By Systematic Withdrawal Program 38 Redemption Before Purchase Instruments Clear 38 Accounts with Low Balances 38 DETERMINING THE PRICE OF SHARES 39 Determining Net Asset Value 39 Foreign Securities 40 FEDERAL INCOME TAXES 40 FUND SHARES 41 CALCULATION OF PERFORMANCE DATA 42 SPECIAL INVESTMENT METHODS 43 Bank Instruments 43 Asset-Backed Securities 44 Foreign Securities 44 Mortgage-Backed Securities 45 Repurchase Agreements 47 When-Issued and Delayed-Delivery Transactions 47 Lending of Portfolio Securities 48 Options Transactions 48 Portfolio Transactions 49 Portfolio Turnover 49 Investment Restrictions 50 FIRST AMERICAN INVESTMENT FUNDS, INC. 680 East Swedesford Road, Wayne, Pennsylvania 19087 RETAIL CLASSES PROSPECTUS The shares described in this Prospectus represent interests in First American Investment Funds, Inc., which consists of mutual funds with several different investment portfolios and objectives. This Prospectus relates to the Class A and Class B Shares of the following funds (the "Funds"): * LIMITED TERM INCOME FUND * FIXED INCOME FUND * INTERMEDIATE TERM INCOME FUND * INTERMEDIATE GOVERNMENT BOND FUND SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK, INCLUDING FIRST BANK NATIONAL ASSOCIATION AND ANY OF ITS AFFILIATES, NOR ARE THEY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. AN INVESTMENT IN THE 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, 1996 for the Funds has been filed with the Securities and Exchange Commission and is incorporated in its entirety by reference in this Prospectus. To obtain copies of the Statement of Additional Information at no charge, or to obtain other information or make inquiries about the Funds, call (800) 637-2548 or write SEI Financial Services Company, 680 East Swedesford Road, Wayne, Pennsylvania 19087. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is January 31, 1996. 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"): LIMITED TERM INCOME FUND has an objective of providing current income while attempting to provide a high degree of principal stability. This Fund invests in investment grade debt securities, at least 65% of which are United States Government obligations and corporate debt obligations and mortgage-backed and asset-backed 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 securities held by this Fund will range from 6 months to 2 years. INTERMEDIATE TERM INCOME FUND has an objective of providing current income to the extent consistent with preservation of capital. This Fund generally invests in the same kinds of debt securities as Limited Term Income Fund. Under normal market conditions, the weighted average maturity of the securities held by this Fund will range from 3 to 7 years. FIXED INCOME FUND has an objective of providing a high level of current income consistent with limited risk to capital. This Fund generally invests in the same kinds of debt securities as Limited Term Income Fund. Under normal market conditions, the weighted average maturity of the securities held by this Fund will not exceed 15 years. INTERMEDIATE GOVERNMENT BOND FUND has an objective of providing current income to the extent consistent with preservation of capital. Under normal market conditions, this Fund invests at least 65% of its total assets in securities issued or guaranteed by the United States Government and its agencies and instrumentalities. Under normal market conditions, the weighted average maturity of the securities held by this Fund will range from 3 to 7 years. At the present time, Class B Shares are offered only with respect to Fixed Income Fund. INVESTMENT ADVISER First Bank National Association (the "Adviser") serves as investment adviser to each of the Funds. See "Management." DISTRIBUTOR; ADMINISTRATOR SEI Financial Services Company (the "Distributor") serves as the distributor of the Funds' shares. SEI Financial 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 2.00% for Limited Term Income Fund, 3.00% for Intermediate Government Bond Fund, and 3.75% for Intermediate Term Income Fund and Fixed Income Fund. These sales charges are reduced on purchases of $50,000 or more. Purchases of $1 million or more of Class A Shares are not subject to an initial sales charge, but a contingent deferred sales charge of 1.00% will be imposed on such purchases in the event of redemption within 24 months following the purchase. Class A Shares of the Funds otherwise are redeemed at net asset value without any additional charge. Class A Shares of each Fund are subject to a Rule 12b-1 distribution and service fee computed at an annual rate of 0.25% of the average daily net assets of that class. See "Investing in the 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 service fees computed at an annual rate totaling 1.00% of the average daily net assets of that class. If Class B Shares are redeemed within six years after purchase, they are subject to a contingent deferred sales charge declining from 5.00% in the first year to zero after six years. Class B Shares automatically convert into Class A Shares approximately eight years after purchase. See "Investing in the 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 FAIF 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, 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 (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). In addition, those Funds which may invest in mortgage-backed securities are subject to certain additional risks associated with investing in securities representing interests in, or secured by, pools of residential mortgage loans. The Funds also may, 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. See "Investment Objectives and Policies -- Risks to Consider" 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. FEES AND EXPENSES CLASS A SHARE FEES AND EXPENSES
LIMITED TERM INTERMEDIATE FIXED INTERMEDIATE INCOME TERM INCOME INCOME GOVERNMENT FUND FUND FUND BOND FUND SHAREHOLDER TRANSACTION EXPENSES Maximum sales load imposed on purchases (as a percentage of offering price)(1) 2.00% 3.75% 3.75% 3.00% Maximum sales load imposed on reinvested dividends None None None None Deferred sales load(1) None None None None Redemption fees None None None None Exchange fees None None None None ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS) Investment advisory fees (after voluntary fee waivers)(2) 0.36% 0.48% 0.48% 0.46% Rule 12b-1 fees (after voluntary fee waivers)(2) 0% 0% 0.25% 0% Other expenses (after voluntary fee waivers and reimbursements)(2) 0.24% 0.22% 0.22% 0.24% Total fund operating expenses (after voluntary fee waivers and reimbursements)(2) 0.60% 0.70% 0.95% 0.70% EXAMPLE(3) 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 $ 26 $ 44 $ 47 $ 37 3 years $ 39 $ 59 $ 67 $ 52 5 years $ 53 $ 75 $ 88 $ 68 10 years $ 94 $ 121 $ 150 $ 114
(1) The rules of the Securities and Exchange Commission require that the maximum sales charge be reflected in the above table. However, certain investors may qualify for reduced sales charges. Purchases of $1 million or more of Class A Shares are not subject to an initial sales charge, but a contingent deferred sales charge of 1.00% will be imposed in the case of redemption within 24 months following the purchase. See "Investing in the Funds -- Alternative Sales Charge Options." (2) The Adviser, the Distributor and the Administrator intend to waive a portion of their fees and/or reimburse expenses on a voluntary basis, and the amounts shown reflect these waivers and reimbursements as of the date of this Prospectus. Each of these persons intends to maintain such waivers and reimbursements in effect for the current fiscal year but reserves the right to discontinue such waivers and reimbursements at any time in its sole discretion. Absent any fee waivers, investment advisory fees for each Fund as an annualized percentage of average daily net assets would be 0.70%; Rule 12b-1 fees calculated on such basis would be 0.25%; and total fund operating expenses calculated on such basis would be 1.22% for Limited Term Income Fund, 1.19% for Intermediate Term Income Fund, 1.19% for Fixed Income Fund and 1.22% for Intermediate Government Bond Fund. Other expenses includes an administration fee and is based on estimated amounts for the current fiscal year. (3) Absent the fee waivers and reimbursements referred to in (2) above, the dollar amounts for the 1, 3, 5 and 10-year periods would be as follows: Limited Term Income Fund, $32, $58, $86 and $165; Intermediate Term Income Fund, $49, $74, $100 and $176; Fixed Income Fund, $49, $74, $100 and $176; and Intermediate Government Bond Fund, $42, $68, $95 and $173. CLASS B SHARE FEES AND EXPENSES
LIMITED INTERMEDIATE TERM INTERMEDIATE FIXED GOVERNMENT INCOME TERM INCOME INCOME BOND FUND FUND FUND FUND SHAREHOLDER TRANSACTION EXPENSES Maximum sales load imposed on purchases (as a percentage of offering price) None None None None Maximum sales load imposed on reinvested dividends 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% Redemption fees None None None None Exchange fees None None None None ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS) Investment advisory fees (after voluntary fee waivers and reimbursements)(1) 0.36% 0.48% 0.48% 0.46% Rule 12b-1 fees 1.00% 1.00% 1.00% 1.00% Other expenses (after voluntary fee waivers and reimbursements)(1) 0.24% 0.22% 0.22% 0.24% Total fund operating expenses (after voluntary fee waivers and reimbursements)(1) 1.60% 1.70% 1.70% 1.70% EXAMPLE: ASSUMING REDEMPTION(2) You would pay the following expenses on a $1,000 investment, assuming (i) a 5% annual return; (ii) redemption at the end of each time period; and (iii) payment of the maximum applicable contingent deferred sales charge of 5% in year 1, 4% in year 3, 2% in year 5, and automatic conversion at the end of year 8: 1 year $ 66 $ 67 $ 67 $ 67 3 years $ 90 $ 94 $ 94 $ 94 5 years $ 107 $ 112 $ 112 $ 112 10 years $ 163 $ 174 $ 181 $ 174 ASSUMING NO REDEMPTION(3) You would pay the following expenses on the same investment, assuming no redemption: 1 year $ 16 $ 17 $ 17 $ 17 3 years $ 50 $ 54 $ 54 $ 54 5 years $ 87 $ 92 $ 92 $ 92 10 years $ 163 $ 174 $ 181 $ 174
(1) The Adviser and the Administrator intend to waive a portion of their fees and/or reimburse expenses on a voluntary basis, and the amounts shown reflect these waivers and reimbursements as of the date of this Prospectus. Each of these persons intends to maintain such waivers and reimbursements in effect for the current fiscal year but reserves the right to discontinue such waivers and reimbursements at any time in its sole discretion. Absent any fee waivers, investment advisory fees for each Fund as an annualized percentage of average daily net assets would be 0.70%; and total fund operating expenses calculated on such basis would be 1.97% for Limited Term Income Fund, 1.94% for Intermediate Term Income Fund, 1.94% for Fixed Income Fund and 1.97% for Intermediate Government Bond Fund. Other expenses includes an administration fee and is based on estimated amounts for the current fiscal year. (2) Absent the fee waivers and reimbursements referred to in (1) above, the dollar amounts for the 1, 3, 5 and 10-year periods would be as follows: Limited Term Income Fund, $70, $102, $126 and $210; Intermediate Term Income Fund, $70, $102, $125 and $207; Fixed Income Fund, $70, $101, $125 and $207; and Intermediate Government Bond Fund, $70, $102, $126 and $210. (3) Absent the fee waivers and reimbursements referred to in (1) above, the dollar amounts for the 1, 3, 5 and 10-year periods would be as follows: Limited Term Income Fund, $20, $62, $106 and $210; Intermediate Term Income Fund, $20, $61, $105 and $207; Fixed Income Fund, $20, $61, $105 and $207; and Intermediate Government Bond Fund, $20, $62, $106 and $210. 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. The information set forth in the foregoing tables and examples relates only to the Class A and Class B Shares of the Funds. The Funds also offer Class C Shares which are subject to the same expenses except that they bear no sales loads and distribution fees. The examples in the above tables are based on projected annual Fund operating expenses after voluntary fee waivers and expense reimbursements by the Adviser, the Distributor and the Administrator. Although these persons intend to maintain such waivers in effect for the current fiscal year, any such waivers are voluntary and may be discontinued at any time. Prior to fee waivers, investment advisory fees accrue at the annual rate as a percentage of average daily net assets of 0.70% for each of the Funds. The Class A Shares of each Fund may pay distribution and service fees to the Distributor in an amount equaling 0.25% per year of each such class's average daily net assets, and the Class B Shares of each Fund bear distribution and servicing fees totaling 1.00% per year of each such class's average daily net assets. The Distributor also receives the sales charge for distributing the Funds' Class A Shares. Due to the distribution fees paid by these classes of shares, long-term shareholders may pay more than the equivalent of the maximum front-end sales charges otherwise permitted by NASD rules. For additional information, see "Distributor." Other expenses include fees paid by each Fund to the Administrator for providing various services necessary to operate the Funds. These include shareholder servicing and certain accounting and other services. The Administrator provides these services for a fee calculated at an annual rate of 0.12% of average daily net assets of each Fund subject to a minimum of $50,000 per Fund per fiscal year; provided, that to the extent that the aggregate net assets of all First American funds exceed $8 billion, the percentage stated above is reduced to 0.105%. Other expenses of the Funds also includes the cost of maintaining shareholder records, furnishing shareholder statements and reports, and other services. Investment advisory fees, administrative fees and other expenses are reflected in the Funds' daily dividends and are not charged to individual shareholder accounts. FINANCIAL HIGHLIGHTS The following audited financial highlights 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 the Statement of Additional Information. Further information about the Funds' performance is contained in FAIF's annual report to shareholders, which may be obtained without charge by calling (800) 637-2548 or by writing SEI Financial Services Company, 680 East Swedesford Road, Wayne, Pennsylvania 19087. 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 LIMITED TERM INCOME FUND Class A 1995 $ 9.85 $0.56 $ 0.07 $(0.56) $ -- 1994 10.06 0.44 (0.22) (0.43) -- 1993(1) 10.00 0.29 0.07 (0.30) -- Class B 1995(2) $ 9.84 $0.13 $(0.08) $(0.14) $ -- 1994(3) 9.86 0.04 0.01 (0.07) -- INTERMEDIATE TERM INCOME FUND Class A 1995 $ 9.55 $0.59 $ 0.38 $(0.58) $ -- 1994 10.22 0.46 (0.56) (0.46) (0.11) 1993(1) 10.00 0.41 0.29 (0.41) (0.07) FIXED INCOME FUND Class A 1995 $10.37 $0.66 $ 0.61 $(0.63) $(0.03) 1994 11.38 0.57 (0.89) (0.57) (0.12) 1993 11.13 0.62 0.36 (0.61) (0.12) 1992 10.59 0.66 0.60 (0.66) (0.06) 1991(4) 10.01 0.65 0.58 (0.65) -- 1990(5) 10.44 0.74 (0.26) (0.74) (0.17) 1989(5) 10.13 0.74 0.31 (0.74) -- 1988(5)(6) 10.03 0.62 0.13 (0.65) -- Class B 1995 $10.35 $0.58 $ 0.60 $(0.56) $(0.03) 1994(3) 10.54 0.08 (0.17) (0.10) -- INTERMEDIATE GOVERNMENT BOND FUND Class A 1995 $ 8.98 $0.54 $ 0.31 $(0.54) $ -- 1994 9.52 0.41 (0.51) (0.39) (0.05) 1993 10.18 0.44 0.02 (0.44) (0.68) 1992 10.25 0.60 0.28 (0.60) (0.35) 1991(4) 10.01 0.65 0.24 (0.65) -- 1990(5) 10.05 0.75 (0.04) (0.75) -- 1989(5) 9.99 0.74 0.06 (0.74) -- 1988(5)(6) 10.03 0.58 (0.01) (0.61) --
(table continued)
RATIO OF RATIO OF NET EXPENSES TO RATIO OF INVESTMENT AVERAGE NET NET ASSET NET ASSETS EXPENSES TO INCOME TO ASSETS VALUE END END OF AVERAGE NET AVERAGE NET (EXCLUDING PORTFOLIO OF PERIOD TOTAL RETURN PERIOD (000) ASSETS ASSETS WAIVERS) TURNOVER RATE LIMITED TERM INCOME FUND Class A 1995 $ 9.92 6.57% $ 9,977 0.60% 5.60% 1.22% 120% 1994 9.85 2.21% 9,509 0.60 4.17 1.23 48 1993(1) 10.06 3.61%+ 121,800 0.60 3.61 1.27 104 Class B 1995(2) $ -- 0.52%+ $ -- 1.60% 5.22% 1.97% 120% 1994(3) 9.84 0.51%+ 1 1.60 3.50 2.03 48 INTERMEDIATE TERM INCOME FUND Class A 1995 $ 9.94 10.51% $ 2,437 0.70% 5.97% 1.19% 69% 1994 9.55 (1.05%) 3,208 0.69 2.48 1.24 177 1993(1) 10.22 7.21%+ 67,291 0.70 4.90 1.29 163 FIXED INCOME FUND Class A 1995 $10.98 12.78% $ 7,853 0.86% 6.14% 1.19% 106% 1994 10.37 (2.92%) 8,028 0.68 3.83 1.06 142 1993 11.38 9.20% 53,601 0.70 5.65 1.14 91 1992 11.13 12.34% 5,645 0.99 6.12 2.68 180 1991(4) 10.59 12.48%+ 6,045 0.99 6.85 4.11 176 1990(5) 10.01 5.14% 2,209 1.07 7.49 5.46 144 1989(5) 10.44 10.93% 555 1.22 7.26 22.44 157 1988(5)(6) 10.13 8.07%+ 240 0.96 7.18 20.70 93 Class B 1995 $10.94 11.75% $ 7,280 1.70% 5.12% 1.94% 106% 1994(3) 10.35 (0.88%)+ 115 1.70 4.89 1.92 142 INTERMEDIATE GOVERNMENT BOND FUND Class A 1995 $ 9.29 9.82% $ 2,860 0.70% 6.10% 1.22% 17% 1994 8.98 (1.13%) 1,977 0.53 4.49 2.14 74 1993 9.52 4.99% 3,716 0.71 4.00 4.73 182 1992 10.18 8.88% 589 0.99 6.03 14.14 101 1991(4) 10.25 9.13%+ 1,756 0.99 6.99 6.76 100 1990(5) 10.01 7.41% 1,573 1.08 7.57 5.55 40 1989(5) 10.05 8.35% 1,501 1.19 7.49 9.65 72 1988(5)(6) 9.99 6.18%+ 375 0.95 6.78 17.20 0
+ Returns, excluding sales charges, are for the period indicated and have not been annualized. (1) Commenced operations on December 14, 1992. All ratios for the period have been annualized. (2) Closed operations on January 31, 1995. All ratios for the period have been annualized. (3) Class B shares have been offered since August 15, 1994. All ratios for the period have been annualized. (4) 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. (5) For the period ended October 31. (6) Commenced operations on December 22, 1987. All ratios for the period have been annualized. 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 C) which provide for variations in distribution costs, voting rights and dividends. Except for these differences among classes, each share of each FAIF Fund represents an undivided proportionate interest in that fund. FAIF is incorporated under the laws of the State of Maryland, and its principal offices are located at 680 East Swedesford Road, Wayne, Pennsylvania 19087. This Prospectus relates only to the Class A and Class B Shares of the Funds named on the cover hereof. Information regarding the Class C Shares of these Funds and regarding the Class A, Class B and Class C Shares of the other FAIF Funds is contained in separate prospectuses that may be obtained from FAIF's Distributor, SEI Financial Services Company, 680 East Swedesford Road, Wayne, Pennsylvania 19087, or by calling (800) 637-2548. The Board of Directors of FAIF may authorize additional series or classes of common stock in the future. INVESTMENT 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 is a diversified investment company, as defined in the Investment Company Act of 1940 (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. 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, 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 Corporation ("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." LIMITED TERM INCOME FUND, INTERMEDIATE TERM INCOME FUND, AND FIXED INCOME FUND OBJECTIVES. Limited Term Income Fund has an objective of providing current income while attempting to provide a high degree of principal stability. Intermediate Term Income Fund has an objective of providing current income to the extent consistent with preservation of capital. Fixed Income Fund has an objective of providing a high level of current income consistent with limited risk to capital. INVESTMENT POLICIES. Each of these Funds invests in investment grade debt securities, at least 65% of which are United States Government obligations and corporate debt obligations and mortgage-backed and asset-backed 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 securities held by Limited Term Income Fund will range from 6 months to 2 years; that of Intermediate Term Income Fund will range from 3 to 7 years; and that of Fixed Income Fund will not exceed 15 years. These Funds' permitted investments include notes, bonds and discount notes of United States Government agencies or instrumentalities; 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 Adviser; other fixed income securities, 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 Adviser; 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. Unrated securities will not exceed 10% in the aggregate of the value of the total assets of any of these Funds. At least 65% of the total assets of Fixed Income Fund will be invested in fixed rate obligations. Subject to the foregoing limitations, each of these Funds may invest in the following kinds of securities, as described under the related headings under "Special Investment Methods:" (i) mortgage-backed securities (provided that Limited Term Income Fund will not invest in interest-only, principal-only or inverse floating rate mortgage-backed securities, and each of Intermediate Term Income Fund and Fixed Income Fund will not invest more than 10% of its total assets in the aggregate in these kinds of securities); (ii) asset-backed securities; and (iii) bank instruments. In addition, each of these Funds may (i) invest up to 15% of its total assets in foreign securities payable in United States dollars; (ii) enter into repurchase agreements; (iii) 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; (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." Limited Term Income Fund also may purchase investment-type insurance products such as Guaranteed Investment Contracts ("GICs"). A GIC is a deferred annuity under which the purchaser agrees to pay money to an insurer (either in a lump sum or in installments) and the insurer promises to pay interest at a guaranteed rate for the life of the contract. GICs may have fixed or variable interest rates. A GIC is a general obligation of the issuing insurance company. The purchase price paid for a GIC becomes part of the general assets of the insurer, and the contract is paid at maturity from the general assets of the insurer. In general, GICs are not assignable or transferable without the permission of the issuing insurance companies and can be redeemed before maturity only at a substantial discount or penalty. GICs therefore are usually considered to be illiquid investments. Limited Term Income Fund will purchase only GICs which are obligations of insurance companies with a policyholder's rating of A or better by A.M. Best Company. A description of these ratings is contained in the Statement of Additional Information. Although these Funds will not make direct purchases of common or preferred stocks or rights to acquire common or preferred stocks, they may invest in debt securities which are convertible into or exchangeable for, or which carry warrants or other rights to acquire, such stocks. Equity interests acquired through conversion, exchange or exercise of rights to acquire stock will be disposed of by these Funds as soon as practicable in an orderly manner. For temporary defensive purposes during times of unusual market conditions, these Funds may without limitation hold cash or invest in cash items. The Funds also may invest not more than 35% of their total assets in cash and cash items in order to utilize assets awaiting normal investment. Cash items may include short-term obligations such as rated commercial paper and variable amount master demand notes; time and savings deposits (including certificates of deposit); bankers acceptances; obligations of the United States Government or its agencies or instrumentalities; and repurchase agreements collateralized by eligible investments. INTERMEDIATE GOVERNMENT BOND FUND OBJECTIVE. Intermediate Government Bond Fund has an objective of providing current income to the extent consistent with preservation of capital. INVESTMENT POLICIES. Under normal market conditions, Intermediate Government Bond Fund invests at least 65% of its total assets in securities issued or guaranteed by the United States Government and its agencies and instrumentalities. The Fund's share price and yield, however, are not guaranteed or insured by the United States Government or any of its agencies or instrumentalities. Under normal market conditions, the weighted average maturity of the securities held by this Fund will range from 3 to 7 years. The types of securities in which the Fund may invest include direct obligations of the United States Treasury, such as United States Treasury bonds, notes and bills. In addition, the Fund may invest in obligations issued or guaranteed as to principal and interest by agencies of the United States Government or by instrumentalities which have been established or sponsored by the United States Government, provided, in each case, that interest on the obligations is excludable from state taxable income by the holders thereof. Such agencies and instrumentalities include, but are not limited to, the Farm Credit System Financial Assistance Corporation, the Federal Home Loan Banks System, the Student Loan Marketing Association and the Tennessee Valley Authority. Obligations issued or guaranteed by some of these agencies or instrumentalities are not guaranteed by the United States Government, but instead rely solely on the assets and credit of the issuing agency or instrumentality. In addition, the Fund may (i) enter into repurchase agreements; (ii) 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; (iii) purchase securities on a when-issued or delayed-delivery basis; and (iv) 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 during times of unusual market conditions, the Fund may without limitation hold cash or invest in short-term government securities maturing within 13 months from the date of purchase or repurchase agreements with respect to government securities. The Fund also may so invest not more than 35% of its total assets in order to utilize assets awaiting normal investment. See "Special Investment Methods -- Repurchase Agreements." RISKS TO CONSIDER An investment in any of the Funds involves certain risks. These include the following: INTEREST RATE RISK. Interest rate risk is the risk that the value of a fixed-rate debt security will decline due to changes in market interest rates. Because the Funds invest in fixed-rate debt securities, they are subject to interest rate risk. In general, when interest rates rise, the value of a fixed-rate debt security declines. Conversely, when interest rates decline, the value of a fixed-rate debt security generally increases. Thus, shareholders in the Funds bear the risk that increases in market interest rates will cause the value of their Fund's portfolio investments to decline. In general, the value of fixed-rate debt securities with longer maturities is more sensitive to changes in market interest rates than the value of such securities with shorter maturities. Thus, the net asset value of a Fund which invests in securities with longer weighted average maturities, such as Fixed Income Fund, should be expected to have greater volatility in periods of changing market interest rates than that of a Fund which invests in securities with shorter weighted average maturities, such as Limited Term Income Fund. Similarly, the volatility of Intermediate Term Income Fund and Intermediate Government Bond Fund generally should be expected to be between that of Fixed Income Fund and Limited Term Income Fund. As described below under "-- Mortgage-Backed Securities," it is more difficult to generalize about the effect of changes in market interest rates on the values of mortgage-backed securities. Although the Adviser may engage in transactions intended to hedge the value of the Funds' portfolios against changes in market interest rates, there is no assurance that such hedging transactions will be undertaken or will fulfill their purpose. See "Special Investment Methods -- Options Transactions." CREDIT RISK. Credit risk is the risk that the issuer of a debt security will fail to make payments on the security when due. Because the Funds invest in debt securities, they are subject to credit risk. Securities issued or guaranteed by the United States Government generally are viewed as carrying minimal credit risk. Securities issued by governmental entities but not backed by the full faith and credit of the United States, and securities issued by private entities, are subject to higher levels of credit risk. The ratings and certain other requirements which apply to the Funds' permitted investments, as described elsewhere in this Prospectus, are intended to limit the amount of credit risk undertaken by the Funds. Nevertheless, shareholders in the Funds bear the risk that payment defaults could cause the value of their Fund's portfolio investments to decline. Investors also should note that Limited Term Income Fund, Intermediate Term Income Fund and Fixed Income Fund can invest in debt securities rated as low as 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 Adviser. Although these rating categories are investment grade, obligations with these ratings are viewed as having speculative characteristics and carry a somewhat higher risk of default than obligations rated in the higher investment grade categories. CALL RISK. Many corporate bonds may be redeemed at the option of the issuer ("called") at a specified price prior to their stated maturity date. In general, it is advantageous for a corporate issuer to call its bonds if they can be refinanced through the issuance of new bonds which bear a lower interest rate than that of the called bonds. Call risk is the risk that corporate bonds will be called during a period of declining market interest rates so that such refinancings may take place. If a bond held by a Fund is called during a period of declining interest rates, the Fund probably will have to reinvest the proceeds received by it at a lower interest rate than that borne by the called bond, thus resulting in a decrease in the Fund's income. To the extent that the Funds invest in callable corporate bonds, Fund shareholders bear the risk that reductions in income will result from the call of bonds. Most United States Government securities are not callable before their stated maturity, although U.S. agency securities often are. MORTGAGE-BACKED SECURITIES. Because residential mortgage loans generally can be prepaid in whole or in part by the borrowers at any time without any prepayment penalty, the holder of a mortgage-backed security which represents an interest in a pool of such mortgage loans is subject to a form of call risk which is generally called "prepayment risk." In addition, it 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; the magnitude of such effects may be greater in some cases; and the return on certain types of mortgage-backed securities, such as interest-only, principal-only and inverse floating rate mortgage-backed securities, is particularly sensitive to changes in interest rates and in the rate at which the mortgage loans underlying the securities are prepaid by borrowers. For these reasons, a Fund's investments in mortgage-backed securities may involve greater risks than investments in governmental or corporate bonds. For further information, see "Special Investment Methods -- Mortgage-Backed Securities." 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 Adviser acts as investment adviser for and manages the investment portfolios of FAIF. INVESTMENT ADVISER First Bank National Association, 601 Second Avenue South, Minneapolis, Minnesota 55480, acts as the Funds' investment adviser through its First Asset Management group. The Adviser has acted as an investment adviser to FAIF since its inception in 1987 and has acted as investment adviser to First American Funds, Inc. since 1982. As of September 30, 1995, the Adviser was managing accounts with an aggregate value of approximately $29 billion, including mutual fund assets in excess of $7 billion. First Bank System, Inc., 601 Second Avenue South, Minneapolis, Minnesota 55480, is the holding company for the Adviser. Each of the Funds has agreed to pay the Adviser monthly fees calculated on an annual basis equal to 0.70% of its average daily net assets. The Adviser may, at its option, waive any or all of its fees, or reimburse expenses, with respect to any Fund from time to time. Any such waiver or reimbursement is voluntary and may be discontinued at any time. The Adviser also may absorb or reimburse expenses of the 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 those activities. In addition, administrative and judicial interpretations of the Glass-Steagall Act prohibit bank holding companies and their bank and nonbank subsidiaries from organizing, sponsoring or controlling registered open-end investment companies that are continuously engaged in distributing their shares. Bank holding companies and their bank and nonbank subsidiaries may serve, however, as investment advisers to registered investment companies, subject to a number of terms and conditions. Although the scope of the prohibitions and limitations imposed by the Glass-Steagall Act has not been fully defined by the courts or the appropriate regulatory agencies, the Funds have received an opinion from their counsel that the Adviser is not prohibited from performing the investment advisory services described above, and that FBS Investment Services, Inc. ("ISI"), a wholly owned broker-dealer subsidiary of the Adviser, is not prohibited from serving as a Participating Institution as described herein. In the event of changes in federal or state statutes or regulations or judicial and administrative interpretations or decisions pertaining to permissible activities of bank holding companies and their bank and nonbank subsidiaries, the Adviser and ISI might be prohibited from continuing these arrangements. In that event, it is expected that the Board of Directors would make other arrangements and that shareholders would not suffer adverse financial consequences. PORTFOLIO MANAGERS MARTIN L. JONES is portfolio manager for Limited Term Income Fund, Intermediate Term Income Fund and Fixed Income Fund. Martin heads the Fixed Income Group of the Adviser and has over 20 years of investment experience. Formerly with Harris Trust & Savings Bank, Dillon, Read & Co., and Loeb Rhoades & Co., Martin received his bachelor's degree from Texas Tech University, his master's degree from University of Texas, and his master's in business administration degree from the University of Chicago. CHRISTOPHER L. DRAHN is portfolio manager for Intermediate Government Bond Fund. Chris joined the fixed income department of the Adviser in 1985, having previously served in its securities lending and corporate trust areas. He received his master's degree in business administration from the University of Minnesota and is a Chartered Financial Analyst. CUSTODIAN The custodian of the Funds' assets is First Trust National Association (the "Custodian"), First Trust Center, 180 East Fifth Street, St. Paul, Minnesota 55101. The Custodian is a subsidiary of First Bank System, Inc., which also controls the Adviser. As compensation for its services to the Funds, the Custodian is paid the following fees: (i) an annual administration fee of $750 per Fund; (ii) an issue held fee, computed as of the end of each month, at the annual rate of $30 per securities issue held by each Fund; (iii) transaction fees, consisting of (a) a securities buy/sell/maturity fee of $15 per each such transaction, and (b) a payment received fee of $12 for each principal pay down payment received on collateralized mortgage pass-through instruments; (iv) a wire transfer fee of $10 per transaction; (v) a cash management fee, for "sweeping" cash into overnight investments, at an annual rate of 0.25% of the amounts so invested; and (vi) a remittance fee, for payment of each Fund's expenses, of $3.50 per each check drawn for such remittances. In addition, the Custodian is reimbursed for its out-of-pocket expenses incurred while providing its services to the Funds. ADMINISTRATOR The administrator for the Funds is SEI Financial Management Corporation (the "Administrator"), 680 East Swedesford Road, Wayne, Pennsylvania 19087. The Administrator, a wholly-owned subsidiary of SEI Corporation, provides the Funds with certain administrative services necessary to operate the Funds. These services include shareholder servicing and certain accounting and other services. The Administrator provides these services for a fee calculated at an annual rate of 0.12% of each Fund's average daily net assets, subject to a minimum administrative fee during each fiscal year of $50,000 per Fund; 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. 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 210 West 10th Street, Kansas City, Missouri 64105. The Transfer Agent is not affiliated with the Distributor, the Administrator or the Adviser. DISTRIBUTOR SEI Financial Services Company is the principal distributor for shares of the 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 is a wholly-owned subsidiary of SEI Corporation and is located at 680 East Swedesford Road, Wayne, Pennsylvania 19087. The Distributor is not affiliated with the Adviser, First Bank System, Inc., the Custodian or their respective affiliates. Shares of the 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"). 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." Under the Class A Distribution Plan, each Fund also pays the Distributor a distribution fee monthly at an annual rate of 0.25% of the Fund's Class A Shares' average daily net assets, which fee may be used by the Distributor to provide compensation for sales support and distribution activities with respect to Class A Shares of the Funds. From time to time, the Distributor may voluntarily waive its distribution 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 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 average daily net assets of the Class B Shares of the Funds, which fee may be used by the Distributor to provide compensation for sales support and distribution activities with respect to Class B Shares of the Funds. This fee is calculated and paid each month based on the average daily net assets for that month. In addition to this fee, the Distributor may be paid a shareholder servicing fee of 0.25% of the average daily net assets of the Class B Shares pursuant to a service plan (the "Class B Service Plan"), which fee may be used by the Distributor to provide compensation for personal, ongoing servicing and/or maintenance of shareholder accounts with respect to Class B Shares of the 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). The service fee payable under the Class B Service Plan is prepaid for the first year as described above. The Class A and Class B Distribution Plans recognize that the Adviser, the Administrator, the Distributor, and any Participating Institution may in their discretion use their own assets to pay for certain additional costs of distributing Fund shares. Any arrangement to pay such additional costs may be commenced or discontinued by any of these persons at any time. In addition, while there is no sales charge on purchases of Class A Shares of $1 million and more, the Adviser may pay amounts to broker-dealers from its own assets with respect to such sales. ISI, a subsidiary of the Adviser, is a Participating Institution. INVESTING IN THE 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 the New York Stock Exchange is open for business. Shares may be purchased as described below. The Funds reserve the right to reject any purchase request. 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. It is the financial institution's responsibility to transmit orders promptly. BY MAIL. An investor may place an order to purchase shares of the Funds directly through the Transfer Agent. Orders by mail are considered received after payment by check is converted by the Funds into federal funds. In order to purchase shares by mail, an investor must: * complete and sign the new account form; * enclose a check made payable to (Fund name); and * mail both to 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 to place an order. All information needed will be taken over the telephone, and the order will be considered received when the Custodian receives payment by wire. Federal funds should be wired as follows: First Bank National Association, Minneapolis, Minnesota, ABA Number 091000022; For Credit to: DST Systems: Account Number 6023458026; For Further Credit To: (Investor Name and Fund Name). Shares cannot be purchased by Federal Reserve wire on days on which the New York Stock Exchange is closed and on federal holidays upon which wire transfers are restricted. MINIMUM INVESTMENT REQUIRED The minimum initial investment for 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 First Bank National Association, First Trust National Association and First Bank System, Inc. and their respective affiliates. ALTERNATIVE SALES CHARGE OPTIONS THE TWO ALTERNATIVES: OVERVIEW. An investor may purchase shares of 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 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; (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. 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: LIMITED TERM INCOME FUND:
MAXIMUM AMOUNT OF SALES CHARGE SALES CHARGE AS SALES CHARGE AS REALLOWED TO PERCENTAGE OF PERCENTAGE OF PARTICIPATING OFFERING PRICE NET ASSET VALUE INSTITUTIONS Less than $50,000 2.00% 2.04% 1.80% $50,000 but less than $100,000 1.50% 1.52% 1.35% $100,000 but less than $250,000 1.00% 1.01% 0.90% $250,000 but less than $500,000 0.75% 0.76% 0.68% $500,000 but less than $1,000,000 0.50% 0.50% 0.45% $1,000,000 and over 0.00% 0.00% 0.00%
INTERMEDIATE GOVERNMENT BOND FUND:
MAXIMUM AMOUNT OF SALES CHARGE SALES CHARGE AS SALES CHARGE AS REALLOWED TO PERCENTAGE OF PERCENTAGE OF PARTICIPATING OFFERING PRICE NET ASSET VALUE INSTITUTIONS Less than $50,000 3.00% 3.09% 2.70% $50,000 but less than $100,000 2.50% 2.56% 2.25% $100,000 but less than $250,000 2.00% 2.04% 1.80% $250,000 but less than $500,000 1.50% 1.52% 1.35% $500,000 but less than $1,000,000 1.00% 1.01% 0.80% $1,000,000 and over 0.00% 0.00% 0.00%
INTERMEDIATE TERM INCOME FUND AND FIXED INCOME FUND:
MAXIMUM AMOUNT OF SALES CHARGE SALES CHARGE AS SALES CHARGE AS REALLOWED TO PERCENTAGE OF PERCENTAGE OF PARTICIPATING OFFERING PRICE NET ASSET VALUE INSTITUTIONS Less than $50,000 3.75% 3.90% 3.38% $50,000 but less than $100,000 3.25% 3.36% 2.93% $100,000 but less than $250,000 2.75% 2.83% 2.48% $250,000 but less than $500,000 2.00% 2.04% 1.80% $500,000 but less than $1,000,000 1.00% 1.01% 0.90% $1,000,000 and over 0.00% 0.00% 0.00%
There is no initial sales charge on purchases of Class A Shares of $1 million or more. However, Participating Institutions will receive a commission of 1.00% on such sales. Redemptions of Class A Shares purchased at net asset value within 24 months of purchase will be subject to a contingent deferred sales charge of 1.00%. However, Class A Shares that are redeemed will not be subject to this contingent deferred sales charge to the extent that the value of the shares represents capital appreciation of Fund assets or reinvestment of dividends or capital gain distributions. Net asset value is determined at 3:00 p.m. Central time Monday through Friday except on (i) days on which there are not sufficient changes in the value of 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) on the following federal holidays: New Year's Day, Presidents' Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. In addition, net asset value will not be calculated on Good Friday. Dealer Concession. A dealer will normally receive up to 90% of the applicable sales charge. Any portion of the sales charge which is not paid to a dealer will be retained by the Distributor. In addition, the Distributor may, from time to time in its sole discretion, institute one or more promotional incentive programs which will be paid by the Distributor from the sales charge it receives or from any other source available to it. Under any such program, the Distributor will provide promotional incentives, in the form of cash or other compensation including merchandise, airline vouchers, trips and vacation packages, to all dealers selling shares of the 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. 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 Adviser, the Sub-Adviser 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 advisers, financial planners and registered broker/dealers who are purchasing shares on behalf of their customers. 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. 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 SUBJECT TO YEAR SINCE PURCHASE CHARGE First 5.00% Second 5.00% Third 4.00% Fourth 3.00% Fifth 2.00% Sixth 1.00% Seventh None Eighth None
In determining whether a particular redemption is subject to a contingent deferred sales charge, it is assumed that the redemption is first of any Class A Shares in the shareholder's Fund account; second, of any Class B Shares held for more than eight years and Class B Shares acquired pursuant to reinvestment of dividends or other distributions; and third, of Class B Shares held longest during the eight-year period. This method should result in the lowest possible sales charge. The contingent deferred sales charge is waived on redemption of Class B Shares (i) within one year following the death or disability (as defined in the Internal Revenue Code) of a shareholder, and (ii) to the extent that the redemption represents a minimum required distribution from an individual retirement account or other retirement plan to a shareholder who has attained the age of 70 1/2 . A shareholder or his or her representative must notify the Transfer Agent prior to the time of redemption if such circumstances exist and the shareholder is eligible for this waiver. Conversion Feature. At the end of the period ending eight years after the beginning of the month in which the shares were issued, Class B Shares will automatically convert to Class A Shares and will no longer be subject to the Class B distribution and service fees. This conversion will be on the basis of the relative net asset values of the two classes. Dollar Cost Averaging. Class B Shares may also be purchased through automatic monthly deductions from a shareholder's account in Class B Shares of Prime Obligations Fund of First American Funds, Inc. Under a dollar cost averaging program, a shareholder enters an agreement to purchase Class B Shares of one or more Funds over a period of time not to exceed twelve months, and initially purchases Prime Obligations Class B Shares in an amount equal to the total amount of the investment. On a monthly basis a specified dollar amount of Class B Shares of Prime Obligations Fund is exchanged for the Class B Shares of the Funds specified. This 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. A shareholder may apply for participation in this program through his or her financial institution or by calling (800) 637-2548. SYSTEMATIC INVESTMENT PROGRAM Once a Fund account has been opened, shareholders may add to their investment on a regular basis in a minimum amount of $100. Under this program, funds may be automatically withdrawn periodically from the shareholder's checking account and invested in Fund shares at the net asset value next determined after an order is received, plus any applicable sales charge. A shareholder may apply for participation in this program through his or her financial institution or call (800) 637-2548. EXCHANGING SECURITIES FOR FUND SHARES 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 Adviser 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. 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. DIVIDENDS AND DISTRIBUTIONS Dividends with respect to each Fund are declared and paid monthly to all shareholders of record on the record date. Distributions of any net realized long-term capital gains will be made at least once every 12 months. Dividends and distributions are automatically reinvested in additional shares of the Fund 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 C Shares because of the distribution expenses charged to Class A and Class B Shares. The amount of dividends payable on Class A Shares generally will be more than the dividends payable on the Class B Shares because of the distribution and service fees paid by Class B Shares. EXCHANGE PRIVILEGE Shareholders may exchange Class A or Class B Shares of 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. 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 FAIF Funds must meet any applicable minimum investment of the fund for which shares are being exchanged. For purposes of calculating the Class B Shares' eight-year conversion period or contingent deferred sales charges payable upon redemption, the holding period of Class B Shares of the "old" fund and the holding period of Class B Shares of the "new" fund are aggregated. The ability to exchange shares of the 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 -- Directly From the Funds -- Signatures." Neither the Funds, the Distributor, the Transfer Agent, any shareholder servicing agent, or any financial institution will be responsible for further verification of the authenticity of the exchange instructions. Telephone exchange instructions made by an investor may be carried out only if a telephone authorization form completed by the investor is on file with the Transfer Agent, shareholder servicing agent, or financial institution. Shares may be exchanged between two FAIF Funds by telephone only if both FAIF Funds have identical shareholder registrations. Telephone exchange instructions may be recorded and will be binding upon the shareholder. Telephone instructions must be received by the Transfer Agent before 3:00 p.m. Central time, or by a shareholder's shareholder servicing agent or financial institution by the time specified by it, in order 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., 210 West 10th Street, Kansas City, Missouri 64105. Shareholders who become eligible to purchase Class C Shares may exchange Class A Shares for Class C Shares. An example of such an exchange would be a situation in which an individual holder of Class A Shares subsequently opens a custody or agency account with a financial institution which invests in Class C Shares. The terms of any exchange privilege may be modified or terminated by the Funds at any time. 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 modification or termination of the exchange privilege and of the imposition of any additional fees or changes. 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. BY TELEPHONE A shareholder may redeem shares of a Fund by calling his or her financial institution to request the redemption. Shares will be redeemed at the net asset value next determined after the Fund receives the redemption request from the financial institution. Redemption requests must be received by the financial institution by the time specified by the institution in order for shares to be redeemed at that day's net asset value, and redemption requests must be transmitted to and received by the Funds by 3:00 p.m. Central time in order for shares to be redeemed at that day's net asset value. Pursuant to instructions received from the financial institution, redemptions will be made by check or by wire transfer. It is the financial institution's responsibility to transmit redemption requests promptly. Shareholders who did not purchase their shares of 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. 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 the authenticity of redemption 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. These procedures may include taping of telephone conversations. BY MAIL Any shareholder may redeem Fund shares by sending a written request to the Transfer Agent, shareholder servicing agent, or financial institution. The written request should include the shareholder's name, the Fund name, the account number, and the share or dollar amount requested to be redeemed, and should be signed exactly as the shares are registered. Shareholders should call the Fund, shareholder servicing agent or financial institution for assistance in redeeming by mail. A check for redemption proceeds normally is mailed within one business day, but in no event more than seven days, after receipt of a proper written redemption request. Shareholders requesting a redemption of $5,000 or more, a redemption of any amount to be sent to an address other than that on record with the Fund, or a redemption payable other than to the shareholder of record, must have signatures on written redemption requests guaranteed by: * a trust company or commercial bank the deposits of which are insured by the Bank Insurance Fund, which is administered by the Federal Deposit Insurance Corporation ("FDIC"); * a member firm of the New York, American, Boston, Midwest, or Pacific Stock Exchanges or of the National Association of Securities Dealers; * a savings bank or savings and loan association the deposits of which are insured by the Savings Association Insurance Fund, which is administered by the FDIC; or * any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The 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. BY SYSTEMATIC WITHDRAWAL PROGRAM Shareholders whose account value is at least $5,000 may elect to participate in the Systematic Withdrawal Program. Under this program, Fund shares are redeemed to provide for periodic withdrawal payments in an amount directed by the shareholder. A shareholder may apply to participate in this program through his or her financial institution. It is generally not in a shareholder's best interest to participate in the Systematic Withdrawal Program at the same time that the shareholder is purchasing additional shares if a sales charge must be paid in connection with such purchases. Because automatic withdrawals with respect to Class B Shares are subject to the contingent deferred sales charge, it may not be in the best interest of a Class B shareholder to participate in the Systematic Withdrawal Program. REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR When shares are purchased by check or with funds transmitted through the Automated Clearing House, the proceeds of redemptions of those shares are not available until the Transfer Agent is reasonably certain that the purchase payment has cleared, which could take up to ten calendar days from the purchase date. ACCOUNTS WITH LOW BALANCES Due to the high cost of maintaining accounts with low balances, 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 earlier of the close of the New York Stock Exchange or 3:00 p.m. Central time on each day the New York Stock Exchange is open for business, provided that net asset value need not be determined on days when no Fund shares are tendered for redemption and no order for 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. It is the responsibility of Participating Institutions promptly to forward purchase and redemption orders to the Transfer Agent. In the case of redemptions and repurchases of shares owned by corporations, trusts or estates, the Transfer Agent or Fund may require additional documents to evidence appropriate authority in order to effect the redemption, and the applicable price will be that next determined following the receipt of the required documentation. DETERMINING NET ASSET VALUE The net asset value per share for 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. Debt obligations exceeding 60 days to maturity which are actively traded are valued by an independent pricing service at the most recently quoted bid price. Debt obligations with 60 days or less remaining until maturity may be valued at their amortized cost. Foreign securities are valued based upon quotation from the primary market in which they are traded. When market quotations are not readily available, securities are valued at fair value as determined in good faith by procedures established and approved by the Board of Directors. Portfolio securities underlying actively traded options are valued at their market price as determined above. The current market value of any exchange traded option held or written by a Fund is its last sales price on the exchange prior to the time when assets are valued, unless the bid price is higher or the asked price is lower, in which event the bid or asked price is used. In the absence of any sales that day, options will be valued at the current closing bid price. 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 expenses charged to Class A and Class B Shares. FOREIGN SECURITIES 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. If events materially affecting the value of foreign securities occur between the time when their price is determined and the time when the Funds' net asset value is calculated, such securities will be valued at fair value as determined in good faith by or under the direction of the Board of Directors. 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 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 GENERAL Each Fund intends to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), during its current taxable year in order to be relieved of payment of federal income taxes on amounts of taxable income it distributes to shareholders. Dividends paid from each Fund's net investment income and net short-term capital gains will be taxable to shareholders as ordinary income, whether or not the shareholder elects to have such dividends automatically reinvested in additional shares. Dividends paid by the Funds will not be eligible for the 70% deduction for dividends received by corporations. Dividends paid from the net capital gains of each Fund and designated as capital gain dividends will be taxable to shareholders as long-term capital gains, regardless of the length of time for which they have held their shares in the Fund. Long-term capital gains of individuals are currently subject to a maximum tax rate of 28%. As of the date of this Prospectus, both the U.S. Senate and the U.S. House have enacted bills that would reduce the effective tax rates on long-term capital gains of individuals. At this time, it is impossible to predict whether such a provision will be enacted into law, or what its effective date would be. Gain or loss realized upon the sale of shares in the Funds will be treated as capital gain or loss, provided that the shares represented a capital asset in the hands of the shareholder. Such gain or loss will be long-term gain or loss if the shares were held for more than one year. Each Fund is required by federal law to withhold 31% of reportable payments (including dividends, capital gain distributions, and redemptions) paid to certain shareholders who have not complied with IRS regulations. In order to avoid this withholding requirement, each investor will be asked to certify on his or her account application that the social security or taxpayer identification number provided is correct and that the investor is not subject to backup withholding for previous underreporting to the IRS. This is a general summary of the federal tax laws applicable to the Funds and their shareholders as of the date of this Prospectus. See the Statement of Additional Information for further details. STATE AND LOCAL TAXATION Distributions from all of the Funds may be subject to state or local taxes. A portion of the distributions from Intermediate Government Bond Fund may be exempt from state and local taxation. Shareholders should consult their own tax advisers regarding state and local taxation. 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. 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, the shares of that Fund or Class will vote as a separate series. Examples of such issues would be proposals to alter a fundamental investment restriction pertaining to a Fund or to approve, disapprove or alter a distribution plan pertaining to a Class. Under the laws of the State of Maryland and FAIF's Articles of Incorporation, FAIF is not required to hold shareholder meetings unless they (i) are required by the 1940 Act, or (ii) are requested in writing by the holders of 25% or more of the outstanding shares of FAIF. CALCULATION OF PERFORMANCE DATA From time to time, 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 Securities and Exchange Commission ("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 C Shares because Class C Shares are not subject to the sales charges and distribution expenses applicable to Class A and Class B Shares. In addition, the performance of Class A and Class B Shares of a Fund will differ because of the different sales charge structures of the classes and because of the higher distribution and service fees charged to Class B Shares. In reports or other communications to shareholders and in advertising material, the performance of each Fund may be compared to recognized unmanaged indices or averages of the performance of similar securities. 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. 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. BANK INSTRUMENTS The bank instruments in which Limited Term Income Fund, Intermediate Term Income Fund, and Fixed Income 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" below. In each instance, the Funds 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. ASSET-BACKED SECURITIES Each of Limited Term Income Fund, Intermediate Term Income Fund, and Fixed Income 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. Like collateralized mortgage obligations, asset-backed securities generally are issued by a private special-purpose entity. Their 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. FOREIGN SECURITIES Each of Limited Term Income Fund, Intermediate Term Income Fund and Fixed Income Fund may invest up to 15% of its total assets in foreign securities payable in United States dollars. These securities may include securities issued or guaranteed by (i) the Government of Canada, any Canadian Province, or any instrumentality or political subdivision thereof; (ii) any other foreign government, agency or instrumentality; (iii) foreign subsidiaries of United States corporations; and (iv) foreign banks having total capital and surplus at the time of investment of at least $1 billion. Such foreign bank or corporate securities must be rated by at least one major United States rating agency as having a quality not less than that which would be required for comparable domestic securities. In addition, Limited Term Income Fund, Intermediate Term Income Fund, and Fixed Income Fund also may invest in Eurodollar Certificates of Deposit, Eurodollar Time Deposits and Yankee Certificates of Deposit as described under "-- Bank Instruments" above. Although investments of these kinds are not subject to currency risk because they are denominated in United States dollars, they are subject to certain other risks associated with foreign investments. Risks which may affect foreign issuers include political, social or economic instability in the country of the issuer, the possibility of the imposition of exchange controls, expropriation, limits on removal of currency or other assets, and nationalization of assets. Foreign issuers may not be subject to uniform accounting, auditing and financial reporting standards comparable to those applicable to domestic United States issuers. In addition, foreign branches of United States banks and foreign banks may be subject to less stringent regulatory requirements than United States banks. MORTGAGE-BACKED SECURITIES Limited Term Income Fund, Intermediate Term Income Fund and Fixed Income Fund may invest in mortgage-backed securities. Each of these Funds will invest only in mortgage-backed securities which are Agency Pass-Through 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 GNMA, FNMA or 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. Holders of single-class pass-through certificates are entitled to receive their proportionate share of all principal payments and prepayments on the underlying mortgage loans together with interest on the unpaid principal at a stated pass-through rate. Holders of each class in an issue of multiple-class pass-through certificates are entitled to receive a specified portion of all principal payments and prepayments and/or interest at a stated pass-through rate on the underlying mortgage loans. A class of pass-through certificates which entitles the holder to receive all of the interest and none of the principal on the underlying mortgage loans is referred to as an "interest-only" class, while a class which entitles the holder to receive all of the principal payments and prepayments and none of the interest on the underlying mortgage loans is referred to as a "principal-only" class. Agency Pass-Through Certificates may be based on a pool of fixed-rate mortgage loans or on a pool of adjustable-rate mortgage loans, the interest rates on which change periodically based on changes in a specified index rate. In the latter case, the pass-through rate of interest on the Agency Pass-Through Certificates changes with changes in the rates borne by the underlying mortgage loans. 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. The Funds 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 Adviser. 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 on, among other factors, 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 Funds 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. Residential mortgage loans generally can be prepaid in whole or in part by the borrowers at any time without any prepayment penalty. As a result, the rate at which mortgage loans in a given pool are prepaid (the "prepayment speed") is likely to increase if interest rates decline (due in part to prepayments associated with refinancings at lower rates) and to decrease if interest rates increase, particularly in the case of a pool of fixed-rate mortgage loans. Thus, the holder of an interest in a mortgage pool is likely to have to reinvest greater amounts of principal during periods of declining interest rates than during periods of increasing rates. However, the relationship between changes in interest rates and changes in prepayment speeds is not predictable with precision, nor is the likelihood of changes in interest rates which might lead to changes in prepayment speeds. In addition, changes in interest rates and prepayment speeds have differing effects on the return on different kinds of CMO classes. For these reasons, it 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 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 and inverse floating rate mortgage-backed securities generally have greater risk than more conventional classes of mortgage-backed securities. The limitations on each Fund's investments in interest-only, principal-only and inverse floating rate mortgage-backed securities are set forth above under "Investment Objectives and Policies." 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 Adviser will monitor the creditworthiness of the firms with which the Funds enter into repurchase agreements. WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS Each of the Funds 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. LENDING OF PORTFOLIO SECURITIES In order to generate additional income, each of the Funds may lend portfolio securities representing up to one-third of the value of its total assets to broker-dealers, banks or other institutional borrowers of securities. As with other extensions of credit, there may be risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail financially. However, the Funds will only enter into loan arrangements with broker-dealers, banks, or other institutions which the Adviser has determined are creditworthy under guidelines established by the Board of Directors. In these loan arrangements, the 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 in connection with these loans. OPTIONS TRANSACTIONS Each of the Funds may, in order to reduce risk, invest in exchange traded put and call options on interest rate futures contracts and on interest rate indices. Such investments will be made solely as a hedge against adverse changes resulting from market conditions in the values of securities held by the Funds or which they intend to purchase and where the transactions are deemed appropriate to reduce risks inherent in the Funds' portfolios or contemplated investments. None of the Funds 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 contract 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 (purchase price of the option) and the commission or other transaction expenses associated with acquiring the option. An interest rate futures contract provides for the future sale by one party and purchase by the other party of a certain amount of a specific financial instrument (debt security) at a specified price, date, time and place. An option on an interest rate futures contract, as contrasted with the direct investment in such a contract, gives the purchaser the right, in return for the premium paid, to purchase (in the case of a call option) or sell (in the case of a put option) an interest rate futures contract at a specified exercise price at any time prior to the expiration date of the option. In order to hedge its portfolio against anticipated changes in interest rates, a Fund might purchase a put option on an interest rate futures contract if interest rates were expected to rise, or might purchase a call option on an interest rate futures contract if rates were expected to decline. Options on interest rate indices are similar to options on interest rate futures contracts except that, rather than the right to take or make delivery of a specific financial instrument at a specified price, an option on an interest rate index gives the holder the right to receive, upon exercise of the option, a defined amount of cash if the closing value of the interest rate 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. Put and call options on interest rate indices thus may be used in a fashion similar to that of options on interest rate futures contracts to hedge the value of a portfolio of debt securities against anticipated changes in interest rates. The use of options on interest rate futures contracts and on interest rate indices involves certain risks. These include the risk that changes in interest rates on the hedged instruments may not correlate to changes in interest rates on the instrument or index upon which the hedge is based, 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. 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 Adviser. 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 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. * None of the Funds will mortgage, pledge or hypothecate its assets, except in an amount not exceeding 15% of the value of its total assets to secure temporary or emergency borrowing. * None of the Funds will make short sales of securities. * 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. 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 Securities and Exchange Commission rules and interpretations. Section 4(2) commercial paper may be determined to be "liquid" under guidelines adopted by the Board of Directors. Rule 144A securities may in the future be determined to be "liquid" under guidelines adopted by the Board of Directors if the current position of certain state securities regulators regarding such securities is modified. Investing in Rule 144A securities could have the effect of increasing the level of illiquidity in a Fund to the extent that qualified institutional buyers become, for a time, uninterested in purchasing these securities. FIRST AMERICAN INVESTMENT FUNDS, INC. 680 East Swedesford Road Wayne, Pennsylvania 19087 INVESTMENT ADVISER FIRST BANK NATIONAL ASSOCIATION 601 Second Avenue South Minneapolis, Minnesota 55402 CUSTODIAN FIRST TRUST NATIONAL ASSOCIATION 180 East Fifth Street St. Paul, Minnesota 55101 DISTRIBUTOR SEI FINANCIAL SERVICES COMPANY 680 East Swedesford Road Wayne, Pennsylvania 19087 ADMINISTRATOR SEI FINANCIAL MANAGEMENT CORPORATION 680 East Swedesford Road Wayne, Pennsylvania 19087 TRANSFER AGENT DST SYSTEMS, INC. 210 West 10th Street Kansas City, Missouri 64105 INDEPENDENT AUDITORS KPMG PEAT MARWICK LLP 90 South Seventh Street Minneapolis, Minnesota 55402 COUNSEL DORSEY & WHITNEY P.L.L.P. 220 South Sixth Street Minneapolis, Minnesota 55402 FAIF-1001 (1/96) R FIRST AMERICAN INVESTMENT FUNDS, INC. FIXED INCOME FUNDS INSTITUTIONAL CLASS LIMITED TERM INCOME FUND INTERMEDIATE TERM INCOME FUND FIXED INCOME FUND INTERMEDIATE GOVERNMENT BOND FUND PROSPECTUS JANUARY 31, 1996 [LOGO] FIRST AMERICAN FUNDS The power of disciplined investing TABLE OF CONTENTS PAGE SUMMARY 4 FEES AND EXPENSES 6 Class C Share Fees and Expenses 6 Information Concerning Fees and Expenses 7 FINANCIAL HIGHLIGHTS 8 THE FUNDS 10 INVESTMENT OBJECTIVES AND POLICIES 10 Limited Term Income Fund, Intermediate Term Income Fund, and Fixed Income Fund 11 Intermediate Government Bond Fund 12 Risks to Consider 13 MANAGEMENT 15 Investment Adviser 15 Portfolio Managers 16 Custodian 17 Administrator 17 Transfer Agent 17 DISTRIBUTOR 18 PURCHASES AND REDEMPTIONS OF SHARES 18 Share Purchases and Redemptions 18 What Shares Cost 18 Exchanging Securities for Fund Shares 20 Certificates and Confirmations 20 Dividends and Distributions 20 Exchange Privilege 20 FEDERAL INCOME TAXES 21 FUND SHARES 22 CALCULATION OF PERFORMANCE DATA 22 SPECIAL INVESTMENT METHODS 23 Bank Instruments 24 Asset-Backed Securities 24 Foreign Securities 24 Mortgage-Backed Securities 25 Repurchase Agreements 27 When-Issued and Delayed-Delivery Transactions 27 Lending of Portfolio Securities 28 Options Transactions 28 Portfolio Transactions 29 Portfolio Turnover 29 Investment Restrictions 29 FIRST AMERICAN INVESTMENT FUNDS, INC. 680 EAST SWEDESFORD ROAD, WAYNE, PENNSYLVANIA 19087 INSTITUTIONAL CLASS PROSPECTUS The shares described in this Prospectus represent interests in First American Investment Funds, Inc., which consists of mutual funds with several different investment portfolios and objectives. This Prospectus relates to the Class C Shares of the following funds (the "Funds"): * LIMITED TERM INCOME FUND * FIXED INCOME FUND * INTERMEDIATE TERM INCOME FUND * INTERMEDIATE GOVERNMENT BOND FUND Class C Shares of the Funds are offered through banks and certain other institutions for the investment of their own funds and funds for which they act in a fiduciary, agency or custodial capacity. SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK, INCLUDING FIRST BANK NATIONAL ASSOCIATION AND ANY OF ITS AFFILIATES, NOR ARE THEY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. AN INVESTMENT IN THE 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, 1996 for the Funds has been filed with the Securities and Exchange Commission and is incorporated in its entirety by reference in this Prospectus. To obtain copies of the Statement of Additional Information at no charge, or to obtain other information or make inquiries about the Funds, call (800) 637-2548 or write SEI Financial Services Company, 680 East Swedesford Road, Wayne, Pennsylvania 19087. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is January 31, 1996. SUMMARY First American Investment Funds, Inc. ("FAIF") is an open-end investment company which offers shares in several different mutual funds. This Prospectus provides information with respect to the Class C Shares of the following funds (the "Funds"): LIMITED TERM INCOME FUND has an objective of providing current income while attempting to provide a high degree of principal stability. This Fund invests in investment grade debt securities, at least 65% of which are United States Government obligations and corporate debt obligations and mortgage-backed and asset-backed 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 securities held by this Fund will range from 6 months to 2 years. INTERMEDIATE TERM INCOME FUND has an objective of providing current income to the extent consistent with preservation of capital. This Fund generally invests in the same kinds of debt securities as Limited Term Income Fund. Under normal market conditions, the weighted average maturity of the securities held by this Fund will range from 3 to 7 years. FIXED INCOME FUND has an objective of providing a high level of current income consistent with limited risk to capital. This Fund generally invests in the same kinds of debt securities as Limited Term Income Fund. Under normal market conditions, the weighted average maturity of the securities held by this Fund will not exceed 15 years. INTERMEDIATE GOVERNMENT BOND FUND has an objective of providing current income to the extent consistent with preservation of capital. Under normal market conditions, this Fund invests at least 65% of its total assets in securities issued or guaranteed by the United States Government and its agencies and instrumentalities. Under normal market conditions, the weighted average maturity of the securities held by this Fund will range from 3 to 7 years. INVESTMENT ADVISER First Bank National Association (the "Adviser") serves as investment adviser to each of the Funds. See "Management." DISTRIBUTOR; ADMINISTRATOR SEI Financial Services Company (the "Distributor") serves as the distributor of the Funds' shares. SEI Financial Management Corporation (the "Administrator") serves as the administrator of the Funds. See "Management" and "Distributor." ELIGIBLE INVESTORS; OFFERING PRICES Class C Shares are offered through banks and certain other institutions for the investment of their own funds and funds for which they act in a fiduciary, agency or custodial capacity. Class C Shares are sold at net asset value without any front-end or deferred sales charges. See "Purchases and Redemptions of Shares." EXCHANGES Class C Shares of any Fund may be exchanged for Class C Shares of other FAIF funds at the shares' respective net asset values with no additional charge. See "Purchases and Redemptions of Shares -- Exchange Privilege." REDEMPTIONS Shares of 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." RISKS TO CONSIDER Each of the Funds is 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). In addition, those Funds which may invest in mortgage-backed securities are subject to certain additional risks associated with investing in securities representing interests in, or secured by, pools of residential mortgage loans. The Funds also may, 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. See "Investment Objectives and Policies -- Risks to Consider" 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. FEES AND EXPENSES INSTITUTIONAL CLASSES CLASS C SHARE FEES AND EXPENSES
LIMITED INTERMEDIATE TERM INTERMEDIATE FIXED GOVERNMENT INCOME TERM INCOME INCOME BOND FUND FUND FUND FUND SHAREHOLDER TRANSACTION EXPENSES Maximum sales load imposed on purchases None None None None Maximum sales load imposed on reinvested dividends None None None None Deferred sales load None None None None Redemption fees None None None None Exchange fees None None None None ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS) Investment advisory fees (after voluntary fee waivers and reimbursements)(1) 0.36% 0.48% 0.48% 0.46% Rule 12b-1 fees None None None None Other expenses (after voluntary fee waivers)(1) 0.24% 0.22% 0.22% 0.24% Total fund operating expenses (after voluntary fee waivers and reimbursements)(1) 0.60% 0.70% 0.70% 0.70% 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 $ 6 $ 7 $ 7 $ 7 3 years $ 19 $ 22 $ 22 $ 22 5 years $ 33 $ 39 $ 39 $ 39 10 years $ 75 $ 87 $ 87 $ 87
(1) The Adviser and the Administrator intend to waive a portion of their fees and/or reimburse expenses on a voluntary basis, and the amounts shown reflect these waivers and reimbursements as of the date of this Prospectus. Each of these persons intends to maintain such waivers and reimbursements in effect for the current fiscal year but reserves the right to discontinue such waivers and reimbursements at any time in its sole discretion. Absent any fee waivers, investment advisory fees for each Fund as an annualized percentage of average daily net assets would be 0.70%; and total fund operating expenses calculated on such basis would be 0.97% for Limited Term Income Fund, 0.94% for Intermediate Term Income Fund, 0.94% for Fixed Income Fund and 0.97% for Intermediate Government Bond Fund. Other expenses includes an administration fee and is based on estimated amounts for the current fiscal year. (2) Absent the fee waivers and reimbursements referred to in (1) above, the dollar amounts for the 1, 3, 5 and 10-year periods would be as follows: Limited Term Income Fund, $10, $31, $54 and $119; Intermediate Term Income Fund, $10, $30, $52 and $115; Fixed Income Fund, $10, $30, $52 and $115; and Intermediate Government Bond Fund, $10, $31, $54 and $119. 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. The information set forth in the foregoing tables and examples relates only to the Class C Shares of the Funds. The Funds also offer Class A and Class B Shares which are subject to the same expenses and, in addition, to a front-end or contingent deferred sales load and certain distribution expenses. The examples in the above tables are based on projected annual Fund operating expenses after voluntary fee waivers and expense reimbursements by the Adviser and the Administrator. Although these persons intend to maintain such waivers in effect for the current fiscal year, any such waivers are voluntary and may be discontinued at any time. Prior to fee waivers, investment advisory fees accrue at the annual rate as a percentage of average daily net assets of 0.70% for each of the Funds. Other expenses include fees paid by each Fund to the Administrator for providing various services necessary to operate the Funds. These include shareholder servicing and certain accounting and other services. The Administrator provides these services for a fee calculated at an annual rate of 0.12% of average daily net assets of each Fund subject to a minimum of $50,000 per Fund per fiscal year; provided, that to the extent that the aggregate net assets of all First American funds exceed $8 billion, the percentage stated above is reduced to 0.105%. Other expenses of the Funds also includes the cost of maintaining shareholder records, furnishing shareholder statements and reports, and other services. Investment advisory fees, administrative fees and other expenses are reflected in the Funds' daily dividends and are not charged to individual shareholder accounts. FINANCIAL HIGHLIGHTS The following audited financial highlights 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 the Statement of Additional Information. Further information about the Funds' performance is contained in FAIF's annual report to shareholders, which may be obtained without charge by calling (800) 637-2548 or by writing SEI Financial Services Company, 680 East Swedesford Road, Wayne, Pennsylvania 19087. The Financial Highlights for the Class A shares of the Funds have been provided below along with the Financial Highlights for Class C shares. Class A shares are subject to sales charges and fees that may differ from those applicable to Class C shares. 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 LIMITED TERM INCOME FUND Class C 1995 $ 9.85 $0.56 $ 0.07 $(0.56) $ -- 1994(1) 10.02 0.29 (0.17) (0.29) -- Class A 1995 $ 9.85 $0.56 $ 0.07 $(0.56) $ -- 1994 10.06 0.44 (0.22) (0.43) -- 1993(2) 10.00 0.29 0.07 (0.30) -- INTERMEDIATE TERM INCOME FUND Class C 1995 $ 9.55 $0.58 $ 0.39 $(0.58) $ -- 1994(1) 10.01 0.31 (0.46) (0.31) -- Class A 1995 $ 9.55 $0.59 $ 0.38 $(0.58) $ -- 1994 10.22 0.46 (0.56) (0.46) (0.11) 1993(2) 10.00 0.41 0.29 (0.41) (0.07) FIXED INCOME FUND Class C 1995 $10.37 $0.66 $ 0.62 $(0.65) $(0.03) 1994(1) 11.11 0.38 (0.74) (0.38) -- Class A 1995 $10.37 $0.66 $ 0.61 $(0.63) $(0.03) 1994 11.38 0.57 (0.89) (0.57) (0.12) 1993 11.13 0.62 0.36 (0.61) (0.12) 1992 10.59 0.66 0.60 (0.66) (0.06) 1991(3) 10.01 0.65 0.58 (0.65) -- 1990(4) 10.44 0.74 (0.26) (0.74) (0.17) 1989(4) 10.13 0.74 0.31 (0.74) -- 1988(4)(5) 10.03 0.62 0.13 (0.65) -- INTERMEDIATE GOVERNMENT BOND FUND Class C 1995 $ 8.98 $0.54 $ 0.31 $(0.54) $ -- 1994(1) 9.41 0.27 (0.43) (0.27) -- Class A 1995 $ 8.98 $0.54 $ 0.31 $(0.54) $ -- 1994 9.52 0.41 (0.51) (0.39) (0.05) 1993 10.18 0.44 0.02 (0.44) (0.68) 1992 10.25 0.60 0.28 (0.60) (0.35) 1991(3) 10.01 0.65 0.24 (0.65) -- 1990(4) 10.05 0.75 (0.04) (0.75) -- 1989(4) 9.99 0.74 0.06 (0.74) -- 1988(4)(5) 10.03 0.58 (0.01) (0.61) --
(table continued)
RATIO OF RATIO OF NET EXPENSES TO RATIO OF INVESTMENT AVERAGE NET NET ASSET NET ASSETS EXPENSES TO INCOME TO ASSETS VALUE END END OF AVERAGE NET AVERAGE NET (EXCLUDING PORTFOLIO OF PERIOD TOTAL RETURN PERIOD (000) ASSETS ASSETS WAIVERS) TURNOVER RATE LIMITED TERM INCOME FUND Class C 1995 $ 9.92 6.57% $111,439 0.60% 5.67% 0.97% 120% 1994(1) 9.85 1.24%+ 70,266 0.60 4.40 1.03 48 Class A 1995 $ 9.92 6.57% $ 9,977 0.60% 5.60% 1.22% 120% 1994 9.85 2.21% 9,509 0.60 4.17 1.23 48 1993(2) 10.06 3.61%+ 121,800 0.60 3.61 1.27 104 INTERMEDIATE TERM INCOME FUND Class C 1995 $ 9.94 10.51% $ 88,375 0.70% 5.94% 0.94% 69% 1994(1) 9.55 (1.48%)+ 68,445 0.58 4.81 1.07 177 Class A 1995 $ 9.94 10.51% $ 2,437 0.70% 5.97% 1.19% 69% 1994 9.55 (1.05%) 3,208 0.69 2.48 1.24 177 1993(2) 10.22 7.21%+ 67,291 0.70 4.90 1.29 163 FIXED INCOME FUND Class C 1995 $10.97 12.86% $289,816 0.70% 6.28% 0.94% 106% 1994(1) 10.37 (3.23%)+ 90,187 0.61 5.53 0.92 142 Class A 1995 $10.98 12.78% $ 7,853 0.86% 6.14% 1.19% 106% 1994 10.37 (2.92%) 8,028 0.68 3.83 1.06 142 1993 11.38 9.20% 53,601 0.70 5.65 1.14 91 1992 11.13 12.34% 5,645 0.99 6.12 2.68 180 1991(3) 10.59 12.48%+ 6,045 0.99 6.85 4.11 176 1990(4) 10.01 5.14% 2,209 1.07 7.49 5.46 144 1989(4) 10.44 10.93% 555 1.22 7.26 22.44 157 1988(4)(5) 10.13 8.07%+ 240 0.96 7.18 20.70 93 INTERMEDIATE GOVERNMENT BOND FUND Class C 1995 $ 9.29 9.82% $100,168 0.70% 6.13% 0.97% 17% 1994(1) 8.98 (1.66%)+ 27,776 0.36 5.32 1.45 74 Class A 1995 $ 9.29 9.82% $ 2,860 0.70% 6.10% 1.22% 17% 1994 8.98 (1.13%) 1,977 0.53 4.49 2.14 74 1993 9.52 4.99% 3,716 0.71 4.00 4.73 182 1992 10.18 8.88% 589 0.99 6.03 14.14 101 1991(3) 10.25 9.13%+ 1,756 0.99 6.99 6.76 100 1990(4) 10.01 7.41% 1,573 1.08 7.57 5.55 40 1989(4) 10.05 8.35% 1,501 1.19 7.49 9.65 72 1988(4)(5) 9.99 6.18%+ 375 0.95 6.78 17.20 0
+ Returns, excluding sales charges, are for the period indicated and have not been annualized. (1) Class C shares have been offered since February 4, 1994. All ratios for the period have been annualized. (2) Commenced operations on December 14, 1992. All ratios for the period have been annualized. (3) 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. (4) For the period ended October 31. (5) Commenced operations on December 22, 1987. All ratios for the period have been annualized. 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 C) which provide for variations in distribution costs, voting rights and dividends. Except for these differences among classes, each share of each FAIF Fund represents an undivided proportionate interest in that fund. FAIF is incorporated under the laws of the State of Maryland, and its principal offices are located at 680 East Swedesford Road, Wayne, Pennsylvania 19087. This Prospectus relates only to the Class C Shares of the 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 C Shares of the other FAIF Funds is contained in separate prospectuses that may be obtained from FAIF's Distributor, SEI Financial Services Company, 680 East Swedesford Road, Wayne, Pennsylvania 19087, or by calling (800) 637-2548. The Board of Directors of FAIF may authorize additional series or classes of common stock in the future. INVESTMENT 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 is a diversified investment company, as defined in the Investment Company Act of 1940 (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. 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, 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 Corporation ("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." LIMITED TERM INCOME FUND, INTERMEDIATE TERM INCOME FUND, AND FIXED INCOME FUND OBJECTIVES. Limited Term Income Fund has an objective of providing current income while attempting to provide a high degree of principal stability. Intermediate Term Income Fund has an objective of providing current income to the extent consistent with preservation of capital. Fixed Income Fund has an objective of providing a high level of current income consistent with limited risk to capital. INVESTMENT POLICIES. Each of these Funds invests in investment grade debt securities, at least 65% of which are United States Government obligations and corporate debt obligations and mortgage-backed and asset-backed 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 securities held by Limited Term Income Fund will range from 6 months to 2 years; that of Intermediate Term Income Fund will range from 3 to 7 years; and that of Fixed Income Fund will not exceed 15 years. These Funds' permitted investments include notes, bonds and discount notes of United States Government agencies or instrumentalities; 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 Adviser; other fixed income securities, 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 Adviser; 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. Unrated securities will not exceed 10% in the aggregate of the value of the total assets of any of these Funds. At least 65% of the total assets of Fixed Income Fund will be invested in fixed rate obligations. Subject to the foregoing limitations, each of these Funds may invest in the following kinds of securities, as described under the related headings under "Special Investment Methods:" (i) mortgage-backed securities (provided that Limited Term Income Fund will not invest in interest-only, principal-only or inverse floating rate mortgage-backed securities, and each of Intermediate Term Income Fund and Fixed Income Fund will not invest more than 10% of its total assets in the aggregate in these kinds of securities); (ii) asset-backed securities; and (iii) bank instruments. In addition, each of these Funds may (i) invest up to 15% of its total assets in foreign securities payable in United States dollars; (ii) enter into repurchase agreements; (iii) 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; (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." Limited Term Income Fund also may purchase investment-type insurance products such as Guaranteed Investment Contracts ("GICs"). A GIC is a deferred annuity under which the purchaser agrees to pay money to an insurer (either in a lump sum or in installments) and the insurer promises to pay interest at a guaranteed rate for the life of the contract. GICs may have fixed or variable interest rates. A GIC is a general obligation of the issuing insurance company. The purchase price paid for a GIC becomes part of the general assets of the insurer, and the contract is paid at maturity from the general assets of the insurer. In general, GICs are not assignable or transferable without the permission of the issuing insurance companies and can be redeemed before maturity only at a substantial discount or penalty. GICs therefore are usually considered to be illiquid investments. Limited Term Income Fund will purchase only GICs which are obligations of insurance companies with a policyholder's rating of A or better by A.M. Best Company. A description of these ratings is contained in the Statement of Additional Information. Although these Funds will not make direct purchases of common or preferred stocks or rights to acquire common or preferred stocks, they may invest in debt securities which are convertible into or exchangeable for, or which carry warrants or other rights to acquire, such stocks. Equity interests acquired through conversion, exchange or exercise of rights to acquire stock will be disposed of by these Funds as soon as practicable in an orderly manner. For temporary defensive purposes during times of unusual market conditions, these Funds may without limitation hold cash or invest in cash items. The Funds also may invest not more than 35% of their total assets in cash and cash items in order to utilize assets awaiting normal investment. Cash items may include short-term obligations such as rated commercial paper and variable amount master demand notes; time and savings deposits (including certificates of deposit); bankers acceptances; obligations of the United States Government or its agencies or instrumentalities; and repurchase agreements collateralized by eligible investments. INTERMEDIATE GOVERNMENT BOND FUND OBJECTIVE. Intermediate Government Bond Fund has an objective of providing current income to the extent consistent with preservation of capital. INVESTMENT POLICIES. Under normal market conditions, Intermediate Government Bond Fund invests at least 65% of its total assets in securities issued or guaranteed by the United States Government and its agencies and instrumentalities. The Fund's share price and yield, however, are not guaranteed or insured by the United States Government or any of its agencies or instrumentalities. Under normal market conditions, the weighted average maturity of the securities held by this Fund will range from 3 to 7 years. The types of securities in which the Fund may invest include direct obligations of the United States Treasury, such as United States Treasury bonds, notes and bills. In addition, the Fund may invest in obligations issued or guaranteed as to principal and interest by agencies of the United States Government or by instrumentalities which have been established or sponsored by the United States Government, provided, in each case, that interest on the obligations is excludable from state taxable income by the holders thereof. Such agencies and instrumentalities include, but are not limited to, the Farm Credit System Financial Assistance Corporation, the Federal Home Loan Banks System, the Student Loan Marketing Association and the Tennessee Valley Authority. Obligations issued or guaranteed by some of these agencies or instrumentalities are not guaranteed by the United States Government, but instead rely solely on the assets and credit of the issuing agency or instrumentality. In addition, the Fund may (i) enter into repurchase agreements; (ii) 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; (iii) purchase securities on a when-issued or delayed-delivery basis; and (iv) 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 during times of unusual market conditions, the Fund may without limitation hold cash or invest in short-term government securities maturing within 13 months from the date of purchase or repurchase agreements with respect to government securities. The Fund also may so invest not more than 35% of its total assets in order to utilize assets awaiting normal investment. See "Special Investment Methods -- Repurchase Agreements." RISKS TO CONSIDER An investment in any of the Funds involves certain risks. These include the following: INTEREST RATE RISK. Interest rate risk is the risk that the value of a fixed-rate debt security will decline due to changes in market interest rates. Because the Funds invest in fixed-rate debt securities, they are subject to interest rate risk. In general, when interest rates rise, the value of a fixed-rate debt security declines. Conversely, when interest rates decline, the value of a fixed-rate debt security generally increases. Thus, shareholders in the Funds bear the risk that increases in market interest rates will cause the value of their Fund's portfolio investments to decline. In general, the value of fixed-rate debt securities with longer maturities is more sensitive to changes in market interest rates than the value of such securities with shorter maturities. Thus, the net asset value of a Fund which invests in securities with longer weighted average maturities, such as Fixed Income Fund, should be expected to have greater volatility in periods of changing market interest rates than that of a Fund which invests in securities with shorter weighted average maturities, such as Limited Term Income Fund. Similarly, the volatility of Intermediate Term Income Fund and Intermediate Government Bond Fund generally should be expected to be between that of Fixed Income Fund and Limited Term Income Fund. As described below under "-- Mortgage-Backed Securities," it is more difficult to generalize about the effect of changes in market interest rates on the values of mortgage-backed securities. Although the Adviser may engage in transactions intended to hedge the value of the Funds' portfolios against changes in market interest rates, there is no assurance that such hedging transactions will be undertaken or will fulfill their purpose. See "Special Investment Methods -- Options Transactions." CREDIT RISK. Credit risk is the risk that the issuer of a debt security will fail to make payments on the security when due. Because the Funds invest in debt securities, they are subject to credit risk. Securities issued or guaranteed by the United States Government generally are viewed as carrying minimal credit risk. Securities issued by governmental entities but not backed by the full faith and credit of the United States, and securities issued by private entities, are subject to higher levels of credit risk. The ratings and certain other requirements which apply to the Funds' permitted investments, as described elsewhere in this Prospectus, are intended to limit the amount of credit risk undertaken by the Funds. Nevertheless, shareholders in the Funds bear the risk that payment defaults could cause the value of their Fund's portfolio investments to decline. Investors also should note that Limited Term Income Fund, Intermediate Term Income Fund and Fixed Income Fund can invest in debt securities rated as low as 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 Adviser. Although these rating categories are investment grade, obligations with these ratings are viewed as having speculative characteristics and carry a somewhat higher risk of default than obligations rated in the higher investment grade categories. CALL RISK. Many corporate bonds may be redeemed at the option of the issuer ("called") at a specified price prior to their stated maturity date. In general, it is advantageous for a corporate issuer to call its bonds if they can be refinanced through the issuance of new bonds which bear a lower interest rate than that of the called bonds. Call risk is the risk that corporate bonds will be called during a period of declining market interest rates so that such refinancings may take place. If a bond held by a Fund is called during a period of declining interest rates, the Fund probably will have to reinvest the proceeds received by it at a lower interest rate than that borne by the called bond, thus resulting in a decrease in the Fund's income. To the extent that the Funds invest in callable corporate bonds, Fund shareholders bear the risk that reductions in income will result from the call of bonds. Most United States Government securities are not callable before their stated maturity, although U.S. agency securities often are. MORTGAGE-BACKED SECURITIES. Because residential mortgage loans generally can be prepaid in whole or in part by the borrowers at any time without any prepayment penalty, the holder of a mortgage-backed security which represents an interest in a pool of such mortgage loans is subject to a form of call risk which is generally called "prepayment risk." In addition, it 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; the magnitude of such effects may be greater in some cases; and the return on certain types of mortgage-backed securities, such as interest-only, principal-only and inverse floating rate mortgage-backed securities, is particularly sensitive to changes in interest rates and in the rate at which the mortgage loans underlying the securities are prepaid by borrowers. For these reasons, a Fund's investments in mortgage-backed securities may involve greater risks than investments in governmental or corporate bonds. For further information, see "Special Investment Methods - --Mortgage-Backed Securities." 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 Adviser acts as investment adviser for and manages the investment portfolios of FAIF. INVESTMENT ADVISER First Bank National Association, 601 Second Avenue South, Minneapolis, Minnesota 55480, acts as the Funds' investment adviser through its First Asset Management group. The Adviser has acted as an investment adviser to FAIF since its inception in 1987 and has acted as investment adviser to First American Funds, Inc. since 1982. As of September 30, 1995, the Adviser was managing accounts with an aggregate value of approximately $29 billion, including mutual fund assets in excess of $7 billion. First Bank System, Inc., 601 Second Avenue South, Minneapolis, Minnesota 55480, is the holding company for the Adviser. Each of the Funds has agreed to pay the Adviser monthly fees calculated on an annual basis equal to 0.70% of its average daily net assets. The Adviser may, at its option, waive any or all of its fees, or reimburse expenses, with respect to any Fund from time to time. Any such waiver or reimbursement is voluntary and may be discontinued at any time. The Adviser also may absorb or reimburse expenses of the 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 those activities. In addition, administrative and judicial interpretations of the Glass-Steagall Act prohibit bank holding companies and their bank and nonbank subsidiaries from organizing, sponsoring or controlling registered open-end investment companies that are continuously engaged in distributing their shares. Bank holding companies and their bank and nonbank subsidiaries may serve, however, as investment advisers to registered investment companies, subject to a number of terms and conditions. Although the scope of the prohibitions and limitations imposed by the Glass-Steagall Act has not been fully defined by the courts or the appropriate regulatory agencies, the Funds have received an opinion from their counsel that the Adviser is not prohibited from performing the investment advisory services described above. In the event of changes in federal or state statutes or regulations or judicial and administrative interpretations or decisions pertaining to permissible activities of bank holding companies and their bank and nonbank subsidiaries, the Adviser might be prohibited from continuing these arrangements. In that event, it is expected that the Board of Directors would make other arrangements and that shareholders would not suffer adverse financial consequences. PORTFOLIO MANAGERS MARTIN L. JONES is portfolio manager for Limited Term Income Fund, Intermediate Term Income Fund and Fixed Income Fund. Martin heads the Fixed Income Group of the Adviser and has over 20 years of investment experience. Formerly with Harris Trust & Savings Bank, Dillon, Read & Co., and Loeb Rhoades & Co., Martin received his bachelor's degree from Texas Tech University, his master's degree from University of Texas, and his master's in business administration degree from the University of Chicago. CHRISTOPHER L. DRAHN is portfolio manager for Intermediate Government Bond Fund. Chris joined the fixed income department of the Adviser in 1985, having previously served in its securities lending and corporate trust areas. He received his master's degree in business administration from the University of Minnesota and is a Chartered Financial Analyst. CUSTODIAN The custodian of the Funds' assets is First Trust National Association (the "Custodian"), First Trust Center, 180 East Fifth Street, St. Paul, Minnesota 55101. The Custodian is a subsidiary of First Bank System, Inc., which also controls the Adviser. As compensation for its services to the Funds, the Custodian is paid the following fees: (i) an annual administration fee of $750 per Fund; (ii) an issue held fee, computed as of the end of each month, at the annual rate of $30 per securities issue held by each Fund; (iii) transaction fees, consisting of (a) a securities buy/sell/maturity fee of $15 per each such transaction, and (b) a payment received fee of $12 for each principal pay down payment received on collateralized mortgage pass-through instruments; (iv) a wire transfer fee of $10 per transaction; (v) a cash management fee, for "sweeping" cash into overnight investments, at an annual rate of 0.25% of the amounts so invested; and (vi) a remittance fee, for payment of each Fund's expenses, of $3.50 per each check drawn for such remittances. In addition, the Custodian is reimbursed for its out-of-pocket expenses incurred while providing its services to the Funds. ADMINISTRATOR The administrator for the Funds is SEI Financial Management Corporation (the "Administrator"), 680 East Swedesford Road, Wayne, Pennsylvania 19087. The Administrator, a wholly-owned subsidiary of SEI Corporation, provides the Funds with certain administrative services necessary to operate the Funds. These services include shareholder servicing and certain accounting and other services. The Administrator provides these services for a fee calculated at an annual rate of 0.12% of each Fund's average daily net assets, subject to a minimum administrative fee during each fiscal year of $50,000 per Fund; 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. 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 210 West 10th Street, Kansas City, Missouri 64105. The Transfer Agent is not affiliated with the Distributor, the Administrator or the Adviser. DISTRIBUTOR SEI Financial Services Company is the principal distributor for shares of the 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 is a wholly-owned subsidiary of SEI Corporation and is located at 680 East Swedesford Road, Wayne, Pennsylvania 19087. The Distributor is not affiliated with the Adviser, First Bank System, Inc., the Custodian or their respective affiliates. The Distributor, the Administrator and the Adviser may in their discretion use their own assets to pay for certain costs of distributing Fund shares. They also may discontinue any payment of such costs at any time. PURCHASES AND REDEMPTIONS OF SHARES SHARE PURCHASES AND REDEMPTIONS Shares of the Funds are sold and redeemed on days on which the New York Stock Exchange is open for business ("Business Days"). Payment for shares can be made only by wire transfer. Wire transfers of federal funds for share purchases should be sent to First Bank National Association, Minneapolis, Minnesota, ABA Number 091000022; For Credit to: DST Systems: Account Number 6023458026; For Further Credit To: (Investor Name and Fund Name). Shares cannot be purchased by Federal Reserve wire on days on which the New York Stock Exchange is closed and on Federal holidays upon which wire transfers are restricted. Purchase orders will be effective and eligible to receive dividends declared the same day if the Transfer Agent receives an order before 3:00 p.m. Central time and the Custodian receives Federal funds before the close of business that day. Otherwise, the purchase order will be effective the next Business Day. The net asset value per share is calculated as of 3:00 p.m. Central time each Business Day. The Funds reserve the right to reject a purchase order. The Funds are required to redeem for cash all full and fractional shares of the Funds. Redemption orders may be made any time before 3:00 p.m. Central time in order to receive that day's redemption price. For redemption orders received before 3:00 p.m. Central time, payment will ordinarily be made the same day by transfer of Federal funds, but payment may be made up to 7 days later. WHAT SHARES COST Class C Shares of the Funds are sold and redeemed at net asset value. The net asset value per share is determined as of the earlier of the close of the New York Stock Exchange or 3:00 p.m. Central time on each day the New York Stock Exchange is open for business, provided that net asset value need not be determined on days when no Fund shares are tendered for redemption and no order for 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. Debt obligations exceeding 60 days to maturity which are actively traded are valued by an independent pricing service at the most recently quoted bid price. Debt obligations with 60 days or less remaining until maturity may be valued at their amortized cost. Foreign securities are valued based upon quotation from the primary market in which they are traded. When market quotations are not readily available, securities are valued at fair value as determined in good faith by procedures established and approved by the Board of Directors. Portfolio securities underlying actively traded options are valued at their market price as determined above. The current market value of any exchange traded option held or written by a Fund is its last sales price on the exchange prior to the time when assets are valued, unless the bid price is higher or the asked price is lower, in which event the bid or asked price is used. In the absence of any sales that day, options will be valued at the current closing bid price. 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 expenses charged to Class A and Class B Shares. FOREIGN SECURITIES. 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. If events materially affecting the value of foreign securities occur between the time when their price is determined and the time when the Funds' net asset value is calculated, such securities will be valued at fair value as determined in good faith by or under the direction of the Board of Directors. 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 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. 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 Adviser 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. 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. DIVIDENDS AND DISTRIBUTIONS Dividends with respect to each Fund are declared and paid monthly to all shareholders of record on the record date. Distributions of any net realized long-term capital gains will be made at least once every 12 months. Dividends and distributions are automatically reinvested in additional shares of the Fund 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 C Shares generally will be more than the dividends payable on Class A or Class B Shares because of the distribution expenses charged to Class A and Class B Shares. EXCHANGE PRIVILEGE Shareholders may exchange Class C Shares of a Fund for currently available Class C Shares of the other FAIF Funds or of other funds in the First American family at net asset value. Exchanges of shares among the FAIF Funds must meet any applicable minimum investment of the fund for which shares are being exchanged. The ability to exchange shares of the 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. 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. These procedures may include taping of telephone conversations. Shares of a class in which an investor is no longer eligible to participate may be exchanged for shares of a class in which that investor is eligible to participate. An example of this kind of exchange would be a situation in which Class C Shares of 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. FEDERAL INCOME TAXES Each Fund intends to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), during its current taxable year in order to be relieved of payment of federal income taxes on amounts of taxable income it distributes to shareholders. Dividends paid from each Fund's net investment income and net short-term capital gains will be taxable to shareholders as ordinary income, whether or not the shareholder elects to have such dividends automatically reinvested in additional shares. Dividends paid by the Funds will not be eligible for the 70% deduction for dividends received by corporations. Dividends paid from the net capital gains of each Fund and designated as capital gain dividends will be taxable to shareholders as long-term capital gains, regardless of the length of time for which they have held their shares in the Fund. Gain or loss realized upon the sale of shares in the Funds will be treated as capital gain or loss, provided that the shares represented a capital asset in the hands of the shareholder. Such gain or loss will be long-term gain or loss if the shares were held for more than one year. This is a general summary of the federal tax laws applicable to the 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. 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, the shares of that Fund or Class will vote as a separate series. Examples of such issues would be proposals to alter a fundamental investment restriction pertaining to a Fund or to approve, disapprove or alter a distribution plan pertaining to a Class. Under the laws of the State of Maryland and FAIF's Articles of Incorporation, FAIF is not required to hold shareholder meetings unless they (i) are required by the 1940 Act, or (ii) are requested in writing by the holders of 25% or more of the outstanding shares of FAIF. CALCULATION OF PERFORMANCE DATA From time to time, 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 Securities and Exchange Commission ("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 C Shares of a Fund will normally be higher than for the Class A and Class B Shares because Class C Shares are not subject to the sales charges and distribution expenses applicable to Class A and Class B Shares. In reports or other communications to shareholders and in advertising material, the performance of each Fund may be compared to recognized unmanaged indices or averages of the performance of similar securities. 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. 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. BANK INSTRUMENTS The bank instruments in which Limited Term Income Fund, Intermediate Term Income Fund and Fixed Income 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" below. In each instance, the Funds 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. ASSET-BACKED SECURITIES Each of Limited Term Income Fund, Intermediate Term Income Fund and Fixed Income 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. Like collateralized mortgage obligations, asset-backed securities generally are issued by a private special-purpose entity. Their 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. FOREIGN SECURITIES Each of Limited Term Income Fund, Intermediate Term Income Fund and Fixed Income Fund may invest up to 15% of its total assets in foreign securities payable in United States dollars. These securities may include securities issued or guaranteed by (i) the Government of Canada, any Canadian Province, or any instrumentality or political subdivision thereof; (ii) any other foreign government, agency or instrumentality; (iii) foreign subsidiaries of United States corporations; and (iv) foreign banks having total capital and surplus at the time of investment of at least $1 billion. Such foreign bank or corporate securities must be rated by at least one major United States rating agency as having a quality not less than that which would be required for comparable domestic securities. In addition, Limited Term Income Fund, Intermediate Term Income Fund and Fixed Income Fund also may invest in Eurodollar Certificates of Deposit, Eurodollar Time Deposits and Yankee Certificates of Deposit as described under "-- Bank Instruments" above. Although investments of these kinds are not subject to currency risk because they are denominated in United States dollars, they are subject to certain other risks associated with foreign investments. Risks which may affect foreign issuers include political, social or economic instability in the country of the issuer, the possibility of the imposition of exchange controls, expropriation, limits on removal of currency or other assets, and nationalization of assets. Foreign issuers may not be subject to uniform accounting, auditing and financial reporting standards comparable to those applicable to domestic United States issuers. In addition, foreign branches of United States banks and foreign banks may be subject to less stringent regulatory requirements than United States banks. MORTGAGE-BACKED SECURITIES Limited Term Income Fund, Intermediate Term Income Fund and Fixed Income Fund may invest in mortgage-backed securities. Each of these Funds will invest only in mortgage-backed securities which are Agency Pass-Through 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 GNMA, FNMA or 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. Holders of single-class pass-through certificates are entitled to receive their proportionate share of all principal payments and prepayments on the underlying mortgage loans together with interest on the unpaid principal at a stated pass-through rate. Holders of each class in an issue of multiple-class pass-through certificates are entitled to receive a specified portion of all principal payments and prepayments and/or interest at a stated pass-through rate on the underlying mortgage loans. A class of pass-through certificates which entitles the holder to receive all of the interest and none of the principal on the underlying mortgage loans is referred to as an "interest-only" class, while a class which entitles the holder to receive all of the principal payments and prepayments and none of the interest on the underlying mortgage loans is referred to as a "principal-only" class. Agency Pass-Through Certificates may be based on a pool of fixed-rate mortgage loans or on a pool of adjustable-rate mortgage loans, the interest rates on which change periodically based on changes in a specified index rate. In the latter case, the pass-through rate of interest on the Agency Pass-Through Certificates changes with changes in the rates borne by the underlying mortgage loans. 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. The Funds 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 Adviser. 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 on, among other factors, 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 Funds 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. Residential mortgage loans generally can be prepaid in whole or in part by the borrowers at any time without any prepayment penalty. As a result, the rate at which mortgage loans in a given pool are prepaid (the "prepayment speed") is likely to increase if interest rates decline (due in part to prepayments associated with refinancings at lower rates) and to decrease if interest rates increase, particularly in the case of a pool of fixed-rate mortgage loans. Thus, the holder of an interest in a mortgage pool is likely to have to reinvest greater amounts of principal during periods of declining interest rates than during periods of increasing rates. However, the relationship between changes in interest rates and changes in prepayment speeds is not predictable with precision, nor is the likelihood of changes in interest rates which might lead to changes in prepayment speeds. In addition, changes in interest rates and prepayment speeds have differing effects on the return on different kinds of CMO classes. For these reasons, it 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 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 and inverse floating rate mortgage-backed securities generally have greater risk than more conventional classes of mortgage-backed securities. The limitations on each Fund's investments in interest-only, principal-only and inverse floating rate mortgage-backed securities are set forth above under "Investment Objectives and Policies." 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 Adviser will monitor the creditworthiness of the firms with which the Funds enter into repurchase agreements. WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS Each of the Funds 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. LENDING OF PORTFOLIO SECURITIES In order to generate additional income, each of the Funds may lend portfolio securities representing up to one-third of the value of its total assets to broker-dealers, banks or other institutional borrowers of securities. As with other extensions of credit, there may be risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail financially. However, the Funds will only enter into loan arrangements with broker-dealers, banks, or other institutions which the Adviser has determined are creditworthy under guidelines established by the Board of Directors. In these loan arrangements, the 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 in connection with these loans. OPTIONS TRANSACTIONS Each of the Funds may, in order to reduce risk, invest in exchange traded put and call options on interest rate futures contracts and on interest rate indices. Such investments will be made solely as a hedge against adverse changes resulting from market conditions in the values of securities held by the Funds or which they intend to purchase and where the transactions are deemed appropriate to reduce risks inherent in the Funds' portfolios or contemplated investments. None of the Funds 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 contract 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 (purchase price of the option) and the commission or other transaction expenses associated with acquiring the option. An interest rate futures contract provides for the future sale by one party and purchase by the other party of a certain amount of a specific financial instrument (debt security) at a specified price, date, time and place. An option on an interest rate futures contract, as contrasted with the direct investment in such a contract, gives the purchaser the right, in return for the premium paid, to purchase (in the case of a call option) or sell (in the case of a put option) an interest rate futures contract at a specified exercise price at any time prior to the expiration date of the option. In order to hedge its portfolio against anticipated changes in interest rates, a Fund might purchase a put option on an interest rate futures contract if interest rates were expected to rise, or might purchase a call option on an interest rate futures contract if rates were expected to decline. Options on interest rate indices are similar to options on interest rate futures contracts except that, rather than the right to take or make delivery of a specific financial instrument at a specified price, an option on an interest rate index gives the holder the right to receive, upon exercise of the option, a defined amount of cash if the closing value of the interest rate 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. Put and call options on interest rate indices thus may be used in a fashion similar to that of options on interest rate futures contracts to hedge the value of a portfolio of debt securities against anticipated changes in interest rates. The use of options on interest rate futures contracts and on interest rate indices involves certain risks. These include the risk that changes in interest rates on the hedged instruments may not correlate to changes in interest rates on the instrument or index upon which the hedge is based, 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. 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 Adviser. 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 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. * None of the Funds will mortgage, pledge or hypothecate its assets, except in an amount not exceeding 15% of the value of its total assets to secure temporary or emergency borrowing. * None of the Funds will make short sales of securities. * 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. 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 Securities and Exchange Commission rules and interpretations. Section 4(2) commercial paper may be determined to be "liquid" under guidelines adopted by the Board of Directors. Rule 144A securities may in the future be determined to be "liquid" under guidelines adopted by the Board of Directors if the current position of certain state securities regulators regarding such securities is modified. Investing in Rule 144A securities could have the effect of increasing the level of illiquidity in a Fund to the extent that qualified institutional buyers become, for a time, uninterested in purchasing these securities. FIRST AMERICAN INVESTMENT FUNDS, INC. 680 East Swedesford Road Wayne, Pennsylvania 19087 INVESTMENT ADVISER FIRST BANK NATIONAL ASSOCIATION 601 Second Avenue South Minneapolis, Minnesota 55402 CUSTODIAN FIRST TRUST NATIONAL ASSOCIATION 180 East Fifth Street St. Paul, Minnesota 55101 DISTRIBUTOR SEI FINANCIAL SERVICES COMPANY 680 East Swedesford Road Wayne, Pennsylvania 19087 ADMINISTRATOR SEI FINANCIAL MANAGEMENT CORPORATION 680 East Swedesford Road Wayne, Pennsylvania 19087 TRANSFER AGENT DST SYSTEMS, INC. 210 West 10th Street Kansas City, Missouri 64105 INDEPENDENT AUDITORS KPMG PEAT MARWICK LLP 90 South Seventh Street Minneapolis, Minnesota 55402 COUNSEL DORSEY & WHITNEY P.L.L.P. 220 South Sixth Street Minneapolis, Minnesota 55402 FAIF-1501 (1/96) I FIRST AMERICAN INVESTMENT FUNDS, INC. TAX FREE INCOME FUNDS RETAIL CLASS INTERMEDIATE TAX FREE FUND MINNESOTA INSURED INTERMEDIATE TAX FREE FUND COLORADO INTERMEDIATE TAX FREE FUND PROSPECTUS JANUARY 31, 1996 [LOGO] FIRST AMERICAN FUNDS The power of disciplined investing TABLE OF CONTENTS PAGE SUMMARY 4 FEES AND EXPENSES 8 Class A Share Fees and Expenses 8 Class B Share Fees and Expenses 10 Information Concerning Fees and Expenses 12 FINANCIAL HIGHLIGHTS 14 THE FUNDS 16 INVESTMENT OBJECTIVES AND POLICIES 16 Intermediate Tax Free Fund 17 Minnesota Insured Intermediate Tax Free Fund and Colorado Intermediate Tax Free Fund 18 Risks to Consider 20 MANAGEMENT 23 Investment Adviser 23 Portfolio Managers 24 Custodian 24 Administrator 25 Transfer Agent 25 DISTRIBUTOR 25 INVESTING IN THE FUNDS 27 Share Purchases 27 Minimum Investment Required 28 Alternative Sales Charge Options 28 Systematic Investment Program 33 Exchanging Securities for Fund Shares 33 Certificates and Confirmations 33 Dividends and Distributions 33 Exchange Privilege 34 REDEEMING SHARES 36 By Telephone 36 By Mail 36 By Systematic Withdrawal Program 37 Redemption Before Purchase Instruments Clear 38 Accounts with Low Balances 38 DETERMINING THE PRICE OF SHARES 38 Determining Net Asset Value 38 INCOME TAXES 39 TAX-EXEMPT VS. TAXABLE INCOME 43 FUND SHARES 44 CALCULATION OF PERFORMANCE DATA 44 SPECIAL INVESTMENT METHODS 46 Municipal Bonds and Other Municipal Obligations 46 Insurance for Minnesota Insured Intermediate Tax Free Fund 48 Temporary Taxable Investments 50 Repurchase Agreements 50 Inverse Floating Rate Obligations 50 When-Issued and Delayed-Delivery Transactions 51 Lending of Portfolio Securities 51 Options Transactions 52 Portfolio Transactions 53 Portfolio Turnover 53 Investment Restrictions 53 FIRST AMERICAN INVESTMENT FUNDS, INC. 680 East Swedesford Road, Wayne, Pennsylvania 19087 RETAIL CLASSES PROSPECTUS The shares described in this Prospectus represent interests in First American Investment Funds, Inc., which consists of mutual funds with several different investment portfolios and objectives. This Prospectus relates to the Class A and Class B Shares of the following funds (the "Funds"): * INTERMEDIATE TAX FREE FUND * COLORADO INTERMEDIATE TAX FREE FUND * MINNESOTA INSURED INTERMEDIATE TAX FREE FUND SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK, INCLUDING FIRST BANK NATIONAL ASSOCIATION AND ANY OF ITS AFFILIATES, NOR ARE THEY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. AN INVESTMENT IN THE 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, 1996 for the Funds has been filed with the Securities and Exchange Commission and is incorporated in its entirety by reference in this Prospectus. To obtain copies of the Statement of Additional Information at no charge, or to obtain other information or make inquiries about the Funds, call (800) 637-2548 or write SEI Financial Services Company, 680 East Swedesford Road, Wayne, Pennsylvania 19087. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY RESPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is January 31, 1996. 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"): INTERMEDIATE TAX FREE FUND has an objective of providing current income that is exempt from federal income tax to the extent consistent with preservation of capital. Under normal market conditions, this Fund invests at least 80% of its net assets in municipal obligations, the interest on which is exempt from federal income tax. No more than 20% of the securities owned by this Fund will generate income that is subject to the federal alternative minimum tax. Under normal market conditions, the weighted average maturity of the securities held by this Fund will range from 3 to 10 years. MINNESOTA INSURED INTERMEDIATE TAX FREE FUND has an objective of providing current income which is exempt from both federal income tax and Minnesota state income tax to the extent consistent with preservation of capital. Under normal market conditions, this Fund invests at least 80% of its net assets in municipal obligations, the interest on which is exempt from federal and Minnesota income tax. No more than 20% of the securities owned by this Fund will generate income that is subject to the federal or the Minnesota alternative minimum tax. At least 65% of the tax-exempt obligations held by this Fund will consist of insured bonds, escrow secured bonds and defeased bonds. Under normal market conditions, the weighted average maturity of the securities held by this Fund will range from 3 to 10 years. COLORADO INTERMEDIATE TAX FREE FUND has an objective of providing current income which is exempt from both federal income tax and Colorado state income tax to the extent consistent with preservation of capital. Under normal market conditions, this Fund invests at least 80% of its net assets in municipal obligations, the interest on which is exempt from federal and Colorado income tax. No more than 20% of the securities owned by this Fund will generate income that is subject to the federal alternative minimum tax. Under normal market conditions, the weighted average maturity of the securities held by this Fund will range from 3 to 10 years. At the present time, Class B Shares of the Funds are not being offered. INVESTMENT ADVISER First Bank National Association (the "Adviser") serves as investment adviser to each of the Funds. See "Management." DISTRIBUTOR; ADMINISTRATOR SEI Financial Services Company (the "Distributor") serves as the distributor of the Funds' shares. SEI Financial 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 3.00%. These sales charges are reduced on purchases of $50,000 or more. Purchases of $1 million or more of Class A Shares are not subject to an initial sales charge, but a contingent deferred sales charge of 1.00% will be imposed on such purchases in the event of redemption within 24 months following the purchase. Class A Shares of the Funds otherwise are redeemed at net asset value without any additional charge. Class A Shares of each Fund are subject to a Rule 12b-1 distribution and service fee computed at an annual rate of 0.25% of the average daily net assets of that class. See "Investing in the 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 service fees computed at an annual rate totaling 1.00% of the average daily net assets of that class. If Class B Shares are redeemed within six years after purchase, they are subject to a contingent deferred sales charge declining from 5.00% in the first year to zero after six years. Class B Shares automatically convert into Class A Shares approximately eight years after purchase. See "Investing in the 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 FAIF 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, 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 (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). In addition, the value of municipal obligations held by the Funds may be adversely affected by local political and economic conditions and developments in the states and political subdivisions which issue the obligations. Investors should note in this regard that Minnesota Insured Intermediate Tax Free Fund and Colorado Intermediate Tax Free Fund invest in municipal obligations of issuers located only in Minnesota and Colorado, respectively. The Funds also may, 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. See "Investment Objectives and Policies -- Risks to Consider" 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. FEES AND EXPENSES CLASS A SHARE FEES AND EXPENSES MINNESOTA INSURED COLORADO INTERMEDIATE INTERMEDIATE INTERMEDIATE TAX FREE TAX FREE TAX FREE FUND FUND FUND SHAREHOLDER TRANSACTION EXPENSES Maximum sales load imposed on purchases (as a percentage of offering price)(1) 3.00% 3.00% 3.00% Maximum sales load imposed on reinvested dividends None None None Deferred sales load(1) None None None Redemption fees None None None Exchange fees None None None ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS) Investment advisory fees (after voluntary fee waivers and reimbursements)(2) 0.32% 0.42% 0.39% Rule 12b-1 fees (after voluntary fee waivers)(2) 0% 0% 0% Other expenses (after voluntary fee waivers and reimbursements)(2) 0.38% 0.28% 0.31% Total fund operating expenses (after voluntary fee waivers and reimbursements)(2) 0.70% 0.70% 0.70% EXAMPLE(3) 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 $ 37 $ 37 $ 37 3 years $ 52 $ 52 $ 52 5 years $ 68 $ 68 $ 68 10 years $ 114 $ 114 $ 114 (1) The rules of the Securities and Exchange Commission require that the maximum sales charge be reflected in the above table. However, certain investors may qualify for reduced sales charges. Purchases of $1 million or more of Class A Shares are not subject to an initial sales charge, but a contingent deferred sales charge of 1.00% will be imposed in the case of redemption within 24 months following the purchase. See "Investing in the Funds -- Alternative Sales Charge Options." (2) The Adviser, the Distributor and the Administrator intend to waive a portion of their fees and/or reimburse expenses on a voluntary basis, and the amounts shown reflect these waivers and reimbursements as of the date of this Prospectus. Each of these persons intends to maintain such waivers and reimbursements in effect for the current fiscal year but reserves the right to discontinue such waivers and reimbursements at any time in its sole discretion. Absent any fee waivers, investment advisory fees for each Fund as an annualized percentage of average daily net assets would be 0.70%; Rule 12b-1 fees calculated on such basis would be 0.25%; and total fund operating expenses calculated on such basis would be 1.30% for Intermediate Tax Free Fund, 1.25% for Minnesota Insured Intermediate Tax Free and 1.27% for Colorado Intermediate Tax Free Fund. Other expenses includes an administration fee and is based on estimated amounts for the current fiscal year. (3) Absent the fee waivers and reimbursements referred to in (2) above, the dollar amounts for the 1, 3, 5 and 10-year periods would be as follows: Intermediate Tax Free Fund, $43, $70, $99 and $182; Minnesota Insured Intermediate Tax Free Fund, $42, $68, $97 and $177; and Colorado Intermediate Tax Free Fund, $43, $69, $98 and $179. CLASS B SHARE FEES AND EXPENSES
MINNESOTA INSURED COLORADO INTERMEDIATE INTERMEDIATE INTERMEDIATE TAX FREE TAX FREE TAX FREE FUND FUND FUND SHAREHOLDER TRANSACTION EXPENSES Maximum sales load imposed on purchases (as a percentage of offering price) None None None Maximum sales load imposed on reinvested dividends None None None Maximum contingent deferred sales charge (as a percentage of original purchase price or redemption proceeds, as applicable) 5.00% 5.00% 5.00% Redemption fees None None None Exchange fees None None None ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS) Investment advisory fees (after voluntary fee waivers and reimbursements)(1) 0.32% 0.42% 0.39% Rule 12b-1 fees 1.00% 1.00% 1.00% Other expenses (after voluntary fee waivers and reimbursements)(1) 0.38% 0.28% 0.31% Total fund operating expenses (after voluntary fee waivers and reimbursements)(1) 1.70% 1.70% 1.70% EXAMPLE: ASSUMING REDEMPTION(2) You would pay the following expenses on a $1,000 investment, assuming (i) a 5% annual return; (ii) redemption at the end of each time period; and (iii) payment of the maximum applicable contingent deferred sales charge of 5% in year 1, 4% in year 3, 2% in year 5, and automatic conversion at the end of year 8: 1 year $ 67 $ 67 $ 67 3 years $ 94 $ 94 $ 94 5 years $ 112 $ 112 $ 112 10 years $ 174 $ 174 $ 174 ASSUMING NO REDEMPTION(3) You would pay the following expenses on the same investment, assuming no redemption: 1 year $ 17 $ 17 $ 17 3 years $ 54 $ 54 $ 54 5 years $ 92 $ 92 $ 92 10 years $ 174 $ 174 $ 174
(1) The Adviser and the Administrator intend to waive a portion of their fees and/or reimburse expenses on a voluntary basis, and the amounts shown reflect these waivers and reimbursements as of the date of this Prospectus. Each of these persons intends to maintain such waivers and reimbursements in effect for the current fiscal year but reserves the right to discontinue such waivers and reimbursements at any time in its sole discretion. Absent any fee waivers, investment advisory fees for each Fund as an annualized percentage of average daily net assets would be 0.70%; and total fund operating expenses calculated on such basis would be 2.05% for Intermediate Tax Free Fund, 2.00% for Minnesota Insured Intermediate Tax Free Fund and 2.02% for Colorado Intermediate Tax Free Fund. Other expenses includes an administration fee and is based on estimated amounts for the current fiscal year. (2) Absent the fee waivers and reimbursements referred to in (1) above, the dollar amounts for the 1, 3, 5 and 10-year periods would be as follows: Intermediate Tax Free Fund, $71, $104, $130 and $218; Minnesota Insured Intermediate Tax Free Fund, $70, $103, $128 and $213; and Colorado Intermediate Tax Free Fund, $71, $103, $129 and $215. (3) Absent the fee waivers and reimbursements referred to in (1) above, the dollar amounts for the 1, 3, 5 and 10-year periods would be as follows: Intermediate Tax Free Fund, $21, $64, $110 and $218; Minnesota Insured Intermediate Tax Free Fund, $20, $63, $108 and $213; and Colorado Intermediate Tax Free Fund, $21, $63, $109 and $215. 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. The information set forth in the foregoing tables and examples relates only to the Class A and Class B Shares of the Funds. The Funds also offer Class C Shares which are subject to the same expenses except that they bear no sales loads and distribution fees. The examples in the above tables are based on projected annual Fund operating expenses after voluntary fee waivers and expense reimbursements by the Adviser, the Distributor and the Administrator. Although these persons intend to maintain such waivers in effect for the current fiscal year, any such waivers are voluntary and may be discontinued at any time. Prior to fee waivers, investment advisory fees accrue at the annual rate as a percentage of average daily net assets of 0.70% for each of the Funds. The Class A Shares of each Fund may pay distribution and service fees to the Distributor in an amount equaling 0.25% per year of each such class's average daily net assets, and the Class B Shares of each Fund bear distribution and servicing fees totaling 1.00% per year of each such class's average daily net assets. The Distributor also receives the sales charge for distributing the Funds' Class A Shares. Due to the distribution fees paid by these classes of shares, long-term shareholders may pay more than the equivalent of the maximum front-end sales charges otherwise permitted by NASD rules. For additional information, see "Distributor." Other expenses include fees paid by each Fund to the Administrator for providing various services necessary to operate the Funds. These include shareholder servicing and certain accounting and other services. The Administrator provides these services for a fee calculated at an annual rate of 0.12% of average daily net assets of each Fund subject to a minimum of $50,000 per Fund per fiscal year; provided, that to the extent that the aggregate net assets of all First American funds exceed $8 billion, the percentage stated above is reduced to 0.105%. Other expenses of the Funds also includes the cost of maintaining shareholder records, furnishing shareholder statements and reports, and other services. Investment advisory fees, administrative fees and other expenses are reflected in the Funds' daily dividends and are not charged to individual shareholder accounts. FINANCIAL HIGHLIGHTS The following audited financial highlights 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 the Statement of Additional Information. Further information about the Funds' performance is contained in FAIF's annual report to shareholders, which may be obtained without charge by calling (800) 637-2548 or by writing SEI Financial Services Company, 680 East Swedesford Road, Wayne, Pennsylvania 19087. 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 INTERMEDIATE TAX FREE FUND Class A 1995 $10.28 $0.49 $ 0.43 $(0.48) $ -- 1994 10.92 0.44 (0.57) (0.44) (0.07) 1993 10.56 0.47 0.42 (0.47) (0.06) 1992 10.34 0.53 0.22 (0.53) -- 1991(1) 10.04 0.50 0.31 (0.50) (0.01) 1990(2) 10.08 0.56 (0.04) (0.56) -- 1989(2) 10.19 0.56 (0.11) (0.56) -- 1988(2)(3) 10.03 0.47 0.16 (0.47) -- MINNESOTA INSURED INTERMEDIATE TAX FREE FUND Class A 1995 $ 9.58 $0.46 $ 0.33 $(0.45) $ -- 1994(4) 10.00 0.25 (0.42) (0.25) -- COLORADO INTERMEDIATE TAX FREE FUND Class A 1995 $10.15 $0.49 $ 0.36 $(0.49) $ -- 1994(5) 10.00 0.21 0.16 (0.22) --
RATIO OF RATIO OF NET EXPENSES TO RATIO OF INVESTMENT AVERAGE NET NET ASSET NET ASSETS EXPENSES TO INCOME TO ASSETS VALUE END END OF AVERAGE NET AVERAGE NET (EXCLUDING PORTFOLIO OF PERIOD TOTAL RETURN PERIOD (000) ASSETS ASSETS WAIVERS) TURNOVER RATE INTERMEDIATE TAX FREE FUND Class A 1995 $10.72 9.15% $ 983 0.67% 4.71% 1.30% 68% 1994 10.28 (1.25%) 1,128 0.59 4.13 2.78 52 1993 10.92 8.66% 2,969 0.71 4.31 5.09 27 1992 10.56 7.23% 725 0.99 4.83 16.09 23 1991(1) 10.34 8.15%+ 637 0.99 5.35 15.48 15 1990(2) 10.04 5.31% 537 1.08 5.58 13.85 4 1989(2) 10.08 4.57% 491 1.09 5.57 19.55 4 1988(2)(3) 10.19 6.73%+ 425 0.84 5.87 13.60 0 MINNESOTA INSURED INTERMEDIATE TAX FREE FUND Class A 1995 $ 9.92 8.46% $2,219 0.70% 4.74% 1.25% 38% 1994(4) 9.58 (1.68%)+ 1,508 0.67 4.57 1.84 22 COLORADO INTERMEDIATE TAX FREE FUND Class A 1995 $10.51 8.57% $2,189 0.70% 4.83% 1.27% 19% 1994(5) 10.15 3.66%+ 693 0.69 4.51 4.96 4
+ Returns, excluding sales charges, are for the period indicated and have not been annualized. (1) 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. (2) For the period ended October 31. (3) Commenced operations on December 22, 1987. All ratios for the period have been annualized. (4) Commenced operations on February 28, 1994. All ratios for the period have been annualized. (5) Commenced operations on April 4, 1994. All ratios for the period have been annualized. 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 C) which provide for variations in distribution costs, voting rights and dividends. Except for these differences among classes, each share of each FAIF Fund represents an undivided proportionate interest in that fund. FAIF is incorporated under the laws of the State of Maryland, and its principal offices are located at 680 East Swedesford Road, Wayne, Pennsylvania 19087. This Prospectus relates only to the Class A and Class B Shares of the Funds named on the cover hereof. Information regarding the Class C Shares of these Funds and regarding the Class A, Class B and Class C Shares of the other FAIF Funds is contained in separate prospectuses that may be obtained from FAIF's Distributor, SEI Financial Services Company, 680 East Swedesford Road, Wayne, Pennsylvania 19087, or by calling (800) 637-2548. The Board of Directors of FAIF may authorize additional series or classes of common stock in the future. INVESTMENT 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. Intermediate Tax Free Fund is a diversified investment company, as defined in the Investment Company Act of 1940 (the "1940 Act"). Minnesota Insured Intermediate Tax Free Fund and Colorado Intermediate Tax Free Fund are nondiversified investment 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. 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, 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 Corporation ("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." INTERMEDIATE TAX FREE FUND OBJECTIVE. Intermediate Tax Free Fund has an objective of providing current income which is exempt from federal income tax to the extent consistent with preservation of capital. INVESTMENT POLICIES. Under normal market conditions, Intermediate Tax Free Fund invests at least 80% of its net assets in municipal bonds and other municipal obligations, the interest on which is, in the opinion of bond counsel to the issuer, exempt from federal income tax. No more than 20% of the securities owned by the Fund will generate income that is an item of tax preference for the purpose of the federal alternative minimum tax. Municipal obligations generating income subject to taxation under the federal alternative minimum tax rules will not be counted as tax exempt obligations for purposes of the 80% test. See "Income Taxes." The types of municipal bonds and other municipal obligations in which the Fund may invest are described under "Special Investment Methods -- Municipal Bonds and Other Municipal Obligations." Under normal market conditions, the weighted average maturity of the securities held by Intermediate Tax Free Fund will range from 3 to 10 years. Intermediate Tax Free Fund may purchase obligations which are rated no lower than 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 Adviser. The Fund also may purchase municipal notes which are rated no lower than SP-1 by Standard & Poor's or MIG/VMIG-1 by Moody's or which have been assigned an equivalent rating by another nationally recognized statistical rating organization. Unrated securities will not exceed 10% in the aggregate of the value of the total assets of the Fund. While the assets of Intermediate Tax Free Fund ordinarily will be invested in municipal obligations, on occasion the Fund may temporarily hold short-term securities, other than municipal obligations, the income from which is taxable. Temporary taxable investments would be held solely for the purpose of managing exceptional in-flows and out-flows of cash or for temporary defensive purposes to preserve existing portfolio values. Under normal circumstances, the Fund may not invest more than 20% of its assets in investments other than municipal obligations. However, in periods of adverse markets when a temporary defensive position to protect capital is deemed advisable and practicable, the Fund may have more than 20% of its assets in temporary taxable investments or cash. The types of investments which are permitted for these purposes are described under "Special Investment Methods - -- Temporary Taxable Investments." The Fund also may temporarily invest in shares of investment companies which invest primarily in short-term municipal obligations with maturities not exceeding 13 months. Investments of these types are also subject to the advisory fee. Income from these investments is normally exempt from federal income tax. The Fund also may (i) 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; (ii) purchase securities on a when-issued or delayed-delivery basis; and (iii) engage in the lending of portfolio securities. In addition, the Fund may invest up to 5% of its net assets in inverse floating rate municipal obligations. For information about these investment methods, restrictions on their use, and certain associated risks, see the related headings under "Special Investment Methods." The requirement, described above, that Intermediate Tax Free Fund invest at least 80% of its net assets in tax free obligations under normal market conditions is a fundamental policy, which cannot be changed without shareholder vote. Under normal market conditions, the Fund will invest at least 65% of its total assets in municipal obligations which are municipal bonds. See "Special Investment Methods -- Municipal Bonds and Other Municipal Obligations." MINNESOTA INSURED INTERMEDIATE TAX FREE FUND AND COLORADO INTERMEDIATE TAX FREE FUND OBJECTIVES. Minnesota Insured Intermediate Tax Free Fund has an objective of providing current income which is exempt from both federal income tax and Minnesota state income tax to the extent consistent with preservation of capital. Colorado Intermediate Tax Free Fund has an objective of providing current income which is exempt from both federal income tax and Colorado state income tax to the extent consistent with preservation of capital. INVESTMENT POLICIES. Under normal market conditions, each of these Funds invests at least 80% of its net assets in municipal bonds and other municipal obligations of the state referred to in its title, the interest on which is, in the opinion of bond counsel to the issuer, exempt from federal income tax and that state's income tax. No more than 20% of the securities owned by either of these Funds will generate income that is an item of tax preference for the purpose of the federal alternative minimum tax and, in the case of Minnesota Insured Intermediate Tax Free Fund, for the purpose of the Minnesota alternative minimum tax. Municipal obligations generating income subject to taxation under the federal alternative minimum tax rules or, in the case of Minnesota Insured Intermediate Tax Free Fund, under the Minnesota alternative minimum tax rules, will not be counted as tax exempt obligations for purposes of the 80% test. See "Income Taxes." The types of municipal bonds and other municipal obligations in which these Funds may invest are described under "Special Investment Methods -- Municipal Bonds and Other Municipal Obligations." Under normal market conditions, the weighted average maturity of the securities held by each of these Funds will range from 3 to 10 years. Each of these Funds may purchase obligations which are rated (without regard to insurance) no lower than 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 Adviser. Each of these Funds also may purchase municipal notes which are rated no lower than SP-1 by Standard & Poor's or MIG/VMIG-1 by Moody's or which have been assigned an equivalent rating by another nationally recognized statistical rating organization. Unrated securities will not exceed 10% in the aggregate of the value of the total assets of either of these Funds. While the assets of each of these Funds ordinarily will be invested in municipal obligations, on occasion either Fund may temporarily hold short-term securities, other than municipal obligations, the income from which is taxable. Temporary taxable investments would be held solely for the purpose of managing exceptional in-flows and out-flows of cash or for temporary defensive purposes to preserve existing portfolio values. Under normal circumstances, a Fund may not invest more than 20% of its assets in investments other than municipal obligations. However, in periods of adverse markets when a temporary defensive position to protect capital is deemed advisable and practicable, a Fund may have more than 20% of its assets in temporary taxable investments or cash. The types of investments which are permitted for these purposes are described under "Special Investment Methods - -- Temporary Taxable Investments." Each of these Funds also may temporarily invest in shares of investment companies which invest primarily in short-term municipal obligations with maturities not exceeding 13 months. Investments of these types are also subject to the advisory fee. Income from these investments is normally exempt from federal income tax but may not be exempt from the applicable state tax. Each of these Funds also may (i) 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; (ii) purchase securities on a when-issued or delayed-delivery basis; (iii) engage in the lending of portfolio securities; and (iv) invest up to 5% of its net assets in inverse floating rate municipal obligations. For information about these investment methods, restrictions on their use, and certain associated risks, see the related headings under "Special Investment Methods." As a nonfundamental policy, at least 65% of the tax-exempt obligations in the investment portfolio of Minnesota Insured Intermediate Tax Free Fund will consist of: (i) obligations that at all times are fully insured as to the scheduled payment of all installments of interest and principal; and (ii) obligations which have an AAA rating by Standard & Poor's or an Aaa rating by Moody's or which have been assigned an equivalent rating by another nationally recognized statistical rating organization, where the payment of interest and principal is guaranteed by the United States Government or an agency or instrumentality of the United States Government, or where the payment of interest and principal is secured by an escrow account consisting of obligations guaranteed by the United States Government or its agencies or instrumentalities ("escrow secured bonds" or "defeased bonds"), without having to purchase additional insurance therefor. This policy may not be eliminated except upon 30 days advance notice to shareholders of Minnesota Insured Intermediate Tax Free Fund. In addition, pending the investment or reinvestment of its assets in longer-term tax-exempt obligations, this Fund may invest in short-term tax-exempt obligations, without obtaining insurance, provided such instruments carry an AAA or A-1 rating by Standard & Poor's or an Aaa or SP-1 rating by Moody's or which have been assigned an equivalent rating by another nationally recognized statistical rating organization. Bond insurance does not guarantee the market value of the securities held in this Fund's portfolio. For further information concerning the insurance applicable to this Fund's investments, see "Special Investment Methods -- Insurance for Minnesota Insured Intermediate Tax Free Fund." The tax-exempt obligations held by Colorado Intermediate Tax Free Fund need not be insured. RISKS TO CONSIDER An investment in any of the Funds involves certain risks. These include the following: INTEREST RATE RISK. Interest rate risk is the risk that the value of a fixed-rate debt security will decline due to changes in market interest rates. Because the Funds invest in fixed-rate debt securities, they are subject to interest rate risk. In general, when interest rates rise, the value of a fixed-rate debt security declines. Conversely, when interest rates decline, the value of a fixed-rate debt security generally increases. Thus, shareholders in the Funds bear the risk that increases in market interest rates will cause the value of their Fund's portfolio investments to decline. In general, the value of fixed-rate debt securities with longer maturities is more sensitive to changes in market interest rates than the value of such securities with shorter maturities. Thus, the net asset value of a Fund which invests in securities with longer weighted average maturities should be expected to have greater volatility in periods of changing market interest rates than that of a Fund which invests in securities with shorter weighted average maturities. Although the Adviser may engage in transactions intended to hedge the value of the Funds' portfolios against changes in market interest rates, there is no assurance that such hedging transactions will be undertaken or will fulfill their purpose. See "Special Investment Methods -- Options Transactions." CREDIT RISK. Credit risk is the risk that the issuer of a debt security will fail to make payments on the security when due. Because the Funds invest in debt securities, they are subject to credit risk. As described under "Special Investment Methods -- Municipal Bonds and Other Municipal Obligations," the revenue bonds and municipal lease obligations in which the Funds invest may entail greater credit risk than the general obligation bonds in which they invest. This is the case because revenue bonds and municipal lease obligations generally are not backed by the faith, credit or general taxing power of the issuing governmental entity. In addition, as described under that section, municipal lease obligations also are subject to nonappropriation risk, which is a type of nonpayment risk. Investors also should note that even general obligation bonds of the states and their political subdivisions are not free from the risk of default. The ratings and certain other requirements which apply to the Funds' permitted investments, as described elsewhere in this Prospectus, are intended to limit the amount of credit risk undertaken by the Funds. Nevertheless, shareholders in the Funds bear the risk that payment defaults could cause the value of their Fund's portfolio investments to decline. Investors also should note that the Funds can invest in municipal obligations rated as low as 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 Adviser. Although these rating categories are investment grade, obligations with these ratings are viewed as having speculative characteristics and carry a somewhat higher risk of default than obligations rated in the higher investment grade categories. Although the bond insurance carried by Minnesota Insured Intermediate Tax Free Fund is intended to mitigate credit risk, its effectiveness depends on the creditworthiness of the bond insurers. See "Special Investment Methods -- Insurance for Minnesota Insured Intermediate Tax Free Fund." CALL RISK. Many municipal bonds may be redeemed at the option of the issuer ("called") at a specified price prior to their stated maturity date. In general, it is advantageous for an issuer to call its bonds if they can be refinanced through the issuance of new bonds which bear a lower interest rate than that of the called bonds. Call risk is the risk that bonds will be called during a period of declining market interest rates so that such refinancings may take place. If a bond held by a Fund is called during a period of declining interest rates, the Fund probably will have to reinvest the proceeds received by it at a lower interest rate than that borne by the called bond, thus resulting in a decrease in the Fund's income. To the extent that the Funds invest in callable bonds, Fund shareholders bear the risk that reductions in income will result from the call of bonds. STATE AND LOCAL POLITICAL AND ECONOMIC CONDITIONS. The value of municipal obligations owned by the Funds may be adversely affected by local political and economic conditions and developments. Adverse conditions in an industry significant to a local economy could have a correspondingly adverse effect on the financial condition of local issuers. Other factors that could affect tax-exempt obligations include a change in the local, state or national economy, demographic factors, ecological or environmental concerns, statutory limitations on the issuer's ability to increase taxes and other developments generally affecting the revenues of issuers (for example, legislation or court decisions reducing state aid to local governments or mandating additional services). Intermediate Tax Free Fund cannot invest 25% or more of its total assets in obligations of issuers located in the same state (for this purpose, the location of an "issuer" shall be deemed to be the location of the entity the revenues of which are the primary source of payment or the location of the project or facility which may be the subject of the obligation). See "Special Investment Methods -- Investment Restrictions." Minnesota Insured Intermediate Tax Free Fund and Colorado Intermediate Tax Free Fund each will invest primarily in municipal obligations issued by the state and its political subdivisions named in its title. For this reason, the municipal obligations held by these two Funds will be particularly affected by local conditions in those states. A more detailed description of the factors affecting Minnesota and Colorado issuers of municipal obligations is set forth in the Statement of Additional Information. OTHER. Investors also should review "Special Investment Methods" for information concerning risks associated with certain investment techniques which may be utilized by the Funds. In addition, investors in Minnesota Insured Intermediate Tax Free Fund should note that the 1995 Minnesota Legislature enacted a statement of intent specifying certain circumstances under which interest on the Minnesota municipal obligations held by the Fund might become taxable for Minnesota state income tax purposes. See "Income Taxes -- Minnesota Income Taxation." MANAGEMENT The Board of Directors of FAIF has the primary responsibility for overseeing the overall management and electing the officers of FAIF. Subject to the overall direction and supervision of the Board of Directors, the Adviser acts as investment adviser for and manages the investment portfolios of FAIF. INVESTMENT ADVISER First Bank National Association, 601 Second Avenue South, Minneapolis, Minnesota 55480, acts as the Funds' investment adviser through its First Asset Management group. The Adviser has acted as an investment adviser to FAIF since its inception in 1987 and has acted as investment adviser to First American Funds, Inc. since 1982. As of September 30, 1995, the Adviser was managing accounts with an aggregate value of approximately $29 billion, including mutual fund assets in excess of $7 billion. First Bank System, Inc., 601 Second Avenue South, Minneapolis, Minnesota 55480, is the holding company for the Adviser. Each of the Funds has agreed to pay the Adviser monthly fees calculated on an annual basis equal to 0.70% of its average daily net assets. The Adviser may, at its option, waive any or all of its fees, or reimburse expenses, with respect to any Fund from time to time. Any such waiver or reimbursement is voluntary and may be discontinued at any time. The Adviser also may absorb or reimburse expenses of the 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 those activities. In addition, administrative and judicial interpretations of the Glass-Steagall Act prohibit bank holding companies and their bank and nonbank subsidiaries from organizing, sponsoring or controlling registered open-end investment companies that are continuously engaged in distributing their shares. Bank holding companies and their bank and nonbank subsidiaries may serve, however, as investment advisers to registered investment companies, subject to a number of terms and conditions. Although the scope of the prohibitions and limitations imposed by the Glass-Steagall Act has not been fully defined by the courts or the appropriate regulatory agencies, the Funds have received an opinion from their counsel that the Adviser is not prohibited from performing the investment advisory services described above, and that FBS Investment Services, Inc. ("ISI"), a wholly owned broker-dealer subsidiary of the Adviser, is not prohibited from serving as a Participating Institution as described herein. In the event of changes in federal or state statutes or regulations or judicial and administrative interpretations or decisions pertaining to permissible activities of bank holding companies and their bank and nonbank subsidiaries, the Adviser and ISI might be prohibited from continuing these arrangements. In that event, it is expected that the Board of Directors would make other arrangements and that shareholders would not suffer adverse financial consequences. PORTFOLIO MANAGERS RICHARD W. STANLEY is portfolio co-manager for each of the Funds. Dick entered the investment business via investment sales with Smith Barney & Co. in 1958. He then moved to Heritage Investment Advisers as head of fixed income investment in 1973. He joined the Adviser in early 1986 as Vice President and Manager of Fixed Income/Personal Trust. Dick received his master's in business administration degree from Cornell University in 1958 and received his Chartered Financial Analyst certification in 1977. CHRISTOPHER L. DRAHN is portfolio co-manager for Intermediate Tax Free Fund and Minnesota Insured Intermediate Tax Free Fund. Chris joined the fixed income department of the Adviser in 1985, having previously served in its securities lending and corporate trust areas. He received his master's degree in business administration from the University of Minnesota and is a Chartered Financial Analyst. TERRY MALTARICH is portfolio co-manager for Colorado Intermediate Tax Free Fund. Terry joined the Adviser in 1994 after 20 years of investment experience with Colorado Capital Advisors (which was combined into the Adviser) and Great West Life Insurance Company. He received his bachelor's degree from Miami University. CUSTODIAN The custodian of the Funds' assets is First Trust National Association (the "Custodian"), First Trust Center, 180 East Fifth Street, St. Paul, Minnesota 55101. The Custodian is a subsidiary of First Bank System, Inc., which also controls the Adviser. As compensation for its services to the Funds, the Custodian is paid monthly fees calculated on an annual basis equal to 0.03% of the applicable Fund's average daily net assets. In addition, the Custodian is reimbursed for its out-of-pocket expenses incurred while providing its services to the Funds. ADMINISTRATOR The administrator for the Funds is SEI Financial Management Corporation (the "Administrator"), 680 East Swedesford Road, Wayne, Pennsylvania 19087. The Administrator, a wholly-owned subsidiary of SEI Corporation, provides the Funds with certain administrative services necessary to operate the Funds. These services include shareholder servicing and certain accounting and other services. The Administrator provides these services for a fee calculated at an annual rate of 0.12% of each Fund's average daily net assets, subject to a minimum administrative fee during each fiscal year of $50,000 per Fund; 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. 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 210 West 10th Street, Kansas City, Missouri 64105. The Transfer Agent is not affiliated with the Distributor, the Administrator or the Adviser. DISTRIBUTOR SEI Financial Services Company is the principal distributor for shares of the 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 is a wholly-owned subsidiary of SEI Corporation and is located at 680 East Swedesford Road, Wayne, Pennsylvania 19087. The Distributor is not affiliated with the Adviser, First Bank System, Inc., the Custodian or their respective affiliates. Shares of the 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"). 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." Under the Class A Distribution Plan, each Fund also pays the Distributor a distribution fee monthly at an annual rate of 0.25% of the Fund's Class A Shares' average daily net assets, which fee may be used by the Distributor to provide compensation for sales support and distribution activities with respect to Class A Shares of the Funds. From time to time, the Distributor may voluntarily waive its distribution 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 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 average daily net assets of the Class B Shares of the Funds, which fee may be used by the Distributor to provide compensation for sales support and distribution activities with respect to Class B Shares of the Funds. This fee is calculated and paid each month based on the average daily net assets for that month. In addition to this fee, the Distributor may be paid a shareholder servicing fee of 0.25% of the average daily net assets of the Class B Shares pursuant to a service plan (the "Class B Service Plan"), which fee may be used by the Distributor to provide compensation for personal, ongoing servicing and/or maintenance of shareholder accounts with respect to Class B Shares of the 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). The service fee payable under the Class B Service Plan is prepaid for the first year as described above. The Class A and Class B Distribution Plans recognize that the Adviser, the Administrator, the Distributor, and any Participating Institution may in their discretion use their own assets to pay for certain additional costs of distributing Fund shares. Any arrangement to pay such additional costs may be commenced or discontinued by any of these persons at any time. In addition, while there is no sales charge on purchases of Class A Shares of $1 million and more, the Adviser may pay amounts to broker-dealers from its own assets with respect to such sales. ISI, a subsidiary of the Adviser, is a Participating Institution. INVESTING IN THE 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 the New York Stock Exchange is open for business. Shares may be purchased as described below. The Funds reserve the right to reject any purchase request. 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. It is the financial institution's responsibility to transmit orders promptly. BY MAIL. An investor may place an order to purchase shares of the Funds directly through the Transfer Agent. Orders by mail are considered received after payment by check is converted by the Funds into federal funds. In order to purchase shares by mail, an investor must: * complete and sign the new account form; * enclose a check made payable to (Fund name); and * mail both to 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 to place an order. All information needed will be taken over the telephone, and the order will be considered received when the Custodian receives payment by wire. Federal funds should be wired as follows: First Bank National Association, Minneapolis, Minnesota, ABA Number 091000022; For Credit to: DST Systems, Account Number 6023458026; For Further Credit To: (Investor Name and Fund Name). Shares cannot be purchased by Federal Reserve wire on days on which the New York Stock Exchange is closed and on federal holidays upon which wire transfers are restricted. MINIMUM INVESTMENT REQUIRED The minimum initial investment for 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 First Bank National Association, First Trust National Association and First Bank System, Inc. and their respective affiliates. ALTERNATIVE SALES CHARGE OPTIONS THE TWO ALTERNATIVES: OVERVIEW. An investor may purchase shares of 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 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; (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. 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:
MAXIMUM AMOUNT OF SALES CHARGE SALES CHARGE AS SALES CHARGE AS REALLOWED TO PERCENTAGE OF PERCENTAGE OF PARTICIPATING OFFERING PRICE NET ASSET VALUE INSTITUTIONS Less than $50,000 3.00% 3.09% 2.70% $50,000 but less than $100,000 2.50% 2.56% 2.25% $100,000 but less than $250,000 2.00% 2.04% 1.80% $250,000 but less than $500,000 1.50% 1.52% 1.35% $500,000 but less than $1,000,000 1.00% 1.01% 0.80% $1,000,000 and over 0.00% 0.00% 0.00%
There is no initial sales charge on purchases of Class A Shares of $1 million or more. However, Participating Institutions will receive a commission of 1.00% on such sales. Redemptions of Class A Shares purchased at net asset value within 24 months of purchase will be subject to a contingent deferred sales charge of 1.00%. However, Class A Shares that are redeemed will not be subject to this contingent deferred sales charge to the extent that the value of the shares represents capital appreciation of Fund assets or reinvestment of dividends or capital gain distributions. Net asset value is determined at 3:00 p.m. Central time Monday through Friday except on (i) days on which there are not sufficient changes in the value of 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) on the following federal holidays: New Year's Day, Presidents' Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. In addition, net asset value will not be calculated on Good Friday. Dealer Concession. A dealer will normally receive up to 90% of the applicable sales charge. Any portion of the sales charge which is not paid to a dealer will be retained by the Distributor. In addition, the Distributor may, from time to time in its sole discretion, institute one or more promotional incentive programs which will be paid by the Distributor from the sales charge it receives or from any other source available to it. Under any such program, the Distributor will provide promotional incentives, in the form of cash or other compensation including merchandise, airline vouchers, trips and vacation packages, to all dealers selling shares of the 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. 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 Adviser, the Sub-Adviser 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 advisers, financial planners and registered broker/dealers who are purchasing shares on behalf of their customers. 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. 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 SUBJECT TO YEAR SINCE PURCHASE CHARGE First 5.00% Second 5.00% Third 4.00% Fourth 3.00% Fifth 2.00% Sixth 1.00% Seventh None Eighth None
In determining whether a particular redemption is subject to a contingent deferred sales charge, it is assumed that the redemption is first of any Class A Shares in the shareholder's Fund account; second, of any Class B Shares held for more than eight years and Class B Shares acquired pursuant to reinvestment of dividends or other distributions; and third, of Class B Shares held longest during the eight-year period. This method should result in the lowest possible sales charge. The contingent deferred sales charge is waived on redemption of Class B Shares (i) within one year following the death or disability (as defined in the Internal Revenue Code) of a shareholder, and (ii) to the extent that the redemption represents a minimum required distribution from an individual retirement account or other retirement plan to a shareholder who has attained the age of 70 1/2 . A shareholder or his or her representative must notify the Transfer Agent prior to the time of redemption if such circumstances exist and the shareholder is eligible for this waiver. Conversion Feature. At the end of the period ending eight years after the beginning of the month in which the shares were issued, Class B Shares will automatically convert to Class A Shares and will no longer be subject to the Class B distribution and service fees. This conversion will be on the basis of the relative net asset values of the two classes. Dollar Cost Averaging. Class B Shares may also be purchased through automatic monthly deductions from a shareholder's account in Class B Shares of Prime Obligations Fund of First American Funds, Inc. Under a dollar cost averaging program, a shareholder enters an agreement to purchase Class B Shares of one or more Funds over a period of time not to exceed twelve months, and initially purchases Prime Obligations Class B Shares in an amount equal to the total amount of the investment. On a monthly basis a specified dollar amount of Class B Shares of Prime Obligations Fund is exchanged for the Class B Shares of the Funds specified. This 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. A shareholder may apply for participation in this program through his or her financial institution or by calling (800) 637-2548. SYSTEMATIC INVESTMENT PROGRAM Once a Fund account has been opened, shareholders may add to their investment on a regular basis in a minimum amount of $100. Under this program, funds may be automatically withdrawn periodically from the shareholder's checking account and invested in Fund shares at the net asset value next determined after an order is received, plus any applicable sales charge. A shareholder may apply for participation in this program through his or her financial institution or call (800) 637-2548. EXCHANGING SECURITIES FOR FUND SHARES 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 Adviser 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. 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. DIVIDENDS AND DISTRIBUTIONS Dividends with respect to each Fund are declared and paid monthly to all shareholders of record on the record date. Distributions of any net realized long-term capital gains will be made at least once every 12 months. Dividends and distributions are automatically reinvested in additional shares of the Fund 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 C Shares because of the distribution expenses charged to Class A and Class B Shares. The amount of dividends payable on Class A Shares generally will be more than the dividends payable on the Class B Shares because of the distribution and service fees paid by Class B Shares. EXCHANGE PRIVILEGE Shareholders may exchange Class A or Class B Shares of 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. 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 FAIF Funds must meet any applicable minimum investment of the fund for which shares are being exchanged. For purposes of calculating the Class B Shares' eight-year conversion period or contingent deferred sales charges payable upon redemption, the holding period of Class B Shares of the "old" fund and the holding period of Class B Shares of the "new" fund are aggregated. The ability to exchange shares of the 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 -- Directly From the Funds -- Signatures." Neither the Funds, the Distributor, the Transfer Agent, any shareholder servicing agent, or any financial institution will be responsible for further verification of the authenticity of the exchange instructions. Telephone exchange instructions made by an investor may be carried out only if a telephone authorization form completed by the investor is on file with the Transfer Agent, shareholder servicing agent, or financial institution. Shares may be exchanged between two FAIF Funds by telephone only if both FAIF Funds have identical shareholder registrations. Telephone exchange instructions may be recorded and will be binding upon the shareholder. Telephone instructions must be received by the Transfer Agent before 3:00 p.m. Central time, or by a shareholder's shareholder servicing agent or financial institution by the time specified by it, in order 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., 210 West 10th Street, Kansas City, Missouri 64105. Shareholders who become eligible to purchase Class C Shares may exchange Class A Shares for Class C Shares. An example of such an exchange would be a situation in which an individual holder of Class A Shares subsequently opens a custody or agency account with a financial institution which invests in Class C Shares. The terms of any exchange privilege may be modified or terminated by the Funds at any time. 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 modification or termination of the exchange privilege and of the imposition of any additional fees or changes. 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. BY TELEPHONE A shareholder may redeem shares of a Fund by calling his or her financial institution to request the redemption. Shares will be redeemed at the net asset value next determined after the Fund receives the redemption request from the financial institution. Redemption requests must be received by the financial institution by the time specified by the institution in order for shares to be redeemed at that day's net asset value, and redemption requests must be transmitted to and received by the Funds by 3:00 p.m. Central time in order for shares to be redeemed at that day's net asset value. Pursuant to instructions received from the financial institution, redemptions will be made by check or by wire transfer. It is the financial institution's responsibility to transmit redemption requests promptly. Shareholders who did not purchase their shares of 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. 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 the authenticity of redemption 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. These procedures may include taping of telephone conversations. BY MAIL Any shareholder may redeem Fund shares by sending a written request to the Transfer Agent, shareholder servicing agent, or financial institution. The written request should include the shareholder's name, the Fund name, the account number, and the share or dollar amount requested to be redeemed, and should be signed exactly as the shares are registered. Shareholders should call the Fund, shareholder servicing agent or financial institution for assistance in redeeming by mail. A check for redemption proceeds normally is mailed within one business day, but in no event more than seven days, after receipt of a proper written redemption request. Shareholders requesting a redemption of $5,000 or more, a redemption of any amount to be sent to an address other than that on record with the Fund, or a redemption payable other than to the shareholder of record, must have signatures on written redemption requests guaranteed by: * a trust company or commercial bank the deposits of which are insured by the Bank Insurance Fund, which is administered by the Federal Deposit Insurance Corporation ("FDIC"); * a member firm of the New York, American, Boston, Midwest, or Pacific Stock Exchanges or of the National Association of Securities Dealers; * a savings bank or savings and loan association the deposits of which are insured by the Savings Association Insurance Fund, which is administered by the FDIC; or * any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The 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. BY SYSTEMATIC WITHDRAWAL PROGRAM Shareholders whose account value is at least $5,000 may elect to participate in the Systematic Withdrawal Program. Under this program, Fund shares are redeemed to provide for periodic withdrawal payments in an amount directed by the shareholder. A shareholder may apply to participate in this program through his or her financial institution. It is generally not in a shareholder's best interest to participate in the Systematic Withdrawal Program at the same time that the shareholder is purchasing additional shares if a sales charge must be paid in connection with such purchases. Because automatic withdrawals with respect to Class B Shares are subject to the contingent deferred sales charge, it may not be in the best interest of a Class B shareholder to participate in the Systematic Withdrawal Program. REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR When shares are purchased by check or with funds transmitted through the Automated Clearing House, the proceeds of redemptions of those shares are not available until the Transfer Agent is reasonably certain that the purchase payment has cleared, which could take up to ten calendar days from the purchase date. ACCOUNTS WITH LOW BALANCES Due to the high cost of maintaining accounts with low balances, 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 earlier of the close of the New York Stock Exchange or 3:00 p.m. Central time on each day the New York Stock Exchange is open for business, provided that net asset value need not be determined on days when no Fund shares are tendered for redemption and no order for 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. It is the responsibility of Participating Institutions promptly to forward purchase and redemption orders to the Transfer Agent. In the case of redemptions and repurchases of shares owned by corporations, trusts or estates, the Transfer Agent or Fund may require additional documents to evidence appropriate authority in order to effect the redemption, and the applicable price will be that next determined following the receipt of the required documentation. DETERMINING NET ASSET VALUE The net asset value per share for 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. Debt obligations exceeding 60 days to maturity which are actively traded are valued by an independent pricing service at the most recently quoted bid price. Debt obligations with 60 days or less remaining until maturity may be valued at their amortized cost. When market quotations are not readily available, securities are valued at fair value as determined in good faith by procedures established and approved by the Board of Directors. Portfolio securities underlying actively traded options are valued at their market price as determined above. The current market value of any exchange traded option held or written by a Fund is its last sales price on the exchange prior to the time when assets are valued, unless the bid price is higher or the asked price is lower, in which event the bid or asked price is used. In the absence of any sales that day, options will be valued at the current closing bid price. 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 expenses charged to Class A and Class B Shares. INCOME TAXES FEDERAL INCOME TAXATION Each Fund is treated as a different entity for federal income tax purposes. Each of the Funds qualified during its last fiscal year as a regulated investment company under the Internal Revenue Code of 1986, as amended (the "Code"), and all of the Funds intend to so qualify in the future. 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 of net interest income from tax-exempt obligations that are designated by each Fund as exempt-interest dividends are excludable from the gross income of the Fund's shareholders. A portion of such dividends may, however, be subject to the alternative minimum tax, as discussed below. Distributions paid from other interest income and from any net realized short-term capital gains will be taxable to shareholders as ordinary income, whether received in cash or in additional shares. Since none of the Funds' income will consist of dividends from domestic corporations, the dividends-received deduction for corporations will not be applicable to taxable distributions by the Funds. Distributions paid from long-term capital gains (and designated as such) will be taxable as long-term capital gains for federal income tax purposes, whether received in cash or shares, regardless of how long a shareholder has held the shares in a Fund. Long-term capital gains of individuals are currently taxed at a maximum rate of 28%. As of the date of this Prospectus, both the U.S. Senate and the U.S. House have enacted bills that would reduce the effective tax rates on long-term capital gains of individuals. At this time, it is impossible to predict whether such a provision will be enacted into law, or what its effective date would be. Shareholders not subject to federal income taxation will not be taxed on distributions by a Fund. 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. Such gain or loss will be long-term gain or loss if the shares were held for more than one year. For federal income tax purposes, an alternative minimum tax ("AMT") is imposed on taxpayers to the extent that such tax, if any, exceeds a taxpayer's regular income tax liability (with certain adjustments). Liability for AMT will depend on each shareholder's tax situation. Exempt-interest dividends attributable to interest income on certain tax-exempt obligations issued after August 7, 1986, to finance certain private activities will be treated as an item of tax preference that is included in alternative minimum taxable income for purposes of computing the federal AMT for all taxpayers and the federal environmental tax on corporations. Each Fund may invest up to 20% of its total assets in obligations the interest on which is treated as an item of tax preference for federal income tax purposes. Also, a portion of all other tax-exempt interest received by a corporation, including exempt-interest dividends, will be included in adjusted current earnings and in earnings and profits for purposes of determining the federal corporate alternative minimum tax, the environmental tax imposed on corporations under Section 59A of the Code, and the branch profits tax imposed on foreign corporations under Section 884 of the Code. Each shareholder is advised to consult his or her tax adviser with respect to the possible effects of such tax preference items. The Tax Reform Act of 1986 imposed new requirements on certain tax-exempt bonds which, if not satisfied, could result in loss of tax exemption for interest on such bonds, even retroactively to the date of issuance of the bonds. Proposals may be introduced before Congress in the future, the purpose of which will be to further restrict or eliminate the federal income tax exemption for tax-exempt bonds held by the Funds. The Funds will avoid investment in bonds which, in the opinion of the Adviser, pose a material risk of the loss of tax exemption. Further, if a bond in a Fund's portfolio lost its exempt status, the Fund would make every effort to dispose of that investment on terms that are not detrimental to the Fund. In certain instances, the portion of Social Security benefits received by a shareholder that is subject to federal income tax may be affected by the amount of exempt-interest dividends received by the shareholder from the Funds. Interest on indebtedness incurred by a shareholder to purchase or carry shares of the Funds will not be deductible for federal income purposes. 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. Information concerning distributions will be mailed to shareholders annually. Shareholders are required for information purposes to report exempt-interest dividends and other tax-exempt interest on their tax returns. MINNESOTA INCOME TAXATION Minnesota taxable net income is based generally on federal taxable income. The portion of exempt-interest dividends paid by Minnesota Insured Intermediate Tax Free Fund that is derived from interest on tax-exempt obligations issued by the state of Minnesota, its political subdivisions and instrumentalities, is excluded from the Minnesota taxable net income of individuals, estates and trusts, provided that the portion of the exempt-interest dividends from such Minnesota sources paid to all shareholders represents 95 percent or more of the exempt-interest dividends paid by the respective Fund. The remaining portion of such dividends, and dividends that are not exempt-interest dividends or capital gain dividends, are included in the Minnesota taxable net income of individuals, estates and trusts, except for dividends directly attributable to interest on obligations of the United States Government, its territories and possessions. Exempt-interest dividends are not excluded from the Minnesota taxable income of corporations and financial institutions. Dividends qualifying for federal income tax purposes as capital gain dividends are to be treated by shareholders as long-term capital gains. Minnesota has repealed the favorable treatment of long-term capital gains, while retaining restrictions on the deductibility of capital losses. As under federal law, the portion of Social Security benefits subject to Minnesota income tax may be affected by the amount of exempt-interest dividends received by the shareholders. Exempt-interest dividends attributable to interest on certain private activity bonds issued after August 7, 1986 will be included in Minnesota alternative minimum taxable income of individuals, estates and trusts for purposes of computing Minnesota's alternative minimum tax. Dividends generally will not qualify for the dividends-received deduction for corporations and financial institutions. The 1995 Minnesota Legislature has enacted a statement of intent that interest on obligations of Minnesota governmental units and Indian tribes be included in net income of individuals, estates and trusts for Minnesota income tax purposes if a court determines that Minnesota's exemption of such interest unlawfully discriminates against interstate commerce because interest on obligations of governmental issuers located in other states is so included. This provision applies to taxable years that begin during or after the calendar year in which any such court decision becomes final, irrespective of the date on which the obligations were issued. Minnesota Insured Intermediate Tax Free Fund is not aware of any decision in which a court has held that a state's exemption of interest on its own bonds or those of its political subdivisions or Indian tribes, but not of interest on the bonds of other states or their political subdivisions or Indian tribes, unlawfully discriminates against interstate commerce or otherwise contravenes the United States Constitution. Nevertheless, the Fund cannot predict the likelihood that interest on the Minnesota bonds held by the Fund would become taxable under this Minnesota statutory provision. COLORADO INCOME TAXATION To the extent that dividends paid by Colorado Intermediate Tax Free Fund are derived from interest on tax-exempt obligations issued by the state of Colorado, its political subdivisions and instrumentalities, such dividends will also be exempt from Colorado income taxes for individuals, trusts, estates, and corporations. The remaining portion of such dividends, and dividends that are not exempt-interest dividends or capital gain dividends, are included in the Colorado taxable income of individuals, trusts, estates, and corporations, except for dividends directly attributable to interest on obligations of the United States Government. Dividends qualifying for federal income tax purposes as capital gain dividends are to be treated by shareholders as long-term capital gains under Colorado law. However, Colorado has repealed the favorable treatment of long-term capital gains, while retaining restrictions on the deductibility of capital losses. Dividends paid by Colorado Intermediate Tax Free Fund that are derived from interest on tax-exempt obligations issued by the state of Colorado, its political subdivisions and instrumentalities (including tax-exempt obligations treated for federal purposes as private activity bonds) will not be treated as items of tax preference for purposes of the alternative minimum tax that Colorado imposes on individuals, trusts and estates. As under federal law, the portion of Social Security benefits subject to Colorado income tax may be affected by the amount of exempt-interest dividends received by the shareholders. OTHER STATE AND LOCAL TAXATION Except to the extent described above under "-- Minnesota Income Taxation" and "-- Colorado Income Taxation," distributions by all the Funds may be subject to state and local taxation even if they are exempt from federal income taxes. Shareholders are urged to consult their own tax advisers regarding state and local taxation. TAX-EXEMPT VS. TAXABLE INCOME The tables below show the approximate yields that taxable securities must earn to equal yields that are (i) exempt from federal income taxes; (ii) exempt from both federal and Minnesota income taxes; and (iii) exempt from both federal and Colorado income taxes, under selected income tax brackets scheduled to be in effect in 1995. The effective combined rates reflect the deduction of state income taxes from federal income. The 34.1%, 36.9%, 41.4%, and 44.7% combined federal/Minnesota rates assume that the investor is subject to an 8.5% marginal Minnesota income tax rate and a marginal federal income tax rate of 28%, 31%, 36% and 39.6%, respectively. The 31.6%, 34.5%, 39.2% and 42.6% combined federal/Colorado rates assume that the investor is subject to a 5% Colorado income tax rate and a marginal federal income tax rate of 28%, 31%, 36% and 39.6%, respectively. The combined rates do not reflect federal rules concerning the phase-out of personal exemptions and limitations on the allowance of itemized deductions for certain high-income taxpayers. The tables are based upon yields that are derived solely from tax-exempt income. To the extent that a Fund's yield is derived from taxable income, the Fund's tax equivalent yield will be less than set forth in the tables. The tax-free yields used in these tables should not be considered as representations of any particular rates of return and are for purposes of illustration only.
TAX-EQUIVALENT YIELDS COMBINED FEDERAL AND COMBINED FEDERAL AND FEDERAL TAX BRACKETS MINNESOTA TAX BRACKETS COLORADO TAX BRACKETS TAX-FREE YIELDS 28% 31% 36% 39.6% 34.1% 36.9% 41.4% 44.7% 31.6% 34.5% 39.2% 42.6% 3.0% 4.17% 4.35% 4.69% 4.97% 4.55% 4.75% 5.12% 5.42% 4.39% 4.58% 4.93% 5.23% 3.5% 4.86% 5.07% 5.47% 5.79% 5.31% 5.55% 5.97% 6.33% 5.12% 5.34% 5.76% 6.10% 4.0% 5.56% 5.80% 6.25% 6.62% 6.07% 6.34% 6.83% 7.23% 5.85% 6.11% 6.58% 6.97% 4.5% 6.25% 6.52% 7.03% 7.45% 6.83% 7.13% 7.68% 8.14% 6.58% 6.87% 7.40% 7.84% 5.0% 6.94% 7.25% 7.81% 8.28% 7.59% 7.92% 8.53% 9.04% 7.31% 7.63% 8.22% 8.71% 5.5% 7.64% 7.97% 8.59% 9.11% 8.35% 8.72% 9.39% 9.95% 8.04% 8.40% 9.05% 9.59% 6.0% 8.33% 8.70% 9.38% 9.93% 9.10% 9.51% 10.24% 10.85% 8.77% 9.16% 9.87% 10.46% 6.5% 9.03% 9.42% 10.16% 10.76% 9.86% 10.30% 11.09% 11.75% 9.50% 9.92% 10.69% 11.32%
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. 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, the shares of that Fund or Class will vote as a separate series. Examples of such issues would be proposals to alter a fundamental investment restriction pertaining to a Fund or to approve, disapprove or alter a distribution plan pertaining to a Class. Under the laws of the State of Maryland and FAIF's Articles of Incorporation, FAIF is not required to hold shareholder meetings unless they (i) are required by the 1940 Act, or (ii) are requested in writing by the holders of 25% or more of the outstanding shares of FAIF. CALCULATION OF PERFORMANCE DATA From time to time, any of the Funds may advertise information regarding its performance. Each Fund may publish its "yield," its "tax equivalent yield," its "cumulative total return," its "average annual total return," its "distribution rate" and its "tax equivalent distribution rate." Distribution rates and tax equivalent 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" and "tax equivalent distribution rate," is standardized in accordance with Securities and Exchange Commission ("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. "Tax equivalent yield" is that yield which a taxable investment must generate in order to equal a Fund's yield for an investor in a stated federal or combined federal/state income tax bracket (normally assumed to be the maximum tax rate or combined rate). Tax equivalent yield is computed by dividing that portion of the yield which is tax-exempt by one minus the stated income tax rate, and adding the resulting amount to that portion, if any, of the yield which is not tax-exempt. "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. "Tax equivalent distribution rate" is computed by dividing the portion of the distribution rate (determined as described above) which is tax-exempt by one minus the stated federal or combined federal/state income tax rate, and adding to the resulting amount that portion, if any, of the distribution rate which is not tax-exempt. 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 C Shares because Class C Shares are not subject to the sales charges and distribution expenses applicable to Class A and Class B Shares. In addition, the performance of Class A and Class B Shares of a Fund will differ because of the different sales charge structures of the classes and because of the higher distribution and service fees charged to Class B Shares. In reports or other communications to shareholders and in advertising material, the performance of each Fund may be compared to recognized unmanaged indices or averages of the performance of similar securities. 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. 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. MUNICIPAL BONDS AND OTHER MUNICIPAL OBLIGATIONS As described under "Investment Objectives and Policies," each of the Funds invests principally in municipal bonds and other municipal obligations. These bonds and other obligations are issued by the states and by their local and special-purpose political subdivisions. The term "municipal bond" as used in this Prospectus includes short-term municipal notes issued by the states and their political subdivisions. MUNICIPAL BONDS. The two general classifications of municipal bonds are "general obligation" bonds and "revenue" bonds. General obligation bonds are secured by the governmental issuer's pledge of its faith, credit and taxing power for the payment of principal and interest. They are usually paid from general revenues of the issuing governmental entity. Revenue bonds, on the other hand, are usually payable only out of a specific revenue source rather than from general revenues. Revenue bonds ordinarily are not backed by the faith, credit or general taxing power of the issuing governmental entity. The principal and interest on revenue bonds for private facilities are typically paid out of rents or other specified payments made to the issuing governmental entity by a private company which uses or operates the facilities. Examples of these types of obligations are industrial revenue bonds and pollution control revenue bonds. Industrial revenue bonds are issued by governmental entities to provide financing aid to community facilities such as hospitals, hotels, business or residential complexes, convention halls and sport complexes. Pollution control revenue bonds are issued to finance air, water and solids pollution control systems for privately operated industrial or commercial facilities. Revenue bonds for private facilities usually do not represent a pledge of the credit, general revenues or taxing powers of the issuing governmental entity. Instead, the private company operating the facility is the sole source of payment of the obligation. Sometimes, the funds for payment of revenue bonds come solely from revenue generated by operation of the facility. Revenue bonds which are not backed by the credit of the issuing governmental entity frequently provide a higher rate of return than other municipal obligations, but they entail greater risk than obligations which are guaranteed by a governmental unit with taxing power. Federal income tax laws place substantial limitations on industrial revenue bonds, and particularly certain specified private activity bonds issued after August 7, 1986. In the future, legislation could be introduced in Congress which could further restrict or eliminate the income tax exemption for interest on debt obligations in which the Funds may invest. MUNICIPAL LEASES. Each Fund also may purchase participation interests in municipal leases. Participation interests in municipal leases are undivided interests in a lease, installment purchase contract or conditional sale contract entered into by a state or local governmental unit to acquire equipment or facilities. Municipal leases frequently have special risks which generally are not associated with general obligation bonds or revenue bonds. Municipal leases and installment purchase or conditional sale contracts (which usually provide for title to the leased asset to pass to the governmental issuer upon payment of all amounts due under the contract) have evolved as a means for governmental issuers to acquire property and equipment without meeting the constitutional and statutory requirements for the issuance of municipal debt. The debt-issuance limitations are deemed to be inapplicable because of the inclusion in many leases and contracts of "non-appropriation" clauses that provide that the governmental issuer has no obligation to make future payments under the lease or contract unless money is appropriated for this purpose by the appropriate legislative body on a yearly or other periodic basis. Although these kinds of obligations are secured by the leased equipment or facilities, the disposition of the pledged property in the event of non-appropriation or foreclosure might, in some cases, prove difficult and time-consuming. In addition, disposition upon non-appropriation or foreclosure might not result in recovery by a Fund of the full principal amount represented by an obligation. In light of these concerns, each Fund has adopted and follows procedures for determining whether municipal lease obligations purchased by the Fund are liquid and for monitoring the liquidity of municipal lease securities held in the Fund's portfolio. These procedures require that a number of factors be used in evaluating the liquidity of a municipal lease security, including the frequency of trades and quotes for the security, the number of dealers willing to purchase or sell the security and the number of other potential purchasers, the willingness of dealers to undertake to make a market in the security, the nature of the marketplace in which the security trades, and other factors which the Adviser may deem relevant. As described below under "-- Investment Restrictions," each Fund is subject to limitations on the percentage of illiquid securities it can hold. INSURANCE FOR MINNESOTA INSURED INTERMEDIATE TAX FREE FUND At least 65% of the tax-exempt obligations in the investment portfolio of Minnesota Insured Intermediate Tax Free Fund will consist of insured securities, escrow secured bonds or defeased bonds. The "insured securities" in this Fund's investment portfolio are insured as to the scheduled payment of all installments of principal and interest as they fall due. The purpose of this insurance is to minimize credit risk to this Fund and its shareholders associated with defaults in tax-exempt obligations owned by the Fund. However, insurance does not guarantee the market value of the securities in this Fund's investment portfolio, which will continue to fluctuate in response to changes in market interest rates. See "Investment Objectives and Policies -- Risks to Consider -- Interest Rate Risk." Therefore, the amount received upon redemption of shares of this Fund may be more or less than the original cost of the shares less any applicable sales charge paid in connection with the acquisition of such shares. Generally, except as noted above, each insured municipal obligation held by Minnesota Insured Intermediate Tax Free Fund will be covered by Original Issue Insurance, Secondary Market Insurance or Portfolio Insurance. "Original Issuance Insurance" is purchased by the issuer of a municipal obligation or by a third party at the time of original issuance of the obligation, while "Secondary Market Insurance" may be purchased by a third party (including Minnesota Insured Intermediate Tax Free Fund) subsequent to the original issuance of a municipal obligation. "Portfolio Insurance" is insurance purchased by Minnesota Insured Intermediate Tax Free Fund to cover municipal obligations while they are held in the Fund's portfolio. Premiums for Portfolio Insurance will be paid from the Fund's assets and will reduce the current yield on its investment portfolio by the amount of the premiums. The Fund's investment manager estimates that annual premiums for Portfolio Insurance would be less than .01% of the Fund's average daily net assets. Because Portfolio Insurance coverage would terminate upon the sale of an insured security by Minnesota Insured Intermediate Tax Free Fund, this kind of insurance would not have an effect on the resale value of the security. Therefore, the Fund generally will retain any such securities covered only by Portfolio Insurance which are in default or in significant risk of default and will place a value on the insurance equal to the difference between the market value of the defaulted security and the market value of similar securities which are not in default. Both Original Issue Insurance and Secondary Market Insurance are non-cancelable and continue in force as long as the insured security is outstanding and the applicable insurer remains in business. Minnesota Insured Intermediate Tax Free Fund may acquire securities that are already covered by Original Issue Insurance or Secondary Market Insurance without having to acquire additional insurance thereon, provided that the claims paying ability of the insurer is rated AAA or SP-1 by Standard & Poor's or Aaa or MIG-1 by Moody's or has been assigned an equivalent rating by another nationally recognized statistical rating organization. One of the purposes of these kinds of insurance is to enable the securities covered thereby to be sold as AAA or Aaa rated insured securities at a market price higher than might be obtained if the securities were not insured. Therefore, these kinds of insurance may be considered to represent an element of the market value of the securities insured. However, the exact effect, if any, on market value cannot be estimated. Secondary Market Insurance may be purchased by Minnesota Insured Intermediate Tax Free Fund if, in the opinion of the Fund's investment manager, the market value or net proceeds of a sale of the covered security by the Fund would exceed the current value of the security without insurance, plus the cost of the insurance. When the Fund purchases Secondary Market Insurance, the single premium is added to the cost basis of the security and is not considered an item of expense of the Fund. Any excess of a security's market value as an AAA or Aaa rated security over its market value without the insurance, including the single premium cost thereof, would inure to the Fund in determining the net capital gain or loss realized by the Fund upon the sale of the security. The investment policy of this Fund requiring insurance on investments applies only to tax-exempt obligations held by the Fund and will not affect the Fund's ability to hold its assets in cash or to invest in escrow secured and defeased bonds or in certain short-term tax-exempt obligations as described elsewhere herein, or its ability to invest in uninsured taxable obligations for temporary or liquidity purposes or on a defensive basis in accordance with the investment policies and restrictions of the Fund. Minnesota Insured Intermediate Tax Free Fund is authorized to obtain Portfolio Insurance from insurers that have obtained a claims-paying ability rating of AAA or SP-1 from Standard & Poor's or Aaa or MIG-1 from Moody's or an equivalent rating from another nationally recognized statistical rating organization. Such insurers may include AMBAC Indemnity Corporation ("AMBAC"), Municipal Bond Investors Assurance Corporation ("MBIA"), Financial Guaranty Insurance Company ("FGIC"), Financial Security Assurance, Inc. ("FSA"), or other companies meeting these criteria. For more information concerning Portfolio Insurance, see the Statement of Additional Information. TEMPORARY TAXABLE INVESTMENTS Each of the Funds may make temporary taxable investments as described under "Investment Objectives and Policies." Temporary taxable investments will include only the following types of obligations maturing within 13 months from the date of purchase: (i) obligations of the United States Government, its agencies and instrumentalities; (ii) commercial paper rated not less than 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; (iii) other short-term debt securities issued or guaranteed by corporations having outstanding debt rated not less than 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; (iv) certificates of deposit of domestic commercial banks subject to regulation by the United States Government or any of its agencies or instrumentalities, with assets of $500 million or more based on the most recent published reports; and (v) repurchase agreements with domestic banks or securities dealers involving any of the securities which the Fund is permitted to hold. See "-- Repurchase Agreements" below. REPURCHASE AGREEMENTS The temporary taxable investments which each Fund may make include 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 Adviser will monitor the creditworthiness of the firms with which the Funds enter into repurchase agreements. INVERSE FLOATING RATE OBLIGATIONS Each of the Funds may invest up to 5% of its net assets in inverse floating rate municipal obligations. An inverse floating rate obligation entitles the holder to receive interest at a rate which changes in the opposite direction from, and in the same magnitude as or in a multiple of, changes in a specified index rate. Although an inverse floating rate municipal obligation would tend to increase portfolio income during a period of generally decreasing market interest rates, its income and value would tend to decline during a period of generally increasing market interest rates. In addition, its decline in value may be greater than for a fixed-rate municipal obligation, particularly if the interest rate borne by the floating rate municipal obligation is adjusted by a multiple of changes in the specified index rate. For these reasons, inverse floating rate municipal obligations have more risk than more conventional fixed-rate and floating rate municipal obligations. WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS Each of the Funds 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. LENDING OF PORTFOLIO SECURITIES In order to generate additional income, each of the Funds may lend portfolio securities representing up to one-third of the value of its total assets to broker-dealers, banks or other institutional borrowers of securities. As with other extensions of credit, there may be risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail financially. However, the Funds will only enter into loan arrangements with broker-dealers, banks, or other institutions which the Adviser has determined are creditworthy under guidelines established by the Board of Directors. In these loan arrangements, the 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 in connection with these loans. OPTIONS TRANSACTIONS Each of the Funds may, in order to reduce risk, invest in exchange traded put and call options on interest rate futures contracts and on interest rate indices. Such investments will be made solely as a hedge against adverse changes resulting from market conditions in the values of securities held by the Funds or which they intend to purchase and where the transactions are deemed appropriate to reduce risks inherent in the Funds' portfolios or contemplated investments. None of the Funds 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 contract 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 (purchase price of the option) and the commission or other transaction expenses associated with acquiring the option. An interest rate futures contract provides for the future sale by one party and purchase by the other party of a certain amount of a specific financial instrument (debt security) at a specified price, date, time and place. An option on an interest rate futures contract, as contrasted with the direct investment in such a contract, gives the purchaser the right, in return for the premium paid, to purchase (in the case of a call option) or sell (in the case of a put option) an interest rate futures contract at a specified exercise price at any time prior to the expiration date of the option. In order to hedge its portfolio against anticipated changes in interest rates, a Fund might purchase a put option on an interest rate futures contract if interest rates were expected to rise, or might purchase a call option on an interest rate futures contract if rates were expected to decline. Options on interest rate indices are similar to options on interest rate futures contracts except that, rather than the right to take or make delivery of a specific financial instrument at a specified price, an option on an interest rate index gives the holder the right to receive, upon exercise of the option, a defined amount of cash if the closing value of the interest rate 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. Put and call options on interest rate indices thus may be used in a fashion similar to that of options on interest rate futures contracts to hedge the value of a portfolio of debt securities against anticipated changes in interest rates. The use of options on interest rate futures contracts and on interest rate indices involves certain risks. These include the risk that changes in interest rates on the hedged instruments may not correlate to changes in interest rates on the instrument or index upon which the hedge is based, 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. 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 Adviser. 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 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. * None of the Funds will mortgage, pledge or hypothecate its assets, except in an amount not exceeding 15% of the value of its total assets to secure temporary or emergency borrowing. * None of the Funds will make short sales of securities. * 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. * Intermediate Tax Free Fund will not invest 25% or more of the value of its total assets in obligations of issuers located in the same state (for this purpose, the location of an "issuer" shall be deemed to be the location of the entity the revenues of which are the primary source of payment or the location of the project or facility which may be the subject of the obligation). None of the Funds will invest 25% or more of the value of its total assets in revenue bonds or notes, payment for which comes from revenues from any one type of activity (for this purpose, the term "type of activity" shall include without limitation (i) sewage treatment and disposal; (ii) gas provision; (iii) electric power provision; (iv) water provision; (v) mass transportation systems; (vi) housing; (vii) hospitals; (viii) nursing homes; (ix) street development and repair; (x) toll roads; (xi) airport facilities; and (xii) educational facilities), except that, in circumstances in which other appropriate available investments may be in limited supply, such Funds may invest without limitation in gas provision, electric power provision, water provision, housing and hospital obligations. This restriction does not apply to general obligation bonds or notes or, in the case of Intermediate Tax Free Fund, to pollution control revenue bonds. However, in the case of the latter Fund, it is anticipated that normally (unless there are unusually favorable interest and market factors) less than 25% of such Fund's total assets will be invested in pollution control bonds. This restriction does not apply to securities of the United States Government or its agencies and instrumentalities or repurchase agreements relating thereto. 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 Securities and Exchange Commission rules and interpretations. Section 4(2) commercial paper may be determined to be "liquid" under guidelines adopted by the Board of Directors. Rule 144A securities may in the future be determined to be "liquid" under guidelines adopted by the Board of Directors if the current position of certain state securities regulators regarding such securities is modified. Investing in Rule 144A securities could have the effect of increasing the level of illiquidity in a Fund to the extent that qualified institutional buyers become, for a time, uninterested in purchasing these securities. FIRST AMERICAN INVESTMENT FUNDS, INC. 680 East Swedesford Road Wayne, Pennsylvania 19087 INVESTMENT ADVISER FIRST BANK NATIONAL ASSOCIATION 601 Second Avenue South Minneapolis, Minnesota 55402 CUSTODIAN FIRST TRUST NATIONAL ASSOCIATION 180 East Fifth Street St. Paul, Minnesota 55101 DISTRIBUTOR SEI FINANCIAL SERVICES COMPANY 680 East Swedesford Road Wayne, Pennsylvania 19087 ADMINISTRATOR SEI FINANCIAL MANAGEMENT CORPORATION 680 East Swedesford Road Wayne, Pennsylvania 19087 TRANSFER AGENT DST SYSTEMS, INC. 210 West 10th Street Kansas City, Missouri 64105 INDEPENDENT AUDITORS KPMG PEAT MARWICK LLP 90 South Seventh Street Minneapolis, Minnesota 55402 COUNSEL DORSEY & WHITNEY P.L.L.P. 220 South Sixth Street Minneapolis, Minnesota 55402 FAIF-1002(1/96) R FIRST AMERICAN INVESTMENT FUNDS, INC. TAX FREE INCOME FUNDS INSTITUTIONAL CLASS INTERMEDIATE TAX FREE FUND MINNESOTA INSURED INTERMEDIATE TAX FREE FUND COLORADO INTERMEDIATE TAX FREE FUND PROSPECTUS JANUARY 31, 1996 [LOGO] FIRST AMERICAN FUNDS The power of disciplined investing TABLE OF CONTENTS PAGE SUMMARY 4 FEES AND EXPENSES 6 Class C Share Fees and Expenses 6 Information Concerning Fees and Expenses 7 FINANCIAL HIGHLIGHTS 8 THE FUNDS 10 INVESTMENT OBJECTIVES AND POLICIES 10 Intermediate Tax Free Fund 11 Minnesota Insured Intermediate Tax Free Fund and Colorado Intermediate Tax Free Fund 12 Risks to Consider 14 MANAGEMENT 17 Investment Adviser 17 Portfolio Managers 18 Custodian 18 Administrator 19 Transfer Agent 19 DISTRIBUTOR 19 PURCHASES AND REDEMPTIONS OF SHARES 20 Share Purchases and Redemptions 20 What Shares Cost 20 Exchanging Securities for Fund Shares 21 Certificates and Confirmations 21 Dividends and Distributions 22 Exchange Privilege 22 INCOME TAXES 23 TAX-EXEMPT VS. TAXABLE INCOME 26 FUND SHARES 27 CALCULATION OF PERFORMANCE DATA 27 SPECIAL INVESTMENT METHODS 29 Municipal Bonds and Other Municipal Obligations 29 Insurance for Minnesota Insured Intermediate Tax Free Fund 31 Temporary Taxable Investments 33 Repurchase Agreements 33 Inverse Floating Rate Obligations 34 When-Issued and Delayed-Delivery Transactions 34 Lending of Portfolio Securities 35 Options Transactions 35 Portfolio Transactions 36 Portfolio Turnover 36 Investment Restrictions 37 FIRST AMERICAN INVESTMENT FUNDS, INC. 680 East Swedesford Road, Wayne, Pennsylvania 19087 INSTITUTIONAL CLASS PROSPECTUS The shares described in this Prospectus represent interests in First American Investment Funds, Inc., which consists of mutual funds with several different investment portfolios and objectives. This Prospectus relates to the Class C Shares of the following funds (the "Funds"): * INTERMEDIATE TAX FREE FUND * COLORADO INTERMEDIATE TAX FREE FUND * MINNESOTA INSURED INTERMEDIATE TAX FREE FUND Class C Shares of the Funds are offered through banks and certain other institutions for the investment of their own funds and funds for which they act in a fiduciary, agency or custodial capacity. SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK, INCLUDING FIRST BANK NATIONAL ASSOCIATION AND ANY OF ITS AFFILIATES, NOR ARE THEY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. AN INVESTMENT IN THE 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, 1996 for the Funds has been filed with the Securities and Exchange Commission and is incorporated in its entirety by reference in this Prospectus. To obtain copies of the Statement of Additional Information at no charge, or to obtain other information or make inquiries about the Funds, call (800) 637-2548 or write SEI Financial Services Company, 680 East Swedesford Road, Wayne, Pennsylvania 19087. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is January 31, 1996. SUMMARY First American Investment Funds, Inc. ("FAIF") is an open-end investment company which offers shares in several different mutual funds. This Prospectus provides information with respect to the Class C Shares of the following funds (the "Funds"): INTERMEDIATE TAX FREE FUND has an objective of providing current income that is exempt from federal income tax to the extent consistent with preservation of capital. Under normal market conditions, this Fund invests at least 80% of its net assets in municipal obligations, the interest on which is exempt from federal income tax. No more than 20% of the securities owned by this Fund will generate income that is subject to the federal alternative minimum tax. Under normal market conditions, the weighted average maturity of the securities held by this Fund will range from 3 to 10 years. MINNESOTA INSURED INTERMEDIATE TAX FREE FUND has an objective of providing current income which is exempt from both federal income tax and Minnesota state income tax to the extent consistent with preservation of capital. Under normal market conditions, this Fund invests at least 80% of its net assets in municipal obligations, the interest on which is exempt from federal and Minnesota income tax. No more than 20% of the securities owned by this Fund will generate income that is subject to the federal or the Minnesota alternative minimum tax. At least 65% of the tax-exempt obligations held by this Fund will consist of insured bonds, escrow secured bonds and defeased bonds. Under normal market conditions, the weighted average maturity of the securities held by this Fund will range from 3 to 10 years. COLORADO INTERMEDIATE TAX FREE FUND has an objective of providing current income which is exempt from both federal income tax and Colorado state income tax to the extent consistent with preservation of capital. Under normal market conditions, this Fund invests at least 80% of its net assets in municipal obligations, the interest on which is exempt from federal and Colorado income tax. No more than 20% of the securities owned by this Fund will generate income that is subject to the federal alternative minimum tax. Under normal market conditions, the weighted average maturity of the securities held by this Fund will range from 3 to 10 years. INVESTMENT ADVISER First Bank National Association (the "Adviser") serves as investment adviser to each of the Funds. See "Management." DISTRIBUTOR; ADMINISTRATOR SEI Financial Services Company (the "Distributor") serves as the distributor of the Funds' shares. SEI Financial Management Corporation (the "Administrator") serves as the administrator of the Funds. See "Management" and "Distributor." ELIGIBLE INVESTORS; OFFERING PRICES Class C Shares are offered through banks and certain other institutions for the investment of their own funds and funds for which they act in a fiduciary, agency or custodial capacity. Class C Shares are sold at net asset value without any front-end or deferred sales charges. See "Purchases and Redemptions of Shares." EXCHANGES Class C Shares of any Fund may be exchanged for Class C Shares of other FAIF funds at the shares' respective net asset values with no additional charge. See "Purchases and Redemptions of Shares -- Exchange Privilege." REDEMPTIONS Shares of 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." RISKS TO CONSIDER Each of the Funds is 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). In addition, the value of municipal obligations held by the Funds may be adversely affected by local political and economic conditions and developments in the states and political subdivisions which issue the obligations. Investors should note in this regard that Minnesota Insured Intermediate Tax Free Fund and Colorado Intermediate Tax Free Fund invest in municipal obligations of issuers located only in Minnesota and Colorado, respectively. The Funds also may, 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. See "Investment Objectives and Policies -- Risks to Consider" 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. FEES AND EXPENSES CLASS C SHARE FEES AND EXPENSES MINNESOTA INSURED COLORADO INTERMEDIATE INTERMEDIATE INTERMEDIATE TAX FREE TAX FREE TAX FREE FUND FUND FUND SHAREHOLDER TRANSACTION EXPENSES Maximum sales load imposed on purchases None None None Maximum sales load imposed on reinvested dividends None None None Deferred sales load None None None Redemption fees None None None Exchange fees None None None ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS) Investment advisory fees (after voluntary fee waivers and reimbursements)(1) 0.32% 0.42% 0.39% Rule 12b-1 fees None None None Other expenses (after voluntary fee waivers)(1) 0.38% 0.28% 0.31% Total fund operating expenses (after voluntary fee waivers and reimbursements)(1) 0.70% 0.70% 0.70% 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 $ 7 $ 7 $ 7 3 years $ 22 $ 22 $ 22 5 years $ 39 $ 39 $ 39 10 years $ 87 $ 87 $ 87 (1) The Adviser and the Administrator intend to waive a portion of their fees and/or reimburse expenses on a voluntary basis, and the amounts shown reflect these waivers and reimbursements as of the date of this Prospectus. Each of these persons intends to maintain such waivers and reimbursements in effect for the current fiscal year but reserves the right to discontinue such waivers and reimbursements at any time in its sole discretion. Absent any fee waivers, investment advisory fees for each Fund as an annualized percentage of average daily net assets would be 0.70%; and total fund operating expenses calculated on such basis would be 1.05% for Intermediate Tax Free Fund, 1.00% for Minnesota Insured Intermediate Tax Free and 1.02% for Colorado Intermediate Tax Free Fund. Other expenses includes an administration fee and is based on estimated amounts for the current fiscal year. (2) Absent the fee waivers and reimbursements referred to in (1) above, the dollar amounts for the 1, 3, 5 and 10-year periods would be as follows: Intermediate Tax Free Fund, $11, $33, $58 and $128; Minnesota Insured Intermediate Tax Free Fund, $10, $32, $55 and $122; and Colorado Intermediate Tax Free Fund, $10, $32, $56 and $125. 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. The information set forth in the foregoing tables and examples relates only to the Class C Shares of the Funds. The Funds also offer Class A and Class B Shares which are subject to the same expenses and, in addition, to a front-end or contingent deferred sales load and certain distribution expenses. The examples in the above tables are based on projected annual Fund operating expenses after voluntary fee waivers and expense reimbursements by the Adviser and the Administrator. Although these persons intend to maintain such waivers in effect for the current fiscal year, any such waivers are voluntary and may be discontinued at any time. Prior to fee waivers, investment advisory fees accrue at the annual rate as a percentage of average daily net assets of 0.70% for each of the Funds. Other expenses include fees paid by each Fund to the Administrator for providing various services necessary to operate the Funds. These include shareholder servicing and certain accounting and other services. The Administrator provides these services for a fee calculated at an annual rate of 0.12% of average daily net assets of each Fund subject to a minimum of $50,000 per Fund per fiscal year; provided, that to the extent that the aggregate net assets of all First American funds exceed $8 billion, the percentage stated above is reduced to 0.105%. Other expenses of the Funds also includes the cost of maintaining shareholder records, furnishing shareholder statements and reports, and other services. Investment advisory fees, administrative fees and other expenses are reflected in the Funds' daily dividends and are not charged to individual shareholder accounts. FINANCIAL HIGHLIGHTS The following audited financial highlights 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 the Statement of Additional Information. Further information about the Funds' performance is contained in FAIF's annual report to shareholders, which may be obtained without charge by calling (800) 637-2548 or by writing SEI Financial Services Company, 680 East Swedesford Road, Wayne, Pennsylvania 19087. The Financial Highlights for the Class A shares of the Funds have been provided below along with the Financial Highlights for Class C shares. Class A shares are subject to sales charges and fees that may differ from those applicable to Class C shares. For the periods ended September 30, For a share outstanding throughout this 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 INTERMEDIATE TAX FREE FUND Class C 1995 $10.28 $0.49 $ 0.43 $(0.48) $ -- 1994(1) 10.89 0.29 (0.61) (0.29) -- Class A 1995 $10.28 $0.49 $ 0.43 $(0.48) $ -- 1994 10.92 0.44 (0.57) (0.44) (0.07) 1993 10.56 0.47 0.42 (0.47) (0.06) 1992 10.34 0.53 0.22 (0.53) -- 1991(2) 10.04 0.50 0.31 (0.50) (0.01) 1990(3) 10.08 0.56 (0.04) (0.56) -- 1989(3) 10.19 0.56 (0.11) (0.56) -- 1988(3)(4) 10.03 0.47 0.16 (0.47) -- MINNESOTA INSURED INTERMEDIATE TAX FREE FUND Class C 1995 $ 9.59 $0.45 $ 0.33 $(0.45) $ -- 1994(5) 10.00 0.25 (0.41) (0.25) -- COLORADO INTERMEDIATE TAX FREE FUND Class C 1995 $10.16 $0.48 $ 0.36 $(0.49) $ -- 1994(6) 10.00 0.22 0.16 (0.22) --
(table continued)
RATIO OF RATIO OF NET EXPENSES TO RATIO OF INVESTMENT AVERAGE NET NET ASSET NET ASSETS EXPENSES TO INCOME TO ASSETS VALUE END END OF AVERAGE NET AVERAGE NET (EXCLUDING PORTFOLIO OF PERIOD TOTAL RETURN PERIOD (000) ASSETS ASSETS WAIVERS) TURNOVER RATE INTERMEDIATE TAX FREE FUND Class C 1995 $10.72 9.15% $46,025 0.67% 4.73% 1.05% 68% 1994(1) 10.28 (2.91%)+ 6,168 0.45 4.48 2.20 52 Class A 1995 $10.72 9.15% $ 983 0.67% 4.71% 1.30% 68% 1994 10.28 (1.25%) 1,128 0.59 4.13 2.78 52 1993 10.92 8.66% 2,969 0.71 4.31 5.09 27 1992 10.56 7.23% 725 0.99 4.83 16.09 23 1991(2) 10.34 8.15%+ 637 0.99 5.35 15.48 15 1990(3) 10.04 5.31% 537 1.08 5.58 13.85 4 1989(3) 10.08 4.57% 491 1.09 5.57 19.55 4 1988(3)(4) 10.19 6.73%+ 425 0.84 5.87 13.60 0 MINNESOTA INSURED INTERMEDIATE TAX FREE FUND Class C 1995 $ 9.92 8.34% $61,693 0.70% 4.76% 1.00% 38% 1994(5) 9.59 (1.58%)+ 20,272 0.67 4.57 1.59 22 COLORADO INTERMEDIATE TAX FREE FUND Class C 1995 $10.51 8.47% $50,071 0.70% 4.84% 1.02% 19% 1994(6) 10.16 3.76%+ 7,281 0.69 4.51 4.71 4
+ Returns, excluding sales charges, are for the period indicated and have not been annualized. (1) Institutional Class shares have been offered since February 4, 1994. All ratios for the period have been annualized. (2) 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. (3) For the period ended October 31. (4) Commenced operations on December 22, 1987. All ratios for the period have been annualized. (5) Commenced operations on February 28, 1994. All ratios for the period have been annualized. (6) Commenced operations on April 4, 1994. All ratios for the period have been annualized. 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 C) which provide for variations in distribution costs, voting rights and dividends. Except for these differences among classes, each share of each FAIF Fund represents an undivided proportionate interest in that fund. FAIF is incorporated under the laws of the State of Maryland, and its principal offices are located at 680 East Swedesford Road, Wayne, Pennsylvania 19087. This Prospectus relates only to the Class C Shares of the 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 C Shares of the other FAIF Funds is contained in separate prospectuses that may be obtained from FAIF's Distributor, SEI Financial Services Company, 680 East Swedesford Road, Wayne, Pennsylvania 19087, or by calling (800) 637-2548. The Board of Directors of FAIF may authorize additional series or classes of common stock in the future. INVESTMENT 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. Intermediate Tax Free Fund is a diversified investment company, as defined in the Investment Company Act of 1940 (the "1940 Act"). Minnesota Insured Intermediate Tax Free Fund and Colorado Intermediate Tax Free Fund are nondiversified investment 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. 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, 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 Corporation ("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." INTERMEDIATE TAX FREE FUND OBJECTIVE. Intermediate Tax Free Fund has an objective of providing current income which is exempt from federal income tax to the extent consistent with preservation of capital. INVESTMENT POLICIES. Under normal market conditions, Intermediate Tax Free Fund invests at least 80% of its net assets in municipal bonds and other municipal obligations, the interest on which is, in the opinion of bond counsel to the issuer, exempt from federal income tax. No more than 20% of the securities owned by the Fund will generate income that is an item of tax preference for the purpose of the federal alternative minimum tax. Municipal obligations generating income subject to taxation under the federal alternative minimum tax rules will not be counted as tax exempt obligations for purposes of the 80% test. See "Income Taxes." The types of municipal bonds and other municipal obligations in which the Fund may invest are described under "Special Investment Methods -- Municipal Bonds and Other Municipal Obligations." Under normal market conditions, the weighted average maturity of the securities held by Intermediate Tax Free Fund will range from 3 to 10 years. Intermediate Tax Free Fund may purchase obligations which are rated no lower than 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 Adviser. The Fund also may purchase municipal notes which are rated no lower than SP-1 by Standard & Poor's or MIG/VMIG-1 by Moody's or which have been assigned an equivalent rating by another nationally recognized statistical rating organization. Unrated securities will not exceed 10% in the aggregate of the value of the total assets of either of the Fund. While the assets of Intermediate Tax Free Fund ordinarily will be invested in municipal obligations, on occasion the Fund may temporarily hold short-term securities, other than municipal obligations, the income from which is taxable. Temporary taxable investments would be held solely for the purpose of managing exceptional in-flows and out-flows of cash or for temporary defensive purposes to preserve existing portfolio values. Under normal circumstances, the Fund may not invest more than 20% of its assets in investments other than municipal obligations. However, in periods of adverse markets when a temporary defensive position to protect capital is deemed advisable and practicable, the Fund may have more than 20% of its assets in temporary taxable investments or cash. The types of investments which are permitted for these purposes are described under "Special Investment Methods -- Temporary Taxable Investments." The Fund also may temporarily invest in shares of investment companies which invest primarily in short-term municipal obligations with maturities not exceeding 13 months. Investments of these types are also subject to the advisory fee. Income from these investments is normally exempt from federal income tax. The Fund also may (i) 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; (ii) purchase securities on a when-issued or delayed-delivery basis; and (iii) engage in the lending of portfolio securities. In addition, the Fund may invest up to 5% of its net assets in inverse floating rate municipal obligations. For information about these investment methods, restrictions on their use, and certain associated risks, see the related headings under "Special Investment Methods." The requirement, described above, that Intermediate Tax Free Fund invest at least 80% of its net assets in tax free obligations under normal market conditions is a fundamental policy, which cannot be changed without shareholder vote. Under normal market conditions, that Fund will invest at least 65% of its total assets in municipal obligations which are municipal bonds. See "Special Investment Methods -- Municipal Bonds and Other Municipal Obligations." MINNESOTA INSURED INTERMEDIATE TAX FREE FUND AND COLORADO INTERMEDIATE TAX FREE FUND OBJECTIVES. Minnesota Insured Intermediate Tax Free Fund has an objective of providing current income which is exempt from both federal income tax and Minnesota state income tax to the extent consistent with preservation of capital. Colorado Intermediate Tax Free Fund has an objective of providing current income which is exempt from both federal income tax and Colorado state income tax to the extent consistent with preservation of capital. INVESTMENT POLICIES. Under normal market conditions, each of these Funds invests at least 80% of its net assets in municipal bonds and other municipal obligations of the state referred to in its title, the interest on which is, in the opinion of bond counsel to the issuer, exempt from federal income tax and that state's income tax. No more than 20% of the securities owned by either of these Funds will generate income that is an item of tax preference for the purpose of the federal alternative minimum tax and, in the case of Minnesota Insured Intermediate Tax Free Fund, for the purpose of the Minnesota alternative minimum tax. Municipal obligations generating income subject to taxation under the federal alternative minimum tax rules or, in the case of Minnesota Insured Intermediate Tax Free Fund, under the Minnesota alternative minimum tax rules, will not be counted as tax exempt obligations for purposes of the 80% test. See "Income Taxes." The types of municipal bonds and other municipal obligations in which these Funds may invest are described under "Special Investment Methods -- Municipal Bonds and Other Municipal Obligations." Under normal market conditions, the weighted average maturity of the securities held by each of these Funds will range from 3 to 10 years. Each of these Funds may purchase obligations which are rated (without regard to insurance) no lower than 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 Adviser. Each of these Funds also may purchase municipal notes which are rated no lower than SP-1 by Standard & Poor's or MIG/VMIG-1 by Moody's or which have been assigned an equivalent rating by another nationally recognized statistical rating organization. Unrated securities will not exceed 10% in the aggregate of the value of the total assets of either of these Funds. While the assets of each of these Funds ordinarily will be invested in municipal obligations, on occasion either Fund may temporarily hold short-term securities, other than municipal obligations, the income from which is taxable. Temporary taxable investments would be held solely for the purpose of managing exceptional in-flows and out-flows of cash or for temporary defensive purposes to preserve existing portfolio values. Under normal circumstances, a Fund may not invest more than 20% of its assets in investments other than municipal obligations. However, in periods of adverse markets when a temporary defensive position to protect capital is deemed advisable and practicable, a Fund may have more than 20% of its assets in temporary taxable investments or cash. The types of investments which are permitted for these purposes are described under "Special Investment Methods -- Temporary Taxable Investments." Each of these Funds also may temporarily invest in shares of investment companies which invest primarily in short-term municipal obligations with maturities not exceeding 13 months. Investments of these types are also subject to the advisory fee. Income from these investments is normally exempt from federal income tax but may not be exempt from the applicable state tax. Each of these Funds also may (i) 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; (ii) purchase securities on a when-issued or delayed-delivery basis; (iii) engage in the lending of portfolio securities; and (iv) invest up to 5% of its net assets in inverse floating rate municipal obligations. For information about these investment methods, restrictions on their use, and certain associated risks, see the related headings under "Special Investment Methods." As a nonfundamental policy, at least 65% of the tax-exempt obligations in the investment portfolio of Minnesota Insured Intermediate Tax Free Fund will consist of: (i) obligations that at all times are fully insured as to the scheduled payment of all installments of interest and principal; and (ii) obligations which have an AAA rating by Standard & Poor's or an Aaa rating by Moody's or which have been assigned an equivalent rating by another nationally recognized statistical rating organization, where the payment of interest and principal is guaranteed by the United States Government or an agency or instrumentality of the United States Government, or where the payment of interest and principal is secured by an escrow account consisting of obligations guaranteed by the United States Government or its agencies or instrumentalities ("escrow secured bonds" or "defeased bonds"), without having to purchase additional insurance therefor. This policy may not be eliminated except upon 30 days advance notice to shareholders of Minnesota Insured Intermediate Tax Free Fund. In addition, pending the investment or reinvestment of its assets in longer-term tax-exempt obligations, this Fund may invest in short-term tax-exempt obligations, without obtaining insurance, provided such instruments carry an AAA or A-1 rating by Standard & Poor's or an Aaa or SP-1 rating by Moody's or which have been assigned an equivalent rating by another nationally recognized statistical rating organization. Bond insurance does not guarantee the market value of the securities held in this Fund's portfolio. For further information concerning the insurance applicable to this Fund's investments, see "Special Investment Methods -- Insurance for Minnesota Insured Intermediate Tax Free Fund." The tax-exempt obligations held by Colorado Intermediate Tax Free Fund need not be insured. RISKS TO CONSIDER An investment in any of the Funds involves certain risks. These include the following: INTEREST RATE RISK. Interest rate risk is the risk that the value of a fixed-rate debt security will decline due to changes in market interest rates. Because the Funds invest in fixed-rate debt securities, they are subject to interest rate risk. In general, when interest rates rise, the value of a fixed-rate debt security declines. Conversely, when interest rates decline, the value of a fixed-rate debt security generally increases. Thus, shareholders in the Funds bear the risk that increases in market interest rates will cause the value of their Fund's portfolio investments to decline. In general, the value of fixed-rate debt securities with longer maturities is more sensitive to changes in market interest rates than the value of such securities with shorter maturities. Thus, the net asset value of a Fund which invests in securities with longer weighted average maturities should be expected to have greater volatility in periods of changing market interest rates than that of a Fund which invests in securities with shorter weighted average maturities. Although the Adviser may engage in transactions intended to hedge the value of the Funds' portfolios against changes in market interest rates, there is no assurance that such hedging transactions will be undertaken or will fulfill their purpose. See "Special Investment Methods -- Options Transactions." CREDIT RISK. Credit risk is the risk that the issuer of a debt security will fail to make payments on the security when due. Because the Funds invest in debt securities, they are subject to credit risk. As described under "Special Investment Methods -- Municipal Bonds and Other Municipal Obligations," the revenue bonds and municipal lease obligations in which the Funds invest may entail greater credit risk than the general obligation bonds in which they invest. This is the case because revenue bonds and municipal lease obligations generally are not backed by the faith, credit or general taxing power of the issuing governmental entity. In addition, as described under that section, municipal lease obligations also are subject to nonappropriation risk, which is a type of nonpayment risk. Investors also should note that even general obligation bonds of the states and their political subdivisions are not free from the risk of default. The ratings and certain other requirements which apply to the Funds' permitted investments, as described elsewhere in this Prospectus, are intended to limit the amount of credit risk undertaken by the Funds. Nevertheless, shareholders in the Funds bear the risk that payment defaults could cause the value of their Fund's portfolio investments to decline. Investors also should note that the Funds can invest in municipal obligations rated as low as 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 Adviser. Although these rating categories are investment grade, obligations with these ratings are viewed as having speculative characteristics and carry a somewhat higher risk of default than obligations rated in the higher investment grade categories. Although the bond insurance carried by Minnesota Insured Intermediate Tax Free Fund is intended to mitigate credit risk, its effectiveness depends on the creditworthiness of the bond insurers. See "Special Investment Methods - --Insurance for Minnesota Insured Intermediate Tax Free Fund." CALL RISK. Many municipal bonds may be redeemed at the option of the issuer ("called") at a specified price prior to their stated maturity date. In general, it is advantageous for an issuer to call its bonds if they can be refinanced through the issuance of new bonds which bear a lower interest rate than that of the called bonds. Call risk is the risk that bonds will be called during a period of declining market interest rates so that such refinancings may take place. If a bond held by a Fund is called during a period of declining interest rates, the Fund probably will have to reinvest the proceeds received by it at a lower interest rate than that borne by the called bond, thus resulting in a decrease in the Fund's income. To the extent that the Funds invest in callable bonds, Fund shareholders bear the risk that reductions in income will result from the call of bonds. STATE AND LOCAL POLITICAL AND ECONOMIC CONDITIONS. The value of municipal obligations owned by the Funds may be adversely affected by local political and economic conditions and developments. Adverse conditions in an industry significant to a local economy could have a correspondingly adverse effect on the financial condition of local issuers. Other factors that could affect tax-exempt obligations include a change in the local, state or national economy, demographic factors, ecological or environmental concerns, statutory limitations on the issuer's ability to increase taxes and other developments generally affecting the revenues of issuers (for example, legislation or court decisions reducing state aid to local governments or mandating additional services). Intermediate Tax Free Fund cannot invest 25% or more of its total assets in obligations of issuers located in the same state (for this purpose, the location of an "issuer" shall be deemed to be the location of the entity the revenues of which are the primary source of payment or the location of the project or facility which may be the subject of the obligation). See "Special Investment Methods -- Investment Restrictions." Minnesota Insured Intermediate Tax Free Fund and Colorado Intermediate Tax Free Fund each will invest primarily in municipal obligations issued by the state and its political subdivisions named in its title. For this reason, the municipal obligations held by these two Funds will be particularly affected by local conditions in those states. A more detailed description of the factors affecting Minnesota and Colorado issuers of municipal obligations is set forth in the Statement of Additional Information. OTHER. Investors also should review "Special Investment Methods" for information concerning risks associated with certain investment techniques which may be utilized by the Funds. In addition, investors in Minnesota Insured Intermediate Tax Free Fund should note that the 1995 Minnesota Legislature enacted a statement of intent specifying certain circumstances under which interest on the Minnesota municipal obligations held by the Fund might become taxable for Minnesota state income tax purposes. See "Income Taxes Minnesota Income Taxation." MANAGEMENT The Board of Directors of FAIF has the primary responsibility for overseeing the overall management and electing the officers of FAIF. Subject to the overall direction and supervision of the Board of Directors, the Adviser acts as investment adviser for and manages the investment portfolios of FAIF. INVESTMENT ADVISER First Bank National Association, 601 Second Avenue South, Minneapolis, Minnesota 55480, acts as the Funds' investment adviser through its First Asset Management group. The Adviser has acted as an investment adviser to FAIF since its inception in 1987 and has acted as investment adviser to First American Funds, Inc. since 1982. As of September 30, 1995, the Adviser was managing accounts with an aggregate value of approximately $29 billion, including mutual fund assets in excess of $7 billion. First Bank System, Inc., 601 Second Avenue South, Minneapolis, Minnesota 55480, is the holding company for the Adviser. Each of the Funds has agreed to pay the Adviser monthly fees calculated on an annual basis equal to 0.70% of its average daily net assets. The Adviser may, at its option, waive any or all of its fees, or reimburse expenses, with respect to any Fund from time to time. Any such waiver or reimbursement is voluntary and may be discontinued at any time. The Adviser also may absorb or reimburse expenses of the 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 those activities. In addition, administrative and judicial interpretations of the Glass-Steagall Act prohibit bank holding companies and their bank and nonbank subsidiaries from organizing, sponsoring or controlling registered open-end investment companies that are continuously engaged in distributing their shares. Bank holding companies and their bank and nonbank subsidiaries may serve, however, as investment advisers to registered investment companies, subject to a number of terms and conditions. Although the scope of the prohibitions and limitations imposed by the Glass-Steagall Act has not been fully defined by the courts or the appropriate regulatory agencies, the Funds have received an opinion from their counsel that the Adviser is not prohibited from performing the investment advisory services described above. In the event of changes in federal or state statutes or regulations or judicial and administrative interpretations or decisions pertaining to permissible activities of bank holding companies and their bank and nonbank subsidiaries, the Adviser might be prohibited from continuing these arrangements. In that event, it is expected that the Board of Directors would make other arrangements and that shareholders would not suffer adverse financial consequences. PORTFOLIO MANAGERS RICHARD W. STANLEY is portfolio co-manager for each of the Funds. Dick entered the investment business via investment sales with Smith Barney & Co. in 1958. He then moved to Heritage Investment Advisers as head of fixed income investment in 1973. He joined the Adviser in early 1986 as Vice President and Manager of Fixed Income/Personal Trust. Dick received his master's in business administration degree from Cornell University in 1958 and received his Chartered Financial Analyst certification in 1977. CHRISTOPHER L. DRAHN is portfolio co-manager for Intermediate Tax Free Fund and Minnesota Insured Intermediate Tax Free Fund. Chris joined the fixed income department of the Adviser in 1985, having previously served in its securities lending and corporate trust areas. He received his master's degree in business administration from the University of Minnesota and is a Chartered Financial Analyst. TERRY MALTARICH is portfolio co-manager for Colorado Intermediate Tax Free Fund. Terry joined the Adviser in 1994 after 20 years of investment experience with Colorado Capital Advisors (which was combined into the Adviser) and Great West Life Insurance Company. He received his bachelor's degree from Miami University. CUSTODIAN The custodian of the Funds' assets is First Trust National Association (the "Custodian"), First Trust Center, 180 East Fifth Street, St. Paul, Minnesota 55101. The Custodian is a subsidiary of First Bank System, Inc., which also controls the Adviser. As compensation for its services to the Funds, the Custodian is paid monthly fees calculated on an annual basis equal to 0.03% of the applicable Fund's average daily net assets. In addition, the Custodian is reimbursed for its out-of-pocket expenses incurred while providing its services to the Funds. ADMINISTRATOR The administrator for the Funds is SEI Financial Management Corporation (the "Administrator"), 680 East Swedesford Road, Wayne, Pennsylvania 19087. The Administrator, a wholly-owned subsidiary of SEI Corporation, provides the Funds with certain administrative services necessary to operate the Funds. These services include shareholder servicing and certain accounting and other services. The Administrator provides these services for a fee calculated at an annual rate of 0.12% of each Fund's average daily net assets, subject to a minimum administrative fee during each fiscal year of $50,000 per Fund; 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. 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 210 West 10th Street, Kansas City, Missouri 64105. The Transfer Agent is not affiliated with the Distributor, the Administrator or the Adviser. DISTRIBUTOR SEI Financial Services Company is the principal distributor for shares of the 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 is a wholly-owned subsidiary of SEI Corporation and is located at 680 East Swedesford Road, Wayne, Pennsylvania 19087. The Distributor is not affiliated with the Adviser, First Bank System, Inc., the Custodian or their respective affiliates. The Distributor, the Administrator and the Adviser may in their discretion use their own assets to pay for certain costs of distributing Fund shares. They also may discontinue any payment of such costs at any time. PURCHASES AND REDEMPTIONS OF SHARES SHARE PURCHASES AND REDEMPTIONS Shares of the Funds are sold and redeemed on days on which the New York Stock Exchange is open for business ("Business Days"). Payment for shares can be made only by wire transfer. Wire transfers of federal funds for share purchases should be sent to First Bank National Association, Minneapolis, Minnesota, ABA Number 091000022; For Credit to: DST Systems: Account Number 6023458026; For Further Credit To: (Investor Name and Fund Name). Shares cannot be purchased by Federal Reserve wire on days on which the New York Stock Exchange is closed and on Federal holidays upon which wire transfers are restricted. Purchase orders will be effective and eligible to receive dividends declared the same day if the Transfer Agent receives an order before 3:00 p.m. Central time and the Custodian receives Federal funds before the close of business that day. Otherwise, the purchase order will be effective the next Business Day. The net asset value per share is calculated as of 3:00 p.m. Central time each Business Day. The Funds reserve the right to reject a purchase order. The Funds are required to redeem for cash all full and fractional shares of the Funds. Redemption orders may be made any time before 3:00 p.m. Central time in order to receive that day's redemption price. For redemption orders received before 3:00 p.m. Central time, payment will ordinarily be made the same day by transfer of Federal funds, but payment may be made up to 7 days later. WHAT SHARES COST Class C Shares of the Funds are sold and redeemed at net asset value. The net asset value per share is determined as of the earlier of the close of the New York Stock Exchange or 3:00 p.m. Central time on each day the New York Stock Exchange is open for business, provided that net asset value need not be determined on days when no Fund shares are tendered for redemption and no order for 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. Debt obligations exceeding 60 days to maturity which are actively traded are valued by an independent pricing service at the most recently quoted bid price. Debt obligations with 60 days or less remaining until maturity may be valued at their amortized cost. When market quotations are not readily available, securities are valued at fair value as determined in good faith by procedures established and approved by the Board of Directors. Portfolio securities underlying actively traded options are valued at their market price as determined above. The current market value of any exchange traded option held or written by a Fund is its last sales price on the exchange prior to the time when assets are valued, unless the bid price is higher or the asked price is lower, in which event the bid or asked price is used. In the absence of any sales that day, options will be valued at the current closing bid price. 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 expenses charged to Class A and Class B Shares. 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 Adviser 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. 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. DIVIDENDS AND DISTRIBUTIONS Dividends with respect to each Fund are declared and paid monthly to all shareholders of record on the record date. Distributions of any net realized long-term capital gains will be made at least once every 12 months. Dividends and distributions are automatically reinvested in additional shares of the Fund 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 C Shares generally will be more than the dividends payable on Class A or Class B Shares because of the distribution expenses charged to Class A and Class B Shares. EXCHANGE PRIVILEGE Shareholders may exchange Class C Shares of a Fund for currently available Class C Shares of the other FAIF Funds or of other funds in the First American family at net asset value. Exchanges of shares among the FAIF Funds must meet any applicable minimum investment of the fund for which shares are being exchanged. The ability to exchange shares of the 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. 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. These procedures may include taping of telephone conversations. Shares of a class in which an investor is no longer eligible to participate may be exchanged for shares of a class in which that investor is eligible to participate. An example of this kind of exchange would be a situation in which Class C Shares of 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. INCOME TAXES FEDERAL INCOME TAXATION Each Fund is treated as a different entity for federal income tax purposes. Each of the Funds qualified during its last fiscal year as a regulated investment company under the Internal Revenue Code of 1986, as amended (the "Code"), and all of the Funds intend to so qualify in the future. 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 of net interest income from tax-exempt obligations that are designated by each Fund as exempt-interest dividends are excludable from the gross income of the Fund's shareholders. A portion of such dividends may, however, be subject to the alternative minimum tax, as discussed below. Distributions paid from other interest income and from any net realized short-term capital gains will be taxable to shareholders as ordinary income, whether received in cash or in additional shares. Since none of the Funds' income will consist of dividends from domestic corporations, the dividends-received deduction for corporations will not be applicable to taxable distributions by the Funds. Distributions paid from long-term capital gains (and designated as such) will be taxable as long-term capital gains for federal income tax purposes, whether received in cash or shares, regardless of how long a shareholder has held the shares in a Fund. Shareholders not subject to federal income taxation will not be taxed on distributions by a Fund. 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. Such gain or loss will be long-term gain or loss if the shares were held for more than one year. For federal income tax purposes, an alternative minimum tax ("AMT") is imposed on taxpayers to the extent that such tax, if any, exceeds a taxpayer's regular income tax liability (with certain adjustments). Liability for AMT will depend on each shareholder's tax situation. Exempt-interest dividends attributable to interest income on certain tax-exempt obligations issued after August 7, 1986, to finance certain private activities will be treated as an item of tax preference that is included in alternative minimum taxable income for purposes of computing the federal AMT for all taxpayers and the federal environmental tax on corporations. Each Fund may invest up to 20% of its total assets in obligations the interest on which is treated as an item of tax preference for federal income tax purposes. Also, a portion of all other tax-exempt interest received by a corporation, including exempt-interest dividends, will be included in adjusted current earnings and in earnings and profits for purposes of determining the federal corporate alternative minimum tax, the environmental tax imposed on corporations under Section 59A of the Code, and the branch profits tax imposed on foreign corporations under Section 884 of the Code. The Tax Reform Act of 1986 imposed new requirements on certain tax-exempt bonds which, if not satisfied, could result in loss of tax exemption for interest on such bonds, even retroactively to the date of issuance of the bonds. Proposals may be introduced before Congress in the future, the purpose of which will be to further restrict or eliminate the federal income tax exemption for tax-exempt bonds held by the Funds. The Funds will avoid investment in bonds which, in the opinion of the Adviser, pose a material risk of the loss of tax exemption. Further, if a bond in a Fund's portfolio lost its exempt status, the Fund would make every effort to dispose of that investment on terms that are not detrimental to the Fund. In certain instances, the portion of Social Security benefits received by a shareholder that is subject to federal income tax may be affected by the amount of exempt-interest dividends received by the shareholder from the Funds. Interest on indebtedness incurred by a shareholder to purchase or carry shares of the Funds will not be deductible for federal income purposes. Information concerning distributions will be mailed to shareholders annually. Shareholders who are subject to federal income tax are required for information purposes to report exempt-interest dividends and other tax-exempt interest on their tax returns. MINNESOTA INCOME TAXATION Minnesota taxable net income is based generally on federal taxable income. The portion of exempt-interest dividends paid by Minnesota Insured Intermediate Tax Free Fund that is derived from interest on tax-exempt obligations issued by the state of Minnesota, its political subdivisions and instrumentalities, is excluded from the Minnesota taxable net income of individuals, estates and trusts, provided that the portion of the exempt-interest dividends from such Minnesota sources paid to all shareholders represents 95 percent or more of the exempt-interest dividends paid by the respective Fund. The remaining portion of such dividends, and dividends that are not exempt-interest dividends or capital gain dividends, are included in the Minnesota taxable net income of individuals, estates and trusts, except for dividends directly attributable to interest on obligations of the United States Government, its territories and possessions. Exempt-interest dividends are not excluded from the Minnesota taxable income of corporations and financial institutions. Dividends qualifying for federal income tax purposes as capital gain dividends are to be treated by shareholders as long-term capital gains. Minnesota has repealed the favorable treatment of long-term capital gains, while retaining restrictions on the deductibility of capital losses. As under federal law, the portion of Social Security benefits subject to Minnesota income tax may be affected by the amount of exempt-interest dividends received by the shareholders. Exempt-interest dividends attributable to interest on certain private activity bonds issued after August 7, 1986 will be included in Minnesota alternative minimum taxable income of individuals, estates and trusts for purposes of computing Minnesota's alternative minimum tax. Dividends generally will not qualify for the dividends-received deduction for corporations and financial institutions. The 1995 Minnesota Legislature has enacted a statement of intent that interest on obligations of Minnesota governmental units and Indian tribes be included in net income of individuals, estates and trusts for Minnesota income tax purposes if a court determines that Minnesota's exemption of such interest unlawfully discriminates against interstate commerce because interest on obligations of governmental issuers located in other states is so included. This provision applies to taxable years that begin during or after the calendar year in which any such court decision becomes final, irrespective of the date on which the obligations were issued. Minnesota Insured Intermediate Tax Free Fund is not aware of any decision in which a court has held that a state's exemption of interest on its own bonds or those of its political subdivisions or Indian tribes, but not of interest on the bonds of other states or their political subdivisions or Indian tribes, unlawfully discriminates against interstate commerce or otherwise contravenes the United States Constitution. Nevertheless, the Fund cannot predict the likelihood that interest on the Minnesota bonds held by the Fund would become taxable under this Minnesota statutory provision. COLORADO INCOME TAXATION To the extent that dividends paid by Colorado Intermediate Tax Free Fund are derived from interest on tax-exempt obligations issued by the state of Colorado, its political subdivisions and instrumentalities, such dividends will also be exempt from Colorado income taxes for individuals, trusts, estates, and corporations. The remaining portion of such dividends, and dividends that are not exempt-interest dividends or capital gain dividends, are included in the Colorado taxable income of individuals, trusts, estates, and corporations, except for dividends directly attributable to interest on obligations of the United States Government. Dividends qualifying for federal income tax purposes as capital gain dividends are to be treated by shareholders as long-term capital gains under Colorado law. However, Colorado has repealed the favorable treatment of long-term capital gains, while retaining restrictions on the deductibility of capital losses. Dividends paid by Colorado Intermediate Tax Free Fund that are derived from interest on tax-exempt obligations issued by the state of Colorado, its political subdivisions and instrumentalities (including tax-exempt obligations treated for federal purposes as private activity bonds) will not be treated as items of tax preference for purposes of the alternative minimum tax that Colorado imposes on individuals, trusts and estates. As under federal law, the portion of Social Security benefits subject to Colorado income tax may be affected by the amount of exempt-interest dividends received by the shareholders. OTHER STATE AND LOCAL TAXATION Except to the extent described above under "-- Minnesota Income Taxation" and "-- Colorado Income Taxation," distributions by all the Funds may be subject to state and local taxation even if they are exempt from federal income taxes. Shareholders are urged to consult their own tax advisers regarding state and local taxation. TAX-EXEMPT VS. TAXABLE INCOME The tables below show the approximate yields that taxable securities must earn to equal yields that are (i) exempt from federal income taxes; (ii) exempt from both federal and Minnesota income taxes; and (iii) exempt from both federal and Colorado income taxes, under selected income tax brackets scheduled to be in effect in 1995. The effective combined rates reflect the deduction of state income taxes from federal income. The 34.1%, 36.9%, 41.4%, and 44.7% combined federal/Minnesota rates assume that the investor is subject to an 8.5% marginal Minnesota income tax rate and a marginal federal income tax rate of 28%, 31%, 36% and 39.6%, respectively. The 31.6%, 34.5%, 39.2% and 42.6% combined federal/Colorado rates assume that the investor is subject to a 5% Colorado income tax rate and a marginal federal income tax rate of 28%, 31%, 36% and 39.6%, respectively. The combined rates do not reflect federal rules concerning the phase-out of personal exemptions and limitations on the allowance of itemized deductions for certain high-income taxpayers. The tables are based upon yields that are derived solely from tax-exempt income. To the extent that a Fund's yield is derived from taxable income, the Fund's tax equivalent yield will be less than set forth in the tables. The tax-free yields used in these tables should not be considered as representations of any particular rates of return and are for purposes of illustration only.
TAX-EQUIVALENT YIELDS COMBINED FEDERAL AND COMBINED FEDERAL AND FEDERAL TAX BRACKETS MINNESOTA TAX BRACKETS COLORADO TAX BRACKETS TAX-FREE YIELDS 28% 31% 36% 39.6% 34.1% 36.9% 41.4% 44.7% 31.6% 34.5% 39.2% 42.6% 3.0% 4.17% 4.35% 4.69% 4.97% 4.55% 4.75% 5.12% 5.42% 4.39% 4.58% 4.93% 5.23% 3.5% 4.86% 5.07% 5.47% 5.79% 5.31% 5.55% 5.97% 6.33% 5.12% 5.34% 5.76% 6.10% 4.0% 5.56% 5.80% 6.25% 6.62% 6.07% 6.34% 6.83% 7.23% 5.85% 6.11% 6.58% 6.97% 4.5% 6.25% 6.52% 7.03% 7.45% 6.83% 7.13% 7.68% 8.14% 6.58% 6.87% 7.40% 7.84% 5.0% 6.94% 7.25% 7.81% 8.28% 7.59% 7.92% 8.53% 9.04% 7.31% 7.63% 8.22% 8.71% 5.5% 7.64% 7.97% 8.59% 9.11% 8.35% 8.72% 9.39% 9.95% 8.04% 8.40% 9.05% 9.59% 6.0% 8.33% 8.70% 9.38% 9.93% 9.10% 9.51% 10.24% 10.85% 8.77% 9.16% 9.87% 10.46% 6.5% 9.03% 9.42% 10.16% 10.76% 9.86% 10.30% 11.09% 11.75% 9.50% 9.92% 10.69% 11.32%
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. 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, the shares of that Fund or Class will vote as a separate series. Examples of such issues would be proposals to alter a fundamental investment restriction pertaining to a Fund or to approve, disapprove or alter a distribution plan pertaining to a Class. Under the laws of the State of Maryland and FAIF's Articles of Incorporation, FAIF is not required to hold shareholder meetings unless they (i) are required by the 1940 Act, or (ii) are requested in writing by the holders of 25% or more of the outstanding shares of FAIF. CALCULATION OF PERFORMANCE DATA From time to time, any of the Funds may advertise information regarding its performance. Each Fund may publish its "yield," its "tax equivalent yield," its "cumulative total return," its "average annual total return," its "distribution rate" and its "tax equivalent distribution rate." Distribution rates and tax equivalent 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" and "tax equivalent distribution rate," is standardized in accordance with Securities and Exchange Commission ("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. "Tax equivalent yield" is that yield which a taxable investment must generate in order to equal a Fund's yield for an investor in a stated federal or combined federal/state income tax bracket (normally assumed to be the maximum tax rate or combined rate). Tax equivalent yield is computed by dividing that portion of the yield which is tax-exempt by one minus the stated income tax rate, and adding the resulting amount to that portion, if any, of the yield which is not tax-exempt. "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. "Tax equivalent distribution rate" is computed by dividing the portion of the distribution rate (determined as described above) which is tax-exempt by one minus the stated federal or combined federal/state income tax rate, and adding to the resulting amount that portion, if any, of the distribution rate which is not tax-exempt. 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 C Shares of a Fund will normally be higher than for the Class A and Class B Shares because Class C Shares are not subject to the sales charges and distribution expenses applicable to Class A and Class B Shares. In reports or other communications to shareholders and in advertising material, the performance of each Fund may be compared to recognized unmanaged indices or averages of the performance of similar securities. 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. 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. MUNICIPAL BONDS AND OTHER MUNICIPAL OBLIGATIONS As described under "Investment Objectives and Policies," each of the Funds invests principally in municipal bonds and other municipal obligations. These bonds and other obligations are issued by the states and by their local and special-purpose political subdivisions. The term "municipal bond" as used in this Prospectus includes short-term municipal notes issued by the states and their political subdivisions. MUNICIPAL BONDS. The two general classifications of municipal bonds are "general obligation" bonds and "revenue" bonds. General obligation bonds are secured by the governmental issuer's pledge of its faith, credit and taxing power for the payment of principal and interest. They are usually paid from general revenues of the issuing governmental entity. Revenue bonds, on the other hand, are usually payable only out of a specific revenue source rather than from general revenues. Revenue bonds ordinarily are not backed by the faith, credit or general taxing power of the issuing governmental entity. The principal and interest on revenue bonds for private facilities are typically paid out of rents or other specified payments made to the issuing governmental entity by a private company which uses or operates the facilities. Examples of these types of obligations are industrial revenue bonds and pollution control revenue bonds. Industrial revenue bonds are issued by governmental entities to provide financing aid to community facilities such as hospitals, hotels, business or residential complexes, convention halls and sport complexes. Pollution control revenue bonds are issued to finance air, water and solids pollution control systems for privately operated industrial or commercial facilities. Revenue bonds for private facilities usually do not represent a pledge of the credit, general revenues or taxing powers of the issuing governmental entity. Instead, the private company operating the facility is the sole source of payment of the obligation. Sometimes, the funds for payment of revenue bonds come solely from revenue generated by operation of the facility. Revenue bonds which are not backed by the credit of the issuing governmental entity frequently provide a higher rate of return than other municipal obligations, but they entail greater risk than obligations which are guaranteed by a governmental unit with taxing power. Federal income tax laws place substantial limitations on industrial revenue bonds, and particularly certain specified private activity bonds issued after August 7, 1986. In the future, legislation could be introduced in Congress which could further restrict or eliminate the income tax exemption for interest on debt obligations in which the Funds may invest. MUNICIPAL LEASES. Each Fund also may purchase participation interests in municipal leases. Participation interests in municipal leases are undivided interests in a lease, installment purchase contract or conditional sale contract entered into by a state or local governmental unit to acquire equipment or facilities. Municipal leases frequently have special risks which generally are not associated with general obligation bonds or revenue bonds. Municipal leases and installment purchase or conditional sale contracts (which usually provide for title to the leased asset to pass to the governmental issuer upon payment of all amounts due under the contract) have evolved as a means for governmental issuers to acquire property and equipment without meeting the constitutional and statutory requirements for the issuance of municipal debt. The debt-issuance limitations are deemed to be inapplicable because of the inclusion in many leases and contracts of "non-appropriation" clauses that provide that the governmental issuer has no obligation to make future payments under the lease or contract unless money is appropriated for this purpose by the appropriate legislative body on a yearly or other periodic basis. Although these kinds of obligations are secured by the leased equipment or facilities, the disposition of the pledged property in the event of non-appropriation or foreclosure might, in some cases, prove difficult and time-consuming. In addition, disposition upon non-appropriation or foreclosure might not result in recovery by a Fund of the full principal amount represented by an obligation. In light of these concerns, each Fund has adopted and follows procedures for determining whether municipal lease obligations purchased by the Fund are liquid and for monitoring the liquidity of municipal lease securities held in the Fund's portfolio. These procedures require that a number of factors be used in evaluating the liquidity of a municipal lease security, including the frequency of trades and quotes for the security, the number of dealers willing to purchase or sell the security and the number of other potential purchasers, the willingness of dealers to undertake to make a market in the security, the nature of the marketplace in which the security trades, and other factors which the Adviser may deem relevant. As described below under "-- Investment Restrictions," each Fund is subject to limitations on the percentage of illiquid securities it can hold. INSURANCE FOR MINNESOTA INSURED INTERMEDIATE TAX FREE FUND At least 65% of the tax-exempt obligations in the investment portfolio of Minnesota Insured Intermediate Tax Free Fund will consist of insured securities, escrow secured bonds or defeased bonds. The "insured securities" in this Fund's investment portfolio are insured as to the scheduled payment of all installments of principal and interest as they fall due. The purpose of this insurance is to minimize credit risk to this Fund and its shareholders associated with defaults in tax-exempt obligations owned by the Fund. However, insurance does not guarantee the market value of the securities in this Fund's investment portfolio, which will continue to fluctuate in response to changes in market interest rates. See "Investment Objectives and Policies -- Risks to Consider -- Interest Rate Risk." Therefore, the amount received upon redemption of shares of this Fund may be more or less than the original cost of the shares less any applicable sales charge paid in connection with the acquisition of such shares. Generally, except as noted above, each insured municipal obligation held by Minnesota Insured Intermediate Tax Free Fund will be covered by Original Issue Insurance, Secondary Market Insurance or Portfolio Insurance. "Original Issuance Insurance" is purchased by the issuer of a municipal obligation or by a third party at the time of original issuance of the obligation, while "Secondary Market Insurance" may be purchased by a third party (including Minnesota Insured Intermediate Tax Free Fund) subsequent to the original issuance of a municipal obligation. "Portfolio Insurance" is insurance purchased by Minnesota Insured Intermediate Tax Free Fund to cover municipal obligations while they are held in the Fund's portfolio. Premiums for Portfolio Insurance will be paid from the Fund's assets and will reduce the current yield on its investment portfolio by the amount of the premiums. The Fund's investment manager estimates that annual premiums for Portfolio Insurance would be less than .01% of the Fund's average daily net assets. Because Portfolio Insurance coverage would terminate upon the sale of an insured security by Minnesota Insured Intermediate Tax Free Fund, this kind of insurance would not have an effect on the resale value of the security. Therefore, the Fund generally will retain any such securities covered only by Portfolio Insurance which are in default or in significant risk of default and will place a value on the insurance equal to the difference between the market value of the defaulted security and the market value of similar securities which are not in default. Both Original Issue Insurance and Secondary Market Insurance are non-cancelable and continue in force as long as the insured security is outstanding and the applicable insurer remains in business. Minnesota Insured Intermediate Tax Free Fund may acquire securities that are already covered by Original Issue Insurance or Secondary Market Insurance without having to acquire additional insurance thereon, provided that the claims paying ability of the insurer is rated AAA or SP-1 by Standard & Poor's or Aaa or MIG-1 by Moody's or has been assigned an equivalent rating by another nationally recognized statistical rating organization. One of the purposes of these kinds of insurance is to enable the securities covered thereby to be sold as AAA or Aaa rated insured securities at a market price higher than might be obtained if the securities were not insured. Therefore, these kinds of insurance may be considered to represent an element of the market value of the securities insured. However, the exact effect, if any, on market value cannot be estimated. Secondary Market Insurance may be purchased by Minnesota Insured Intermediate Tax Free Fund if, in the opinion of the Fund's investment manager, the market value or net proceeds of a sale of the covered security by the Fund would exceed the current value of the security without insurance, plus the cost of the insurance. When the Fund purchases Secondary Market Insurance, the single premium is added to the cost basis of the security and is not considered an item of expense of the Fund. Any excess of a security's market value as an AAA or Aaa rated security over its market value without the insurance, including the single premium cost thereof, would inure to the Fund in determining the net capital gain or loss realized by the Fund upon the sale of the security. The investment policy of this Fund requiring insurance on investments applies only to tax-exempt obligations held by the Fund and will not affect the Fund's ability to hold its assets in cash or to invest in escrow secured and defeased bonds or in certain short-term tax-exempt obligations as described elsewhere herein, or its ability to invest in uninsured taxable obligations for temporary or liquidity purposes or on a defensive basis in accordance with the investment policies and restrictions of the Fund. Minnesota Insured Intermediate Tax Free Fund is authorized to obtain Portfolio Insurance from insurers that have obtained a claims-paying ability rating of AAA or SP-1 from Standard & Poor's or Aaa or MIG-1 from Moody's or an equivalent rating from another nationally recognized statistical rating organization. Such insurers may include AMBAC Indemnity Corporation ("AMBAC"), Municipal Bond Investors Assurance Corporation ("MBIA"), Financial Guaranty Insurance Company ("FGIC"), Financial Security Assurance, Inc. ("FSA"), or other companies meeting these criteria. For more information concerning Portfolio Insurance, see the Statement of Additional Information. TEMPORARY TAXABLE INVESTMENTS Each of the Funds may make temporary taxable investments as described under "Investment Objectives and Policies." Temporary taxable investments will include only the following types of obligations maturing within 13 months from the date of purchase: (i) obligations of the United States Government, its agencies and instrumentalities; (ii) commercial paper rated not less than 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; (iii) other short-term debt securities issued or guaranteed by corporations having outstanding debt rated not less than 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; (iv) certificates of deposit of domestic commercial banks subject to regulation by the United States Government or any of its agencies or instrumentalities, with assets of $500 million or more based on the most recent published reports; and (v) repurchase agreements with domestic banks or securities dealers involving any of the securities which the Fund is permitted to hold. See "-- Repurchase Agreements" below. REPURCHASE AGREEMENTS The temporary taxable investments which each Fund may make include 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 Adviser will monitor the creditworthiness of the firms with which the Funds enter into repurchase agreements. INVERSE FLOATING RATE OBLIGATIONS Each of the Funds may invest up to 5% of its net assets in inverse floating rate municipal obligations. An inverse floating rate obligation entitles the holder to receive interest at a rate which changes in the opposite direction from, and in the same magnitude as or in a multiple of, changes in a specified index rate. Although an inverse floating rate municipal obligation would tend to increase portfolio income during a period of generally decreasing market interest rates, its income and value would tend to decline during a period of generally increasing market interest rates. In addition, its decline in value may be greater than for a fixed-rate municipal obligation, particularly if the interest rate borne by the floating rate municipal obligation is adjusted by a multiple of changes in the specified index rate. For these reasons, inverse floating rate municipal obligations have more risk than more conventional fixed-rate and floating rate municipal obligations. WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS Each of the Funds 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. LENDING OF PORTFOLIO SECURITIES In order to generate additional income, each of the Funds may lend portfolio securities representing up to one-third of the value of its total assets to broker-dealers, banks or other institutional borrowers of securities. As with other extensions of credit, there may be risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail financially. However, the Funds will only enter into loan arrangements with broker-dealers, banks, or other institutions which the Adviser has determined are creditworthy under guidelines established by the Board of Directors. In these loan arrangements, the 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 in connection with these loans. OPTIONS TRANSACTIONS Each of the Funds may, in order to reduce risk, invest in exchange traded put and call options on interest rate futures contracts and on interest rate indices. Such investments will be made solely as a hedge against adverse changes resulting from market conditions in the values of securities held by the Funds or which they intend to purchase and where the transactions are deemed appropriate to reduce risks inherent in the Funds' portfolios or contemplated investments. None of the Funds 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 contract 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 (purchase price of the option) and the commission or other transaction expenses associated with acquiring the option. An interest rate futures contract provides for the future sale by one party and purchase by the other party of a certain amount of a specific financial instrument (debt security) at a specified price, date, time and place. An option on an interest rate futures contract, as contrasted with the direct investment in such a contract, gives the purchaser the right, in return for the premium paid, to purchase (in the case of a call option) or sell (in the case of a put option) an interest rate futures contract at a specified exercise price at any time prior to the expiration date of the option. In order to hedge its portfolio against anticipated changes in interest rates, a Fund might purchase a put option on an interest rate futures contract if interest rates were expected to rise, or might purchase a call option on an interest rate futures contract if rates were expected to decline. Options on interest rate indices are similar to options on interest rate futures contracts except that, rather than the right to take or make delivery of a specific financial instrument at a specified price, an option on an interest rate index gives the holder the right to receive, upon exercise of the option, a defined amount of cash if the closing value of the interest rate 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. Put and call options on interest rate indices thus may be used in a fashion similar to that of options on interest rate futures contracts to hedge the value of a portfolio of debt securities against anticipated changes in interest rates. The use of options on interest rate futures contracts and on interest rate indices involves certain risks. These include the risk that changes in interest rates on the hedged instruments may not correlate to changes in interest rates on the instrument or index upon which the hedge is based, 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. 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 Adviser. 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 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. * None of the Funds will mortgage, pledge or hypothecate its assets, except in an amount not exceeding 15% of the value of its total assets to secure temporary or emergency borrowing. * None of the Funds will make short sales of securities. * 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. * Intermediate Tax Free Fund will not invest 25% or more of the value of its total assets in obligations of issuers located in the same state (for this purpose, the location of an "issuer" shall be deemed to be the location of the entity the revenues of which are the primary source of payment or the location of the project or facility which may be the subject of the obligation). None of the Funds will invest 25% or more of the value of its total assets in revenue bonds or notes, payment for which comes from revenues from any one type of activity (for this purpose, the term "type of activity" shall include without limitation (i) sewage treatment and disposal; (ii) gas provision; (iii) electric power provision; (iv) water provision; (v) mass transportation systems; (vi) housing; (vii) hospitals; (viii) nursing homes; (ix) street development and repair; (x) toll roads; (xi) airport facilities; and (xii) educational facilities), except that, in circumstances in which other appropriate available investments may be in limited supply, such Funds may invest without limitation in gas provision, electric power provision, water provision, housing and hospital obligations. This restriction does not apply to general obligation bonds or notes or, in the case of Intermediate Tax Free Fund, to pollution control revenue bonds. However, in the case of the latter Fund, it is anticipated that normally (unless there are unusually favorable interest and market factors) less than 25% of such Fund's total assets will be invested in pollution control bonds. This restriction does not apply to securities of the United States Government or its agencies and instrumentalities or repurchase agreements relating thereto. 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 Securities and Exchange Commission rules and interpretations. Section 4(2) commercial paper may be determined to be "liquid" under guidelines adopted by the Board of Directors. Rule 144A securities may in the future be determined to be "liquid" under guidelines adopted by the Board of Directors if the current position of certain state securities regulators regarding such securities is modified. Investing in Rule 144A securities could have the effect of increasing the level of illiquidity in a Fund to the extent that qualified institutional buyers become, for a time, uninterested in purchasing these securities. FIRST AMERICAN INVESTMENT FUNDS, INC. 680 East Swedesford Road Wayne, Pennsylvania 19087 INVESTMENT ADVISER FIRST BANK NATIONAL ASSOCIATION 601 Second Avenue South Minneapolis, Minnesota 55402 CUSTODIAN FIRST TRUST NATIONAL ASSOCIATION 180 East Fifth Street St. Paul, Minnesota 55101 DISTRIBUTOR SEI FINANCIAL SERVICES COMPANY 680 East Swedesford Road Wayne, Pennsylvania 19087 ADMINISTRATOR SEI FINANCIAL MANAGEMENT CORPORATION 680 East Swedesford Road Wayne, Pennsylvania 19087 TRANSFER AGENT DST SYSTEMS, INC. 210 West 10th Street Kansas City, Missouri 64105 INDEPENDENT AUDITORS KPMG PEAT MARWICK LLP 90 South Seventh Street Minneapolis, Minnesota 55402 COUNSEL DORSEY & WHITNEY P.L.L.P. 220 South Sixth Street Minneapolis, Minnesota 55402 FAIF-1502 (1/96) I FIRST AMERICAN INVESTMENT FUNDS, INC. STATEMENT OF ADDITIONAL INFORMATION DATED JANUARY 31, 1996 STOCK FUND HEALTH SCIENCES FUND EQUITY INDEX FUND REAL ESTATE SECURITIES FUND BALANCED FUND INTERNATIONAL FUND ASSET ALLOCATION FUND LIMITED TERM INCOME FUND EQUITY INCOME FUND INTERMEDIATE TERM INCOME FUND DIVERSIFIED GROWTH FUND FIXED INCOME FUND EMERGING GROWTH FUND INTERMEDIATE GOVERNMENT BOND FUND REGIONAL EQUITY FUND INTERMEDIATE TAX FREE FUND SPECIAL EQUITY FUND MINNESOTA INSURED INTERMEDIATE TAX FREE FUND TECHNOLOGY FUND COLORADO INTERMEDIATE TAX FREE FUND This Statement of Additional Information relates to the Class A, Class B and Class C Shares of the funds named above (the "Funds"), each of which is a series of First American Investment Funds, Inc. ("FAIF"). This Statement of Additional Information is not a prospectus, but should be read in conjunction with the Funds' current Prospectuses dated January 31, 1996. This Statement of Additional Information is incorporated into the Funds' Prospectuses by reference. To obtain copies of a Prospectus, write or call the Funds' administrator SEI Financial Services Company, 680 East Swedesford Road, Wayne, Pennsylvania 19087, telephone: (800) 637-2548. Please retain this Statement of Additional Information for future reference. TABLE OF CONTENTS PAGE GENERAL INFORMATION 2 ADDITIONAL INFORMATION CONCERNING FUND INVESTMENTS 3 Short-Term Investments 3 Repurchase Agreements 3 When-Issued and Delayed-Delivery Transactions 3 Lending of Portfolio Securities 4 Options Transactions 4 Futures and Options on Futures 5 Foreign Securities 5 Foreign Currency Transactions 6 Mortgage-Backed Securities 7 Debt Obligations Rated Less Than Investment Grade 8 Special Factors Affecting Minnesota Insured Intermediate Tax Free Fund 9 Special Factors Affecting Colorado Intermediate Tax Free Fund 10 Insurance for Minnesota Insured Intermediate Tax Free Fund 13 CFTC Information 14 INVESTMENT RESTRICTIONS 15 DIRECTORS AND EXECUTIVE OFFICERS 18 Directors 18 Executive Officers 18 Compensation 19 INVESTMENT ADVISORY AND OTHER SERVICES 20 Investment Advisory Agreement 20 Sub-Advisory Agreement for International Fund 21 Administration Agreement 22 Distributor and Distribution Plans 22 Custodian; Transfer Agent; Counsel; Accountants 24 PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE 25 CAPITAL STOCK 28 NET ASSET VALUE AND PUBLIC OFFERING PRICE 33 FUND PERFORMANCE 36 SEC Standardized Performance Figures 36 Non-Standard Distribution Rates 39 Certain Performance Comparisons 41 TAXATION 43 RATINGS 45 FINANCIAL STATEMENTS F-1 GENERAL INFORMATION First American Investment Funds, Inc. ("FAIF") was incorporated in the State of Maryland on August 20, 1987 under the name "SECURAL Mutual Funds, Inc." The Board of Directors and shareholders, at meetings held January 10, 1991, and April 2, 1991, respectively, approved amendments to the Articles of Incorporation providing that the name "SECURAL Mutual Funds, Inc." be changed to "First American Investment Funds, Inc." FAIF is organized as a series fund and currently issues its shares in 20 series. Each series of shares represents a separate investment portfolio with its own investment objective and policies (in essence, a separate mutual fund). The series of FAIF to which this Statement of Additional Information relates are named on the cover hereof. These series are referred to in this Statement of Additional Information as the "Funds." Shareholders may purchase shares of each Fund through three separate classes, Class A, Class B and Class C, which provide for variations in distribution costs, voting rights and dividends. To the extent permitted by the Investment Company Act of 1940, the Funds may also provide for variations in other costs among the classes although they have no present intention to do so. In addition, a sales load is imposed on the sale of Class A and Class B Shares of the Funds. Except for differences among the classes pertaining to distribution costs, each share of each Fund represents an equal proportionate interest in that Fund. Class A and Class B Shares sometimes are referred to together as the "Retail Class Shares," and Class C Shares sometimes are referred to as the "Institutional Class Shares." FAIF has prepared and will provide Prospectuses relating to the Retail Class Shares and Prospectuses relating to the Institutional Class Shares of the Funds. These Prospectuses can be obtained by calling or writing SEI Financial Management Corporation at the address and telephone number set forth on the cover of this Statement of Additional Information. This Statement of Additional Information relates both to the Retail Class Prospectuses and to the Institutional Class Prospectuses for the Funds. It should be read in conjunction with the applicable Prospectus. Equity Income Fund and Diversified Growth Fund formerly were series of First American Mutual Funds (previously known as The Boulevard Funds). They became series of FAIF effective January 31, 1995, by means of an asset acquisition transaction. In addition, effective January 31, 1995, Limited Term Income Fund acquired the assets of Managed Income Fund in return for shares of Limited Term Income Fund. Prior to such transaction, Managed Income Fund also was a series of First American Mutual Funds. The Articles of Incorporation and Bylaws of FAIF provide that meetings of shareholders be held as determined by the Board of Directors and as required by the 1940 Act. Maryland corporation law requires a meeting of shareholders to be held upon the written request of shareholders holding 10% or more of the voting shares of FAIF, with the cost of preparing and mailing the notice of such meeting payable by the requesting shareholders. The 1940 Act requires a shareholder vote for all amendments to fundamental investment policies and restrictions, for approval of all investment advisory contracts and amendments thereto, and for all amendments to Rule 12b-1 distribution plans. ADDITIONAL INFORMATION CONCERNING FUND INVESTMENTS The investment objectives, policies and restrictions of the Funds are set forth in their respective Prospectuses. Additional information concerning the investments which may be made by the Funds is set forth under this caption. Additional information concerning the Funds' investment restrictions is set forth below under the caption "Investment Restrictions." SHORT-TERM INVESTMENTS Most of the Funds can invest in a variety of short-term instruments which are specified in the respective Prospectuses. A brief description of certain kinds of short-term instruments follows: COMMERCIAL PAPER. Commercial paper consists of unsecured promissory notes issued by corporations. Issues of commercial paper normally have maturities of less than nine months and fixed rates of return. Subject to the limitations described in the Prospectuses, the Funds may purchase commercial paper consisting of issues rated at the time of purchase within the two highest rating categories by Standard & Poor's Corporation ("Standard & Poor's") or Moody's Investors Service, Inc. ("Moody's"), or which have been assigned an equivalent rating by another nationally recognized statistical rating organization. The Funds also may invest in commercial paper that is not rated but that is determined by the Adviser to be of comparable quality to instruments that are so rated. For a description of the rating categories of Standard & Poor's and Moody's, see "Ratings" herein. BANKERS ACCEPTANCES. Bankers acceptances are credit instruments evidencing the obligation of a bank to pay a draft drawn on it by a customer. These instruments reflect the obligation both of the bank and of the drawer to pay the full amount of the instrument upon maturity. VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand notes are unsecured demand notes that permit the indebtedness thereunder to vary and provide for periodic adjustments in the interest rate according to the terms of the instrument. Because master demand notes are direct lending arrangements between a Fund and the issuer, they are not normally traded. Although there is no secondary market in the notes, a Fund may demand payment of principal and accrued interest at any time. While the notes are not typically rated by credit rating agencies, issuers of variable amount master demand notes (which are normally manufacturing, retail, financial, and other business concerns) must satisfy the same criteria as set forth above for commercial paper. The Adviser or Sub-Adviser will consider the earning power, cash flow, and other liquidity ratios of the issuers of such notes and will continuously monitor their financial status and ability to meet payment on demand. REPURCHASE AGREEMENTS The Funds may invest in repurchase agreements to the extent specified in their respective Prospectuses. The Funds' custodian will hold the securities underlying any repurchase agreement, or the securities will be part of the Federal Reserve/Treasury Book Entry System. The market value of the collateral underlying the repurchase agreement will be determined on each business day. If at any time the market value of the collateral falls below the repurchase price under the repurchase agreement (including any accrued interest), the appropriate Fund will promptly receive additional collateral (so the total collateral is an amount at least equal to the repurchase price plus accrued interest). WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS When a Fund agrees to purchase securities on a when-issued or delayed-delivery basis, the Custodian will set aside cash or liquid securities equal to the amount of the commitment in a separate account. Normally, the Custodian will set aside securities to satisfy the purchase commitment, and in that case, a Fund may be required subsequently to place additional assets in the separate account in order to assure that the value of the account remains equal to the amount of the Fund's commitments. It may be expected that a Fund's net assets will fluctuate to a greater degree when it sets aside securities to cover such purchase commitments than when it sets aside cash. In addition, because a Fund will set aside cash or liquid securities to satisfy its purchase commitments in the manner described above, its liquidity and the ability of the Adviser to manage it might be affected in the event its commitments to purchase when-issued or delayed-delivery securities ever exceeded 25% of the value of its assets. Under normal market conditions, however, a Fund's commitments to purchase when-issued or delayed-delivery securities will not exceed 25% of the value of its assets. LENDING OF PORTFOLIO SECURITIES When a Fund lends portfolio securities, it must receive 100% collateral as described in the Prospectuses. This collateral must be valued daily by the Adviser or Sub-Adviser and, if the market value of the loaned securities increases, the borrower must furnish additional collateral to the lending Fund. During the time portfolio securities are on loan, the borrower pays the lending Fund any dividends or interest paid on the securities. Loans are subject to termination by the lending Fund or the borrower at any time. While a Fund does not have the right to vote securities on loan, it would terminate the loan and regain the right to vote if that were considered important with respect to the investment. OPTIONS TRANSACTIONS OPTIONS ON SECURITIES. To the extent specified in the Prospectuses, Funds may purchase put and call options on securities and may write covered call options on securities which they own or have the right to acquire. A Fund may purchase put options to hedge against a decline in the value of its portfolio. By using put options in this way, a Fund would reduce any profit it might otherwise have realized in the underlying security by the amount of the premium paid for the put option and by transaction costs. In similar fashion, Fund may purchase call options to hedge against an increase in the price of securities that the Fund anticipates purchasing in the future. The premium paid for the call option plus any transaction costs will reduce the benefit, if any, realized by the Fund upon exercise of the option, and, unless the price of the underlying security rises sufficiently, the option may expire unexercised. The writer (seller) of a call option has no control over when the underlying securities must be sold; the writer may be assigned an exercise notice at any time prior to the termination of the option. If a call option is exercised, the writer experiences a profit or loss from the sale of the underlying security. The writer of a call option that wishes to terminate its obligation may effect a "closing purchase transaction." This is accomplished by buying an option on the same security as the option previously written. If a Fund was unable to effect a closing purchase transaction in a secondary market, it would not be able to sell the underlying security until the option expires or it delivers the underlying security upon exercise. OPTIONS ON STOCK INDICES. Options on stock indices are similar to options on individual stocks except that, rather than the right to take or make delivery of stock at a specified price, an option on a stock index gives the holder the right to receive, upon exercise of the option, an amount of cash if the closing value of the stock index upon which the option is based is greater than, in the case of a call, or lesser than, in the case of a put, the exercise price of the option. This amount of cash is equal to the difference between the closing price of the index and the exercise price of the option expressed in dollars times a specified multiple (the "multiplier"). The writer of the option is obligated, in return for the premium received, to make delivery of this amount. Unlike stock options, all settlements for stock index options are in cash, and gain or loss depends on price movements in the stock market generally (or in a particular industry or segment of the market) rather than price movements in individual stocks. The multiplier for an index option performs a function similar to the unit of trading for a stock option. It determines the total dollar value per contract of each point in the difference between the underlying stock index. A multiplier of 100 means that a one-point difference will yield $100. Options on different stock indices may have different multipliers. OPTIONS ON INTEREST RATE INDICES. An option on an interest rate index gives the holder the right to receive, upon exercise of the option, an amount of cash if the closing value of the interest rate index upon which the option is based is greater than, in the case of a call, or lesser than, in the case of a put, the exercise price of the option. This amount of cash is equal to the difference between the closing price of the index and the exercise price of the option expressed in dollars times a specified multiple (the "multiplier"). The writer of the option is obligated, for the premium received, to make delivery of this amount. Unlike interest rate futures options contracts, settlements for interest rate index options are always in cash. Gain or loss depends on price movements in the interest rate movements with respect to specific financial instruments. As with stock index options, the multiplier for interest rate index options determines the total dollar value per contract of each point in the difference between the exercise price of an option and the current value of the underlying interest rate index. Options on different interest rate indices may have different multipliers. FUTURES AND OPTIONS ON FUTURES As discussed in the Prospectuses, certain of the Funds may enter into futures contracts and may purchase options on futures contracts of various types. These investment techniques are designed primarily to hedge against anticipated future changes in market conditions or foreign exchange rates which otherwise might adversely affect the value of securities which a Fund holds or intends to purchase. The types of futures and options on futures which particular Funds may utilize are described in the applicable Prospectuses. At the same time a futures contract is purchased or sold, a Fund generally must allocate cash or securities as a deposit payment ("initial deposit"). It is expected that the initial deposit would be approximately 1-1/2% to 5% of a contract's face value. Daily thereafter, the futures contract is valued and the payment of "variation margin" may be required, since each day the Fund would provide or receive cash that reflects any decline or increase in the contract's value. Futures transactions also involve brokerage costs and require a Fund to segregate liquid assets, such as cash, United States Government securities or other liquid high grade debt obligations, to cover its performance under such contracts. A Fund may lose the expected benefit of futures transactions if interest rates, securities prices or foreign exchange rates 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 and foreign currencies, limiting the Fund's ability to hedge effectively against interest rate, foreign exchange rate and/or market risk and giving rise to additional risks. Because of the low margin requirements in the futures markets, they may be subject to market forces, including speculative activity, which do not affect the cash markets. There also is no assurance of liquidity in the secondary market for purposes of closing out futures positions. FOREIGN SECURITIES As described in the applicable Prospectuses, under normal market conditions International Fund invests principally in foreign securities, and certain other Funds 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. Fixed commissions on foreign securities exchanges are generally higher than negotiated commissions on United States exchanges. Foreign markets also have different clearance and settlement procedures, and in some markets there have been times when settlements have been unable to keep pace with the volume of securities transactions, making it difficult to conduct such transactions. Delays in settlement could result in temporary periods when a portion of the assets of International Fund is uninvested. In addition, settlement problems could cause International Fund to miss attractive investment opportunities or to incur losses due to an inability to sell or deliver securities in a timely fashion. In the event of a default by an issuer of foreign securities, it may be more difficult for a Fund to obtain or to enforce a judgment against the issuer. FOREIGN CURRENCY TRANSACTIONS As described in the applicable Prospectuses, International Fund may engage in a variety of foreign currency transactions in connection with its investment activities. These include forward foreign currency exchange contracts, foreign currency futures, and foreign currency options. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency exchange contract involves an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time of the contract. These contracts are traded directly between currency traders (usually large commercial banks) and their customers. International Fund will not enter into such forward contracts or maintain a net exposure in such contracts where the Fund would be obligated to deliver an amount of foreign currency in excess of the value of the Fund's securities or other assets denominated in that currency. The Fund will comply with applicable Securities and Exchange Commission announcements requiring it to segregate assets to cover the Fund's commitments with respect to such contracts. At the present time, these announcements generally require a fund with a long position in a forward foreign currency contract to establish with its custodian a segregated account containing cash or liquid high grade debt securities equal to the purchase price of the contract, and require a fund with a short position in a forward foreign currency contract to establish with its custodian a segregated account containing cash or liquid high grade debt securities that, when added to any margin deposit, equal the market value of the currency underlying the forward contract. These requirements will not apply where a forward contract is used in connection with the settlement of investment purchases or sales or where the position has been "covered" by entering into an offsetting position. The Fund generally will not enter into a forward contract with a term longer than one year. FOREIGN CURRENCY FUTURES TRANSACTIONS. Unlike forward foreign currency exchange contracts, foreign currency futures contracts and options on foreign currency futures contracts are standardized as to amount and delivery period and may be traded on boards of trade and commodities exchanges or directly with a dealer which makes a market in such contracts and options. It is anticipated that such contracts may provide greater liquidity and lower cost than forward foreign currency exchange contracts. As part of its financial futures transactions, International Fund may use foreign currency futures contracts and options on such futures contracts. Through the purchase or sale of such contracts, the Fund may be able to achieve many of the same objectives as through forward foreign currency exchange contracts more effectively and possibly at a lower cost. FOREIGN CURRENCY OPTIONS. A foreign currency option provides the option buyer with the right to buy or sell a stated amount of foreign currency at the exercise price at a specified date or during the option period. A call option gives its owner the right, but not the obligation, to buy the currency, while a put option gives its owner the right, but not the obligation, to sell the currency. The option seller (writer) is obligated to fulfill the terms of the option sold if it is exercised. However, either seller or buyer may close its position during the option period in the secondary market for such options at any time prior to expiration. A foreign currency call option rises in value if the underlying currency appreciates. Conversely, a foreign currency put option rises in value if the underlying currency depreciates. While purchasing a foreign currency option may protect International Fund against an adverse movement in the value of a foreign currency, it would not limit the gain which might result from a favorable movement in the value of the currency. For example, if the Fund were holding securities denominated in an appreciating foreign currency and had purchased a foreign currency put to hedge against a decline in the value of the currency, it would not have to exercise its put. In such an event, however, the amount of the Fund's gain would be offset in part by the premium paid for the option. Similarly, if the Fund entered into a contract to purchase a security denominated in a foreign currency and purchased a foreign currency call to hedge against a rise in the value of the currency between the date of purchase and the settlement date, the Fund would not need to exercise its call if the currency instead depreciated in value. In such a case, the Fund could acquire the amount of foreign currency needed for settlement in the spot market at a lower price than the exercise price of the option. MORTGAGE-BACKED SECURITIES As described in the applicable Prospectuses, Limited Term Income Fund, Intermediate Term Income Fund, Fixed Income Fund and Balanced Fund also invest in mortgage-backed securities. Each of these Funds will invest only in mortgage-backed securities which are Agency Pass-Through Certificates or collateralized mortgage obligations ("CMOs"), as defined and described in those Prospectuses. Agency Pass-Through Certificates are issued or guaranteed by the Government National Mortgage Association ("GNMA"), the Federal National Mortgage Association ("FNMA"), or the Federal Home Loan Mortgage Corporation ("FHLMC"). GNMA is a wholly-owned corporate instrumentality of the United States within the Department of Housing and Urban Development. The guarantee of GNMA with respect to GNMA certificates is backed by the full faith and credit of the United States, and GNMA is authorized to borrow from the United States Treasury in an amount which is at any time sufficient to enable GNMA, with no limitation as to amount, to perform its guarantee. FNMA is a federally chartered and privately owned corporation organized and existing under federal law. Although the Secretary of the Treasury of the United States has discretionary authority to lend funds to FNMA, neither the United States nor any agency thereof is obligated to finance FNMA's operations or to assist FBMA in any other manner. FHLMC is a federally chartered corporation organized and existing under federal law, the common stock of which is owned by the Federal Home Loan Banks. Neither the United States nor any agency thereof is obligated to finance FNMA's operations or to assist FBMA in any other manner. The residential mortgage loans evidenced by Agency Pass-Through Certificates and upon which CMOs are based generally are secured by first mortgages on one- to four-family residential dwellings. Such mortgage loans generally have final maturities ranging from 15 to 30 years and provide for monthly payments in amounts sufficient to amortize their original principal amounts by the maturity dates. Thus, each monthly payment on such mortgage loans generally includes both an interest component and a principal component, so that the holder of the mortgage loans receives both interest and a partial return of principal in each monthly payment. In general, such mortgage loans can be prepaid by the borrowers at any time without any prepayment penalty. In addition, many such mortgage loans contain a "due-on-sale" clause requiring the loans to be repaid in full upon the sale of the property securing the loans. Because residential mortgage loans generally provide for monthly amortization and may be prepaid in full at any time, the weighted average maturity of a pool of residential mortgage loans is likely to be substantially shorter than its stated final maturity date. The rate at which a pool of residential mortgage loans is prepaid may be influenced by many factors and is not predictable with precisions. As stated in the applicable Prospectuses, 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. For example: * In a sequential-pay CMO structure, one class is entitled to receive all principal payments and prepayments on the underlying mortgage loans (and interest on unpaid principal) until the principal of the class is repaid in full, while the remaining classes receive only interest; when the first class is repaid in full, a second class becomes entitled to receive all principal payments and prepayments on the underlying mortgage loans until the class is repaid in full, and so forth. * A planned amortization class ("PAC") of CMOs is entitled to receive principal on a stated schedule to the extent that it is available from the underlying mortgage loans, thus providing a greater (but not absolute) degree of certainty as to the schedule upon which principal will be repaid. * An accrual class of CMOs provides for interest to accrue and be added to principal (but not be paid currently) until specified payments have been made on prior classes, at which time the principal of the accrual class (including the accrued interest which was added to principal) and interest thereon begins to be paid from payments on the underlying mortgage loans. * As discussed above with respect to Agency Pass-Through Certificates, an interest-only class of CMOs entitles the holder to receive all of the interest and none of the principal on the underlying mortgage loans, while a principal-only class of CMOs entitles the holder to receive all of the principal payments and prepayments and none of the interest on the underlying mortgage loans. * A floating rate class of CMOs entitles the holder to receive interest at a rate which changes in the same direction and magnitude as changes in a specified index rate. An inverse floating rate class of CMOs entitles the holder to receive interest at a rate which changes in the opposite direction from, and in the same magnitude as or in a multiple of, changes in a specified index rate. Floating rate and inverse floating rate classes also may be subject to "caps" and "floors" on adjustments to the interest rates which they bear. * A subordinated class of CMOs is subordinated in right of payment to one or more other classes. Such a subordinated class provides some or all of the credit support for the classes that are senior to it by absorbing losses on the underlying mortgage loans before the senior classes absorb any losses. A subordinated class which is subordinated to one or more classes but senior to one or more other classes is sometimes referred to as a "mezzanine" class. A subordinated class generally carries a lower rating than the classes that are senior to it, but may still carry an investment grade rating. DEBT OBLIGATIONS RATED LESS THAN INVESTMENT GRADE As described in the applicable Prospectuses, the "equity securities" in which Equity Income Fund may invest include corporate debt obligations which are convertible into common stock. These convertible debt obligations may include obligations rated 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. Debt obligations rated BB, B or CCC by Standard & Poor's or Ba, B or Caa by Moody's are considered to be less than "investment grade" and are sometimes referred to as "junk bonds." The limitations on investments by Equity Income Fund in less than investment grade convertible debt obligations are set forth in the applicable Prospectuses. Purchases of less than investment grade corporate debt obligations generally involve greater risks than purchases of higher rated obligations. Less than investment grade debt obligations are especially subject to adverse changes in general economic conditions and to changes in the financial condition of their issuers. During periods of economic downturn or rising interest rates, issuers of such obligations may experience financial stress that could adversely affect their ability to make payments of principal and interest and increase the possibility of default. Yields on less than investment grade debt obligations will fluctuate over time. The prices of such obligations have been found to be less sensitive to interest rate changes than higher rated obligations, but more sensitive to adverse economic changes or individual corporate developments. Also, during an economic downturn or period of rising interest rates, highly leveraged issuers may experience financial stress which could adversely affect their ability to service principal and interest payment obligations, to meet projected business goals, and to obtain additional financing. In addition, periods of economic uncertainty and changes can be expected to result in increased volatility of market prices of less than investment grade debt obligations. In addition, the secondary trading market for less than investment grade debt obligations may be less developed than the market for investment grade obligations. This may make it more difficult for Equity Income Fund to value and dispose of such obligations. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the values and liquidity of less than investment grade obligations, especially in a thin secondary trading market. Certain risks also are associated with the use of credit ratings as a method for evaluating less than investment grade debt obligations. For example, credit ratings evaluate the safety of principal and interest payments, not the market value risk of such obligations. In addition, credit rating agencies may not timely change credit ratings to reflect current events. Thus, the success of Equity Income Fund's use of less than investment grade convertible debt obligations may be more dependent on the Adviser's own credit analysis than is the case with investment grade obligations. SPECIAL FACTORS AFFECTING MINNESOTA INSURED INTERMEDIATE TAX FREE FUND As described in the Prospectuses relating to Minnesota Insured Intermediate Tax Free Fund, except during temporary defensive periods, this Fund will invest most of its total assets in Minnesota municipal obligations. In addition, Limited Term Tax Free Fund may invest up to 50% of its total assets in obligations of issuers located in Minnesota. These Funds therefore are susceptible to political, economic and regulatory factors affecting issuers of Minnesota municipal obligations. The following information provides only a brief summary of the complex factors affecting the financial situation in Minnesota. This information is derived from sources that are generally available to investors and is based in part on information obtained from various state and local agencies in Minnesota. It should be noted that the creditworthiness of obligations issued by local Minnesota issuers may be unrelated to the creditworthiness of obligations issued by the State of Minnesota, and that there is no obligation on the part of Minnesota to make payment on such local obligations in the event of default. MINNESOTA FISCAL CONDITION. Minnesota's constitutionally prescribed fiscal period is a biennium, and Minnesota operates on a biennial budget basis. Legislative appropriations for each biennium are prepared and adopted during the final legislative session of the immediately preceding biennium. Prior to each fiscal year of a biennium, Minnesota's Department of Finance allots a portion of the applicable biennial appropriation to each agency or other entity for which an appropriation has been made. An agency or other entity may not expend moneys in excess of its allotment. If revenues are insufficient to balance total available resources and expenditures, Minnesota's Commissioner of Finance, with the approval of the Governor, is required to reduce allotments to the extent necessary to balance expenditures and forecasted available resources for the then current biennium. The Governor may prefer legislative action when a large reduction in expenditures appears necessary, and if Minnesota's legislature is not in session the Governor is empowered to convene a special session. Frequently in recent years, legislation has been required to eliminate projected budget deficits by raising additional revenue, reducing expenditures, including aids to political subdivisions and higher education, reducing the State's budget reserve, imposing a sales tax on purchases by local governmental units, and making other budgetary adjustments. The Minnesota Department of Finance has projected that the State will complete its current biennium June 30, 1997 with a $350 million cash flow account balance plus a $204 million budget reserve. Total General Fund expenditures and transfers for the biennium were projected to be $18.2 billion. State expenditures for education finance (K-12), post-secondary education, and human services in the biennium ending June 30, 1997 are not anticipated to be sufficient to maintain current program levels. Although it is not possible to anticipate economic performance four years into the future, planning estimates (extrapolations) for the biennium ending June 30, 1999 show a substantial General Fund deficit of $812 million, after funding a $350 million cash flow account plus a $204 million budget reserve, if current law is not changed. This indicates the likelihood of additional revenue increases or spending cuts relative to current law. The State is party to a variety of civil actions that could adversely affect the State's General Fund. In addition, substantial portions of State and local revenues are derived from federal expenditures, and reductions in federal aid to the State and its political subdivisions and other federal spending cuts may have substantial adverse effects on the economic and fiscal condition of the State and its local governmental units. Risks are inherent in making revenue and expenditure forecasts. Economic or fiscal conditions less favorable than those reflected in State budget forecasts and planning estimates may create additional budgetary pressures. State grants and aids represent a large percentage of the total revenues of cities, towns, counties and school districts in Minnesota. Even with respect to bonds that are revenue obligations of the issuer and not general obligations of Minnesota, there can be no assurance that the fiscal problems referred to above will not adversely affect the market value or marketability of the bonds or the ability of the respective obligors to pay interest on and principal of the bonds. MINNESOTA ECONOMY. Minnesota relies heavily on a progressive individual income tax and a retail sales tax for revenue, which results in a fiscal system unusually sensitive to economic conditions. In 1993, the structure of Minnesota's economy closely paralleled the structure of the United States economy as a whole. State employment in ten major sectors was distributed in approximately the same proportions as national employment. During the period from 1980 to 1990, overall employment growth in Minnesota lagged behind national growth; total employment in Minnesota increased 17.9% while increasing 20.1% nationally. Most of Minnesota's relatively slower growth during this period is associated with declining agricul-tural employment and with the two recessions in the United States economy occurring in the early 1980s which were more severe in Minnesota than nationwide. Minnesota non-farm employment growth generally kept pace with the nation after the end of the 1981-82 recession. Employment data through 1994 indicate the recession which began in July 1990 was less severe in Minnesota than in the national economy. During 1993, 1994 and the first five months of 1995, the State's monthly unemployment rate was generally less than the national unemployment rate, averaging 5.1% in 1993 as compared to the national average of 7.4%, 4.0% in 1994 as compared to the national average of 6.1%, and 3.9% for the first five months of 1995 as compared to the national average of 5.8%. Since 1980, Minnesota per capita personal income has been within three percentage points of national per capita personal income. Minnesota per capita income has generally remained above the national average during this period in spite of the early 1980s recessions and some difficult years in agriculture. In 1994, Minnesota per capita income was 103.0% of the national average. During 1993-1994, personal income in Minnesota grew more rapidly than the United States average, with a growth of 8.04% in Minnesota as compared to a United States average of 5.89%. Between 1990 and 1994, Minnesota non-agricultural employment increased 8.5%, compared to a national average of 4.2%. Between 1983 and 1994, increases in retail sales in Minnesota averaged 6.4% per year, compounded. There can be no assurance that Minnesota's economy and fiscal condition will not materially change in the future or that future difficulties will not occur. Economic difficulties and the resultant impact on state and local government finances may adversely affect the market value of obligations in the portfolio of Minnesota Insured Intermediate Tax Free Fund or the ability of respective obligors to make timely payment of the principal and interest on such obligations. SPECIAL FACTORS AFFECTING COLORADO INTERMEDIATE TAX FREE FUND As described in the Prospectuses relating to Colorado Intermediate Tax Free Fund, except during temporary defensive periods, this Fund will invest most of its total assets in Colorado municipal obligations. Colorado Intermediate Tax Free Fund therefore is susceptible to political, economic and regulatory factors affecting issuers of Colorado municipal obligations. The following information provides only a brief summary of the complex factors affecting the financial situation in Colorado. This information is derived from sources that are generally available to investors and is based in part on information obtained from various state and local agencies in Colorado. It should be noted that the creditworthiness of obligations issued by local Colorado issuers may be unrelated to the creditworthiness of obligations issued by the State of Colorado, and that there is no obligation on the part of Colorado to make payment on such local obligations in the event of default. COLORADO FISCAL CONDITION. The Colorado Constitution allocates to the General Assembly legislative responsibility for appropriating State moneys to pay the expenses of State government. The fiscal year of the State is the 12-month period commencing July 1 and ending June 30. During the fiscal year for which appropriations have been made, the General Assembly may increase or decrease appropriations through supplementary appropriations. State general fund tax collections for fiscal year 1994-95 increased 6.5% over fiscal year 1993-94 to reach $3,996.3 million. The current estimate for fiscal year 1995-96 is $4,156.5 million, or an increase of 4.0%. State cash funds, which consist of a variety of program revenues, totalled $1,762.9 million for fiscal year 1994-95, and are projected to increase 3.8% for fiscal year 1995-96 to $1,829.9 million. The State Constitution requires that expenditures for any fiscal year not exceed revenues for such fiscal year. In addition, Article X, Section 20, of the State Constitution (see "-- State Constitutional Amendment" below) limits increases in expenditures of state general funds and cash revenues from year to year to the sum of State inflation plus the percentage change in population (adjusted for revenue changes approved by voters). Expenditures in fiscal year 1995-96 are limited to an increase of no more than 7.0% over 1994-95 expenditures. The 7.0% increase factor is equal to the sum of 1994 inflation of 4.4% and population growth of 2.6%. Based upon total general fund tax collections and state cash revenues for fiscal year 1994-95 of $5,759.2 million, expenditures for 1995-96 will be limited to $6,162.3 million. STATE CONSTITUTIONAL AMENDMENT. Section 20, Article X of the Colorado Constitution ("Amendment One") contains limitations on the ability of "Districts," which are defined as Colorado State and local governments, to increase taxes and issue debt obligations, as well as limitations on spending and revenue generation. The amendment does not apply to "Enterprises," which are defined as government-owned businesses that are authorized to issue their own revenue bonds and that receive under 10% of annual revenues in grants from all state and local governments combined. Amendment One limits the ability of Districts to increase taxes by providing that advance voter approval is required for "any new tax, tax rate increase, mill levy above that for the prior year, valuation for assessment ratio increase for a property class, or extension of an expiring tax, or a tax policy change directly causing a net tax revenue gain to any district." An additional limitation is placed on the maximum annual percentage increase in property tax revenue. Amendment One also imposes limitations on government borrowing. The amendment provides that Districts must have advance voter approval for the "creation of any multiple-fiscal year direct or indirect district debt or other financial obligation whatsoever without adequate present cash reserves pledged irrevocably and held for payments in all future fiscal years," except for refinancing District bonded debt at a lower interest rate or adding new employees to existing District pension plans. Prior to the adoption of Amendment One, voter approval was generally required only for the creation of general obligation debt. Spending limitations applicable to the State and separately to local governments are also included in Amendment One. The amendment provides that the maximum annual percentage change in each local District's Fiscal Year Spending shall equal inflation in the prior calendar year plus annual local growth, adjusted for revenue changes approved by voters after 1991 and certain other allowed adjustments. "Fiscal Year Spending" is defined as all District expenditures and reserve increases except refunds made in the current or next fiscal year, gifts, federal funds, collections for another government, pension contributions by employees and pension fund earnings, reserve transfers or expenditures, damage awards and property sales. If revenue from sources not excluded from Fiscal Year Spending exceeds the spending limit for a fiscal year, Amendment One provides that the excess must be refunded in the next fiscal year unless voters approve a revenue change as an offset. Elections required under Amendment One are limited to the State general election (the first Tuesday after the first Monday in November in even numbered years), an election held on the first Tuesday in November in odd numbered years, or the regular biennial election of the local government. While it is too early to determine what impacts Amendment One will ultimately have on the financial operations of Colorado state and local governments, the new constraints on budgetary and debt management flexibility may create credit concerns. Furthermore, the language of Amendment One is not clear as to certain matters, including (a) whether property tax rates can be increased without voter approval to support outstanding or refunding general obligation bonds, (b) whether new lease rental bonds and certificates of participation constitute multiple-year financial obligations within the context of the amendment, and (c) the precise definition of exempt Enterprises. A number of Colorado courts have rendered decisions regarding various provisions of Amendment One since its passage. However, there are still many uncertainties as to the appropriate construction of certain provisions of Amendment One. In view of the fact that no appellate court has ruled on Amendment One comprehensively, there can still be no assurrance as to the appropriate construction of certain provisions of Amendment One. COLORADO ECONOMY. Since 1960, the Colorado economy has moved generally with the cycles of the national economy, while experiencing greater growth than the national economy during upturns and more gradual declines during downturns. During this period, structural changes have transformed both the United States and the State economies. At the national level, the number of basic industry jobs (mining, manufacturing and construction) declined substantially as a percentage of the total private industry work force -- 44.6% in 1960 to 20.7% in 1994, while at the State level, the number of basic industry jobs declined from 26.5% in 1960 to 17.3% in 1994. The difference in the rate of decline can be attributed to the State's industrial mix, which excludes many industries such as automobile, steel and textile manufacturing that experienced the steepest national declines. The sustained economic growth Colorado achieved during the 1960s and 1970s was curtailed by the national recession in 1974 and 1975, reflecting the State's general movement with the United States' economy. The recession produced marked declines in employment and income growth in the State, although at rates lower than the national economy. The Colorado economy rebounded strongly in the late 1970s. As a result of energy price increases in 1979 and 1980, job expansion in oil and mineral extraction industries accelerated. Expansion in the oil industry resulted in growth in related services and employment which stimulated, in part, substantial increases in nonresidential construction in the Denver metropolitan area. During the second half of 1985, the performance of Colorado's economy was adversely affected primarily because three sectors of the local economy suffered setbacks at the same time. First, the energy sector contracted during each of the preceding five years due, in part, to price decreases of imported oil resulting in less domestic oil production. Domestic exploration, and, in some cases, production, had become unprofitable. This trend was reflected in cutbacks in both oil and gas and mineral extraction industry employment. Second, a major high technology manufacturer (Storage Technology Corporation) laid off nearly 5,000 workers during 1984 and 1985. The high-technology industry generally declined due to overexpansion which produced keen price competition. Third, after years of healthy growth, excess supply in both residential and nonresidential construction sectors decreased employment in the construction sector. In the nonresidential sector, this over-building occurred partially as a result of the downturn in oil industry employment, which reduced demand for office space. In the residential sector, the excess supply of housing resulted from a sharp reduction in in-migration and over-building. The Colorado economy began to recover and showed positive signs of growth in 1987, which became more evident in the following years. More recently, the national recession and the restructuring of the defense industry have affected the State economy. However, at the end of 1993, the State economy appeared somewhat healthier than the national economy, based on a number of economic indicators. During 1994, 79,000 new non-agricultural wage and salary jobs were added to the state's economy, representing a state job growth rate of 4.7%, compared to a 2.0% job growth rate nationally during this same period of time. Colorado's job growth is projected at 3.1% during 1995. Colorado's unemployment rate decreased from 5.2% in 1993 to 4.2% in 1994, and is expected to drop as low as 4.0% in 1995. Colorado's 1994 unemployment rate was significantly below the national unemployment rate of 6.1% during the same time period. Total personal income in Colorado during 1995 is projected to reach $87.6 billion, an increase of 7.4% compared to 1994. During 1994, total United States personal income was estimated to have increased 6.1%. Preliminary estimates for Colorado personal income predict an annual growth rate of 6.9% for 1996. Total population in Colorado increased by 92,300 during 1994, resulting in a growth rate of 2.6%. The preliminary estimate for total population increase for 1995 is 73,200 or 2%. INSURANCE FOR MINNESOTA INSURED INTERMEDIATE TAX FREE FUND Minnesota Insured Fund is authorized to obtain Portfolio Insurance from insurers that have obtained a claims-paying ability of "AAA" (or a short-term rating of "SP-1") from Standard & Poor's or "Aaa" (or a short-term rating of "MIG-1") from Moody's or an equivalent rating from another nationally recognized statistical rating organization. Such insurers may include AMBAC Indemnity Corporation ("AMBAC"), Municipal Bond Investors Assurance Corporation ("MBIA"), Financial Guaranty Insurance Company ("FGIC"), Financial Security Assurance, Inc. ("FSA"), or other companies meeting the foregoing criteria. Any Portfolio Insurance policy obtained by Minnesota Insured Fund would be effective only so long as Minnesota Insured Fund is in existence, the insurer is still in business and the municipal obligations described in the policy continue to be held by Minnesota Insured Fund. In the event of a sale of any municipal obligation by Minnesota Insured Fund or payment thereof prior to maturity, a Portfolio Insurance policy would terminate as to such municipal obligation on the settlement date of the sale or the redemption date. Under a Portfolio Insurance policy, the insurer would unconditionally guarantee to Minnesota Insured Fund the timely payment of principal and interest on the municipal obligations as such payments become due but are not paid by the issuer, except that in the event of any acceleration of the due date of the principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed will be made in such amounts and at such times as payments of principal would have been due and there had not been any such acceleration. Such a policy would not insure against loss of any prepayment premium that may at any time be payable with respect to any municipal obligation. It also would not insure against loss relating to: (i) optional or mandatory redemptions (other than mandatory sinking fund redemptions); (ii) any payments to be made on an accelerated basis; (iii) payments of the purchase price of municipal obligations upon tender by an owner thereof; or (iv) any preference relating to (i) through (iii) above. It also would not insure against nonpayment of principal of or interest on the municipal obligations resulting from the insolvency, negligence or any other act or omission of the paying agent for the municipal obligations. AMBAC is a Wisconsin-domiciled stock insurance corporation regulated by the Office of the Commissioner of Insurance of the State of Wisconsin and licensed to do business in 50 states, the District of Columbia and the Commonwealth of Puerto Rico, with admitted assets (unaudited) of approximately $2.230 billion and statutory capital (unaudited) of approximately $1.260 billion as of June 30, 1995. Statutory capital consists of AMBAC's statutory contingency reserve and policyholders' surplus. Copies of AMBAC's financial statements prepared in accordance with statutory accounting standards are available from AMBAC. The address of AMBAC's administrative offices is One State Street Plaza, 17th Floor, New York, New York 10004. MBIA is a limited liability corporation domiciled in the State of New York and licensed to do business in all 50 states, the District of Columbia and the Commonwealth of Puerto Rico. As of June 30, 1995, MBIA had admitted assets of $3.6 billion (unaudited), total liabilities of $2.4 billion (unaudited) and total capital and surplus of $1.2 billion (unaudited) determined in accordance with statutory accounting principles prescribed or permitted by insurance regulatory authorities. Copies of MBIA's year end financial statements are available from MBIA. The address of MBIA is 113 King Street, Armonk, New York 10504. FGIC is a monoline financial guaranty insurer domiciled in the State of New York and subject to regulation by the State of New York Insurance Department. As of June 30, 1995, the total capital and surplus of FGIC was approximately $871.8 million. FGIC prepares financial statements on the basis of both statutory accounting principles and generally accepted accounting principles. Copies of such financial statements may be obtained by writing to FGIC at 115 Broadway, New York, New York 10006, Attention: Communications Department. FSA is a monoline insurance company incorporated under the laws of the State of New York. FSA is licensed directly or through its subsidiaries to engage in financial guaranty insurance business in all 50 states, the District of Columbia, Puerto Rico and the United Kingdom. As of September 30, 1995 the total policyholders' surplus and contingency reserves and the total unearned premium reserve, respectively, of FSA and its consolidated subsidiaries were, in accordance with statutory accounting principles, approximately $495.0 million (unaudited) and $250.5 million (unaudited), and the total shareholders' equity and total unearned premium reserve, respectively, of FSA and its consolidated subsidiaries were, in accordance with generally accepted accounting principles, approximately $590.5 million (unaudited) and $206.0 million (unaudited). The principal executive offices of FSA are located at 350 Park Avenue, New York, New York 10022. The information relating to AMBAC, MBIA, FGIC and FSA set forth above has been obtained from publicly available sources. No representation is made as to the accuracy or adequacy of such information. CFTC INFORMATION The Commodity Futures Trading Commission (the "CFTC"), a federal agency, regulates trading activity pursuant to the Commodity Exchange Act, as amended. The CFTC requires the registration of "commodity pool operators," which are defined as any person engaged in a business which is of the nature of an investment trust, syndicate or a similar form of enterprise, and who, in connection therewith, solicits, accepts or receives from others funds, securities or property for the purpose of trading in any commodity for future delivery on or subject to the rules of any contract market. The CFTC has adopted Rule 4.5, which provides an exclusion from the definition of commodity pool operator for any registered investment company which (i) will use commodity futures or commodity options contracts solely for bona fide hedging purposes (provided, however, that in the alternative, with respect to each long position in a commodity future or commodity option contract, an investment company may meet certain other tests set forth in Rule 4.5); (ii) will not enter into commodity futures and commodity options contracts for which the aggregate initial margin and premiums exceed 5% of its assets; (iii) will not be marketed to the public as a commodity pool or as a vehicle for investing in commodity interests; (iv) will disclose to its investors the purposes of and limitations on its commodity interest trading; and (v) will submit to special calls of the CFTC for information. Any investment company desiring to claim this exclusion must file a notice of eligibility with both the CFTC and the National Futures Association. FAIF has made such notice filings with respect to those Funds which may invest in commodity futures or commodity options contracts. INVESTMENT RESTRICTIONS In addition to the investment objectives and policies set forth in the Prospectuses and under the caption "Additional Information Concerning Fund Investments" above, each of the Funds is subject to the investment restrictions set forth below. The investment restrictions set forth in paragraphs 1 through 9 below are fundamental and cannot be changed with respect to a Fund without approval by the holders of a majority of the outstanding shares of that Fund as defined in the Investment Company Act of 1940, as amended (the "1940 Act"), i.e., by the lesser of the vote of (a) 67% of the shares of the Fund present at a meeting where more than 50% of the outstanding shares are present in person or by proxy, or (b) more than 50% of the outstanding shares of the Fund. None of the Funds will: 1. Except for Intermediate Tax Free Fund, Minnesota Insured Intermediate Tax Free Fund, and Colorado Intermediate Tax Free Fund (collectively, the "Tax Free Funds") and for Technology Fund and Health Sciences Fund, invest in any securities if, as a result, 25% or more of the value of its total assets would be invested in the securities of issuers conducting their principal business activities in any one industry, except that Real Estate Securities Fund will invest without restriction in issuers principally engaged in the real estate industry. Intermediate Tax Free Fund will not invest 25% or more of the value of its total assets in obligations of issuers located in the same state (for this purpose, the location of an "issuer" shall be deemed to be the location of the entity the revenues of which are the primary source of payment of the location of the project or facility which may be the subject of the obligation). None of the Tax Free Funds will invest 25% or more of the value of its total assets in revenue bonds or notes, payment for which comes from revenues from any one type of activity (for this purpose, the term "type of activity" shall include without limitation (i) sewage treatment and disposal; (ii) gas provision; (iii) electric power provision; (iv) water provision; (v) mass transportation systems; (vi) housing; (vii) hospitals; (viii) nursing homes; (ix) street development and repair; (x) toll roads; (xi) airport facilities; and (xii) educational facilities), except that, in circumstances in which other appropriate available investments may be in limited supply, such Funds may invest without limitation in gas provision, electric power provision, water provision, housing and hospital obligations. This restriction does not apply to general obligation bonds or notes or, in the case of Intermediate Tax Free Fund, to pollution control revenue bonds. However, in the case of the latter Fund, it it anticipated that normally (unless there are unusually favorable interest and market factors) less than 25% of such Fund's total assets will be invested in pollution control bonds. This restriction does not apply to securities of the United States Government or its agencies and instrumentalities or repurchase agreements relating thereto. 2. Issue any senior securities (as defined in the 1940 Act), other than as set forth in restriction number 3 below and except to the extent that using options or purchasing securities on a when-issued basis may be deemed to constitute issuing a senior security. 3. Borrow money, except from banks for temporary or emergency purposes. The amount of such borrowing may not exceed 10% of the borrowing Fund's total assets, except for Asset Allocation Fund, which may borrow in amounts not to exceed 33-1/3% of its 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. (As a non-fundamental policy, no Fund will make additional investments while its borrowings exceed 5% of total assets.) 4. Mortgage, pledge or hypothecate its assets, except in an amount not exceeding 15% of the value of its total assets to secure temporary or emergency borrowing. 5. Make short sales of securities. 6. Purchase any securities on margin except to obtain such short-term credits as may be necessary for the clearance of transactions and except, in the case of Emerging 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. 7. Purchase or sell physical commodities (including, by way of example and not by way of limitation, grains, oilseeds, livestock, meat, food, fiber, metals, petroleum, petroleum-based products or natural gas) or futures or options contracts with respect to physical commodities. This restriction whall not restrict any Fund from purchasing or selling any financial contracts or instruments which may be deemed commodities (including, by way of example and not by way of limitation, options, futures and options on futures with respect, in each case, to interest rates, currencies, stock indices, bond indices or interest rate indices) or any security which is collateralized or otherwise backed by physical commodities. 8. Purchase or sell real estate or real estate mortgage loans, except that the Funds may invest in securities secured by real estate or interests therein or issued by companies that invest in or hold real estate or interests therein, and except that Intermediate Government Bond Fund, Intermediate Tax Free Fund, Fixed Income Fund, Intermediate Term Income Fund, Limited Term Income Fund, Balanced Fund, Asset Allocation Fund, Minnesota Insured Intermediate Tax Free Fund, Colorado Intermediate Tax Free Fund, Emerging Growth Fund, Technology Fund, Health Sciences Fund, Real Estate Securities Fund, and International Fund may invest in mortgage-backed securities. 9. Act as an underwriter of securities of other issuers, except to the extent a Fund may be deemed to be an underwriter, under Federal securities laws, in connection with the disposition of portfolio securities. The following restrictions are non-fundamental and may be changed by FAIF's Board of Directors without shareholder vote. None of the Funds will: 10. Invest more than 15% of its net assets in all forms of illiquid investments, as determined pursuant to applicable Securities and Exchange Commission rules and interpretations. 11. Invest in any securities, if as a result more than 5% of the value of its total assets is invested in the securities of any issuers (other than, in the case of Real Estate Securities Fund, publicly traded real estate investment trusts) which, with their predecessors, have a record of less than three years continuous operation. (Securities of any of such issuers will not be deemed to fall within this limitation if they are guraranteed by an entity which has been in continuous operation for more than three years.) 12. Invest for the purpose of exercising control or management. 13. Purchase or sell real estate limited partnership interests (other than, in the case of Real Estate Securities Fund, publicly traded real estate limited partnership interests), or oil, gas or other mineral leases, rights or royalty contracts, except that the Funds may purchase or sell securities of companies which invest in or hold the foregoing. 14. Purchase securities of any other registered investment company (as defined in the 1940 Act), except, subject to 1940 Act limitations, (a) the Tax Free Funds may purchase shares of open-end investment companies investing primarily in municipal obligations with remaining maturities of 13 months or less; (b) International Fund may purchase shares of open-end investment companies which invest in permitted investments for such Fund; (c) each of Stock Fund, Equity Index Fund, Balanced Fund, Asset Allocation Fund, Equity Income Fund, Diversified Growth Fund, Emerging Growth Fund, Regional Equity Fund, Special Equity Fund, Technology Fund, Health Sciences Fund, Real Estate Securities Fund, and International Fund may, as part of its investment in cash items, invest in securities of other mutual funds which invest primarily in debt obligations with remaining maturities of 13 months or less; and (d) all Funds may purchase securities as part of a merger, consolidation, reorganization or acquisition of assets. Further, so long as its shares are registered for sale in the state of California, Intermediate Tax Free Fund will invest in securities of other open-end investment companies primarily for the purpose of investing short-term cash on a temporary basis; in addition, the Fund will waive its advisory fee on any portion of its assets invested in other open-end investment companies. 15. Lend any of their assets, except portfolio securities representing up to one-third of the value of their total assets. 16. Invest in foreign securities, except that (a) Limited Term Income Fund, Intermediate Term Income Fund, and Fixed Income Fund each may invest up to 15% of its total assets in foreign securities payable in United States Dollars; (b) Stock Fund, Balanced Fund, Equity Income Fund, Diversified Growth Fund, Emerging Growth Fund, Special Equity Fund, Technology Fund, and Health Sciences Fund each may invest 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; and (c) International Fund may invest in foreign securities without limitation. 17. Except for International Fund, invest in warrants; provided, that the other Funds except for the Tax Free Funds may invest in warrants in an amount not exceeding 5% of a Fund's net assets. No more than 2% of this 5% may be warrants which are not listed on the New York Stock Exchange. For determining compliance with its investment restriction relating to industry concentration, each Fund classifies asset-backed securities in its portfolio in separate industries based upon a combination of the industry of the issuer or sponsor and the type of collateral. The industry of the issuer or sponsor and the type of collateral will be determined by the Adviser. For example, an asset-backed security known as "Money Store 94D A2" would be classified as follows: the issuer or sponsor of the security is The Money Store, a personal finance company, and the collateral underlying the security is automobile receivables. Therefore, the industry classification would be Personal Finance Companies -- Automobile. Similarly, an asset-backed security known as "Midlantic Automobile Grantor Trust 1992-1 B" would be classified as follows: the issuer or sponsor of the security is Midlantic National Bank, a banking organization, and the collateral underlying the security is automobile receivables. Therefore, the industry classification would be Banks -- Automobile. Thus, an issuer or sponsor may be included in more than one "industry" classification, as may a particular type of collateral. DIRECTORS AND EXECUTIVE OFFICERS The directors and executive officers of FAIF are listed below, together with their business addresses and their principal occupations during the past five years. Mr. Eastman is an "interested director" (as that term is defined in the 1940 Act) of FAIF. DIRECTORS Robert J. Dayton, 5140 Norwest Center, Minneapolis, Minnesota 55402: Director of FAIF since September 1994 and of First American Funds, Inc. ("FAF") since December 1994; Chairman (1989-1993) and Chief Executive Officer (1993-present), Okabena Company (private family investment office). Welles B. Eastman, 998 Shady Lane, Wayzata, Minnesota 55391: Director of FAF since January 1990 and of FAIF since April 1991; Chairman of the Board of Directors of Annandale State Bank, Annandale, Minnesota; Vice President of the Adviser from 1968 and Vice President of the Institutional Trust Group of First Trust National Association from 1986 until his retirement in December 1988 from such positions. Irving D. Fish, 901 Marquette, Suite 3200, Minneapolis, Minnesota 55402: Director of FAF since 1984 and of FAIF since April 1991; Partner and Chief Financial Officer of Fallon McElligott, Inc., a Minneapolis-based advertising agency. Leonard W. Kedrowski, 16 Dellwood Avenue, Dellwood, Minnesota 55110: Director of FAIF and FAF since November 1993; Vice President, Chief Financial Officer, Treasurer, Secretary and Director of Anderson Corporation from 1983 to October 1992. Joseph D. Strauss, 8617 Edenbrook Crossing, # 443, Brooklyn Park, Minnesota 55443: Director of FAF since 1984 and of FAIF since April 1991; Chairman of FAF's and FAIF's Boards since 1992; President of FAF and FAIF from June 1989 to November 1989; Owner and President, Strauss Management Company, since 1993; Owner and President, Community Resource Partnerships, Inc. since 1992; attorney-at-law. Virginia L. Stringer, 712 Linwood Avenue, St. Paul, Minnesota 55105: Director of FAIF since August 1987 and of FAF since April 1991; Owner and President, Strategic Management Resources, Inc. since 1993; formerly President and Director of The Inventure Group, a management consulting and training company, President of Scott's, Inc., a transportation company, and Vice President of Human Resources of The Pillsbury Company. Gae B. Veit, P.O. Box 6, Loretto, Minnesota 55357: Director of FAIF and FAF since December 7, 1993; owner and CEO of Shingobee Builders, Inc., a general contractor. EXECUTIVE OFFICERS David Lee, SEI Corporation, 680 East Swedesford Road, Wayne, Pennsylvania 19087: President of FAIF and FAF since April 1994; Senior Vice President and Assistant Secretary of FAF and FAIF beginning June 1, 1993; Senior Vice President of SEI Financial Services Company (the "Distributor") since 1991; President, GW Sierra Trust Funds prior to 1991. Carmen V. Romeo, SEI Corporation, 680 East Swedesford Road, Wayne, Pennsylvania 19087: Treasurer and Assistant Secretary of FAIF and FAF beginning November 1992; Director, Executive Vice President, Chief Financial Officer and Treasurer of SEI Corporation ("SEI"), SEI Financial Management Corporation (the "Administrator") and the Distributor since 1981. Kevin P. Robins, SEI Corporation, 680 East Swedesford Road, Wayne, Pennsylvania 19087: Vice President and Assistant Secretary of FAIF and FAF since April 1994; Vice President, Assistant Secretary and General Counsel of the Administrator and the Distributor. Kathryn Stanton, SEI Corporation, 680 East Swedesford Road, Wayne, Pennsylvania 19087: Vice President and Assistant Secretary of FAIF and FAF since April 1994; Vice President and Assistant Secretary of the Administrator and the Distributor since April 1994; Associate, Morgan, Lewis & Bockius, from 1989 to 1994. Sandra K. Orlow, SEI Corporation, 680 East Swedesford Road, Wayne, Pennsylvania 19087: Vice President and Assistant Secretary of FAIF and FAF since 1992; Vice President and Assistant Secretary of SEI, the Administrator and the Distributor since 1983. Robert B. Carroll, SEI Corporation, 680 East Swedesford Road, Wayne, Pennsylvania 19087: Vice President and Assistant Secretary of FAIF and FAF since September 1994; Vice President and Assistant Secretary of SEI, the Administrator and the Distributor since 1994; Division of Investment Management, United States Securities and Exchange Commission, from 1990 to 1994; Associate, McGuire, Woods, Brattle & Boothe, before 1990. Stephen G. Meyer, SEI Corporation, 680 East Swedesford Road, Wayne, Pennsylvania 19087: Controller of FAIF and FAF since March 1995; Director of Internal Audit and Risk Management of SEI from 1992 to 1995; Senior Associate, Coopers & Lybrand, from 1990 to 1992. Michael J. Radmer, 220 South Sixth Street, Minneapolis, Minnesota 55402: Secretary of FAIF since April 1991 and of FAF since 1981; Partner, Dorsey & Whitney P.L.L.P., a Minneapolis-based law firm and general counsel of FAIF and FAF. COMPENSATION The First American Family of Funds, which includes FAIF and FAF, currently pays only to directors of the funds who are not paid employees or affiliates of the funds a fee of $8,400 per year plus $1,400 ($2,800 in the case of the Chairman) per meeting of the Board attended and $400 per committee meeting attended and reimburses travel expenses of directors and officers to attend Board meetings. Legal fees and expenses are also paid to Dorsey & Whitney P.L.L.P., the law firm of which Michael J. Radmer, secretary of FAIF and FAF, is a partner. The following table sets forth information concerning aggregate compensation paid to each director of FAIF (i) by FAIF (column 2), and (ii) by FAIF and FAF collectively (column 5) during the fiscal year ended September 30, 1995. No executive officer or affiliated person of FAIF had aggregate compensation from FAIF in excess of $60,000 during such fiscal year:
(1) (2) (3) (4) (5) Total Compensation Aggregate Pension or Retirement Estimated From Registrant and Name of Compensation Benefits Accrued as Annual Benefits Fund Complex Person, Position From Registrant Part of Fund Expenses Upon Retirement Paid to Directors Robert J. Dayton, Director $ 4,784 -0- -0- $14,800 Welles B. Eastman, Director $ 5,371 -0- -0- $17,000 Irving D. Fish, Director $ 4,976 -0- -0- $15,800 Leonard W. Kedrowski, Director $ 5,371 -0- -0- $17,000 Joseph D. Strauss, Director $11,615 -0- -0- $35,600 Virginia L. Stringer, Director $ 5,501 -0- -0- $17,400 Gae B. Veit, Director $ 5,106 -0- -0- $16,200
INVESTMENT ADVISORY AND OTHER SERVICES INVESTMENT ADVISORY AGREEMENT First Bank National Association (the "Adviser"), 601 Second Avenue South, Minneapolis, Minnesota 55480, serves as the investment adviser and manager of the Funds through its First Asset Management group. The Adviser is a national banking association that has professionally managed accounts for individuals, insurance companies, foundations, commingled accounts, trust funds, and others for over 75 years. The Adviser is a subsidiary of First Bank System, Inc. ("FBS"), 601 Second Avenue South, Minneapolis, Minnesota 55480, which is a regional bank holding company headquartered in Minneapolis, Minnesota. FBS is comprised of 9 banks and several trust and nonbank subsidiaries, with 220 offices primarily in Minnesota, Colorado, Illinois, Montana, North Dakota, South Dakota and Wisconsin. Through its subsidiaries, FBS provides commercial and agricultural finance, consumer banking, trust, capital markets, cash management, investment management, data processing, leasing, mortgage banking and brokerage services. Pursuant to an Investment Advisory Agreement dated April 2, 1991 (the "Advisory Agreement"), the Funds engage the Adviser to act as investment adviser for and to manage the investment of the assets of the Funds. Each Fund other than International Fund pays the Adviser monthly fees calculated on an annual basis equal to 0.70% of of its average daily net assets. International Fund pays the Adviser monthly fees calculated on an annual basis equal to 1.25% of of its average daily net assets. Prior to August 1994, the Advisory Agreement provided for Intermediate Government Bond Fund, Intermediate Tax Free Fund and Fixed Income Fund to pay an advisory fee calculated on an annual basis as a percentage of average daily net assets of 0.50% on the first $100 million of net assets, 0.40% on the next $150 million of net assets and 0.30% on net assets of over $250 million, and for Stock Fund and Special Equity Fund to pay an advisory fee calculated on such basis of 0.70% on the first $100 of net assets, 0.60% on the next $150 million of net assets, 0.50% on the next $250 million of net assets and 0.40% on net assets of over $500 million. Prior to March 28, 1994, Diversified Growth Fund and Equity Income Fund were advised by Boulevard Bank National Association pursuant to an investment advisory agreement which provided for such Funds to pay annual advisory fees equal to 0.75% of their respective average daily net assets. The Advisory Agreement requires the Adviser to provide FAIF with all necessary office space, personnel and facilities necessary and incident to the Adviser's performance of its services thereunder. The Adviser is responsible for the payment of all compensation to personnel of FAIF and the officers and directors of FAIF, if any, who are affiliated with the Adviser or any of its affiliates. The Advisory Agreement provides that each Fund will be reimbursed by the Adviser, in an amount not in excess of the advisory fees payable by such Fund, for excess fund expenses as may be required by the laws of certain states in which the Fund's shares may be offered for sale. As of the date of this Statement of Additional Information, the most restrictive state limitation in effect requires that "aggregate annual expenses" (which include the investment advisory fee and other operating expenses but exclude interest, taxes, brokerage commissions, Rule 12b-1 fees and certain other expenses) shall not exceed 2-1/2% of the first $30 million of average net assets, 2% of the next $70 million of average net assets and 1-1/2% of the remaining average net assets of a Fund for any fiscal year. In addition to the investment advisory fee, each Fund pays all its expenses that are not expressly assumed by the Adviser or any other organization with which the Fund may enter into an agreement for the performance of services. Each Fund is liable for such nonrecurring expenses as may arise, including litigation to which the Fund may be a party, and it may have an obligation to indemnify its directors and officers with respect to such litigation. The following table sets forth total advisory fees before waivers and after waivers for each of the Funds for the fiscal years ended September 30, 1993 (for all Funds other than Equity Income Fund and Diversified Growth Fund, whose first fiscal year ended November 30, 1993, and subsequently changed to September 30), September 30, 1994, and September 30, 1995:
YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, 1993 SEPTEMBER 30, 1994 SEPTEMBER 30, 1995 ADVISORY FEE ADVISORY FEE ADVISORY FEE ADVISORY FEE ADVISORY FEE ADVISORY FEE BEFORE WAIVERS AFTER WAIVERS BEFORE WAIVERS AFTER WAIVERS BEFORE WAIVERS AFTER WAIVERS Stock Fund $616,128 $ 378,696 $ 925,957 $ 629,919 $1,704,596 $1,377,513 Equity Index Fund 670,126 35,467 1,076,404 108,274 1,276,975 223,149 Balanced Fund 470,319 285,727 888,066 559,105 1,174,571 959,016 Asset Allocation Fund 304,187 185,599 374,173 214,891 299,411 210,895 Equity Income Fund 180,729 60,243 141,151 44,517 289,812 165,042 Diversified Growth Fund 205,299 100,976 169,473 72,518 574,300 367,357 Emerging Growth Fund * * 13,599 4,028 153,171 76,396 Regional Equity Fund 250,580 165,919 579,368 398,939 994,725 870,505 Special Equity Fund 380,240 247,718 737,795 515,305 1,240,586 1,158,848 Technology Fund * * 11,299 4,118 121,419 51,186 Health Sciences Fund * * * * * * Real Estate Securities Fund * * * * 8,078 0 International Fund * * 187,599 147,778 868,706 824,596 Limited Term Income Fund 697,257 292,743 673,117 303,024 748,504 379,177 Intermediate Term Income Fund 321,613 170,703 444,603 193,338 572,967 393,264 Fixed Income Fund 188,427 123,243 338,471 201,828 1,394,513 945,687 Intermediate Government Bond Fund 9,422 (8,730) 36,960 (3,017) 565,522 367,513 Intermediate Tax Free Fund 8,249 (10,393) 19,253 (5,438) 205,854 93,837 Minnesota Insured Inter- mediate Tax Free Fund * * 42,710 17,871 377,450 227,989 Colorado Intermediate Tax Free Fund * * 6,400 4,762 284,161 158,606
* Fund was not in operation during this fiscal year. SUB-ADVISORY AGREEMENT FOR INTERNATIONAL FUND Marvin & Palmer Associates, Inc., 1201 North Market Street, Suite 2300, Wilmington, Delaware 19801, is Sub-Adviser for International Fund under an agreement with the Adviser (the "Sub-Advisory Agreement"). The Sub-Adviser, a privately-held company, was founded in 1986 by David F. Marvin and Stanley Palmer. The Sub-Adviser is engaged in the management of global, non-United States and emerging markets equity portfolios for institutional accounts. At September 30, 1995, the Sub-Adviser managed a total of $3.1 billion in investments for 55 institutional investors. Pursuant to the Sub-Advisory Agreement, the Sub-Adviser is responsible for the investment and reinvestment of International Fund's assets and the placement of brokerage transactions in connection therewith. Under the Sub-Advisory Agreement, the Sub-Adviser is required, among other things, to report to the Adviser or the Board regularly at such times and in such detail as the Adviser or the Board may from time to time request in order to permit the Adviser and the Board to determine the adherence of International Fund to its investment objectives, policies and restrictions. The Sub-Advisory Agreement also requires the Sub-Adviser to provide all office space, personnel and facilities necessary and incident to the Sub-Adviser's performance of its services under the Sub-Advisory Agreement. The Sub-Adviser also acts as sub-adviser to Evergreen Emerging Markets Growth Equity Fund and Conestoga International Equity Fund. For its services under the Sub-Advisory Agreement, the Sub-Adviser is paid a monthly fee by the Adviser calculated on an annual basis equal to 0.75% of the first $100 million of International Fund's average daily net asets, 0.70% of the second $100 million of International Fund's average daily net assets, 0.65% of the third $100 million of International Fund's average daily net assets, and 0.60% of International Fund's average daily net assets in excess of $300 million. ADMINISTRATION AGREEMENT SEI Financial Management Corporation (the "Administrator") serves as administrator for the Funds pursuant to an Administration Agreement between it and the Funds. The Administrator is a wholly-owned subsidiary of SEI Corporation, which also owns the Funds' distributor. See "-- Distributor and Distribution Plans" below. Under the Administration Agreement, the Administrator provides administrative personnel and services to the Funds for a fee as described in the Funds' Prospectuses. These services include, among others, regulatory reporting, fund and portfolio accounting, shareholder reporting services, and compliance monitering services. Prior to June 10, 1994, Federated Administrative Services served as administrator for Diversified Growth Fund and Equity Income Fund. The following table sets forth total administrative fees, after waivers, paid by each of the Funds for the fiscal years ended September 30, 1993 (for all Funds other than Equity Income Fund and Diversified Growth Fund, whose first fiscal year ended November 30, 1993, and subsequently changed to September 30), September 30, 1994, and September 30, 1995:
YEAR ENDED YEAR ENDED YEAR ENDED SEPT. 30, 1993 SEPT. 30, 1994 SEPT. 30, 1995 Stock Fund $178,934 $ 251,561 $294,658 Equity Index Fund 191,465 268,851 225,545 Balanced Fund 134,377 237,891 200,402 Asset Allocation Fund 86,911 96,642 55,478 Equity Income Fund 20,937 9,212 55,267 Diversified Growth Fund 22,788 2,204 101,760 Emerging Growth Fund * (3,515) 50,000 Regional Equity Fund 71,594 154,447 168,525 Special Equity Fund 108,640 198,455 210,800 Technology Fund * (5,962) 50,000 Health Sciences Fund * * * Real Estate Securities Fund * * 12,603 International Fund * 26,814 89,791 Limited Term Income Fund 199,216 175,230 126,380 Intermediate Term Income Fund 91,889 114,428 98,013 Fixed Income Fund 75,371 110,363 233,555 Intermediate Government Bond Fund 3,769 11,943 100,551 Intermediate Tax Free Fund 3,300 9,527 50,199 Minnesota Insured Intermediate Tax Free Fund * (2,482) 68,304 Colorado Intermediate Tax Free Fund * (11,236) 56,486
* Fund was not in operation during this fiscal year. DISTRIBUTOR AND DISTRIBUTION PLANS SEI Financial Services Company (the "Distributor") serves as the distributor for the Class A, Class B and Class C Shares of each Fund. The Administrator is a wholly-owned subsidiary of SEI Corporation, which also owns the Funds' Administrator. See "-- Administration Agreement" above. The Distributor serves as distributor for the Class A and Class C Shares pursuant to a Distribution Agreement dated February 10, 1994 (the "Class A/Class C Distribution Agreement") between itself and the Funds, and as distributor for the Class B Shares pursuant to a Distribution and Service Agreement dated August 1, 1994, as amended September 14, 1994 (the "Class B Distribution and Service Agreement") between itself and the Funds. These agreements are referred to collectively as the "Distribution Agreements." Under the Distribution Agreements, the Distributor has agreed to perform all distribution services and functions of the Funds to the extent such services and functions are not provided to the Funds pursuant to another agreement. The Distribution Agreements provide that shares of the Funds are distributed through the Distributor and, with respect to Class A and Class B Shares, through securities firms, financial institutions (including, without limitation, banks) and other industry professionals (the "Participating Institutions") which enter into sales agreements with the Distributor to perform share distribution or shareholder support services. The Distributor receives no compensation for distribution of the Class C Shares. With respect to the Class A Shares, the Distributor receives all of the front-end sales charges paid upon purchase of the Funds' shares except for a portion (as disclosed in the Prospectuses) which may be re-allowed to Participating Institutions. The Distributor also receives any contingent deferred sales charges paid with respect so sales of Class A Shares with respect to which front-end sales charges were waived, as described in the Prospectuses. The Class A Shares of each Fund also pay a distribution fee to the Distributor monthly at the annual rate of 0.25% of each Fund's Class A average daily net assets, which fee may be used by the Distributor to provide compensation for sales support and distribution activities with respect to the Class A Shares. The Class B Shares of each Fund pay to the Distributor a sales support fee at an annual rate of 0.75% of the average daily net assets of the Class B Shares of such Fund, which fee may be used by the Distributor to provide compensation for sales support and distribution activities with respect to the Class B Shares. This fee is calculated and paid each month based on average daily net assets of Class B of each Fund for that month. In addition to this fee, the Distributor is paid a shareholder servicing fee at an annual rate of 0.25% of the average daily net assets of each Fund's Class B Shares pursuant to a service plan (the "Class B Service Plan"), which fee may be used by the Distributor to provide compensation for personal, ongoing service and/or maintenance of shareholder accounts with respect to the Class B Shares of a Fund. Although Class B Shares are sold without a front-end sales charge, the Distributor pays a total of 4.25% of the amount invested (including a pre-paid service fee of 0.25% of the amount invested) to dealers who sell Class B Shares (excluding exchanges from other Class B Shares in the First American family). The servicing fee payable under the Class B Service Plan is prepaid as described above. The Distribution Agreements provide that they will continue in effect for a period of more than one year from the date of their execution only so long as such continuance is specifically approved at least annually by the vote of a majority of the Board members of FAIF and by the vote of the majority of those Board members of FAIF who are not interested persons of FAIF and who have no direct or indirect financial interest in the operation of FAIF's Rule 12b-1 Plans of Distribution or in any agreement related to such Plans. FAIF has adopted Plans of Distribution with respect to the Class A and Class B Shares of the Funds, respectively, pursuant to Rule 12b-1 under the 1940 Act (collectively, the "Plans"). Rule 12b-1 provides in substance that a mutual fund may not engage directly or indirectly in financing any activity which is primarily intended to result in the sale of shares, except pursuant to a plan adopted under the Rule. The Plans authorize the Distributor to retain the sales charges paid upon purchase of Class A and Class B Shares. Each of the Plans is a "compensation-type" plan under which the Distributor is entitled to receive the distribution fee regardless of whether its actual distribution expenses are more or less than the amount of the fee. The Class B Plan authorizes the Distributor to retain the contingent deferred sales charge applied on redemptions of Class B Shares, except that portion which is reallowed to Participating Institutions. The Plans recognize that the Distributor, any Participating Institution, the Administrator, and the Adviser, in their discretion, may from time to time use their own assets to pay for certain additional costs of distributing Class A and Class B Shares. Any such arrangements to pay such additional costs may be commenced or discontinued by the Distributor, any Participating Institution, the Administrator, or the Adviser at any time. The following table sets forth (1) the total distribution fees, after waivers, paid by each of the Funds for the fiscal years ended September 30, 1993 (for all Funds other than Equity Income Fund and Diversified Growth Fund, whose first fiscal year ended November 30, 1993, and subsequently changed to September 30), September 30, 1994, and September 30, 1995, with respect to the Class A Shares of the Funds, and (2) the total distribution fees, after waivers, paid by each of the Funds for the fiscal years ended September 30, 1994, and September 30, 1995, with respect to the Class B Shares of the Funds. As noted above, no distribution fees are paid with respect to Class C Shares of the Funds.
YEAR ENDED YEAR ENDED YEAR ENDED SEPT. 30, 1993 SEPT. 30, 1994 SEPT. 30, 1995 CLASS A CLASS A CLASS B CLASS A CLASS B SHARES SHARES SHARES SHARES SHARES Stock Fund $ 0 $4,910 $204 $20,690 $24,481 Equity Index Fund 0 466 13 2,789 3,291 Balanced Fund 0 8,099 140 28,075 11,450 Asset Allocation Fund 0 470 9 1,533 2,220 Equity Income Fund 0 0 1 3,108 3,382 Diversified Growth Fund 0 0 11 3,503 2,020 Emerging Growth Fund * 0 16 331 965 Regional Equity Fund 0 5,763 81 21,635 22,185 Special Equity Fund 0 4,077 177 18,403 23,203 Technology Fund * 0 2 960 4,739 Health Sciences Fund * * * * * Real Estate Securities Fund * * * 0 0 International Fund * 0 16 1,099 1,229 Limited Term Income Fund 0 0 1 0 * Intermediate Term Income Fund 0 0 * 0 * Fixed Income Fund 0 0 59 11,797 24,078 Intermediate Government Bond Fund 0 0 * 0 * Intermediate Tax Free Fund 0 0 * 0 * Minnesota Insured Intermediate Tax Free Fund * 0 * 0 * Colorado Intermediate Tax Free Fund * 0 * 0 *
* Fund or class was not in operation during this fiscal year. For the fiscal years ended September 30, 1993, September 30, 1994, and September 30, 1995, the Distributor received $135,334, $701,251, and $56,437, respectively, in sales charges. CUSTODIAN; TRANSFER AGENT; COUNSEL; ACCOUNTANTS The custodian of the Funds' assets is First Trust National Association (the "Custodian"), First Trust Center, 180 East Fifth Street, St. Paul, Minnesota 55101. The Custodian is a subsidiary of First Bank System, Inc., which also owns the Adviser. The Custodian takes no part in determining the investment policies of the Funds or in deciding which securities are purchased or sold by the Funds. All of the instruments representing the investments of the Funds and all cash is held by the Custodian or, as described in the Prospectuses for International Fund, by a sub-custodian with respect to such Fund. The Custodian or such sub-custodian delivers securities against payment upon sale and pays for securities against delivery upon purchase. The Custodian also remits Fund assets in payment of Fund expenses, pursuant to instructions of FAIF's officers or resolutions of the Board of Directors. As compensation for its services to Stock Fund, Equity Index Fund, Balanced Fund, Asset Allocation Fund, Regional Equity Fund, Special Equity Fund, Limited Term Income Fund, Intermediate Term Income Fund, Fixed Income Fund, Intermediate Government Bond Fund and Mortgage Securities Fund, the Custodian is paid the following fees: (a) an annual administration fee of $750 per Fund; (b) an issue held fee, computed as of the end of each month, at the annual rate of $30 per securities issue held by each Fund; (c) transaction fees, consisting of (i) a securities buy/sell/maturity fee of $15 per each such transaction, and (ii) a payment received fee of $12 for each principal pay down payment received on collateralized mortgage pass-through instruments; (d) a wire transfer fee of $10 per transaction; (e) a cash management fee, for "sweeping" cash into overnight investments, at an annual rate of 0.25% of the amounts so invested; and (f) a remittance fee, for payment of each Fund's expenses, of $3.50 per each check drawn for such remittances. With respect to the remaining Funds, the Custodian is paid a monthly fee calculated on an annual basis equal to 0.03% (0.25% in the case of International Fund) of such Fund's average daily net assets. Sub-custodian fees with respect to International Fund are paid by the Custodian out of its fees from such Fund. In addition, the Custodian is reimbursed for its out-of-pocket expenses incurred while providing its services to the Funds. The Custodian continues to serve so long as its appointment is approved at least annually by the Board of Directors including a majority of the directors who are not interested persons (as defined under the 1940 Act) of FAIF. DST Systems, Inc., 210 West 10th Street, Kansas City, Missouri 64105, is transfer agent and dividend disbursing agent for the shares of the Funds. Dorsey & Whitney P.L.L.P., 220 South Sixth Street, Minneapolis, Minnesota 55402, is independent General Counsel for the Funds. KPMG Peat Marwick LLP, 90 South Seventh Street, Minneapolis, Minnesota 55402, acts as the Funds' independent auditors, providing audit services including audits of the annual financial statements and assistance and consultation in connection with SEC filings. PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE Decisions with respect to placement of the Funds' portfolio transactions are made by the Adviser or, in the case of International Fund, the Sub-Adviser. The Funds' policy is to seek to place portfolio transactions with brokers or dealers who will execute transactions as efficiently as possible and at the most favorable price. The Adviser or Sub-Adviser may, however, select a broker or dealer to effect a particular transaction without communicating with all brokers or dealers who might be able to effect such transaction because of the volatility of the market and the desire of the Adviser or Sub-Adviser to accept a particular price for a security because the price offered by the broker or dealer meets guidelines for profit, yield or both. Many of the portfolio transactions involve payment of a brokerage commission by the appropriate Fund. In some cases, transactions are with dealers or issuers who act as principal for their own accounts and not as brokers. Transactions effected on a principal basis are made without the payment of brokerage commissions but at net prices, which usually include a spread or markup. In effecting transactions in over-the-counter securities, the Funds deal with market makers unless it appears that better price and execution are available elsewhere. While the Adviser does not deem it practicable and in the Funds' best interest to solicit competitive bids for commission rates on each transaction, consideration will regularly be given by the Adviser to posted commission rates as well as to other information concerning the level of commissions charged on comparable transactions by other qualified brokers. The following table sets forth the aggregate brokerage commissions paid by each of the Funds during the fiscal years ended September 30, 1993 (for all Funds other than Equity Income Fund and Diversified Growth Fund, whose first fiscal year ended November 30, 1993, and subsequently changed to September 30), September 30, 1994, and September 30, 1995: YEAR ENDED YEAR ENDED YEAR ENDED SEPT. 30, 1993 SEPT. 30, 1994 SEPT, 30, 1995 Stock Fund $161,188 $261,742 $549,774 Equity Index Fund 55,884 69,675 48,310 Balanced Fund 71,478 118,715 187,224 Asset Allocation Fund 26,046 27,388 26,353 Equity Income Fund 34,709 24,246 Diversified Growth Fund 67,325 82,987 Emerging Growth Fund * 3,563 20,076 Regional Equity Fund 18,744 69,403 102,861 Special Equity Fund 267,314 438,181 545,209 Technology Fund * 5,791 21,126 Health Sciences Fund * * * Real Estate Securities Fund * * 16,261 International Fund * 190,085 405,632 Limited Term Income Fund 0 0 0 Intermediate Term Income Fund 0 0 0 Fixed Income Fund 0 0 0 Intermediate Government Bond Fund 0 0 0 Intermediate Tax Free Fund 100 0 0 Minnesota Insured Intermediate Tax Free Fund * 0 0 Colorado Intermediate Tax Free Fund * 0 0 * Fund was not in operation during this fiscal year. It is expected that International Fund will purchase most foreign equity securities in the over-the-counter markets or stock exchanges located in the countries in which the respective principal offices of the issuers of the various securities are located if that is the best available market. The fixed commissions paid in connection with most such foreign stock transactions generally are higher than negotiated commissions on United States transactions. There generally is less governmental supervision and regulation of foreign stock exchanges than in the United States. Foreign securities settlements may in some instances be subject to delays and related administrative uncertainties. Foreign equity securities may be held in the form of American Depotitary Receipts, or ADRs, European Depositary Receipts, or EDRs, or securities convertible into foreign equity securities. ADRs and EDRs may be listed on stock exchanges or traded in the over-the-counter markets in the United States or overseas. The foreign and domestic debt securities and money market instruments in which the Funds may invest are generaly traded in the over-the-counter markets. Subject to the policy of seeking favorable price and execution for the transaction size and risk involved, in selecting brokers and dealers other than the Distributor and determining commissions paid to them, the Adviser and, in the case of International Fund, the Sub-Adviser may consider ability to provide supplemental performance, statistical and other research information as well as computer hardware and software for research purpose for consideration, analysis and evaluation by the staff of the Adviser or Sub-Adviser. In accordance with this policy, the Funds do not execute brokerage transactions solely on the basis of the lowest commission rateavailable for a particular transaction. Subject to the requirements of favorable price and efficient execution, placement of orders by securities firms for the purchase of shares of the Funds may be taken into account as a factor in the allocation of portfolio transactions. Research services that may be received by the Adviser or Sub-Adviser would include advice, both directly and in writing, as to the value of securities, the advisability of investing in, purchasing, or selling securities, and the availability of securities or purchasers or sellers of securities, as well as analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy, and the performance of accounts. The research services may allow the Adviser or Sub-Adviser to supplement its own investment research activities and enable the Adviser or Sub-Adviser to obtain the views and information of individuals and research staffs of many different securities firms prior to making investment decisions for the Funds. To the extent portfolio transactions are effected with brokers and dealers who furnish research services, the Adviser or Sub-Adviser would receive a benefit, which is not capable of evaluation in dollar amounts, without providing any direct monetary benefit to the Funds from these transactions. Research services furnished by brokers and dealers used by the Funds for portfolio transactions may be utilized by the Adviser or Sub-Adviser in connection with investment services for other accounts and, likewise, research services provided by brokers and dealers used for transactions of other accounts may be utilized by the Adviser or Sub-Adviser in performing services for the Funds. The Adviser and Sub-Adviser determine the reasonableness of the commissions paid in relation to their view of the value of the brokerage and research services provided, considered in terms of the particular transactions and their overall responsibilities with respect to all accounts as to which they exercise investment discretion. The Adviser and Sub-Adviser have not entered into any formal or informal agreements with any broker or dealer, and do not maintain any "formula" that must be followed in connection with the placement of Fund portfolio transactions in exchange for research services provided to the Adviser or Sub-Adviser, except as noted below. The Adviser and Sub-Adviser may, from time to time, maintain an informal list of brokers and dealers that will be used as a general guide in the placement of Fund business in order to encourage certain brokers and dealers to provide the Adviser and Sub-Adviser with research services, which the Adviser or Sub-Adviser anticipates will be useful to it. Any list, if maintained, would be merely a general guide, which would be used only after the primary criteria for the selection of brokers and dealers (discussed above) had been met, and, accordingly, substantial deviations from the list could occur. The Adviser or Sub-Adviser would authorize the Funds to pay an amount of commission for effecting a securities transaction in excess of the amount of commission another broker or dealer would have charged only if the Adviser or Sub-Adviser determined in good faith that the amount of such commission was reasonable in relation to the value of the brokerage and research services provided by such broker or dealer, viewed in terms of either that particular transaction or the overall responsibilities of the Adviser or Sub-Adviser with respect to the Funds. The Funds do not effect any brokerage transactions in their portfolio securities with any broker or dealer affiliated directly or indirectly with the Adviser or the Distributor unless such transactions, including the frequency thereof, the receipt of commissions payable in connection therewith, and the selection of the affiliated broker or dealer effecting such transactions are not unfair or unreasonable to the shareholders of the Funds, as determined by the Board of Directors. Any transactions with an affiliated broker or dealer must be on terms that are both at least as favorable to the Funds as the Funds can obtain elsewhere and at least as favorable as such affiliated broker or dealer normally gives to others. When two or more clients of the Adviser or Sub-Adviser are simultaneously engaged in the purchase or sale of the same security, the prices and amounts are allocated in accordance with a formula considered by the Adviser or Sub-Adviser to be equitable to each client. In some cases, this system could have a detrimental effect on the price or volume of the security as far as each client is concerned. In other cases, however, the ability of the clients to participate in volume transactions may produce better executions for each client. CAPITAL STOCK As of October 31, 1995, the directors and officers of FAIF as a group owned less than one percent of each class of each Fund's outstanding shares. Health Sciences Fund was not in operation as of October 31, 1995. As of that date, the Funds were aware that the following persons owned of record five percent or more of the outstanding shares of each class of stock of the Funds.
PERCENTAGE OF OUTSTANDING SHARES CLASS A CLASS B CLASS C STOCK FUND Var & Co. 72.71% P.O. Box 64482 St. Paul, MN 55164 Diamond Retirement Plan 23.78% 180 East Fifth Street St. Paul, MN 55101 EQUITY INDEX FUND Var & Co. 95.91% P.O. Box 64482 St. Paul, MN 55164 Patricia R. Lund 1994 Unitrust 6.54% 1450 West Lake Street Minneapolis, MN 55408 Arlene F. Mathews 5.62% 1610 Winnie Helena, MT 59601 Southwest Securities Inc. FBO Peter and Terry Caserta 13.80% 1201 Elm Street, Suite 4300 Dallas, TX 75270 Shirley A. Johnson 12.58% 1260 Deer Pond Trail White Bear Lake, MN 55110 BALANCED FUND None ASSET ALLOCATION FUND Var & Co. 87.39% P.O. Box 64482 St. Paul, MN 55164 Diamond Retirement Plan 12.01% 180 East Fifth Street St. Paul, MN 55101 First Bank NA Custodian of William B. Harlan IRA 7.27% 130 Fontana Court Lady Lake, FL 32159 First Bank NA Custodian of Peter Schifano IRA 7.60% 21005 George Hunt Circle, Unite 1119 Waukesha, WI 53186 EQUITY INCOME FUND Var & Co. 99.78% P.O. Box 64482 St. Paul, MN 55164 Kenmar B. Jauss and William C. Jauss 7.81% 246 Maple Avenue Wilmette, IL 60091 First Bank NA Custodian of Russell C. Eidal IRA 7.69% 305 Cherry Hills Way Colorado Springs, CO 80921 William F. Arndt 7.29% 1665 Oakton Place, Unit 514 Des Plaines, IL 60018 First Bank NA Custodian of Thomas O. Erghart Jr. IRA 5.89% P.O. Box 457 Hovland, MN 55606 DIVERSIFIED GROWTH FUND Var & Co. 99.53% P.O. Box 64482 St. Paul, MN 55164 EMERGING GROWTH FUND Var & Co. 97.99% P.O. Box 64482 St. Paul, MN 55164 Adele S. Merck Custodian George F. Mead Merck UGTMA 6.55% 244 Palmo Way Palm Beach, FL 33480 First Bank NA Custodian of Delvin D. Myer IRA 9.90% 2508 E. Main Street Mankato, MN 56001 Frojack Co. FBO Elizabeth Simonson 20.72% P.O. Box 6001 Grand Forks, ND 58206 Jerri P. Breeden 7.60% Box 45 Cook, MN 55723 Theodore D. Antweiler 8.38% 1763 South Iola Street, Box 14 Aurora, CO 80012 Colorado National Bank Custodian of Bradford T. Mill IRA 10.28% 4802 South Shenandoah Aurora, CO 80015 REGIONAL EQUITY FUND Var & Co. 79.20% P.O. Box 64482 St. Paul, MN 55164 Diamond Retirement Plan 17.68% 180 East Fifth Street St. Paul, MN 55101 SPECIAL EQUITY FUND Var & Co. 85.10% P.O. Box 64482 St. Paul, MN 55164 Diamond Retirement Plan 14.85% 180 East Fifth Street St. Paul, MN 55101 REAL ESTATE SECURITIES FUND Var & Co. 100.00% P.O. Box 64482 St. Paul, MN 55164 First Bank NA Custodian of Eugene W. Krekelberg IRA 95.56% 3784 Woodlawn Blvd Eveleth, MN 55734 SEI Corporation 5.72% 680 East Swedesford Road Wayne, PA 19087 Colorado National Bank Custodian of Patricia O'Rourke-Monagh IRA 24.51% 400 South Lafayette Denver, CO 80209 Colorado National Bank Custodian of Milton E. Anderson IRA 69.75% 373 South Franklin Street Denver, CO 80209 TECHNOLOGY FUND Var & Co. 90.57% P.O. Box 64482 St. Paul, MN 55164 Diamond Retirement Plan 9.10% 180 East Fifth Street St. Paul, MN 55101 The LSI Corp. of America 8.92% 2100 Xenium Lane Plymouth, MN 55441 Clyde Martz and Ann Martz 6.64% 755 6th Street Boulder, CO 80302 INTERNATIONAL FUND Var & Co. 94.40% P.O. Box 64482 St. Paul, MN 55164 Diamond Retirement Plan 5.18% 180 East Fifth Street St. Paul, MN 55101 Kent C. Larson 5.00% First Bank Place, 601 Second Avenue South Minneapolis, MN 55402 Mankato State University Foundation Inc. 33.36% P.O. Box 8400, MSU 60 Mankato, MN 56002-8400 Michael J. Gerbich and Frances M. Gerbich 5.41% One General Street Akron, OH 44329 Lester B. Boelter and Viola G. Boelter 5.50% 210 Lawrence Blvd East, P.O. Box 231 Wabasha, MN 55981 First Bank NA Custodian of Steven L. Potter IRA 6.29% 3025 16th Avenue South Minneapolis, MN 55407 LIMITED TERM INCOME FUND Var & Co. 87.54% P.O. Box 64482 St. Paul, MN 55164 Diamond Retirement Plan 12.44% 180 East Fifth Street St. Paul, MN 55101 Planned Parenthood of Minnesota 9.05% 1965 Ford Parkway St. Paul, MN 55116 Fleet Wholesale Supply Co. et al. Retirement Plans 27.98% P.O. Box 5055 Brainard, MN 56401 INTERMEDIATE TERM INCOME FUND Var & Co. 92.61% P.O. Box 64482 St. Paul, MN 55164 Diamond Retirement Plan 7.38% 180 East Fifth Street St. Paul, MN 55101 Bruce A. Mickelson and Rita M. Mickelson 7.62% 1624 Blair Avenue St. Paul, MN 55104 First Bank NA Custodian of Fred L. Brucciani Rollover 6.03% 6808 Wooddale Avenue Edina, MN 55435 FIXED INCOME FUND Var & Co. 87.82% P.O. Box 64482 St. Paul, MN 55164 Diamond Retirement Plan 11.01% 180 East Fifth Street St. Paul, MN 55101 Mankato State University Foundation Inc. 5.05% P.O. Box 8400, MSU 60 Mankato, MN 56002-8400 INTERMEDIATE GOVERNMENT BOND FUND Var & Co. 93.48% P.O. Box 64482 St. Paul, MN 55164 The Janice Gardner Foundation 12.38% 11580 K-Tel Drive Minnetonka, MN 55343 Robert Hurless 5.43% 707 Saddle Drive Helena, MT 59601 INTERMEDIATE TAX FREE FUND Var & Co. 95.68% P.O. Box 64482 St. Paul, MN 55164 Ray L. Miller and Ruty Miller 13.16% 7121 Road 311 New Castle, CO 81647 Richard C. Petersen and Joan M. Petersen 5.07% 2504 South 32nd Street LaCrosse, WI 54601 Maurice M. Crow and Lucille M. Crow 5.16% MC 33 Box 3839 Silver City, SD 57702 Anderson Joint Revocable Trust 6.72% 1704 Ohlson Court LaCrosse, WI 54601 Dorothy M. Baker TDD Barbara Schultz and John A. Baker 11.38% 1721 East Sixth Street Pueblo, CO 81001 Kathryn L. Vincent Trust 15.22% 880 Dickson Hill Petaluma, CA 94952 MINNESOTA INSURED INTERMEDIATE TAX FREE FUND Var & Co. 96.96% P.O. Box 64482 St. Paul, MN 55164 Gladys L. Jacobson 10.33% 700 Douglas Avenue, Apt. 803 Minneapolis, MN 55403 Alfred Pudil and Bonnie V. Dircks 5.46% 4821 County Road 144 S. Brainard, MN 56401 Christine Simonson Irrevocable Trust 12.00% 2455 12th Street SE St. Cloud, MN 56304 COLORADO INTERMEDIATE TAX FREE FUND Var & Co. 99.78% P.O. Box 64482 St. Paul, MN 55164 The Harry Mitchell Trust 5.01% 44100 County Road 6E Bennett, CO 80102 William G. Spahr 8.82% 12391 Evergreen Trail Parker, CO 80134
NET ASSET VALUE AND PUBLIC OFFERING PRICE The method for determining the public offering price of the shares of a Fund is summarized in the Retail Class Prospectuses under the captions "Investing in the Funds" and "Determining the Price of Shares" and in the Institutional Class Prospectuses under the caption "Purchases and Redemptions of Shares." The net asset value of each Fund's shares is determined on each day during which the New York Stock Exchange (the "NYSE") is open for business. The NYSE is not open for business on the following holidays (or on the nearest Monday or Friday if the holiday falls on a weekend): New Year's Day, Washington's Birthday (observed), Good Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Each year the NYSE may designate different dates for the observance of these holidays as well as designate other holidays for closing in the future. To the extent that the securities of a Fund are traded on days that the Fund is not open for business, such Fund's net asset value per share may be affected on days when investors may not purchase or redeem shares. This may occur, for example, where a Fund holds securities which are traded in foreign markets. On September 30, 1995, the net asset values per share for each class of shares of the Funds were calculted as follows: NET ASSET NET ASSETS SHARES VALUE PER SHARE (IN DOLLARS) / OUTSTANDING = (IN DOLLARS) STOCK FUND Class A 13,075,966 / 668,325 = 19.57 Class B 7,050,933 / 361,726 = 19.49 Class C 312,559,211 / 15,975,824 = 19.56 EQUITY INDEX FUND Class A 2,140,054 / 160,327 = 13.35 Class B 1,196,911 / 89,979 = 13.30 Class C 218,932,208 / 16,409,292 = 13.34 BALANCED FUND Class A 15,287,565 / 1,261,751 = 12.12 Class B 3,119,610 / 257,977 = 12.09 Class C 192,145,483 / 15,845,649 = 12.13 ASSET ALLOCATION FUND Class A 992,565 / 84,645 = 11.73 Class B 571,060 / 48,876 = 11.68 Class C 43,210,318 / 3,685,913 = 11.72 EQUITY INCOME FUND Class A 1,995,201 / 177,562 = 11.24 Class B 1,233,094 / 110,137 = 11.20 Class C 52,125,215 / 4,636,094 = 11.24 DIVERSIFIED GROWTH FUND Class A 2,709,817 / 230,527 = 11.75 Class B 819,739 / 69,894 = 11.73 Class C 132,853,903 / 11,276,198 = 11.78 EMERGING GROWTH FUND Class A 386,287 / 28,829 = 13.40 Class B 267,617 / 20,143 = 13.29 Class C 41,716,341 / 3,111,893 = 13.41 REGIONAL EQUITY FUND Class A 14,916,902 / 871,282 = 17.12 Class B 7,630,212 / 449,114 = 16.99 Class C 188,582,694 / 11,006,811 = 17.13 SPECIAL EQUITY FUND Class A 11,608,877 / 648,950 = 17.89 Class B 4,847,422 / 271,858 = 17.83 Class C 201,785,581 / 11,278,581 = 17.89 TECHNOLOGY FUND Class A 1,464,007 / 80,253 = 18.24 Class B 2,031,085 / 112,734 = 18.02 Class C 29,271,763 / 1,605,061 = 18.24 HEALTH SCIENCES FUND Class A * Class B * Class C * REAL ESTATE SECURITIES FUND Class A 956 / 92 = 10.38 Class B 1,000 / 96 = 10.38 Class C 5,756,499 / 555,059 = 10.37 INTERNATIONAL FUND Class A 875,737 / 85,174 = 10.28 Class B 306,430 / 30,086 = 10.20 Class C 94,399,990 / 9,166,192 = 10.30 LIMITED TERM INCOME FUND Class A 9,977,339 / 1,005,426 = 9.92 Class B * Class C 111,439,091 / 11,231,268 = 9.92 INTERMEDIATE TERM INCOME FUND Class A 2,437,372 / 245,108 = 9.94 Class B * Class C 88,375,112 / 8,887,937 = 9.94 FIXED INCOME FUND Class A 7,853,102 / 715,075 = 10.98 Class B 7,279,422 / 665,639 = 10.94 Class C 289,816,245 / 26,410,097 = 10.97 INTERMEDIATE GOVERNMENT BOND FUND Class A 2,859,606 / 307,668 = 9.29 Class B * Class C 100,167,993 / 10,785,155 = 9.29 INTERMEDIATE TAX FREE FUND Class A 983,159 / 91,683 = 10.72 Class B * Class C 46,024,468 / 4,295,302 = 10.72 MINNESOTA INSURED INTERMEDIATE TAX FREE FUND Class A 2,219,222 / 223,792 = 9.92 Class B * Class C 61,692,492 / 6,219,198 = 9.92 COLORADO INTERMEDIATE TAX FREE FUND Class A 2,189,416 / 208,333 = 10.51 Class B * Class C 50,071,037 / 4,763,837 = 10.51 * Not in operation at September 30, 1995. FUND PERFORMANCE SEC STANDARDIZED PERFORMANCE FIGURES YIELD FOR THE FUNDS. Yield for the Funds is a measure of the net investment income per share (as defined) earned over a 30-day period expressed as a percentage of the maximum offering price of a Fund's shares at the end of the period. Based upon the 30-day period ended September 30, 1995, the yields for the Class A, Class B and Class C Shares of the Funds were as follows: CLASS A CLASS B CLASS C Stock Fund 1.86% 1.29% 2.21% Equity Index Fund 1.94% 1.40% 2.28% Balanced Fund 3.16% 2.61% 3.56% Asset Allocation Fund 2.69% 2.07% 3.07% Equity Income Fund 3.46% 3.00% 3.88% Diversified Growth Fund 1.26% 0.63% 1.58% Emerging Growth Fund 0% 0% 0.11% Regional Equity Fund 0.49% 1.40% 0.75% Special Equity Fund 1.60% 0.95% 1.95% Technology Fund 0% 0% 0% Health Sciences Fund * * * Real Estate Securities Fund ** ** 6.61% International Fund 0% 0% 0% Limited Term Income Fund 5.75% * 5.86% Intermediate Term Income Fund 5.30% * 5.51% Fixed Income Fund 5.34% 4.80% 5.80% Intermediate Government Bond Fund 5.17% * 5.32% Intermediate Tax Free Fund 4.13% * 4.26% Minnesota Insured Intermediate Tax Free Fund 4.27% * 4.40% Colorado Intermediate Tax Free Fund 4.29% * 4.42% * Not in operation at September 30, 1995. ** Not in operation for 30-day period ended September 30, 1995. Such yield figures were determined by dividing the net investment income per share earned during the specified 30-day period by the maximum offering price per share on the last day of the period, according to the following formula: Yield = 2 [((a - b) / cd) + 1)(6th power) - 1] Where: a = dividends and interest earned during the period b = expenses accrued for the period (net of reimbursements) c = average daily number of shares outstanding during the period that were entitled to receive dividends d = maximum offering price per share on the last day of the period TAX EQUIVALENT YIELD FOR TAX FREE FUNDS. Tax equivalent yield is the yield that a taxable investment must generate in order to equal a Fund's yield for an investor in a stated federal or combined federal/state income tax bracket. The tax equivalent yield for each tax free Fund named below is computed by dividing that portion of such Fund's yield (computed as described above) that is tax exempt by one minus the stated federal or combined federal/state income tax rate, and adding the resulting number to that portion, if any, of such Fund's yield that is not tax exempt. Based upon the maximum federal income tax rate of 39.6% and the combined maximum federal/state tax rates of 44.7% for Minnesota and 42.6% for Colorado, the tax equivalent yields for the tax free Funds named below for the 30-day period ended September 30, 1995, computed as described above, were as follows: CLASS A CLASS B CLASS C Intermediate Tax Free Fund 6.84% * 7.05% Minnesota Insured Intermediate Tax Free Fund 7.72% * 7.96% Colorado Intermediate Tax Free Fund 7.47% * 7.70% * Not in operation at September 30, 1995. TOTAL RETURN. Total return measures both the net investment income generated by, and the effect of any realized or unrealized appreciation or depreciation of, the underlying investments in a Fund's portfolio. The Fund" average annual and cumulative total return figures are computed in accordance with the standardized methods prescribed by the Securities and Exchange Commission. AVERAGE ANNUAL TOTAL RETURN. Average annual total return figures are computed by determining the average annual compounded rates of return over the periods indicated in the advertisement, sales literature or shareholders' report, that would equate the initial amount invested to the ending redeemable value, according to the following formula: P(1 + T)(nth power) = ERV Where: P = a hypothetical initial payment of $1,000 T = average annual total return n = number of years ERV = ending redeemable value at the end of the period of a hypothetical $1,000 payment made at the beginning of such period This calculation (i) assumes all dividends and distributions are reinvested at net asset value on the appropriate reinvestment dates as described in the Prospectuses, and (ii) deducts (a) the maximum sales charge from the hypothetical initial $1,000 investment (if applicable), and (b) all recurring fees, such as advisory fees, charged as expenses to all shareholder accounts. CUMULATIVE TOTAL RETURN. Cumulative total return is computed by finding the cumulative compounded rate of return over the period indicated in the advertisement that would equate the initial amount invested to the ending redeemable value, according to the following formula: CTR = ((ERV - P) / P ) 10 Where: CTR = cumulative total return ERV = ending redeemable value at the end of, the period of a hypothetical $1,000 payment made at the beginning of such period; and P = initial payment of $1,000 This calculation (i) assumes all dividends and distributions are reinvested at net asset value on the appropriate reinvestment dates as described in the Prospectuses, and (ii) deducts (a) the maximum sales charge from the hypothetical initial $1,000 investment (if applicable), and (b) all recurring fees, such as advisory fees, charged as expenses to all shareholder accounts. Based on the foregoing, the average annual and aggregate total returns for each class of the Funds from inception through September 30, 1995 were as follows. The performance for Class A and Class B Shares will normally be lower than for Class C Shares because Class A and Class B Shares are subject to sales and distribution charges not charged to Class C Shares.
Cumulative Average Annual Since Inception* Since Inception* One Year Five Year Without With Without With Without With Without With Sales Charge Sales Charge Sales Charge Sales Charge Sales Charge Sales Charge Sales Charge Sales Charge STOCK FUND Class A 160.16% 148.48% 13.05% 12.38% 25.26% 19.61% 16.33% 15.27% Class B 23.67% 18.67% 20.76% 16.41% 24.20% 19.20% ** ** Class C 27.63% 15.92% 25.50% ** EQUITY INDEX FUND Class A 43.76% 37.31% 13.87% 12.01% 28.90% 23.14% ** ** Class B 28.49% 23.49% 24.93% 20.60% 27.87% 22.87% ** ** Class C 29.40% 16.88% 29.17% ** BALANCED FUND Class A 37.12% 30.97% 11.96% 10.14% 20.57% 15.11% ** ** Class B 18.92% 13.92% 16.64% 12.27% 19.58% 14.58% ** ** Class C 20.12% 11.74% 20.89% ** ASSET ALLOCATION FUND Class A 31.41% 25.51% 10.27% 8.47% 19.51% 14.12% ** ** Class B 18.74% 13.74% 16.48% 12.11% 18.51% 13.51% ** ** Class C 18.67% 10.92% 19.75% ** EQUITY INCOME FUND Class A 28.51% 22.74% 13.62% 10.25% 18.06% 12.70% ** ** Class B 17.76% 12.76% 15.62% 11.25% 17.10% 12.10% ** ** Class C 18.77% 15.96% 18.24% ** DIVERSIFIED GROWTH FUND Class A 21.83% 16.36% 19.91% 16.32% 31.21% 25.28% ** ** Class B 33.88% 28.88% 29.58% 25.27% 30.29% 25.29% ** ** Class C 34.67% 20.21% 31.57% ** EMERGING GROWTH FUND Class A 36.39% 30.27% 23.15% 19.41% 28.82% 23.01% ** ** Class B 36.42% 31.42% 31.76% 27.46% 27.89% 22.89% ** ** Class C 36.50% 23.21% 29.16% ** REGIONAL EQUITY FUND Class A 81.12% 72.99% 23.68% 21.67% 41.17% 34.81% ** ** Class B 43.80% 38.80% 38.07% 33.80% 39.98% 34.98% ** ** Class C 43.46% 24.42% 41.40% ** SPECIAL EQUITY FUND Class A 186.34% 173.49% 14.44% 13.77% 12.63% 7.53% 17.85% 16.77% Class B 17.47% 12.47% 15.37% 11.00% 11.64% 6.64% ** ** Class C 21.08% 12.28% 12.84% ** TECHNOLOGY FUND Class A 86.00% 77.65% 51.65% 47.04% 66.22% 58.70% ** ** Class B 86.57% 81.57% 73.99% 69.85% 64.52% 59.52% ** ** Class C 86.00% 51.65% 66.22% ** HEALTH SCIENCES FUND Class A ** ** ** ** ** ** ** ** Class B ** ** ** ** ** ** ** ** Class C ** ** ** ** REAL ESTATE SECURITIES FUND Class A --% --% --% --% ** ** ** ** Class B --% --% --% --% ** ** ** ** Class C 5.19% 22.23% ** ** INTERNATIONAL FUND Class A 3.01% (1.63)% 2.02% (1.10)% 0.69% (3.84)% ** ** Class B (0.29)% (5.29)% (0.26)% (4.70)% (0.10)% (5.09)% ** ** Class C 3.00% 2.00% 0.78% ** LIMITED TERM INCOME FUND Class A 12.86% 10.65% 4.43% 3.69% 6.57% 4.45% ** ** Class B ** ** ** ** ** ** ** ** Class C 7.89% 4.71% 6.57% ** INTERMEDIATE TERM INCOME FUND Class A 17.24% 12.84% 5.86% 4.42% 10.51% 6.39% ** ** Class B ** ** ** ** ** ** ** ** Class C 8.87% 5.28% 10.51% ** FIXED INCOME FUND Class A 90.43% 83.28% 8.61% 8.08% 12.78% 8.60% 8.82% 7.99% Class B 10.77% 5.77% 9.51% 5.11% 11.75% 6.75% ** ** Class C 9.21% 5.48% 12.86% ** INTERMEDIATE GOVERNMENT BOND FUND Class A 67.40% 62.36% 6.83% 6.41% 9.82% 6.50% 6.48% 5.83% Class B ** ** ** ** ** ** ** ** Class C 8.00% 4.77% 9.82% ** INTERMEDIATE TAX FREE FUND Class A 59.64% 54.84% 6.18% 5.77% 9.15% 5.85% 6.50% 5.85% Class B ** ** ** ** ** ** ** ** Class C 5.98% 3.58% 9.15% ** MINNESOTA INSURED INTERMEDIATE TAX FREE FUND Class A 6.64% 3.43% 4.11% 2.14% 8.46% 5.16% ** ** Class B ** ** ** ** ** ** ** ** Class C 6.63% 4.11% 8.34% ** COLORADO INTERMEDIATE TAX FREE FUND Class A 12.55% 9.17% 8.26% 6.06% 8.57% 5.36% ** ** Class B ** ** ** ** ** ** ** ** Class C 12.55% 8.26% 8.47% **
* Inception dates are as follows: Stock Fund, Class A, December 22, 1987; Class B, August 15, 1994; Class C, February 4, 1994; Equity Index Fund, Class A, December 14, 1992; Class B, August 15, 1994; Class C, February 4, 1994; Balanced Fund, Class A, December 14, 1992; Class B, August 15, 1994; Class C, February 4, 1994; Asset Allocation Fund, Class A, December 14, 1992; Class B, August 15, 1994; Class C, February 4, 1994; Equity Income Fund, Class A, December 18, 1992; Class B, August 15, 1994; Class C, August 2, 1994; Diversified Growth Fund, Class A, December 18, 1992; Class B, August 15, 1994; Class C, August 2, 1994; Emerging Growth Fund, Class A, April 4, 1994; Class B, August 15, 1994; Class C, April 4, 1994; Regional Equity Fund, Class A, December 14, 1992; Class B, August 15, 1994; Class C, February 4, 1994; Special Equity Fund, Class A, December 22, 1987; Class B, August 15, 1994; Class C, February 4, 1994; Technology Fund, Class A, April 4, 1994; Class B, August 15, 1994; Class C, April 4, 1994; Health Sciences Fund, not in operation at September 30, 1995; Real Estate Securities Fund, Class A, September 29, 1995; Class B, September 29, 1995; Class C, June 30, 1995; International Fund, Class A, April 7, 1994; Class B, August 15, 1994; Class C, April 4, 1994; Limited Term Income Fund, Class A, December 14, 1992; Class B, August 15, 1994 (closed January 31, 1995); Class C, February 4, 1994; Intermediate Term Income Fund, Class A, December 14, 1992; Class B, not in operation at September 30, 1995; Class C, February 4, 1994; Fixed Income Fund, Class A, December 22, 1987; Class B, August 15, 1994; Class C, February 4, 1994; Intermediate Government Bond Fund, Class A, December 22, 1987; Class B, not in operation at September 30, 1995; Class C, February 4, 1994; Intermediate Tax Free Fund, Class A, December 22, 1987; Class B, not in operation at September 30, 1995; Class C, February 4, 1994; Minnesota Insured Intermediate Tax Free Fund, Class A, February 28, 1994; Class B, not in operation at September 30, 1995; Class C, February 28, 1994; Colorado Intermediate Tax Free Fund, Class A, April 4, 1994; Class B, not in operation at September 30, 1995; Class C, April 4, 1994. ** Not in operation for entire period. NON-STANDARD DISTRIBUTION RATES HISTORICAL DISTRIBUTION RATES. The Funds' historical annualized distribution rates are computed by dividing the income dividends of a Fund for a stated period by the maximum offering price on the last day of such period. For the one-year period ended September 30, 1995, the historical distribution rates of the Class A, Class B and Class C Shares of the Funds were as follows: CLASS A CLASS B CLASS C Stock Fund 1.58% 1.13% 1.82% Equity Index Fund 1.80% 1.35% 2.05% Balanced Fund 2.89% 2.42% 3.20% Asset Allocation Fund 2.85% 2.43% 3.17% Equity Income Fund 3.32% 2.96% 3.63% Diversified Growth Fund 1.20% 0.82% 1.38% Emerging Growth Fund 0.16% 0.02% 0.17% Regional Equity Fund 0.36% 0.18% 0.46% Special Equity Fund 1.84% 1.35% 2.10% Technology Fund 0% 0% 0% Health Sciences Fund * * * Real Estate Securities Fund 0% 0% 1.04% International Fund 0% 0% 0% Limited Term Income Fund 5.48% * 5.59% Intermediate Term Income Fund 5.59% * 5.80% Fixed Income Fund 5.56% 5.15% 5.93% Intermediate Government Bond Fund 5.67% * 5.84% Intermediate Tax Free Fund 4.31% * 4.44% Minnesota Insured Intermediate Tax Free Fund 4.38% * 4.52% Colorado Intermediate Tax Free Fund 4.48% * 4.62% * Not in operation at September 30, 1995. ANNUALIZED CURRENT DISTRIBUTION RATES. The Funds' annualized current distribution rates are computed by dividing a Fund's income dividends for a specified month (or three-month period, in the case of an equity Fund) by the number of days in that month (or three-month period, in the case of an equity Fund) and multiplying by 365, and dividing the resulting figure by the maximum offering price on the last day of the specified period. The annualized current distribution rates for the one or three-month period (as appropriate) ended September 30, 1995 for Funds were as follows: CLASS A CLASS B CLASS C Stock Fund 1.42% 0.81% 1.72% Equity Index Fund 1.68% 1.15% 2.00% Balanced Fund 2.85% 2.35% 3.23% Asset Allocation Fund 2.61% 2.09% 2.97% Equity Income Fund 2.19% 1.66% 2.54% Diversified Growth Fund 0% 0% 0% Emerging Growth Fund 0% 0% 0% Regional Equity Fund 0% 0% 0% Special Equity Fund 0.92% 0.28% 1.23% Technology Fund 0% 0% 0% Health Sciences Fund * * * Real Estate Securities Fund 0% 0% 5.71% International Fund 0% 0% 0% Limited Term Income Fund 5.45% * 5.56% Intermediate Term Income Fund 5.23% * 5.43% Fixed Income Fund 5.12% 4.67% 5.58% Intermediate Government Bond Fund 5.76% * 5.94% Intermediate Tax Free Fund 4.13% * 4.25% Minnesota Insured Intermediate Tax Free Fund 4.34% * 4.48% Colorado Intermediate Tax Free Fund 4.54% * 4.68% * Not in operation at September 30, 1995. TAX EQUIVALENT DISTRIBUTION RATES. The tax equivalent distribution rate for the tax free Funds is computed by dividing that portion of such a Fund's annualized current distribution rate (computed as described above) which is tax-exempt by one minus the stated federal or combined federal/state income tax rate, and adding the resulting figure to that portion, if any, of the annualized current distribution rate which is not tax-exempt. Based upon the maximum federal or combined federal/state income tax rates set forth above under "-- SEC Standardized Performance Figures -- Tax Equivalent Yield for Tax Free Funds," the annualized current distribution rates for the month ended September 30, 1995, for each class of the tax free Funds were as follows: CLASS A CLASS B CLASS C Intermediate Tax Free Fund 6.84% * 7.04% Minnesota Insured Intermediate Tax Free Fund 7.85% * 8.10% Colorado Intermediate Tax Free Fund 7.91% * 8.15% * Not in operation at September 30, 1995. CERTAIN PERFORMANCE COMPARISONS The Funds may compare their performance to that of certain published or otherwise widely disseminated indices or averages compiled by third parties. The Funds, and the indices and averages to which they may compare their performance, are as follows, among others: STOCK FUND may compare its performance to the STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS ("S&P 500"), which is a composite index of common stocks in industrial, transportation, and financial and public utility companies which compares total returns of funds whose portfolios are invested primarily in common stocks. In addition, the S&P 500 index assumes reinvestment of all dividends paid by stocks listed in its index. Taxes due on any of these distributions are not included, nor are brokerage or other fees calculated in Standard & Poor's figures. Stock Fund also may compare its performance to the LIPPER GROWTH & INCOME AVERAGE, which is an average of funds which combine a growth of earnings orientation and an income requirement for level and/or rising dividends. EQUITY INDEX FUND may compare its performance to the S&P 500 and the LIPPER GROWTH & INCOME AVERAGE, each of which is described above. BALANCED FUND may compare its performance to the S&P 500, which is described above. Balanced Fund also may compare its performance to the LEHMAN GOVERNMENT/CORPORATE INDEX, which is a market weighted index comprised of all public obligations of the U.S. Treasury, excluding flower bonds and foreign-targeted issues; all publicly issued debt of U.S. Government agencies and quasi-federal corporations, and corporate debt guaranteed by the U.S. Government; and all publicly issued, fixed rate, nonconvertible investment grade dollar-denominated SEC-registered corporate debt. Balanced Fund also may compare its performance to the LIPPER BALANCED AVERAGE, which is an average of funds whose primary objective is to conserve principal by maintaining at all times a balanced portfolio of both stocks and bonds. ASSET ALLOCATION FUND may compare its performance to the S&P 500 and the LEHMAN GOVERNMENT/CORPORATE INDEX, each of which is described above. Asset Allocation Fund also may compare its performance to the LIPPER FLEXIBLE PORTFOLIO AVERAGE, which is an average of funds which allocate investments across various asset classes, including domestic common stocks, bonds and money market instruments, with a focus on total return. EQUITY INCOME FUND may compare its performance to the S&P 500 and the LEHMAN GOVERNMENT/CORPORATE INDEX, each of which is described above. Equity Income Fund also may compare its performance to the LIPPER EQUITY INCOME AVERAGE, which is an average of funds which seek relatively high current income and growth of income through investing 60% or more of their portfolios in equities. DIVERSIFIED GROWTH FUND may compare its performance to the S&P 500 and the LIPPER GROWTH & INCOME AVERAGE, each of which is described above. EMERGING GROWTH FUND may compare its performance to the RUSSELL 2000 INDEX, which is a broadly diversified index consisting of approximately 2,000 small capitalization common stocks that can be used to compare to the total returns of funds whose portfolios are invested primarily in small capitalization common stocks. Emerging Growth Fund also may compare its performance to the LIPPER SMALL COMPANY GROWTH AVERAGE, which is an average of funds which limits their investments to smaller capitalization companies. REGIONAL EQUITY FUND may compare its performance to the RUSSELL 2000 INDEX and the LIPPER SMALL COMPANY GROWTH AVERAGE, each of which is described above. SPECIAL EQUITY FUND may compare its performance to the S&P 500, which is described above. Special Equity Fund also may compare its performance to the LIPPER CAPITAL APPRECIATION AVERAGE, which is an average of funds which aim at maximum capital appreciation, frequently by means of 100% or more portfolio turnover, leveraging, purchasing unregistered securities, and purchasing options. TECHNOLOGY FUND may compare its performance to the LIPPER TECHNOLOGY AVERAGE, which is an average of funds which invest in technology-related equities. HEALTH SCIENCES FUND may compare its performance to that of the LIPPER HEALTH/BIOTECHNOLOGY AVERAGE, which is an average of funds which invest at least 65% of their equity portfolio in shares of companies engaged in health care, medicine and biotechnology. REAL ESTATE SECURITIES FUND may compare its performance to the NAREIT EQUITY REIT INDEX, which is a market weighted index based on the last closing price of the month for all tax-qualified Equity REITs listed on the New York Stock Exchange, the American Stock Exchange and the NASDAQ National Market System. Equity REITs are defined as REITs with 75% or more of their gross invested book assets invested directly or indirectly in the equity ownership of real estate. Only common shares issued by an Equity REIT are included in the index. Real Estate Securities Fund also may compare its performance to the LIPPER REAL ESTATE AVERAGE, which is an average of real estate-oriented funds. INTERNATIONAL FUND may compare its performance to that of the MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE, AUSTRALIA AND FAR EAST ("EAFE") INDEX, which is an aggregate of 15 individual country indices that collectively represent many of the major markets of the world, excluding the United States and Canada. International Fund also may compare its performance to the LIPPER INTERNATIONAL AVERAGE, which is an average of funds which primarily invest in equity securities whose primary trading markets are outside the United States. LIMITED TERM INCOME FUND may compare its performance to the MERRILL LYNCH ONE-YEAR TREASURY INDEX, which is an unmanaged index of a one-year constant maturity Treasury bill. Limited Term Income Fund also may compare its performance to the LIPPER SHORT INVESTMENT GRADE DEBT AVERAGE, which is an average of funds which invest at least 65% of assets in investment grade debt issues with dollar-weighted average maturities of five years or less. INTERMEDIATE TERM INCOME FUND may compare its performance to the LEHMAN INTERMEDIATE GOVERNMENT/CORPORATE INDEX, which is a market weighted index comprised of all public obligations of the U.S. Treasury, excluding flower bonds and foreign-targeted issues; all publicly issued debt of U.S. Government agencies and quasi-federal corporations, and corporate debt guaranteed by the U.S. Government; and all publicly issued, fixed rate, nonconvertible investment grade dollar-denominated SEC-registered corporate debt, in each case with maturities of up to ten years. Intermediate Term Income Fund also may compare its performance to the LIPPER INTERMEDIATE INVESTMENT GRADE DEBT AVERAGE, which is an average of funds which invest at least 65% of assets in investment grade debt with dollar-weighted average maturities of five to ten years. FIXED INCOME FUND may compare its performance to the LEHMAN GOVERNMENT/CORPORATE (TOTAL) INDEX, which is described above. Fixed Income Fund also may compare its performance to the LIPPER CORPORATE DEBT FUNDS A-RATED AVERAGE, which is an average of funds which invest 65% or more of assets in corporate debt issues rated "A" or better or government issues. INTERMEDIATE GOVERNMENT BOND FUND may compare its performance to the LEHMAN INTERMEDIATE GOVERNMENT INDEX, which is a market weighted index comprised of all public obligations of the U.S. Treasury, excluding flower bonds and foreign-targeted issues, and all publicly issued debt of U.S. Government agencies and quasi-federal corporations, and corporate debt guaranteed by the U.S. Government, in each case with maturities of up to ten years. Intermediate Government Bond Fund also may compare its performance to the LIPPER INTERMEDIATE U.S. GOVERNMENT AVERAGE, which is an average of funds which invest at least 65% of assets in securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities with dollar-weighted average maturities of five to ten years. INTERMEDIATE TAX FREE FUND may compare its performance to the LEHMAN 7-YEAR G.O. INDEX, which is an unmanaged index comprised of state and local general obligation issues with maturities between 6 and 8 years which were issued as part of a transaction of at least $50 million and which have a minimum credit rating of at least Baa. Intermediate Tax Free Fund also may compare its performance to the LIPPER INTERMEDIATE MUNICIPAL DEBT AVERAGE, which is an average of funds which invest in municipal debt issues with dollar-weighted average maturities of five to ten years. MINNESOTA INSURED INTERMEDIATE TAX FREE FUND may compare its performance to the LEHMAN 7-YEAR G.O. INDEX and the LIPPER INTERMEDIATE MUNICIPAL DEBT AVERAGE, each of which is described above. COLORADO INTERMEDIATE TAX FREE FUND may compare its performance to the LEHMAN 7-YEAR G.O. INDEX and the LIPPER INTERMEDIATE MUNICIPAL DEBT AVERAGE, each of which is described above. Each of the Funds also may compare its performance to the CONSUMER PRICE INDEX, which is a measure of the average change in prices over time in a fixed market basket of goods and services. TAXATION The tax status of the Funds and the distributions that the Funds will make to shareholders are summarized in the Prospectuses in the sections entitled "Federal Income Taxes" (or, in the Prospectuses for the Tax Free Funds, "Income Taxes"). Each Fund intends to fulfill the requireme of Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), as a regulated investment company. If so qualified, each Fund will not be liable for federal income taxes to the extent it distributes its taxable income to its shareholders. To qualify under Subchapter M for tax treatment as a regulated investment company, each Fund must, among other things: (1) derive at least 90% of its gross income from dividends, interest, and certain other types of payments related to its investment in stock or securities; (2) distribute to its shareholders at least 90% of its investment company taxable income (as that term is defined in the Code determined without regard to the deduction for dividends paid) and 90% of its net tax-exempt income; (3) derive less than 30% of its annual gross income from the sale or other disposition of stock, securities, options, futures, or forward contracts held for less than three months; and (4) diversify its holdings so that, at the end of each fiscal quarter of the Fund, (a) at least 50% of the market value of the Fund's assets is represented by cash, cash items, U.S. Government securities and securities of other regulated investment companies, and other securities, with these other securities limited, with respect to any one issuer, to an amount no greater than 5% of the Fund's total assets and no greater than 10% of the outstanding voting securities of such issuer, and (b) not more than 25% of the market value of the Fund's total assets is invested in the securities of any one issuer (other than U.S. Government securities or securities of other regulated investment companies). Each Fund is subject to a nondeductible excise tax equal to 4% of the excess, if any, of the amount required to be distributed for each calendar year over the amount actually distributed. For this purpose, any amount on which the Fund is subject to corporate-level income tax is considered to have been distributed. In order to avoid the imposition of this excise tax, each Fund must declare and pay dividends representing 98% of its net investment income for that calendar year and 98% of its capital gains (both long-term and short-term) for the twelve-month period ending October 31 of the calendar year. Any loss on the sale or exchange of shares of a Fund generally will be disallowed to the extent that a shareholder acquires or contracts to acquire shares of the same Fund within 30 days before or after such sale or exchange. Furthermore, if Fund shares with respect to which a long-term capital gain distribution has been made are held for less than six months, any loss on the sale or exchange of such shares will be treated as a long-term capital loss to the extent of such long-term capital gain distribution. Furthermore, if a shareholder of any of the Tax-Free Funds receives an exempt-interest dividend from such fund and then disposes of his or her shares in such fund within six months after acquiring them, any loss on the sale or exchange of such shares will be disallowed to the extent of the exempt-interest dividend. If one of the Tax-Free Funds disposes of a municipal obligation that it acquired after April 30, 1993 at a market discount, it must recognize any gain it realizes on the disposition as ordinary income (and not as capital gain) to the extent of the accrued market discount. For federal tax purposes, if a shareholder exchanges shares of a Fund for shares of any other FAIF Fund pursuant to the exchange privilege (see "Investing in the Funds -- Exchange Privilege" in the Prospectuses for Class A and Class B Shares, and "Purchases and Redemptions of Shares Exchange Privilege" in the Prospectuses for Class C Shares), such exchange will be considered a taxable sale of the shares being exchanged. Furthermore, if a shareholder of Retail Class Shares carries out the exchange within 90 days of purchasing shares in a fund on which he or she has incurred a sales charge, the sales charge cannot be taken into account in determining the shareholder's gain or loss on the sale of those shares to the extent that the sales charge that would have been applicable to the purchase of the later-acquired shares in the other fund is reduced because of the exchange privilege. However, the amount of any sales charge that may not be taken into account in determining the shareholder's gain or loss on the sale of the first-acquired shares may be taken into account in determining gain or loss on the eventual sale or exchange of the later-acquired shares. Dividends generally are taxable to shareholders at the time they are paid. However, dividends declared in October, November and December, made payable to shareholders of record in such a month and actually paid in January of the following year are treated as paid and are thereby taxable to shareholders as of December 31. Except for the transactions the Fund has identified as hedging transactions, each Fund is required for federal income tax purposes to recognize as income for each taxable year its net unrealized gains and losses on forward currency contracts as of the end of the year as well as thos actually realized during the year. Except for transactions in forward currency contracts that are classified as part of a "mixed straddle," gain or loss recognized with respect to forward currency contracts is considered to be 60% long-term capital gain or loss and 40% short-term capital gain or loss, without regard to the holding period of the contract. In the case of a transaction classified as a "mixed straddle," the recognition of losses may be deferred to a later taxable year. Sales of forward currency contracts that are intended to hedge against a change in the value of securities or currencies held by a Fund may affect the holding period of such securities or currencies and, consequently, the nature of the gain or loss on such securities or currencies upon disposition. It is expected that any net gain realized from the closing out of forward currency contracts will be considered gain from the sale of securities or currencies and therefore qualifying income for purposes of the 90% of gross income from qualified sources requirement, as discussed abo In order to avoid realizing excessive gains on securities or currencies held less than three months, each Fund may be required to defer the closing out of forward currency contracts beyond the time when it would otherwise be advantageous to do so. It is expected that unrealized gains on forward currency contracts, which have been open for less than three months as of the end of a Fund's fiscal year and which are recognized for tax purposes, will not be considered gains on securities or currencies held less than three months for purposes of the 30% test, as discussed above. Any realized gain or loss on closing out a forward currency contract such as a forward commitment for the purchase or sale of foreign currency will generally result in a recognized capital gain or loss for tax purposes. Under Code Section 1256, forward currency contracts held by a Fund at the end of each fiscal year will be required to be "marked to market" for federal income tax purposes, that is, deemed to have been sold at market value. Code Section 988 may also apply to forward currency contracts. Under Section 988, each foreign currency gain or loss is generally computed separately and treated as ordinary income or loss. In the case of overlap between Sections 1256 and 988, special provisions determine the character and timing of any income, gain or loss. The Funds will attempt to monitor Section 988 transactions to avoid an adverse tax impact. Each Fund will distribute to shareholders annually any net long-term capital gains that have been recognized for federal income tax purposes (including unrealized gains at the end of the Fund's fiscal year) on forward currency contract transactions. Such distributions will be combi with distributions of capital gains realized on the Fund's other investments. Pursuant to the Code, distributions of net investment income by a Fund to a shareholder who, as to the United States, is a nonresident alien individual, nonresident alien fiduciary of a trust or estate, foreign corporation, or foreign partnership (a "foreign shareholder") wi be subject to U.S. withholding tax (at a rate of 30% or lower treaty rate). Withholding will not apply if a dividend paid by a Fund to a foreign shareholder is 'effectively connected" with a U.S. trade or business of such shareholder, in which case the reporting and withholding requirements applicable to U.S. citizens or domestic corporations will apply. Distributions of net long-term capital gains are not subject to tax withholding but, in the case of a foreign shareholder who is a nonresident alien individual, such distributions ordinarily will be subject to U.S. income tax at a rate of 30% if the individual is physically present in the U.S. for more than 182 days during the taxable year. Each Fund will report annually to its shareholders the amount of any withholding. The foregoing relates only to federal income taxation and is a general summary of the federal tax law in effect as of the date of this Statement of Additional Information. RATINGS A rating of a rating service represents that service's opinion as to the credit quality of the rated security. However, such ratings are general and cannot be considered absolute standards of quality or guarantees as to the creditworthiness of an issuer. A rating is not a recommendation to purchase, sell or hold a security, because it does not take into account market value or suitability for a particular investor. Markets values of debt securities may change as a result of a variety of factors unrelated to credit quality, including changes in market interest rates. When a security has been rated by more than one service, the ratings may not coincide, and each rating should be evaluated independently. Ratings are based on current information furnished by the issuer or obtained by the rating services from other sources which they consider reliable. Ratings may be changed, suspended or withdrawn as a result of changes in or unavailability of such information, or for other reasons. In general, the Funds are not required to dispose of a security if its rating declines after it is purchased, although they may consider doing so. RATINGS OF CORPORATE DEBT OBLIGATIONS AND MUNICIPAL BONDS STANDARD & POOR'S CORPORATION AAA: Securities rated AAA have the highest rating assigned by Standard & Poor's to a debt obligation. Capacity to pay interest and repay principal is extremely strong. AA: Securities rated AA have a very strong capacity to pay interest and repay principal and differ from the highest rated issues only to a small degree. A: Securities rated A have a strong capacity to pay interest and repay principal, although they are somewhat more susceptible to adverse effects of changes in circumstances and economic conditions than bonds in higher rated categories. BBB: Securities rated BBB are regarded as having an adequate capacity to pay interest and repay principal. Although such securities normally exhibit adequate protection standards, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for securities in this category than for those in higher rated categories. Debt rated BB, B, CCC, CC, and C by Standard & Poor's is regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and C the highest degree of speculation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. BB: Securities rated BB have less near-term vulnerability to default than other speculative issues. However, they face major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The BB rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BBB- rating. B: Securities rated B have a greater vulnerability to default but currently have the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The B rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BB or BB- rating. CCC: Securities rated CCC have a currently identifiable vulnerability to default, and are dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial, or economic conditions, they are not likely to have the capacity to pay interest and repay principal. The CCC rating category is also used for debt subordinated to senior debt that is assigned an actual or implied B or B- rating. The ratings from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. MOODY'S INVESTORS SERVICE, INC. Aaa: Securities which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa: Securities which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group, they comprise what are generally known as high grade securities. They are rated lower than the best securities because margins of protection may not be as large as in Aaa securities, or fluctuation of protective elements may be of greater magnitude, or there may be other elements present which make the long-term risks appear somewhat greater than in Aaa securities. A: Securities which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impair-ment sometime in the future. Baa: Securities which are rated Baa are considered as medium grade obligations, being neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present, but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such securities lack outstanding investment characteristics, and in fact have some speculative characteristics. Ba: An issue which is rated Ba is judged to have speculative elements; its future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes issues in this class. B: An issue which is rated B generally lacks characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa: An issue which is rated Caa is of poor standing. Such an issue may be in default or there may be present elements of danger with respect to principal or interest. Those securities in the Aa, A and Baa groups which Moody's believes possess the strongest investment attributes are designated by the symbols Aa-1, A-1 and Baa-1. Other Aa, A and Baa securities comprise the balance of their respective groups. These rankings (1) designate the securities which offer the maximum in security within their quality groups, (2) designate securities which can be bought for possible upgrading in quality, and (3) additionally afford the investor an opportunity to gauge more precisely the relative attractiveness of offerings in the marketplace. RATINGS OF PREFERRED STOCK STANDARD & POOR'S CORPORATION. Standard & Poor's ratings for preferred stock have the following definitions: AAA: An issue rated "AAA" has the highest rating that may be assigned by Standard & Poor's to a preferred stock issue and indicates an extremely strong capacity to pay the preferred stock obligations. AA: A preferred stock issue rated "AA" also qualifies as a high-quality fixed income security. The capacity to pay preferred stock obligations is very strong, although not as overwhelming as for issues rated "AAA." A: An issue rated "A" is backed by a sound capacity to pay the preferred stock obligations, although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions. BBB: An issue rated "BBB" is regarded as backed by an adequate capacity to pay the preferred stock obligations. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to make payments for a preferred stock in this category than for issues in the category. MOODY'S INVESTORS SERVICE, INC. Moody's ratings for preferred stock include the following: aaa: An issue which is rated "aaa" is considered to be a top-quality preferred stock. This rating indicates good asset protection and the least risk of dividend impairment within the universe of preferred stocks. aa: An issue which is rated "aa" is considered a high grade preferred stock. This rating indicates that there is reasonable assurance that earnings and asset protection will remain relatively well maintained in the foreseeable future. a: An issue which is rate "a" is considered to be an upper medium grade preferred stock. While risks are judged to be somewhat greater than in the "aaa" and "aa" classifications, earnings and asset protection are, nevertheless, expected to be maintained at adequate levels. baa: An issue which is rated "baa" is considered to be medium grade, neither highly protected nor poorly secured. Earnings and asset protection appear adequate at present but may be questionable over any great length of time. RATINGS OF MUNICIPAL NOTES STANDARD & POOR'S CORPORATION SP-1: Very strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics are given a plus (+) designation. SP-2: Satisfactory capacity to pay principal and interest. SP-3: Speculative capacity to pay principal and interest. None of the Funds will purchase SP-3 municipal notes. MOODY'S INVESTORS SERVICE, INC. Generally, Moody's ratings for state and municipal short-term obligations are designated Moody's Investment Grade ("MIG"); however, where an issue has a demand feature which makes the issue a variable rate demand obligation, the applicable Moody's rating is "VMIG." MIG 1/VMIG 1: This designation denotes the best quality. There is strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing. MIG 2/VMIG 2: This designation denotes high quality, with margins of protection ample although not so large as available in the preceding group. MIG 3/VMIG 3: This designation denotes favorable quality, with all security elements accounted for, but lacking the strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established. None of the Funds will purchase MIG 3/VMIG 3 municipal notes. RATINGS OF COMMERCIAL PAPER STANDARD & POOR'S CORPORATION. Commercial paper ratings are graded into four categories, ranging from "A" for the highest quality obligations to "D" for the lowest. Issues assigned the A rating are regarded as having the greatest capacity for timely payment. Issues in this catego are further refined with the designation 1, 2 and 3 to indicate the relative degree of safety. The "A-1" designation indicates that the degree of safety regarding timely payment is very strong. Those issues determined to possess overwhelming safety characteristics will be denoted with a plus (+) symbol designation. None of the Funds will purchase commercial paper rated A-3 or lower. MOODY'S INVESTORS SERVICE, INC. Moody's commercial paper ratings are opinions as to the ability of the issuers to timely repay promissory obligations not having an original maturity in excess of nine months. Moody's makes no representation that such obligations are exempt from registration under the Securities Act of 1933, and it does not represent that any specific instrument is a valid obligation of a rated issuer or issued in conformity with any applicable law. Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment capacity of rated issuers: PRIME-1: Superior capacity for repayment. PRIME-2: Strong capacity for repayment . PRIME-3: Acceptable capacity for repayment . None of the Funds will purchase Prime-3 commercial paper. BEST'S RATING SYSTEM FOR INSURANCE COMPANIES The objective of Best's Rating System is to evaluate the various factors affecting the overall performance of an insurance company in order to provide an opinion as to the company's relative financial strength and ability to meet its contractual obligations. The procedure includes both a quantitative and qualitative review of the company. The quantitative evaluation is based on an analysis of the company's financial condition and operating performance utilizing a series of financial tests. These tests measure a company's performance in the three critical areas of Profitability, Leverage and Liquidity in comparison to the norms established by the A.M. Best Company. These norms are based on an evaluation of the actual performance of the insurance industry. Best's review also includes a qualitative evaluation of the adequacy and soundness of a company's reinsurance, the adequacy of its reserves and the experience of its management. In addition, various other factors of importance are considered such as the composition of the company's book of business and the quality and diversification of its assets. Upon completion of analysis, Best's Ratings are assigned to those companies that meet the qualifications for rating. The Best's Rating classifications are A+ (Superior); A & A- (Excellent); B+ (Very Good); B & B- (Good); C+ (Fairly Good); and C & C- (Fair). Those not qualifying fo current Best's Rating are classified in the "Not Assigned" category that has ten classifications which identify why a company is not eligible for a Best's Rating. Care should be exercised in the use of Best's Ratings without further reference to additional Best's publications. STATEMENT OF NET ASSETS----SEPTEMBER 30, 1995 PRIME OBLIGATIONS FUND Description Par (000) Value (000) COMMERCIAL PAPER--44.8% Aes Shady Point (LOC: Bank of Tokyo) 5.863%, 10/16/95 $41,000 $40,900 Asset Securitization 5.760%, 11/02/95 (B) 14,800 14,725 Banco Real S.A. (LOC: Barclays Bank) 5.942%, 10/23/95 7,000 6,975 Blue Hawk Funding 5.812%, 10/03/95 (B) 10,045 10,042 5.813%, 10/12/95 (B) 4,240 4,233 5.777%, 10/13/95 (B) 9,334 9,316 5.799%, 10/13/95 (B) 6,202 6,190 5.810%, 10/13/95 (B) 4,741 4,732 5.780%, 10/16/95 (B) 13,207 13,175 5.810%, 10/24/95 (B) 15,573 15,515 5.807%, 10/25/95 (B) 5,151 5,131 5.808%, 10/25/95 (B) 4,884 4,865 5.816%, 10/27/95 (B) 11,066 11,020 5.812%, 10/31/95 (B) 16,806 16,725 Credit Card Securitization 5.818%, 10/19/95 (B) 9,219 9,193 5.880%, 10/20/95 (B) 15,987 15,938 Crown Leasing USA (LOC: Bank of Tokyo) 5.899%, 10/05/95 (B) 21,800 21,786 5.848%, 10/18/95 (B) 15,000 14,959 5.929%, 10/25/95 (B) 20,000 19,921 CS First Boston 5.787%, 10/30/95 5,000 4,977 DIC Americas (LOC: Mitsubishi Bank) 5.848%, 10/11/95 18,000 17,971 5.826%, 10/12/95 11,500 11,480 5.850%, 10/23/95 7,000 6,975 Distribution Funding 5.799%, 10/02/95 (B) 12,000 11,998 5.784%, 10/20/95 (B) 5,540 5,523 5.823%, 11/03/95 (B) 15,000 14,921 5.820%, 11/08/95 (B) 7,965 7,916 5.805%, 11/09/95 (B) 5,350 5,317 5.793%, 11/10/95 (B) 15,000 14,904 5.810%, 11/15/95 (B) 9,200 9,134 5.771%, 12/13/95 (B) 10,000 9,884 Enterprise Funding 5.809%, 10/05/95 (B) 12,500 12,492 5.810%, 10/20/95 (B) 8,031 8,007 5.789%, 10/26/95 (B) 11,880 11,833 5.791%, 10/27/95 (B) 7,539 7,508 5.820%, 10/31/95 (B) 10,000 9,952 5.811%, 11/17/95 (B) 15,097 14,984 5.755%, 11/21/95 (B) 19,174 19,019 5.862%, 12/21/95 (B) 10,109 9,978 Equipment Funding 5.804%, 10/04/95 (B) 19,129 19,120 5.806%, 10/06/95 (B) 15,059 15,047 5.816%, 10/06/95 (B) 23,676 23,657 Equipment Intermediation Partnership 5.834%, 11/03/95 (B) $26,153 $26,014 5.799%, 11/06/95 (B) 5,061 5,032 5.819%, 11/07/95 (B) 7,441 7,397 Fleet Funding 5.812%, 10/12/95 (B) 25,934 25,888 5.809%, 10/19/95 (B) 10,156 10,127 Hahn Issuing (LOC: Citibank) 5.815%, 10/19/95 11,530 11,497 5.814%, 10/24/95 12,700 12,653 International Securitization (Guarantor: FNB Chicago) 5.857%, 10/16/95 (B) 7,775 7,756 5.779%, 10/27/95 (B) 16,180 16,113 5.831%, 10/30/95 (B) 15,000 14,931 5.832%, 10/30/95 (B) 25,000 24,884 5.831%, 10/31/95 (B) 6,650 6,618 5.812%, 12/04/95 (B) 10,105 10,002 5.817%, 01/31/96 (B) 11,480 11,258 5.831%, 02/15/96 (B) 10,230 10,008 Jefferson Smurfit Financial 6.317%, 10/03/95 (B) 11,000 10,996 5.760%, 11/07/95 (B) 8,000 7,953 5.781%, 11/29/95 (B) 7,100 7,034 Konica Financial USA (LOC: Mitsubishi Bank) 5.847%, 10/10/95 (B) 7,000 6,990 Mitchell Funding (LOC: Swiss Bank) 6.453%, 10/02/95 40,000 39,993 Orix America (LOC: Sanwa Bank) 5.930%, 10/02/95 (B) 25,000 24,996 Pemex Capital (LOC: Credit Suisse) 5.838%, 10/26/95 10,000 9,960 5.751%, 11/17/95 15,000 14,888 5.778%, 11/17/95 10,000 9,925 Pemex Capital (LOC: Swiss Bank) 5.886%, 10/05/95 10,000 9,994 Petroleo Brasileiro (LOC: Barclays Bank) 5.856%, 12/20/95 10,000 9,872 5.862%, 12/27/95 8,000 7,889 5.866%, 01/03/96 10,000 9,850 Pooled Accounts Receivable Capital 5.827%, 10/05/95 (B) 15,370 15,360 5.797%, 10/20/95 (B) 20,000 19,939 5.846%, 10/26/95 (B) 30,000 29,879 5.805%, 11/09/95 (B) 10,235 10,171 Pooled Certificate (Guarantor: FGIC) 5.832%, 10/06/95 (B) 10,237 10,229 5.819%, 10/11/95 (B) 6,044 6,034 5.819%, 10/18/95 (B) 13,148 13,112 Premium Funding 5.751%, 12/07/95 (B) 30,378 30,057 Prospect Street Senior Portfolio (Guarantor: FSA) 5.830%, 10/02/95 (B) $ 7,037 $ 7,036 6.044%, 10/02/95 (B) 4,267 4,266 5.820%, 10/11/95 (B) 2,041 2,038 5.813%, 10/17/95 (B) 2,023 2,018 5.848%, 10/19/95 (B) 3,226 3,217 5.808%, 10/26/95 (B) 6,783 6,756 5.808%, 10/26/95 (B) 6,783 6,756 5.806%, 11/10/95 (B) 3,990 3,965 5.815%, 12/01/95 (B) 4,121 4,081 Receivables Capital 5.814%, 10/04/95 (B) 10,000 9,995 5.818%, 10/16/95 (B) 10,000 9,976 5.763%, 10/17/95 (B) 30,000 29,924 5.829%, 10/25/95 (B) 15,000 14,942 5.790%, 10/26/95 (B) 22,771 22,680 Ryobi Financial (LOC: Mitsubishi Bank) 5.853%, 10/17/95 7,100 7,082 SRD Financial (LOC: Bank of Tokyo) 5.826%, 10/12/95 15,000 14,973 Towson Town Center (LOC: Mitsubishi Bank) 5.826%, 10/06/95 7,556 7,550 5.832%, 10/18/95 4,500 4,488 5.829%, 10/20/95 11,462 11,427 UBS Financial 6.453%, 10/02/95 50,000 49,991 6.453%, 10/02/95 50,000 49,991 US Prime Property (LOC: Westpac Bank) 5.891%, 10/10/95 11,000 10,984 5.762%, 11/29/95 15,000 14,860 5.774%, 12/08/95 20,000 19,785 5.774%, 12/08/95 9,000 8,903 TOTAL COMMERCIAL PAPER (Cost $1,350,921) 1,350,921 CORPORATE OBLIGATIONS--20.4% Bear Stearns 5.925%, 10/04/95 (A) 50,000 50,000 Beta Finance 5.960%, 10/02/95 (A) 60,000 60,000 Ford Motor Credit 8.625%, 04/15/96 20,000 20,282 9.100%, 07/05/96 10,000 10,233 General Electric Capital 6.000%, 10/02/95 (A) 25,000 24,996 6.070%, 10/02/95 (A) 50,000 49,985 Goldman Sachs Group 6.437%, 10/13/95 20,000 20,000 6.562%, 12/19/95 10,000 10,000 5.750%, 02/06/96 25,000 25,000 5.750%, 04/08/96 25,000 25,000 5.875%, 06/04/96 20,000 20,000 Household Finance 10.090%, 03/21/96 5,000 5,093 Merrill Lynch 6.050%, 08/19/96 $35,000 $ 35,000 Securitized Triple A Receivables Trust 6.113%, 10/20/95 (A) (B) 12,500 12,515 Structured Enhanced Return Trust 1994 T-1 5.906%, 10/13/95 (A) (B) 50,000 49,981 Structured Enhanced Return Trust 1994 A-5 5.862%, 10/25/95 (A) (B) 47,000 46,997 Structured Enhanced Return Trust 1995 A-17 6.063%, 10/02/95 (A) (B) 50,000 50,000 Structured Enhanced Return Trust 1995 A-18 5.862%, 10/16/95 (B) 25,000 24,996 Sun Life Insurance of America 6.250%, 10/02/95 (A) 75,000 75,001 TOTAL CORPORATE OBLIGATIONS (Cost $615,079) 615,079 LOAN PARTICIPATION CERTIFICATES--12.2% Barclays Bank (Cargill Financial Services) 5.810%, 10/10/95 25,000 25,000 5.810%, 10/18/95 25,000 25,000 Barclays Bank (Cargill Incorporated) 6.500%, 10/02/95 25,000 25,000 5.780%, 10/17/95 15,000 15,000 5.780%, 10/19/95 15,000 15,000 Barclays Bank (Morgan Stanley) 6.600%, 10/02/95 50,000 50,000 Barclays Bank PLC (National Rural Utilities) 5.810%, 10/02/95 20,000 20,000 5.800%, 10/25/95 15,000 15,000 5.800%, 10/27/95 17,000 17,000 CoreStates Bank (Aon Corporation) 5.820%, 10/04/95 13,000 13,000 CoreStates Bank (Weyerhauser Mortgage) 5.850%, 10/16/95 60,310 60,310 Toronto Dominion Bank (Bell Atlantic Financial Services) 5.770%, 10/03/95 7,000 7,000 Toronto Dominion Bank (ITT Hartford) 5.810%, 10/16/95 10,000 10,000 Toronto Dominion Bank (Morgan Stanley) 5.900%, 10/02/95 20,000 20,000 6.600%, 10/02/95 50,000 50,000 TOTAL LOAN PARTICIPATION CERTIFICATES (Cost $367,310) 367,310 U.S. GOVERNMENT AGENCY OBLIGATIONS--6.6% Export-Import Bank 5.935%, 10/15/95 (A) 70,455 70,443 Export-Import Bank/KA leasing 5.895%, 10/15/95 (A) $ 36,163 $ 36,163 FHLB 6.200%, 10/05/95 (A) 25,000 25,018 6.330%, 10/02/95 (A) 25,000 25,041 FNMA 6.150%, 10/02/95 (A) 20,000 19,998 SLMA 5.640%, 10/03/95 (A) 11,150 11,140 5.640%, 10/03/95 (A) 10,000 9,995 U.S. AID 5.900%, 10/03/95 (A) 1,250 1,248 TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (Cost $199,046) 199,046 ASSET BACKED SECURITIES--3.3% CARCO Auto Loan Master Trust 1993-2 A1 5.901%, 10/16/95 (A) 63,500 63,500 Money Market Auto Loan Trust 6.005%, 10/16/95 (A) 36,050 36,060 TOTAL ASSET BACKED SECURITIES (Cost $99,560) 99,560 CERTIFICATES OF DEPOSIT--1.6% Mercantile Safe Deposit & Trust 5.956%, 10/09/95 (A) 30,000 30,000 5.956%, 10/09/95 (A) 20,000 20,000 TOTAL CERTIFICATES OF DEPOSIT (Cost $50,000) 50,000 MASTER NOTES--0.6% Associates Corporation of North America 5.708%, 10/02/95 (C) 14,617 14,617 Goldman Sachs 5.830%, 10/03/95 (C) 3,569 3,569 TOTAL MASTER NOTES (Cost $18,186) 18,186 REPURCHASE AGREEMENTS--10.6% Daiwa Securities 6.450%, dated 09/29/95, matures 10/02/95, repurchase price $100,053,750 (collateralized by various U.S. Treasury Bonds, total par value $74,635,000, 7.250%-12.750%, 11/15/10-05/15/16: total market value $102,825,062) 100,000 100,000 Salomon Brothers 6.450%, dated 09/29/95, matures 10/02/95, repurchase price $220,582,698, (collateralized by various FHLMC and FNMA Bonds, total par value $220,464,198, 4.950%-17.759%, 11/01/99-10/01/25: total market value $230,959,617) 220,464 220,464 TOTAL REPURCHASE AGREEMENTS (Cost $320,464) 320,464 TOTAL INVESTMENTS--100.1% (Cost $3,020,566) 3,020,566 OTHER ASSETS AND LIABILITIES--(0.1%) Other Assets and Liabilities, Net $ (3,679) NET ASSETS: Portfolio shares--Institutional Class ($.01 par value--20 billion authorized) based on 2,911,050,562 outstanding shares 2,911,050 Portfolio shares--Retail Class A ($.01 par value--20 billion authorized) based on 96,082,889 outstanding shares 96,083 Portfolio shares--Retail Class B ($.01 par value--20 billion authorized) based on 13,694 outstanding shares 14 Portfolio shares--Corporate Trust Class ($.01 par value--20 billion authorized) based on 9,735,192 outstanding shares 9,735 Accumulated net realized gain on investments 5 TOTAL NET ASSETS:--100.0% $3,016,887 NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER SHARE--INSTITUTIONAL CLASS $ 1.00 NET ASSET VALUE AND REDEMPTION PRICE PER SHARE--RETAIL CLASS A $ 1.00 NET ASSET VALUE AND OFFERING PRICE PER SHARE--RETAIL CLASS B (1) $ 1.00 NET ASSET VALUE AND OFFERING PRICE, AND REDEMPTION PRICE PER SHARE--CORPORATE TRUST CLASS $ 1.00 The accompanying notes are an integral part of the financial statements. (1) Retail Class B has a contingent deferred sales charge. For a description of possible redemption charge, see the notes to the financial statements. (A) Variable Rate Security--the rate reported on the Statement of Net Assets is the rate in effect as of September 30, 1995. The date shown is the reset date. (B) Securities sold within the terms of a private placement memorandum, exempt from registration under Section 4(2) or 144A of the Securities Act of 1933, as amended, and may be sold only to dealers in that program or other "accredited investors". These securities have been determined to be liquid under guidelines established by the Board of Directors. (C) Variable Rate Security with Demand Features--the rate reported on the Statement of Net Assets is the rate as of September 30, 1995. The date shown is the longer of the reset or demand date. AID--Agency for International Development FGIC--Financial Guaranty Insurance Company FSA--Financial Security Assurance FHLB--Federal Home Loan Bank FHLMC--Federal Home Loan Mortgage Corporation FNMA--Federal National Mortgage Association LOC--Letter of Credit SLMA--Student Loan Marketing Association GOVERNMENT OBLIGATIONS FUND Description Par (000) Value (000) U.S. GOVERNMENT AGENCY OBLIGATIONS--46.1% Export-Import Bank 5.875%, 10/16/95 (A) (B) $25,000 $25,000 5.895%, 10/16/95 (A) (B) 18,199 18,199 5.935%, 10/16/95 (A) (B) 30,000 29,995 FHLB 6.040%, 10/02/95 (A) 13,000 12,957 6.250%, 10/05/95 (A) 25,000 25,076 5.753%, 12/04/95 20,000 19,969 FHLMC 6.170%, 10/05/95 (A) 15,000 15,004 FNMA 5.710%, 10/25/95 34,550 34,420 5.673%, 01/29/96 20,000 19,633 5.772%, 05/13/96 20,000 19,309 5.825%, 05/13/96 10,000 9,651 SLMA 5.480%, 10/03/95 (A) 10,000 10,000 5.480%, 10/03/95 (A) 20,000 20,000 5.550%, 10/03/95 (A) 14,000 13,905 5.640%, 10/03/95 (A) 15,000 15,000 U.S. AID 5.740%, 10/03/95 (A) 8,000 8,019 5.740%, 10/03/95 (A) 11,000 11,000 5.740%, 10/03/95 (A) 13,000 13,000 5.764%, 10/03/95 (A) 15,000 15,000 5.774%, 10/03/95 (A) 10,000 9,987 5.790%, 10/03/95 (A) 1,000 1,000 TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (Cost $346,124) 346,124 OTHER U.S. GOVERNMENT OBLIGATIONS--13.8% Downey Savings & Loan (LOC: Federal Home Loan Bank of San Francisco) 6.273%, 10/10/95 25,000 24,963 5.657%, 01/16/96 20,000 19,673 5.682%, 04/12/96 10,000 9,706 5.733%, 05/28/96 15,000 14,450 Fidelity Federal Bank, NSB (LOC: Federal Home Loan Bank of San Francisco) 5.755%, 11/28/95 15,000 14,862 5.757%, 11/30/95 20,000 19,810 TOTAL OTHER U.S. GOVERNMENT OBLIGATIONS (Cost $103,464) 103,464 U.S. TREASURY OBLIGATIONS--2.0% U.S. Treasury Bill 5.567%, 01/18/96 $ 15,000 $ 14,754 TOTAL U.S. TREASURY OBLIGATIONS (Cost $14,754) 14,754 REPURCHASE AGREEMENT--38.3% Bear Stearns 6.150%, dated 09/29/95, matures 10/02/95, repurchase price $150,076,875 (collateralized by various U.S. Treasury STRIPS, total par value $247,512,000, 02/15/97- 05/15/09: total market value $153,450,000) 150,000 150,000 Daiwa Securities 6.450%, dated 09/29/95, matures 10/02/95, repurchase price $100,053,750 (collateralized by various U.S. Treasury Notes, total par value $89,180,000, 6.250%-8.750%, 05/15/17-08/15/23: total market value $102,000,000) 100,000 100,000 Prudential 6.220%, dated 09/29/95, matures 10/02/95, repurchase price $19,933,608 (collateralized by various FNMA obligations, total par value $22,482,157, 5.000%-9.000%, 05/01/97- 10/01/25: total market value $20,321,891) 19,923 19,923 Salomon Brothers 6.450%, dated 09/29/95, matures 10/02/95, repurchase price $17,125,974 (collateralized by various FNMA obligations, total par value $27,714,013, 6.000%-10.500%, 05/01/02-09/01/25: total market value $17,738,028) 17,117 17,117 TOTAL REPURCHASE AGREEMENT (Cost $287,040) 287,040 TOTAL INVESTMENTS--100.2% (Cost $751,382) 751,382 OTHER ASSETS AND LIABILITIES--(0.2%) Other Assets and Liabilities, Net (1,237) NET ASSETS: Portfolio shares--Institutional Class ($.01 par value--20 billion authorized) based on 551,284,505 outstanding shares $551,285 Portfolio shares--Corporate Trust Class ($.01 par value--20 billion authorized) based on 198,861,163 outstanding shares 198,861 Accumulated net realized loss on investments (1) TOTAL NET ASSETS:--100.0% $750,145 NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER SHARE--INSTITUTIONAL CLASS $1.00 NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER SHARE--CORPORATE TRUST CLASS $1.00 The accompanying notes are an integral part of the financial statements. (A) Variable Rate Security--the rate reported on the Statement of Net Assets is the rate in effect as of September 30, 1995. The date shown is the next reset date. (B) Securities sold within the terms of a private placement memorandum, exempt from registration under Section 4[2] or 144A of the Securities Act of 1933, as amended, and may be sold only to dealers in that program or other "accredited investors." These securities have been determined to be liquid under guidelines established by the Board of Directors. AID--Agency for International Development FHLB--Federal Home Loan Bank FHLMC--Federal Home Loan Mortgage Corporation FNMA--Federal National Mortgage Association LOC--Letter of Credit SLMA--Student Loan Mortgage Association STRIPS--Separately Trading of Registered Interest and Principal of Securities TREASURY OBLIGATIONS FUND Description Par (000) Value (000) U.S. TREASURY OBLIGATIONS--23.4% U.S. Treasury Bills 6.038%, 10/19/95 $ 25,000 $ 24,927 6.020%, 11/16/95 25,000 24,814 5.415%, 01/18/96 25,000 24,590 5.600%, 02/08/96 25,000 24,509 5.325%, 03/07/96 50,000 48,820 5.820%, 07/25/96 25,000 23,858 U.S. Treasury Notes 4.625%, 02/15/96 25,000 24,904 5.875%, 05/31/96 50,000 50,030 U.S. Treasury STRIPS 0.000%, 02/15/96 25,000 24,485 TOTAL U.S. TREASURY OBLIGATIONS (Cost $270,937) 270,937 REPURCHASE AGREEMENTS--76.9% BA Securities 6.200%, dated 09/29/95, matures 10/02/95, repurchase price $52,026,867 (collateralized by various U.S. Treasury Notes, total par value $51,671,898, 6.500%-7.750%, 04/30/97- 11/30/99: total market value $53,040,000) 52,000 52,000 Bear Stearns 6.150%, dated 09/29/95, matures 10/02/95, repurchase price $225,115,313 (collateralized by various U.S. Treasury STRIPS, total par value $342,941,777, 11/15/97- 02/15/03: total market value $230,175,000) 225,000 225,000 BT Securities 6.100%, dated 09/29/95, matures 10/02/95, repurchase price $50,025,417 (collateralized by U.S. Treasury Note, par value $50,860,716, 6.125%, matures 05/31/97: total market value $51,000,000) 50,000 50,000 CS First Boston 5.730%, dated 09/25/95, matures 10/02/95, repurchase price $45,021,488 collateralized by U.S. Treasury Note, par value $41,316,575, 7.875%, matures 11/15/04: total market value $45,900,0000 45,000 45,000 Daiwa Securities 6.450%, dated 09/29/95, matures 10/02/95, repurchase price $107,057,513 (collateralized by various U.S. Treasury Bonds, total par value $98,248,700, 7.250%-8.125%, 05/15/96-05/15/21: total market value $109,140,000) 107,000 107,000 Goldman Sachs 5.750%, dated 09/26/95, matures 10/02/95, repurchase price $45,021,563 (collateralized by U.S. Treasury Bond, par value $28,557,191, 7.250%, matures 05/15/16, total market value $45,900,000) $45,000 $45,000 Lehman Brothers 5.780%, dated 09/25/95, matures 10/02/95, repurchase price $45,021,675 (collateralized by various U.S. Treasury Notes, total par value $41,199,314, 6.875%-9.250%, 02/15/96- 03/31/00: total market value $45,900,000) 45,000 45,000 Merrill Lynch 5.700%, dated 09/29/95, matures 10/02/95, repurchase price $50,023,750 (collateralized by U.S. Treasury Note, par value $50,885,656, 6.125%, matures 05/31/97: total market value $51,000,000) 50,000 50,000 Nomura Securities 5.810%, dated 9/28/95, matures 10/02/95, repurchase price $45,021,788 (collateralized by various U.S. Treasury Notes, total par value $46,075,735, 5.625%-6.750%, 05/31/97-06/30/97: total market value $45,900,000) 45,000 45,000 Prudential Securities 6.200%, dated 9/29/95, matures 10/02/95, repurchase price $34,681,639 (collateralized by various U.S. Treasury Notes, total par value $34,111,546, 5.750%-7.875%, 04/30/99-08/15/03: total market value $35,357,004) 34,664 34,664 UBS Securities 6.430%, dated 09/29/95, matures 10/02/95, repurchase price $190,815,050 (collateralized by various U.S. Treasury Notes, total par value $183,034,056, 4.000%-9.125%, 01/31/96-11/15/24: total market value $194,527,117) 190,713 190,713 TOTAL REPURCHASE AGREEMENTS (Cost $889,377) 889,377 TOTAL INVESTMENTS--100.3% (Cost $1,160,314) 1,160,314 OTHER ASSETS AND LIABILITIES--(0.3%) Other Assets and Liabilities, Net (4,325) NET ASSETS: Portfolio shares--Institutional Class ($.01 par value--20 billion authorized) based on 117,169,937 outstanding shares $ 117,170 Portfolio shares--Corporate Trust Class ($.01 par value--20 billion authorized) based on 1,038,787,512 outstanding shares 1,038,788 Accumulated net realized gain on investments 31 TOTAL NET ASSETS:--100.0% $1,155,989 NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER SHARE--INSTITUTIONAL CLASS $ 1.00 NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER SHARE--CORPORATE TRUST CLASS $ 1.00 The accompanying notes are an integral part of the financial statements. STRIPS--Separately Trading of Registered Interest and Principal of Securities LIMITED TERM INCOME FUND Description Par (000) Value (000) ASSET BACKED SECURITIES--74.6% ADJUSTABLE RATE MORTGAGES--3.3% Merrill Lynch Mortgage Investors 1993-C A4 6.875%, 03/15/18 (B) $4,000 $4,000 AUTO COMPANY SUBSIDIARIES--AUTO--5.5% Capital Auto Receivable Asset Trust 1993-1 5.850%, 02/15/98 950 948 Premier Auto Trust 1992-1 A 5.750%, 07/15/97 (A) 366 366 Premier Auto Trust 1992-5 B 4.900%, 12/15/95 1,004 993 Premier Auto Trust 1993-4 B 4.950%, 02/02/99 904 893 Premier Auto Trust 1994-2 B 6.500%, 06/02/00 (A) 3,430 3,440 6,640 BANKS -- AUTO--8.5% Boulevard Auto Trust 1993-1 A 4.550%, 03/15/98 822 817 Midlantic Automobile Grantor Trust 1992-1 B 5.150%, 09/15/97 842 840 New South Auto Trust 1994-B A 8.475%, 01/15/02 3,057 3,139 Western Financial Grantor Trust 1993-2 A2 4.700%, 10/01/98 2,019 1,989 Western Financial Grantor Trust 1994-3 B 6.650%, 12/01/99 2,125 2,135 Zions Auto Trust 1993-1 B 5.650%, 06/15/99 1,427 1,421 10,341 BANKS -- BOATS & R.V.'S--4.3% CFC Grantor Trust TR14 7.150%, 11/15/06 (A) 3,635 3,647 Chemical Financial Acceptance 1991-A A 6.450%, 12/15/97 1,582 1,580 5,227 BANKS--CREDIT CARD RECEIVABLES--7.9% First USA Credit Card Master Trust 1995-1 A 5.952%, 10/15/01 (B) 4,100 4,098 MBNA Master Credit Card Trust 1994-BA 5.661%, 01/15/02 (B) 5,500 5,472 9,570 BUSINESS CREDIT - AUTO--1.4% Olympic Automobile Receivables Trust 1993-C B 4.600%, 02/15/00 $1,708 $ 1,683 BUSINESS CREDIT - BUSINESS--4.1% Leasing Solution Receivables 1994-1 A 5.575%, 03/15/99 661 659 Leasing Solutions Receivables 1994-2 A 8.075%, 12/15/99 1,957 1,977 Orix Credit Alliance Owner Trust 1993-A A2 4.300%, 08/17/98 1,417 1,397 Orix Credit Alliance Owner Trust 1993-C B 4.600%, 08/17/98 945 935 4,968 CONSUMER FINANCE - SECOND MORTGAGE RELATED--3.8% HFC Home Equity Loan Trust 1992-2 B 6.850%, 11/20/12 1,657 1,632 Household Finance 1992-3 A3 6.100%, 11/20/06 (B) 1,707 1,689 Remodelers Home Improvement 1994-1 A 7.800%, 11/20/99 (A) 1,263 1,267 4,588 CONSUMER FINANCE COMPANY - AUTO--1.2% Auto Bond Receivables Trust 1993-1 A 6.125%, 11/15/98 1,468 1,452 CONSUMER FINANCE - FIRST MORTGAGE RELATED--2.8% Saxon Mortgage Securities 1994-4A 1A2 5.250%, 04/25/24 3,469 3,404 EQUIPMENT LEASES--4.3% JLC Lease Receivables Trust 1994-1 A 6.208%, 12/22/99 (B) 4,241 4,242 World Omni Leasing 1993-1 B 5.000%, 05/17/99 936 928 5,170 MEDICAL LEASES--2.9% Amerisource Receivables Master Trust 1995-1 A 6.225%, 03/15/00 (A) (B) 3,500 3,504 MORTGAGE BANKERS & LOANS - SECOND MORTGAGE RELATED--13.0% BCI Home Equity Loan 1991-1 A1 7.100%, 09/15/06 $ 1 $ 1 BCI Home Equity Loan 1994-1 B 6.537%, 03/29/44 (B) 2,327 2,335 Greentree Financial 1995 A-A1 7.000%, 04/15/20 1,849 1,857 The Money Store Home Equity Loan Trust 1992-D1 A1 6.500%, 01/15/04 3,074 3,077 The Money Store Home Equity Loan Trust 1993-B A1 5.400%, 08/15/05 3,055 2,965 The Money Store Home Equity Loan Trust 1994-C1 A1 6.775%, 09/15/07 1,507 1,508 The Money Store Trust Series 1994-D1 A2 8.000%, 11/15/07 4,000 4,082 15,825 RETAIL MALL MORTGAGES--6.8% Bristol Oaks, L.P. 1994-1 B 6.525%, 07/10/99 (B) 4,250 4,242 Potomac Mills Finance 1C 7.013%, 10/20/04 (B) 4,000 4,000 8,242 VACATION HOME MORTGAGES--4.9% Patten 1995-1A 7.250%, 08/01/11 (A) (B) 4,000 3,994 RCI Vacation Ownership Mortgage Trust 1991-B 7.500%, 08/25/98 (A) 1,957 1,955 5,949 TOTAL ASSET BACKED SECURITIES (Cost $90,396) 90,563 CORPORATE OBLIGATIONS--4.6% ELECTRICAL SERVICES--0.8% Houston Lighting & Power 8.625%, 01/15/96 1,000 1,008 FINANCIAL SERVICES--1.2% American General Finance 7.300%, 10/16/95 500 500 Heller Financial 6.500%, 11/15/95 1,000 999 1,499 FOOD, BEVERAGE & TOBACCO--0.8% Philip Morris 8.875%, 07/01/96 $ 900 $ 917 PAPER & PAPER PRODUCTS--0.4% International Paper 9.625%, 10/15/95 450 451 RETAIL--0.8% Dayton Hudson 4.820%, 04/01/96 1,000 994 WHOLESALE--0.6% Supervalue 5.875%, 11/15/95 750 750 TOTAL CORPORATE OBLIGATIONS (Cost $5,787) 5,619 OTHER MORTGAGE BACKED OBLIGATIONS--11.8% Capstead Securities IV 1992-3 B 8.000%, 06/25/22 3,071 3,103 General Electric Capital Mortgage 1995-1 A1 8.350%, 02/25/25 1,942 1,952 Mortgage Capital Funding 1993-C1 A1 5.250%, 05/25/15 1,866 1,845 Mortgage Capital Funding 1993-C1 A2 6.512%, 05/25/15 (B) 4,530 4,523 Mortgage Obligation Structured Trust 1993-1 A1 6.350%, 10/25/18 1,411 1,399 RTC 1992-11 A1A 7.150%, 06/25/23 564 546 RTC 1992-C7 B 7.000%, 10/25/24 989 985 TOTAL OTHER MORTGAGE BACKED OBLIGATIONS (Cost $14,331) 14,353 U.S. GOVERNMENT AGENCY OBLIGATIONS--2.1% FNMA 8.650%, 08/25/18 2,453 2,485 TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (Cost $2,471) 2,485 TAXABLE MUNICIPAL BONDS--1.7% Colorado Health Facilities Authority (RB) 6.200%, 07/01/25 (B) $2,000 $ 2,000 TOTAL TAXABLE MUNICIPAL BONDS (Cost $2,000) 2,000 U.S. GOVERNMENT AGENCY MORTGAGE-BACKED OBLIGATIONS--0.8% FHLMC 1625-B 4.750%, 01/15/01 1,000 991 TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED OBLIGATIONS (Cost $1,001) 991 MASTER NOTES--1.2% Goldman Sachs 5.830%, 10/03/95 (C) 1,500 1,500 TOTAL MASTER NOTES (Cost $1,500) 1,500 REPURCHASE AGREEMENTS--5.8% J.P. Morgan 6.358%, dated 09/29/95, matures 10/02/95, repurchase price $3,316,195 (collateralized by U.S. Treasury STRIPS, total par value $10,375,512, 11/15/00-11/15/24: total market value $3,380,747) 3,314 3,314 Merrill Lynch 5.830%, dated 09/29/95, matures 10/02/95, repurchase price $3,694,220 (collateralized by various U.S. Treasury Bills, total par value $788,853, 03/07/96-09/19/96: U.S. Treasury Notes, total par value $2,313,814, 7.625%-13.750%, 11/15/03-11/15/10: total market value $3,766,348) 3,693 3,693 TOTAL REPURCHASE AGREEMENTS (Cost $7,007) 7,007 TOTAL INVESTMENTS--102.6% (Cost $124,493) 124,518 OTHER ASSETS AND LIABILITIES--(2.6%) Other Assets and Liabilities, Net (3,102) NET ASSETS: Portfolio shares--Institutional Class-- ($.0001 par value--2 billion authorized) based on 11,231,268 outstanding shares $114,651 Portfolio shares--Retail Class A--($.0001 par value--2 billion authorized) based on 1,005,426 outstanding shares 10,618 Undistributed net investment income 38 Accumulated net realized loss on investments (3,916) Net unrealized appreciation of investments 25 TOTAL NET ASSETS:--100.0% $121,416 NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER SHARE--INSTITUTIONAL CLASS $ 9.92 NET ASSET VALUE AND REDEMPTION PRICE PER SHARE--RETAIL CLASS A $ 9.92 MAXIMUM SALES CHARGE OF 2.00%+ 0.20 OFFERING PRICE PER SHARE--RETAIL CLASS A $10.12 The accompanying notes are an integral part of the financial statements. + The offer price is calculated by dividing the net asset value by 1 minus the maximum sales charge of 2.00%. (A) Security sold within the terms of a private placement memorandum, exempt from registration under section 144a of the Securities Act of 1933, as amended, and may be sold only to dealers in that program or other "accredited Investors". These securities have been determined to be liquid under the guidelines established by the Board of Directors. (B) Variable Rate Security--the rate reported on the Statement of Net Assets is the rate in effect as of September 30, 1995. (C) Variable Rate Security with Demand Features--the rate reported on the Statement of Net Assets is the rate in effect as of September 30, 1995. The date shown is the longer of the reset or demand date. FHLMC--Federal Home Loan Mortgage Corporation FNMA--Federal National Mortgage Association RB--Revenue Bond RTC--Resolution Trust Corporation STRIPS--Separately Trading of Registered Interest and Principal of Securities INTERMEDIATE TERM INCOME FUND Description Par (000) Value (000) U.S. TREASURY OBLIGATIONS--59.8% U.S. Treasury Notes 5.500%, 07/31/97 $12,590 $12,517 5.125%, 02/28/98 11,115 10,926 5.125%, 11/30/98 10,615 10,368 6.750%, 04/30/00 5,230 5,377 6.250%, 02/15/03 8,915 8,966 7.250%, 08/15/04 5,770 6,166 TOTAL U.S. TREASURY OBLIGATIONS (Cost $53,380) 54,320 OTHER MORTGAGED BACKED OBLIGATIONS--9.9% Drexel Burnham Lambert Trust S2 9.000%, 08/01/18 91 96 GECMS 6.000%, 04/25/09 2,925 2,822 Kidder Peabody Mortgage Assets Trust 6F 7.950%, 07/20/18 513 516 MDC Mortgage Funding P3 8.200%, 11/20/17 22 23 Morgan Stanley Mortgage Trust W5 9.050%, 05/01/18 168 177 Prudential Home Mortgage Securities 1992-A3 7.000%, 04/25/99 1,978 2,010 Prudential Home Mortgage Securities Remic 1994-28 6.801%, 09/25/01 2,275 2,239 Resolution Trust 1991-M6 B2 7.000%, 06/25/21 (B) 1,170 1,154 TOTAL OTHER MORTGAGED BACKED OBLIGATIONS (Cost $8,828) 9,037 CORPORATE OBLIGATIONS--9.5% Bear Stearns 6.500%, 06/15/00 2,800 2,779 Cigna 7.400%, 01/15/03 3,075 3,106 Farmers Group 8.250%, 07/15/96 320 325 GMAC 7.650%, 01/16/98 2,385 2,451 TOTAL CORPORATE OBLIGATIONS (Cost $8,768) 8,661 ASSET BACKED SECURITIES--7.4% BW Home Equity Trust 1990-1 1 9.250%, 09/15/05 25 26 Chemical Financial Acceptance 1991-A 1 6.450%, 12/15/97 577 577 Fleet Finance Home Equity 1990-1 8.900%, 01/16/06 90 92 Household Finance Home Equity 1993-2 A3 4.650%, 12/20/08 $ 2,101 $ 2,044 Olympic Auto Receivables Trust 1993-D 4.750%, 07/15/00 1,574 1,550 Olympic Auto Receivables Trust 1994-A 5.700%, 01/15/01 368 366 Zale Funding Series 94-1, Class B 7.500%, 05/15/03 (B) 2,000 2,036 TOTAL ASSET BACKED SECURITIES (Cost $6,669) 6,691 U.S. GOVERNMENT AGENCY MORTGAGE-BACKED OBLIGATIONS--6.6% FHLMC 6.000%, 11/15/08 3,500 3,188 7.550%, 05/15/20 93 92 8.000%, 10/15/20 2,630 2,704 FNMA 14.750%, 03/01/12 1 1 TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED OBLIGATIONS (Cost $6,192) 5,985 MASTER NOTES--1.6% Goldman Sachs 5.830%, 10/03/95 (A) 1,435 1,435 TOTAL MASTER NOTES (Cost $1,435) 1,435 REPURCHASE AGREEMENTS--4.1% J.P. Morgan 6.358%, dated 09/29/95, matures 10/02/95, repurchase price $1,126,239 (collateralized by various U.S. Treasury STRIPS, total par value $3,523,710, 11/15/00 - 11/15/24, total market value $1,148,162) 1,126 1,126 Merrill Lynch 5.830%, dated 09/29/95, matures 10/02/95, repurchase price $2,557,464 (collateralized by various U.S. Treasury Bills, total par value $546,114, 03/07/96 - 09/19/96: U.S. Treasury Bonds, total par value $1,601,826, 7.625% - 13.750%, 11/15/03 - 11/15/10: total market value $2,607,398) 2,556 2,556 TOTAL REPURCHASE AGREEMENTS (Cost $3,682) 3,682 TOTAL INVESTMENTS--98.9% (Cost $88,954) 89,811 OTHER ASSETS AND LIABILITIES--1.1% Other assets and liabilities, Net 1,001 NET ASSETS: Portfolio shares--Institutional Class ($.0001 par value--2 billion authorized) based on 8,887,937 outstanding shares $87,916 Portfolio shares--Retail Class A ($.0001 par value--2 billion authorized) based on 245,108 outstanding shares 2,494 Undistributed net investment income 1 Accumulated net realized loss on investments (456) Net unrealized appreciation of investments 857 TOTAL NET ASSETS:--100.0% $90,812 NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER SHARE--INSTITUTIONAL CLASS $ 9.94 NET ASSET VALUE AND REDEMPTION PRICE PER SHARE--RETAIL CLASS A $ 9.94 MAXIMUM SALES CHARGE OF 3.75%+ 0.39 OFFERING PRICE PER SHARE--RETAIL CLASS A $10.33 The accompanying notes are an integral part of the financial statements. + The offer price is calculated by dividing the net asset value by 1 minus the maximum sales charge of 3.75%. (A) Variable Rate Security with Demand Features--the rate reported on the Statement of Net Assets is the rate in effect as of September 30,1995. The date shown is the longer of the reset date or the demand date. (B) Security sold within the terms of a private placement memorandum, exempt from registration under section 144A of the Securities Act of 1933, as amended, and maybe sold only to dealers in that program or other "accredited investors." These securities have been determined to be liquid under the guidelines established by the Board of Directors. FHLMC--Federal Home Loan Mortgage Corportation FNMA--Federal National Mortgage Association GMAC--General Motors Acceptance Corporation GECMS--General Electric Capital Marketing Service STRIPS--Separately Trading of Registered Interest and Principal of Securities FIXED INCOME FUND Description Par (000) Value (000) U. S. TREASURY OBLIGATIONS--53.3% U.S. Treasury Bond 7.125%, 02/15/23 $39,865 $ 42,258 U.S. Treasury Notes 5.500%, 07/31/97 41,865 41,624 5.125%, 02/28/98 28,780 28,291 5.125%, 11/30/98 9,725 9,499 6.750%, 04/30/00 29,365 30,191 7.250%, 08/15/04 9,315 9,955 U.S. Treasury STRIPS 0.000%, 02/15/99 1,055 866 TOTAL U.S. TREASURY OBLIGATIONS (Cost $158,734) 162,684 OTHER MORTGAGE-BACKED OBLIGATIONS--17.7% Collateralized Mortgage Corporation 88-13 C 8.000%, 09/20/19 126 128 Countrywide Mortgage-Backed Securities 1994-GA3 6.500%, 04/25/24 2,380 2,331 Drexel Burnham Lambert Trust S-2 9.000%, 08/01/18 796 840 General Electric Capital Marketing 1994-12 A4 6.000%, 04/25/09 3,125 3,015 General Electric Capital Mortgage 1994-11 A1 6.500%, 03/25/24 4,295 4,271 General Electric Capital Mortgage 1994-17 A6 7.000%, 05/25/24 7,000 6,877 General Electric Capital Mortgage 1994-17 A7 7.000%, 05/25/24 5,179 4,885 Goldman Sachs Trust 1 A 6.388%, 05/01/17 (A) 6,454 6,450 J.P. Morgan Commercial Mortgage Finance 1995-C1 B 7.618%, 07/25/10 10,329 10,444 Merrill Lynch Mortgage Investors 1993-A4 6.875%, 03/15/18 (A) 6,000 6,000 Prudential Home Mortgage Securities 1994-28 6.801%, 09/25/01 (C) 5,975 5,882 Prudential Home Mortgage Securities 1994-6 A3 7.000%, 04/25/99 848 861 Residential Funding 1992-36 A2 P11 5.700%, 11/25/07 1,097 1,079 RTC 1991-M6 B2 7.000%, 06/25/21 (C) 924 912 TOTAL OTHER MORTGAGE-BACKED OBLIGATIONS (Cost $52,850) 53,975 CORPORATE DEBT OBLIGATIONS--11.0% Bear Stearns 9.125%, 04/15/98 $ 1,000 $ 1,061 8.750%, 03/15/04 1,000 1,105 Cigna 7.400%, 01/15/03 10,250 10,352 Farmers Group 8.250%, 07/15/96 1,755 1,785 General Foods 6.000%, 06/15/01 1,440 1,413 General Motors Acceptence 6.150%, 05/11/98 2,025 2,012 Morgan Stanley Group 7.320%, 01/15/97 250 253 Nationsbank 7.750%, 08/15/04 1,000 1,060 Santander Financial Issuances 6.800%, 07/15/05 9,465 9,311 Torchmark 9.625%, 05/01/98 250 268 7.875%, 05/15/23 5,000 5,038 TOTAL CORPORATE DEBT OBLIGATIONS (Cost $33,467) 33,658 U.S. GOVERNMENT AGENCY MORTGAGE-BACKED OBLIGATIONS--6.2% FHLMC 6.000%, 11/15/08 1,275 1,162 6.500%, 12/15/23 5,439 5,008 6.500%, 01/15/24 6,445 5,429 7.000%, 02/15/24 7,133 7,180 TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED OBLIGATIONS (Cost $18,176) 18,779 ASSET BACKED SECURITIES--4.4% BW Home Equity Trust 1990-1 1 9.250%, 09/15/05 81 84 CoreStates Home Equity Trust 1994-2 A2 7.000%, 10/15/09 6,500 6,501 Dillon Reed Structured Finance 1993-K1 A1 6.660%, 08/15/10 580 558 Kidder Peabody Acceptance Brandon Development 7.870%, 01/01/16 (C) 628 569 Kidder Peabody Acceptance Lake Mary Development 7.870%, 01/01/16 (C) 1,296 1,174 Morgan Stanley Mortgage Trust 9.050%, 05/01/18 $ 40 $ 42 Olympic Auto Receivables Trust 1994-A 5.700%, 01/15/01 473 470 Zale Funding 1994-1 B 7.500%, 05/15/03 (C) 4,100 4,174 TOTAL ASSET BACKED SECURITIES (Cost $12,950) 13,572 TAXABLE MUNICIPAL BONDS--3.1% Minneapolis, Minnesota, Single Family Mortgage, Callable 10/01/05 @ 100 (RB) 6.920%, 04/01/09 8,415 8,415 San Diego County, California Pension Obligation, Series A(RB)(AMBAC) 6.560%, 08/15/06 1,000 980 TOTAL MUNICIPAL BONDS (Cost $9,383) 9,395 MASTER NOTE--1.0% Goldman Sachs 5.830%, 10/3/95 (B) 2,960 2,960 TOTAL MASTER NOTE (Cost $2,960) 2,960 REPURCHASE AGREEMENT--5.0% J.P. Morgan 6.358%, dated 09/29/95, matures 10/02/95, repurchase price $6,766,517 (collateralized by various U.S. Treasury STRIPS, total par value $21,170,673, 05/15/00 - 05/15/24: total market value $6,898,232) 6,763 6,763 Merrill Lynch 5.830%, dated 09/29/95, matures 10/02/95, repurchase price $8,381,012 (collateralized by various U.S. Treasury Bills, total par value $1,789,657, 03/07/96 - 09/19/96: U.S. Treasury Bonds, total par value $5,249,310, 7.625% - 13.750%, 11/15/03 - 11/15/10: total market value $8,544,647) 8,377 8,377 TOTAL REPURCHASE AGREEMENT (Cost $15,140) 15,140 TOTAL INVESTMENTS--101.7% (Cost $303,659) 310,163 OTHER ASSETS AND LIABILITIES--(1.7%) Other Assets and Liabilities, Net (5,214) NET ASSETS: Portfolio Shares--Institutional Class ($.0001 par value--2 billion authorized) based on 26,410,097 outstanding shares $280,882 Portfolio Shares--Retail Class A ($.0001 par value--2 billion authorized) based on 715,075 outstanding shares 7,906 Portfolio Shares--Retail Class B ($.0001 par value--2 billion authorized) based on 665,639 outstanding shares 7,159 Undistributed net investment income 134 Accumulated net realized gain on investments 2,364 Net unrealized appreciation of investments 6,504 TOTAL NET ASSETS:--100.0% $304,949 NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER SHARE--INSTITUTIONAL CLASS $ 10.97 NET ASSET VALUE AND REDEMPTION PRICE PER SHARE--RETAIL CLASS A $10.98 Maximum sales charge of 3.75%+ 0.43 OFFERING PRICE PER SHARE--RETAIL CLASS A $11.41 NET ASSET VALUE AND OFFERING PRICE PER SHARE--RETAIL CLASS B (1) $10.94 The accompanying notes are an integral part of the financial statements. + The offer price is calculated by dividing the net asset value by 1 minus the maximum sales charge of 3.75%. (1) Retail Class B has a contingent deferred sales charge. For a description of a possible redemption charge, see the notes to the financial statements. (A) Variable Rate Security--the rate reported on the Statement of Net Assets is the rate in effect as of September 30, 1995. (B) Variable Rate Security with Demand Features--the rate reported on the Statement of Net Assets is the rate in effect as of September 30, 1995. The date shown is the longer of the reset date or the demand date. (C) Security sold within the terms of a private placement memorandum, exempt from registration under section 144A of the Securities Act of 1993, as amended, and may be sold only to dealers in that program or other "accredited investors." These securities have been determined to be liquid under guide lines established by the Board of Directors. AMBAC--American Municipal Bond Assurance Company FHLMC--Federal Home Loan Mortgage Corporation RB--Revenue Bond RTC--Resolution Trust Corporation STRIPS--Separately Trading of Registered Interest and Principal of Securities INTERMEDIATE GOVERNMENT BOND FUND Description Par (000) Value (000) U.S. TREASURY OBLIGATIONS--85.3% U.S. Treasury Notes 6.125%, 07/31/96 $ 3,000 $ 3,009 6.250%, 08/31/96 3,000 3,013 6.875%, 10/31/96 3,500 3,540 6.500%, 05/15/97 2,000 2,020 6.500%, 08/15/97 7,000 7,079 7.375%, 11/15/97 11,500 11,834 7.875%, 04/15/98 6,000 6,275 5.125%, 11/30/98 4,500 4,395 6.750%, 05/31/99 9,000 9,224 6.875%, 07/31/99 3,000 3,088 7.125%, 09/30/99 9,000 9,352 6.875%, 03/31/00 4,000 4,130 6.250%, 05/31/00 1,000 1,009 7.875%, 08/15/01 2,000 2,175 7.500%, 11/15/01 5,750 6,158 7.500%, 05/15/02 2,000 2,151 6.375%, 08/15/02 250 254 7.250%, 05/15/04 8,600 9,178 TOTAL U.S. TREASURY OBLIGATIONS (Cost $84,794) 87,884 U.S. GOVERNMENT AGENCY OBLIGATIONS--11.9% FHLB 6.200%, 01/22/96 2,000 2,004 7.900%, 12/20/96 1,000 1,003 7.750%, 02/26/97 3,000 3,076 7.870%, 12/15/97 3,000 3,113 6.975%, 07/26/99 1,000 1,032 7.440%, 08/10/01 1,000 1,057 SLMA 6.490%, 05/01/96 (A) 1,000 1,005 TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (Cost $12,039) 12,290 REPURCHASE AGREEMENTS--0.6% Merrill Lynch 5.830%, dated 09/29/95, matures 10/02/95, repurchase price $625,824 (collateralized by various U.S. Treasury Bills, total par value $133,637, 06/07/96-09/19/96: U.S. Treasury Bonds, total par value $391,975, 7.625%-12.750%, 11/15/03-11/15/10: total market value $638,043) 626 626 TOTAL REPURCHASE AGREEMENTS (Cost $626) 626 TOTAL INVESTMENTS--97.8% (Cost $97,459) 100,800 OTHER ASSETS AND LIABILITIES--2.2% Other Assets and Liabilities, Net $ 2,228 NET ASSETS: Portfolio shares--Institutional Class ($.0001 par value--2 billion authorized) based on 10,785,155 outstanding shares 96,942 Portfolio shares--Retail Class A ($.0001 par value--2 billion authorized) based on 307,668 outstanding shares 2,891 Undistributed net investment income 9 Accumulated net realized loss on investments (155) Net unrealized appreciation of investments 3,341 TOTAL NET ASSETS:--100.0% $103,028 NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER SHARE--INSTITUTIONAL CLASS $ 9.29 NET ASSET VALUE AND REDEMPTION PRICE PER SHARE--RETAIL CLASS A $ 9.29 MAXIMUM SALES CHARGE OF 3.00%+ 0.29 OFFERING PRICE PER SHARE--RETAIL CLASS A $ 9.58 The accompanying notes are an integral part of the financial statements. + The offer price is calculated by dividing the net asset value by 1 minus the maximum sales charge of 3.00%. (A) Floating Rate Security--the rate reported on the Statement of Net Assets is the rate in effect as of September 30, 1995. FHLB--Federal Home Loan Bank SLMA--Student Loan Marketing Association MORTGAGE SECURITIES FUND Description Par (000) Value (000) U.S. GOVERNMENT AGENCY MORTGAGE-BACKED OBLIGATIONS--76.5% FHLMC 7.250%, 12/01/98 $ 80 $ 80 7.750%, 10/01/01 64 64 8.500%, 10/01/01 55 57 8.500%, (REMIC) Pool 118-E 05/15/05 248 249 7.400%, (REMIC) Pool 1342-F 10/15/05 1,550 1,558 6.500%, 09/01/07 214 207 8.000%, 04/01/08 268 272 8.000%, 10/01/08 135 137 6.000%, (CMO) Pool 1606-H 11/15/08 615 560 8.750%, 09/01/09 372 384 8.500%, 01/01/10 123 127 14.500%, 02/01/11 2 2 8.000%, 06/01/16 97 98 9.000%, 07/01/16 54 56 8.000%, 10/01/16 133 135 7.500%, 11/01/16 102 102 5.000%, 11/15/17 1,500 1,448 FNMA 8.000%, 08/01/96 2 2 8.670%, 06/01/97 (A) 20 19 6.000%, (REMIC) Pool 1993-212 10/25/98 1,148 1,144 5.750%, (REMIC) Pool 1993-181-DA 11/25/98 962 952 8.000%, 05/01/08 207 212 6.000%, 06/25/08 1,300 1,209 7.000%, 11/25/10 151 151 14.750%, 03/01/12 52 60 5.900%, (REMIC) Pool 1993-G93-26 07/25/15 1,500 1,464 8.250%, (REMIC) Pool G-19-D 07/25/15 730 732 8.500%, 01/01/17 167 173 7.500%, 04/01/18 99 100 7.000%, (REMIC) Pool 1992-180-H 10/25/19 1,500 1,495 6.750%, 11/25/19 1,000 986 5.000%, (REMIC) Pool 1993-97 05/25/23 1,400 1,334 GNMA 10.250%, 05/15/98 41 44 10.750%, 09/15/98 34 37 10.750%, 10/15/00 71 77 10.750%, 01/15/01 100 108 6.500%, 06/15/03 147 142 8.000%, 08/15/06 117 121 8.000%, 08/15/07 174 179 8.500%, 07/15/08 36 38 8.500%, 08/15/08 249 259 9.500%, 08/15/09 12 13 14.000%, 10/15/12 9 11 12.000%, 03/15/14 55 63 12.000%, 03/15/15 28 32 12.000%, 04/15/15 25 29 12.000%, 06/15/15 $ 47 $ 53 10.000%, 03/15/16 28 31 9.500%, 09/15/16 181 194 9.000%, 10/15/16 17 18 9.000%, 02/15/17 344 362 9.500%, 11/15/18 404 431 6.500%, 02/16/23 2,297 2,207 TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED OBLIGATIONS (Cost $19,890) 20,018 OTHER MORTGAGE-BACKED OBLIGATIONS--15.1% American Housing Trust 3 B 7.500%, 08/25/12 1,062 1,066 Bear Stearns Secured Investors Trust 1991-2 E 7.500%, 12/20/98 1,500 1,519 Collateralized Mortgage Obligation Trust 63 D 9.000%, 04/20/97 897 901 Morgan Stanley Mortgage Trust W 5 9.050%, 05/01/18 427 450 TOTAL OTHER MORTGAGE-BACKED OBLIGATIONS (Cost $3,936) 3,936 U. S. TREASURY OBLIGATIONS--3.7% U.S. Treasury Notes 6.750%, 04/30/00 480 493 6.250%, 02/15/03 480 483 TOTAL U. S. TREASURY OBLIGATIONS (Cost $962) 976 REPURCHASE AGREEMENTS--3.9% Merrill Lynch 5.830%, dated 09/29/95, matures 10/02/95, repurchase price $1,014,251 (collateralized by various U.S. Treasury Bills, total par value $216,580, 03/07/96 - 09/19/96: U.S. Treasury Bonds, total par value $635,259, 7.625% - 13.750%, 11/15/03 - 11/15/10: total market value $1,034,053) 1,014 TOTAL REPURCHASE AGREEMENTS (Cost $1,014) 1,014 TOTAL INVESTMENTS--99.2% (Cost $25,802) 25,944 OTHER ASSETS AND LIABILITIES--0.8% Other Assets and Liabilities, Net 214 NET ASSETS: Portfolio shares--Institutional Class ($.0001 par value--2 billion authorized) based on 2,545,986 outstanding shares $25,862 Portfolio shares--Retail Class A ($.0001 par value--2 billion authorized) based on 18,431 outstanding shares 185 Accumulated net realized loss on investments (31) Net unrealized appreciation of investments 142 TOTAL NET ASSETS:--100.0% $26,158 NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE--INSTITUTIONAL CLASS $ 10.20 NET ASSET VALUE AND REDEMPTION PRICE PER SHARE--RETAIL CLASS A $ 10.20 MAXIMUM SALES CHARGE OF 3.75%+ 0.40 OFFERING PRICE PER SHARE--RETAIL CLASS A $ 10.60 The accompanying notes are an integral part of the financial statements. + The offer price is calculated by dividing the net asset value by 1 minus the maximum sales charge of 3.75% (A) Variable Rate Security--the rate reported on the Statement of Net Assets is the rate in effect as of September 30, 1995. CMO--Collateralized Mortgage Obligation FHLMC--Federal Home Loan Mortgage Corporation FNMA--Federal National Mortgage Association GNMA--Government National Mortgage Association REMIC--Real Estate Mortgage Investment Conduit LIMITED TERM TAX FREE INCOME FUND Description Par (000)/Shares Value (000) MUNICIPAL BONDS--88.4% ALASKA--3.7% North Slope Borough, Series 1994 B (GO) (CGIC) 5.200%, 06/30/96 $250 $252 ARIZONA--6.0% Maricopa County, Elementary School District #17 (GO) (AMBAC) 0.000%, 07/01/98 465 413 CALIFORNIA--7.0% Roseville, Joint Union High School District (GO) (FGIC) 0.00%, 08/01/97 250 232 San Gorgonio, Memorial Health Care District, Insured Health Facility, Series 95 (RB) (CMI) 5.150%, 06/01/97 250 252 484 COLORADO--9.0% Adams County (GO) 7.200%, 12/15/97 200 208 Denver City & County Airport, Series C, Mandatory Put @ 100 (RB) (ST) 6.000%, 04/01/97 (B) 400 410 TOTAL COLORADO 618 ILLINOIS--3.7% Aurora, Kane, & Dupage Counties, Single Family Mortgage, Series 95 A (RB) (GNMA) (AMT) 6.100%, 04/01/08 250 251 MASSACHUSETTS--3.7% Housing Finance Agency, Insured Rental Housing, Series A (RB) (AMBAC) (AMT) 4.900%, 01/01/97 250 251 MINNESOTA--32.4% Crosby, Minnesota Power & Light (RB) 4.600%, 06/01/96 (A) 240 240 Dakota County, Housing & Redevelopment Authority, Callable 04/01/05 @ 102 (RB) (AMT) (GNMA/FNMA) 6.000%, 10/01/14 250 248 Fridley, Commercial Development, Mandatory Put @ 100 (RB) (AMT) 4.900%, 09/01/96 (B) 235 236 Housing Finance Agency, Single Family Mortgage, Series C (RB) 5.800%, 07/01/96 $ 180 $ 181 Minneapolis, Special School District #1 (COP) (MLO) 4.750%, 06/01/96 300 301 Northern Municipal Power Agency (RB) 7.000%, 01/01/97 220 226 Southern Municipal Power Agency (RB) 5.000%, 01/01/98 250 253 St Paul, Independent School District #625 (GO) (ISF) 6.500%, 02/01/97 300 312 West St. Paul, School District #197 (GO) (ISF) (MBIA) 0.000%, 02/01/98 250 226 2,223 MISSISSIPPI--7.3% Delta Correctional Facilities Authority (RB) (CGIC) (MLO) 4.450%, 07/01/98 500 501 TENNESSEE--4.0% Local Development Authority, Community Provider Loan Program (RB) 4.600%, 10/01/96 275 276 TEXAS--4.8% State (GO) 6.700%, 12/01/96 320 330 WISCONSIN--3.1% Williams Bay, School District (GO) (AMBAC) 7.125%, 04/01/98 200 213 WYOMING--3.7% State Student Loan Program (RB) (AMT) 6.000%, 12/01/97 250 255 TOTAL MUNICIPAL BONDS (Cost $6,009) 6,067 CASH EQUIVALENTS--9.6% Federated Minnesota Municipal Cash Trust 336,160 336 Federated Tax Free Money Market 324,798 325 TOTAL CASH EQUIVALENTS (Cost $661) 661 TOTAL INVESTMENTS--98.0% (Cost $6,670) 6,728 OTHER ASSETS AND LIABILITIES--2.0% Other Assets and Liabilities, Net 138 NET ASSETS: Portfolio shares--Institutional Class ($.0001 par value--2 billion authorized) based on 630,929 outstanding shares $6,281 Portfolio shares--Retail Class A ($.0001 par value--2 billion authorized) based on 51,708 outstanding shares 512 Undistributed net investment income 16 Accumulated net realized loss on investments (1) Net unrealized appreciation on investments 58 TOTAL NET ASSETS:--100.0% $6,866 NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER SHARE--INSTITUTIONAL CLASS $10.06 NET ASSET VALUE AND REDEMPTION PRICE PER SHARE-- RETAIL CLASS A $10.06 MAXIMUM SALES CHARGE OF 2.00%+ 0.21 OFFERING PRICE PER SHARE--RETAIL CLASS A $10.27 The accompanying notes are an integral part of the financial statements. + The offer price is calculated by dividing the net asset value by 1 minus the maximum sales charge of 2.00%. (A) Variable Rate Security--the rate reported on the Statement of Net Assets is the rate in effect as of September 30, 1995. (B) Mandatory Put Security--the mandatory put date is shown as the maturity date on the Statement of Net Assets. AMT--Alternative Minimum Tax AMBAC--American Municipal Bond Assurance Company CGIC--Capital Guaranty Insurance Company CMI--California Mortgage Insurers COP--Certificates of Participation FNMA--Federal National Mortgage Association FGIC--Financial Guaranty Insurance Corporation GNMA--Government National Mortgage Association GO--General Obligation ISF--Insured by State Funds MBIA--Municipal Bond Insurance Association MLO--Municipal Lease Obligation RB--Revenue Bond ST--Sumitomo Trust INTERMEDIATE TAX FREE FUND Description Par (000)/Shares Value (000) MUNICIPAL BONDS--94.6% CALIFORNIA--8.8% Contra Costa, Water District, Callable 10/01/04 @ 102 (RB) (MBIA) 5.800%, 10/01/07 $1,000 $1,041 Orange County, Refunding Recovery (RB) (MBIA) 5.000%, 06/01/01 500 503 Orange County, Transportation Authority, Callable 02/15/02 @ 102 (RB) 5.700%, 02/15/03 200 205 San Bernadino County, Medical Center, Series A (MLO) (MBIA) 4.800%, 08/01/00 500 507 San Diego, District Number 1 Park Facilities, Callable 01/01/04 @ 101, (RB) 5.625%, 01/01/06 200 208 State Health Facilities Authority, Callable 10/01/98 @ 102 (RB) (CMI) 7.250%, 10/01/99 500 538 Suisun City, Redevelopment Agency Tax Allocation, Pre-refunded @ 102 (RB) 7.250%, 04/01/00 (A) 1,000 1,131 4,133 COLORADO--8.5% Arvada, Sales & Use Tax, Callable 12/01/2002 @ 100 (RB) (FGIC) 5.900%, 12/01/05 1,000 1,045 Colorado Springs Utilities, Crossover Refunding, Series A (RB) 6.350%, 11/15/01 1,000 1,105 State Health Facilities Authority, Vail Valley Medical Center, Series A (RB) 5.300%, 01/15/00 500 500 5.450%, 01/15/01 500 500 State Housing Finance Authority, Single Family Mortgages, Callable 08/01/99 @ 102 (RB) (FHA/VA) 7.400%, 08/01/09 815 839 3,989 FLORIDA--2.4% North Brevard County, Health, Hospital, & Nursing Home Improvements, Jess Parish Memorial Hospital (RB) (AMBAC) 6.800%, 09/01/96 15 15 Reedy Creek, Utility, Callable 10/01/97 @ 102 (RB) 8.900%, 10/01/03 1,000 1,105 1,120 ILLINOIS--5.5% Aurora, Kane, & Dupage Counties, Single Family Mortgage, Series 1995-A (RB) (GNMA) (AMT) 6.100%, 04/01/08 $ 750 $ 754 Peoria, Moline, & Freeport, Single Family Mortgages, Series 1995-A, Callable 10/01/05 @103 (RB) (AMT) 5.600%, 10/01/10 (B) 1,270 1,272 State Development Finance Authority, Lockport Township High School (RB)(FGIC) 0.000%, 01/01/01 750 582 2,608 INDIANA--0.9% Perry Township, Multi-School Building, Escrowed To Maturity (RB) (STAID) 7.000%, 07/01/97 15 16 State Housing Finance Authority, Callable 01/01/98 @ 102.5 (RB) (FPI) 7.800%, 01/01/99 415 429 445 IOWA--0.2% Davenport, Home Ownership Mortgage, Series 1994 (RB) 4.000%, 03/01/03 75 74 MICHIGAN--5.0% Dearborn School District, Callable 05/01/03 @ 101.5 (GO) (MBIA) 4.850%, 05/01/05 1,100 1,079 Detroit, Pre-refunded @ 102 (GO) 8.000%, 04/01/01 (A) 1,000 1,176 St. Joseph, Hospital Finance Authority (RB) (AMBAC) 4.750%, 01/01/02 100 99 2,354 MINNESOTA--16.3% Anoka County, Solid Waste Disposal (RB) (CFC) (AMT) 6.000%, 12/01/98 1,000 1,042 Bloomington, Mall of America, Series A, Callable 02/01/04 @ 100 (RB) 5.450%, 02/01/09 1,000 1,023 Burnsville Apartment Projects, Series A, Putable 12/01/98 @ 100, Callable 06/01/95 @ 101 (RB) 5.000%, 12/01/08 1,000 1,000 Minneapolis & St Paul, Housing & Redevelopment Authority, Callable 11/15/03 @ 102 (RB) (AMBAC) 4.750%, 11/15/18 $1,000 $ 845 Minneapolis, Hennepin Avenue, Series C (GO) 6.200%, 03/01/02 800 860 Robbinsdale, North Memorial Medical Center, Callable 05/15/03 @ 102 (RB) (AMBAC) 5.450%, 05/15/13 1,000 958 Southern Minnesota Municipal Power Authority, Callable 01/01/03 @ 102 (RB) (FGIC) 5.000%, 01/01/06 500 496 Wayzata, School District, Series B, Callable 02/01/03 @ 100 (RB) (FGIC) 4.900%, 02/01/07 1,500 1,435 7,659 MISSISSIPPI--2.0% Delta Correctional Facilities Authority (RB) (MLO) (FGIC) 4.950%, 07/01/01 925 934 MISSOURI--2.3% Kansas City, School District (RB) (MLO) (FGIC) 6.300%, 02/01/00 1,000 1,071 NEW JERSEY--2.2% State Transportation System, Series A (RB) (AMBAC) 5.200%, 12/15/00 1,000 1,033 NEW MEXICO--1.7% Farmington, Utility Systems, Escrowed to Maturity (RB) 10.000%, 01/01/02 685 814 NEW YORK--3.0% Environmental Facilities, Pollution Control, Callable 11/15/04 @ 102 (RB) 6.400%, 05/15/06 1,250 1,405 NORTH DAKOTA--3.4% Bismarck, Hospital Authority (RB) (AMBAC) 6.250%, 05/01/99 1,000 1,055 Fargo, Water Utilities, Callable 01/01/2000 @ 100 (RB) 5.900%, 01/01/02 500 523 State Bank Capital Financing Program, Series E (GO) 6.400%, 12/01/95 20 20 1,598 OHIO--4.4% Kings County, Local School District, Callable 12/01/05 @100 (GO) (FGIC) 5.750%, 12/01/10 $1,000 $1,020 West Clermont, Local School District, Callable 12/01/05 @ 100 (GO) (AMBAC) 5.650%, 12/01/08 1,030 1,061 2,081 OKLAHOMA--0.6% Oklahoma County, Home Finance Authority, Pre-refunded @ 100 (RB) 0.000%, 03/01/06 (A) 790 262 OREGON--2.8% Deschutes & Jefferson Counties, School District (GO) (MBIA) 5.000%, 06/01/02 500 511 Multnomah County, School District (GO) 5.100%, 06/01/03 500 508 State (GO) 7.000%, 07/01/01 250 283 1,302 PENNSYLVANIA--2.4% Northumberland County, Commonwealth Lease, Callable 10/15/01 @ 100 (RB) (MLO) 6.600%, 10/15/02 1,000 1,108 PUERTO RICO--3.0% Commonwealth (GO) (MBIA) 5.500%, 07/01/01 1,000 1,050 Housing Finance Authority, Single Family Mortgage (RB) (GNMA) 5.800%, 10/15/00 250 256 6.000%, 02/01/02 110 113 1,419 SOUTH DAKOTA--1.2% Sioux Falls (GO) (MLO) 6.450%, 08/01/01 500 549 TENNESSEE--1.1% Nashville & Davidson County, Metropolitan Government, Callable 12/01/01 @ 100 (GO) 6.200%, 12/01/09 500 528 TEXAS--0.0% San Antonio, Electric & Gas Improvement (RB) 6.900%, 02/01/96 15 15 UTAH--1.2% Intermountain Power, Callable 07/01/98 @ 102 (RB) 7.625%, 07/01/08 $ 500 $ 543 VIRGINIA--8.7% Peninsula Regional Jail Authority (RB) (MBIA) 5.300%, 10/01/09 1,000 988 Riverside, Regional Jail Authority, Callable 07/01/05 @ 102 (RB) (MBIA) 5.700%, 07/01/08 2,000 2,079 Virginia Beach, Callable 11/01/04 @ 102 (GO) (STAID) 5.500%, 11/01/05 1,000 1,018 4,085 WASHINGTON, D.C.--0.4% District of Columbia, Callable 06/01/98 @ 101.5 (GO) (MBIA) 6.750%, 06/01/01 200 213 WEST VIRGINIA--2.1% State Hospital Finance Authority, (RB) (MBIA) 5.000%, 09/01/05 1,000 988 WISCONSIN--4.5% Milwaukee County, Callable 09/01/02 @ 100 (GO) 5.550%, 09/01/03 1,000 1,039 Oak Creek, Water Works System, Callable 12/01/95 @ 100 (RB) 5.600%, 12/01/96 25 25 State, Pre-refunded @ 100 (GO) 6.900%, 05/01/98 (A) 1,000 1,062 2,126 TOTAL MUNICIPAL BONDS (Cost $43,322) 44,456 CASH EQUIVALENTS--3.9% Federated Minnesota Municipal Cash Trust 782,812 783 Federated Tax Free Money Market 1,046,031 1,046 TOTAL CASH EQUIVALENTS (Cost $1,829) 1,829 TOTAL INVESTMENTS--98.5% (Cost $45,151) 46,285 OTHER ASSETS AND LIABILITIES--1.5% Other Assets and Liabilities, Net 723 NET ASSETS: Portfolio shares--Institutional Class ($.0001 par value--2 billion authorized) based on 4,295,302 outstanding shares $44,561 Portfolio shares--Retail Class A ($.0001 par value--2 billion authorized) based on 91,683 outstanding shares 977 Undistributed net investment income 1 Accumulated net realized gain on investments 335 Net unrealized appreciation of investments 1,134 TOTAL NET ASSETS:--100.0% $47,008 NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER SHARE--INSTITUTIONAL CLASS $ 10.72 NET ASSET VALUE AND REDEMPTION PRICE PER SHARE--RETAIL CLASS A $ 10.72 MAXIMUM SALES CHARGE OF 3.00%+ 0.33 OFFERING PRICE PER SHARE--RETAIL CLASS A $ 11.05 The accompanying notes are an integral part of the financial statements. + The offer price is calculated by dividing the net asset value by 1 minus the maximum sales charge of 3.00%. (A) The Pre-refunded date is shown as the maturity date on the Statement of Net Assets. (B) When issued security (Total cost $1,270,000) AMBAC--American Municipal Bond Assurance Company AMT--Alternative Minimum Tax CFC--National Rural Utilities Co-op Finance Corporation CMI--California Municipal Insurers COP--Certificates of Participation FGIC--Federal Guaranty Insurance Company FHA--Federal Housing Authority FPI--Foremost Pool Insurance GO--General Obligation GNMA--Government National Mortgage Association LOC--Letter of Credit MBIA--Municipal Bond Insurance Association MLO--Municipal Lease Obligation RB--Revenue Bond STAID--State Aid Withholding VA--Veterans Administration COLORADO INTERMEDIATE TAX FREE FUND Description Par (000)/Shares Value (000) MUNICIPAL BONDS--97.2% COLORADO--97.2% Adams County, School District #12, Callable 12/15/96 @ 101 (GO) 7.650%, 12/15/03 $ 975 $1,018 Arapahoe County, Cherry Creek School District #5, Callable 12/15/00 @ 101 (GO) 6.800%, 12/15/01 1,000 1,111 Arapahoe County, Cherry Creek School District #5, Callable 12/15/95 @ 102 (GO) 5.600%, 12/15/97 1,000 1,023 Auraria, Higher Education Center, Callable 04/01/2003 @ 101 (RB) (FSA) 5.000%, 04/01/05 500 494 Aurora, Callable 12/01/04 @ 101 (COP) (MLO) 6.000%, 12/01/06 1,000 1,031 Aurora, Community College Project (RB) (MLO) (CLE) 5.750%, 10/15/04 500 524 Boulder County, Sales & Use Tax (RB) (FGIC) 5.750%, 12/15/05 1,000 1,048 Boulder Valley, School District #Re 2, Callable 10/15/01 @ 100 (GO) 5.900%, 10/15/02 500 531 5.900%, 10/15/03 500 527 Boulder Valley, School District #Re 2, Callable 12/01/04 @ 101, 12/01/06 @ 100 (GO) (STAID) 5.950%, 12/01/07 1,000 1,061 Boulder, Callable 10/01/01 @ 101 (GO) 5.700%, 10/01/04 250 262 Boulder, Larimer, & Weld Counties, Vrain Valley School District #Re 1JT, Callable 12/15/02 @ 101 (GO) (MBIA) 6.000%, 12/15/10 1,000 1,036 Boulder, Larimer, & Weld Counties, Vrain Valley School District, Pre-refunded @ 101 (GO) 7.200%, 12/15/99 (A) 500 556 Boulder, Urban Renwal Tax Allocation (RB) (MBIA) 5.700%, 03/01/00 1,250 1,309 Brighton, Callable 12/01/01 @ 101 (GO) (MBIA) 6.350%, 12/01/05 500 536 Broomfield, Callable 11/01/96 @ 101 (GO) 7.600%, 11/01/03 1,000 1,040 Centennial Water & Sanitation, Series A, Callable 12/01/96 @ 101 (GO) (SWB) 4.750%, 12/01/97 $ 500 $ 508 Colorado Springs, Series A, Callable 11/15/01 @ 102 (RB) 6.625%, 11/15/04 1,000 1,111 6.500%, 11/15/15 945 990 Denver, City & County Airport, Series C, Mandatory Put @ 100 (RB) (ST) 6.000%, 12/01/25 (B) 1,250 1,281 Denver, City & County Airport, Series D (RB) (MORG) 4.500%, 11/15/25 500 500 Denver, City & County School District #1, Series A (GO) 5.200%, 12/01/03 250 254 Douglas & Elbert Counties, School District #1, Callable 12/15/04 @ 101 (GO) (MBIA) 6.400%, 12/15/11 1,000 1,060 Eagle, Garfield, & Routt Counties, School District #50 J, Callable 12/01/04 @ 102 (GO) (FGIC) 6.125%, 12/01/09 1,290 1,348 El Paso County, School District #2 Harrison (GO) 7.050%, 12/01/04 1,000 1,134 El Paso County, School District #20 (COP) (MLO) 6.100%, 12/01/99 250 261 Fort Collins, Callable 12/01/02 @ 101 (GO) 5.550%, 12/01/03 500 526 6.400%, 12/01/09 575 612 Garfield, Pitkin, & Eagle Counties, School District #1 (GO) (MBIA) 6.000%, 12/15/04 1,000 1,078 Jefferson County, Industrial Development (RB) 6.625%, 09/01/01 250 270 Jefferson County, Metropolitain Y.M.C.A., Callable 08/01/04 @ 100 (RB) 7.500%, 08/01/08 1,000 1,024 Jefferson County, School District #R 1, Callable 12/15/02 @ 101 (GO) (AMBAC) 5.900%, 12/15/04 1,000 1,064 La Plata County, School Districts #9 & Durango, Callable 11/01/02 @ 101 (GO) (FGIC) 6.200%, 11/01/05 1,000 1,069 Larimer County, School District #R 1 Poudre (GO) 5.400%, 12/15/04 $ 750 $ 756 Larimer, Weld, & Boulder Counties, School District #R 2J Thompson, Callable 12/15/04 @ 100 (GO) 5.900%, 12/15/06 1,000 1,039 Longmont, Callable 09/01/01 @ 100 (GO) 6.000%, 09/01/03 500 526 Louisville, Callable 06/01/98 @ 101 (GO) (FGIC) 7.200%, 12/01/04 465 496 Morgan City, Pollution Control, Series A, Callable 6/01/03 @ 101, 6/01/04 @ 100 (RB) (MBIA) 5.500%, 06/01/12 1,000 976 Northglenn, Callable 11/01/96 @ 101 (GO) (MBIA) 6.400%, 11/01/98 500 516 7.125%, 11/01/06 500 516 Platte River Power Authority, Series BB (RB) 5.500%, 06/01/02 500 524 Poudre Valley, Hospital District, Pre-refunded @ 101 (RB) 6.700%, 11/15/98 (A) 500 538 Pueblo County, Single Family Mortgage, Callable 11/01/04 @ 102 (RB) (GNMA/FNMA) 6.400%, 11/01/13 1,100 1,115 Pueblo, Urban Renewal Authority, Callable 12/1/03 @ 101 (RB) (AMBAC) 5.800%, 12/01/09 840 860 Regional Transit District (RB) 5.750%, 11/01/01 2,000 2,117 South Suburban Park & Recreation District (GO) (MBIA) 0.000%, 12/15/01 1,000 748 State Board of Agriculture, Fort Lewis College (RB) (FGIC) 6.000%, 10/01/02 250 268 State Housing Finance Authority (RB) 5.000%, 06/01/04 160 153 State Housing Finance Authority, Multi-family Housing, Series A (RB) (FHA) 5.125%, 10/01/03 695 675 State Housing Finance Authority, Single Family Mortgage, Series B-1 (RB) (AMT) 5.875%, 06/01/11 1,000 999 State Housing Finance Authority, Single Family Mortgage, Series C-2 (RB) (FHA) (AMT) 6.850%, 08/01/22 $ 320 $ 324 State Student Loan Obligation Authority, Series A (RB) 6.250%, 06/01/96 240 242 State Water Resource & Power Development Authority, Callable 09/01/02 @ 101 (RB) (FSA) 5.900%, 09/01/03 250 266 State Water Resource & Power Development Authority, Clean Water Project, Callable 09/01/02 @ 102 (RB) 5.800%, 09/01/06 1,000 1,049 Steamboat Springs, Accommodations Tax, Callable 03/01/04 @ 100 (RB) (MBIA) 5.800%, 03/01/10 1,000 1,019 Stonegate Village Metropolitain District, Callable 12/01/02 @ 100 (GO) 6.300%, 12/01/04 500 536 Summit County, School District #Re 1, Callable 12/01/04 @ 101 (GO) (FGIC) 6.450%, 12/01/08 1,250 1,350 Thornton (GO) (FGIC) 5.600%, 12/01/02 1,000 1,054 Thornton, Callable 12/01/02 @ 101 (GO) (FGIC) 5.650%, 12/01/03 1,000 1,058 University of Colorado, Callable 06/01/99 @ 101 (RB) 6.800%, 06/01/02 300 322 University of Colorado, Hospital Authority (RB) (AMBAC) 5.250%, 11/15/99 1,400 1,449 Ute Water Conservancy District, Callable 06/15/97 @ 100 (RB) (AMBAC) 7.700%, 06/15/02 1,000 1,049 Westminster, Water & Wastewater Utility Enterprise, Callable 10/01/04 @ 100 (RB) (AMBAC) 5.800%, 12/01/05 1,000 1,055 TOTAL MUNICIPAL BONDS (Cost $48,781) 50,792 CASH EQUIVALENTS--1.0% Federated Tax Free Money Market 522,027 522 TOTAL CASH EQUIVALENTS (Cost $522) 522 TOTAL INVESTMENTS--98.2% (Cost $49,303) $51,314 OTHER ASSETS AND LIABILITIES--1.8% Other Assets and Liabilities, Net 946 NET ASSETS: Portfolio shares--Institutional Class ($.0001 par value--2 billion authorized) based on 4,763,837 outstanding shares 47,866 Portfolio shares--Retail Class A ($.0001 par value--2 billion authorized) based on 208,333 outstanding shares 2,148 Undistributed net investment income 2 Accumulated net realized gain on investments 233 Net unrealized appreciation on investments 2,011 TOTAL NET ASSETS:--100.0% $52,260 NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER SHARE-INSTITUTIONAL CLASS $ 10.51 NET ASSET VALUE AND REDEMPTION PRICE PER SHARE--RETAIL CLASS A $ 10.51 MAXIMUM SALES CHARGE OF 3.00%+ 0.33 OFFERING PRICE PER SHARE--RETAIL CLASS A $ 10.84 The accompanying notes are an integral part of the financial statements. + The offer price is calculated by dividing the net asset value by 1 minus the maximum sales charge of 3.00% (A) Pre-refunded Security--the pre-refunded date is shown as the maturity date on the Statement of Net Assets. (B) Mandatory Put Security--the mandatory put date is shown as the maturity date on the Statement of Net Assets. AMT--Alternative Minimum Tax AMBAC--American Municipal Bond Assurance Company CLE--Connie Lee COP--Certificates of Participation FGIC--Federal Guaranty Insurance Corporation FHA--Federal Housing Authority FNMA--Federal National Mortgage Association FSA--Financial Security Assurance GNMA--Government National Mortgage Association GO--General Obligation MBIA--Municipal Bond Insurance Association MLO--Municipal Lease Obligation MORG--Morgan Guaranty RB--Revenue Bond ST--Sumitomo Trust STAID--State Aid Withholding SWB--Swiss Bank MINNESOTA INSURED INTERMEDIATE TAX FREE FUND Description Par (000) Value (000) MUNICIPAL OBLIGATIONS--95.0% MINNESOTA--95.0% Anoka County, Capital Improvement, Series C (GO) 5.550%, 02/01/05 $2,000 $2,030 Anoka-Hennepin, Callable 02/01/03 @ 100 (GO) (FGIC) 4.875%, 02/01/07 500 476 Becker, Pollution Control, Callable 04/01/99 @ 102 (RB) 6.800%, 04/01/07 2,500 2,691 Becker, Tax Increment-Series D, Callable 08/01/04 @ 100 (GO) (AMT) (MBIA) 6.000%, 08/01/07 2,500 2,606 Bloomington, Mall of America Project, Series A, Callable 02/01/04 @ 100 (RB) (FSA) 5.450%, 02/01/09 2,850 2,914 Coon Rapids, Single Family Mortgage, Callable 09/01/04 @ 102 (RB) 5.900%, 09/01/06 430 434 Dakota County, Housing & Redevelopment Authority, Single Family, Callable 09/01/98 @ 103 (RB) (GNMA,FHA/VA) 7.250%, 03/01/06 770 774 Dakota County, Housing & Redevelopment, Callable 04/01/05 @ 102 (AMT) (GNMA/FNMA) 6.000%, 10/01/14 1,125 1,118 Dakota, Washington & Stearns Counties, Single Family Mortgage, Callable 03/01/04 @ 102 (AMT) (RB) (FNMA) 6.000%, 09/01/04 650 661 Duluth, Economic Development Authority, Health Care Facilities, Callable 11/01/02 @ 102 (RB) (AMBAC) 6.100%, 11/01/04 900 973 Minneapolis & St. Paul Metropolitan Airports, Callable 01/01/09 @ 102 (RB) (AMT) 7.800%, 01/01/11 1,000 1,088 Minneapolis & St. Paul, Housing And Redevelopment Authority, Health Care, Callable 08/15/00 @ 102 (RB) (MBIA) 7.300%, 08/15/01 1,000 1,123 Minneapolis & St. Paul, Housing Finance Board, (RB) (AMT) (FNMA/GNMA) 6.800%, 11/01/08 1,500 1,614 Minneapolis & St. Paul, Housing Finance Board, Single Family Mortgage, Series A (RB) (AMT) (GNMA,FHA/VA) 7.875%, 12/01/12 40 41 Minneapolis, Community Development Agency (RB) (MBIA) 7.000%, 03/01/01 $2,500 $2,781 Minneapolis, Convention Center, Pre-refunded @ 102 (RB) (AMBAC) 7.400%, 04/01/98 (B) 500 519 Minneapolis, Health Care Facilities, Callable 11/15/03 @ 102 (RB) (MBIA) 5.100%, 11/15/05 1,000 986 Minneapolis, School District No. 1 (RB) (MLO) (AMBAC) 5.300%, 02/01/02 1,000 1,011 Minnesota State Public Facility Authority, Water Pollution Control, Callable 12/01/99 @ 100 (RB) (CGIC) 6.750%, 03/01/00 1,000 1,094 Minnesota State, Housing & Redevelopment Authority, Single Family, Callable 04/01/04 @ 102 (RB) (AMT) (FNMA) 6.250%, 10/01/04 1,065 1,082 Minnesota State, Housing Financial Agency, Single Family Mortgage, Series D, Callable 01/01/04 @ 102 (RB) (AMBAC) 4.800%, 07/01/04 800 772 Minnesota State, Pre-refunded @ 100 (GO) 6.800%, 08/01/00 (B) 2,790 2,978 Minnesota Tax-Exempt Mortgage Trust, Series A (RB) (MLO) (Northwestern National) 5.615%, 08/01/96 (A) 105 105 Minnesota Tax-Exempt Mortgage Trust, Series C (RB) (MLO) (Northwestern National) 7.035%, 09/01/10 (A) 891 885 Northern Minnesota Power Agency, Callable 01/01/99 @ 102 (RB) (AMBAC) 7.250%, 01/01/00 700 767 Northern Municipal Power Agency, Minnesota Electric, Series A, Callable 01/01/03 @ 102 (RB) (AMBAC) 5.700%, 01/01/05 2,000 2,080 Olmsted County Minnesota, Pre-refunded @ 100 (GO) 6.550%, 02/01/98 (B) 1,000 1,031 Olmsted County, Housing And Redevelopment, Pre-refunded 02/01/01 @ 100 (RB) 7.000%, 02/01/05 (B) 1,025 1,143 Olmsted County, Pre-refunded 02/01/97 @ 100 (GO) 6.650%, 02/01/99 (B) 1,000 1,034 Osseo, Independent School District (GO) 5.700%, 02/01/03 2,000 2,053 Osseo, Independent School District, Callable 02/01/03 @ 100 (GO) (FGIC) 5.400%, 02/01/05 500 505 Plymouth Health Facilities, Callable 06/01/04 @ 102 (RB) (CGIC) 6.200%, 06/01/11 1,360 1,413 Robbinsdale, North Memorial Medical Center, Series B, Callable 05/15/03 @ 102 (RB) (AMBAC) 5.450%, 05/15/13 $1,000 $ 958 Rochester, St. Mary's Hospital, Escrowed to Maturity (RB) 5.750%, 10/01/07 3,000 3,145 Rosemount, Independent School District, Series B (GO) (FGIC) 5.600%, 02/01/98 1,000 1,031 Saint Louis Park, Hospital Revenue Facilities, Methodist Hospital, Series C, Pre-refunded @ 102 (RB) (AMBAC) 7.150%, 07/01/00 (B) 1,240 1,401 Southern Minnesota Municipal Power Agency (RB) (MBIA) 4.850%, 01/01/07 375 361 Southern Minnesota Municipal Power Agency, Refunded Balance Series A, Callable 01/01/03 @ 102 (RB) 5.600%, 01/01/04 255 268 St Paul, Housing & Redevelopment Authority, Callable 09/01/05 @ 102 (RB) (FNMA) 6.125%, 03/01/17 500 506 St Paul, Independent School District (RB) 6.125%, 02/01/00 525 562 St. Paul, Sewer Revenue Bond, Callable 06/01/03 @ 100 (RB) (AMBAC) 5.350%, 12/01/04 800 810 Stearns County, Housing And Redevelopment Authority, Callable 02/01/99 @ 102 (RB) (MLO) (AMBAC) 6.750%, 02/01/04 1,665 1,788 Stillwater, Independent School District, Callable 02/01/02 @ 100 (RB) (FGIC) 5.200%, 02/01/03 2,500 2,547 Washington County, Housing And Redevelopment Authority, Jail Facility (RB) 6.400%, 02/01/00 1,000 1,070 Washington County, Housing And Redevelopment Authority, Pre-refunded @ 100 (RB) 6.800%, 02/01/04 (B) 1,500 1,674 Washington County, Raymie Johnson Apartments, Series C (GO) (FGIC) 6.000%, 01/01/10 1,340 1,340 Wayzata Independent School District, Series B, Callable 02/01/03 @ 100 (GO) (AMBAC) 4.900%, 02/01/07 2,000 1,918 West St. Paul, Independent School District (RB) (MBIA) 0.000%, 02/01/00 545 443 Willmar, Independent School District, Callable 02/01/02 @ 100 (GO) (AMBAC) 6.150%, 02/01/09 100 104 60,708 TOTAL MUNICIPAL OBLIGATIONS (Cost $58,482) $60,708 CASH EQUIVALENTS--2.2% Federated Minnesota Municipal Cash Trust 1,389,447 1,389 TOTAL CASH EQUIVALENTS (Cost $1,389) 1,389 TOTAL INVESTMENTS--97.2% (Cost $59,871) 62,097 OTHER ASSETS AND LIABILITIES--2.8% Other Assets and Liablities, Net 1,815 NET ASSETS: Portfolio shares--Institutional Class ($.0001 par value--2 billion authorized) based on 6,219,198 outstanding shares 59,313 Portfolio shares--Retail Class A ($.0001 par value--2 billion authorized) based on 223,792 outstanding shares 2,162 Undistributed net investment income 9 Accumulated net realized gain on investments 202 Net unrealized appreciation on investments 2,226 TOTAL NET ASSETS:--100.0% $63,912 NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER SHARE--INSTITUTIONAL CLASSS $ 9.92 NET ASSET VALUE AND REDEMPTION PRICE PER SHARE--RETAIL CLASS A $ 9.92 MAXIMUM SALES CHARGE OF 3.00%+ 0.31 OFFERING PRICE PER SHARE--RETAIL CLASS A $ 10.23 The accompanying notes are an integral part of the financial statements. + The offer price is calculated by dividing the net asset value by 1 minus the maximum sales charge of 3.00%. (A) Variable Rate Security--the rate reported on the Statement of Net Assets is the rate in effect as of September 30, 1995. The date shown is the longer of the reset date or demand date. (B) Mandatory Put Security--the mandatory put date is shown as the maturity date on the Statement of Net Assets. AMBAC--American Municipal Bond Assurance Company AMT--Alternative Minimum Tax CGIC--Capital Guaranty Insurance Company FGIC--Financial Guaranty Insurance Company FHA/VA--Federal Housing Authority/Veterans Administration FNMA--Federal National Mortgage Association FSA--Financial Security Assurance GNMA--Government National Mortgage Association GO--General Obligation MBIA--Municipal Bond Insurance Company MLO--Municipal Lease Obligation RB--Revenue Bond ASSET ALLOCATION FUND Description Shares/Par (000) Value (000) COMMON STOCK--57.7% AEROSPACE & DEFENSE--0.5% Lockheed Martin 1,152 $ 77 Loral 500 29 Raytheon 700 60 Rockwell International 1,300 61 227 AGRICULTURE--0.1% Pioneer Hi-Bred International 500 23 AIR TRANSPORTATION--0.2% AMR* 500 36 Delta Air Lines 300 21 Federal Express* 300 25 Southwest Airlines 900 23 U.S. Air Group* 300 3 108 AIRCRAFT--1.0% AlliedSignal 1,700 75 Boeing 2,100 143 General Dynamics 400 22 McDonnell Douglas 700 58 Northrop 300 18 Teledyne 500 14 Textron 500 34 United Technologies 700 62 426 APPAREL/TEXTILES--0.1% Fruit of the Loom* 500 10 Liz Claiborne 600 15 Russell 400 10 V.F. 400 21 56 AUTOMOTIVE--1.4% Chrysler 2,300 122 Dana 600 17 Eaton 500 27 Echlin 400 14 Ford Motor 6,400 199 General Motors 4,500 211 Navistar International* 800 10 Paccar 200 9 TRW 400 30 639 BANKS--3.8% Banc One 2,352 86 Bank of Boston 700 33 Bank of New York 1,200 56 BankAmerica 2,200 $132 Bankers Trust New York 500 35 Barnett Banks 600 34 Boatmens Bancshare's 800 30 Chase Manhattan 1,000 61 Chemical Banking 1,500 91 Citicorp 2,400 170 CoreStates Financial 800 29 First Chicago 500 34 First Fidelity Bancorp 500 34 First Interstate Bancorp 500 50 First Union 1,000 51 Fleet Financial Group 800 30 Golden West Financial 400 20 Great Western Financial 800 19 H.F. Ahmanson 700 18 J.P. Morgan 1,100 85 KeyCorp 1,400 48 MBNA 900 37 Mellon Bank 900 40 National City 900 28 Nationsbank 1,600 108 NBD Bancorp 900 34 Norwest 2,000 66 PNC Bank 1,400 39 Republic New York 300 18 Shawmut National 800 27 Suntrust Banks 700 46 U.S. Bancorp 600 17 Wachovia 1,000 43 Wells Fargo 300 56 1,705 BEAUTY PRODUCTS--1.0% Avon Products 400 29 Colgate-Palmolive 900 60 Ecolab 500 14 International Flavors & Fragrances 700 34 Procter & Gamble 4,100 315 452 BROADCASTING, NEWSPAPERS & ADVERTISING--0.8% Capital Cities ABC 900 106 CBS 425 34 Comcast, Cl A 1,400 28 Interpublic Group 500 20 Tele-Communications, Cl A* 3,900 68 Viacom, Cl B* 2,215 110 366 BUILDING & CONSTRUCTION--0.2% Centex 400 $ 12 Fluor 500 28 Foster Wheeler 300 11 Halliburton 700 29 Owens Corning Fiberglass* 300 13 93 BUSINESS SUPPLIES--0.0% W.W. Grainger 300 18 CHEMICALS--1.8% Air Products & Chemical 700 36 Dow Chemical 1,600 119 E.I. du Pont de Nemours 3,300 227 Eastman Chemical 500 32 FMC* 200 15 Great Lakes Chemical 400 27 Hercules 700 41 Monsanto 700 71 Morton International 900 28 Nalco Chemical 400 14 PPG Industries 1,200 56 Praxair 800 21 Rohm & Haas 400 24 Union Carbide 800 32 W.R. Grace 600 40 783 COMMUNICATIONS EQUIPMENT--1.0% Andrew* 200 12 DSC Communications* 700 41 General Signal 300 9 Harris 200 11 Motorola 3,500 269 Northern Telecom 1,500 53 Scientific-Atlanta 500 8 Tellabs* 500 21 424 COMPUTERS & SERVICES--2.0% Apple Computer 700 26 Cabletron Systems* 400 26 Ceridian* 300 13 Compaq Computer* 1,600 77 Digital Equipment* 900 41 Hewlett Packard 3,100 258 IBM 3,400 323 Intergraph* 600 7 Pitney Bowes 900 38 Silicon Graphics* 1,000 34 Tandem Computers* 1,000 12 Tandy 400 24 Unisys* 1,600 13 892 CONTAINERS & PACKAGING--0.1% Ball 100 $ 3 Crown Cork & Seal* 500 19 Newell 900 23 45 DRUGS--4.5% Abbott Laboratories 4,800 205 Allergan 400 13 Alza, Cl A* 500 12 American Home Products 1,900 161 Amgen* 1,600 80 Bristol-Myers Squibb 3,000 219 Eli Lilly 1,129 101 Guidant 1,992 58 Johnson & Johnson 3,900 289 Mallinckrodt Group 500 20 Merck 7,400 414 Pfizer 3,800 203 Schering Plough 2,200 113 Upjohn 1,000 45 Warner Lambert 800 76 2,009 ELECTRICAL SERVICES--2.2% American Electric Power 1,100 40 Baltimore Gas & Electric 900 23 Carolina Power & Light 900 30 Central & South West 1,200 31 Cinergy 900 25 Consolidated Edison New York 1,400 43 Detroit Edison 900 29 Dominion Resources of Virginia 1,000 38 Duke Power 1,200 52 Entergy 1,400 37 FPL Group 1,100 45 General Public Utilities 700 22 Houston Industries 800 35 Niagara Mohawk Power 1,000 13 Northern States Power 400 18 Ohio Edison 900 20 Pacific Gas & Electric 2,500 75 Pacificorp 1,700 32 PECO Energy 1,300 37 Public Service Enterprise Group 1,500 45 Raychem 300 14 SCEcorp 2,700 48 Southern 4,000 94 Texas Utilities 1,400 49 Thomas & Betts 200 13 Unicom 1,300 39 Union Electric 600 22 969 ENTERTAINMENT--0.5% Harrah's Entertainment* 650 $ 19 King World Productions* 300 11 Walt Disney 3,100 178 208 ENVIRONMENTAL SERVICES--0.3% Browning Ferris Industries 1,300 39 Laidlaw, Cl B 1,700 15 WMX Technologies 2,900 83 137 FINANCIAL SERVICES--1.4% American Express 2,900 129 Beneficial 300 16 Dean Witter Discover 1,046 59 FHLMC 1,100 76 FNMA 1,600 165 H & R Block 600 23 Household International 600 37 Merrill Lynch 1,100 69 Salomon 600 23 Transamerica 428 30 627 FOOD, BEVERAGE & TOBACCO--5.1% Adolph Coors, Cl B 400 7 American Brands 1,100 46 Anheuser Busch 1,500 94 Archer Daniels Midland 3,392 52 Brown Forman, Cl B 400 16 Campbell Soup 1,500 75 Coca Cola 7,600 527 ConAgra 1,500 59 CPC International 900 59 General Mills 1,000 56 H.J. Heinz 1,500 69 Hershey Foods 500 32 Kellogg 1,300 94 PepsiCo 4,700 240 Philip Morris 5,000 418 Quaker Oats 800 27 Ralston-Ralston Purina Group 600 35 Sara Lee 2,900 86 Seagram 2,200 79 Unilever (ADR) 1,000 130 UST 1,200 34 Whitman 600 12 William Wrigley Jr. 700 35 2,282 GAS/NATURAL GAS--0.5% Coastal 600 $ 20 Columbia Gas Systems* 400 15 Consolidated Natural Gas 600 24 Enron 1,500 50 Nicor 500 14 Pacific Enterprises 500 13 Panhandle Eastern 900 25 Sonat 500 16 Williams 600 23 200 GLASS PRODUCTS--0.1% Corning 1,400 40 HOTELS & LODGING--0.0% Hilton Hotels 300 19 HOUSEHOLD FURNITURE & FIXTURES--0.1% Masco 1,000 28 HOUSEHOLD PRODUCTS--0.5% Clorox 300 21 Gillette 2,700 129 Maytag 700 12 National Service Industries 400 12 Sherwin Williams 500 18 Snap-On Tools 300 11 Stanley Works 300 13 Whirlpool 400 23 239 INSURANCE--2.4% Aetna Life & Casualty 700 51 Alexander & Alexander Services 200 5 Allstate 2,717 96 American General 1,200 45 American International Group 2,825 240 Chubb 500 48 Cigna 400 42 General Re 500 76 Jefferson-Pilot 300 19 Lincoln National 600 28 Loew's 400 58 Marsh & McLennan 400 35 Providian 600 25 Safeco 400 26 St. Paul 500 29 Torchmark 400 17 Travelers 1,935 103 U.S. Healthcare 900 32 U.S. Life 450 13 United Healthcare 1,000 49 Unum 400 21 USF & G 700 14 1,072 JEWELRY, PRECIOUS METALS--0.0% Jostens 500 $ 12 LEISURE--0.0% Brunswick 600 12 LUMBER & WOOD PRODUCTS--0.0% Louisiana Pacific 600 14 MACHINERY--2.7% Applied Materials* 500 51 Baker Hughes 800 16 Black & Decker 500 17 Briggs & Stratton 400 16 Caterpillar 1,200 68 Crane 300 10 Cummins Engine 200 8 Deere 500 41 Dover 700 27 Dresser Industries 1,100 26 Emerson Electric 1,300 93 General Electric 10,200 650 Harnischfeger Industries 300 10 Ingersoll Rand 600 23 McDermott International 400 8 Pall 700 16 Parker Hannifin 450 17 Tenneco 1,100 51 Timken 300 13 Tyco International 500 32 Varity* 300 13 1,206 MEASURING DEVICES--0.2% Honeywell 800 33 Johnson Controls 200 13 Perkin Elmer 300 11 Tektronix 200 12 69 MEDICAL PRODUCTS & SERVICES--0.9% Bausch & Lomb 300 12 Baxter International 1,700 70 Becton Dickinson 400 25 Beverly Enterprises* 800 11 Biomet* 700 12 Boston Scientific* 900 38 Columbia/HCA Healthcare 2,637 129 Manor Care 400 14 Medtronic 1,400 75 St. Jude Medical* 300 19 Tenet Healthcare* 1,200 21 United States Surgical 500 13 439 METALS & MINING--0.0% Cyprus AMAX Minerals 550 $ 15 MISCELLANEOUS BUSINESS SERVICES--1.9% Autodesk 300 13 Automatic Data Processing 900 61 Cisco Systems* 1,600 110 Computer Associates International 1,400 59 Computer Sciences* 300 19 CUC International* 1,050 37 First Data 700 43 Microsoft* 3,500 318 Novell* 2,200 40 Ogden 500 12 Oracle* 2,600 100 Shared Medical Systems 300 12 Sun Microsystems* 600 38 862 MISCELLANEOUS CONSUMER SERVICES--0.1% Service International 600 23 MULTI-INDUSTRY--0.5% Dial 600 15 ITT 700 87 Minnesota Mining & Manufacturing 2,500 141 243 OIL - DOMESTIC--0.7% Ashland Oil 400 13 Atlantic Richfield 1,000 106 Kerr-McGee 300 17 Louisiana Land & Exploration 300 11 Pennzoil 300 13 Phillips Petroleum 1,600 52 Sun 491 13 Unocal 1,500 43 USX-Marathon Group 1,800 36 304 OIL - INTERNATIONAL--4.0% Amerada Hess 600 29 Amoco 3,000 192 Chevron 3,900 190 Exxon 7,500 542 Mobil 2,400 239 Royal Dutch Petroleum (ADR) 3,200 393 Schlumberger 1,500 98 Texaco 1,600 103 1,786 PAPER & PAPER PRODUCTS--1.1% Avery Dennison 300 13 Bemis 400 11 Boise Cascade 300 12 Champion International 600 32 Federal Paper Board 300 $ 12 Georgia Pacific 500 44 International Paper 1,500 63 James River 500 16 Kimberly Clark 1,000 66 Mead 300 18 Potlatch 300 12 Scott Paper 900 44 Stone Container 600 11 Temple Inland 300 16 Union Camp 400 23 Westvaco 400 18 Weyerhaeuser 1,200 55 Willamette Industries 300 20 486 PETROLEUM & FUEL PRODUCTS--0.2% Burlington Resources 800 31 Enserch 800 13 Helmerich & Payne 400 11 Occidental Petroleum 1,900 42 Western Atlas* 300 14 111 PHOTOGRAPHIC EQUIPMENT & SUPPLIES--0.5% Eastman Kodak 2,100 124 Polaroid 300 12 Xerox 600 81 217 PRECIOUS METALS--0.3% Barrick Gold 2,100 54 Echo Bay Mines 1,200 13 Homestake Mining 800 14 Newmont Mining 473 20 Placer Dome 1,400 37 Santa Fe Pacific Gold 900 11 149 PRINTING & PUBLISHING--0.8% American Greetings, Cl A 400 12 Deluxe 500 17 Dow Jones 600 22 Gannett 800 44 Knight-Ridder 300 18 McGraw-Hill 300 25 Meredith 300 12 Moore 600 12 New York Times, Cl A 600 16 R.R. Donnelley & Sons 900 35 Time Warner 2,300 90 Times Mirror, Cl A 700 20 Tribune 400 27 350 PROFESSIONAL SERVICES--0.2% Dun & Bradstreet 1,000 $ 58 EG&G 600 12 70 RAILROADS--0.6% Burlington Northern Santa Fe 879 64 Consolidated Rail 500 34 CSX 600 50 Norfolk Southern 800 60 Union Pacific 1,200 80 288 REPAIR SERVICES--0.0% Ryder System 500 13 RETAIL--3.5% Albertson's 1,500 51 American Stores 900 26 Circuit City 600 19 Dayton Hudson 400 30 Dillard Department Stores 700 22 Gap 900 32 Giant Food 400 13 Great Atlantic & Pacific Tea 400 11 Harcourt General 400 17 Hasbro 500 16 Home Depot 2,833 113 J.C. Penney 1,400 69 Kmart 2,800 41 Kroger* 700 24 Longs Drug Stores 300 12 Lowe's Companies 1,000 30 Luby's Cafeterias 500 11 Marriott 800 30 Mattel 1,375 40 May Department Stores 1,500 66 McDonald's 4,200 161 Melville 600 21 Mercantile Stores 300 14 Nordstrom 500 21 Pep Boys-Manny Moe & Jack 400 11 Price/Costco* 1,200 21 Rite Aid 500 14 Sears Roebuck 2,300 85 The Limited 2,100 40 Toys R Us* 1,700 46 Wal-Mart Stores 13,800 340 Walgreen 1,500 42 Wendy's International 600 13 Winn Dixie Stores 500 30 Woolworth 800 13 1,545 RUBBER & PLASTIC--0.5% Armstrong World Industries 200 $ 11 B.F. Goodrich 200 13 Cooper Tire & Rubber 500 12 Goodyear Tire & Rubber 900 35 Illinois Tool Works 700 41 Nike, Cl B 400 46 Premark International 400 20 Reebok International 500 17 Rubbermaid 900 25 220 SEMI-CONDUCTORS/INSTRUMENTS--1.3% Advanced Micro Devices* 600 17 AMP 1,300 50 Intel 4,900 296 Micron Technology 1,200 95 National Semiconductor* 700 19 Texas Instruments 1,100 88 565 SPECIALTY MACHINERY--0.1% Cooper Industries 603 21 Westinghouse Electric 2,400 36 57 STEEL & STEEL WORKS--0.7% Alcan Aluminium 1,400 45 Aluminum Company of America 1,100 58 Bethlehem Steel* 700 10 Englehard 900 23 Freeport-McMoran Copper & Gold, Cl B* 1,200 31 Inco 700 24 Inland Steel Industries 400 9 Nucor 500 22 Phelps Dodge 400 25 Reynolds Metals 400 23 USX-U.S. Steel Group 500 16 Worthington Industries 600 11 297 TELEPHONES & TELECOMMUNICATION--5.0% Airtouch Communications* 3,000 92 Alltel 1,100 33 Ameritech 3,300 172 AT&T 9,500 623 Bell Atlantic 2,600 160 Bellsouth 3,000 219 GTE 5,800 228 MCI Communications 4,100 107 NYNEX 2,600 124 Pacific Telesis Group 2,600 80 SBC Communications 3,700 204 Sprint 2,100 74 U.S. West 2,800 132 2,248 TRUCKING--0.1% Pittston Services Group 300 $ 8 Roadway Services 300 15 Yellow 300 4 27 WHOLESALE--0.2% Alco Standard 300 25 Genuine Parts 700 28 Sigma Aldrich 300 15 Supervalu 400 12 Sysco 1,100 30 110 TOTAL COMMON STOCK (Cost $20,653) 25,825 U. S. TREASURY OBLIGATIONS--8.5% U. S. Treasury Notes 7.250%, 05/15/04 2,200 2,347 6.500%, 05/15/05 1,425 1,457 TOTAL U. S. TREASURY OBLIGATIONS (Cost $3,552) 3,804 MASTER NOTES--9.1% Associates Corporation of North America 5.708%, 10/02/95 (A) $2,025 2,025 Goldman Sachs 5.830%, 10/03/95 (A) 2,040 2,041 TOTAL MASTER NOTES (Cost $4,066) 4,066 REPURCHASE AGREEMENTS--24.3% J.P. Morgan 6.358%, dated 09/29/95, matures 10/02/95, repurchase price $5,907,698 (collateralized by various U.S. Treasury STRIPS, total par value $18,484,498, 11/15/00-11/15/24: total market value $6,022,971) 5,905 5,905 Merrill Lynch 5.830%, dated 09/29/95, matures 10/02/95, repurchase price $4,975,402 (collateralized by various U.S. Treasury Bills, total par value $1,062,433, 03/07/96-09/19/96: U.S. Treasury Bonds, total par value $3,116,262, 7.625%-13.750%, 11/15/03-11/15/10: total market value $5,072,544) 4,973 4,973 TOTAL REPURCHASE AGREEMENTS (Cost $10,878) 10,878 TOTAL INVESTMENTS--99.6% (Cost $39,149) 44,573 OTHER ASSETS AND LIABILITIES--0.4% Other Assets and Liabilities, Net 201 NET ASSETS: Portfolio shares--Institutional Class ($.0001 par value--2 billion authorized) based on 3,685,913 outstanding shares $36,507 Portfolio shares--Retail Class A ($.0001 par value--2 billion authorized) based on 84,645 outstanding shares 870 Portfolio shares--Retail Class B ($.0001 par value--2 billion authorized) based on 48,876 outstanding shares 531 Undistributed net investment income 33 Accumulated net realized gain on investments 1,409 Net unrealized appreciation of investments 5,424 TOTAL NET ASSETS:--100.0% $44,774 NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER SHARE--INSTITUTIONAL CLASS $ 11.72 NET ASSET VALUE AND REDEMPTION PRICE PER SHARE--RETAIL CLASS A $ 11.73 MAXIMUM SALES CHARGE OF 4.50%+ 0.55 OFFERING PRICE PER SHARE--RETAIL CLASS A $ 12.28 NET ASSET VALUE AND OFFERING PRICE PER SHARE--RETAIL CLASS B (1) $ 11.68 The accompanying notes are an integral part of the financial statements. * Non-income producing security + The offer price is calculated by dividing the net asset value by 1 minus the maximum sales charge of 4.50%. (1) Retail Class B has a contingent deferred sales charge. For a description of possible redemption charge, see the notes to the financial statements. (A) Variable Rate Security with Demand Features--the rate reported on the Statement of Net Assets is the rate in effect as of September 30, 1995. The date shown is the longer of the reset date or demand date. ADR--American Depository Receipt FHLMC--Federal Home Loan Mortgage Corporation FNMA--Federal National Mortgage Association STRIPS--Separately Trading of Registered Interest and Principal of Securities BALANCED FUND Description Shares/Par (000) Value (000) COMMON STOCK--50.0% AUTOMOTIVE--0.9% General Motors 42,500 $1,992 BANKS--1.9% Bay Banks 15,700 1,191 Chemical Banking 46,300 2,819 4,010 CHEMICALS--1.9% Hercules 36,100 2,093 Olin 29,200 2,008 4,101 COMPUTERS & SERVICES--4.3% Compaq Computer* 54,100 2,617 Cray Research* 82,700 1,830 Hewlett Packard 30,200 2,518 IBM 23,100 2,180 9,145 CONTAINERS & PACKAGING--0.8% Ball 60,200 1,783 DRUGS--2.4% American Home Products 33,000 2,801 Bristol-Myers Squibb 30,500 2,223 5,024 FINANCIAL SERVICES--0.9% ITT 15,300 1,897 FOOD, BEVERAGE & TOBACCO--3.5% ConAgra 71,200 2,821 Dole Food 71,500 2,476 Sara Lee 69,400 2,065 7,362 HOME APPLIANCE--0.6% Whirlpool 22,000 1,271 INSURANCE--1.8% AMBAC 46,500 2,046 General Re 11,000 1,661 3,707 LEISURE--1.2% Brunswick 122,800 2,487 MACHINERY--3.3% Briggs & Stratton 6,900 278 Case Equipment 73,800 2,712 Caterpillar 23,400 1,331 General Electric 40,600 2,588 6,909 MULTI-INDUSTRY--1.5% Minnesota Mining & Manufacturing 35,200 $ 1,989 U.S. Industries* 78,000 1,209 3,198 OIL - DOMESTIC--1.0% Unocal 73,200 2,086 OIL - INTERNATIONAL--4.9% Amerada Hess 38,200 1,857 Exxon 24,600 1,777 Mobil 29,100 2,900 Royal Dutch Petroleum (ADR) 17,500 2,148 Texaco 24,600 1,590 10,272 PAPER & PAPER PRODUCTS--2.6% Bemis 71,300 1,970 James River 71,100 2,275 Scott Paper 25,800 1,251 5,496 PHOTOGRAPHIC EQUIPMENT & SUPPLIES--2.3% Eastman Kodak 47,400 2,808 Xerox 15,500 2,083 4,891 PRINTING & PUBLISHING--1.3% Times Mirror, Cl A 96,700 2,780 REAL ESTATE INVESTMENT TRUSTS--3.0% Debartolo Realty 106,800 1,495 Duke Realty Investments 39,300 1,223 Equity Residential Properties Trust 55,700 1,678 Simon Property Group 76,000 1,929 6,325 RAILROADS--2.2% Consolidated Rail 30,800 2,118 CSX 29,000 2,439 4,557 RETAIL--3.6% Dayton Hudson 25,800 1,958 Gap 50,400 1,814 Sears Roebuck 57,000 2,102 Wal-Mart Stores 68,900 1,714 7,588 SEMICONDUCTORS/INSTRUMENTS--1.2% AMP 29,800 1,147 Texas Instruments 16,700 1,334 2,481 SPECIALTY MACHINERY--0.6% York International 27,500 $ 1,158 STEEL & STEEL WORKS--0.7% Aluminum Company of America 28,300 1,496 TELEPHONES & TELECOMMUNICATION--1.1% Century Telephone Enterprises 76,000 2,309 WHOLESALE--0.5% W.W. Grainger 17,800 1,075 TOTAL COMMON STOCK (Cost $86,331) 105,400 U. S. TREASURY OBLIGATIONS--27.4% U.S. Treasury Bond 7.125%, 02/15/23 $13,835 14,664 U.S. Treasury Notes 5.500%, 04/30/96 4,875 4,871 5.500%, 07/31/97 14,415 14,332 5.125%, 02/28/98 6,965 6,847 5.125%, 11/30/98 1,310 1,280 6.750%, 04/30/00 6,730 6,919 6.250%, 02/15/03 2,415 2,429 7.250%, 08/15/04 5,750 6,145 U.S. Treasury STRIP 0.000%, 02/15/99 265 218 TOTAL U. S. TREASURY OBLIGATIONS (Cost $56,439) 57,705 CORPORATE OBLIGATIONS--6.4% Bear Stearns 9.125%, 04/15/98 770 817 8.750%, 03/15/04 1,150 1,271 Cigna 7.400%, 01/15/03 2,825 2,853 Farmers Group 8.250%, 07/15/96 1,045 1,063 General Foods 6.000%, 06/15/01 860 844 General Motors Acceptance 7.650%, 01/16/98 2,375 2,440 Santander Financial Issuances 6.800%, 07/15/05 2,500 2,459 Torchmark 7.875%, 05/15/23 1,700 1,713 TOTAL CORPORATE OBLIGATIONS (Cost $13,464) 13,460 OTHER MORTGAGE-BACKED OBLIGATIONS--2.9% Drexel Burnham Lambert CMO Trust S 2 9.000%, 08/01/18 $ 473 $ 499 GE Capital Mortgage Services 1994-11 A1 6.500%, 03/25/24 1,791 1,781 GE Capital Mortgage Services 1994-17 A6 7.000%, 05/25/24 2,675 2,628 Residential Funding 1992-36 A2 5.700%, 11/25/07 653 643 RTC 1991-M6 (B) 7.000%, 06/25/21 (B) 468 462 TOTAL OTHER MORTGAGE-BACKED OBLIGATIONS (Cost $5,743) 6,013 U.S. GOVERNMENT AGENCY MORTGAGE-BACKED OBLIGATIONS--2.4% FHLMC 6.000%, 11/15/08 2,700 2,460 FNMA 5.450%, 10/25/18 2,700 2,585 TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED OBLIGATIONS (Cost $5,290) 5,045 ASSET BACKED SECURITIES--0.8% BW Home Equity Trust Pool 1990-1 A 9.250%, 09/15/05 45 47 Household Finance 1993-2 A3 4.650%, 12/20/08 1,565 1,522 TOTAL ASSET BACKED SECURITIES (Cost $1,606) 1,569 MASTER NOTES--1.4% Goldman Sachs 5.830%, 10/03/95 (A) 3,050 3,050 TOTAL MASTER NOTES (Cost $3,050) 3,050 REPURCHASE AGREEMENTS--8.4% J.P. Morgan 6.358%, dated 09/29/95, matures 10/02/95, repurchase price $8,515,148 (collateralized by various U.S. Treasury STRIPS, total par value $26,641,685, 11/15/00-11/15/24: total market value $8,680,901) 8,511 8,511 Merrill Lynch 5.830%, dated 09/29/95, matures 10/02/95, repurchase price $9,107,689 (collateralized by various U.S. Treasury Bills, total par value $1,944,830, 03/07/96-09/19/96: U.S. Treasury Bonds, total par value $5,704,452, 7.625%-13.750%, 11/15/03-11/15/10: total market value $9,285,512) 9,103 9,103 TOTAL REPURCHASE AGREEMENTS (Cost $17,614) 17,614 TOTAL INVESTMENTS--99.7% (Cost $189,537) $209,856 OTHER ASSETS AND LIABILITIES--0.3% Other Assets and Liabilities, Net 697 NET ASSETS: Portfolio shares--Institutional Class ($.0001 par value--2 billion authorized) based on 15,845,649 outstanding shares 166,821 Portfolio shares--Retail Class A ($.0001 par value--2 billion authorized) based on 1,261,751 outstanding shares 13,117 Portfolio shares--Retail Class B ($.0001 par value--2 billion authorized) based on 257,977 outstanding shares 2,952 Undistributed net investment income 203 Accumulated net realized gain on investments 7,141 Net unrealized appreciation of investments 20,319 TOTAL NET ASSETS:--100.0% $210,553 NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER SHARE--INSTITUTIONAL CLASS $ 12.13 NET ASSET VALUE AND REDEMPTION PRICE PER SHARE-- RETAIL CLASS A $ 12.12 MAXIMUM SALES CHARGE OF 4.50%+ 0.57 OFFERING PRICE PER SHARE--RETAIL CLASS A $ 12.69 NET ASSET VALUE AND OFFERING PRICE PER SHARE-- RETAIL CLASS B (1) $ 12.09 The accompanying notes are an integral part of the financial statements. * Non-income producing securities + The offer price is calculated by dividing the net asset value by 1 minus the maximum sales charge of 4.50%. (1) Retail Class B has a contingent deferred sales charge. For a description of a possible redemption charge, see the notes to the financial statements. (A) Variable Rate Security with Demand Features--the rate reported on the Statement of Net Assets is the rate in effect as of September 30, 1995. The date shown is the longer of the reset date or demand date. (B) Security sold within terms of a private placement memorandum, exempt from registration under Section 144A of the Securities Act of 1993, as amended, and may be sold only to dealers in that program or other "accredited investors." These securities have been determined to be liquid under the guidelines established by the Board of Directors. ADR--American Depository Receipt AMBAC--American Municipal Bond Assurance Company CMO--Collateralized Mortgage Obligation FHLMC--Federal Home Loan Mortgage Corporation FNMA--Federal National Mortgage Association RTC--Resolution Trust Corporation STRIPS--Separately Trading of Registered Interest and Principal of Securities EQUITY INDEX FUND Description Shares/Par (000) Value (000) COMMON STOCKS--96.4% AEROSPACE & DEFENSE--0.9% Lockheed Martin 9,927 $ 666 Loral 4,300 245 Raytheon 6,100 519 Rockwell International 10,800 510 1,940 AGRICULTURE--0.1% Pioneer Hi-Bred International 4,200 193 AIR TRANSPORTATION--0.4% AMR* 3,800 274 Delta Air Lines 2,500 173 Federal Express* 2,800 232 Southwest Airlines 6,900 174 U.S. Air Group* 5,100 59 912 AIRCRAFT--1.6% Allied Signal 14,100 622 Boeing 17,100 1,167 General Dynamics 3,100 170 McDonnell Douglas 5,600 463 Northrop 2,400 146 Teledyne 3,600 98 Textron 4,200 287 United Technologies 6,100 539 3,492 APPAREL/TEXTILES--0.1% Liz Claiborne 2,500 63 Russell 1,200 31 Springs Industries 1,100 43 V.F. 3,100 158 295 AUTOMOTIVE--2.4% Chrysler 19,000 1,007 Dana 5,000 144 Eaton 3,900 207 Echlin 2,800 100 Fleetwood Enterprises 2,600 52 Ford Motor 53,500 1,665 General Motors 37,200 1,744 Navistar International* 6,500 78 Paccar 1,495 70 TRW 3,200 238 5,305 BANKS--6.3% Banc One 19,467 711 Bank of Boston 5,600 267 Bank of New York 9,600 $ 446 BankAmerica 18,600 1,114 Bankers Trust New York 3,900 274 Barnett Banks 4,800 272 Boatmens Bancshare's 6,100 226 Chase Manhattan 8,700 532 Chemical Banking 12,600 767 Citicorp 19,800 1,398 CoreStates Financial Group 6,900 253 First Chicago 4,400 302 First Fidelity Bancorp 3,900 263 First Interstate Bancorp 3,800 383 First Union 8,600 439 Fleet Financial Group 7,000 264 Golden West Financial 2,900 146 Great Western Financial 6,800 162 H.F. Ahmanson 5,600 142 J.P. Morgan 9,400 727 KeyCorp 11,300 387 MBNA 7,400 308 Mellon Bank 7,250 324 National City 7,300 225 Nationsbank 13,500 908 NBD Bancorp 7,700 295 Norwest 16,200 531 PNC Bank 11,500 321 Republic New York 2,800 164 Shawmut National 6,400 215 Suntrust Banks 5,600 370 U.S. Bancorp 4,900 138 Wachovia 8,500 367 Wells Fargo 2,400 446 14,087 BEAUTY PRODUCTS--1.7% Avon Products 3,400 244 Colgate Palmolive 7,200 480 Dial 4,400 109 Ecolab 3,200 88 International Flavors & Fragrances 5,500 265 Procter & Gamble 34,200 2,633 3,819 BROADCASTING, NEWSPAPERS & ADVERTISING--1.4% Capital Cities ABC 7,700 905 CBS 3,240 259 Comcast, Cl A 11,900 238 Interpublic Group 3,900 155 Tele Communications, TCI Group, Series A* 32,500 569 Viacom, Cl B* 17,991 895 3,021 BUILDING & CONSTRUCTION--0.3% Centex 1,600 $ 46 Fluor 4,100 230 Foster Wheeler 2,500 88 Halliburton 5,700 239 Kaufman & Broad Home 7,000 88 Pulte 1,800 51 742 CHEMICALS--2.8% Air Products & Chemical 5,600 292 B.F. Goodrich 1,000 66 Dow Chemical 13,400 998 E.I. du Pont de Nemours 27,600 1,898 Eastman Chemical 4,075 261 FMC* 1,800 137 Great Lakes Chemical 3,200 216 Hercules 5,600 325 Monsanto 5,700 574 Morton International 7,400 229 Nalco Chemical 3,300 113 Praxair 6,900 185 Rohm & Haas 3,400 205 Union Carbide 6,800 270 W.R. Grace 4,700 314 6,083 COMMUNICATIONS EQUIPMENT--1.6% Andrew* 1,900 116 DSC Communications* 5,700 338 Harris 1,900 104 Motorola 29,400 2,246 Northern Telecom 12,600 449 Scientific-Atlanta 3,800 64 Tellabs* 4,400 185 Zenith Electronics* 3,200 28 3,530 COMPUTERS & SERVICES--3.4% Apple Computer 6,000 224 Cabletron Systems* 3,600 237 Ceridian* 2,400 107 Compaq Computers* 13,200 639 Cray Research* 3,000 66 Data General* 10,400 108 Digital Equipment* 7,300 333 Hewlett Packard 25,500 2,126 IBM 28,300 2,669 Intergraph* 8,400 102 Pitney Bowes 7,500 315 Silicon Graphics* 7,900 272 Tandem Computers* 5,200 64 Tandy 3,280 $ 199 Unisys* 5,600 44 7,505 CONCRETE & MINERAL PRODUCTS--0.1% Owens Corning Fiberglass* 2,500 112 CONTAINERS & PACKAGING--0.2% Ball 1,900 56 Crown Cork & Seal* 4,500 174 Newell 7,900 196 426 DRUGS--7.5% Abbott Laboratories 39,500 1,684 Allergan 2,200 73 Alza, Cl A* 2,600 60 American Home Products 15,400 1,307 Amgen* 13,200 658 Bristol-Myers Squibb 25,300 1,844 Eli Lilly 9,294 835 Guidant 16,423 480 Johnson & Johnson 32,100 2,379 Mallinckrodt Group 3,700 147 Merck 61,600 3,451 Pfizer 31,400 1,676 Schering Plough 18,500 953 Upjohn 8,500 379 Warner Lambert 6,700 638 16,564 ELECTRICAL UTILITIES--3.5% American Electric Power 9,300 338 Baltimore Gas & Electric 7,100 184 Carolina Power & Light 7,700 259 Central & South West 9,500 242 Cinergy 7,773 217 Consolidated Edison New York 11,700 355 Detroit Edison 7,300 235 Dominion Resources of Virginia 8,600 324 Duke Power 10,200 442 Entergy 11,300 295 FPL Group 9,200 376 General Public Utilities 5,800 181 Houston Industries 6,500 287 Niagara Mohawk Power 6,000 79 Northern States Power 3,400 154 Ohio Edison 7,300 166 Pacific Gas & Electric 21,100 630 Pacificorp 14,200 270 PECO Energy 10,800 309 Public Service Enterprise Group 12,200 363 SCEcorp 22,200 394 Southern 33,200 $ 784 Texas Utilities 11,200 391 Unicom 10,700 324 Union Electric Power 4,900 183 7,782 ENERGY--0.0% Zurn Industries 3,700 94 ENTERTAINMENT--0.7% King World Productions* 1,700 62 Walt Disney 25,900 1,486 1,548 ENVIRONMENTAL SERVICES--0.5% Browning Ferris Industries 10,600 322 Laidlaw, Cl B 13,300 116 WMX Technologies 24,100 687 1,125 FINANCIAL SERVICES--2.6% American Express 24,300 1,078 Beneficial 2,600 136 Dean Witter Discover 8,386 472 FHLMC 9,000 622 FNMA 13,600 1,407 Household International 4,900 304 ITT 5,800 719 Merrill Lynch 8,800 550 Salomon Brothers 5,300 203 Transamerica 3,323 237 5,728 FOOD, BEVERAGE & TOBACCO--8.4% American Brands 9,400 397 Anheuser Busch 12,700 792 Archer Daniels Midland 28,192 433 Brown Forman, Cl B 3,300 128 Campbell Soup 12,400 623 Coca Cola 62,800 4,336 ConAgra 12,200 483 CPC International 7,300 482 General Mills 7,900 440 H.J. Heinz 12,100 554 Hershey Foods 3,900 251 Kellogg 10,900 789 PepsiCo 39,200 1,999 Philip Morris 41,800 3,491 Quaker Oats 6,700 222 Ralston-Ralston Purina Group 5,200 301 Sara Lee 23,900 711 Seagram 18,500 664 Unilever (ADR) 8,000 1,040 UST 9,600 $ 275 Whitman 5,100 105 William Wrigley Jr 5,800 293 18,809 GAS/NATURAL GAS--0.8% Coastal 5,200 175 Columbia Gas Systems* 2,200 85 Consolidated Natural Gas 4,500 182 Enron 12,500 419 Nicor 2,200 60 Noram Energy 14,100 111 Oneok 4,700 109 Pacific Enterprises 3,900 98 Panhandle Eastern 7,500 204 Peoples Energy 3,500 96 Sonat 4,200 134 Williams 5,100 199 1,872 GLASS PRODUCTS--0.1% Corning 11,400 326 HOME APPLIANCES--1.1% Clorox 2,600 186 Gillette 22,100 1,050 Maytag 3,100 54 National Service Industry 2,800 82 PPG Industries 10,100 470 Raychem 2,100 95 Sherwin Williams 4,100 144 Snap-On Tools 1,200 46 Stanley Works 1,800 78 Thomas & Betts 800 52 Whirlpool 3,600 208 2,465 HOTELS & LODGING--0.1% Hilton Hotels 2,400 153 HOUSEHOLD FURNITURE & FIXTURES--0.1% Bassett Furniture Industries 1,687 42 Masco 7,900 218 260 HOUSEHOLD PRODUCTS--0.0% Brown Group 2,000 37 INSURANCE--4.0% Aetna Life & Casualty 5,600 411 Alexander & Alexander Services 3,900 95 Allstate 22,350 791 American General 10,200 381 American International Group 23,625 2,010 Chubb 4,300 $ 413 Cigna 3,600 375 General Re 4,100 619 Jefferson-Pilot 2,350 151 Lincoln National 4,700 221 Loews 2,900 422 Marsh & McLennan 3,600 316 Providian 4,600 191 Safeco 3,100 203 St. Paul 4,200 245 Torchmark 3,450 145 Travelers 15,925 846 U.S. Healthcare 7,500 265 United Healthcare 8,600 420 Unum 3,500 185 USF & G 5,700 110 USLife 2,100 61 8,876 LEISURE INDUSTRY--0.0% Brunswick 4,400 89 LUMBER & WOOD PRODUCTS--0.1% Louisiana Pacific 5,100 123 MACHINERY--4.6% Applied Materials* 4,400 450 Baker Hughes 6,800 139 Black & Decker 4,300 147 Briggs & Stratton 1,800 72 Caterpillar 9,900 563 Cincinnati Milacron 2,200 69 Crane 1,600 55 Cummins Engine 1,200 46 Deere 4,300 350 Dover 5,600 214 Dresser Industries 9,100 217 Emerson Electric 11,200 801 General Electric 84,300 5,376 General Signal 2,500 73 Giddings & Lewis 5,100 89 Harnischfeger Industries 2,800 93 Ingersoll Rand 5,100 191 McDermott International 3,300 65 Outboard Marine 4,300 92 Pall 5,600 130 Parker Hannifin 3,650 139 Tenneco 9,000 416 Timken 1,500 64 Tyco Laboratories 3,800 239 Varity* 1,900 85 10,175 MEASURING DEVICES--0.3% Honeywell 6,200 $ 265 Johnson Controls 2,000 127 Perkin Elmer 2,600 93 Tektronix 2,000 118 603 MEDICAL PRODUCTS & SERVICES--1.7% Bausch & Lomb 2,800 116 Baxter International 13,800 568 Becton Dickinson 3,200 201 Beverly Enterprises* 4,100 56 Biomet* 5,600 97 Boston Scientific* 7,500 320 C.R. Bard 2,700 82 Columbia/HCA Healthcare 22,137 1,076 Community Psychiatric* 5,500 65 Manor Care 3,100 105 Medtronic 11,600 624 St. Jude Medical* 2,300 145 Tenet Healthcare* 10,000 174 United States Surgical 4,000 107 3,736 METALS & MINING--0.1% Cyprus AMAX Minerals 4,450 125 MISCELLANEOUS BUSINESS SERVICES--3.2% Autodesk 2,300 101 Automatic Data Processing 7,200 491 Cisco Systems* 13,500 932 Computer Associates International 11,950 505 Computer Sciences* 2,800 180 CUC International* 8,650 302 First Data 5,900 366 Microsoft* 29,200 2,640 Novell* 18,400 336 Oracle Systems* 21,550 827 Safety Kleen 5,100 75 Shared Medical Systems 2,500 104 Sun Microsystems* 4,800 302 7,161 MISCELLANEOUS CONSUMER SERVICES--0.2% H & R Block 5,200 197 Service International 4,800 188 385 OIL - DOMESTIC--1.1% Ashland Oil 2,900 97 Atlantic Richfield 8,000 859 Kerr-McGee 2,500 139 Louisiana Land & Exploration 2,500 89 Pennzoil 2,100 $ 92 Phillips Petroleum 13,100 426 Sun 3,974 102 Unocal 12,300 351 USX Marathon Group 14,800 292 2,447 OIL - INTERNATIONAL--6.3% Amerada Hess 4,500 219 Amoco 24,700 1,584 Chevron 32,500 1,580 Exxon 61,900 4,472 Mobil 19,700 1,963 Royal Dutch Petroleum (ADR) 26,700 3,277 Texaco 12,900 834 13,929 PAPER & PAPER PRODUCTS--2.3% Avery Dennison 2,600 109 Bemis 2,400 66 Boise Cascade 2,700 109 Champion International 4,800 259 Federal Paper Board 2,600 100 Georgia Pacific 4,500 394 International Paper 12,700 533 James River 3,900 125 Kimberly Clark 8,000 537 Mead 2,700 158 Minnesota Mining & Manufacturing 20,900 1,180 Scott Paper 7,500 364 Stone Container 2,400 46 Temple Inland 2,700 144 Union Camp 3,500 202 Westvaco 3,400 155 Weyerhaeuser 10,100 461 Willamette Industries 2,700 180 5,122 PETROLEUM & FUEL PRODUCTS--0.8% Burlington Resources 6,300 244 Enserch 5,300 87 Helmerich & Payne 2,100 59 Occidental Petroleum 15,800 348 Oryx Energy* 6,500 85 Rowan* 7,200 54 Santa Fe Energy Resources* 8,400 80 Schlumberger 12,000 783 Western Atlas* 2,600 123 1,863 PHOTOGRAPHIC EQUIPMENT & SUPPLIES--0.8% Eastman Kodak 17,000 $1,007 Polaroid 2,700 107 Xerox 5,400 726 1,840 PRECIOUS METALS--0.5% Barrick Gold 17,600 456 Echo Bay Mines 5,600 61 Homestake Mining 6,900 117 Newmont Mining 4,143 176 Placer Dome 11,900 312 Santa Fe Pacific Gold 5,040 64 1,186 PRINTING & PUBLISHING--1.3% American Greetings, Cl A 3,600 110 Deluxe 4,000 133 Dow Jones 4,800 177 Gannett 7,000 382 John H. Harland 3,900 86 Knight-Ridder 2,400 141 McGraw Hill 2,500 204 Meredith 2,700 107 Moore 4,500 91 New York Times, Cl A 4,800 131 R.R. Donnelly & Sons 7,600 296 Time Warner 19,200 765 Times Mirror, Cl A 5,400 155 Tribune 3,200 212 2,990 PROFESSIONAL SERVICES--0.2% Dun & Bradstreet 8,400 486 RAILROADS--1.1% Burlington Northern Santa Fe 7,608 552 Conrail 3,900 268 CSX 5,200 437 Norfolk Southern 6,500 486 Union Pacific 10,200 676 2,419 REPAIR SERVICES--0.0% Ryder System 2,500 63 RETAIL--5.7% Albertson's 12,600 430 American Stores 7,400 210 Circuit City Stores 4,800 152 Dayton Hudson 3,600 273 Dillard Department Stores 5,600 179 Gap 7,200 259 Giant Food 2,400 $ 75 Great Atlantic & Pacific 2,200 62 Harcourt General 3,500 147 Hasbro 4,200 131 Home Depot 23,733 946 J.C. Penney 11,300 561 K-Mart 22,800 331 Kroger* 6,100 208 Lowes 8,000 240 Luby's Cafeterias 4,600 99 Marriott International 6,200 232 Mattel 11,065 325 May Department Stores 12,400 543 McDonald's 34,600 1,323 Melville 5,200 179 Mercantile Stores 2,000 90 Nordstrom 4,100 171 Pep Boys-Manny Moe & Jack 2,900 79 Price/Costco* 9,800 168 Rite Aid 4,000 112 Sears Roebuck 19,400 715 Shoney's* 7,800 86 The Limited 17,800 338 TJX 7,800 93 Toys R US* 13,800 373 Wal-Mart Stores 114,400 2,843 Walgreen 12,300 344 Wendy's International 5,100 108 Winn Dixie Stores 3,800 227 Woolworth 5,400 85 12,737 RUBBER & PLASTIC--0.8% Armstrong World Industries 1,900 105 Cooper Tire & Rubber 4,000 97 Goodyear Tire & Rubber 7,600 299 Illinois Tool Works 5,800 341 Nike, Cl B 3,600 401 Premark International 3,200 163 Reebok International 3,900 134 Rubbermaid 7,700 213 1,753 SEMICONDUCTORS/INSTRUMENTS--2.1% Advanced Micro Devices* 5,200 151 AMP 10,852 418 Intel 41,000 2,465 Micron Technology 10,300 819 National Semiconductor* 6,200 171 Texas Instruments 9,400 751 4,775 SERVICES - MOTION PICTURE & VIDEOTAPE PRODUCTION--0.1% Harrah's Entertainment* 5,100 $ 149 SPECIALTY MACHINERY--0.2% Cooper Industries 5,328 188 Westinghouse Electric 19,500 292 480 STEEL & STEEL WORKS--1.1% Alcan Aluminium 11,200 363 Aluminum Company of America 8,900 471 Armco* 12,200 79 Bethlehem Steel* 3,500 49 Englehard 7,112 180 Freeport-McMoran Copper & Gold, Cl B* 10,100 259 Inco 5,900 202 Inland Steel Industries 2,100 48 Nucor 4,400 197 Phelps Dodge 3,500 219 Reynolds Metal 3,200 185 USX--U.S. Steel Group 4,100 127 Worthington Industries 3,150 58 2,437 TELEPHONES & TELECOMMUNICATION--8.4% Airtouch Communications* 24,600 753 Alltel 9,400 281 Ameritech 27,600 1,439 AT&T 79,000 5,193 Bell Atlantic 21,700 1,332 Bellsouth 24,700 1,806 GTE 48,300 1,896 MCI Communications 33,800 881 NYNEX 21,300 1,017 Pacific Telesis Group 21,300 655 SBC Communications 30,300 1,667 Sprint 17,400 609 U.S. West 23,400 1,103 18,632 TRUCKING--0.1% Consolidated Freightways 3,100 77 Pittston Services Group 2,000 54 Roadway Services 1,800 89 Yellow 1,500 21 241 WHOLESALE--0.6% Alco Standard 2,800 237 Fleming 3,800 91 Genuine Parts 6,150 247 Potlatch 1,700 $ 69 Sigma Aldrich 2,400 116 Super-Valu 3,100 91 Sysco 9,100 249 W.W. Grainger 2,500 151 1,251 TOTAL COMMON STOCKS (Cost $167,471) 214,298 U.S. TREASURY OBLIGATIONS--0.3% U.S. Treasury Bill 5.383%, 12/14/95 (A) $ 600 593 TOTAL U.S. TREASURY OBLIGATIONS (Cost $594) 593 REPURCHASE AGREEMENTS--2.4% Merrill Lynch 5.830%, dated 09/29/95, matures 10/02/95, repurchase price $5,258,106 (collateralized by various U.S. Treasury Bills, total par value $1,122,801, 03/07/96-09/19/96: U.S. Treasury Bonds, total par value $3,293,329, 7.625%-13.750%, 11/15/03-11/15/10: total market value $5,360,768) 5,256 5,256 TOTAL REPURCHASE AGREEMENTS (Cost $5,256) 5,256 TOTAL INVESTMENTS--99.1% (Cost $173,321) 220,147 OTHER ASSETS AND LIABILITIES--0.9% Other Assets and Liabilities, Net 2,122 NET ASSETS: Portfolio shares--Institutional Class ($.0001 par value--2 billion authorized) based on 16,409,292 outstanding shares $169,709 Portfolio shares--Retail Class A ($.0001 par value--2 billion authorized) based on 160,327 outstanding shares 1,784 Portfolio shares--Retail Class B ($.0001 par value--billion authorized) based on 89,979 outstanding shares 1,102 Undistributed net investment income 110 Accumulated net realized gain on investments 2,723 Net unrealized appreciation of investments 46,826 Net unrealized appreciation of futures contracts 15 TOTAL NET ASSETS:--100.0% $222,269 NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER SHARE--INSTITUTIONAL CLASS $ 13.34 NET ASSET VALUE AND REDEMPTION PRICE PER SHARE-- RETAIL CLASS A $ 13.35 MAXIMUM SALES CHARGE OF 4.50%+ 0.63 OFFERING PRICE PER SHARE--RETAIL CLASS A $ 13.98 NET ASSET VALUE AND OFFERING PRICE PER SHARE--RETAIL CLASS B (1) $ 13.30 The accompanying notes are an integral part of the financial statements. * Non-income producing security + The offer price is calculated by dividing the net asset value by 1 minus the maximum sales charge of 4.50%. (1) Retail Class B has a contingent deferred sales charge. For a description of a possible redemption charge, see the notes to the financial statement. (A) Security has been deposited as initial margin on open futures contract. ADR--American Depository Receipt FHLMC--Federal Home Loan Mortgage Corporation FNMA--Federal National Mortgage Association EQUITY INCOME FUND Description Par (000)/Shares Value (000) COMMON STOCKS--70.2% BANKS--5.4% Citicorp 19,808 $1,401 National City 52,000 1,606 3,007 CHEMICALS--1.9% E.I. du Pont de Nemours 15,000 1,031 DRUGS--5.8% Abbott Laboratories 32,000 1,364 Johnson & Johnson 17,000 1,260 Pfizer 11,000 587 3,211 ELECTRICAL SERVICES--5.0% Detroit Edison 37,000 1,193 FPL Group 17,000 695 Unicom 29,000 877 2,765 FINANCIAL SERVICES--1.2% American Express 15,000 666 FOOD, BEVERAGE & TOBACCO--7.4% PepsiCo 16,000 816 Philip Morris 27,000 2,253 Sara Lee 35,000 1,041 4,110 GAS/NATURAL GAS--0.7% Enron 11,000 369 HOUSEHOLD PRODUCTS--2.5% Newell 56,000 1,386 INSURANCE--1.2% Providian 16,000 664 MACHINERY--6.4% General Electric 40,000 2,550 Tenneco 21,000 971 3,521 MINING--2.2% Great Northern Iron Ore Properties 26,400 1,241 OIL - DOMESTIC--3.7% Atlantic Richfield 19,000 2,040 OIL - INTERNATIONAL--7.4% Amoco 14,000 $ 898 Exxon 17,500 1,264 Mobil 19,500 1,943 4,105 REAL ESTATE INVESTMENT TRUSTS--12.0% Crescent Real Estate Equities 24,000 738 Healthcare Realty Trust 53,000 1,100 Manufactured Home Communities 56,000 966 National Golf Properties 63,000 1,378 Simon Property Group 52,000 1,320 Weeks 47,000 1,134 6,636 RAILROADS--1.8% Union Pacific 15,000 994 RETAIL--3.6% Albertson's 7,000 239 J.C. Penney 35,000 1,737 1,976 TELEPHONES & TELECOMMUNICATION--2.0% AT&T 17,000 1,118 TOTAL COMMON STOCKS (Cost $33,349) 38,840 PREFERRED CONVERTIBLE STOCKS--7.0% AUTOMOTIVE--4.7% Ford Motor, Ser A, $4.20 18,500 1,894 General Motors, Ser C, $3.25 11,000 714 2,608 BANKS--0.8% Citicorp, Ser 15, $1.217 21,090 427 STEEL & STEEL WORKS--1.5% AK Steel, $2.1525 28,000 847 TOTAL PREFERRED CONVERTIBLE STOCKS (Cost $3,595) 3,882 PREFERRED STOCKS--0.6% INSURANCE--0.6% FHP International, Cl A 15,000 356 TOTAL PREFERRED STOCKS (Cost $349) 356 CONVERTIBLE BONDS--11.3% Conner Peripherals, 41.666 Shares 6.500%, 03/01/02 $1,575 $ 1,481 General Instrument, 42.1052 Shares 5.000%, 06/15/00 975 1,304 Integrated Health Services, 31.1284 Shares 6.000%, 01/01/03 650 673 Price, 44.3754 Shares 6.750%, 03/01/01 1,025 1,046 Vencor, 38.5615 Shares 6.000%, 10/01/02 1,400 1,742 TOTAL CONVERTIBLE BONDS (Cost $6,222) 6,246 REPURCHASE AGREEMENTS--10.3% J.P. Morgan 6.358%, dated 09/29/95, matures 10/02/95, repurchase price $2,532,614 (collateralized by U.S. Treaury STRIPS, total par value $7,923,891, 11/15/00-11/15/24, total market value $2,581,913) 2,531 2,531 Merrill Lynch 5.830%, dated 09/29/95, matures 10/02/95, repurchase price $3,148,680 (collateralized by various U.S. Treasury Bills, total par value $672,360, 03/07/96-09/19/96: U.S. Treasury Bonds, total par value $1,972,124, 7.625%-13.750%, 11/15/03-11/15/10: total market value $3,210,157) 3,147 3,147 TOTAL REPURCHASE AGREEMENTS (Cost $5,678) 5,678 TOTAL INVESTMENTS--99.4% (Cost $49,193) 55,002 OTHER ASSETS AND LIABILITIES--0.6% Other Assets and Liabilities, Net 352 NET ASSETS: Portfolio shares--Institutional Class ($.0001 par value--2 billion authorized) based on 4,636,094 outstanding shares $46,419 Portfolio shares--Retail Class A ($.0001 par value--2 billion authorized) based on 177,562 outstanding shares 1,881 Portfolio shares--Retail Class B ($.0001 par value--2 billion authorized) based on 110,137 outstanding shares 1,170 Undistributed net investment income 104 Accumulated net realized loss on investments (29) Net unrealized appreciation of investments 5,809 TOTAL NET ASSETS:--100.0% $55,354 NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER SHARE--INSTITUTIONAL CLASS $ 11.24 NET ASSET VALUE AND REDEMPTION PRICE PER SHARE--RETAIL CLASS A $ 11.24 MAXIMUM SALES CHARGE OF 4.50%+ 0.53 OFFERING PRICE PER SHARE--RETAIL CLASS A $ 11.77 NET ASSET VALUE AND OFFERING PRICE PER SHARE--RETAIL CLASS B (1) $11.20 The accompanying notes are an integral part of the financial statements. + The offer price is calculated by dividing the net asset value by 1 minus the maximum sales charge of 4.50%. (1) Retail Class B has a contingent deferred sales charge. For a description of possible redemption charge, see the notes to the financial statements. STRIPS--Separately Trading of Registered Interest and Principle of Securities LIMITED VOLATILITY STOCK FUND Description Shares Value (000) COMMON STOCKS--92.3% AEROSPACE & DEFENSE--2.7% Lockheed Martin 7,000 $ 470 AIR TRANSPORTATION--2.6% Southwest Airlines 17,500 442 AUTOMOTIVE--3.6% Paccar 7,500 350 Stewart & Stevenson Services 8,300 268 618 BANKS--7.6% Bank of New York 10,000 465 Boatmen's Bancshares 11,300 418 Wachovia 9,600 414 1,297 CHEMICALS--2.3% PPG Industries 8,500 395 COMPUTERS & SERVICES--2.3% IBM 4,200 396 DRUGS--7.9% Eli Lilly 5,000 449 Mallinckrodt Group 10,800 428 Merck 8,400 471 1,348 ELECTRICAL SERVICES--8.1% Delmarva Power & Light 16,200 371 Montana Power 13,700 317 Rochester Gas & Electric 13,500 319 Southwestern Public Service 11,600 378 1,385 FOOD, BEVERAGE & TOBACCO--2.4% Hershey Foods 6,500 418 GAS/NATURAL GAS--1.8% Pacific Enterprises 12,000 302 HOUSEHOLD PRODUCTS--2.6% Clorox 6,300 450 INSURANCE--2.3% Aon 9,650 394 MACHINERY--4.4% Dresser Industries 14,800 353 General Electric 6,200 396 749 MEDICAL PRODUCTS & SERVICES--4.6% Bausch & Lomb 7,300 $ 302 Baxter International 11,600 477 779 METALS & MINING--1.2% Vulcan Materials 3,800 201 MISCELLANEOUS CONSUMER SERVICES--1.7% Rollins 12,050 295 MULTI-INDUSTRY--2.6% Harsco 8,000 445 OIL - INTERNATIONAL--7.6% Amoco 7,300 468 Chevron 9,100 442 Mobil 4,000 399 1,309 PETROLEUM & FUEL PRODUCTS--2.2% Questar 11,700 376 PRECIOUS METALS--2.3% Barrick Gold 14,800 383 Santa Fe Pacific Gold 300 4 387 PRINTING & PUBLISHING--2.0% Banta 8,100 344 RETAIL--4.3% Albertson's 10,800 369 J.C. Penney 7,500 372 741 SEMI-CONDUCTORS/INSTRUMENTS--1.7% Intel 4,800 289 SPECIALTY CONSTRUCTION--2.3% Clayton Homes 16,600 394 STEEL & STEEL WORKS--4.5% Carpenter Technology 11,200 438 Phelps Dodge 5,200 326 764 TELEPHONES & TELECOMMUNICATION--2.4% U.S. West 8,800 415 WHOLESALE--2.3% Genuine Parts 9,875 396 TOTAL COMMON STOCKS (Cost $12,877) 15,799 U. S. TREASURY OBLIGATIONS--4.1% U.S. Treasury Bill 6.183%, 10/19/95 $ 700 $ 698 TOTAL U. S. TREASURY OBLIGATIONS (Cost $698) 698 CASH EQUIVALENTS--2.0% AIM Short Term Prime Obligation 347,654 348 TOTAL CASH EQUIVALENTS (Cost $348) 348 TOTAL INVESTMENTS--98.4% (Cost $13,923) 16,845 OTHER ASSETS AND LIABILITIES--1.6% Other Assets and Liabilities, Net 280 NET ASSETS: Portfolio shares--Institutional Class ($.0001 par value--2 billion authorized) based on 1,438,464 outstanding shares 14,326 Undistributed net investment income 8 Accumulated net realized loss on investments (131) Net unrealized appreciation of investments 2,922 TOTAL NET ASSETS:--100.0% $17,125 NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER SHARE--INSTITUTIONAL CLASS $ 11.91 The accompanying notes are an integral part of the financial statements. * Non-income producing security DIVERSIFIED GROWTH FUND Description Par (000)/Shares Value (000) COMMON STOCKS--85.9% AUTOMOTIVE--2.4% Ford Motor 105,000 $3,268 BANKS--2.5% BankAmerica 25,000 1,497 Citicorp 26,900 1,903 3,400 CHEMICALS--2.0% E.I. du Pont de Nemours 41,000 2,819 COMMUNICATIONS EQUIPMENT--4.4% Motorola 24,000 1,833 Nokia (ADR) 60,000 4,185 6,018 COMPUTERS & SERVICES--5.3% Cisco Systems* 68,000 4,692 Compaq Computer* 27,000 1,306 Seagate Technology* 29,000 1,222 7,220 DRUGS--6.5% Abbott Laboratories 78,000 3,325 Johnson & Johnson 41,000 3,039 Pfizer 47,000 2,509 8,873 ELECTRICAL SERVICES--1.0% Detroit Edison 40,000 1,290 ENERGY & POWER--1.2% Thermo Electron* 34,000 1,577 FINANCIAL SERVICES--4.8% American Express 54,000 2,396 First Financial Management 5,000 488 FNMA 35,000 3,623 6,507 FOOD, BEVERAGE & TOBACCO--5.2% Nabisco Holdings, Cl A 28,000 830 PepsiCo 37,000 1,887 Philip Morris 35,000 2,922 Sara Lee 47,000 1,398 7,037 GAS/NATURAL GAS--0.6% Enron 24,000 804 HOUSEHOLD PRODUCTS--1.1% Newell 59,000 1,460 INSURANCE--0.7% United Healthcare 21,000 $1,026 MACHINERY--5.7% Case Equipment 27,000 992 General Electric 69,000 4,399 Tenneco 51,000 2,359 7,750 MARINE TRANSPORTATION--0.2% Royal Carribean Cruises 14,000 340 MEASURING DEVICES--0.5% MTS Systems 26,000 735 MEDICAL PRODUCTS & SERVICES--4.8% Columbia/HCA Healthcare 68,000 3,307 Medtronic 60,000 3,225 6,532 MISCELLANEOUS BUSINESS SERVICES--6.7% General Motors, Cl E 27,000 1,229 Informix* 53,000 1,721 Novell* 71,000 1,296 Oracle Systems* 90,000 3,451 Synopsys* 16,000 492 The Bisys Group* 39,000 995 9,184 OIL - DOMESTIC--2.1% Atlantic Richfield 27,000 2,899 OIL - INTERNATIONAL--4.7% Amoco 30,000 1,924 Exxon 29,000 2,095 Mobil 16,000 1,594 Union Texas Petroleum 42,000 767 6,380 PAPER & PAPER PRODUCTS--1.4% Weyerhaeuser 42,000 1,916 PRINTING & PUBLISHING--0.9% News (ADR) 54,000 1,188 REAL ESTATE INVESTMENT TRUSTS--3.2% Debartolo Realty 82,000 1,148 National Golf Properties 49,000 1,072 Simon Property Group 84,000 2,132 4,352 RAILROADS--1.7% Southern Pacific Rail* 93,000 $ 2,255 RETAIL--6.2% Dayton Hudson 26,000 1,973 J.C. Penney 53,000 2,630 McDonald's 85,000 3,251 Orchard Supply Hardware Stores* 41,000 595 8,449 SPECIALTY MACHINERY--2.2% York International 73,000 3,075 STEEL & STEEL WORKS--1.9% AK Steel Holding* 39,000 1,151 Inland Steel 37,000 842 Rouge Steel 23,500 546 2,539 TELEPHONES & TELECOMMUNICATION--4.5% Airtouch Communications* 48,000 1,470 L.M. Ericsson Telephone (ADR) 58,000 1,421 Tele Danmark (ADR) 16,000 414 Vodafone (ADR) 71,000 2,911 6,216 TRUCKING--1.5% Fritz* 28,000 2,063 TOTAL COMMON STOCKS (Cost $95,561) 117,172 PREFERRED CONVERTIBLE STOCKS--0.4% BANKS--0.4% Citicorp, Ser 15, $1.217 24,010 486 TOTAL PREFERRED CONVERTIBLE STOCKS (Cost $470) 486 CONVERTIBLE BONDS--1.6% General Instrument, 42.1052 shares 5.000%, 06/15/00 $ 1,650 2,207 TOTAL CONVERTIBLE BONDS (Cost $2,218) 2,207 REPURCHASE AGREEMENTS--11.6% J.P. Morgan 6.358%, dated 09/29/95, matures 10/02/95, repurchase price $7,802,086 (collateralized by U.S. Treasury STRIPS, total par value $24,410,698, 11/15/00-11/15/24, total market value $7,953,959) $7,798 $ 7,798 Merrill Lynch 5.830%, dated 09/29/95, matures 10/02/95, repurchase price $7,976,609 (collateralized by various U.S. Treasury Bills, total par value $1,703,302, 03/07/96-09/19/96: U.S. Treasury Notes, total par value $4,996,019, 7.625%-13.750%, 11/15/03-11/15/10: total market value $8,132,349) 7,973 7,973 TOTAL REPURCHASE AGREEMENTS (Cost $15,771) 15,771 TOTAL INVESTMENTS--99.5% (Cost $114,020) 135,636 OTHER ASSETS AND LIABILITIES--0.5% Other Assets and Liabilities, Net 747 NET ASSETS: Portfolio Shares--Institutional Class (.0001 par value--2 billion authorized) based on 11,276,198 outstanding shares 112,233 Portfolio Shares--Retail Class A (.0001 par value--2 billion authorized) based on 230,527 outstanding shares 2,416 Portfolio Shares--Retail Class B (.0001 par value--2 billion authorized) based on 69,894 outstanding 762 Undistributed net investment income 146 Accumulated net realized loss on investments (790) Net unrealized appreciation of investments 21,616 TOTAL NET ASSETS:--100.0% $136,383 NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER SHARE--INSTITUTIONAL CLASS $ 11.78 NET ASSET VALUE AND REDEMPTION PRICE PER SHARE--RETAIL A $ 11.75 MAXIMUM SALES CHARGE OF 4.50%+ 0.55 OFFERING PRICE PER SHARE--RETAIL CLASS A $ 12.30 NET ASSET VALUE AND OFFERING PRICE PER SHARE--RETAIL CLASS B (1) $ 11.73 The accompanying notes are an integral part of the financial statements. * Non-income producing security + The offering price is calculated by dividing the net asset value by 1 minus the maximum sales charge of 4.50%. (1) Retail Class B has a contingent deferred sales charge. For a description of a possible redemption charge, see the notes to the financial statement. ADR--American Depository Receipt FNMA--Federal National Mortgage Association STRIPS--Separately Trading of Registered Interest and Principal of Securities STOCK FUND Description Par (000)/Shares Value (000) COMMON STOCK--83.3% AUTOMOTIVE--1.6% General Motors 110,500 $ 5,180 BANKS--3.2% Bay Banks 41,500 3,149 Chemical Banking 121,300 7,384 10,533 CHEMICALS--3.2% Hercules 96,600 5,603 Olin 75,100 5,163 10,766 COMPUTERS & SERVICES--7.3% Compaq Computer* 143,100 6,923 Cray Research* 218,100 4,825 Hewlett Packard 79,800 6,653 IBM 63,000 5,946 24,347 CONTAINERS & PACKAGING--1.4% Ball 155,500 4,607 DRUGS--4.0% American Home Products 86,900 7,376 Bristol-Myers Squibb 80,000 5,830 13,206 FINANCIAL SERVICES--1.5% ITT 40,400 5,010 FOOD, BEVERAGE & TOBACCO--5.8% ConAgra 186,700 7,398 Dole Food 188,900 6,541 Sara Lee 178,100 5,298 19,237 HOME APPLIANCES--1.0% Whirlpool 58,100 3,355 INSURANCE--3.0% AMBAC 129,800 5,711 General Re 29,100 4,394 10,105 LEISURE--2.0% Brunswick 324,500 6,571 MACHINERY--6.3% Briggs & Stratton 18,100 729 Case Equipment 193,300 7,104 Caterpillar 58,100 3,304 General Electric 107,200 6,834 York International 74,400 3,134 21,105 MULTI-INDUSTRY--2.5% Minnesota Mining & Manufacturing 92,800 $ 5,243 U.S. Industries* 203,000 3,147 8,390 PAPER & PAPER PRODUCTS--4.3% Bemis 185,800 5,133 James River 188,500 6,031 Scott Paper 67,600 3,279 14,443 PETROLEUM REFINING--9.8% Amerada Hess 98,700 4,799 Exxon 65,300 4,718 Mobil 78,100 7,782 Royal Dutch Petroleum (ADR) 45,600 5,597 Texaco 65,100 4,207 Unocal 194,000 5,529 32,632 PHOTOGRAPHIC EQUIPMENT & SUPPLIES--3.8% Eastman Kodak 124,400 7,371 Xerox 40,100 5,388 12,759 PRINTING & PUBLISHING--2.2% Times Mirror, Cl A 249,400 7,170 REAL ESTATE INVESTMENT TRUSTS--5.1% Debartolo Realty 278,000 3,892 Duke Realty Investments 104,000 3,237 Equity Residential Properties Trust 155,600 4,687 Simon Property Group 199,900 5,072 16,888 RAILROADS--3.5% Consolidated Rail 80,300 5,521 CSX 74,500 6,267 11,788 RETAIL--6.0% Dayton Hudson 66,700 5,061 Gap 135,900 4,892 Sears Roebuck 151,300 5,579 Wal-Mart Stores 179,400 4,463 19,995 SEMI-CONDUCTORS/INSTRUMENTS--2.0% AMP 80,200 $ 3,088 Texas Instruments 43,500 3,474 6,562 STEEL & STEEL WORKS--1.2% Aluminum Company of America 74,000 3,913 TELEPHONES & TELECOMMUNICATION--1.8% Century Telephone Enterprises 200,900 6,102 WHOLESALE--0.8% W.W. Grainger 46,000 2,777 TOTAL COMMON STOCK (Cost $233,799) 277,441 MASTER NOTES--4.7% Associates Corporation of North America 5.708%, 10/02/95 (A) $ 5,717 5,717 Goldman Sachs 5.830%, 10/03/95 (A) 9,744 9,744 TOTAL MASTER NOTES (Cost $15,461) 15,461 REPURCHASE AGREEMENTS--12.0% J.P. Morgan 6.358%, dated 09/29/95, matures 10/02/95, repurchase price $18,251,112 (collateralized by various U.S. Treasury STRIPS, total par value $57,102,985, 05/15/00-05/15/24: total market value $18,606,382) 18,241 18,241 Merrill Lynch 5.830%, date 09/29/95, matures 10/02/95, repurchase price $21,562,888 (collaterlized by various U.S. Treasury Bills, total par value $4,604,478, 03/07/96-09/19/96: U.S. Treasury Bonds, total par value $13,505,563, 7.625%-13.75%, 11/15/03-11/15/10: total market value $21,983,894) 21,553 21,553 TOTAL REPURCHASE AGREEMENTS (Cost $39,794) 39,794 TOTAL INVESTMENTS--100.0% (Cost $289,054) 332,696 OTHER ASSETS AND LIABILITIES--0.0% Other Assets and Liabilities, Net (10) NET ASSETS: Portfolio shares--Institutional Class ($.0001 par value--2 billion authorized) based on 15,975,824 outstanding shares $253,795 Portfolio shares--Retail Class A ($.0001 par value--2 billion authorized) based on 668,325 outstanding shares 10,526 Portfolio shares--Retail Class B ($.0001 par value--2 billion authorized) based on 361,726 outstanding shares 6,547 Undistributed net investment income 235 Accumulated net realized gain on investments 17,941 Net unrealized appreciation of investments 43,642 TOTAL NET ASSETS:--100.0% $332,686 NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE--INSTITUTIONAL CLASS $ 19.56 NET ASSET VALUE AND REDEMPTION PRICE PER SHARE-- RETAIL CLASS A $ 19.57 MAXIMUM SALES CHARGE OF 4.50%+ 0.92 OFFERING PRICE PER SHARE--RETAIL CLASS A $ 20.49 NET ASSET VALUE AND OFFERING PRICE PER SHARE-- RETAIL CLASS B (1) $ 19.49 The accompanying notes are an integral part of the financial statements. * Non-income producing security + The offer price is calculated by dividing the net asset value by 1 minus the maximum sales charge of 4.50%. (1) Retail Class B has a contingent deferred sales charge. For a description of possible redemption charge, see the notes to the financial statements. (A) Variable Rate Security with Demand Features--the rate reported on the Statement of Net Assets is the rate in effect as of September 30, 1995. The date shown is the longer of the reset or demand date. ADR--American Depository Receipt AMBAC--American Municipal Bond Assurance Company STRIPS--Separately Trading of Registered Interest and Principal of Securities SPECIAL EQUITY FUND Description Par (000)/Shares Value (000) COMMON STOCK--73.8% AGRICULTURE--1.6% Pioneer Hi-Bred International 78,200 $3,597 AUTOMOTIVE--0.4% Oshkosh Truck, Cl B 53,200 811 BANKS--0.6% Chemical Banking 20,200 1,230 CHEMICALS--1.8% IMC Global 63,600 4,031 COMMUNICATIONS EQUIPMENT--0.7% Aydin* 84,400 1,456 CONSTRUCTION MATERIALS--0.8% Lafarge 98,400 1,808 DRUGS--0.2% Hauser Chemical Research* 93,400 531 ELECTRICAL UTILITIES--1.7% Unicom 124,600 3,769 FINANCIAL SERVICES--0.7% Carr Realty 77,200 1,448 MACHINERY--0.8% Brown & Sharpe Manufacturing* 171,000 1,817 MARINE TRANSPORTATION--6.1% London & Overseas Freighters (ADR) 40,300 589 Overseas Shipholding Group 229,600 4,563 Stolt-Nielsen 217,700 6,967 Teekay Shipping* 46,700 1,121 13,240 METALS & MINING--20.1% AK Steel Holding* 129,100 3,808 Allegheny Ludlum 92,700 1,889 Aluminum Company of America 81,200 4,293 Asarco 168,000 5,292 Ashland Coal 75,100 2,262 Cleveland-Cliffs 41,200 1,694 Freeport-McMoran Copper & Gold 273,300 7,005 INCO 171,400 5,870 LTV* 235,200 3,293 Lukens 64,200 1,870 Phelps Dodge 36,600 2,292 Republic Engineered Steels* 113,000 848 Reynolds Metals 59,000 3,407 43,823 NATURAL GAS DISTRIBUTION--1.0% MCN 115,500 2,281 OIL SERVICES--12.0% Atwood Oceanic* 44,500 921 Baker Hughes 145,000 2,954 Dresser Industries 167,800 4,006 Halliburton 117,300 4,897 Helmerich & Payne 236,200 6,643 Horsham 458,000 $ 6,011 Pride Petroleum Services* 36,300 363 Stolt Comex Seaway* 36,100 393 26,188 OIL - DOMESTIC--14.8% Amerada Hess 20,100 977 Anadarko Petroleum 67,700 3,207 Ashland 39,900 1,332 Diamond Shamrock 33,900 835 Holly 120,700 2,776 Louisiana Land & Exploration 121,200 4,318 Murphy Oil 34,700 1,388 Nuevo Energy* 47,500 1,069 Petrocorp* 40,800 337 Sun 34,206 881 USX-Marathon Group 357,300 7,055 Valero Energy 241,700 5,801 Wiser Oil 161,500 2,221 32,197 OIL - INTERNATIONAL--3.1% Texaco 104,200 6,734 PRECIOUS METALS--6.5% Coeur D'Alene Mines 149,800 3,033 Hecla Mining* 175,300 2,126 Hemlo Gold Mines 250,300 2,503 Newmont Mining 109,499 4,654 Santa Fe Pacific Gold 141,100 1,781 14,097 RETAIL--0.9% Dayton Hudson 26,400 2,003 TOTAL COMMON STOCK (Cost $146,045) 161,061 MASTER NOTES--8.4% Associates Corporation of North America 5.708%, 10/02/95 (A) $ 8,735 8,735 Goldman Sachs 5.830%, 10/03/95 (A) 9,534 9,534 TOTAL MASTER NOTE (Cost $18,269) 18,269 REPURCHASE AGREEMENT--16.9% J.P. Morgan 6.358%, dated 09/29/95, matures 10/02/95, repurchase price $18,568,887 (collateralized by various U.S. Treasury STRIPS, total par value $58,097,221, 05/15/00-05/15/24: total market value $18,930,343) 18,559 18,559 Merrill Lynch 5.830%, dated 09/29/95, matures 10/02/95, repurchase price $18,370,295, (collateralized by various U.S. Treasury Bills, total par value $3,922,741, 03/07/96-09/19/96: U.S. Treasury Bonds, total par value $11,505,934, 7.625%-13.75%, 11/15/03-11/15/10: total market value $18,728,967) $ 18,361 $ 18,361 TOTAL REPURCHASE AGREEMENT (Cost $36,920) 36,920 TOTAL INVESTMENTS--99.1% (Cost $201,234) 216,250 OTHER ASSETS AND LIABILITIES--0.9% Other Assets and Liabilities, Net 1,992 NET ASSETS: Portfolio shares--Institutional Class ($.0001 par value--2 billion authorized) based on 11,278,581 outstanding shares 173,630 Portfolio shares--Retail Class A ($.0001 par value--2 billion authorized) based on 648,950 outstanding shares 10,058 Portfolio shares--Retail Class B ($.0001 par value--2 billion authorized) based on 271,858 outstanding shares 4,525 Undistributed net investment income 75 Accumulated net realized gain on investments 14,938 Net unrealized appreciation of investments 15,016 TOTAL NET ASSETS:--100.0% $218,242 NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER SHARE--INSTITUTIONAL CLASS $ 17.89 NET ASSET VALUE AND REDEMPTION PRICE PER SHARE-- RETAIL CLASS A $ 17.89 MAXIMUM SALES CHARGE OF 4.50%+ 0.84 OFFERING PRICE PER SHARE--RETAIL CLASS A $ 18.73 NET ASSET VALUE AND OFFERING PRICE PER SHARE-- RETAIL CLASS B (1) $ 17.83 The accompanying notes are an integral part of the financial statements. * Non-income producing security + The offer price is calculated by dividing the net asset value by 1 minus the maximum sales charge of 4.50%. (1) Retail Class B has a contingent deferred sales charge. For a description of a possible redemption charge, see the notes to the financial statements. (A) Variable Rate Security with Demand Features--the rate reported on the Statement of Net Assets is the rate in effect as of September 30, 1995. The date shown is the longer of the reset or demand date. ADR--American Depository Receipt STRIPS--Separately Trading of Registered Interest and Principal of Securities REGIONAL EQUITY FUND Description Shares/Par (000) Value (000) INVESTMENTS IN SECURITIES OF UNAFFILIATED ISSUERS--80.5% COMMON STOCKS--65.3% APPAREL/TEXTILES--0.5% Raven Industries 54,100 $ 974 AUTOMOTIVE--2.4% Tower Automotive* 365,000 5,019 BANKS--5.6% Community First Bankshares 250,000 4,813 TCF Financial 120,000 6,990 11,803 BROADCASTING, NEWSPAPERS & ADVERTISING--1.2% Lodgenet Entertainment* 240,000 2,520 CHEMICALS--0.6% W.H. Brady 16,200 1,183 COMMUNICATIONS EQUIPMENT--3.1% Communications Systems 440,000 6,490 COMPUTERS & SERVICES--9.7% Control Data Systems* 450,000 5,456 Cray Research* 350,000 7,744 Digi International* 220,000 6,215 Netstar* 96,800 1,016 20,431 DRUGS--2.2% Lifecore Biomedical* 350,000 4,681 ENVIRONMENTAL SERVICES--0.1% Appliance Recycling Centers of America* 34,300 223 FINANCIAL SERVICES--2.0% General Growth Properties 200,000 4,125 FOOD, BEVERAGE & TOBACCO--4.7% Grist Mill* 210,000 1,969 International Multifoods 190,000 4,085 Michael Foods 290,000 3,879 9,933 INSURANCE--0.6% Crop Growers* 90,000 1,328 MACHINERY--8.2% Alliant Techsystems* 50,000 2,350 BMC Industries 161,500 6,238 Donaldson 200,000 4,925 Pentair 85,000 3,825 17,338 MEDICAL--5.7% Angeion* 555,000 4,163 ATS Medical* 186,400 1,631 Biovascular* 266,400 4,795 CNS* 58,900 773 Empi* 44,300 875 12,237 METALS & MINING--1.0% Varlen 80,600 $ 2,196 MISCELLANEOUS BUSINESS SERVICES--3.1% National Computer Systems 300,000 6,450 MISCELLANEOUS CONSUMER SERVICES--3.1% Regis 300,000 6,450 MISCELLANEOUS TRANSPORTATION--0.7% Arctco 120,000 1,530 PRINTING & PUBLISHING--1.9% IPI* 198,300 793 Merrill 175,200 3,241 4,034 RETAIL--5.5% Buffets* 178,700 2,234 Damark International, Cl A* 200,000 1,425 Fingerhut 350,000 5,644 Vicorp Restaurants* 200,000 2,400 11,703 SPECIALTY CONSTRUCTION--0.1% Apogee Enterprises 19,500 293 TELEPHONES & TELECOMMUNICATION--0.9% Marketlink* 485,000 1,841 WHOLESALE--2.4% A.M. Castle 133,500 2,970 Hawkins Chemical 298,000 2,161 5,131 TOTAL COMMON STOCKS (Cost $106,569) 137,913 CONVERTIBLE BONDS--0.8% Hector Communications 8.500%, 02/15/02 $ 1,630 1,622 TOTAL CONVERTIBLE BONDS (Cost $1,630) 1,622 WARRANTS--0.4% ENTERTAINMENT--0.0% Canterbury Park Holdings* 177,500 67 MEDICAL--0.4% Angeion* 430,000 644 ATS Medical* 186,400 105 749 TOTAL WARRANTS (Cost $196) 816 MASTER NOTES--4.0% Associates Corporation of North America 5.708%, 10/02/95 (A) 2,304 2,304 Goldman Sachs 5.830%, 10/03/95 (A) 6,168 6,168 TOTAL MASTER NOTES (Cost $8,472) $ 8,472 REPURCHASE AGREEMENTS--10.0% J.P. Morgan 6.358%, dated 09/29/95, matures 10/02/95, repurchase price $10,186,211 (collateralized by various U.S. Treasury STRIPS, total par value $31,870,007, 11/15/00-11/15/24: total market value $10,384,493) $ 10,181 10,181 Merrill Lynch 5.830%, dated 09/29/95, matures 10/02/95, repurchase price $10,948,751 (collateralized by various U.S. Treasury Bills, total par value $2,337,965, 03/07/96-09/19/96: U.S. Treasury Bonds, total par value $6,857,572, 7.625%-13.750%, 11/15/03-11/15/10: total market value $11,162,521) 10,943 10,943 TOTAL REPURCHASE AGREEMENTS (Cost $21,124) 21,124 TOTAL INVESTMENTS IN SECURITIES OF UNAFFILIATED ISSUERS (Cost $137,991) 169,947 INVESTMENTS IN COMMON STOCK OF AFFILIATES--19.6% Aequitron Medical* (B) 360,000 3,330 Aetrium* (B) 680,000 14,618 Alternate Postal Delivery* (B) 241,900 1,391 Audio King* (B) 265,000 894 Canterbury Park Holdings* (B) 177,500 422 Deflecta-Shield* (B) 250,000 1,781 Dynamic Healthcare Technologies* (B) 350,000 328 Navarre* (B) 260,000 2,210 Norstan* (B) 240,000 6,240 Orphan Medical* (B) 275,000 2,028 Rehabilicare* (B) 471,400 1,768 Rimage* (B) 235,000 1,630 TSI (B) 430,000 4,838 TOTAL INVESTMENTS IN COMMON STOCK OF AFFILIATES (Cost $26,431) 41,478 TOTAL INVESTMENTS--100.1% (Cost $164,422) 211,425 OTHER ASSETS AND LIABILITIES--(0.1)% Other Assets and Liabilities, Net (295) NET ASSETS: Portfolio Shares--Institutional Class ($.0001 par value-2 billion authorized) based on 11,006,811 outstanding shares 131,400 Portfolio Shares--Retail Class A ($.0001 par value-2 billion authorized) based on 871,282 outstanding shares $ 10,222 Portfolio Shares--Retail Class B ($.0001 par value-2 billion authorized) based on 449,114 outstanding shares 6,649 Undistributed net investment income 317 Accumulated net realized gain on investments 15,539 Net unrealized appreciation of investments 47,003 TOTAL NET ASSETS $211,130 NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE--INSTITUTIONAL CLASS $ 17.13 NET ASSET VALUE AND REDEMPTION PRICE PER SHARE--RETAIL CLASS A $ 17.12 MAXIMUM SALES CHARGE OF 4.50%+ 0.81 OFFERING PRICE PER SHARE--RETAIL CLASS A $ 17.93 NET ASSET VALUE AND OFFERING PRICE PER SHARE--RETAIL CLASS B (1) $ 16.99 The accompanying notes are an integral part of the financial statements. * Non-income producing security + The offer price is calculated by dividing the net asset value by 1 minus the maximum sales charge of 4.50%. (1) Retail Class B has a contingent deferred sales charge. For a description of a possible redemption charge, see the notes to the financial statements. (A) Variable Rate Security--the rate reported on the Statement of Net Assets is the rate in effect at September 30,1995. The date shown is the next reset date. (B) Investments are representing five percent or more of the outstanding voting securities of the issuer, and is or was an affiliate, as defined in the Investment Company Act of 1940 at or during the annual fiscal year ended September 30, 1995. The activity for these securities is listed below. Terrano Incorporated changed its name to Dynamic Healthcare Technologies during the year.
SHARES SHARES REALIZED DESCRIPTION AT 9/30/94 AT 9/30/95 DIFFERENCE DIVIDENDS GAINS/LOSSES Aequitron Medical -- 360,000 360,000 $ -- $ -- Aetrium 248,000 680,000 432,000 -- -- Alternate Postal Delivery -- 241,900 241,900 -- -- Audio King 262,112 265,000 2,888 -- -- Canterbury Park Holdings 177,500 177,500 -- -- -- Deflecta-Shield 101,100 250,000 148,900 -- -- Dynamic Healthcare Technologies 350,000 350,000 -- -- -- Navarre 152,200 260,000 107,800 -- -- Norstan 185,000 240,000 55,000 -- -- Northwest Teleproductions 170,000 -- (170,000) -- (296,275) Orphan Medical -- 275,000 275,000 -- -- Rehabilicare -- 471,400 471,400 -- -- Rimage 216,000 235,000 19,000 -- -- TSI 310,000 430,000 120,000 42,885 --
The accompanying notes are an integral part of the financial statements. STRIPS--Separately Trading of Registered Interest and Principal of Securities. EMERGING GROWTH FUND Description Shares/Par (000) Value (000) COMMON STOCK--89.0% AEROSPACE & DEFENSE--1.1% Tracor* 27,000 $ 446 APPAREL/TEXTILES--0.4% Cutter & Buck* 24,000 177 AUTOMOTIVE--2.1% Deflecta-Shield* 63,000 449 Tower Automotive* 34,000 467 916 BROADCASTING, NEWSPAPERS & ADVERTISING--2.0% Bell Cablemedia (ADR)* 20,000 365 National Wireless Holdings* 19,000 247 Pricellular, Cl A* 21,000 265 877 CHEMICALS--2.8% Applied Extrusion Technologies* 29,000 533 Cambrex 13,000 523 H.B. Fuller 4,500 142 1,198 COMMUNICATIONS EQUIPMENT--7.2% Checkpoint Systems* 19,000 501 Communications Systems 38,000 561 General Datacomm Industries* 12,000 177 Numerex, Cl A* 53,000 444 Picturetel* 9,000 407 Telebit* 24,000 105 Telewest Communications (ADR)* 6,000 183 Tellabs* 16,000 674 3,052 COMPUTERS & SERVICES--1.2% Mackie Designs* 24,000 348 Mylex* 6,000 102 Netstar* 6,000 63 513 DRUGS--4.4% Genzyme* 9,000 522 Idexx Labs* 36,000 1,341 1,863 ENERGY & POWER--0.9% California Energy* 18,000 369 ENTERTAINMENT--0.7% Avid Technology* 7,000 301 FINANCIAL SERVICES--7.9% Advanta, Cl A 8,000 360 Advanta, Cl B 13,000 553 First USA 11,000 597 Fiserv* 24,000 692 SPS Transaction Services* 17,000 493 The Bisys Group* 25,200 643 3,338 HAZARDOUS WASTE MANAGEMENT--2.2% Molton Metal Technology* 29,000 $ 939 HOUSEHOLD PRODUCTS--1.4% Coleman* 16,000 600 INSURANCE--2.9% Partnerre Holdings 15,000 371 Vesta Insurance Group 22,000 853 1,224 MACHINERY--0.8% Shaw Group* 39,000 356 MEASURING DEVICES--0.7% Quickturn Design Systems* 29,000 301 MEDICAL PRODUCTS & SERVICES--13.1% American Medical Response* 11,000 312 ATS Medical* 58,100 508 Cerner* 12,000 411 HBO 13,000 813 Healthsource* 14,000 674 Quorum Health Group* 35,000 792 Target Therapeutics* 17,000 1,187 Vencor* 27,000 864 5,561 METALS & MINING--0.8% Republic Engineered Steels* 43,000 323 METALWORKING, MACHINERY, & EQUIPMENT--2.6% Greenfield Industries 23,000 707 Wolverine Tube* 10,000 379 1,086 MISCELLANEOUS BUSINESS SERVICES--3.5% Keane* 20,000 578 Landmark Graphics* 26,000 733 Spectrum Holobyte* 15,000 189 1,500 MISCELLANEOUS FURNITURE & FIXTURES--0.4% Falcon Building Products, Cl A* 20,000 175 OIL - DOMESTIC--2.1% Belden & Blake* 25,200 479 Cairn Energy USA* 32,000 408 887 PRINTING & PUBLISHING--1.3% Thomas Nelson 21,000 530 RETAIL--6.2% Buffets* 18,000 225 Hometown Buffet* 36,000 504 Orchard Supply Hardware Stores* 26,000 377 Santa Isabel (ADR)* 21,000 454 Today's Man* 39,000 361 West Marine* 22,000 704 2,625 SEMI-CONDUCTORS/INSTRUMENTS--0.7% Fusion Systems* 10,900 $ 319 SERVICES - SECURITY--1.2% ITI Technologies* 18,000 488 SERVICES - PREPACKAGED SOFTWARE--9.3% Aspen Technologies* 19,000 570 BTG* 58,000 580 Datalogix International* 20,000 285 Hyperion Software* 8,000 454 Imnet Systems* 22,500 579 National Instruments* 18,000 365 Network Peripherals* 28,000 441 Platinum Software* 19,000 221 Summit Medical Systems* 1,500 23 Transaction Systems Architects* 15,000 401 3,919 SPECIALTY CONSTRUCTION--0.9% Insituform Mid-America Cl A 23,000 368 TELEPHONES & TELECOMMUNICATION--3.8% A+ Communications* 24,000 366 American Paging* 19,000 147 Broadband Technologies* 11,000 237 International Cabletel* 30,000 840 1,590 TRUCKING--4.4% Fritz* 12,500 921 Landstar System* 39,000 941 1,862 TOTAL COMMON STOCK (Cost $31,780) 37,703 PREFERRED STOCKS--0.4% MISCELLANEOUS BUSINESS SERVICES--0.4% Network Imaging 11,000 184 TOTAL PREFERRED STOCKS (Cost $181) 184 WARRANTS--0.1% MEDICAL PRODUCTS & SERVICES--0.1% ATS Medical* 43,000 24 TOTAL WARRANTS (Cost $12) 24 REPURCHASE AGREEMENTS--10.1% J.P. Morgan 6.358%, dated 09/29/95, matures, 10/02/95, repurchase price $1,967,540 (collateralized by various U.S. Treasury STRIPS, total par value $6,155,924, 05/15/00-05/15/24: total market value $2,005,840) $ 1,966 1,966 Merrill Lynch 5.830%, dated 09/29/95, matures 10/02/95, repurchase price $2,338,497, (collateralized by various U.S. Treasury Bills, total par value $499,356, 03/07/96-09/19/96: U.S. Treasury Bonds, total par value $1,464,680, 7.625%-13.75%, 11/15/03-11/15/10: total market value $2,384,156) $ 2,338 $ 2,338 TOTAL REPURCHASE AGREEMENT (Cost $4,304) 4,304 TOTAL INVESTMENTS--99.6% (Cost $36,277) 42,215 OTHER ASSETS AND LIABILITIES--0.4% Other Assets and Liabilities, Net 155 NET ASSETS: Portfolio shares--Institutional Class ($.0001 par value--2 billion authorized) based on 3,111,893 outstanding shares 34,819 Portfolio shares--Retail Class A ($.0001 par value--2 billion authorized) based on 28,829 outstanding shares 331 Portfolio shares--Retail Class B ($.0001 par value--2 billion authorized) based on 20,143 outstanding shares 234 Undistributed net investment income 19 Accumulated net realized gain on investments 1,029 Net unrealized appreciation of investments 5,938 TOTAL NET ASSETS:--100.0% $42,370 NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER SHARE--INSTITUTIONAL CLASS $ 13.41 NET ASSET VALUE AND REDEMPTION PRICE PER SHARE--RETAIL CLASS A $ 13.40 MAXIMUM SALES CHARGE OF 4.50%+ 0.63 OFFERING PRICE PER SHARE--RETAIL CLASS A $ 14.03 NET ASSET VALUE AND OFFERING PRICE PER SHARE--RETAIL CLASS B (1) $ 13.29 The accompanying notes are an integral part of the financial statements. * Non-income producing security. + The offer price is calculated by dividing the net asset value by 1 minus the maximum sales charge of 4.50%. (1) Retail Class B has a contingent deferred sales charge. For a description of a possible redemption charge, see the notes to the financial statements. ADR--American Depository Receipt STRIPS--Separately Trading of Registered Interest and Principal of Securities TECHNOLOGY FUND Description Shares/Par (000) Value (000) COMMON STOCK--91.5% COMMUNICATION SERVICES--0.4% Performance Systems International* 500 $ 11 UUNET Technologies* 2,800 129 140 COMMUNICATIONS EQUIPMENT--21.3% ACT Networks* 1,500 16 ADC Telecommunications* 11,700 532 Ascend Communications* 3,800 304 BroadBand Technologies* 12,100 260 DSC Communications* 21,800 1,293 General Datacomm Industries* 16,300 240 General Instrument* 14,700 441 L.M. Ericsson Telephone (ADR) 29,200 715 MRV Communications* 14,400 308 Nokia (ADR) 18,400 1,283 Picturetel* 11,600 525 Plaintree Systems* 16,000 136 Telebit* 31,100 136 Tellabs* 15,400 649 VideoServer* 3,700 130 6,968 COMPUTERS & SERVICES--16.2% Cabletron Systems* 5,700 375 Cirrus Logic* 14,200 813 Cisco Systems* 22,300 1,540 Compaq Computer* 21,400 1,035 Concentra* 6,900 72 Convex Computer* 27,400 123 Diamond Multimedia Systems* 250 8 Mackie Designs* 16,000 232 Mylex* 6,500 111 NetStar* 6,500 68 Seagate Technology* 13,200 556 Silicon Graphics* 8,900 306 StorMedia* 1,800 81 5,320 SEMI-CONDUCTORS/INSTRUMENTS--12.8% Adaptec* 9,900 408 ANADIGICS* 2,807 78 Applied Materials* 6,200 634 C.P. Clare* 700 18 Fusion Systems* 8,200 240 LSI Logic* 14,400 832 Micron Technology 13,400 1,065 Paradigm Technology* 200 6 Quickturn Design Systems* 21,000 218 S3* 10,700 373 SDL* 2,100 59 Solectron* 4,800 190 TelCom Semiconductor* 6,000 69 4,190 SERVICES - PREPACKAGED SOFTWARE--40.8% ArcSys* 500 $ 21 Aspen Technologies* 12,300 369 Autodesk 12,200 534 Avid Technology* 6,000 258 Baan, N.V.* 9,500 428 BDM International* 2,700 74 BTG* 21,200 212 C*ATS Software* 500 4 CFI Proservices* 20,000 325 Checkfree* 2,000 40 Computer Associates International 11,650 492 Datalogix International* 26,800 382 Dataware Technologies* 8,100 103 Dendrite International* 10,600 162 Discreet Logic* 2,000 110 Firefox Communications* 1,000 25 Harbinger* 300 4 Hyperion Software* 8,400 477 Imnet Systems* 12,200 314 Inference* 5,300 80 Informix* 55,300 1,795 Legato Systems* 400 11 Macromedia* 5,200 297 McAfee Associates* 6,689 344 National Instruments* 16,700 338 Network Peripherals* 14,000 221 Novell* 21,200 387 ON Technology* 500 9 Oracle Systems* 36,000 1,382 Parametric Technology* 9,400 578 Peoplesoft* 8,400 763 Pinnacle Systems* 1,500 46 Platinum Technology* 14,800 307 Pure Software* 2,500 89 Seer Technology* 500 8 Smith Micro Software* 500 5 Softdesk* 8,200 207 Softkey International* 7,700 341 Spectrum Holobyte* 27,400 346 Spyglass* 100 5 Synopsys* 13,600 418 System Software Associates 14,200 570 TGV Software* 500 8 Transaction Systems Architects* 18,400 492 13,381 TOTAL COMMON STOCK (Cost $23,247) 29,999 PREFERRED STOCKS--0.4% SERVICES - PREPACKAGED SOFTWARE--0.4% Network Imaging 6,800 114 TOTAL PREFERRED STOCKS (Cost $128) 114 REPURCHASE AGREEMENTS--7.4% J.P. Morgan 6.358%, dated 09/29/95, matures 10/02/95, repurchase price $1,025,274 (collateralized by various U.S. Treasury STRIPS, total par value $3,207,966, 11/15/00-11/15/24: total market value $1,045,281) $1,025 $ 1,025 Merrill Lynch 5.830%, dated 09/29/95, matures 10/02/95, repurchase price $1,385,418 (collateralized by various U.S. Treasury Bills, total par value $295,838, 03/07/96-09/19/95: U.S. Treasury Bonds, total par value $867,734, 7.625%-13.750%, 11/15/03-11/15/10: total market value $1,412,467) 1,385 1,385 TOTAL REPURCHASE AGREEMENTS (Cost $2,410) 2,410 TOTAL INVESTMENTS--99.3% (Cost $25,785) 32,523 OTHER ASSETS AND LIABILITIES--0.7% Other Assets and Liabilities, Net 244 NET ASSETS: Portfolio shares--Institutional Class ($.0001 par value--2 billion shares authorized) based on 1,605,061 outstanding shares 19,697 Portfolio shares--Retail Class A ($.0001 par value--2 billion authorized) based on 80,253 outstanding shares 1,250 Portfolio shares--Retail Class B ($.0001 par value--2 billion authorized) based on 112,734 outstanding shares 1,788 Accumulated net realized gain on investments 3,294 Net unrealized appreciation of investments 6,738 TOTAL NET ASSETS:--100.0% $32,767 NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER SHARE--INSTITUTIONAL CLASS $ 18.24 NET ASSET VALUE AND REDEMPTION PRICE PER SHARE--RETAIL CLASS A $ 18.24 MAXIMUM SALES CHARGE OF 4.50%+ 0.86 OFFERING PRICE PER SHARE--RETAIL CLASS A $ 19.10 NET ASSET VALUE AND OFFERING PRICE PER SHARE--RETAIL CLASS B (1) $ 18.02 The accompanying notes are an integral part of the financial statements. * Non-income producing security + The offer price is calculated by dividing the net asset value by 1 minus the maximum sales charge of 4.50% (1) Retail Class B has a contingent deferred sales charge. For a description of a possible redemption charge, see the notes to the financial statement. ADR--American Depository Receipt STRIPS--Separately Trading of Registered Interest and Principal of Securities INTERNATIONAL FUND Description Shares/Par (000) Value (000) FOREIGN COMMON STOCKS--91.7% ARGENTINA--1.8% Banco Frances Rio Plata (ADR) 15,700 $ 340 Cementera Argentina* 100,000 435 Commercial del Plata* 79,000 186 Dycasa Dragados, Cl B 60,000 141 Irsa, Cl B* 113,450 270 Polledo* 140,000 96 Quilmes Industrial 12,300 227 1,695 AUSTRALIA--0.8% Newscorp 135,800 755 CHILE--0.4% Madeco (ADR) 10,000 235 Santa Isabel (ADR) 8,200 177 412 FINLAND--5.0% Nokia, Cl A 68,000 4,772 FRANCE--1.9% Axa 7,950 420 Business Objects (ADR)* 6,700 285 Castorama 1,705 278 Cie Bancaire 3,965 370 SGS-Thomson (ADR)* 9,300 452 1,805 GERMANY--1.3% Siemens 875 440 Veba 20,250 802 1,242 HONG KONG--5.5% Cheung Kong Holdings 115,000 626 Citic Pacific 157,700 476 First Pacific 1,699,000 1,813 HSBC Holdings 92,200 1,282 Hutchison Whampoa 85,000 461 Sun Hung Kai Properties 69,000 560 5,218 INDIA--0.7% East India Hotels (A) (GDR)* 7,100 135 I.T.C. (A) (ADR)* 46,500 418 Ranbaxy Laboratories (A) (GDR) 5,500 154 707 INDONESIA--1.1% Indonesian Satellite (ADR) 30,000 1,054 IRELAND--0.4% Elan (ADR)* 10,000 $ 415 ISRAEL--0.4% ECI Telecommunications 16,000 358 ITALY--2.3% Assicurazioni Generali 18,000 416 Falck* 100,000 245 Fila Holdings (ADR) 8,000 283 Instituto Mobiliare 22,000 132 Mediobanca 28,000 208 Telecom Italia 539,000 899 2,183 JAPAN--25.2% Advantest 19,000 1,123 Alpine Electronics 26,000 399 Best Denki 11,000 166 Bridgestone 26,000 386 Canon 13,000 232 Canon Sales 6,000 155 Daini Denden 210 1,733 Daiwa Securities 57,000 719 Fanuc 4,000 178 Hirose Electric 6,300 395 Ito Yokado 20,000 1,106 Keyence 3,800 472 KOA 35,000 554 Kokusai Electric 31,000 707 Komatsu 48,000 386 Kubota 62,000 418 Kurita Water Industries 9,000 245 Kyocera 24,000 1,974 Makita 13,000 206 Marui 14,000 261 Matsushita Electric 16,000 245 Mitsubishi Electric 34,000 266 Mitsubishi Estate 54,000 605 Mitsubishi Trust & Banking 16,000 250 Mitsui Fudosan 40,000 480 Murata Manufacturing 26,000 976 NEC 141,000 1,965 Nikon 75,000 969 Nippon Telegraph & Telephone 36 310 Nissan Motors 41,000 295 Nomura Securities 33,000 646 NTT Data Communications 19 443 Sankyo 8,000 182 Sanwa Bank 25,000 469 Sharp 33,000 463 Sony 8,000 415 Sumitomo Bank 18,000 349 Sumitomo Trust & Banking 35,000 $ 480 TDK 4,000 206 Tokyo Electronics 30,000 1,305 Toray 50,000 304 Toyota Motor 19,000 362 Ushio 16,000 177 Yamanouchi Pharmaceutical 8,000 173 24,150 LUXEMBOURG--0.2% Millicom International* 6,000 193 MALAYSIA--3.5% Arab-Malaysian Merchant Bank 98,000 1,210 Malayan Banking 53,000 428 New Straits Times Press 100,000 283 Sime Darby Malaysia 125,000 333 Technology Resources* 296,000 772 United Engineers, F 55,000 353 3,379 MEXICO--2.6% Bufete Industrial (ADR)* 10,500 169 Cemex, Cl A 51,750 218 Cifra 117,000 146 Grupo Carso (ADR)* 17,400 191 Grupo Financiero Banamex, Cl B 170,000 340 Grupo Financiero Banamex, Cl L 8,500 17 Grupo Financiero Inbursa, Cl C 200,000 631 Grupo Iusacell (ADS)* 15,510 202 Grupo Modelo 34,000 138 Grupo Posadas, Cl A* 600,000 235 Grupo Synkro (ADR)* 250,000 69 Kimberly Clark, Cl A 11,000 147 2,503 NETHERLANDS--4.1% Advanced Semi-Conductor (ADR)* 4,800 242 ASM Litho Holdings (ADR)* 12,000 526 Baan (ADR)* 16,000 720 Elsevier 18,500 237 Getronics 3,800 187 International Nederlanden 4,200 244 Madge Networks (ADR)* 8,300 266 Philips Electronics 8,800 429 Polygram 10,000 650 Wolters Kluwer 4,200 385 3,886 NEW ZEALAND--0.8% Telecom New Zealand (ADR) 13,100 809 NORWAY--1.3% Hafslund Nycomed, Cl B 10,000 $ 259 Petroleum Geo-Services (ADR)* 39,300 963 1,222 PERU--2.2% Banco de Credito del Peru, Cl C 122,000 229 Banco Wiese (ADR) 53,748 363 Cementos Norte Pacasmayo 50,000 117 Cia de Minas Buenaventura, Cl T 33,883 193 Cia Peruana de Telefonos, Cl B 481,559 927 El Pacifico Peruana Suiza 8,431 207 Telefonos 2000* 73,899 72 2,108 PHILIPPINES--0.7% San Miguel, Cl B 181,000 639 SINGAPORE--2.6% Cerebos Pacific 40,000 239 City Developments 87,600 542 Creative Technology (ADR)* 8,600 117 Flextronics (ADR)* 12,200 314 Singapore Press, F 12,000 184 Straits Steamship Land 104,000 285 United Overseas Bank, F 88,640 768 2,449 SOUTH KOREA--3.4% Korea Fund 20,750 459 Korea Mobile Telecom (A) (GDR)* 18,900 671 Samsung Electric Non-Voting (GDS) New* 1,781 107 Samsung Electric Non-Voting (GDS)* 28,400 1,989 Samsung Electric Voting (GDR) New* 70 8 Samsung Electric Voting (GDR) New* 135 15 Samsung Electric Voting (A) (GDR)* 354 42 3,291 SWEDEN--7.7% Allgan Free, Cl B 20,300 454 Asea Free, Cl B 9,950 987 Astra Free, Cl B 26,200 922 Autoliv 14,500 884 Ericsson Telephone (ADR) 168,000 4,116 7,363 SWITZERLAND--4.1% Brown Boveri & Cie Bearer 375 434 Ciba Geigy 450 361 Roche Holdings 230 1,624 Sandoz Pharmaceutical 1,940 1,477 3,896 THAILAND--1.8% Advanced Info Service, F 57,000 $ 897 Land And House, F 9,400 148 Total Access Communications (ADR)* 50,000 313 United Communication 25,000 325 1,683 UNITED KINGDOM--9.9% B.A.T. 24,000 200 Barclays Bank 41,000 485 British Sky Broadcasting (ADR) 45,000 1,627 Commercial Union 47,600 440 GlaxoWellcome 52,000 630 Logica 31,000 239 Next 104,400 669 Reuters 103,900 917 Smithkline Beecham 127,900 1,270 Takare 82,400 289 Tele-Communications (ADR), Cl A 49,200 917 Vodafone Group 157,800 662 WPP Group 87,300 205 Zeneca Group 56,000 1,012 9,562 TOTAL FOREIGN COMMON STOCKS (Cost $78,518) 87,749 FOREIGN PREFERRED STOCKS--2.0% GERMANY--2.0% SAP 11,500 1,871 TOTAL FOREIGN PREFERRED STOCKS (Cost $1,433) 1,871 REPURCHASE AGREEMENT--6.4% Merrill Lynch 5.830%, dated 9/29/95, matures 10/2/95, repurchase price $6,080,345 (collateralized by various U.S. Treasury Bills, total par value $1,298,379, 3/07/96 - 9/19/96: U.S. Treasury Bonds, total par value $3,808,324, 8.250% - 13.750%, 11/15/03 - 11/15/10: total market value $6,199,061) $ 6,077 6,077 TOTAL REPURCHASE AGREEMENT (Cost $6,077) 6,077 TOTAL INVESTMENTS--100.1% (Cost $86,028) 95,697 OTHER ASSETS AND LIABILITIES--(0.1%) OTHER ASSETS AND LIABILITIES, NET (115) NET ASSETS: Portfolio shares of Institutional ($.0001 par value--2 billion authorized) based on 9,166,192 outstanding shares $89,600 Portfolio shares of Retail class A ($.0001 par value--2 billion authorized) based on 85,174 outstanding shares 832 Portfolio shares of Retail class B ($.0001 par value--2 billion authorized) based on 30,086 outstanding shares 284 Undistributed net investment income 1,609 Accumulated net realized loss on investments and foreign currency transactions (6,170) Net unrealized depreciation on forward foreign currency contracts, foreign currency and translation of other assets and liabilities in foreign currency (242) Net unrealized appreciation on investments 9,669 TOTAL NET ASSETS:--100.0% $95,582 NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE--INSTITUTIONAL CLASS $ 10.30 NET ASSET VALUE AND REDEMPTION PRICE PER SHARE--RETAIL CLASS A $ 10.28 MAXIMUM SALES CHARGE OF 4.50%+ 0.48 OFFERING PRICE PER SHARE--RETAIL CLASS A $ 10.76 NET ASSET VALUE AND OFFERING PRICE PER SHARE--RETAIL CLASS B (1) $ 10.20 The accompanying notes are an integral part of the financial statements. * Non-income producing security + The offer price is calculated by dividing the net asset value by 1 minus the maximum sales charge of 4.50%. (1) Retail Class B has a contingent deferred sales charge. For a description of a possible redemption charge, see the notes to the financial statement. (A) Securities sold within terms of a private placement memorandum, exempt from registration under Section 144A of the Securities Act of 1993, as amended, and may be sold only to dealers in that program or other "accredited investors." These securities have been determined to be liquid under the guidelines established by the Board of Directors. ADR--American Depository Receipts ADS--American Depository Shares GDR--Global Depository Receipts GDS--Global Depository Shares F--Foreign Registry Shares REAL ESTATE SECURITIES FUND Description Shares/Par (000) Value (000) COMMON STOCK--95.7% REAL ESTATE INVESTMENT TRUSTS--95.7% HEALTHCARE FACILITIES--11.3% Health & Retirement Property Trust 10,700 $ 167 Health Care Property Investors 5,100 173 National Health 4,500 136 Nationwide Health Properties 4,300 176 652 HOTELS--3.2% Hospitality Properties Trust 7,000 184 OFFICE/INDUSTRIAL--33.7% Cali Realty 12,400 251 Duke Realty Investments 4,500 140 Highwoods Properties 7,200 190 Liberty Property Trust 11,300 240 Security Capital Industrial Trust 10,000 163 Shurgard Storage Centers 6,200 154 Sovran Self Storage 5,600 139 Spieker Properties 10,500 251 Storage Trust 5,000 102 Storage USA 5,700 176 Weeks 5,500 133 1,939 RESIDENTIAL--25.3% Bay Apartment Communities 6,600 142 Chateau Properties 4,000 87 Equity Residential Properties Trust 8,100 244 Evans Withycombe Residential 8,100 164 Post Properties 3,800 118 ROC Communities 5,900 136 Summit Properties 11,700 221 Sun Communities 5,500 143 Wellsford Real Estate 9,500 203 1,458 RETAIL--22.2% CBL & Associates Properties 6,000 125 DeBartolo Realty 8,400 118 Developers Diversified Realty 5,600 167 Excel Realty Trust 6,000 119 Federal Realty Investment Trust 6,000 140 JDN Realty 6,000 128 Macerich 6,200 132 Mid-America Realty Investments 14,400 113 Simon Property Group 4,800 122 Weingarten Realty Investors 3,200 113 1,277 TOTAL COMMON STOCK (Cost $5,340) 5,510 REPURCHASE AGREEMENT--7.7% Merrill Lynch 5.830%, dated 09/29/95, matures 10/02/95, repurchase price $443,780, (collateralized by various U.S. Treasury Bills, total par value $94,764, 03/07/96-09/19/96: U.S. Treasury Bonds, total par value $277,955, 7.625%-13.750%, 11/15/03-11/15/10: total market value $452,445) $444 $ 444 TOTAL REPURCHASE AGREEMENT (Cost $444) 444 TOTAL INVESTMENTS--103.4% (Cost $5,784) 5,954 OTHER ASSETS AND LIABILITIES--(3.4%) Other Assets and Liabilities, Net (196) NET ASSETS: Portfolio shares--Institutional Class ($.0001 par value--2 billion authorized) based on 555,059 outstanding shares 5,575 Portfolio shares--Retail Class A ($.0001 par value--2 billion authorized) based on 92 outstanding shares 1 Portfolio shares--Retail Class B ($.0001 par value--2 billion authorized) based on 96 outstanding shares 1 Undistributed net investment income 11 Net unrealized appreciation of investments 170 TOTAL NET ASSETS:--100.0% $5,758 NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER SHARE--INSTITUTIONAL CLASS $10.37 NET ASSET VALUE AND REDEMPTION PRICE PER SHARE--RETAIL CLASS A $10.38 MAXIMUM SALES CHARGE OF 4.50%+ 0.49 OFFERING PRICE PER SHARE $10.87 NET ASSET VALUE AND OFFERING PRICE PER SHARE--RETAIL CLASS B (1) $10.38 The accompanying notes are an integral part of the financial statements. + The offer price is calculated by dividing the net asset value by 1 minus the maximum sales charge of 4.50%. (1) Retail Class B has a contingent deferred sales charge. For a description of a possible redemption charge, see the notes to the financial statement. STATEMENTS OF OPERATIONS (000) For the period ended September 30, 1995
PRIME GOVERNMENT TREASURY OBLIGATIONS OBLIGATIONS OBLIGATIONS FUND FUND FUND INVESTMENT INCOME: Interest $107,082 $42,675 $53,757 EXPENSES: Investment advisory fees 7,154 2,881 3,996 Distribution Fees -- Institutional Class 571 263 -- Distribution fees -- Retail Class A 140 -- -- Distribution Fees -- Corporate Trust Class 7 200 982 Administrator fees 1,252 504 656 Custodian fees 538 216 281 Registration fees 660 157 267 Professional fees 201 76 110 Transfer agent fees 117 51 63 Printing 60 42 43 Directors' fees 56 23 28 Amortization of organizational costs 2 2 -- Other 118 38 46 TOTAL EXPENSES 10,876 4,453 6,472 LESS: EXPENSES WAIVED (2,689) (1,009) (902) TOTAL NET EXPENSES 8,187 3,444 5,570 INVESTMENT INCOME--NET 98,895 39,231 48,187 NET REALIZED GAIN (LOSS) ON INVESTMENTS 3 (36) 31 NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 98,898 $39,195 $48,218
The accompanying notes are an integral part of the financial statements. For the period ended September 30, 1995
LIMITED INTERMEDIATE FIXED TERM TERM INCOME INCOME FUND INCOME FUND FUND INVESTMENT INCOME: Interest $ 6,700 $5,440 $13,903 EXPENSES: Investment advisory fees 749 573 1,395 Administrator fees 149 118 275 Transfer agent fees 22 21 35 Amortization of organizational costs 4 4 -- Custodian fees 14 7 15 Directors' fees 3 3 5 Registration fees 26 12 87 Professional fees 19 9 21 Printing 41 17 35 Distribution fees--Retail Class A 24 7 18 Distribution fees--Retail Class B -- -- 24 Other 13 8 17 TOTAL EXPENSES 1,064 779 1,927 LESS: EXPENSES WAIVED OR ABSORBED (422) (206) (497) TOTAL NET EXPENSES 642 573 1,430 INVESTMENT INCOME--NET 6,058 4,867 12,473 REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS--NET: Net realized gain (loss) on investments (1,327) 542 3,351 Net change in unrealized appreciation of investments 2,575 3,016 9,685 NET GAIN (LOSS) ON INVESTMENTS 1,248 3,558 13,036 NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 7,306 $8,425 $25,509
(table continued)
MINNESOTA LIMITED COLORADO INSURED INTERMEDIATE MORTGAGE TERM TAX INTERMEDIATE INTERMEDIATE INTERMEDIATE GOVERNMENT SECURITIES FREE INCOME TAX FREE TAX FREE TAX FREE BOND FUND FUND FUND FUND FUND FUND $5,520 $1,926 $ 634 $1,587 $2,251 $2,942 566 197 100 206 284 377 111 50 50 50 57 74 21 20 19 19 20 20 -- 4 7 -- 5 6 8 6 4 9 12 16 2 1 1 1 1 1 35 3 1 16 19 18 11 4 6 4 4 6 14 8 8 3 5 10 5 1 2 2 3 5 -- -- -- -- -- -- 6 4 3 2 3 4 779 298 201 312 413 537 (214) (100) (116) (114) (129) (160) 565 198 85 198 284 377 4,955 1,728 549 1,389 1,967 2,565 (76) 32 14 376 234 214 3,665 1,379 138 1,232 2,043 2,478 3,589 1,411 152 1,608 2,277 2,692 $8,544 $3,139 $ 701 $2,997 $4,244 $5,257
The accompanying notes are an integral part of the financial statements. For the period ended September 30, 1995
LIMITED ASSET EQUITY EQUITY VOLATILITY ALLOCATION BALANCED INDEX INCOME STOCK FUND FUND FUND FUND FUND (1) INVESTMENT INCOME: Interest $1,245 $ 5,139 $ 422 $ 519 $ 70 Dividends 599 2,249 4,610 1,499 385 Less: Foreign taxes withheld -- -- -- -- -- Total investment income 1,844 7,388 5,032 2,018 455 EXPENSES: Investment advisory fees 299 1,175 1,277 290 91 Administrator fees 63 240 262 57 44 Transfer agent fees 29 39 36 27 6 Amortization of organizational costs 5 4 4 10 2 Custodian fees 12 17 22 12 4 Directors' fees 2 5 6 1 -- Registration fees 1 30 36 15 5 Professional fees 4 17 22 10 2 Printing 12 39 45 11 2 Distribution fees--Retail Class A 2 35 3 5 -- Distribution fees--Retail Class B 2 11 3 3 -- Other 6 14 20 4 1 TOTAL EXPENSES 437 1,626 1,736 445 157 LESS: EXPENSES WAIVED OR ABSORBED (97) (262) (1,091) (128) (60) TOTAL NET EXPENSES 340 1,364 645 317 97 INVESTMENT INCOME (LOSS)--NET 1,504 6,024 4,387 1,701 358 REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS--NET: Net realized gain (loss) on investments 1,590 7,484 1,499 435 (131) Net realized gain on futures contracts -- -- 1,525 -- -- Net realized gain on forward foreign currency contracts and foreign currency transactions -- -- -- -- -- Net change in unrealized appreciation of investments 4,397 18,934 40,664 5,876 2,922 Net change in unrealized appreciation on futures contract -- -- 15 -- -- Net change in unrealized depreciation on forward foreign currency contracts, foreign currency and translation of other assets and liabilities in foreign currency -- -- -- -- -- NET GAIN ON INVESTMENTS 5,987 26,418 43,703 6,311 2,791 NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $7,491 $32,442 $48,090 $8,012 $3,149
(table continued)
REAL DIVERSIFIED SPECIAL REGIONAL EMERGING ESTATE GROWTH STOCK EQUITY EQUITY GROWTH TECHNOLOGY INTERNATIONAL SECURITIES FUND FUND FUND FUND FUND FUND FUND FUND (2) $ 508 $ 1,676 $ 2,559 $ 1,125 $ 178 $ 22 $ 312 $ 8 1,497 5,358 3,070 1,181* 50 70 1,094 70 -- -- -- -- -- -- (110) -- 2,005 7,034 5,629 2,306 228 92 1,296 78 574 1,705 1,241 995 153 121 869 8 111 341 252 200 50 50 95 13 30 45 46 42 28 28 30 2 9 -- -- 4 5 5 5 1 25 29 17 15 7 5 193 -- 2 7 5 4 1 1 2 -- 35 71 43 32 12 8 23 2 16 28 21 14 2 2 10 -- 21 51 40 31 3 3 14 1 5 25 22 26 -- 1 1 -- 3 24 23 22 1 5 1 -- 8 23 18 13 1 1 20 -- 839 2,349 1,728 1,398 263 230 1,263 27 (218) (378) (128) (160) (77) (71) (49) (18) 621 1,971 1,600 1,238 186 159 1,214 9 1,384 5,063 4,029 1,068 42 (67) 82 69 2,291 17,763 15,970 16,157* 1,122 3,397 (5,987) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 1,921 -- 21,333 35,581 4,572 37,100* 5,699 6,007 8,360 170 -- -- -- -- -- -- -- -- -- -- -- -- -- -- (202) -- 23,624 53,344 20,542 53,257 6,821 9,404 4,092 170 $25,008 $58,407 $24,571 $ 54,325 $6,863 $9,337 $ 4,174 $239
The accompanying notes are an integral part of the financial statements. * Includes the following amounts due to Investments in Common Stocks of Affiliates (000): $43 of dividend income, $296 of realized gains, and $14,582 of change in unrealized appreciation of investments. (1) The Limited Volatility Stock Fund commenced operations on November 15, 1994. (2) The Real Estate Securities Fund commenced operations on June 30, 1995. STATEMENTS OF CHANGES IN NET ASSETS (000)
PRIME GOVERNMENT TREASURY OBLIGATIONS FUND OBLIGATIONS FUND OBLIGATIONS FUND 10/1/94 10/1/93 10/1/94 10/1/93 10/1/94 10/4/93(1) TO TO TO TO TO TO 9/30/95 9/30/94 9/30/95 9/30/94 9/30/95 9/30/94 OPERATIONS: Investment income--net $ 98,895 $ 35,066 $ 39,231 $ 11,389 $ 48,187 $ 18,457 Net realized gain (loss) on investments 3 -- (36) 42 31 -- Net increase in net assets resulting from operations 98,898 35,066 39,195 11,431 48,218 18,457 DISTRIBUTIONS TO SHAREHOLDERS FROM: Investment income--net Institutional class (95,604) (35,064) (31,983) (11,389) (1,945) -- Retail class A (3,049) -- -- -- -- -- Retail class B -- -- -- -- -- -- Corporate Trust class (244) -- (7,248) -- (46,242) (18,457) Net realized gain on investments Institutional class -- -- -- (17) -- -- Retail class A -- -- -- -- -- -- Retail class B -- -- -- -- -- -- Corporate Trust class -- -- -- -- -- -- Total distributions (98,897) (35,064) (39,231) (11,406) (48,187) (18,457) CAPITAL SHARE TRANSACTIONS AT NET ASSET VALUE OF $1.00 PER SHARE: Institutional Class Proceeds from sales 11,741,658 7,496,942 4,886,718 3,213,046 417,680 -- Reinvestment of distributions 33,427 13,344 16,078 5,280 1,201 -- Payments for redemptions (10,171,378) (6,885,929) (4,807,345) (2,999,813) (301,711) -- Increase in net assets from Institutional Class transactions 1,603,707 624,357 95,451 218,513 117,170 -- Retail Class A: Proceeds from sales 105,193 -- -- -- -- -- Shares issued in connection with acquisition of Money Fund 63,816 -- -- -- -- -- Reinvestment of distributions 2,635 -- -- -- -- -- Payments for redemptions (75,561) -- -- -- -- -- Increase in net assets from Retail Class A transactions 96,083 -- -- -- -- -- Retail Class B: Proceeds from sales 14 -- -- -- -- -- Reinvestment of distributions -- -- -- -- -- -- Payments for redemptions -- -- -- -- -- -- Increase in net assets from Retail Class B transactions 14 -- -- -- -- -- Corporate Trust Class: Proceeds from sales 35,254 -- 427,493 -- 3,746,678 3,642,667 Shares issued in connection with acquisition of CT Government Fund -- -- 156,260 -- -- -- Reinvestment of distributions -- -- -- -- -- -- Payments for redemptions (25,519) -- (384,892) -- (3,453,980) (2,896,577) Increase in net assets from Corporate Trust Class transactions 9,735 -- 198,861 -- 292,698 746,090 Increase in net assets from capital share transactions 1,709,539 624,357 294,312 218,513 409,868 746,090 Total increase in net assets 1,709,540 624,359 294,276 218,538 409,899 746,090 Net assets at beginning of period 1,307,347 682,988 455,869 237,331 746,090 -- Net assets at end of period (2) $ 3,016,887 $ 1,307,347 $ 750,145 $ 455,869 $ 1,155,989 $ 746,090
The accompanying notes are an integral part of the financial statements. (1) The Treasury Obligations Fund commenced operations on October 4, 1993. (2) Including undistributed net investment income (000) of $0 and $2 for Prime Obligations Fund at September 30, 1995 and September 30, 1994, respectively. The accompanying notes are an integral part of the financial statements.
INTERMEDIATE FIXED INTERMEDIATE LIMITED TERM TERM INCOME INCOME GOVERNMENT INCOME FUND FUND FUND BOND FUND 10/1/94 10/1/93 10/1/94 10/1/93 10/1/94 10/1/93 10/1/94 10/1/93 to to to to to to to to 9/30/95 9/30/94 9/30/95 9/30/94 9/30/95 9/30/94 9/30/95 9/30/94 OPERATIONS: Investment income--net $ 6,058 $ 4,118 $ 4,867 $ 2,960 $ 12,473 $ 3,345 $ 4,955 $ 325 Net realized gain (loss) on investments (1,327) 29 542 (863) 3,351 (188) (76) (78) Net change in unrealized appreciation (depreciation) of investments 2,575 (2,149) 3,016 (2,753) 9,685 (5,201) 3,665 (344) Net increase (decrease) in net assets resulting from operations 7,306 1,998 8,425 (656) 25,509 (2,044) 8,544 (97) DISTRIBUTIONS TO SHAREHOLDERS FROM: Investment income--net: Institutional class (5,548) (2,182) (4,708) (1,900) (11,794) (2,150) (4,819) (217) Retail class A (544) (1,862) (158) (1,064) (424) (1,197) (127) (109) Retail class B -- -- -- (127) -- -- -- Net realized gain on investments: Institutional class (20) -- (23) -- (440) -- -- -- Retail class A (3) -- (1) (685) (22) (574) -- (18) Retail class B -- -- -- -- (1) -- -- -- TOTAL DISTRIBUTIONS (6,115) (4,044) (4,890) (3,649) (12,808) (3,921) (4,946) (344) CAPITAL SHARE TRANSACTIONS (1): Institutional class: Transfer from Retail class A -- 82,491 -- 59,843 -- 44,936 -- 2,156 Proceeds from sales 35,097 16,209 32,461 25,019 225,170 58,825 83,288 27,456 Shares issued in connection with acquisition of Managed Income Fund 38,342 -- -- -- -- -- -- -- Reinvestment of distributions 4,773 2,151 3,568 1,829 4,951 1,749 315 81 Payments for redemptions (38,162) (29,445) (19,532) (15,273) (42,680) (12,069) (14,740) (1,614) Increase (decrease) in net assets from Institutional class transactions 40,050 71,406 16,497 71,418 187,441 93,441 68,863 28,079 Retail class A: Proceeds from sales 2,920 28,721 200 4,929 2,212 12,649 1,260 1,156 Shares issued in connection with acquisition of Managed Income Fund 4,574 -- -- -- -- -- -- -- Reinvestment of distributions 482 1,645 143 1,744 387 1,635 99 117 Payments for redemptions (7,576) (59,260) (1,216) (9,581) (3,165) (12,211) (545) (718) Transfer to Institutional class -- (82,491) -- (59,843) -- (44,936) -- (2,156) Increase (decrease) in net assets from Retail class A transactions 400 (111,385) (873) (62,751) (566) (42,863) 814 (1,601) Retail class B: Proceeds from sales 1 1 -- -- 7,180 116 -- -- Reinvestment of distributions -- -- -- -- 118 -- -- -- Payments for redemptions (2) -- -- -- (255) -- -- -- Increase (decrease) in net assets from Retail class B transactions (1) 1 -- -- 7,043 116 -- -- Increase (decrease) in net assets from capital share transactions 40,449 (39,978) 15,624 8,667 193,918 50,694 69,677 26,478 Total increase (decrease) in net assets 41,640 (42,024) 19,159 4,362 206,619 44,729 73,275 26,037 NET ASSETS AT BEGINNING OF PERIOD 79,776 121,800 71,653 67,291 98,330 53,601 29,753 3,716 NET ASSETS AT END OF PERIOD (2) $121,416 $ 79,776 $ 90,812 $ 71,653 $304,949 $ 98,330 $103,028 $29,753 (1)Capital share transactions: Institutional class: Transfer from retail class A -- 8,255 -- 5,960 -- 4,120 -- 229 Proceeds from sales 3,569 1,636 3,367 2,597 21,255 5,555 9,271 3,034 Shares issued in connection with acquisition of Managed Income Fund 3,917 -- -- -- -- -- -- -- Reinvestment of distributions 484 218 369 188 467 165 34 9 Payments for redemptions (3,873) (2,975) (2,012) (1,581) (4,012) (1,140) (1,614) (177) Total Institutional class transactions 4,097 7,134 1,724 7,164 17,710 8,700 7,691 3,095 Retail class A: Proceeds from sales 297 2,860 20 506 205 1,128 137 123 Shares issued in connection with acquisition of Managed Income Fund 468 -- -- -- -- -- -- -- Reinvestment of distributions 49 164 15 174 37 147 11 13 Payments for redemptions (773) (5,916) (126) (967) (301) (1,092) (60) (78) Transfer to Institutional class -- (8,255) -- (5,960) -- (4,120) -- (229) Total Retail class A transactions 41 (11,147) (91) (6,247) (59) (3,937) 88 (171) Retail class B: Proceeds from sales -- -- -- -- 667 11 -- -- Reinvestment of distributions -- -- -- -- 11 -- -- -- Payments for redemptions -- -- -- -- (23) -- -- -- Total Retail class B transactions -- -- -- -- 655 11 -- -- NET INCREASE (DECREASE) FROM SHARE TRANSACTIONS 4,138 (4,013) 1,633 917 18,306 4,774 7,779 2,924
(table continued)
COLORADO MINNESOTA INSURED MORTGAGE LIMITED TERM INTERMEDIATE INTERMEDIATE INTERMEDIATE SECURITIES FUND TAX FREE INCOME FUND TAX FREE FUND TAX FREE FUND TAX FREE FUND 10/1/94 10/1/93 10/1/94 12/1/93 10/1/94 10/1/93 10/1/94 4/4/94(4) 10/1/94 2/28/94(5) to to to to to to to to to to 9/30/95 9/30/94 9/30/95 9/30/94(3) 9/30/95 9/30/94 9/30/95 9/30/94 9/30/95 9/30/94 $ 1,728 $1,780 $549 $ 396 $ 1,389 $ 152 $ 1,967 $ 42 $ 2,565 $ 282 32 (62) 14 (13) 376 (38) 234 1 214 (12) 1,379 (1,966) 138 (115) 1,232 (178) 2,043 (32) 2,478 (252) 3,139 (248) 701 268 2,997 (64) 4,244 11 5,257 18 (1,713) (1,208) (515) (93) (1,344) (78) (1,904) (30) (2,470) (254) (16) (572) (33) (315) (44) (74) (63) (10) (86) (28) -- -- -- -- -- -- -- -- -- -- (1) -- -- -- -- -- (2) -- -- -- -- (10) -- -- -- (21) -- -- -- -- -- -- -- -- -- -- -- -- -- -- (1,730) (1,790) (548) (408) (1,388) (173) (1,969) (40) (2,556) (282) -- 32,357 -- 15,896 -- 2,109 -- -- -- -- 1,263 4,386 1,405 1,082 49,729 6,147 47,042 7,465 69,842 21,192 -- -- -- -- -- -- -- -- -- -- 1,617 1,182 213 45 64 40 14 10 82 41 (6,723) (8,219) (11,764) (582) (11,501) (2,027) (6,496) (169) (31,135) (709) (3,843) 29,706 (10,146) 16,441 38,292 6,269 40,560 7,306 38,789 20,524 53 3,906 786 3,189 397 802 1,496 691 878 1,606 -- -- -- -- -- -- -- -- -- -- 12 582 32 152 36 83 29 6 71 28 (147) (1,640) (907) (6,128) (622) (481) (74) -- (307) (114) -- (32,357) -- (15,896) -- (2,109) -- -- -- -- (82) (29,509) (89) (18,683) (189) (1,705) 1,451 697 642 1,520 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- (3,925) 197 (10,235) (2,242) 38,103 4,564 42,011 8,003 39,431 22,044 (2,516) (1,841) (10,082) (2,382) 39,712 4,327 44,286 7,974 42,132 21,780 28,674 30,515 16,948 19,330 7,296 2,969 7,974 -- 21,780 -- $ 26,158 $28,674 $ 6,866 $ 16,948 $ 47,008 $ 7,296 $ 52,260 $7,974 $ 63,912 $ 21,780 -- 3,201 -- 1,589 -- 199 -- -- -- -- 129 438 141 108 4,792 592 4,676 732 7,280 2,183 -- -- -- -- -- -- -- -- -- -- 164 120 21 4 6 4 2 1 8 4 (673) (833) (1,174) (58) (1,103) (195) (631) (16) (3,183) (73) (380) 2,926 (1,012) 1,643 3,695 600 4,047 717 4,105 2,114 5 379 78 319 37 74 144 68 90 166 -- -- -- -- -- -- -- -- -- -- 1 57 3 15 4 8 3 -- 8 3 (14) (159) (90) (612) (59) (45) (7) -- (31) (12) -- (3,201) -- (1,589) -- (199) -- -- -- -- (8) (2,924) (9) (1,867) (18) (162) 140 68 67 157 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- (388) 2 (1,021) (224) 3,677 438 4,187 785 4,172 2,271
The accompanying notes are an integral part of the financial statements. (2) Included undistributed (distributions in excess of) net investment income (000) of $38 and $72 for Limited Term Income Fund, $1 and $0 for Intermediate Term Income Fund, $134 and $6 for Fixed Income Fund, $9 and $0 Intermediate Government Bond Fund, $16 and $0 for Limited Term Tax Free Income Fund, $1 and $0 for Intermediate Tax Free Income Fund, $2 and $2 for Colorado Intermediate Tax Free Income Fund, and $9 and $0 Minnesota Insured Intermediate Tax Free Fund at September 30, 1995 and September 30, 1994, respectively. (3) 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. (4) The Colorado Intermediate Tax Free Fund commenced operations on April 4, 1994. (5) The Minnesota Insured Intermediate Tax Free Fund commenced operations on February 28, 1994.
ASSET EQUITY EQUITY ALLOCATION FUND BALANCED FUND INDEX FUND INCOME FUND 10/1/94 10/1/93 10/1/94 10/1/93 10/1/94 10/1/93 10/1/94 12/1/93 to to to to to to to to 9/30/95 9/30/94 9/30/95 9/30/94 9/30/95 9/30/94 9/30/95 9/30/94(4) OPERATIONS: Investment income (loss)--net $ 1,504 $ 1,373 $ 6,024 $ 4,192 $ 4,387 $ 3,793 $ 1,701 $ 959 Net realized gain (loss) on investments 1,590 1,042 7,484 2,435 1,499 1,237 435 (442) Net realized gain on futures contracts -- -- -- -- 1,525 -- -- -- Net realized gain (loss) on forward foreign currency contracts and foreign currency transactions -- -- -- -- -- -- -- -- Net change in unrealized appreciation (depreciation) of investments 4,397 (1,588) 18,934 (3,010) 40,664 56 5,876 334 Net change in unrealized appreciation on futures contract -- -- -- -- 15 -- -- -- Net change in unrealized depreciation on forward foreign currency contracts, foreign currency and translation of other assets and liabilities in foreign currency -- -- -- -- -- -- -- -- Net increase (decrease) in net assets resulting from operations 7,491 827 32,442 3,617 48,090 5,086 8,012 851 DISTRIBUTIONS TO SHAREHOLDERS FROM: Investment income--net: Institutional class (1,451) (991) (5,355) (2,793) (4,282) (2,885) (1,562) (61) Retail class A (24) (384) (458) (1,366) (28) (912) (70) (880) Retail class B (6) -- (32) -- (5) -- (11) -- Net realized gain on investments: Institutional class (1,084) -- (1,857) -- (1,427) -- -- -- Retail class A (15) (713) (188) (1,884) (7) (188) -- -- Retail class B (1) -- (7) -- (1) -- -- -- Return of capital: Institutional class -- -- -- -- -- -- -- -- Total distributions (2,581) (2,088) (7,897) (6,043) (5,750) (3,985) (1,643) (941) CAPITAL SHARE TRANSACTIONS (1): Institutional class: Transfer from Retail class A -- 51,261 -- 109,870 -- 143,478 -- 6,302 Proceeds from sales 8,308 6,840 76,127 28,604 47,941 33,718 35,073 12,340 Reinvestment of distributions 2,516 987 7,075 2,773 5,459 2,867 196 20 Payments for redemptions (19,615) (13,790) (38,755) (18,873) (40,076) (23,678) (6,696) (800) Increase (decrease) in net assets from Institutional class transactions (8,791) 45,298 44,447 122,374 13,324 156,385 28,573 17,862 Retail class A: Proceeds from sales 298 3,688 1,737 24,928 1,205 17,529 623 3,926 Reinvestment of distributions 37 1,097 640 3,244 33 1,100 67 737 Payments for redemptions (145) (6,020) (2,783) (10,460) (181) (8,148) (789) (25,578) Transfer to Institutional class -- (51,261) -- (109,870) -- (143,478) -- (6,302) Increase (decrease) in net assets from Retail class A transactions 190 (52,496) (406) (92,158) 1,057 (132,997) (99) (27,217) Retail class B: Proceeds from sales 543 11 2,775 274 1,092 29 1,241 1 Reinvestment of distributions 7 -- 37 -- 5 -- 10 -- Payments for redemptions (30) -- (134) -- (24) -- (82) -- Increase in net assets from Retail class B transactions 520 11 2,678 274 1,073 29 1,169 1 Increase (decrease) in net assets from capital share transactions (8,081) (7,187) 46,719 30,490 15,454 23,417 29,643 (9,354) Total increase (decrease) in net assets (3,171) (8,448) 71,264 28,064 57,794 24,518 36,012 (9,444) NET ASSETS AT BEGINNING OF PERIOD 47,945 56,393 139,289 111,225 164,475 139,957 19,342 28,786 NET ASSETS AT END OF PERIOD (2) $ 44,774 $ 47,945 $210,553 $ 139,289 $222,269 $ 164,475 $ 55,354 $ 19,342 (1)Capital share transactions: Institutional class: Transfer from Retail class A -- 5,136 -- 10,707 -- 14,112 -- 600 Proceeds from sales 765 658 6,800 2,697 4,043 3,201 3,492 1,247 Reinvestment of distributions 241 95 648 261 484 271 19 2 Payments for redemptions (1,868) (1,341) (3,493) (1,774) (3,454) (2,248) (643) (81) Total Institutional class transactions (862) 4,548 3,955 11,891 1,073 15,336 2,868 1,768 Retail class A: Proceeds from sales 28 345 155 2,312 102 1,626 58 397 Reinvestment of distributions 3 103 59 303 3 102 7 75 Payments for redemptions (14) (564) (255) (967) (16) (753) (75) (2,600) Transfer to Institutional class -- (5,136) -- (10,707) -- (14,112) -- (600) Total Retail class A transactions 17 (5,252) (41) (9,059) 89 (13,137) (10) (2,728) Retail class B: Proceeds from sales 50 1 241 26 89 3 117 -- Reinvestment of distributions 1 -- 3 -- -- -- 1 -- Payments for redemptions (3) -- (12) -- (2) -- (8) -- Total Retail class B transactions 48 1 232 26 87 3 110 -- NET INCREASE (DECREASE) IN CAPITAL SHARES (797) (703) 4,146 2,858 1,249 2,202 2,968 (960)
(table continued)
LIMITED VOLATILITY STOCK DIVERSIFIED SPECIAL REGIONAL EMERGING FUND GROWTH FUND STOCK FUND EQUITY FUND EQUITY FUND GROWTH FUND 11/15/94(3) 10/1/94 12/1/93 10/1/94 10/1/93 10/1/94 10/1/93 10/1/94 10/1/93 10/1/94 4/4/94(5) to to to to to to to to to to to 9/30/95 9/30/95 9/30/94(4) 9/30/95 9/30/94 9/30/95 9/30/94 9/30/95 9/30/94 9/30/95 9/30/94 $ 358 $ 1,384 $ 304 $ 5,063 $ 2,724 $ 4,029 $ 2,024 $ 1,068 $ 611 $ 42 $ 4 (131) 2,291 (3,037) 17,763 7,831 15,970 8,668 16,157 2,221 1,122 66 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 2,922 21,333 1,902 35,581 319 4,572 7,538 37,100 2,652 5,699 239 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 3,149 25,008 (831) 58,407 10,874 24,571 18,230 54,325 5,484 6,863 309 (350) (1,245) (95) (4,669) (2,082) (3,740) (1,518) (705) (486) (24) (3) -- (29) (242) (182) (608) (182) (490) (45) (112) -- -- -- (2) -- (29) (2) (32) (1) (1) -- -- -- -- -- -- (6,156) -- (8,609) -- (2,571) -- (158) -- -- -- -- (307) (3,673) (473) (5,674) (216) (888) (1) -- -- -- -- (26) -- (52) -- (10) -- -- -- -- -- -- -- -- -- -- -- -- -- -- (350) (1,276) (337) (11,369) (6,365) (13,088) (7,683) (3,548) (1,486) (183) (3) -- -- 2,393 -- 110,876 -- 88,018 -- 61,030 -- -- 15,144 91,647 32,761 155,804 52,481 72,724 29,156 60,768 27,827 30,230 6,695 247 411 68 7,982 1,908 10,320 1,418 3,115 471 54 1 (1,065) (14,227) (803) (50,899) (24,357) (20,701) (7,305) (17,586) (4,225) (2,013) (148) 14,326 77,831 34,419 112,887 140,908 62,343 111,287 46,297 85,103 28,271 6,548 -- 877 2,689 3,938 20,003 5,207 18,076 4,213 23,298 275 86 -- 29 229 463 4,166 649 5,968 261 997 1 -- -- (622) (31,086) (1,552) (29,532) (2,109) (3,615) (1,456) (6,404) (31) -- -- -- (2,393) -- (110,876) -- (88,018) -- (61,030) -- -- -- 284 (30,561) 2,849 (116,239) 3,747 (67,589) 3,018 (43,139) 245 86 -- 765 13 6,337 350 4,195 364 6,573 186 249 18 -- 2 -- 54 2 79 1 9 -- -- -- -- (18) -- (195) -- (114) -- (119) -- (33) -- -- 749 13 6,196 352 4,160 365 6,463 186 216 18 14,326 78,864 3,871 121,932 25,021 70,250 44,063 55,778 42,150 28,732 6,652 17,125 102,596 2,703 168,970 29,530 81,733 54,610 106,555 46,148 35,412 6,958 -- 33,787 31,084 163,716 134,186 136,509 81,899 104,575 58,427 6,958 -- $ 17,125 $136,383 $ 33,787 $332,686 $ 163,716 $218,242 $136,509 $211,130 $104,575 $ 42,370 $ 6,958 -- -- 223 -- 7,556 -- 6,040 -- 5,673 -- -- 1,511 9,131 3,361 9,002 3,185 4,412 1,778 4,305 2,308 2,628 664 22 41 7 487 116 658 85 261 38 5 -- (95) (1,398) (89) (2,902) (1,469) (1,236) (457) (1,227) (351) (170) (15) 1,438 7,774 3,502 6,587 9,388 3,834 7,446 3,339 7,668 2,463 649 -- 82 295 218 1,225 305 1,122 289 1,910 22 9 -- 3 25 28 260 41 383 22 84 -- -- -- (63) (3,198) (88) (1,808) (121) (224) (106) (539) (2) -- -- -- (223) -- (7,556) -- (6,040) -- (5,673) -- -- -- 22 (3,101) 158 (7,879) 225 (4,759) 205 (4,218) 20 9 -- 70 1 348 21 252 21 441 15 21 2 -- -- -- 3 -- 5 -- 1 -- -- -- -- (1) -- (10) -- (6) -- (8) -- (3) -- -- 69 1 341 21 251 21 434 15 18 2 1,438 7,865 402 7,086 1,530 4,310 2,708 3,978 3,465 2,501 660 (table continued) REAL ESTATE TECHNOLOGY INTERNATIONAL SECURITIES FUND FUND FUND 10/1/94 4/4/94(5) 10/1/94 4/4/94(5) 6/30/95(6) to to to to to 9/30/95 9/30/94 9/30/95 9/30/94 9/30/95 $ (67) $ (3) $ 82 $ (29) $ 69 3,397 143 (5,987) (177) -- -- -- -- -- -- -- -- 1,921 (443) -- 6,007 731 8,360 1,309 170 -- -- -- -- -- -- -- (202) (40) -- 9,337 871 4,174 620 239 -- -- -- -- (58) -- -- -- -- -- -- -- -- -- -- (174) -- -- -- -- (2) -- -- -- -- -- -- -- -- -- -- -- -- -- (20) (176) -- -- -- (78) -- -- -- -- -- 15,964 5,773 50,343 47,575 5,595 26 -- -- -- -- (1,921) (145) (8,022) (225) -- 14,069 5,628 42,321 47,350 5,595 1,267 53 463 459 1 2 -- -- -- -- (72) -- (87) (2) -- -- -- -- -- -- 1,197 53 376 457 1 1,825 2 294 22 1 -- -- -- -- -- (39) -- (32) -- -- 1,786 2 262 22 1 17,052 5,683 42,959 47,829 5,597 26,213 6,554 47,133 48,449 5,758 6,554 -- 48,449 -- -- $ 32,767 $ 6,554 $ 95,582 $ 48,449 $ 5,758 -- -- -- -- -- 1,158 595 5,347 4,717 555 2 -- -- -- -- (136) (15) (876) (22) -- 1,024 580 4,471 4,695 555 79 6 49 45 -- -- -- -- -- -- (4) -- (9) -- -- -- -- -- -- -- 75 6 40 45 -- 115 -- 31 2 -- -- -- -- -- -- (2) -- (3) -- -- 113 -- 28 2 -- 1,212 586 4,539 4,742 555
The accompanying notes are an integral part of the financial statements. (2) Included undistributed (distributions in excess of) net investment income (000) of $33 and $10 for Asset Allocation, $203 and $24 for Balanced, $110 and $38 for Equity Index, $104 and $30 for Equity Income, $8 for Limited Volatility, $146 and $20 for Diversified Growth, $235 and $52 for Stock, $75 and $0 for Special Equity, $317 and $0 for Regional Equity, $19 and $1 for Emerging Growth, $11 for the Real Estate Securities Fund, and accumulated net investment (loss) of ($0) and ($3) for Technology Fund, and undistributed net investment income $1,609 and net operating loss ($415) for International at September 30, 1995 and September 30, 1994, respectively. (3) The Limited Volatility Stock Fund commenced operations on November 15, 1994. (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. (5) The Emerging Growth, International, and Technology Fund commenced operations on April 4, 1994. (6) The Real Estate Securities Fund commenced operations on June 30, 1995. FINANCIAL HIGHLIGHTS For the periods ended September 30, For a share outstanding throughout the period
RATIO OF RATIO OF NET EXPENSES TO NET ASSET DIVIDENDS NET ASSET RATIO OF INVESTMENT AVERAGE VALUE NET FROM NET VALUE NET ASSETS EXPENSES TO INCOME TO NET ASSETS BEGINNING INVESTMENT INVESTMENT END OF END OF AVERAGE AVERAGE (EXCLUDING OF PERIOD INCOME INCOME PERIOD TOTAL RETURN PERIOD (000) NET ASSETS NET ASSETS WAIVERS) PRIME OBLIGATIONS INSTITUTIONAL CLASS 1995 $1.00 $0.055 $(0.055) $1.00 5.64% $2,911,055 0.45% 5.53% 0.60% 1994 1.00 0.035 (0.035) 1.00 3.56 1,307,347 0.45 3.58 0.60 1993 1.00 0.030 (0.030) 1.00 3.02 682,988 0.45 2.97 0.62 1992 1.00 0.039 (0.039) 1.00 4.02 203,765 0.45 3.90 0.59 1991 1.00 0.064 (0.064) 1.00 6.60 193,650 0.45 6.43 0.57 1990(1) 1.00 0.046 (0.046) 1.00 4.73+ 239,231 0.45 7.90 0.55 RETAIL CLASS A 1995(3)* $1.00 $0.038 $(0.038) $1.00 3.84%+ $ 96,083 0.70% 5.43% 0.82% RETAIL CLASS B 1995(4)* $1.00 $0.032 $(0.032) $1.00 3.28%+ $ 14 1.45% 4.70% 1.57% CORPORATE TRUST CLASS 1995(5)* $1.00 $0.038 $(0.038) $1.00 3.86%+ $ 9,735 0.60% 5.51% 0.72% GOVERNMENT OBLIGATIONS INSTITUTIONAL CLASS 1995 $1.00 $0.054 $(0.054) $1.00 5.55% $ 551,286 0.45% 5.44% 0.60% 1994 1.00 0.034 (0.034) 1.00 3.48 455,869 0.45 3.61 0.61 1993 1.00 0.028 (0.028) 1.00 2.87 237,331 0.45 2.83 0.65 1992 1.00 0.038 (0.038) 1.00 3.85 93,770 0.45 3.71 0.64 1991 1.00 0.060 (0.060) 1.00 6.22 72,824 0.45 5.90 0.68 1990(1) 1.00 0.045 (0.045) 1.00 4.56+ 29,704 0.45 7.60 0.98 CORPORATE TRUST CLASS 1995(3)* $1.00 $0.038 $(0.038) $1.00 3.85%+ $ 198,859 0.60% 5.45% 0.70% TREASURY OBLIGATIONS INSTITUTIONAL CLASS 1995(5)* $1.00 $0.038 $(0.038) $1.00 3.83%+ $ 117,171 0.45% 5.50% 0.55% CORPORATE TRUST CLASS 1995 $1.00 $0.051 $(0.051) $1.00 5.22% $1,038,818 0.60% 5.13% 0.70% 1994(2) 1.00 0.031 (0.031) 1.00 3.12+ 746,090 0.58 3.19 0.68
The accompanying notes are an integral part of the financial statements. + Returns are for the period indicated and have not been annualized * All ratios for the periods have been annualized. (1) Commenced operations on March 1, 1990. All ratios for the period have been annualized. (2) Commenced operations on October 4, 1993. All ratios for the period have been annualized. (3) Commenced operations on January 21, 1995. All ratios for the period have been annualized. (4) Commenced operations on January 23, 1995. All ratios for the period have been annualized. (5) Commenced operations on January 24, 1995. All ratios for the period have been annualized. For the periods ended September 30, For a share outstanding throughout the period
REALIZED AND NET ASSET UNREALIZED DIVIDENDS NET ASSET VALUE NET GAINS OR FROM NET DISTRIBUTIONS VALUE NET ASSETS BEGINNING INVESTMENT (LOSSES) ON INVESTMENT FROM END OF END OF OF PERIOD INCOME INVESTMENTS INCOME CAPITAL GAINS PERIOD TOTAL RETURN PERIOD (000) LIMITED TERM INCOME INSTITUTIONAL CLASS 1995 $ 9.85 $0.56 $ 0.07 $(0.56) $ -- $ 9.92 6.57% $111,439 1994(1) 10.02 0.29 (0.17) (0.29) -- 9.85 1.24%+ 70,266 RETAIL CLASS A 1995 $ 9.85 $0.56 $ 0.07 $(0.56) $ -- $ 9.92 6.57% $ 9,977 1994 10.06 0.44 (0.22) (0.43) -- 9.85 2.21% 9,509 1993(2) 10.00 0.29 0.07 (0.30) -- 10.06 3.61%+ 121,800 RETAIL CLASS B 1995(3) $ 9.84 $0.13 $(0.08) $(0.14) $ -- $ -- 0.52%+ $ -- 1994(4) 9.86 0.04 0.01 (0.07) -- 9.84 0.51%+ 1 INTERMEDIATE TERM INCOME INSTITUTIONAL CLASS 1995 $ 9.55 $0.58 $ 0.39 $(0.58) $ -- $ 9.94 10.51% $ 88,375 1994(1) 10.01 0.31 (0.46) (0.31) -- 9.55 (1.48%)+ 68,445 RETAIL CLASS A 1995 $ 9.55 $0.59 $ 0.38 $(0.58) $ -- $ 9.94 10.51% $ 2,437 1994 10.22 0.46 (0.56) (0.46) (0.11) 9.55 (1.05%) 3,208 1993(2) 10.00 0.41 0.29 (0.41) (0.07) 10.22 7.21%+ 67,291 FIXED INCOME INSTITUTIONAL CLASS 1995 $10.37 $0.66 $ 0.62 $(0.65) $(0.03) $10.97 12.86% $289,816 1994(1) 11.11 0.38 (0.74) (0.38) -- 10.37 (3.23%)+ 90,187 RETAIL CLASS A 1995 $10.37 $0.66 $ 0.61 $(0.63) $(0.03) $10.98 12.78% $ 7,853 1994 11.38 0.57 (0.89) (0.57) (0.12) 10.37 (2.92%) 8,028 1993 11.13 0.62 0.36 (0.61) (0.12) 11.38 9.20% 53,601 1992 10.59 0.66 0.60 (0.66) (0.06) 11.13 12.34% 5,645 1991(5) 10.01 0.65 0.58 (0.65) -- 10.59 12.48%+ 6,045 1990(6) 10.44 0.74 (0.26) (0.74) (0.17) 10.01 5.14% 2,209 1989(6) 10.13 0.74 0.31 (0.74) -- 10.44 10.93% 555 1988(6)(7) 10.03 0.62 0.13 (0.65) -- 10.13 8.07%+ 240 RETAIL CLASS B 1995 $10.35 $0.58 $ 0.60 $(0.56) $(0.03) $10.94 11.75% $ 7,280 1994(4) 10.54 0.08 (0.17) (0.10) -- 10.35 (0.88%)+ 115 INTERMEDIATE GOVERNMENT BOND INSTITUTIONAL CLASS 1995 $ 8.98 $0.54 $ 0.31 $(0.54) $ -- $ 9.29 9.82% $100,168 1994(1) 9.41 0.27 (0.43) (0.27) -- 8.98 (1.66%)+ 27,776 RETAIL CLASS A 1995 $ 8.98 $0.54 $ 0.31 $(0.54) $ -- $ 9.29 9.82% $ 2,860 1994 9.52 0.41 (0.51) (0.39) (0.05) 8.98 (1.13%) 1,977 1993 10.18 0.44 0.02 (0.44) (0.68) 9.52 4.99% 3,716 1992 10.25 0.60 0.28 (0.60) (0.35) 10.18 8.88% 589 1991(5) 10.01 0.65 0.24 (0.65) -- 10.25 9.13%+ 1,756 1990(6) 10.05 0.75 (0.04) (0.75) -- 10.01 7.41% 1,573 1989(6) 9.99 0.74 0.06 (0.74) -- 10.05 8.35% 1,501 1988(6)(7) 10.03 0.58 (0.01) (0.61) -- 9.99 6.18%+ 375 MORTGAGE SECURITIES INSTITUTIONAL CLASS 1995 $ 9.71 $0.61 $ 0.49 $(0.61) $ -- $10.20 11.84% $ 25,970 1994(1) 10.30 0.38 (0.59) (0.38) -- 9.71 (2.15%)+ 28,418 RETAIL CLASS A 1995 $ 9.71 $0.61 $ 0.49 $(0.61) $ -- $10.20 11.84% $ 188 1994 10.34 0.56 (0.63) (0.56) -- 9.71 (0.79%) 256 1993(2) 10.00 0.42 0.34 (0.42) -- 10.34 7.76%+ 30,515 LIMITED TERM TAX FREE INCOME INSTITUTIONAL CLASS 1995 $ 9.95 $0.39 $ 0.11 $(0.39) $ -- $10.06 5.16% $ 6,346 1994(8) 9.98 0.06 (0.03) (0.06) -- 9.95 0.27%+ 16,349 RETAIL CLASS A 1995 $ 9.95 $0.39 $ 0.11 $(0.39) $ -- $10.06 5.16% $ 520 1994(9) 10.03 0.22 (0.07) (0.23) -- 9.95 1.50%+ 599 1993(10)(11) 10.00 0.18 0.02 (0.17) -- 10.03 2.02%+ 19,330 INTERMEDIATE TAX FREE INSTITUTIONAL CLASS 1995 $10.28 $0.49 $ 0.43 $(0.48) $ -- $10.72 9.15% $ 46,025 1994(1) 10.89 0.29 (0.61) (0.29) -- 10.28 (2.91%)+ 6,168 RETAIL CLASS A 1995 $10.28 $0.49 $ 0.43 $(0.48) $ -- $10.72 9.15% $ 983 1994 10.92 0.44 (0.57) (0.44) (0.07) 10.28 (1.25%) 1,128 1993 10.56 0.47 0.42 (0.47) (0.06) 10.92 8.66% 2,969 1992 10.34 0.53 0.22 (0.53) -- 10.56 7.23% 725 1991(5) 10.04 0.50 0.31 (0.50) (0.01) 10.34 8.15%+ 637 1990(6) 10.08 0.56 (0.04) (0.56) -- 10.04 5.31% 537 1989(6) 10.19 0.56 (0.11) (0.56) -- 10.08 4.57% 491 1988(6)(7) 10.03 0.47 0.16 (0.47) -- 10.19 6.73%+ 425 COLORADO INTERMEDIATE TAX FREE INSTITUTIONAL CLASS 1995 $10.16 $0.48 $ 0.36 $(0.49) $ -- $10.51 8.47% $ 50,071 1994(13) 10.00 0.22 0.16 (0.22) -- 10.16 3.76%+ 7,281 RETAIL CLASS A 1995 $10.15 $0.49 $ 0.36 $(0.49) $ -- $10.51 8.57% $ 2,189 1994(13) 10.00 0.21 0.16 (0.22) -- 10.15 3.66%+ 693 MINNESOTA INSURED INTERMEDIATE TAX FREE INSTITUTIONAL CLASS 1995 $ 9.59 $0.45 $ 0.33 $(0.45) $ -- $ 9.92 8.34% $ 61,693 1994(12) 10.00 0.25 (0.41) (0.25) -- 9.59 (1.58%)+ 20,272 RETAIL CLASS A 1995 $ 9.58 $0.46 $ 0.33 $(0.45) $ -- $ 9.92 8.46% $ 2,219 1994(12) 10.00 0.25 (0.42) (0.25) -- 9.58 (1.68%)+ 1,508 ASSET ALLOCATION INSTITUTIONAL CLASS 1995 $10.38 $0.38 $ 1.58 $(0.37) $(0.25) $11.72 19.75% $ 43,210 1994(1) 10.68 0.20 (0.30) (0.20) -- 10.38 (0.90%)+ 47,227 RETAIL CLASS A 1995 $10.39 $0.36 $ 1.58 $(0.35) $(0.25) $11.73 19.51% $ 993 1994 10.60 0.27 (0.08) (0.26) (0.14) 10.39 1.81% 707 1993(2) 10.00 0.19 0.60 (0.19) -- 10.60 8.01%+ 56,393 RETAIL CLASS B 1995 $10.37 $0.27 $ 1.57 $(0.28) $(0.25) $11.68 18.51% $ 571 1994(4) 10.40 0.05 (0.03) (0.05) -- 10.37 0.19% 11 BALANCED INSTITUTIONAL CLASS 1995 $10.54 $0.40 $ 1.73 $(0.39) $(0.15) $12.13 20.89% $192,145 1994(1) 10.86 0.25 (0.32) (0.25) -- 10.54 (0.64%)+ 125,285 RETAIL CLASS A 1995 $10.54 $0.38 $ 1.72 $(0.37) $(0.15) $12.12 20.57% $ 15,288 1994 10.73 0.34 (0.02) (0.34) (0.17) 10.54 3.02% 13,734 1993(2) 10.00 0.28 0.75 (0.28) (0.02) 10.73 10.39%+ 111,225 RETAIL CLASS B 1995 $10.53 $0.29 $ 1.71 $(0.29) $(0.15) $12.09 19.58% $ 3,120 1994(4) 10.66 0.06 (0.12) (0.07) -- 10.53 (0.55%)+ 270 (table continued) RATIO OF RATIO OF NET EXPENSES TO RATIO OF INVESTMENT AVERAGE EXPENSES TO INCOME TO NET ASSETS AVERAGE AVERAGE (EXCLUDING PORTFOLIO NET ASSETS NET ASSETS WAIVERS) TURNOVER RATE 0.60% 5.67% 0.97% 120% 0.60 4.40 1.03 48 0.60% 5.60% 1.22% 120% 0.60 4.17 1.23 48 0.60 3.61 1.27 104 1.60% 5.22% 1.97% 120% 1.60 3.50 2.03 48 0.70% 5.94% 0.94% 69% 0.58 4.81 1.07 177 0.70% 5.97% 1.19% 69% 0.69 2.48 1.24 177 0.70 4.90 1.29 163 0.70% 6.28% 0.94% 106% 0.61 5.53 0.92 142 0.86% 6.14% 1.19% 106% 0.68 3.83 1.06 142 0.70 5.65 1.14 91 0.99 6.12 2.68 180 0.99 6.85 4.11 176 1.07 7.49 5.46 144 1.22 7.26 22.44 157 0.96 7.18 20.70 93 1.70% 5.12% 1.94% 106% 1.70 4.89 1.92 142 0.70% 6.13% 0.97% 17% 0.36 5.32 1.45 74 0.70% 6.10% 1.22% 17% 0.53 4.49 2.14 74 0.71 4.00 4.73 182 0.99 6.03 14.14 101 0.99 6.99 6.76 100 1.08 7.57 5.55 40 1.19 7.49 9.65 72 0.95 6.78 17.20 0 0.70% 6.13% 1.05% 31% 0.56 5.79 1.07 35 0.70% 6.11% 1.30% 31% 0.70 5.12 1.30 35 0.70 5.24 1.42 29 0.60% 3.83% 1.39% 55% 0.60 3.26 1.28 57 0.60% 3.97% 1.64% 55% 0.90 2.47 1.53 57 0.81 2.30 1.76 22 0.67% 4.73% 1.05% 68% 0.45 4.48 2.20 52 0.67% 4.71% 1.30% 68% 0.59 4.13 2.78 52 0.71 4.31 5.09 27 0.99 4.83 16.09 23 0.99 5.35 15.48 15 1.08 5.58 13.85 4 1.09 5.57 19.55 4 0.84 5.87 13.60 0 0.70% 4.84% 1.02% 19% 0.69 4.51 4.71 4 0.70% 4.83% 1.27% 19% 0.69 4.51 4.96 4 0.70% 4.76% 1.00% 38% 0.67 4.57 1.59 22 0.70% 4.74% 1.25% 38% 0.67 4.57 1.84 22 0.79% 3.53% 1.01% 87% 0.75 2.91 1.12 32 0.99% 3.29% 1.26% 87% 0.75 2.01 1.29 32 0.75 2.40 1.34 31 1.79% 2.35% 2.01% 87% 1.75 1.94 2.12 32 0.79% 3.61% 0.94% 77% 0.75 3.51 1.05 98 0.99% 3.41% 1.19% 77% 0.77 2.63 1.24 98 0.75 3.31 1.29 77 1.79% 2.60% 1.94% 77% 1.75 2.80 2.05 98
The accompanying notes are an integral part of the financial statements. + Returns, excluding sales charges, are for the period indicated and have not been annualized. (1) Institutional Class shares have been offered since February 4, 1994. All ratios for the period have been annualized. (2) Commenced operations on December 14, 1992. All ratios for the period have been annualized. (3) Closed operations on January 31, 1995. All ratios for the period have been annualized. (4) Retail Class B shares have been offered since August 15, 1994. All ratios for the period have been annualized. (5) On September 3, 1991, the Board of Directors of FAIF approved a change in the FAIF's fiscal year end from October 31 to September 30, effective September 30, 1991. All ratios for the period have been annualized. (6) For the period ended October 31. (7) Commenced operations on December 22, 1987. All ratios for the period have been annualized. (8) Institutional Class shares have been offered since August 2, 1994. All ratios for the period have been annualized. (9) 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. All ratios for the period have been annualized. (10) For the period ended November 30. (11) Commenced operations on February 19, 1993. All ratios for the period have been annualized. (12) Commenced operations on February 28, 1994. All ratios for the period have been annualized. (13) Commenced operations on April 4, 1994. All ratios for the period have been annualized. For the periods ended September 30, For a share outstanding throughout the period
REALIZED AND NET ASSET UNREALIZED DIVIDENDS NET ASSET VALUE NET GAINS OR FROM NET DISTRIBUTIONS VALUE NET ASSETS BEGINNING INVESTMENT (LOSSES) ON INVESTMENT FROM END OF END OF OF PERIOD INCOME INVESTMENTS INCOME CAPITAL GAINS PERIOD TOTAL RETURN PERIOD (000) EQUITY INDEX INSTITUTIONAL CLASS 1995 $10.67 $0.28 $ 2.75 $(0.27) $(0.09) $13.34 29.17% $218,932 1994(1) 10.85 0.20 (0.18) (0.20) -- 10.67 0.18%+ 163,688 RETAIL CLASS A 1995 $10.68 $0.25 $ 2.76 $(0.25) $(0.09) $13.35 28.90% $ 2,140 1994 10.60 0.25 0.09 (0.25) (0.01) 10.68 3.25% 758 1993(2) 10.00 0.20 0.60 (0.20) -- 10.60 8.02%+ 139,957 RETAIL CLASS B 1995 $10.66 $0.23 $ 2.68 $(0.18) $(0.09) $13.30 27.87% $ 1,197 1994(3) 10.68 0.01 0.04 (0.07) -- 10.66 0.48%+ 29 EQUITY INCOME INSTITUTIONAL CLASS 1995 $ 9.89 $0.41 $ 1.35 $(0.41) $ -- $11.24 18.24% $ 52,126 1994(4) 9.90 0.07 (0.03) (0.05) -- 9.89 0.45%+ 17,489 RETAIL CLASS A 1995 $ 9.89 $0.41 $ 1.33 $(0.39) $ -- $11.24 18.06% $ 1,995 1994(5) 9.87 0.41 -- (0.39) -- 9.89 4.22%+ 1,852 1993(6)(7) 10.00 0.57 (0.14) (0.56) -- 9.87 4.44%+ 28,786 RETAIL CLASS B 1995 $ 9.88 $0.33 $ 1.32 $(0.33) $ -- $11.20 17.10% $ 1,233 1994(3) 9.87 0.04 0.02 (0.05) -- 9.88 0.57%+ 1 LIMITED VOLATILITY STOCK INSTITUTIONAL CLASS 1995(8) $10.00 $0.26 $ 1.90 $(0.25) $ -- $11.91 21.93% $ 17,125 DIVERSIFIED GROWTH INSTITUTIONAL CLASS 1995 $ 9.10 $0.17 $ 2.67 $(0.16) $ -- $11.78 31.57% $132,854 1994(4) 8.92 0.03 0.18 (0.03) -- 9.10 2.36%+ 31,875 RETAIL CLASS A 1995 $ 9.09 $0.15 $ 2.66 $(0.15) $ -- $11.75 31.21% $ 2,710 1994(5) 9.39 0.10 (0.29) (0.11) -- 9.09 (2.07%)+ 1,900 1993(6)(7) 10.00 0.11 (0.63) (0.09) -- 9.39 (5.18%)+ 31,084 RETAIL CLASS B 1995 $ 9.09 $0.09 $ 2.65 $(0.10) $ -- $11.73 30.29% $ 819 1994(3) 8.87 0.01 0.23 (0.02) -- 9.09 2.75%+ 12 STOCK INSTITUTIONAL CLASS 1995 $16.50 $0.36 $ 3.64 $(0.35) $(0.59) $19.56 25.50% $312,559 1994(1) 16.47 0.25 0.03 (0.25) -- 16.50 1.70%+ 154,949 RETAIL CLASS A 1995 $16.51 $0.33 $ 3.64 $(0.32) $(0.59) $19.57 25.26% $ 13,076 1994 16.00 0.31 1.00 (0.30) (0.50) 16.51 8.35% 8,421 1993 14.04 0.22 1.99 (0.23) (0.02) 16.00 15.82% 134,186 1992 13.62 0.24 0.81 (0.29) (0.34) 14.04 7.88% 3,644 1991(9) 10.64 0.28 2.95 (0.22) (0.03) 13.62 30.49%+ 2,386 1990(10) 12.09 0.25 (1.17) (0.25) (0.28) 10.64 (8.22%) 1,161 1989(10) 10.35 0.25 1.70 (0.20) (0.01) 12.09 20.33% 323 1988(10)(11) 10.03 0.27 0.35 (0.30) -- 10.35 6.40%+ 206 RETAIL CLASS B 1995 $16.49 $0.26 $ 3.55 $(0.22) $(0.59) $19.49 24.20% $ 7,051 1994(3) 16.65 0.03 (0.10) (0.09) -- 16.49 (0.43%)+ 346 SPECIAL EQUITY INSTITUTIONAL CLASS 1995 $17.30 $0.38 $ 1.61 $(0.38) $(1.02) $17.89 12.84% $201,786 1994(1) 16.34 0.22 0.96 (0.22) -- 17.30 7.31%+ 128,806 RETAIL CLASS A 1995 $17.30 $0.35 $ 1.60 $(0.34) $(1.02) $17.89 12.63% $ 11,609 1994 15.81 0.28 2.52 (0.28) (1.03) 17.30 18.70% 7,333 1993 13.61 0.23 2.32 (0.25) (0.10) 15.81 18.91% 81,899 1992 12.98 0.21 1.61 (0.27) (0.92) 13.61 15.17% 3,586 1991(9) 10.33 0.30 2.61 (0.26) -- 12.98 28.38%+ 3,423 1990(10) 12.96 0.47 (2.03) (0.46) (0.61) 10.33 (13.24%) 2,761 1989(10) 11.55 0.47 1.39 (0.41) (0.04) 12.96 17.41% 2,000 1988(10)(11) 10.03 0.34 1.57 (0.39) -- 11.55 19.56%+ 578 RETAIL CLASS B 1995 $17.29 $0.29 $ 1.51 $(0.24) $(1.02) $17.83 11.64% $ 4,847 1994(3) 16.51 0.01 0.85 (0.08) -- 17.29 5.22%+ 370 (table continued) RATIO OF RATIO OF NET EXPENSES TO RATIO OF INVESTMENT AVERAGE EXPENSES TO INCOME TO NET ASSETS AVERAGE AVERAGE (EXCLUDING PORTFOLIO NET ASSETS NET ASSETS WAIVERS) TURNOVER RATE 0.35% 2.41% 0.95% 9% 0.35 2.59 1.03 11 0.57% 2.16% 1.20% 9% 0.35 2.23 1.23 11 0.35 2.52 1.30 1 1.35% 1.34% 1.95% 9% 1.35 1.68 2.03 11 0.75% 4.11% 1.06% 23% 0.75 5.61 1.14 108 0.92% 3.91% 1.31% 23% 0.88 4.88 1.39 108 0.75 6.09 1.36 68 1.75% 3.05% 2.06% 23% 1.75 4.39 2.14 108 0.75% 2.75% 1.21% 28% 0.75% 1.69% 1.01% 28% 0.75 2.37 1.08 101 0.92% 1.52% 1.26% 28% 0.90 1.15 1.33 101 0.78 1.26 1.25 5 1.75% 0.58% 2.01% 28% 1.75 1.20 2.08 101 0.79% 2.10% 0.94% 52% 0.75 2.28 1.01 65 1.00% 1.89% 1.19% 52% 0.76 1.51 1.20 65 0.75 1.94 1.28 48 1.45 1.75 4.46 39 1.45 2.47 7.42 76 1.45 2.24 9.47 41 1.24 2.26 36.39 74 1.02 2.67 28.60 80 1.79% 1.10% 1.94% 52% 1.75 1.58 2.01 65 0.88% 2.30% 0.95% 72% 0.79 1.93 1.03 116 1.09% 2.08% 1.20% 72% 0.81 1.88 1.23 116 0.81 2.07 1.31 104 1.50 1.61 4.18 146 1.50 2.60 5.13 116 1.50 4.09 4.21 113 1.38 4.07 8.68 102 1.20 4.02 15.60 51 1.88% 1.22% 1.95% 72% 1.68 0.47 2.03 116
REALIZED AND UNREALIZED DIVIDENDS DISTRIBUTIONS NET ASSET NET ASSET NET GAINS OR FROM NET DISTRIBUTIONS FROM VALUE VALUE BEGINNING INVESTMENT (LOSSES) ON INVESTMENT FROM RETURN END OF OF PERIOD INCOME (LOSS) INVESTMENTS INCOME CAPITAL GAINS OF CAPITAL PERIOD TOTAL RETURN REGIONAL EQUITY INSTITUTIONAL CLASS 1995 $12.52 $ 0.11 $4.90 $(0.08) $(0.32) $-- $17.13 41.40% 1994(1) 12.41 0.07 0.11 (0.07) -- -- 12.52 1.46%+ RETAIL CLASS A 1995 $12.52 $ 0.08 $4.90 $(0.06) $(0.32) $-- $17.12 41.17% 1994 11.96 0.08 0.71 (0.07) (0.16) -- 12.52 6.76% 1993(2) 10.00 0.05 1.96 (0.05) -- -- 11.96 20.17%+ RETAIL CLASS B 1995 $12.50 $ 0.04 $4.80 $(0.03) $(0.32) $-- $16.99 39.98% 1994(3) 12.19 -- 0.33 (0.02) -- -- 12.50 2.73%+ EMERGING GROWTH INSTITUTIONAL CLASS 1995 $10.56 $ 0.03 $2.99 $(0.02) $(0.15) $-- $13.41 29.16% 1994(12) 10.00 0.01 0.56 (0.01) -- -- 10.56 5.68%+ RETAIL CLASS A 1995 $10.57 $ 0.01 $2.99 $(0.02) $(0.15) $-- $13.40 28.82% 1994(12) 10.00 0.01 0.57 (0.01) -- -- 10.57 5.88%+ RETAIL CLASS B 1995 $10.55 $(0.03) $2.92 $ -- $(0.15) $-- $13.29 27.89% 1994(3) 9.89 (0.01) 0.67 -- -- -- 10.55 6.67%+ TECHNOLOGY INSTITUTIONAL CLASS 1995 $11.19 $(0.03) $7.31 $ -- $(0.23) $-- $18.24 66.22% 1994(12) 10.00 (0.01) 1.20 -- -- -- 11.19 11.90%+ RETAIL CLASS A 1995 $11.19 $(0.03) $ 7.31 $ -- $(0.23) $ -- $18.24 66.22% 1994(12) 10.00 (0.01) 1.20 -- -- -- 11.19 11.90%+ RETAIL CLASS B 1995 $11.17 $(0.04) $ 7.12 $ -- $(0.23) $ -- $18.02 64.52% 1994(3) 9.85 (0.02) 1.34 -- -- -- 11.17 13.40%+ INTERNATIONAL INSTITUTIONAL CLASS 1995 $10.22 $ 0.01 $ 0.07 $ -- $ -- $ -- $10.30 0.78% 1994(12) 10.00 (0.01) 0.23 -- -- -- 10.22 2.20%+ RETAIL CLASS A 1995 $10.21 $ -- $ 0.07 $ -- $ -- $ -- $10.28 .69% 1994(13) 9.98 (0.01) 0.24 -- -- -- 10.21 2.30%+ RETAIL CLASS B 1995 $10.21 $(0.03) $ 0.02 $ -- $ -- $ -- $10.20 (0.10)% 1994(3) 10.23 (0.01) (0.01) -- -- -- 10.21 (0.20)%+ REAL ESTATE SECURITIES FUND INSTITUTIONAL CLASS 1995(14) $10.00 $ 0.13 $ 0.39 $(0.11) $ -- $(0.04) $10.37 5.19%+ RETAIL CLASS A 1995(15) $10.37 $ -- $ 0.01 $ -- $ -- $ -- $10.38 0.00% RETAIL CLASS B 1995(15) $10.37 $ -- $ -- $ -- $ -- $ -- $10.37 0.00% (table continued) RATIO OF RATIO OF NET EXPENSES TO RATIO OF INVESTMENT AVERAGE NET ASSETS EXPENSES TO INCOME (LOSS) NET ASSETS PORTFOLIO END OF AVERAGE TO AVERAGE (EXCLUDING TURNOVER PERIOD (000) NET ASSETS NET ASSETS WAIVERS) RATE $188,583 0.84% 0.78% 0.95% 42% 96,045 0.80 0.82 1.05 41 $ 14,917 1.05% 0.58% 1.20% 42% 8,345 0.82 0.59 1.25 41 58,427 0.80 0.59 1.30 28 $ 7,630 1.84% (0.25)% 1.95% 42% 185 1.80 (0.41) 2.05 41 $ 41,716 0.84% 0.20% 1.19% 51% 6,849 0.80 0.23 2.59 19 $ 386 1.04% 0.00% 1.44% 51% 91 0.79 0.23 2.84 19 $ 268 1.84% (0.83)% 2.19% 51% 18 1.80 (0.85) 3.59 19 $ 29,272 0.88% (0.35)% 1.30% 74% 6,491 0.80 (0.21) 3.12 43 $ 1,464 1.13% (0.61)% 1.55% 74% 61 0.80 (0.21) 3.37 43 $ 2,031 1.88% (1.41)% 2.30% 74% 2 1.80 (1.44) 4.12 43 $ 94,400 1.74% 0.12% 1.81% 57% 47,963 1.75 (0.19) 2.05 16 $ 876 1.93% (0.13)% 2.06% 57% 464 1.75 (0.26) 2.30 16 $ 306 2.76% (0.95)% 2.81% 57% 22 2.75 (0.71) 3.05 16 $ 5,756 0.80% 6.01% 2.34% 0% $ 1 1.05% 0.00% 2.59% 0% $ 1 1.80% 0.00% 3.34% 0%
The accompanying notes are an integral part of the financial statements. + Returns, excluding sales charges, are for the period indicated and have not been annualized. (1) Institutional Class shares have been offered since February 4, 1994. All ratios for the period have been annualized. (2) Commenced operations on December 14, 1992. All ratios for the period have been annualized. (3) Retail Class B shares have been offered since August 15, 1994. All ratios for the period have been annualized. (4) Institutional Class shares have been offered since August 2, 1994. All ratios for the period have been annualized. (5) 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. All ratios for the period have been annualized. (6) For the period ended November 30. (7) Commenced operations on December 18, 1992. All ratios for the period have been annualized. (8) Commenced operations on November 15, 1994. All ratios for the period have been annualized. (9) On September 3, 1991, the Board of Directors of FAIF approved a change in the FAIF's fiscal year end from October 31 to September 30, effective September 30, 1991. All ratios for the period have been annualized. (10) For the period ended October 31. (11) Commenced operations on December 22, 1987. All ratios for the period have been annualized. (12) Commenced operations on April 4, 1994. All ratios for the period have been annualized. (13) Retail Class A shares have been offered since April 7, 1994. All ratios for the period have been annualized. (14) Commenced operations on June 30, 1995. All ratios for the period have been annualized. (15) Commenced operations on September 29, 1995. All ratios for the period have been annualized. NOTES TO FINANCIAL STATEMENTS----SEPTEMBER 30, 1995 1 ORGANIZATION The First American Prime Obligations Fund, Government Obligations Fund and Treasury Obligations Fund are funds offered by First American Funds, Inc. (FAF). The First American Limited Term Income Fund, Intermediate Term Income Fund, Fixed Income Fund, Intermediate Government Bond Fund, Mortgage Securities Fund, Limited Term Tax Free Income Fund, Intermediate Tax Free Fund, Colorado Intermediate Tax Free Fund, Minnesota Insured Intermediate Tax Free Fund, Asset Allocation Fund, Balanced Fund, Equity Index Fund, Equity Income Fund, Limited Volatility Stock Fund, Diversified Growth, Stock Fund, Special Equity Fund, Regional Equity Fund, Emerging Growth Fund, Technology Fund, International Fund and Real Estate Securities Fund are funds offered by First American Investment Funds, Inc. (FAIF). FAF and FAIF (collectively the "Funds") are registered under the Investment Company Act of 1940, as amended, as open end, management investment companies. The Funds' articles of incorporation permit the Board of Directors to create additional funds in the future. FAF offers Class A, Class B, Class C and Class D shares. Class B shares are only available pursuant to an exchange for Class B shares of another fund in the First American family. Class B shares may also be subject to a contingent deferred sales charge for six years and automatically convert to Class A shares after eight years. Class C and D shares are offered only to qualifying institutional investors. Class A and B shares are not offered by the Government Obligations Fund or Treasury Obligations Fund. FAIF offers Class A, Class B and Class C shares. Class A shares are sold with a front-end sales charge. Class B shares may be subject to a contingent deferred sales charge for six years and automatically convert to Class A shares after eight years. Class C shares have no sales charge and are offered only to qualifying institutional investors. All classes of shares in FAF and FAIF have identical voting, dividend, liquidation and other rights, and the same terms and conditions, except that the level of distribution fees charged may differ among classes. 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies followed by the Funds are as follows: Security Valuation -- Investment securities held by the FAF Funds are stated at amortized cost which approximates market value. Under the amortized cost method, any discount or premium is amortized ratably to the maturity of the security and is included in interest income. FAIF Fund investments in equity securities which are traded on a national securities exchange (or reported on the NASDAQ national market system) are stated at the last quoted sales price if readily available for such equity securities on each business day; other equity securities traded in the over-the-counter market and listed equity securities for which no sale was reported on that date are stated at the last quoted bid price. Debt obligations exceeding sixty days to maturity which are actively traded are valued by an independent pricing service at the most recently quoted bid price. Debt obligations with sixty days or less remaining until maturity may be valued at their amortized cost. Foreign securities are valued based upon quotation from the primary market in which they are traded. When market quotations are not readily available, securities are valued at fair value as determined in good faith by procedures established and approved by the Board of Directors. Security Transactions and Investment Income -- The Funds record security transactions on the trade date of the security purchase or sale. Dividend income is recorded on the ex-dividend date. Interest income, including amortization of bond premium and discount, is recorded on the accrual basis. Security gains and losses are determined on the basis of identified cost, which is the same basis used for Federal income tax purposes. Distributions to Shareholders -- Distributions from net investment income for the FAF funds are declared on a daily basis and are payable on the first business day of the following month. Limited Term Income Fund, Intermediate Term Income Fund, Fixed Income Fund, Intermediate Government Bond Fund, Mortgage Securities Fund, Limited Tax Free Income Fund, Intermediate Tax Free Fund, Colorado Intermediate Tax Free Fund, Minnesota Insured Intermediate Tax Free Fund, Asset Allocation Fund, Balanced Fund, Equity Index Fund, Equity Income Fund, Limited Volatility Stock Fund, Diversified Growth, Stock Fund and Special Equity Fund declare and pay income dividends monthly. Regional Equity Fund, Emerging Growth Fund, Technology Fund and Real Estate Securities Fund declare and pay income dividends quarterly. A portion of the quarterly distributions of the Real Estate Securities Fund may be a return of capital. International Fund declares and pays dividends annually. Any net realized capital gains on sales of securities for a fund are distributed to shareholders at least annually. Federal Taxes -- It is each Fund's intention to continue to qualify as a regulated investment company and distribute all of its taxable income. Accordingly, no provision for Federal income taxes is required. For Federal income tax purposes, required distributions related to realized gains from security transactions are computed as of October 31st. The amounts of distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations, which may differ from those amounts determined under generally accepted accounting principles. These book/tax differences are either temporary or permanent in nature. These differences are primarily due to wash sales, foreign currency gains and losses, the character of distributions made during the year from net investment income or net realized gains, and the timing of distributions where the fiscal year in which the amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the fund. To the extent these differences are permanent, adjustments are made to the appropriate accounts in the period that the difference arises. On the Statement of Net Assets the following adjustments were made (000):
ACCUMULATED UNDISTRIBUTED NET REALIZED NET INVESTMENT GAIN (LOSS) INCOME PAID-IN-CAPITAL Mortgage Securities Fund $ -- $ 1 $ (1) Limited Term Tax Free Income Fund -- 16 (16) Equity Income Fund 2 16 (18) Diversified Growth Fund -- 18 (18) Technology Fund (70) 70 -- International Fund (1,870) 1,942 (72)
Futures Transactions -- In order to gain exposure to or protect against changes in the market, certain Funds may enter into S&P Stock Index futures contracts and other stock futures contracts. Upon entering into a futures contract, the Fund is required to deposit cash or pledge "U.S." Government securities in an amount equal to five percent of the purchase price indicated in the futures contract (initial margin). Subsequent payments, which are dependent on the daily fluctuations in the value of the underlying security or securities, are made or received by the Fund each day (daily variation margin) and are recorded as unrealized gains or losses until the contracts are closed. When the contracts are closed, the Fund records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund's basis in the contracts. Risks of entering into futures contracts, in general, include the possibility that there will not be a perfect price correlation between the futures contracts and the underlying securities. Second, it is possible that a lack of liquidity for futures contracts could exist in the secondary market, resulting in an inability to close a futures position prior to its maturity date. Third, the purchase of a futures contract involves the risk that a Fund could lose more than the original margin deposit required to initiate a futures transaction. Unrealized gains or losses on outstanding positions in futures contracts held at the close of the year will be recognized as capital gains or losses for Federal income tax purposes. Repurchase Agreements -- The Funds may enter into repurchase agreements with member banks of the Federal Deposit Insurance Company or registered broker dealers whom the Adviser or Sub-Adviser deems creditworthy under guidelines approved by the Board of Directors, subject to the seller's agreement to repurchase such securities at a mutually agreed upon date and price. The repurchase price would generally equal the price paid by the Fund plus interest negotiated on the basis of current short-term rates. Securities pledged as collateral for repurchase agreements are held by the custodian bank until the respective agreements mature. The Portfolios may also invest in tri-party repurchase agreements. Securities held as collateral for tri-party repurchase agreements are maintained in a segregated account by the broker's custodian bank until the maturity of the repurchase agreement. Provisions of the repurchase agreements ensure that the market value of the collateral, including accrued interest thereon, is sufficient in the event of default of the counterparty. If the counterparty defaults and the value of the collateral declines or if the counterparty enters an insolvency proceeding, realization of the collateral by the Funds may be delayed or limited. Securities Purchased on a When-Issued Basis -- Delivery and payment for securities which have been purchased by a Fund on a forward commitment or when-issued basis can take place up to a month or more after the transaction date. During this period, such securities are subject to market fluctuations and the portfolio maintains, in a segregated account with its custodian, assets with a market value equal to or greater than the amount of its purchase commitments. Foreign Currency Translation -- The books and records of the International Fund are maintained in U.S. dollars on the following bases: (I) market value of investment securities, assets and liabilities at the current rate of exchange; and (II) purchases and sales of investment securities, income and expenses at the relevant rates of exchange prevailing on the respective dates of such transactions. The International Fund does not isolate that portion of gains and losses on investments in equity securities which is due to changes in the foreign exchange rates from that which is due to change in market prices of equity securities. The International Fund reports certain foreign currency related transactions as components of realized gains for financial reporting purposes, whereas such components are treated as ordinary income for Federal income tax purposes. Forward Foreign Currency Contracts -- The International Fund enters into forward foreign currency contracts as hedges against either specific transactions or fund positions. The aggregate principal amount of the contracts are not recorded as the International Fund intends to settle the contracts prior to delivery. All commitments are "marked-to-market" daily at the applicable foreign exchange rate and any resulting unrealized gains or losses are recorded currently. The International Fund realizes gains or losses at the time the forward contracts are extinguished. Unrealized gains or losses on outstanding positions in forward foreign currency contracts held at the close of the year will be recognized as ordinary income or loss for Federal income tax purposes. Expenses -- Expenses that are directly related to one of the Funds are charged directly to that Fund. Other operating expenses are prorated to the Funds on the basis of relative net asset value. Class specific expenses, such as the 12b-1 fees, are borne by that class. Income, other expenses and realized and unrealized gains and losses of a Fund are allocated to the respective class on the basis of the relative net asset value each day. Reclassifications--Certain 1994 amounts have been reclassified to conform to the 1995 presentation. 3 INVESTMENT SECURITY TRANSACTIONS During the period ended September 30, 1995, purchases of securities and proceeds from sales of securities, other than temporary investments in short-term securities, were as follows (000): U.S. GOVERNMENT OTHER INVESTMENT SECURITIES SECURITIES PURCHASES SALES PURCHASES SALES LIMITED TERM INCOME FUND $ -- $ -- $ 74,585 $ 81,308 Intermediate Term Income Fund 59,322 48,029 7,233 3,305 Fixed Income Fund 284,883 187,929 90,278 4,145 Intermediate Government Bond Fund 80,785 12,073 -- -- Mortgage Securities Fund 7,556 9,626 -- 828 Limited Term Tax Free Income Fund -- -- 6,690 16,610 Intermediate Tax Free Fund -- -- 54,813 18,684 Colorado Intermediate Tax Free Fund -- -- 47,203 6,978 Minnesota Insured Intermediate Tax Free Fund -- -- 56,348 18,913 Asset Allocation Fund 18,135 25,225 8,538 17,094 Balanced Fund 81,725 69,853 61,094 48,355 Equity Index Fund -- -- 23,845 15,271 Equity Income Fund -- -- 35,119 8,248 Limited Volatility Stock Fund -- -- 16,771 3,764 Diversified Growth Fund -- -- 88,212 20,985 Stock Fund -- -- 185,121 112,466 Special Equity Fund -- -- 129,316 96,874 Regional Equity Fund -- -- 90,522 52,378 Emerging Growth Fund -- -- 35,381 9,769 Technology Fund -- -- 26,509 12,106 International Fund -- -- 81,374 37,836 Real Estate Securities Fund -- -- 5,351 10 At September 30, 1995 the total cost of securities for Federal Income Tax purposes, was not materially different from amounts reported for financial reporting purposes. The aggregate gross unrealized appreciation and depreciation for securities held by the Funds at September 30, 1995 is as follows (000): AGGREGATE AGGREGATE GROSS GROSS APPRECIATION DEPRECIATION NET LIMITED TERM INCOME FUND $ 517 $ (492) $ 25 Intermediate Term Income Fund 1,319 (462) 857 Fixed Income Fund 7,056 (552) 6,504 Intermediate Government Bond Fund 3,355 (14) 3,341 Mortgage Securities Fund 394 (252) 142 Limited Term Tax Free Income Fund 60 (2) 58 Intermediate Tax Free Fund 1,174 (40) 1,134 Colorado Intermediate Tax Free Fund 2,017 (6) 2,011 Minnesota Insured Intermediate Tax Free Fund 2,253 (27) 2,226 Asset Allocation Fund 5,860 (436) 5,424 Balanced Fund 21,781 (1,462) 20,319 Equity Index Fund 50,873 (4,047) 46,826 Equity Income Fund 6,217 (408) 5,809 Limited Volatility Stock Fund 2,964 (42) 2,922 Diversified Growth Fund 22,650 (1,034) 21,616 Stock Fund 46,444 (2,802) 43,642 Special Equity Fund 18,642 (3,626) 15,016 Regional Equity Fund 52,684 (5,681) 47,003 Emerging Growth Fund 7,308 (1,370) 5,938 Technology Fund 7,751 (1,013) 6,738 International Fund 13,763 (4,094) 9,669 Real Estate Securities Fund 211 (41) 170 At September 30, 1995 the following funds have capital loss carrryforwards (000): EXPIRATION AMOUNT DATE PRIME OBLIGATIONS FUND $ 4 2001 Government Obligations Fund 35 2003 Limited Term Income* 3,907 2000-2004 Intermediate Term Income Fund 260 2003 Intermediate Government Bond Fund 139 2002-2004 Mortgage Securities Fund 31 2004 Limited Term Tax Free Income Fund 1 2003 Limited Volatility Stock Fund 131 2004 Diversified Growth Fund 761 2002 International Fund 5,975 2003-2004 * Includes carryover acquired in connection with Managed Income merger; the ability to utilize these losses to offset gains may be limited in future years. 4 FEES AND EXPENSES Pursuant to an investment advisory agreement (the Agreement), First Bank National Association (the Adviser) manages each Fund's assets and furnishes related office facilities, equipment, research and personnel. The Agreement requires each Fund to pay the Adviser a monthly fee based upon average daily net assets. The fee for each of the FAF Funds is equal to an annual rate of .40% of the average daily net assets. The fee for each of the FAIF Funds, other than the International Fund, is equal to an annual rate of .70% of the average daily net assets. The fee for the International Fund is equal to an annual rate of 1.25% of average daily net assets. Through a separate contractual agreement, First Trust National Association, an affiliate of the Adviser, serves as the Funds' custodian. Marvin & Palmer Associates, Inc., serves as Sub-Adviser to the International Fund pursuant to a Sub-Advisory Agreement with the Adviser. SEI Financial Services Company (SFS) and SEI Financial Management Corporation, (SFM) serve as distributor and administrator of the Funds, respectively. Under the distribution plan, each of the Funds pay SFS a monthly distribution fee of .25% of each Fund's average daily net assets of the Retail Class A shares, 1.00% of the Retail Class B shares and .15% of the Corporate Trust Class D shares, which may be used by SFS to provide compensation for sales support and distribution activities. No distribution fees are paid by Institutional Class C shares. Prior to January 20, 1995 the FAF Funds paid SFS a monthly distribution fee of .20% of each Fund's average daily net assets of the Retail Class A shares under $100 million, .15% of the average daily net assets from $100 million to less than $250 million and .10% of average daily net assets of $250 million or more. The Institutional Class C shares paid SFS a monthly distribution fee of up to .05% on average daily net assets under $500 million, .04% on the average daily net assets from $500 million to less than $1 billion and .03% of average daily net assets of $1 billion or more. SFM provides administrative services, including certain accounting, legal and shareholder services, at an annual rate of .07% of each FAF Fund's, and .12% of each FAIF Fund's, average daily net assets, with a minimum annual fee of $50,000 per Fund. Prior to January 31, 1995 the FAIF Funds paid SFM at an annual rate of .20% of each Fund's average daily net assets with a minimum annual fee of $50,000 per Fund. In addition to the investment advisory and management fees, custodian fees, distribution fees, administrator and transfer agent fees, each fund is responsible for paying most other operating expenses including organization costs, fees and expenses of outside directors, registration fees, printing shareholder reports, legal, auditing, insurance and other miscellaneous expenses. During the period ended September 30, 1995, the Adviser and other parties waived a portion of their contractual fees in order to assist the Funds in maintaining competitive expense ratios. Expenses were waived as follows (000): WAIVER OF INVESTMENT WAIVER OF WAIVER OF ADVISORY ADMINISTRATOR DISTRIBUTION FEES FEES FEES (1) PRIME OBLIGATIONS FUND* $2,118 $-- $571 Government Obligations Fund* 746 -- 263 Treasury Obligations Fund 902 -- -- Limited Term Income Fund 375 23 24 Intermediate Term Income Fund 179 20 7 Fixed Income Fund 449 42 6 Intermediate Government Bond Fund 198 11 5 Mortgage Securities Fund 99 -- 1 Limited Term Tax Free Income Fund 112 2 2 Intermediate Tax Free Fund 112 -- 2 Colorado Intermediate Tax Free Fund 126 -- 3 Minnesota Insured Intermediate Tax Free Fund 149 6 5 Asset Allocation Fund 89 8 -- Balanced Fund 215 40 7 Equity Index Fund 1,054 37 -- Equity Income Fund 125 2 1 Limited Volatility Stock Fund 60 -- -- Diversified Growth Fund 207 10 1 Stock Fund 327 47 4 Special Equity Fund 83 41 4 Regional Equity Fund 125 31 4 Emerging Growth Fund 77 -- -- Technology Fund 71 -- -- International Fund 44 5 -- Real Estate Securities Fund 18 -- -- (1) Retail Class A * Distribution Waiver is for Institutional Class For the period ended September 30, 1995, legal fees and expenses were paid to a law firm of which the Secretary of the Funds is a partner. Effective April 14, 1995, Supervised Service Company was acquired by DST Systems, Inc. DST Systems, Inc. now provides transfer agent services for the Funds. A Contingent Deferred Sales Charge (CDSL) is imposed on redemptions made in the Retail Class B. The CDSL varies depending on the number of years from time of payment for the purchase of Class B shares until the redemption of such shares. CONTINGENT DEFERRED SALES CHARGE YEAR SINCE AS A PERCENTAGE OF DOLLAR PURCHASE AMOUNT SUBJECT TO CHARGE First 5.00% Second 5.00% Third 4.00% Fourth 3.00% Fifth 2.00% Sixth 1.00% Seventh 0.00% Eighth 0.00% For the period ended September 30, 1995, sales charges retained by SFS for distributing the Funds' shares were approximately $110,000. 5 DEFERRED ORGANIZATIONAL COSTS The Funds incurred organization expenses in connection with their start-up and initial registration. These costs are being amortized over 60 months on a straight-line basis. 6 FORWARD FOREIGN CURRENCY CONTRACTS The International Fund enters into forward foreign currency exchange contracts as hedges against portfolio positions. Such contracts, which protect the value of the Portfolio's investment securities against a decline in the value of the hedged currency, do not eliminate fluctuations in the underlying prices of the securities. They simply establish an exchange rate at a future date. Also, although such contracts tend to minimize the risk of loss due to a decline in the value of a hedged currency, at the same time they tend to limit any potential gain that might be realized should the value of such foreign currency increase. The following forward foreign currency contracts were outstanding at September 30, 1995. INTERNATIONAL FUND NET CONTRACTS TO IN UNREALIZED DELIVER/ EXCHANGE APPRECIATION/ SETTLEMENT RECEIVE FOR (DEPRECIATION) DATES (000) (000) (000) Foreign Currency Sales 10/04/95 CH 2,750 $ (2,259) $(120) 10/04/95 CH 390 (321) (16) 10/27/95 CH 2,110 (1,856) 26 10/04/95 DM 2,210 (1,503) (44) 10/04/95 DM 270 (183) (6) 10/04/95 DM 420 (283) (11) 10/27/95 DM 2,220 (1,571) 16 10/04/95 FI 16,500 (3,762) (98) 10/27/95 FI 10,320 (2,414) 0 10/04/95 FF 5,850 (1,162) (27) 10/04/95 FF 870 (172) (5) 10/27/95 FF 4,200 (854) 1 10/04/95 UK 4,080 (6,301) (141) 10/04/95 UK 410 (634) (14) 10/27/95 UK 3,060 (4,831) 6 10/05/95 UK 225 (355) 0 10/04/95 JY 2,048,240 (21,140) 468 10/04/95 JY 181,180 (1,818) (10) 10/04/95 JY 940,460 (9,369) (123) 10/27/95 JY 1,115,370 (11,349) 48 10/02/95 JY 20,364 (204) (1) 10/04/95 NG 650 (391) (15) 10/04/95 NG 4,010 (2,437) (69) 10/04/95 NG 670 (405) (13) 10/27/95 NG 3,470 (2,190) 19 10/03/95 NG 341 (214) 0 10/04/95 NO 6,240 (965) (29) 10/27/95 NO 3,920 (629) 5 10/04/95 SK 65,630 (8,901) (565) 10/27/95 SK 25,770 (3,650) (59) 10/03/95 SG 58 (41) 0 10/05/95 SG 62 (44) 0 $(92,208) $(777) INTERNATIONAL FUND NET CONTRACTS TO IN UNREALIZED DELIVER/ EXCHANGE APPRECIATION/ SETTLEMENT RECEIVE FOR (DEPRECIATION) DATES (000) (000) (000) Foreign Currency Purchases 10/4/95 CH 1,030 $ 905 $ (14) 10/4/95 CH 1,720 1,511 (23) 10/4/95 CH 390 343 (5) 10/4/95 CH 211 185 (2) 10/4/95 DM 680 477 (1) 10/4/95 DM 1,530 1,081 (11) 10/4/95 DM 270 191 (2) 10/4/95 DM 420 297 (3) 10/4/95 FI 6,230 1,458 -- 10/4/95 FI 10,270 2,403 -- 10/4/95 FF 800 157 5 10/4/95 FF 1,750 356 -- 10/4/95 FF 3,300 672 (2) 10/4/95 FF 870 177 -- 10/4/95 UK 1,450 2,292 (3) 10/4/95 UK 2,630 4,155 (3) 10/4/95 UK 410 648 -- 10/4/95 JY 409,850 3,931 205 10/4/95 JY 631,130 6,052 317 10/4/95 JY 1,007,260 10,218 (52) 10/4/95 JY 181,180 1,838 (9) 10/4/95 JY 940,460 9,540 (48) 10/2/95 JY 32,689 328 2 10/2/95 JY 14,004 140 1 10/3/95 JY 8,924 90 -- 10/4/95 NG 1,830 1,146 (2) 10/4/95 NG 2,180 1,374 (12) 10/4/95 NG 670 422 (4) 10/4/95 NG 650 410 (4) 10/4/95 NO 2,160 345 (1) 10/4/95 NO 4,080 655 (5) 10/4/95 SK 24,710 3,440 123 10/4/95 SK 15,440 2,194 33 10/4/95 SK 25,480 3,618 57 $63,049 $ 537 $(240) CURRENCY LEGEND CH Switzerland DM Germany FI Finnish Mark FF French Francs JY Japanese Yen NG Netherlands Guilder NO Norwegian Krona SG Singapore Dollar SK Swedish Krona UK British Pounds Sterling 7 FUTURES CONTRACTS The Equity Index Fund's investment in S&P 500 Index futures contracts is designed to maintain sufficient liquidity to meet redemption requests and to increase the level of Fund assets devoted to replicating the composition of the S&P 500 Index while reducing transaction costs. Risks of entering into S&P 500 Index futures contracts include the possibility that there may be an illiquid market and that a change in the value of the contract may not correlate with changes in the underlying securities. At September 30, 1995, open long S&P 500 Index futures contracts were as follows: NUMBER UNREALIZED OF TRADE SETTLEMENT GAIN/(LOSS) CONTRACTS PRICE MONTH (000) 4 $588.00 DECEMBER 1995 $ 0 3 584.35 December 1995 6 3 584.50 December 1995 6 3 590.05 December 1995 (3) 2 583.55 December 1995 5 2 588.15 December 1995 0 1 586.30 December 1995 1 1 587.20 December 1995 0 1 588.55 December 1995 0 $15 8 CONCENTRATION OF CREDIT RISK The Limited Term Tax Free Income Fund, Intermediate Tax Free Fund, Colorado Intermediate Tax Free Fund, and Minnesota Insured Intermediate Tax Free Fund invest in debt instruments of municipal issuers. Although these Funds monitor investment concentration, the issuers ability to meet their obligations may be affected by economic developments in a specific state or region. The Limited Term Tax Free Income Fund, Intermediate Tax Free Fund, Minnesota Insured Intermediate Tax Free Fund, and Colorado Intermediate Tax Free Fund invest in securities which include revenue bonds, tax and revenue anticipation notes, and general obligation bonds. At September 30, 1995, the percentage of portfolio investments by each revenue source was as follows: LIMITED MINNESOTA TERM INSURED TAX FREE INTERMEDIATE INTERMEDIATE COLORADO INCOME TAX FREE TAX FREE INTERMEDIATE FUND FUND FUND TAX FREE FUND REVENUE BONDS: Education Bonds 4% 4% 6% 4% Health Care Bonds 4 13 13 4 Transportation Bonds 6 3 2 8 Utility Bonds 11 12 7 8 Housing Bonds 14 12 23 6 Pollution Control Bonds 0 5 6 4 Public Facility Bonds 7 6 1 2 Industrial Bonds 8 0 0 1 Other 10 14 11 11 GENERAL OBLIGATIONS: 36 29 26 52 ANTICIPATION NOTES: 0 2 5 0 100% 100% 100% 100% The rating of long-term debt as a percentage of total value of investments at September 30, 1995 is as follows: LIMITED TERM MINNESOTA COLORADO TAX FREE INTERMEDIATE INSURED INTERMEDIATE INCOME TAX FREE INTERMEDIATE TAX FREE FUND FUND TAX FREE FUND FUND STANDARD & POORS/MOODY'S RATINGS: AAA/Aaa 39% 63% 74% 50% AA/Aa 22 20 9 31 A/A 26 9 10 15 BBB/Baa 0 4 0 1 NR 13 4 7 3 100% 100% 100% 100% Securities rated by only one agency are shown in that category. Securities rated by both agencies are shown with their highest rating. 9 FUND MERGERS Prior to January 20, 1995, five different mutual funds existed as separate series of FAF: Money Fund, Institutional Money Fund, CT Government Fund, Institutional Government Fund and CT Treasury Fund. On December 16, 1994, FAF shareholders approved a plan of reorganization. Effective January 20, 1995, Money Fund was merged with and into Institutional Money Fund and the combined entity is now the Prime Obligations Fund. Also effective on such date, CT Government Fund was merged with and into Institutional Government Fund and the combined entity is now the Government Obligations Fund. In addition, the name of CT Treasury Fund was changed to Treasury Obligations Fund. The mergers were accompanied by a tax-free exchange of 63,816,319 shares of Money Fund for 63,816,319 shares of Prime Obligations Retail Class A and an exchange of 156,260,107 shares of CT Government Fund for 156,260,107 shares of Government Obligations Corporate Trust Class as of the close of business on January 20, 1995. The aggregate net assets of Prime Obligations Fund and Money Fund before the acquisition were $1,498,492,068 and $63,816,316, respectively, resulting in combined net assets of $1,562,308,384 on January 20, 1995, and the aggregate net assets of Government Obligations Fund and CT Government Fund before the acquisition were $602,905,803 and $156,260,107, respectively, resulting in combined net assets of $759,165,910 on January 20, 1995. On February 3, 1995 Limited Term Income Fund acquired all net assets of First American Mutual Fund (FAMF) Managed Income Fund pursuant to a plan of reorganization approved by the FAMF shareholders on December 16, 1994. The acquisition was accompanied by a tax-free exchange of 4,045,016 shares of Managed Income Fund Institutional Class for 3,916,789 shares of Limited Term Income Fund Institutional Class, and 482,125 shares of Managed Income Fund Retail Class A for 467,560 shares of Limited Term Income Fund Retail Class A outstanding as of the close of business on February 3, 1995. Managed Income Fund net assets at the date were combined with those of Limited Term Income Fund. The aggregate net assets of Limited Term Income Fund and Managed Income Fund before the acquisition were $77,167,375 and $42,915,945 (including $2,579,628 of accumulated net realized loss on investments, $1,131,202 of net unrealized depreciation of investments, and $41,584,512 of paid-in capital for Institutional Class, and $5,042,263 of paid-in capital for Retail Class A), respectively, resulting in combined net assets of $120,083,320 on February 3, 1995. In addition, under the reorganization agreement the FAMF Limited Term Tax Free Income, FAMF Equity Income, and FAMF Diversified Growth Funds, were merged into a new FAIF fund which was identical to the respective FAMF fund. 10 PROPOSED FUND MERGER OF LIMITED VOLATILITY STOCK FUND AND STOCK FUND The Board of Directors of the Funds have approved, subject to shareholder approval, the acquisition of the FAIF Limited Volatility Stock Fund by the FAIF Stock Fund. The acquisition will be accounted for by the method of accounting for tax free mergers of investment companies (sometimes referred to as the pooling without restatement method). Under the proposed merger agreement and plan of reorganization, Institutional Class shares of the FAIF Limited Volatility Stock Fund will be exchanged for Institutional Class shares of the FAIF Stock Fund. If the exchange were to have occurred as of September 30, 1995, one share of the FAIF Limited Volatility Stock Fund Institutional Class would have been exchanged for 0.6089 shares of the FAIF Stock Fund Institutional Class. INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders First American Funds, Inc. First American Investment Funds, Inc.: We have audited the accompanying statements of net assets as of September 30, 1995, and the related statements of operations, the statements of changes in net assets and the financial highlights for each of the three funds constituting First American Funds, Inc. and each of the twenty-two funds constituting First American Investment Funds, Inc. for each of the periods presented. These financial statements and the financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. The financial highlights of Limited Term Tax Free Income Fund, Equity Income Fund and Diversified Growth Fund for the periods presented ended November 30, 1993 were audited by other auditors whose reports dated January 20, 1994 expressed unqualified opinions on this information. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the financial highlights are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Investment securities held in custody are confirmed to us by the custodian. As to securities purchased and sold but not received or delivered, we request confirmations from brokers and where replies are not received, we carry out other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and the financial highlights referred to above present fairly, in all material respects, the financial position of each of the three funds constituting First American Funds, Inc. and each of the twenty-two funds constituting First American Investment Funds, Inc. as of September 30, 1995, and the results of their operations, changes in their net assets and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Minneapolis, Minnesota November 3, 1995 PART C -- OTHER INFORMATION ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements for each series of the Registrant which is currently required to file such financial statements are included as part of the Statement of Additional Information. (b) Exhibits (1) (a) Articles of Incorporation, as amended and supplemented through January 1995 (incorporated by reference to Exhibit (1) to Post-Effective Amendment No. 21). * (1) (b) Articles Supplementary filed June 16, 1995. * (2) Bylaws, as amended through March 6, 1995. (3) Not applicable. (4) Specimen form of Common Stock Certificate. (Incorporated by reference to Exhibit (4) to Post-Effective Amendment No. 21.) (5) (a) Investment Advisory Agreement dated April 2, 1991, between Registrant and First Bank National Association, as amended and supplemented through August 1994. (Incorporated by reference to Exhibit (5)(a) to Post-Effective Amendment No. 21.) * (5) (b) Amendment No. 5 to Exhibit A to Investment Advisory Agreement. (5) (c) Sub-Advisory Agreement relating to International Fund between First Bank National Association and Marvin & Palmer Associates, Inc. (Incorporated by reference to Exhibit (5)(b) to Post-Effective Amendment No. 21.) (6) (a) Distribution Agreement [Class A and Class C] dated February 10, 1994 between Registrant and SEI Financial Services Company. (Incorporated by reference to Exhibit (6)(a) to Post-Effective Amendment No. 21.) (6) (b) Distribution and Service Agreement [Class B] dated August 1, 1994, as amended September 14, 1994 between Registrant and SEI Financial Services Company. (Incorporated by reference to Exhibit (6)(b) to Post-Effective Amendment No. 21.) (6) (c) Form of Dealer Agreement. (Incorporated by reference to Exhibit (6)(c) to Post-Effective Amendment No. 21.) (7) Not applicable. (8) (a) Custodian Agreement dated September 20, 1993, between Registrant and First Trust National Association, as supplemented through August 1994. (Incorporated by reference to Exhibit (8) to Post-Effective Amendment No. 18.) * (8) (b) Compensation Agreement dated as of June 1, 1995, pursuant to Custodian Agreement. (9) (a) Administration Agreement dated as of January 1, 1995 between Registrant and SEI Financial Management Corporation. (Incorporated by reference to Exhibit (9)(a) to Post-Effective Amendment No. 23.) (9) (b) Transfer Agency Agreement dated as of March 31, 1994, between Registrant and Supervised Service Company, Inc. (Incorporated by reference to Exhibit (9)(b) to Post-Effective Amendment No. 21.) * (9) (c) Assignment of Transfer Agency Agreement to DST Systems, Inc. (10) (a) Opinion and Consent of D'Ancona & Pflaum dated November 10, 1987. (Incorporated by reference to Exhibit (10)(a) to Post-Effective Amendment No. 21.) (10) (b) Opinion and Consent of Dorsey & Whitney. (Incorporated by reference to Exhibit (10)(a) to Post-Effective Amendment No. 15.) * (11) (a) Consent of KPMG Peat Marwick LLP (11) (b) Opinion and Consent of Dorsey & Whitney dated November 25, 1991. (Incorporated by reference to Exhibit (11)(b) to Post-Effective Amendment No. 21.) (12) Not applicable. * (13) Investment Letter for Initial Shares of Health Sciences Fund. (14) Individual Retirement Plan Materials. (Incorporated by reference to Exhibit (14) to Post-Effective Amendment No. 21.) (15) (a) Form of Distribution Plan [Class A]. (Incorporated by reference to Exhibit (15)(a) to Post-Effective Amendment No. 21.) (15) (b) Class B Distribution Plan. (Incorporated by reference to Exhibit (15)(b) to Post-Effective Amendment No. 21.) (15) (c) Service Plan [Class B]. (Incorporated by reference to Exhibit (15)(c)) to Post-Effective Amendment No. 21.) * (16) Schedule for Computation of Performance Calculations. * (17) Financial Data Schedule meeting the requirements of Rule 483. (18) Multiple Class Plan Pursuant to Rule 18f-3. (Incorporated by reference to Exhibit (18) to Post-Effective Amendment No. 23.) (19) Powers of Attorney of Directors Dayton, Eastman, Fish, Kedrowski, Strauss, Stringer and Veit. (Incorporated by reference to Exhibit (19) to Post-Effective Amendment No. 21.) * Filed herewith. Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT None. ITEM 26. NUMBER OF HOLDERS OF SECURITIES The following table sets forth the number of holders of shares of each series of Common Stock of the Registrant as of October 31, 1995: NUMBER OF RECORD HOLDERS FUND CLASS A CLASS B CLASS C Stock Fund................................... 1,581 1,026 26 Equity Index Fund............................ 241 116 3 Balanced Fund................................ 1,595 429 5 Asset Allocation Fund........................ 118 74 3 Equity Income Fund........................... 156 135 3 Diversified Growth Fund...................... 266 148 4 Emerging Growth Fund......................... 63 59 3 Regional Equity Fund......................... 1,830 1,204 6 Special Equity Fund.......................... 1,681 751 4 Technology Fund.............................. 338 357 6 International Fund........................... 125 75 4 Real Estate Securities Fund.................. 2 3 1 Health Sciences Fund......................... 0 0 0 Limited Term Income Fund..................... 191 0 3 Intermediate Term Income Fund................ 192 0 3 Fixed Income Fund............................ 560 410 50 Intermediate Government Bond Fund............ 190 0 3 Intermediate Tax Free Fund................... 46 0 2 Minnesota Insured Intermediate Tax Free Fund.............................. 72 0 2 Colorado Intermediate Tax Free Fund.......... 75 0 2 ITEM 27. INDEMNIFICATION The first four paragraphs of Item 27 of Part C of Pre-Effective Amendment No. 1 to the Registrant's Registration Statement on Form N-1A, dated November 27, 1987, are incorporated herein by reference. On February 18, 1988 the indemnification provisions of the Maryland General Corporation Law (the "Law") were amended to permit, among other things, corporations to indemnify directors and officers unless it is proved that the individual (1) acted in bad faith or with active and deliberate dishonesty, (2) actually received an improper personal benefit in money, property or services, or (3) in the case of a criminal proceeding, had reasonable cause to believe that his act or omission was unlawful. The Law was also amended to permit corporations to indemnify directors and officers for amounts paid in settlement of stockholders' derivative suits. The Registrant undertakes that no indemnification or advance will be made unless it is consistent with Sections 17(h) or 17(i) of the Investment Company Act of 1940, as now enacted or hereafter amended, and Securities and Exchange Commission rules, regulations, and releases (including, without limitation, Investment Company Act of 1940 Release No. 11330, September 2, 1980). Insofar as the indemnification for liability arising under the Securities Act of 1933, as amended, may be permitted to directors, officers, and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in such Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit, or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933, as amended, and will be governed by the final adjudication of such issue. ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER Information on the business of the Registrant's investment adviser, First Bank National Association (the "Adviser"), is described in the section of the Registrant's Statement of Additional Information, filed as part of this Registration Statement, entitled "Investment Advisory and Other Services." The directors and officers of the Adviser are listed below, together with their principal occupation or other positions of a substantial nature during the past two fiscal years.
OTHER POSITIONS AND OFFICES NAME POSITIONS AND OFFICES WITH ADVISER AND PRINCIPAL BUSINESS ADDRESS John F. Grundhofer Chairman, President and Chief Chairman, President and Chief Executive Officer Executive Officer of First Bank System, Inc. ("FBS").* Richard A. Zona Director, Vice Chairman and Chief Vice Chairman and Chief Financial Officer Officer of FBS.* William F. Farley Director and Vice Chairman Vice Chairman and Head of the Distribution Group of FBS.* Philip G. Heasley Director and Executive Vice President Vice Chairman and Head of the Product Group of FBS.* Daniel C. Rohr Director and Executive Vice President Executive Vice President Commercial Banking of FBS.* J. Robert Hoffman Director and Executive Vice President Executive Vice President Credit Administration of FBS.* Lee R. Mitau Director, Executive Vice President and Executive Vice President, Secretary, Secretary and General Counsel of FBS; prior to October 1995 partner in Dorsey & Whitney P.L.L.P.*
* Address: First Bank Place, 601 Second Avenue South, Minneapolis, Minnesota 55402. ITEM 29. PRINCIPAL UNDERWRITERS (a) Furnish the name of each investment company (other than the Registrant) for which each principal underwriter currently distributing securities of the Registrant also acts as a principal under-writer, distributor or investment adviser: Registrant's distributor, SEI Financial Services Company ("SFS") acts as distributor for SEI Liquid Asset Trust, SEI Daily Income Trust, SEI Tax Exempt Trust, SEI Index Funds, SEI Institutional Managed Trust, SEI International Trust, Stepstone Funds, The Compass Capital Group of Funds, FFB Lexicon Funds, The Advisors' Inner Circle Fund, Pillar Funds, CUFund, STI Classic Funds, CoreFunds, Inc., First American Funds, Inc., The Arbor Fund, 1784 Funds, Marquis Funds, Morgan Grenfell Investment Trust, The PBHG Funds, Inc., Inventor Funds, Inc., The Achievement Funds Trust, Insurance Investment Products Trust, Bishop Street Funds, CrestFunds, Inc., Conestoga Family of Funds, STI Classic Variable Trust, and ARK Funds pursuant to distribution agreements dated November 29, 1982, July 15, 1982, December 3, 1982, July 10, 1985, January 22, 1987, August 30, 1988, January 30, 1991, March 8, 1991, October 18, 1991, November 14, 1991, February 28, 1992, May 1, 1992, May 29, 1992, October 30, 1992, November 1, 1992, January 28, 1993, June 1, 1993, August 17, 1993, January 3, 1994, August 1, 1994, December 27, 1994, December 30, 1994, January 27, 1995, March 1, 1995, May 1, 1995, August 18, 1995, and November 1, 1995, respectively. SFS provides numerous financial services to investment managers, pension plan sponsors, and bank trust departments. These services include portfolio evaluation, performance measurement, and consulting services ("Funds Evaluation") and automated execution, clearing and settlement of securities transactions ("MarketLink"). (b) Furnish the information required by the following table with respect to each director, officer or partner of each principal underwriter named in the answer to Item 21 of Part B. Unless otherwise noted, the business address of each director or officer is 680 East Swedesford Road, Wayne, Pennsylvania 19087.
NAME POSITIONS AND OFFICES WITH UNDERWRITER POSITIONS AND OFFICES WITH REGISTRANT Alfred P. West, Jr. Director, Chairman & Chief -- Executive Officer Henry H. Greer Director, President & Chief -- Operating Officer Carmen V. Romeo Director, Executive Treasurer, Assistant Secretary Vice President & Treasurer Gilbert L. Beebower Executive Vice President -- Carl A. Guarino Senior Vice President -- Richard B. Lieb Executive Vice President -- Charlie Marsh Executive Vice President -- -- Capital Resources Division Leo J. Dolan, Jr. Senior Vice President -- Peter Giegoldt Senior Vice President -- Jerome Hickey Senior Vice President -- David Lee Senior Vice President President William Madden Senior Vice President -- A. Keith McDowell Senior Vice President -- Dennis J. McGonigle Senior Vice President -- Hartland J. McKeown Senior Vice President -- James V. Morris Senior Vice President -- Steve Onofrio Senior Vice President -- Kevin P. Robins Senior Vice President, Vice President & Assistant Secretary General Counsel & Secretary Robert Wagner Senior Vice President -- Patrick K. Walsh Senior Vice President -- Kenneth Zimmer Senior Vice President -- Robert Crudup Managing Director -- Ward Curtis Managing Director -- Jeff Drennan Managing Director -- Victor Galef Managing Director -- Michael Howard Managing Director -- Lawrence Hutchison Managing Director -- Kim Kirk Managing Director -- John Krzeminski Managing Director -- Carolyn McLaurin Managing Director -- Barbara Moore Managing Director -- Donald Pepin Managing Director -- Mark Samuels Managing Director -- Wayne M. Withrow Managing Director -- Robert S. Ludwig Team Leader -- Vicki Rainsford Team Leader -- Chris Schwartz Team Leader -- Robert Aller Vice President -- Charles Baker Vice President -- Steve Bendinelli Vice President -- Gordon W. Carpenter Vice President -- Robert B. Carroll Vice President & Assistant Secretary Vice President & Assistant Secretary Ed Daly Vice President -- Lucinda Duncalte Vice President -- Michael Kantor Vice President -- Samuel King Vice President -- Donald H. Korytowski Vice President -- Jack May Vice President -- Matt Mille Vice President -- David O'Donovan Vice President -- Sandra K. Orlow Vice President & Assistant Secretary Vice President & Assistant Secretary Kim Rainey Vice President -- David Ray Vice President -- Paul Sachs Vice President -- Steve Smith Vice President -- Kathryn L. Stanton Vice President & Assistant Secretary Vice President & Assistant Secretary Joseph Velez Vice President -- David Wheeler Vice President -- William Zawaski Vice President -- James Dougherty Director, Brokerage Services --
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
LOCATION OF TYPE OF REGULATION RECORD RECORD FUND 270.31a-1(a) 2 General Ledger B 2 Cash Transaction Statement D 2 Monthly Cash Summary Report M 2 Purchases Report D 2 Sales Report D 2 Realized Gain/Loss Report D 2 Securities Movement and Control List of Assets for Close of Business B 270.31a-1(b)(1) 2 Daily Portfolio Transaction Detail D 2 Daily Settled Purchase and Sales Journal D 2 Money Market Monthly Transaction Journal M 2 Money Market General Ledger Activity Journal M 270.31a-1(b)2(i) 2 General Ledger B 2 Money Market General Ledger Activity Journal M 2 Open Trades/Secs. Out for Transfer Report D 2 Securities Movement and Control List of Assets for Close of Business B 2 Federal Reserve 3E Safe-Keeping Acct. Listing of Securities held by the Fund B 2 Div. Income Summary Report D 2 Div. and Interest Receivable Report D 2 Earned Income Report B 2 Money Market Daily Accrual Report M 2 Money Market Daily Amortization Report M 2 Statement of Condition B 270.31a-1(b)2(ii) 2 Fund Master Ledger D 2 Corporate Action Announcement Report D 2 Purchases Report D 2 Sales Report D 270.31a-1(b)2(iii) 2 Brokerage Alloc/Commission Detail Report D 270.31a-1(b)2(iv) 1 Shareholder Master File-- CRT B 1 Shareholder History File-- CRT B 270.31a-1(b)3 2 Fund Master Ledger D 270.31a-1(b)4 1 Articles of Incorporation B 1 Declaration of Trust B 1 By-Laws B 1 Minute Books B 270.31a-1(b)5 1 Trade Tickets B 2 Purchase Report D 2 Sales Report D 270.31a-1(b)5 1 Trade Tickets B 2 Purchase Report D 2 Sales Report D 270.31a-1(b)6 1 Trade Tickets B 270.31a-1(b)7 2 Fund Master Ledger D 270.31a-1(b)8 2 Statement of Condition B 2 General Ledger B 2 Money Market General Ledger Activity Journal M 270.31a-1(b)9 2 Brokerage Alloc./Commission Detail Report D 1 Brokerage Commission Report B 1 Reduction and Commission Report D 1 Quarterly Brokerage Log B 270.31a-1(b)10 1 Custodian Blanket Authorization B 1 Portfolio Manager Signoff B 270.31a-1(b)11 1 Portfolio Manager Signoff B 270.31a-1(b)12 2 All supporting documentation B 270.31a-1(c) Not applicable 270.31a-1(d) 1 Director Payments thru Fund Journal B 1 Exchange Purchase Journal B 1 Confirmed Payments Journal B 1 Fiduciary Contribution Journal B 1 Direct Payments Journal B 1 Direct Redemptions Journal B 2 General Ledger B 1 Shareholder Master File -- CRT B 1 Shareholder History File -- CRT B 1 Daily Div. Close-out Journal B 1 Asset Transfer/Rollover Journal B 1 Redemption Check Register B 1 Purchase Cancellations Journal B 1 Redemption Cancellation Journal B 1 Fail/Free Report B 1 Broker/Dealer Order Ticket B 1 Inv. Services Order Breakdowns B 1 EDGE Transaction Journal B 1 Shareholder Receipt -- Retail B 1 Account Application -- Retail B 1 Additional Deposit Slip -- Retail B 1 Trade Cancel Form B 1 Confirmation Statement B 1 Shareholder Statement B 1 Form U-4 B 1 Fingerprint Card B 1 Form U-4 Status Report B 1 Form U-4 Score Report B 1 Form U-5 B 270.31a-1(e) Not applicable 270.31a-1(f) 2 General Ledger B 1 Portfolio Manager Signoff B 1 Trade Tickets B 270.31a-2(a)(1) 2 Daily Portfolio Transaction Detail D 2 Daily Settled Pur. and Sales Journal D 2 Money Market Monthly Transaction Journal M 2 Money Market General Ledger Activity Journal M 2 Open Trades/Secs. Out for Transfer Report D 2 Securities Movement and Control List of Assets for Close of Business B 2 Fed. Reserve 3E Safe-Keeping Acct. Listing of Securities held by the Fund B 270.31a-2(a)(1) 2 Div. Income Summary Report D 2 Div. and Interest Receivable Report D 2 Earned Income Report B 2 Money Market Daily Accrual Report M 2 Money Market Daily Amortization Report M 2 Statement of Condition B 2 Fund Master Ledger D 2 Corporate Action Announcement Report D 2 Brokerage Alloc./Commission Detail Report D 1 Shareholder Master File -- CRT B 1 Shareholder History File -- CRT B 1 Declaration of Trust B 1 By-laws B 1 Minute Books B 270.31a-2(a)(2) 2 Purchases Report D 2 Sales Report D 2 General Ledger B 2 Money Market General Ledger Activity Journal M 2 Statement of Condition B 2 Fund Master Ledger D 2 Brokerage Alloc./Commission Detail Report D 1 Trade Tickets B 1 Brokerage Commission Report B 1 Reduction and Commission Report D 1 Quarterly Brokerage Log B 1 Custodian Blanket Authorization B 1 Portfolio Manager Signoff B 270.31a-2(a)(3) 1 Sales Literature File B 270.31a-2(b) Not applicable 270.31a-2(c) 1 Director Payments thru Fund Journal B 1 Exchange Purchase Journal B 1 Confirmed Payments Journal B 1 Fiduciary Contribution Journal B 1 Direct Payments Journal B 1 Direct Redemptions Journal B 2 General Ledger B 1 Shareholder Master File -- CRT B 1 Shareholder History File -- CRT B 1 Daily Div. Close-Out Journal B 1 Asset Transfer/Rollover Journal B 1 Redemption Check Register B 1 Purchase Cancellations Journal B 1 Redemption Cancellation Journal B 1 Fail/Free Report B 1 Broker/Dealer Order Ticket B 1 Inv. Services Order Breakdowns B 1 EDGE Transaction Journal B 1 Shareholder Receipt -- Retail B 1 Account Application -- Retail B 1 Additional Deposit Slip -- Retail B 1 Trade Cancel Form B 270.31a-2(c) 1 Confirmation Statement B 1 Shareholder Statement B 1 Form U-4 B 1 Fingerprint Card B 1 Form U-4 Status Report B 1 Form U-4 Score Report B 1 Form U-5 B 270.31a-2(d) Not applicable 270.31a-2(e) 2 General Ledger B 1 Portfolio Manager Signoff B 1 Trade Tickets B 270.31a-2(f)(1) 1 Microfilm B 270.31a-2(f)(2) 1 Retention Plan B 270.31a-2(f)(3) Not applicable 270.31a-3 1 Custodian Agreement B
(1) SEI Financial Management Corporation and SEI Financial Services Company 680 East Swedesford Road Wayne, Pennsylvania 19087-1658 (2) First Trust National Association 180 East Fifth Street St. Paul, Minnesota 55101 B = Both D = Debt Equity M = Money Market ITEM 31. MANAGEMENT SERVICES Not applicable. ITEM 32. UNDERTAKINGS Registrant undertakes to call a meeting of shareholders for the purpose of voting upon the question of removal of a Director(s) when requested in writing to do so by the holders of at least 10% of Registrant's outstanding shares and in connection with such meetings to comply with the provisions of Section 16(c) of the Investment Company Act of 1940 relating to shareholder communications. Registrant, on behalf of Health Sciences Fund, undertakes to file a post-effective amendment, using financial statements which need not be certified, within four to six months from the date such fund commences operations. Registrant undertakes to furnish each person to whom a prospectus is delivered with a copy of the Registrant's latest annual report to shareholders, upon request and without charge. SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, as amended, the Registrant certifies that it has duly caused this Post-Effective Amendment to Registration Statement No. 33-16905 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Wayne, Commonwealth of Pennsylvania, on the 15th day of November, 1995. FIRST AMERICAN INVESTMENT FUNDS, INC. ATTEST: /s/ Stephen G. Meyer By: /s/ David Lee Stephen G. Meyer David Lee, President Pursuant to the requirements of the Securities Act of 1933, this Amendment to the Registration Statement has been signed below by the following persons in the capacity and on the dates indicated. SIGNATURE TITLE DATE /s/ Stephen G. Meyer Controller (Principal ** Stephen G. Meyer Financial and Accounting Officer) * Director ** Robert J. Dayton * Director ** Welles B. Eastman * Director ** Irving D. Fish * Director ** Leonard W. Kedrowski * Director ** Joseph D. Strauss * Director ** Virginia L. Stringer * Director ** Gae B. Veit * By: /s/ David Lee David Lee Attorney in Fact ** November 15, 1995. EX-1.B 2 EXHIBIT (1)(b) 5/95 FIRST AMERICAN INVESTMENT FUNDS, INC. ARTICLES SUPPLEMENTARY First American Investment Funds, Inc., a corporation organized under the laws of the State of Maryland (the "Corporation"), does hereby file for record with the State Department of Assessments and Taxation of Maryland the following Articles Supplementary to its Articles of Incorporation: FIRST: The Corporation is registered as an open-end investment company under the Investment Company Act of 1940 (the "1940 Act"). As hereinafter set forth, the Corporation has classified its authorized capital stock in accordance with the Maryland General Corporation Law. SECOND: Immediately before the classifications hereinafter set forth, the Corporation had authority to issue two hundred billion (200,000,000,000) shares of common stock (individually, a "Share" and collectively, the "Shares"), of the par value of $.0001 per Share and of the aggregate par value of twenty million dollars ($20,000,000), classified as follows: (1) Class A Common Shares (formerly referred to as "government bond fund shares"): Two billion (2,000,000,000) Shares. (2) Class A, Series 2 Common Shares: Two billion (2,000,000,000) Shares. (3) Class A, Series 3 Common Shares: Two billion (2,000,000,000) Shares. (4) Class B Common Shares (formerly referred to as "fixed income fund shares"): Two billion (2,000,000,000) Shares. (5) Class B, Series 2 Common Shares: Two billion (2,000,000,000) Shares. (6) Class B, Series 3 Common Shares: Two billion (2,000,000,000) Shares. (7) Class C Common Shares (formerly referred to as "municipal bond fund shares"): Two billion (2,000,000,000) Shares. (8) Class C, Series 2 Common Shares: Two billion (2,000,000,000) Shares. (9) Class C, Series 3 Common Shares: Two billion (2,000,000,000) Shares. (10) Class D Common Shares (formerly referred to as "stock fund shares"): Two billion (2,000,000,000) Shares. (11) Class D, Series 2 Common Shares: Two billion (2,000,000,000) Shares. (12) Class D, Series 3 Common Shares: Two billion (2,000,000,000) Shares. (13) Class E Common Shares (formerly referred to as "special equity fund shares"): Two billion (2,000,000,000) Shares. (14) Class E, Series 2 Common Shares: Two billion (2,000,000,000) Shares. (15) Class E, Series 3 Common Shares: Two billion (2,000,000,000) Shares. (16) Class F Common Shares (formerly referred to as "asset allocation fund shares"): Two billion (2,000,000,000) Shares. (17) Class F, Series 2 Common Shares: Two billion (2,000,000,000) Shares. (18) Class F, Series 3 Common Shares: Two billion (2,000,000,000) Shares. (19) Class G Common Shares (formerly referred to as "balanced fund shares"): Two billion (2,000,000,000) Shares. (20) Class G, Series 2 Common Shares: Two billion (2,000,000,000) Shares. (21) Class G, Series 3 Common Shares: Two billion (2,000,000,000) Shares. (22) Class H Common Shares (formerly referred to as "equity index fund shares"): Two billion (2,000,000,000) Shares. (23) Class H, Series 2 Common Shares: Two billion (2,000,000,000) Shares. (24) Class H, Series 3 Common Shares: Two billion (2,000,000,000) Shares. (25) Class I Common Shares (formerly referred to as "intermediate term income fund shares"): Two billion (2,000,000,000) Shares. (26) Class I, Series 2 Common Shares: Two billion (2,000,000,000) Shares. (27) Class I, Series 3 Common Shares: Two billion (2,000,000,000) Shares. (28) Class J Common Shares (formerly referred to as "limited term income fund shares"): Two billion (2,000,000,000) Shares. (29) Class J, Series 2 Common Shares: Two billion (2,000,000,000) Shares. (30) Class J, Series 3 Common Shares: Two billion (2,000,000,000) Shares. (31) Class K Common Shares (formerly referred to as "mortgage securities fund shares"): Two billion (2,000,000,000) Shares. (32) Class K, Series 2 Common Shares: Two billion (2,000,000,000) Shares. (33) Class K, Series 3 Common Shares: Two billion (2,000,000,000) Shares. (34) Class L Common Shares (formerly referred to as "regional equity fund shares"): Two billion (2,000,000,000) Shares. (35) Class L, Series 2 Common Shares: Two billion (2,000,000,000) Shares. (36) Class L, Series 3 Common Shares: Two billion (2,000,000,000) Shares. (37) Class M Common Shares: Two billion (2,000,000,000) Shares. (38) Class M, Series 2 Common Shares: Two billion (2,000,000,000) Shares. (39) Class M, Series 3 Common Shares: Two billion (2,000,000,000) Shares. (40) Class N Common Shares: Two billion (2,000,000,000) Shares. (41) Class N, Series 2 Common Shares: Two billion (2,000,000,000) Shares. (42) Class N, Series 3 Common Shares: Two billion (2,000,000,000) Shares. (43) Class O Common Shares: Two billion (2,000,000,000) Shares. (44) Class O, Series 2 Common Shares: Two billion (2,000,000,000) Shares. (45) Class O, Series 3 Common Shares: Two billion (2,000,000,000) Shares. (46) Class P Common Shares: Two billion (2,000,000,000) Shares. (47) Class P, Series 2 Common Shares: Two billion (2,000,000,000) Shares. (48) Class P, Series 3 Common Shares: Two billion (2,000,000,000) Shares. (49) Class Q Common Shares: Two billion (2,000,000,000) Shares. (50) Class Q, Series 2 Common Shares: Two billion (2,000,000,000) Shares. (51) Class Q, Series 3 Common Shares: Two billion (2,000,000,000) Shares. (52) Class R Common Shares: Two billion (2,000,000,000) Shares. (53) Class R, Series 2 Common Shares: Two billion (2,000,000,000) Shares. (54) Class R, Series 3 Common Shares: Two billion (2,000,000,000) Shares. (55) Class S Common Shares: Two billion (2,000,000,000) Shares. (56) Class S, Series 2 Common Shares: Two billion (2,000,000,000) Shares. (57) Class S, Series 3 Common Shares: Two billion (2,000,000,000) Shares. (58) Class T Common Shares: Two billion (2,000,000,000) Shares. (59) Class T, Series 2 Common Shares: Two billion (2,000,000,000) Shares. (60) Class T, Series 3 Common Shares: Two billion (2,000,000,000) Shares. (61) Class U Common Shares: Two billion (2,000,000,000) Shares. (62) Class U, Series 2 Common Shares: Two billion (2,000,000,000) Shares. (63) Class U, Series 3 Common Shares: Two billion (2,000,000,000) Shares. (64) Unclassified Shares: Seventy-four billion (74,000,000,000) Shares. THIRD: Pursuant to the authority contained in Article IV of the Articles of Incorporation of the Corporation and Section 2-208 of the Maryland General Corporation Law, the Board of Directors of the Corporation, by resolution adopted at a meeting held on March 6, 1995, classified the following additional Shares out of the authorized, unissued and unclassified Shares of the Corporation: (1) Class V Common Shares: Two billion (2,000,000,000) Shares. (2) Class V, Series 2 Common Shares: Two billion (2,000,000,000) Shares. (3) Class V, Series 3 Common Shares: Two billion (2,000,000,000) Shares. FOURTH: The Shares classified pursuant to THIRD above shall have the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption, set forth in the Corporation's Articles of Incorporation. Any Class or Series of Shares classified pursuant to THIRD above may be subject to such charges and expenses (including by way of example, but not by way of limitation, such front-end and deferred sales charges as may be permitted under the 1940 Act and rules of the National Association of Securities Dealers, Inc. ("NASD"), expenses under Rule 12b-1 plans, administration plans, service plans, or other plans or arrangements, however designated) adopted from time to time by the Board of Directors of the Corporation in accordance, to the extent applicable, with the 1940 Act, and all of the charges and expenses to which such a Class or Series is subject shall be borne by such Class or Series and shall be appropriately reflected (in the manner determined by the Board of Directors) in determining the net asset value and the amounts payable with respect to dividends and distributions on and redemptions or liquidations of, the Shares of such Class or Series. FIFTH: Immediately after the classifications hereinbefore set forth and upon filing for record of these Articles Supplementary, the Corporation has authority to issue two hundred billion (200,000,000,000) shares of common stock (individually, a "Share" and collectively, the "Shares"), of the par value of $.0001 per Share and of the aggregate par value of twenty million dollars ($20,000,000), classified as follows: (1) Class A Common Shares (formerly referred to as "government bond fund shares"): Two billion (2,000,000,000) Shares. (2) Class A, Series 2 Common Shares: Two billion (2,000,000,000) Shares. (3) Class A, Series 3 Common Shares: Two billion (2,000,000,000) Shares. (4) Class B Common Shares (formerly referred to as "fixed income fund shares"): Two billion (2,000,000,000) Shares. (5) Class B, Series 2 Common Shares: Two billion (2,000,000,000) Shares. (6) Class B, Series 3 Common Shares: Two billion (2,000,000,000) Shares. (7) Class C Common Shares (formerly referred to as "municipal bond fund shares"): Two billion (2,000,000,000) Shares. (8) Class C, Series 2 Common Shares: Two billion (2,000,000,000) Shares. (9) Class C, Series 3 Common Shares: Two billion (2,000,000,000) Shares. (10) Class D Common Shares (formerly referred to as "stock fund shares"): Two billion (2,000,000,000) Shares. (11) Class D, Series 2 Common Shares: Two billion (2,000,000,000) Shares. (12) Class D, Series 3 Common Shares: Two billion (2,000,000,000) Shares. (13) Class E Common Shares (formerly referred to as "special equity fund shares"): Two billion (2,000,000,000) Shares. (14) Class E, Series 2 Common Shares: Two billion (2,000,000,000) Shares. (15) Class E, Series 3 Common Shares: Two billion (2,000,000,000) Shares. (16) Class F Common Shares (formerly referred to as "asset allocation fund shares"): Two billion (2,000,000,000) Shares. (17) Class F, Series 2 Common Shares: Two billion (2,000,000,000) Shares. (18) Class F, Series 3 Common Shares: Two billion (2,000,000,000) Shares. (19) Class G Common Shares (formerly referred to as "balanced fund shares"): Two billion (2,000,000,000) Shares. (20) Class G, Series 2 Common Shares: Two billion (2,000,000,000) Shares. (21) Class G, Series 3 Common Shares: Two billion (2,000,000,000) Shares. (22) Class H Common Shares (formerly referred to as "equity index fund shares"): Two billion (2,000,000,000) Shares. (23) Class H, Series 2 Common Shares: Two billion (2,000,000,000) Shares. (24) Class H, Series 3 Common Shares: Two billion (2,000,000,000) Shares. (25) Class I Common Shares (formerly referred to as "intermediate term income fund shares"): Two billion (2,000,000,000) Shares. (26) Class I, Series 2 Common Shares: Two billion (2,000,000,000) Shares. (27) Class I, Series 3 Common Shares: Two billion (2,000,000,000) Shares. (28) Class J Common Shares (formerly referred to as "limited term income fund shares"): Two billion (2,000,000,000) Shares. (29) Class J, Series 2 Common Shares: Two billion (2,000,000,000) Shares. (30) Class J, Series 3 Common Shares: Two billion (2,000,000,000) Shares. (31) Class K Common Shares (formerly referred to as "mortgage securities fund shares"): Two billion (2,000,000,000) Shares. (32) Class K, Series 2 Common Shares: Two billion (2,000,000,000) Shares. (33) Class K, Series 3 Common Shares: Two billion (2,000,000,000) Shares. (34) Class L Common Shares (formerly referred to as "regional equity fund shares"): Two billion (2,000,000,000) Shares. (35) Class L, Series 2 Common Shares: Two billion (2,000,000,000) Shares. (36) Class L, Series 3 Common Shares: Two billion (2,000,000,000) Shares. (37) Class M Common Shares: Two billion (2,000,000,000) Shares. (38) Class M, Series 2 Common Shares: Two billion (2,000,000,000) Shares. (39) Class M, Series 3 Common Shares: Two billion (2,000,000,000) Shares. (40) Class N Common Shares: Two billion (2,000,000,000) Shares. (41) Class N, Series 2 Common Shares: Two billion (2,000,000,000) Shares. (42) Class N, Series 3 Common Shares: Two billion (2,000,000,000) Shares. (43) Class O Common Shares: Two billion (2,000,000,000) Shares. (44) Class O, Series 2 Common Shares: Two billion (2,000,000,000) Shares. (45) Class O, Series 3 Common Shares: Two billion (2,000,000,000) Shares. (46) Class P Common Shares: Two billion (2,000,000,000) Shares. (47) Class P, Series 2 Common Shares: Two billion (2,000,000,000) Shares. (48) Class P, Series 3 Common Shares: Two billion (2,000,000,000) Shares. (49) Class Q Common Shares: Two billion (2,000,000,000) Shares. (50) Class Q, Series 2 Common Shares: Two billion (2,000,000,000) Shares. (51) Class Q, Series 3 Common Shares: Two billion (2,000,000,000) Shares. (52) Class R Common Shares: Two billion (2,000,000,000) Shares. (53) Class R, Series 2 Common Shares: Two billion (2,000,000,000) Shares. (54) Class R, Series 3 Common Shares: Two billion (2,000,000,000) Shares. (55) Class S Common Shares: Two billion (2,000,000,000) Shares. (56) Class S, Series 2 Common Shares: Two billion (2,000,000,000) Shares. (57) Class S, Series 3 Common Shares: Two billion (2,000,000,000) Shares. (58) Class T Common Shares: Two billion (2,000,000,000) Shares. (59) Class T, Series 2 Common Shares: Two billion (2,000,000,000) Shares. (60) Class T, Series 3 Common Shares: Two billion (2,000,000,000) Shares. (61) Class U Common Shares: Two billion (2,000,000,000) Shares. (62) Class U, Series 2 Common Shares: Two billion (2,000,000,000) Shares. (63) Class U, Series 3 Common Shares: Two billion (2,000,000,000) Shares. (64) Class V Common Shares: Two billion (2,000,000,000) Shares. (65) Class V, Series 2 Common Shares: Two billion (2,000,000,000) Shares. (66) Class V, Series 3 Common Shares: Two billion (2,000,000,000) Shares. (67) Unclassified Shares: Sixty-eight billion (68,000,000,000) Shares. SIXTH: The aforesaid action by the Board of Directors of the Corporation was taken pursuant to authority and power contained in the Articles of Incorporation of the Corporation. IN WITNESS WHEREOF, the Corporation has caused these Articles Supplementary to be signed in its name and on its behalf by its Vice President and witnessed by its Secretary on June 14, 1995. First American Investment Funds, Inc. By /s/ Keith L. Stewart Its Vice President WITNESS: /s/ Michael J. Radmer Michael J. Radmer, Secretary The abovesigned, Vice President of First American Investment Funds, Inc. who executed on behalf of said corporation, the foregoing Articles Supplementary, of which this certificate is made a part, hereby acknowledges, in the name and on behalf of said corporation, the foregoing Articles Supplementary to be the corporate act of said corporation and further certifies that, to the best of his knowledge, information and belief, the matters and facts set forth therein with respect to the approval thereof are true in all material respects, under the penalties of perjury. EX-2 3 EXHIBIT (2) NAME CHANGE FROM "SECURAL MUTUAL FUNDS, INC." TO "FIRST AMERICAN INVESTMENT FUNDS, INC." APPROVED AT BOARD OF DIRECTORS' MEETINGS ON FEBRUARY 12, 1991; AMENDMENT ADDING NEW SECTION 8 TO ARTICLE I APPROVED AT BOARD OF DIRECTORS' MEETINGSON DECEMBER 15, 1992; AMENDMENTS TO ARTICLE III APPROVED AT BOARD OF DIRECTORS' MEETINGS ON SEPTEMBER 7, 1993; AMENDMENT ADDING NEW SECTION 3 TO ARTICLE V APPROVED AT BOARD OF DIRECTORS' MEETING ON DECEMBER 7, 1993; AMENDMENT TO ARTCLE V, SECTION 3 CHANGING FUND NAMES APPROVED AT BOARD OF DIRECTORS' MEETING ON MARCH 7, 1994; AMENDMENT TO ARTICLE V, SECTION 3 PROVIDING FOR NAMES OF NEW CLASSES AND SERIES APPROVED AT BOARD OF DIRECTORS MEETING ON JUNE 8, 1994; AMENDMENT TO ARTICLE V, SECTION 3 PROVIDING FOR NAMES OF NEW CLASSES AND SERIES APPROVED AT BOARD OF DIRECTORS MEETING ON DECEMBER 7, 1994; AMENDMENT TO ARTICLE V, SECTION 3 PROVIDING FOR NAMES OF NEW CLASSES AND SERIES APPROVED AT BOARD OF DIRECTORS MEETING ON MARCH 6, 1995. BYLAWS OF FIRST AMERICAN INVESTMENT FUNDS, INC. (A MARYLAND CORPORATION) ARTICLE I STOCKHOLDERS SECTION 1. Meetings. Annual or special meetings of stockholders may be held on such date and at such time as shall be set or provided for by the Board of Directors or, if not so set or provided for, then as stated in the notice of meeting. The notice of meeting shall state the purpose or purposes for which the meeting is called. SECTION 2. Place of Meetings. All meetings of stockholders shall be held at such place in the United States as is set or provided for by the Board of Directors or, if not so set or provided for, then as stated in the notice of meeting. SECTION 3. Organization. At any meeting of the stockholders, in the absence of the Chairman of the Board of Directors, if any, and of the President or a Vice President acting in his stead, the stockholders shall choose a chairman to preside over the meeting. In the absence of the Secretary or an Assistant Secretary, acting in his stead, the chairman of the meeting shall appoint a secretary to keep the record of all the votes and minutes of the proceedings. SECTION 4. Proxies. At any meeting of the stockholders, every stockholder having the right to vote shall be entitled to vote in person or by proxy appointed by an instrument executed in writing by such stockholder or his duly authorized attorney-in-fact and bearing a date not more than eleven (11) months prior to said meeting, unless otherwise provided in the proxy. SECTION 5. Voting. At any meeting of the stockholders, every stockholder shall be entitled to one vote or a fractional vote on each matter submitted to a vote for each share or fractional share of stock standing in his name on the books of the Corporation as of the close of business on the record date for such meeting. Unless the voting is conducted by inspectors, all questions relating to the qualifications of voters, validity of proxies and acceptance or rejection of votes shall be decided by the chairman of the meeting. SECTION 6. Record Date; Closing of Transfer Books. The Board of Directors may fix, in advance, a date as the record date for the purpose of determining stockholders entitled to notice of, or to vote at, any meeting of stockholders, or stockholders entitled to receive payment of any dividend or the allotment of any rights, or in order to make a determination of stockholders for any other proper purpose. Such date, in any case, shall be not more than sixty days, and in case of a meeting of stockholders not less than ten days, prior to the date on which the particular action requiring such determination of stockholders is to be taken. In lieu of fixing a record date, the Board of Directors may provide that the stock transfer books shall be closed for a stated period but not to exceed, in any case, twenty days. If the stock transfer books are closed for the purpose of determining stockholders entitled to notice of or to vote at a meeting of stockholders, such books shall be closed for at least ten days immediately preceding such meeting. SECTION 7. Registered Stockholders. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof. SECTION 8. Calling of Special Meeting of Shareholders. A special meeting of stockholders shall be called upon the written request of the holders of shares entitled to cast not less than 10% of all votes entitled to vote at such meeting. ARTICLE II BOARD OF DIRECTORS SECTION 1. Number, Qualification, Tenure and Vacancies. The initial Board of Directors shall consist of five (5) directors. Except as hereinafter provided, a director shall be elected to serve until his successor shall be elected and shall qualify or until his earlier death, resignation, retirement or removal. The directors may at any time when the stockholders are not assembled in meeting, establish, increase or decrease their own number by majority vote of the entire Board of Directors; provided, that the number of directors shall never be less than three (3) nor more than twelve (12). The number of directors may not be decreased so as to affect the term of any incumbent director. If the number be increased, the additional directors to fill the vacancies thus created may, except as hereinafter provided, by elected by majority vote of the entire Board of Directors. Any vacancy occurring for any cause may be filled by a majority of the remaining members of the Board of Directors, although such majority is less than a quorum; provided, however, that after filling any vacancy for any cause whatsoever two-thirds (2/3) of the entire Board of Directors shall have been elected by the stockholders of the Corporation. A director elected under any circumstance shall be elected to hold office until his successor is elected and qualified, or until such director's earlier death, resignation, retirement or removal. SECTION 2. When Stockholder Meeting Required. If at any time less than a majority of the directors holding office were elected by the stockholders of the Corporation, the directors or the President or Secretary shall cause a meeting of stockholders to be held as soon as possible and, in any event, within sixty (60) days, unless extended by order of the Securities and Exchange Commission, for the purpose of electing directors to fill any vacancy. SECTION 3. Regular Meetings. Regular meetings of the Board of Directors may be held at such time and place as shall be determined from time to time by agreement or fixed by resolution of the Board of Directors. SECTION 4. Special Meetings. Special meetings of the Board of Directors may be called at any time by the Chairman of the Board or President and shall be called by the Secretary upon the written request of any two (2) directors. SECTION 5. Notice of Meetings. Except as otherwise provided in these Bylaws, notice need not be given of regular meetings of the Board of Directors held at times fixed by agreement or resolution of the Board of Directors. Notice of special meetings of the Board of Directors, stating the place, date and time thereof, shall be given not less than two (2) days before such meeting to each director. Notice to a director may be given personally, by telegram, cable or wireless, by telephone, by mail, or by leaving such notice at his place of residence or usual place of business. If mailed, such notice shall be deemed to be given when deposited in the United States mail, postage prepaid, directed to the director at his address as it appears on the records of the Corporation. Meetings may be held at any time without notice if all the directors are present, or if those not present waive notice of the meeting in writing. If the President shall determine in advance that a quorum would not be present on the date set for any regular or special meeting, such meeting may be held at such later date, time and place as he shall determine, upon at least twenty-four (24) hours' notice. SECTION 6. Quorum. A majority of the directors then in office, at a meeting duly assembled, but not less than one-third of the entire Board of Directors nor in any event less than two directors, shall constitute a quorum for the transaction of business. The vote of a majority of directors present at a meeting at which a quorum is present shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the Articles of Incorporation or by these Bylaws. If at any meeting of the Board of Directors, there shall be less than a quorum present, a majority of those present may adjourn the meeting, without further notice, from time to time until a quorum shall have been obtained. SECTION 7. Removal. At any meeting of stockholders, duly called and at which a quorum is present, the stockholders may, by the affirmative vote of the holders of a majority of the votes entitled to be cast thereon, remove any director or directors from office and may elect a successor or successors to fill any resulting vacancies. SECTION 8. Committees. The Board of Directors, may, by resolution adopted by a majority of the entire Board of Directors, from time to time appoint from among its members one or more committees as it may determine. Each committee appointed by the Board of Directors shall be composed of two (2) or more directors and may, to the extent provided in such resolution, have and exercise all the powers of the Board of Directors, except the power to declare dividends, to issue stock or to recommend to stockholders any action requiring stockholder approval. Each such committee shall serve at the pleasure of the Board of Directors. Each such committee shall keep a record of its proceedings and shall adopt its own rules of procedure. It shall make reports as may be required by the Board of Directors. ARTICLE III OFFICERS AND CHAIRMAN OF THE BOARD OF DIRECTORS SECTION 1. Offices. The elected officers of the Corporation shall be the President, the Secretary and the Treasurer, and may also include one or more Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers and such other officers as the Board of Directors may determine. Any two or more offices may be held by the same person, except that no person may hold both the office of President and the office of Vice President. A person who holds more than one office in the Corporation shall not act in more than one capacity to execute, acknowledge or verify an instrument required by law to be executed, acknowledged or verified by more than one officer. SECTION 2. Selection, Term of Office and Vacancies. The initial officers of the Corporation shall be elected by the Board of Directors at the first meeting of the Board of Directors. Additional officers may be elected at any regular or special meeting of the Board of Directors. Each officer shall serve at the pleasure of the Board of Directors or until his earlier death, resignation or retirement. If any office becomes vacant, the vacancy shall be filled by the Board of Directors. SECTION 3. Chairman of the Board. The Board of Directors may elect one of its members as Chairman of the Board. Except as otherwise provided in these Bylaws, in the event the Board of Directors elects a Chairman of the Board of Directors, he shall preside at all meetings of the stockholders and the Board of Directors and shall perform such other duties as from time to time may be assigned to him by the Board of Directors. The Chairman of the Board of Directors will under no circumstances be deemed to be an "officer" of the Corporation, and an individual serving as Chairman of the Board of Directors will not be deemed to be an "affiliated person" with respect to the Corporation (under the Investment Company Act of 1940, as amended) solely by virtue of such person's position as Chairman of the Board of Directors of the Corporation. SECTION 4. President. The president shall be the chair executive officer of the Corporation and shall perform such other duties as from time to time may be assigned to him by the Board of Directors. He shall perform the duties of the Chairman of the Board of Directors in the event there is no Chairman or in the event the Chairman is absent. SECTION 5. Vice Presidents. A Vice President shall perform such duties as may be assigned by the President or the Board of Directors. In the absence of the President and in accordance with such order of priority as may be established by the Board of Directors, he may perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. SECTION 6. Secretary. The Secretary shall (a) keep the minutes of the stockholders' and Board of Directors' meetings in one or more books provided for that purpose, and shall perform like duties for committees when requested, (b) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law, (c) be custodian of the corporate records and of the seal of the Corporation and see that the seal of the Corporation is affixed to all documents the execution of which on behalf of the Corporation under its seal is duly authorized or required by law, and (d) in general perform all duties incident to the office of Secretary and such other duties as may be assigned by the President or the Board of Directors. SECTION 7. Assistant Secretaries. One or more Assistant Secretaries may be elected by the Board of Directors or appointed by the President. In the absence of the Secretary and in accordance with such order as may be established by the Board of Directors, an Assistant Secretary shall have the power to perform his duties including the certification, execution and attestation of corporate records and corporate instruments. Assistant Secretaries shall perform such other duties as may be assigned to them by the President or the Board of Directors. SECTION 8. Treasurer. The Treasurer (a) shall be the principal financial officer of the Corporation, (b) shall see that all funds and securities of the Corporation are held by the custodian of the Corporation's assets, and (c) shall be the principal accounting officer of the Corporation. SECTION 9. Assistant Treasurers. One or more Assistant Treasurers may be elected by the Board of Directors or appointed by the President. In the absence of the Treasurer and in accordance with such order as may be established by the Board of Directors, an Assistant Treasurer shall have the power to perform his duties. Assistant Treasurers shall perform such other duties as may be assigned to them by the President or the Board of Directors. SECTION 10. Other Officers. The Board of Directors may appoint or may authorize the Chairman of the Board or the President to appoint such other officers and agents as the appointer may deem necessary and proper, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the appointer. SECTION 11. Bond. If required by the Board of Directors, the Treasurer and such other directors, officers, employees and agents of the Corporation as the Board of Directors may specify, shall give the Corporation a bond in such amount, in such form and with such security, surety or sureties, as may be satisfactory to the Board of Directors, conditioned on the faithful performance of the duties of their office and for the restoration to the Corporation, in case of their death, resignation, or removal from their office of all books, papers, vouchers, monies, securities and property of whatever kind in their possession belonging to the Corporation. All premiums on such bonds shall be paid by the Corporation. SECTION 12. Removal. Any officer (or the Chairman of the Board of Directors) of the Corporation may be removed by the Board of Directors whenever, in its judgment, the best interests of the Corporation will be served thereby, but such removal shall be without prejudice to the contractual rights, if any, of the officer (or the Chairman of the Board of Directors) so removed. ARTICLE IV CAPITAL STOCK SECTION 1. Stock Certificates. Certificates representing shares of stock of the Corporation shall be in such form consistent with the laws of the State of Maryland as shall be determined by the Board of Directors. All certificates for shares of stock shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares of stock represented thereby are issued, with the number of shares and date of issue, shall be entered on the stock transfer records of the Corporation. SECTION 2. Redemption and Transfer. Any holder of stock of the Corporation desiring to redeem or transfer shares of stock standing in the name of such holder on the books of the Corporation shall deliver to the Corporation or to its agent duly authorized for such purpose a written unconditional request, in form acceptable to the Corporation, for such redemption or transfer. If certificates evidencing such shares have been issued, such certificates shall also be so delivered in transferable form duly endorsed or accompanied by all necessary stock transfer stamps or currency or certified or bank cashier's check payable to the order of the Corporation for the appropriate price thereof. The Corporation or its duly authorized agent may require that the signature of a redeeming stockholder on any or all of the request, endorsement or stock power be guaranteed and that other documentation in accordance with the custom of brokers be so delivered where appropriate, such as proof of capacity and power to make request or transfer. All documents and funds shall be deemed to have been delivered only when physically deposited at such office or other place of deposit as the Corporation or its duly authorized agent shall from time to time designate. At any time during which the right of redemption is suspended or payment for such shares is postponed pursuant to the Investment Company Act of 1940, as amended, or any rule, regulation or order thereunder, any stockholder may withdraw his request (and certificates and funds, if any) or may leave the same on deposit, in which case the redemption price shall be the net asset value next applicable after such suspension or postponement is terminated. SECTION 3. Lost, Mutilated, Destroyed or Wrongfully Taken Certificates. Any person claiming a stock certificate to have been lost, mutilated, destroyed or wrongfully taken, and who requests the issuance of a new certificate before the Corporation has notice that the certificate alleged to have been lost, mutilated, destroyed or wrongfully taken has been acquired by a bona fide purchaser, shall make an affidavit of that fact and shall give the Corporation and its transfer agents and registrars a bond, with sufficient surety, to indemnify them against any loss or claim arising as a result of the issuance of a new certificate. The form and amount of such bond and the surety thereon shall in each case be deemed sufficient if satisfactory to the President or Treasurer of the Corporation. ARTICLE V GENERAL PROVISIONS SECTION 1. Fiscal Year. The fiscal year of the Corporation shall be established by resolution of the Board of Directors. SECTION 2. Amendments. These Bylaws may be altered, amended or repealed and new Bylaws may be adopted by a majority of the entire Board of Directors at any meeting of the Board of Directors. SECTION 3. Names of Classes and Series of Shares. The names of the classes and series of shares which have been classified by the Corporation in its Articles of Incorporation and in Articles Supplementary shall be as follows:
Designation of Shares in Articles of Incorporation or Articles Supplementary Name of Class or Series Class A Common Shares ..........................Intermediate Government Bond Fund, Retail Class or Class A Class A, Series 2 Common Shares ...............Intermediate Government Bond Fund, Institutional Class or Class C Class A, Series 3 Common Shares ...............Intermediate Government Bond Fund, CDSC Class or Class B Class B Common Shares ..........................Fixed Income Fund, Retail Class or Class A Class B, Series 2 Common Shares ................Fixed Income Fund, Institutional Class or Class B Class B, Series 3 Common Shares ................Fixed Income Fund, CDCS Class or Class B Class C Common Shares ..........................Intermediate Tax Free Fund, Retail Class or Class A Class C, Series 2 Common Shares ................Intermediate Tax Free Fund, Institutional Class or Class C Class C, Series 3 Common Shares ................Intermediate Tax Free Fund, CDSC Class or Class B Class D Common Shares ..........................Stock Fund, Retail Class or Class A Class D, Series 2 Common Shares ................Stock Fund, Institutional Class or Class C Class D, Series 3 Common Shares ................Stock Fund, CDCS Class or Class B Class E Common Shares ..........................Special Equity Fund, Retail Class or Class A Class E, Series 2 Common Shares ................Special Equity Fund, Institutional Class or Class C Class E, Series 3 Common Shares ................Special Equity Fund, CDSC Class or Class B Class F Common Shares ..........................Asset Allocation Fund, Retail Class or Class A Class F, Series 2 Common Shares ................Asset Allocation Fund, Institutional Class or Class C Class F, Series 3 Common Shares ................Asset Allocation Fund, CDSC Class or Class B Class G Common Shares ..........................Balanced Fund, Retail Class or Class A Class G, Series 2 Common Shares ................Balanced Fund, Institutional Class or Class C Class G, Series 3 Common Shares ................Balanced Fund, CDSC Class or Class B Class H Common Shares ..........................Equity Index Fund, Retail Class or Class A Class H, Series 2 Common Shares ................Equity Index Fund, Institutional Class or Class C Class H, Series 3 Common Shares ................Equity Index Fund, CDSC Class or Class B Class I Common Shares ..........................Intermediate Term Income Fund, Retail Class or Class A Class I, Series 2 Common Shares ................Intermediate Term Income Fund, Institutional Class or Class C Class I, Series 3 Common Shares ................Intermediate Term Income Fund, CDSC Class or Class B Class J Common Shares ..........................Limited Term Income Fund, Retail Class or Class A Class J, Series 2 Common Shares ................Limited Term Income Fund, Institutional Class or ClassC Class J, Series 3 Common Shares ................Limited Term Income Fund, CDSC Class or Class B Class K Common Shares ..........................Mortgage Securities Fund, Retail Class or Class A Class K, Series 2 Common Shares ................Mortgage Securities Fund, Institutional Class or Class C Class K, Series 3 Common Shares ................Mortgage Securities Fund, CDSC Classor Class B Class L Common Shares ..........................Regional Equity Fund, Retail Class or Class A Class L, Series 2 Common Shares ................Regional Equity Fund, Institutional Class or Class C Class L, Series 3 Common Shares ................Regional Equity Fund, CDSC Class or Class B Class M Common Shares ..........................Minnesota Insured Intermediate Tax Free Fund, Retail Class or Class A Class M, Series 2 Common Shares ................Minnesota Insured Intermediate Tax Free Fund, Institutional Class or Class C Class M, Series 3 Common Shares ................Minnesota Insured Intermediate Tax Free Fund, CDSC Class or Class B Class N Common Shares ..........................Colorado Intermediate Tax Free Fund, Retail Class or Class A Class N, Series 2 Common Shares ................Colorado Intermediate Tax Free Fund, Institutional Class or Class C Class N, Series 3 Common Shares ................Colorado Intermediate Tax Free Fund, CDSC Class or Class B Class O Common Shares ..........................Emerging Growth Fund, Retail Class or Class A Class O, Series 2 Common Shares ................Emerging Growth Fund, Institutional Class or Class C Class O, Series 3 Common Shares ................Emerging Growth Fund, CDSC Class or Class B Class P Common Shares ..........................Technology Fund, Retail Class or Class A Class P, Series 2 Common Shares ................Technology Fund, Institutional Class or Class C Class P, Series 3 Common Shares ................Technology Fund, CDSC Class or Class B Class Q Common Shares ..........................International Fund, Retail Class or Class A Class Q, Series 2 Common Shares ................International Fund, Institutional Class or Class C Class Q, Series 3 Common Shares ................International Fund, CDSC Class or Class B Class R Common Shares ..........................Limited Volatility Stock Fund, Retail Class or Class A Class R, Series 2 Common Shares ................Limited Volatility Stock Fund, Institutional Class or Class C Class R, Series 3 Common Shares ................Limited Volatility Stock Fund, CDSC Class or Class B Class S Common Shares ..........................Diversified Growth Fund, Retail Class or Class A Class S, Series 2 Common Shares ................Diversified Growth Fund, CDSC Class or Class B Class S, Series 3 Common Shares ................Diversified Growth Fund, Institutional Class or Class C Class T Common Shares ..........................Equity Income Fund, Retail Class or Class A Class T, Series 2 Common Shares ................Equity Income Fund, CDSC Class or Class B Class T, Series 3 Common Shares ................Equity Income Fund, Institutional Class or Class C Class U Common Shares ..........................Limited Term Tax Free Income Fund, Retail Class or Class A Class U, Series 2 Common Shares ................Limited Term Tax Free Income Fund, CDSC Class or Class B Class U, Series 3 Common Shares ................Limited Term Tax Free Income Fund, Institutional Class or Class C Class V Common Shares ..........................Real Estate Securities Fund, Retail Class or Class A Class V, Series 2 Common Shares ................Real Estate Securities Fund, CDSC Class or Class B Class V, Series 3 Common Shares ................Real Estate Securities Fund, Institutional Class or Class C
EX-5.B 4 EXHIBIT (5)(b) Final 5/95 FIRST AMERICAN INVESTMENT FUNDS, INC. AMENDMENT TO INVESTMENT ADVISORY AGREEMENT AMENDMENT NO. 5 to EXHIBIT A EFFECTIVE DATES: Portfolio Effective Date Stock Fund April 2, 1991 Special Equity Fund April 2, 1991 Fixed Income Fund April 2, 1991 Intermediate Government Bond Fund April 2, 1991 Intermediate Tax Free Fund April 2, 1991 Intermediate Term Income Fund September 15, 1992 Equity Index Fund September 15, 1992 Regional Equity Fund September 15, 1992 Limited Term Income Fund September 15, 1992 Balanced Fund September 15, 1992 Asset Allocation Fund September 15, 1992 Mortgage Securities Fund September 15, 1992 Minnesota Insured Intermediate Tax Free Fund December 31, 1993 Colorado Intermediate Tax Free Fund December 31, 1993 Emerging Growth Fund December 31, 1993 Technology Fund December 31, 1993 International Fund December 31, 1993 Limited Volatility Stock Fund November 15, 1994 Equity Income Fund January 31, 1994 Diversified Growth Fund January 31, 1994 Limited Term Tax Free Income Fund January 31, 1994 Real Estate Securities Fund June 12, 1995 ADVISORY FEES: Annual Advisory Fee as a Percentage of Portfolio Average Daily Net Assets Average Daily Net Assets Stock Fund On All Assets .70% Special Equity On All Assets .70% Fund Fixed Income On All Assets .70% Fund Intermediate On All Assets .70% Government Bond Fund Intermediate Tax On All Assets .70% Free Fund Intermediate Term On All Assets .70% Income Fund Equity Index Fund On All Assets .70% Regional Equity On All Assets .70% Fund Limited Term On All Assets .70% Income Fund Balanced Fund On All Assets .70% Asset Allocation On All Assets .70% Fund Mortgage Securities On All Assets .70% Fund Minnesota Insured On All Assets .70% Intermediate Tax Free Fund Colorado Interme- On All Assets .70% diate Tax Free Fund Emerging Growth On All Assets .70% Fund Technology Fund On All Assets .70% International Fund On All Assets 1.25% Limited Volatility On All Assets .70% Stock Fund Equity Income On All Assets .70% Fund Diversified Growth On All Assets .70% Fund Limited Term On All Assets .70% Tax Free Income Fund Real Estate Securites On All Assets .70% Fund EX-8.B 5 EXHIBIT (8)(b) 5/95 FIRST AMERICAN INVESTMENT FUNDS, INC. COMPENSATION AGREEMENT DATED AS OF JUNE 1, 1995 PURSUANT TO CUSTODIAN AGREEMENT WHEREAS, First American Investment Funds, Inc., a Maryland corporation (hereinafter called the "Fund"), and First Trust National Association, a national banking association organized and existing under the laws of the United States of America with its principal place of business at Minneapolis, Minnesota (hereinafter called the "Custodian"), previously entered into that Custodian Agreement dated September 20, 1993 (the "Custodian Agreement"); and WHEREAS, Article 12 of the Custodian Agreement provides that the Custodian shall be paid compensation at such rates and at such times as may from time to time be agreed on in writing by the parties thereto; and WHEREAS, the Fund and the Custodian previously entered into that Compensation Agreement dated as of January 31, 1995, for such purpose with respect to the then-existing series of the Fund; and WHEREAS, the Fund and the Custodian wish to amend and restate such compensation agreement in order to make provision for the new series of the Fund to be referred to as Real Estate Securities Fund. NOW, THEREFORE, the Fund and the Custodian agree as follows: 1. The compensation payable to the Custodian pursuant to the Custodian Agreement with respect to Stock Fund, Equity Index Fund, Balanced Fund, Asset Allocation Fund, Regional Equity Fund, Special Equity Fund, Limited Term Income Fund, Intermediate Term Income Fund, Fixed Income Fund, Intermediate Government Bond Fund, Mortgage Securities Fund, shall be as follows: (a) an annual administration fee of $750 per Fund; (b) an issue held fee, computed as of the end of each month, at the annual rate of $30 per securities issue held by each Fund; (c) transaction fees, consisting of (i) a securities buy/sell/maturity fee of $15 per each such transaction, and (ii) a payment received fee of $12 for each principal pay down payment received on collateralized mortgage pass-through instruments; (d) a wire transfer fee of $10 per transaction; (e) a cash management fee, for "sweeping" cash into overnight investments, at an annual rate of 0.25% of the amounts so invested; and (f) a remittance fee, for payment of each Fund's expenses, of $3.50 per each check drawn for such remittances. 2. The compensation payable to the Custodian pursuant to the Custodian Agreement with respect to the remaining series of the Fund shall be payable monthly at the following annual rates as percentages of the respective series' average daily net assets: Real Estate Securities Fund, Limited Volatility Stock Fund, Equity Income Fund, Diversified Growth Fund, Emerging Growth Fund, Technology Fund, Limited Term Tax Free Income Fund, Intermediate Tax Free Fund, Minnesota Insured Intermediate Tax Free Fund, and Colorado Intermediate Tax Free Fund, 0.03%; and International Fund, 0.25%. The Custodian shall pay subcustodian fees with respect to International Fund out of the compensation payable to the Custodian with respect to such fund as set forth above. The Fund shall reimburse the Custodian for all other out-of-pocket expenses incurred by the Custodian in connection with the performance of the Custodian's services under the Custodian Agreement. 3. This Compensation Agreement restates and supersedes all prior compensation agreements pursuant to Article 12 of the Custodian Agreement. IN WITNESS WHEREOF, the Fund and the Custodian have caused this instrument to be executed in duplicate as of the date first above written by their duly authorized officers. FIRST AMERICAN INVESTMENT FUNDS, INC. By /s/ Kathryn L. Stanton Its Vice President FIRST TRUST NATIONAL ASSOCIATION By /s/ Jeffrey Wilson Its Vice President EX-9.C 6 Exhibit 9(c) SUPERVISED SERVICE COMPANY, INC. BOSTON CHICAGO KANSAS CITY April 4, 1995 VIA AIRBORNE EXPRESS First American Investment Funds, Inc. Attn: David G. Lee 680 E. Swedesford Road Wayne, PA 19087-1658 Dear Mr. Lee: As we have advised you, Supervised Service Company, Inc. (SSC) has entered an agreement to sell substantially all of its assets, including its mutual fund transfer agency business to DST Systems, Inc. (DST). DST has agreed to assume and perform all of SSC's obligations under the Transfer Agency Agreement between First American Investment Funds, Inc. and SSC dated March 31, 1994, (the "Agreement"). All of the terms and conditions of your agreement, including the fee schedule, will remain in effect in accordance with the Agreement. We believe this transaction will ensure continued excellent service to you and your shareholders. Please indicate your consent to the assignment of your agreement to DST by executing and returning the enclosed copy of this letter in the return Airborne Express envelope provided. We would appreciate your prompt response. If you have questions, please contact either of us at the numbers listed below. Supervised Service Company, Inc. DST Systems, Inc. By /s/ Robert W. Ciarlelli By /s/ Thomas A. McCullough Robert W. Ciarlelli Thomas A. McCullough (816) 292-6206 (816) 435-8656 First American Investment Funds, Inc. hereby *This consent is subject consents to the assignment of the Agreement to to ratification by the DST Systems, Inc. as described above. Board of Trustees of the Trust. By /s/ David Lee EX-11.A 7 Exhibit 11(a) KPMG Peat Marwick LLP 4200 Norwest Center 90 South Seventh Street Minneapolis, MN 55402 Independent Auditors' Consent The Board of Directors First American Investment Funds, Inc.: We consent to the use of our report dated November 3, 1995 included herein and to the references to our Firm under the headings "FINANCIAL HIGHLIGHTS" in Part A and "Custodian; Transfer Agent; Counsel; Accountants" in Part B of the Registration Statement. /s/ KPMG Peat Marwick LLP KPMG Peat Marwick LLP Minneapolis, Minnesota November 14, 1995 EX-13 8 Exhibit (13) LETTER OF INVESTMENT INTENT November 9, 1995 First American Investment Funds, Inc. 680 East Swedesford Road Wayne, Pennsylvania 19087 Ladies and Gentlemen: In connection with the purchase by SEI Financial Management Corporation (the "Purchaser") of 10 shares of Class A, 10 shares of Class B, and 10 shares of Class C Common Stock of the Health Sciences Fund portfolio of First American Investment Funds, Inc. (the "Stock"), the Purchaser hereby represents that it is acquiring the Stock for investment purposes with no present intention of selling or otherwise disposing of or transferring it or any interest in it. The Purchaser hereby further agrees that any transfer of any of the Stock or any interest in it shall be subject to the following conditions: 1. The Purchaser shall furnish to you, prior to the time of transfer, a written description of the proposed transfer specifying its nature and giving the name of the proposed transferee, in form and substance reasonably satisfactory to you and your counsel. 2. You shall have obtained from your counsel a written opinion stating whether in the opinion of such counsel the proposed transfer may be effected without registration or qualification under the Securities Act of 1933 and applicable state securities laws. If such opinion states that such transfer may be so effected, the Purchaser shall then be entitled to transfer the Stock in accordance with the terms specified in its description of the transaction to you. If such opinion states that the proposed transfer may not be so effected, the Purchaser will not be entitled to transfer the Stock unless the Stock is so registered or qualified. 3. The Purchaser further agrees that all certificates representing the Stock shall be endorsed with the following legend: "The shares represented by this certificate may not be transferred without (i) the opinion of counsel satisfactory to First American Investment Funds, Inc. that the transfer may lawfully be made without registration or qualification under the Federal Securities Act of 1933 and applicable state securities laws; or (ii) such registration or qualification." The Purchaser hereby authorizes you to take such other action as you shall reasonably deem appropriate to prevent any violation of the Securities Act of 1933 in connection with the transfer of the Stock, including the imposition of a requirement that any transferee of the Stock sign a letter agreement similar to this one. Very truly yours, SEI FINANCIAL MANAGEMENT CORPORATION By: /s/ Kathryn L. Stanton Its: Vice President EX-16 9
First American Investment Funds, Inc. (With Sales Charge) Average Annual Total Return P(1+T)(nth power) = ERV Class A One Year: Stock Fund Equity Index Balanced Fund Asset Allocation P = 1,000 1,000 1,000 1,000 n = 1 1 1 1 ERV = 1,196.10 1,231.40 1,151.10 1,141.20 T = 19.61 23.14 15.11 14.12 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Equity Income Diversified Growth Emerging Growth Regional Equity P = 1,000 1,000 1,000 1,000 n = 1 1 1 1 ERV = 1,127.00 1,252.80 1,230.10 1,348.10 T = 12.70 25.28 23.01 34.81 (For the Period (For the Period (For the Period (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Special Equity Technology Health Sciences Real Estate P = 1,000 1,000 N/A N/A n = 1 1 N/A N/A ERV = 1,075.30 1,587.00 N/A N/A T = 7.53 58.70 N/A N/A (Fiscal Year (For the Period (Not in operation (For the Period Ended 09/30/95) Ended 09/30/95) during period) Ended 09/30/95) International Limited Term Intermediate Term Fixed Income P = 1,000 1,000 1,000 1,000 n = 1 1 1 1 ERV = 961.60 1,044.50 1,063.90 1,086.00 T = -3.84 4.45 6.39 8.60 (For the Period (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free P = 1,000 1,000 1,000 1,000 n = 1 1 1 1 ERV = 1,065.00 1,058.50 1,051.60 1,053.60 T = 6.50 5.85 5.16 5.36 (Fiscal Year (Fiscal Year (For the Period (For the Period Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Average Annual Total Return (Since Inception) (With Sales Charge) Class A Stock Fund Equity Index Balanced Fund Asset Allocation P = 1000 1000 1000 1000 n = 7.78 2.80 2.80 2.80 ERV = 2,479.48 1,373.79 1,310.53 1,255.65 T = 12.38 12.01 10.14 8.47 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Equity Income Diversified Growth Emerging Growth Regional Equity P = 1000 1000 1000 1000 n = 1.08 2.78 1.42 2.80 ERV = 1,082.76 1,163.55 1,286.46 1,731.86 T = 7.64 5.60 19.41 21.67 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Special Equity Technology Health Sciences Real Estate Securities P = 1000 1000 N/A N/A n = 7.78 1.42 N/A N/A ERV = 2,728.32 1,728.85 N/A N/A T = 13.77 47.04 N/A N/A (Fiscal Year (Fiscal Year (Not in operation (Fiscal Year Ended 09/30/95) Ended 09/30/95) during period) Ended 09/30/95) International Limited Term Intermediate Term Fixed Income P = 1000 1000 1000 1000 n = 1.42 2.80 2.80 7.78 ERV = 984.42 1,106.78 1,128.74 1,830.37 T = (1.10) 3.69 4.42 8.08 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free P = 1000 1000 1000 1000 n = 7.78 7.78 1.75 1.42 ERV = 1,621.52 1,547.18 1,037.75 1,087.13 T = 6.41 5.77 2.14 6.06 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) First American Investment Funds, Inc. Five Year (With Sales Charge) Class A Stock Fund Equity Index Balanced Fund Asset Allocation P = 1,000 N/A N/A N/A n = 5 N/A N/A N/A ERV = 2,035.08 N/A N/A N/A T = 15.27 N/A N/A N/A (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Equity Income Diversified Growth Emerging Growth Regional Equity P = N/A N/A N/A N/A n = N/A N/A N/A N/A ERV = N/A N/A N/A N/A T = N/A N/A N/A N/A (For the Period (For the Period (For the Period (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Special Equity Technology Health Sciences Real Estate P = 1,000 N/A N/A N/A n = 5 N/A N/A N/A ERV = 2,170.98 N/A N/A N/A T = 16.77 N/A N/A N/A (Fiscal Year (For the Period (Not in operation (For the Period Ended 09/30/95) Ended 09/30/95) during period) Ended 09/30/95) International Limited Term Intermediate Term Fixed Income P = N/A N/A N/A 1,000 n = N/A N/A N/A 5 ERV = N/A N/A N/A 1,468.65 T = N/A N/A N/A 7.99 (For the Period (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free P = 1,000 1,000 N/A N/A n = 5 5 N/A N/A ERV = 1,327.53 1,328.78 N/A N/A T = 5.83 5.85 N/A N/A (Fiscal Year (Fiscal Year (For the Period (For the Period Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Cumulative Total Return (With Sales Charge) Class A CTR=(ERV-P)*100 P Stock Fund Equity Index Balanced Fund Asset Allocation P = 1,000 1,000 1,000 1,000 ERV = 2,484.80 1,373.10 1,309.70 1,255.10 CTR= 148.48 37.31 30.97 25.51 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Equity Income Diversified Growth Emerging Growth Regional Equity P = 1,000 1,000 1,000 1,000 ERV = 1,227.40 1,163.60 1,302.70 1,729.90 CTR= 22.74 16.36 30.27 72.99 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Special Equity Technology Health Sciences Real Estate Securities P = 1,000 1,000 N/A N/A ERV = 2,734.90 1,776.50 N/A N/A CTR= 173.49 77.65 N/A N/A (Fiscal Year (Fiscal Year (Not in operation (Fiscal Year Ended 09/30/95) Ended 09/30/95) during period) Ended 09/30/95) International Limited Term Intermediate Term Fixed Income P = 1,000 1,000 1,000 1,000 ERV = 983.70 1,106.50 1,128.40 1,832.80 CTR= -1.63 10.65 12.84 83.28 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free P = 1,000 1,000 1,000 1,000 ERV = 1,623.60 1,548.40 1,034.30 1,091.70 CTR= 62.36 54.84 3.43 9.17 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95)
First American Investment Funds, Inc. (Without Sales Charge) Average Annual Total Return P(1+T)(nth power) = ERV Class A One Year: Stock Fund Equity Index Balanced Fund Asset Allocation P = 1,000 1,000 1,000 1,000 n = 1 1 1 1 ERV = 1,252.60 1,289.00 1,205.70 1,195.10 T = 25.26 28.90 20.57 19.51 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Equity Income Diversified Growth Emerging Growth Regional Equity P = 1,000 1,000 1,000 1,000 n = 1 1 1 1 ERV = 1,180.60 1,312.10 1,288.20 1,411.70 T = 18.06 31.21 28.82 41.17 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Special Equity Technology Health Sciences Real Estate P = 1,000 1,000 N/A N/A n = 1 1 N/A N/A ERV = 1,126.30 1,662.20 N/A N/A T = 12.63 66.22 N/A N/A (Fiscal Year (Fiscal Year (Not in operation (Fiscal Year Ended 09/30/95) Ended 09/30/95) during period) Ended 09/30/95) International Limited Term Intermediate Term Fixed Income P = 1,000 1,000 1,000 1,000 n = 1 1 1 1 ERV = 1,006.90 1,065.70 1,105.10 1,127.80 T = 0.69 6.57 10.51 12.78 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free P = 1,000 1,000 1,000 1,000 n = 1 1 1 1 ERV = 1,098.20 1,091.50 1,084.60 1,085.70 T = 9.82 9.15 8.46 8.57 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Average Annual Total Return (Since Inception) (Without Sales Charge) Class A Stock Fund Equity Index Balanced Fund Asset Allocation P = 1000 1000 1000 1000 n = 7.78 2.80 2.80 2.80 ERV = 2,596.84 1,438.62 1,372.07 1,314.86 T = 13.05 13.87 11.96 10.27 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Equity Income Diversified Growth Emerging Growth Regional Equity P = 1000 1000 1000 1000 n = 1.08 2.78 1.42 2.80 ERV = 1,102.22 1,217.95 1,344.05 1,813.17 T = 9.43 7.35 23.15 23.68 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Special Equity Technology Health Sciences Real Estate P = 1000 1000 N/A N/A n = 7.78 1.42 N/A N/A ERV = 2,855.85 1,806.33 N/A N/A T = 14.44 51.65 N/A N/A (Fiscal Year (Fiscal Year (Not in operation (Fiscal Year Ended 09/30/95) Ended 09/30/95) during period) Ended 09/30/95) International Limited Term Intermediate Term Fixed Income P = 1000 1000 1000 1000 n = 1.42 2.80 2.80 7.78 ERV = 1,028.81 1,129.04 1,172.87 1,901.37 T = 2.02 4.43 5.86 8.61 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free P = 1000 1000 1000 1000 n = 7.78 7.78 1.75 1.42 ERV = 1,671.99 1,594.46 1,073.03 1,119.30 T = 6.83 6.18 4.11 8.26 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) First American Investment Funds, Inc. Five Year (Without Sales Charge) Class A Stock Fund Equity Index Balanced Fund Asset Allocation P = 1,000 N/A N/A N/A n = 5 N/A N/A N/A ERV = 2,130.39 N/A N/A N/A T = 16.33 N/A N/A N/A (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Equity Income Diversified Growth Emerging Growth Regional Equity P = N/A N/A N/A N/A n = N/A N/A N/A N/A ERV = N/A N/A N/A N/A T = N/A N/A N/A N/A (For the Period (For the Period (For the Period (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Special Equity Technology Health Sciences Real Estate P = 1,000 N/A N/A N/A n = 5 N/A N/A N/A ERV = 2,273.25 N/A N/A N/A T = 17.85 N/A N/A N/A (Fiscal Year (For the Period (Not in operation (For the Period Ended 09/30/95) Ended 09/30/95) during period) Ended 09/30/95) International Limited Term Intermediate Term Fixed Income P = N/A N/A N/A 1,000 n = N/A N/A N/A 5 ERV = N/A N/A N/A 1,525.96 T = N/A N/A N/A 8.82 (For the Period (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free P = 1,000 1,000 N/A N/A n = 5 5 N/A N/A ERV = 1,368.80 1,370.09 N/A N/A T = 6.48 6.50 N/A N/A (Fiscal Year (Fiscal Year (For the Period (For the Period Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Cumulative Total Return (Without Sales Charge) Class A CTR=(ERV-P)*100 P Stock Fund Equity Index Balanced Fund Asset Allocation P = 1,000 1,000 1,000 1,000 ERV = 2,601.60 1,437.60 1,371.20 1,314.10 CTR= 160.16 43.76 37.12 31.41 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Equity Income Diversified Growth Emerging Growth Regional Equity P = 1,000 1,000 1,000 1,000 ERV = 1,285.10 1,218.30 1,363.90 1,811.20 CTR= 28.51 21.83 36.39 81.12 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Special Equity Technology Health Sciences Real Estate Securities P = 1,000 1,000 N/A N/A ERV = 2,863.40 1,860.00 N/A N/A CTR= 186.34 86.00 N/A N/A (Fiscal Year (Fiscal Year (Not in operation (Fiscal Year Ended 09/30/95) Ended 09/30/95) during period) Ended 09/30/95) International Limited Term Intermediate Term Fixed Income P = 1,000 1,000 1,000 1,000 ERV = 1,030.10 1,128.60 1,172.40 1,904.30 CTR= 3.01 12.86 17.24 90.43 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free P = 1,000 1,000 1,000 1,000 ERV = 1,674.00 1,596.40 1,066.40 1,125.50 CTR= 67.40 59.64 6.64 12.55 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95)
First American Investment Funds, Inc. (With Sales Charge) Average Annual Total Return P(1+T)(nth power) = ERV Class B One Year: Stock Fund Equity Index Balanced Fund Asset Allocation P = 1,000 1,000 1,000 1,000 n = 1 1 1 1 ERV = 1,192.00 1,228.70 1,145.80 1,135.10 T = 19.20 22.87 14.58 13.51 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Equity Income Diversified Growth Emerging Growth Regional Equity P = 1,000 1,000 1,000 1,000 n = 1 1 1 1 ERV = 1,121.00 1,252.90 1,228.90 1,349.80 T = 12.10 25.29 22.89 34.98 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Special Equity Technology Health Sciences Real Estate P = 1,000 1,000 N/A N/A n = 1 1 N/A N/A ERV = 1,066.40 1,595.20 N/A N/A T = 6.64 59.52 N/A N/A (Fiscal Year (Fiscal Year (Not in operation (Fiscal Year Ended 09/30/95) Ended 09/30/95) during period) Ended 09/30/95) International Limited Term Intermediate Term Fixed Income P = 1,000 N/A N/A 1,000 n = 1 N/A N/A 1 ERV = 949.10 N/A N/A 1,067.50 T = -5.09 N/A N/A 6.75 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free P = N/A N/A N/A N/A n = N/A N/A N/A N/A ERV = N/A N/A N/A N/A T = N/A N/A N/A N/A (Fiscal Year (Fiscal Year (For the Period (For the Period Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Average Annual Total Return (Since Inception) (With Sales Charge) Class B Stock Fund Equity Index Balanced Fund Asset Allocation P = 1000 1000 1000 1000 n = 1.08 1.08 1.08 1.08 ERV = 1,178.34 1,224.21 1,133.14 1,131.40 T = 16.41 20.60 12.27 12.11 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Equity Income Diversified Growth Emerging Growth Regional Equity P = 1000 1000 1000 1000 n = 1.08 1.08 1.08 1.08 ERV = 1,122.03 1,275.48 1,299.58 1,369.53 T = 11.25 25.27 27.46 33.80 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Special Equity Technology Health Sciences Real Estate Securities P = 1000 1000 N/A N/A n = 1.08 1.08 N/A N/A ERV = 1,119.31 1,772.03 N/A N/A T = 11.00 69.85 N/A N/A (Fiscal Year (Fiscal Year (Not in operation (Fiscal Year Ended 09/30/95) Ended 09/30/95) during period) Ended 09/30/95) International Limited Term Intermediate Term Fixed Income P = 1000 N/A N/A 1000 n = 1.08 N/A N/A 1.08 ERV = 949.34 N/A N/A 1,055.30 T = (4.70) N/A N/A 5.11 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free P = N/A N/A N/A N/A n = N/A N/A N/A N/A ERV = N/A N/A N/A N/A T = N/A N/A N/A N/A (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Cumulative Total Return (With Sales Charge) Class B CTR=(ERV-P)*100 P Stock Fund Equity Index Balanced Fund Asset Allocation P = 1,000 1,000 1,000 1,000 ERV = 1,186.70 1,234.90 1,139.20 1,137.40 CTR= 18.67 23.49 13.92 13.74 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Equity Income Diversified Growth Emerging Growth Regional Equity P = 1,000 1,000 1,000 1,000 ERV = 1,127.60 1,288.80 1,314.20 1,388.00 CTR= 12.76 28.88 31.42 38.80 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Special Equity Technology Health Sciences Real Estate Securities P = 1,000 1,000 N/A N/A ERV = 1,124.70 1,815.70 N/A N/A CTR= 12.47 81.57 N/A N/A (Fiscal Year (Fiscal Year (Not in operation (Fiscal Year Ended 09/30/95) Ended 09/30/95) during period) Ended 09/30/95) International Limited Term Intermediate Term Fixed Income P = 1,000 N/A N/A 1,000 ERV = 947.20 N/A N/A 1,057.70 CTR= -5.28 N/A N/A 5.77 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free P = N/A N/A N/A N/A ERV = N/A N/A N/A N/A CTR= N/A N/A N/A N/A (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95)
First American Investment Funds, Inc. (Without Sales Charge) Average Annual Total Return P(1+T)(nth power) = ERV Class B One Year: Stock Fund Equity Index Balanced Fund Asset Allocation P = 1,000 1,000 1,000 1,000 n = 1 1 1 1 ERV = 1,242.00 1,278.70 1,195.80 1,185.10 T = 24.20 27.87 19.58 18.51 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Equity Income Diversified Growth Emerging Growth Regional Equity P = 1,000 1,000 1,000 1,000 n = 1 1 1 1 ERV = 1,171.00 1,302.90 1,278.90 1,399.80 T = 17.10 30.29 27.89 39.98 (For the Period (For the Period (For the Period (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Special Equity Technology Health Sciences Real Estate P = 1,000 1,000 N/A N/A n = 1 1 N/A N/A ERV = 1,116.40 1,645.20 N/A N/A T = 11.64 64.52 N/A N/A (Fiscal Year (For the Period (Not in operation (For the Period Ended 09/30/95) Ended 09/30/95) during period) Ended 09/30/95) International Limited Term Intermediate Term Fixed Income P = 1,000 N/A N/A 1,000 n = 1 N/A N/A 1 ERV = 999.00 N/A N/A 1,117.50 T = -0.10 N/A N/A 11.75 (For the Period (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free P = N/A N/A N/A N/A n = N/A N/A N/A N/A ERV = N/A N/A N/A N/A T = N/A N/A N/A N/A (Fiscal Year (Fiscal Year (For the Period (For the Period Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Average Annual Total Return (Since Inception) (Without Sales Charge) Class B Stock Fund Equity Index Balanced Fund Asset Allocation P = 1000 1000 1000 1000 n = 1.08 1.08 1.08 1.08 ERV = 1,225.96 1,271.75 1,180.85 1,179.10 T = 20.76 24.93 16.64 16.48 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Equity Income Diversified Growth Emerging Growth Regional Equity P = 1000 1000 1000 1000 n = 1.08 1.08 1.08 1.08 ERV = 1,169.70 1,322.94 1,347.00 1,416.80 T = 15.62 29.58 31.76 38.07 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Special Equity Technology Health Sciences Real Estate Securities P = 1000 1000 N/A N/A n = 1.08 1.08 N/A N/A ERV = 1,166.97 1,818.72 N/A N/A T = 15.37 73.99 N/A N/A (Fiscal Year (Fiscal Year (Not in operation (Fiscal Year Ended 09/30/95) Ended 09/30/95) during period) Ended 09/30/95) International Limited Term Intermediate Term Fixed Income P = 1000 N/A N/A 1000 n = 1.08 N/A N/A 1.08 ERV = 997.19 N/A N/A 1,103.09 T = (0.26) N/A N/A 9.51 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free P = N/A N/A N/A N/A n = N/A N/A N/A N/A ERV = N/A N/A N/A N/A T = N/A N/A N/A N/A (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Cumulative Total Return (Without Sales Charge) Class B CTR=(ERV-P)*100 P Stock Fund Equity Index Balanced Fund Asset Allocation P = 1,000 1,000 1,000 1,000 ERV = 1,236.70 1,284.90 1,189.20 1,187.40 CTR= 23.67 28.49 18.92 18.74 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Equity Income Diversified Growth Emerging Growth Regional Equity P = 1,000 1,000 1,000 1,000 ERV = 1,177.60 1,338.80 1,364.20 1,438.00 CTR= 17.76 33.88 36.42 43.80 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Special Equity Technology Health Sciences Real Estate Securities P = 1,000 1,000 N/A N/A ERV = 1,174.70 1,865.70 N/A N/A CTR= 17.47 86.57 N/A N/A (Fiscal Year (Fiscal Year (Not in operation (Fiscal Year Ended 09/30/95) Ended 09/30/95) during period) Ended 09/30/95) International Limited Term Intermediate Term Fixed Income P = 1,000 N/A N/A 1,000 ERV = 997.10 N/A N/A 1,107.70 CTR= -0.29 N/A N/A 10.77 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free P = N/A N/A N/A N/A ERV = N/A N/A N/A N/A CTR= N/A N/A N/A N/A (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95)
First American Investment Funds, Inc. (Without Sales Charge) Average Annual Total Return P(1+T)(nth power) = ERV Class C One Year: Stock Fund Equity Index Balanced Fund Asset Allocation P = 1,000 1,000 1,000 1,000 n = 1 1 1 1 ERV = 1,255.00 1,291.70 1,208.90 1,197.50 T = 25.50 29.17 20.89 19.75 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Equity Income Diversified Growth Emerging Growth Regional Equity P = 1,000 1,000 1,000 1,000 n = 1 1 1 1 ERV = 1,182.40 1,315.70 1,291.60 1,419.00 T = 18.24 31.57 29.16 41.90 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Special Equity Technology Health Sciences Real Estate P = 1,000 1,000 N/A N/A n = 1 1 N/A N/A ERV = 1,128.40 1,662.20 N/A N/A T = 12.84 66.22 N/A N/A (Fiscal Year (Fiscal Year (Not in operation (Fiscal Year Ended 09/30/95) Ended 09/30/95) during period) Ended 09/30/95) International Limited Term Intermediate Term Fixed Income P = 1,000 1,000 1,000 1,000 n = 1 1 1 1 ERV = 1,007.80 1,065.70 1,105.10 1,128.60 T = 0.78 6.57 10.51 12.86 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free P = 1,000 1,000 1,000 1,000 n = 1 1 1 1 ERV = 1,098.20 1,091.50 1,083.40 1,084.70 T = 9.82 9.15 8.34 8.47 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Average Annual Total Return (Since Inception) (Without Sales Charge) Class C Stock Fund Equity Index Balanced Fund Asset Allocation P = 1000 1000 1000 1000 n = 1.58 1.58 1.58 1.58 ERV = 1,262.90 1,279.47 1,191.71 1,177.92 T = 15.92 16.88 11.74 10.92 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Equity Income Diversified Growth Emerging Growth Regional Equity P = 1000 1000 1000 1000 n = 1.08 1.08 1.42 1.58 ERV = 1,173.42 1,318.86 1,344.98 1,412.30 T = 15.96 29.21 23.21 24.42 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Special Equity Technology Health Sciences Real Estate Securities P = 1000 1000 N/A 1000 n = 1.58 1.42 N/A 0.25 ERV = 1,200.82 1,806.33 N/A 1,051.46 T = 12.28 51.65 N/A 22.23 (Fiscal Year (Fiscal Year (Not in operation (Fiscal Year Ended 09/30/95) Ended 09/30/95) during period) Ended 09/30/95) International Limited Term Intermediate Term Fixed Income P = 1000 1000 1000 1000 n = 1.42 1.58 1.58 1.58 ERV = 1,028.52 1,075.43 1,084.69 1,087.95 T = 2.00 4.71 5.28 5.48 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free P = 1000 1000 1000 1000 n = 1.58 1.58 1.58 1.42 ERV = 1,076.40 1,057.15 1,065.71 1,119.30 T = 4.77 3.58 4.11 8.26 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Cumulative Total Return (Without Sales Charge) Class C CTR=(ERV-P)*100 P Stock Fund Equity Index Balanced Fund Asset Allocation P = 1,000 1,000 1,000 1,000 ERV = 1,276.30 1,294.00 1,201.20 1,186.70 CTR= 27.63 29.40 20.12 18.67 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Equity Income Diversified Growth Emerging Growth Regional Equity P = 1,000 1,000 1,000 1,000 ERV = 1,187.70 1,346.70 1,365.00 1,434.60 CTR= 18.77 34.67 36.50 43.46 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Special Equity Technology Health Sciences Real Estate Securities P = 1,000 1,000 N/A 1,000 ERV = 1,210.80 1,860.00 N/A 1,051.90 CTR= 21.08 86.00 N/A 5.19 (Fiscal Year (Fiscal Year (Not in operation (Fiscal Year Ended 09/30/95) Ended 09/30/95) during period) Ended 09/30/95) International Limited Term Intermediate Term Fixed Income P = 1,000 1,000 1,000 1,000 ERV = 1,030.00 1,078.90 1,088.70 1,092.10 CTR= 3.00 7.89 8.87 9.21 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free P = 1,000 1,000 1,000 1,000 ERV = 1,080.00 1,059.80 1,066.30 1,125.50 CTR= 8.00 5.98 6.63 12.55 (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year Ended 09/30/95) Ended 09/30/95) Ended 09/30/95) Ended 09/30/95)
First American Investment Funds, Inc. SEC YIELD - Class A Yield = 2[(a-b + 1)(6th power) - 1]
Stock Equity Index Balanced Asset Allocation a = 31,770.20 4,556.32 54,583.33 3,103.28 b = 11,050.35 1,018.04 13,096.85 832.40 c = 653,395.863 156,883.946 1,251,501.946 82,953.519 d = 20.49 13.98 12.69 12.28 Equity Income Diversified Growth Emerging Growth Regional Equity a = 8,155.39 5,070.24 286.44 19,461.37 b = 1,736.63 2,165.06 327.52 13,357.63 c = 190,488.384 224,965.200 27,348.066 842,854.742 d = 11.77 12.30 14.03 17.93 Special Equity Technology Health Sciences Real Estate a = 26,563.77 N/A N/A N/A b = 10,837.19 N/A N/A N/A c = 632,730.005 N/A N/A N/A d = 18.73 N/A N/A N/A International Limited Term Intermediate Term Fixed Income a = N/A 53,198.45 12,425.30 42,343.94 b = N/A 4,937.67 1,397.45 6,173.43 c = N/A 1,007,778.701 244,170.484 720,754.902 d = N/A 10.12 10.33 11.41 Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free a = 14,115.20 3,123.28 9,195.54 8,919.22 b = 1,635.06 413.41 1,257.30 1,216.47 c = 305,590.846 71,838.121 220,203.733 200,729.088 d = 9.58 11.05 10.23 10.84
First American Investment Funds, Inc. SEC YIELD - Class B Yield = 2[(a-b + 1)(6th power) - 1]
Stock Equity Index Balanced Asset Allocation a = 16,261.49 2,177.61 10,153.76 1,749.30 b = 9,437.98 1,053.11 4,120.85 805.78 c = 327,501.767 72,909.643 230,934.773 47,091.495 d = 19.49 13.30 12.09 11.68 Equity Income Diversified Growth Emerging Growth Regional Equity a = 4,360.70 1,439.63 N/A N/A b = 1,582.03 1,055.35 N/A N/A c = 99,804.631 62,902.330 N/A N/A d = 11.20 11.73 N/A N/A Special Equity Technology Health Sciences Real Estate a = 11,078.45 N/A N/A N/A b = 7,373.91 N/A N/A N/A c = 261,745.020 N/A N/A N/A d = 17.83 N/A N/A N/A International Limited Term Intermediate Term Fixed Income a = N/A N/A N/A 37,003.07 b = N/A N/A N/A 9,641.52 c = N/A N/A N/A 632,551.057 d = N/A N/A N/A 10.93 Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free a = N/A N/A N/A N/A b = N/A N/A N/A N/A c = N/A N/A N/A N/A d = N/A N/A N/A N/A
First American Investment Funds, Inc. SEC YIELD - Class C Yield = 2[(a-b + 1)(6th power) -1]
Stock Equity Index Balanced Asset Allocation a = 763,533.77 474,472.53 684,118.47 137,157.86 b = 202,094.64 61,827.98 125,023.48 28,025.66 c = 15,684,169.923 16,337,349.710 15,668,126.692 3,666,807.401 d = 19.56 13.34 12.13 11.72 Equity Income Diversified Growth Emerging Growth Regional Equity a = 197,549.72 247,590.82 31,659.85 251,160.14 b = 31,514.59 78,825.83 27,920.94 134,780.98 c = 4,608,317.503 10,899,056.238 3,014,813.311 10,914,407.261 d = 11.24 11.78 13.41 17.13 Special Equity Technology Health Sciences Real Estate a = 472,529.71 N/A N/A 30,911.42 b = 149,738.42 N/A N/A 3,311.86 c = 11,167,244.918 N/A N/A 490,084.786 d = 17.89 N/A N/A 10.37 International Limited Term Intermediate Term Fixed Income a = N/A 595,324.74 446,785.67 1,506,101.20 b = N/A 55,235.57 50,247.58 161,701.54 c = N/A 11,275,039.706 8,780,361.554 25,654,365.787 d = N/A 9.92 9.94 10.97 Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free a = 491,311.90 173,713.48 253,785.51 213,860.92 b = 56,912.10 22,983.20 34,703.12 29,171.12 c = 10,644,757.944 3,999,749.623 6,075,802.456 4,812,542.518 d = 9.29 10.71 9.92 10.51
First American Investment Funds, Inc. Historical Distribution Rates: Class C Monthly Declaring Quaterly Declaring ACDR = CD ACDR = CD POP POP CD = Current Distribution POP = Maximum Public Offering Price on 9/30/95 MD = Monthly declaring QD = Quaterly declaring
Stock Fund Equity Index Balanced Fund Asset Allocation MD MD MD MD CD = 0.3551 0.2739 0.3885 0.3711 POP = 19.56 13.34 12.13 11.72 Equity Income Diversified Growth Emerging Growth Regional Equity MD MD QD QD CD = 0.4076 0.1624 0.0226 0.7910 POP = 11.24 11.78 13.41 17.13 Special Equity Technology Health Securities Real Estate Sec Fund MD QD QD QD CD = 0.3759 N/A N/A 0.1080 POP = 17.89 N/A N/A 10.37 International Limited Term Intermediate Term Fixed Income MD MD MD MD CD = N/A 0.5550 0.5770 0.6510 POP = N/A 9.92 9.94 10.97 Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free MD MD MD MD CD = 0.5430 0.4760 0.4485 0.4860 POP = 9.29 10.71 9.92 10.51
First American Investment Funds, Inc. Historical Distribution Rates: Class B Monthly Declaring Quaterly Declaring ACDR = CD ACDR = CD POP POP CD = Current Distribution POP = Maximum Public Offering Price on 9/30/95 MD = Monthly declaring QD = Quaterly declaring
Stock Fund Equity Index Balanced Fund Asset Allocation QD QD MD MD CD = 0.2207 0.1790 0.2920 0.2839 POP = 19.49 13.3 12.09 11.68 Equity Income Diversified Growth Emerging Growth Regional Equity MD QD QD QD CD = 0.3316 0.0957 0.0023 0.0303 POP = 11.2 11.73 13.29 16.99 Special Equity Technology Health Securities Real Estate Sec Fund QD QD QD QD CD = 0.2407 N/A N/A N/A POP = 17.83 N/A N/A N/A International Limited Term Intermediate Term Fixed Income MD MD MD MD CD = N/A N/A N/A 0.5629 POP = N/A N/A N/A 10.94 Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free MD MD MD MD CD = N/A N/A N/A N/A POP = N/A N/A N/A N/A
First American Investment Funds, Inc. Historical Distribution Rates: Class A Monthly Declaring Quaterly Declaring ACDR = CD ACDR = CD POP POP CD = Current Distribution POP = Maximum Public Offering Price on 9/30/95 MD = Monthly declaring QD = Quaterly declaring
Stock Fund Equity Index Balanced Fund Asset Allocation MD MD MD MD CD = 0.3228 0.2519 0.3669 0.3504 POP = 20.49 13.98 12.69 12.28 Equity Income Diversified Growth Emerging Growth Regional Equity MD MD QD QD CD = 0.3909 0.1482 0.0226 0.0640 POP = 11.77 12.3 14.03 17.93 Special Equity Technology Health Securities Real Estate Sec Fund MD QD QD QD CD = 0.3447 N/A N/A N/A POP = 18.73 N/A N/A N/A International Limited Term Intermediate Term Fixed Income MD MD MD MD CD = N/A 0.5550 0.5770 0.6340 POP = N/A 10.12 10.33 11.41 Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free MD MD MD MD CD = 0.5430 0.4760 0.4485 0.4860 POP = 9.58 11.05 10.23 10.84
First American Investment Funds, Inc. Annualized Current Distribution Rates: Class C Monthly Declaring Quaterly Declaring ACDR = CD*12 ACDR = CD*4 POP POP CD = Current Distribution POP = Maximum Public Offering Price on 9/30/95 MD = Monthly declaring QD = Quaterly declaring
Stock Fund Equity Index Balanced Fund Asset Allocation MD MD MD MD CD = 0.0281 0.0222 0.0326 0.029 POP = 19.56 13.34 12.13 11.72 Equity Income Diversified Growth Emerging Growth Regional Equity MD MD QD QD CD = 0.0238 N/A NA N/A POP = 11.24 N/A NA N/A Special Equity Technology Health Science Fund Real Estate MD QD QD QD CD = 0.0183 NA NA 0.148 POP = 17.89 NA NA 10.37 International Limited Term Intermediate Term Fixed Income MD MD MD MD CD = NA 0.046 0.045 0.051 POP = NA 9.92 9.94 10.97 Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free MD MD MD MD CD = 0.046 0.038 0.037 0.041 POP = 9.29 10.72 9.92 10.51
First American Investment Funds, Inc. Annualized Current Distribution Rates: Class B Monthly Declaring Quaterly Declaring ACDR = CD*12 ACDR = CD*4 POP POP CD = Current Distribution POP = Maximum Public Offering Price on 9/30/95 MD = Monthly declaring QD = Quaterly declaring
Stock Fund Equity Index Balanced Fund Asset Allocation MD MD MD MD CD = 0.0132 0.0128 0.0237 0.0203 POP = 19.49 13.3 12.09 11.68 Equity Income Diversified Growth Emerging Growth Regional Equity MD MD QD QD CD = 0.0155 N/A N/A N/A POP = 11.20 N/A N/A N/A Special Equity Technology Health Science Fund Real Estate MD QD QD QD CD = 0.0042 N/A NA NA POP = 17.83 N/A NA NA International Limited Term Intermediate Term Fixed Income MD MD MD MD CD = NA N/A NA 0.0426 POP = NA N/A NA 10.94 Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free MD MD MD MD CD = NA NA NA NA POP = NA NA NA NA
First American Investment Funds, Inc. Annualized Current Distribution Rates: Class A Monthly Declaring Quaterly Declaring ACDR = CD*12 ACDR = CD*4 POP POP CD = Current Distribution POP = Maximum Public Offering Price on 9/30/95 MD = Monthly declaring QD = Quaterly declaring
Stock Fund Equity Index Balanced Fund Asset Allocation MD MD MD MD CD = 0.0242 0.0196 0.0301 0.0267 POP = 20.49 13.98 12.69 12.28 Equity Income Diversified Growth Emerging Growth Regional Equity MD MD QD QD CD = 0.0215 0 N/A N/A POP = 11.77 12.30 N/A N/A Special Equity Technology Health Science Fund Real Estate MD QD QD QD CD = 0.0144 N/A NA N/A POP = 18.73 N/A NA N/A International Limited Term Intermediate Term Fixed Income MD MD MD MD CD = NA 0.046 0.045 0.0487 POP = NA 10.12 10.33 11.41 Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free MD MD MD MD CD = 0.046 0.038 0.037 0.041 POP = 9.58 11.05 10.23 10.84
First American Investment Funds, Inc. Tax Equivalent Yield Class A TEY= TFY (1-TR) TEY = Tax Equivalent Yield TFY = Tax Free Yield TR = Maximum Tax Rate Inter. Term Tax Free Minnesota Tax Free Colorado Tax Free TEY = 6.84% 7.72% 7.47% TFY = 4.13% 4.27% 4.29% TR = 39.60% 44.70% 42.60% First American Investment Funds, Inc. Tax Equivalent Yield Class C TEY= TFY (1-TR) TEY = Tax Equivalent Yield TFY = Tax Free Yield TR = Maximum Tax Rate Inter. Term Tax Free Minnesota Tax Free Colorado Tax Free TEY = 7.05% 7.96% 7.70% TFY = 4.26% 4.40% 4.42% TR = 39.60% 44.70% 42.60% First American Investment Funds, Inc. Tax Equivalent Distribution Rate Class A TEDR= ACDR (1-TR) TEDR = Tax Equivalent Distribution Rate ACDR = Annualized Current Distribution Rate TR = Maximum Tax Rate Inter. Term Tax Free Minnesota Tax Free Colorado Tax Free TEDR = 6.84% 7.85% 7.91% ACDR = 4.13% 4.34% 4.54% TR = 39.60% 44.70% 42.60% First American Investment Funds, Inc. Tax Equivalent Distribution Rates Class C TEDR= ACDR (1-TR) TEDR = Tax Equivalent Distribution Rate ACDR = Annualized Current Distribution Rate TR = Maximum Tax Rate Inter. Term Tax Free Minnesota Tax Free Colorado Tax Free TEDR = 7.04% 8.10% 8.15% ACDR = 4.25% 4.48% 4.68% TR = 39.60% 44.70% 42.60% EX-17 10 FINANCIAL DATA SCHEDULES - SEE EXHIBITS NUMBERED EX-27 EX-27 11
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 041 STOCK FUND RETAIL CLASS A 1,000 YEAR SEP-30-1995 OCT-1-1994 SEP-30-1995 289,054 332,696 1,763 2 0 334,461 1,295 0 480 1,775 0 10,526 668 510 235 0 17,941 0 43,642 332,686 5,358 1,676 0 1,971 5,063 17,763 35,581 58,407 0 182 307 0 3,938 1,552 463 2,849 52 6,667 0 0 1,705 0 2,349 243,514 16.51 0.33 3.64 0.32 0.59 0 19.57 1.00 0 0
EX-27 12
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 042 STOCK FUND INSTITUTIONAL CLASS C 1,000 YEAR SEP-30-1995 OCT-1-1994 SEP-30-1995 289,054 332,696 1,763 2 0 334,461 1,295 0 480 1,775 0 253,795 15,976 9,389 235 0 17,941 0 43,642 332,686 5,358 1,676 0 1,971 5,063 17,763 35,581 58,407 0 4,669 6,156 0 155,804 50,899 7,982 140,908 52 6,667 0 0 1,705 0 2,349 243,514 16.50 0.36 3.64 0.35 0.59 0 19.56 0.79 0 0
EX-27 13
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 043 STOCK FUND RETAIL CLASS B 1,000 YEAR SEP-30-1995 OCT-1-1994 SEP-30-1995 289,054 332,696 1,763 2 0 334,461 1,295 0 480 1,775 0 6,547 362 21 235 0 17,941 0 43,642 332,686 5,358 1,676 0 1,971 5,063 17,763 35,581 58,407 0 29 26 0 6,337 195 54 6,196 52 6,667 0 0 1,705 0 2,349 243,514 16.49 0.26 3.55 0.22 0.59 0 19.49 1.79 0 0
EX-27 14
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 061 EQUITY INDEX FUND RETAIL CLASS A 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 173321 220147 2224 7 0 222378 0 0 109 109 0 1784 160 71 110 0 2723 0 46841 222269 4610 422 0 645 4387 3024 40679 48090 0 28 7 0 1205 181 33 1057 38 1134 0 0 1277 0 1736 182448 10.68 .25 2.76 .25 .09 0 13.35 .57 0 0
EX-27 15
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 062 EQUITY INDEX FUND INSTITUTIONAL CLASS C 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 173321 220147 2224 7 0 222378 0 0 109 109 0 169709 16409 15336 110 0 2723 0 46841 222269 4610 422 0 645 4387 3024 40679 48090 0 4282 1427 0 47941 40076 5459 13324 38 1134 0 0 1277 0 1736 182448 10.67 .28 2.75 .27 .09 0 13.34 .35 0 0
EX-27 16
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 063 EQUITY INDEX FUND RETAIL CLASS B 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 173321 220147 2224 7 0 222378 0 0 109 109 0 1102 90 3 110 0 2723 0 46841 222269 4610 422 0 645 4387 3024 40679 48090 0 5 1 0 1092 24 5 1073 38 1134 0 0 1277 0 1736 182448 10.66 .23 2.68 .18 .09 0 13.3 1.35 0 0
EX-27 17
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 111 BALANCED FUND RETAIL CLASS A 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 189537 209856 1533 6 0 211935 546 0 296 842 0 13117 1262 1303 203 0 7141 0 20319 210553 2249 5139 0 1364 6024 7484 18934 32442 0 458 188 0 1737 2783 640 (406) 24 1709 0 0 1175 0 1626 167788 10.54 .38 1.72 .37 .15 0 12.12 .99 0 0
EX-27 18
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 112 BALANCED FUND INSTITUTIONAL CLASS C 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 189537 209856 1533 6 0 211395 546 0 296 842 0 166821 15846 11891 203 0 7141 0 20319 210553 2249 5139 0 1364 6024 7484 18934 32442 0 5355 1857 0 76127 38755 7075 44447 24 1709 0 0 1175 0 1626 167788 10.54 .40 1.73 .39 .15 0 12.13 .79 0 0
EX-27 19
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 113 BALANCED FUND RETAIL CLASS B 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 189537 209856 1533 6 0 211395 546 0 296 842 0 2952 258 26 203 0 7141 0 20319 210553 2249 5139 0 1364 6024 7484 18934 32442 0 32 7 0 2774 134 37 2678 24 1709 0 0 1175 0 1626 167788 10.53 .29 1.71 .29 .15 0 12.09 1.79 0 0
EX-27 20
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 121 ASSET ALLOCATION FUND RETAIL CLASS A 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 39149 44573 300 6 0 44879 0 0 105 105 0 870 85 68 33 0 1409 0 5424 44774 599 1245 0 340 1504 1590 4397 7491 0 24 15 0 298 145 37 190 10 919 0 0 299 0 437 42767 10.39 .36 1.58 .35 .25 0 11.73 .99 0 0
EX-27 21
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 122 ASSET ALLOCATION INSTITUTIONAL CLASS C 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 39149 44573 300 6 0 44879 0 0 105 105 0 36507 3686 4548 33 0 1409 0 5424 44774 599 1245 0 340 1504 1590 4397 7491 0 1451 1084 0 8308 19615 2516 (8791) 10 919 0 0 299 0 437 42767 10.38 .38 1.58 .37 .25 0 11.72 .79 0 0
EX-27 22
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 123 ASSET ALLOCATION FUND RETAIL CLASS B 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 39149 44573 300 6 0 44879 0 0 105 105 0 531 49 1 33 0 1409 0 5424 44774 599 1245 0 340 1504 1590 4397 7491 0 6 1 0 543 30 7 520 10 919 0 0 299 0 437 42767 10.37 .27 1.57 .28 .25 0 11.68 1.79 0 0
EX-27 23
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 201 EQUITY INCOME FUND RETAIL CLASS A 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 49193 55002 357 49 0 55408 0 0 54 54 0 1881 178 187 104 0 (29) 0 5809 55354 1499 519 0 317 1701 435 5876 8012 0 70 0 0 623 789 67 (99) 30 (466) 0 0 290 0 445 41426 9.89 .41 1.33 .39 0 0 11.24 .92 0 0
EX-27 24
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 202 EQUITY INCOME FUND INSTITUTIONAL CLASS C 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 49193 55002 357 49 0 55408 0 0 54 54 0 46419 4636 1768 104 0 (29) 0 5809 55354 1499 519 0 317 1701 435 5876 8012 0 1562 0 0 35073 6696 196 28573 30 (466) 0 0 290 0 445 41426 9.89 .41 1.35 .41 0 0 11.24 .75 0 0
EX-27 25
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 203 EQUITY INCOME FUND RETAIL CLASS B 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 49193 55002 357 49 0 55408 0 0 54 54 0 1170 110 0 104 0 (29) 0 5809 55354 1499 519 0 317 1701 435 5876 8012 0 11 0 0 1241 82 10 1169 30 (466) 0 0 290 0 445 41426 9.88 .33 1.32 .33 0 0 11.20 1.75 0 0
EX-27 26
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 211 DIVERSIFIED GROWTH FUND RETAIL CLASS A 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 114020 135636 844 28 0 136508 0 0 125 125 0 2416 231 209 146 0 (790) 0 21616 136383 1497 508 0 621 1384 2291 21333 25008 0 29 0 0 877 622 29 284 20 (3081) 0 0 574 0 839 82056 9.09 .15 2.66 .15 0 0 11.75 .92 0 0
EX-27 27
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 212 DIVERSIFIED GROWTH FUND INSTITUTIONAL CLASS C 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 114020 135636 844 28 0 136508 0 0 125 125 0 112233 11276 3502 146 0 (790) 0 21616 136383 1497 508 0 621 1384 2291 21333 25008 0 1245 0 0 91647 14227 411 77831 20 (3081) 0 0 574 0 839 82056 9.10 .17 2.67 .16 0 0 11.78 .75 0 0
EX-27 28
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 213 DIVERSIFIED GROWTH FUND RETAIL CLASS B 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 114020 135636 844 28 0 136508 0 0 125 125 0 762 70 1 146 0 (790) 0 21616 136383 1497 508 0 621 1384 2291 21333 25008 0 2 0 0 765 18 2 749 20 (3081) 0 0 574 0 839 82056 9.09 .09 2.65 .10 0 0 11.73 1.75 0 0
EX-27 29
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 161 EMERGING GROWTH FUND RETAIL CLASS A 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 36277 42215 186 19 0 42420 0 0 50 50 0 331 29 9 19 0 1029 0 5938 42370 50 178 0 186 42 1122 5699 6863 0 0 1 0 275 31 1 245 1 66 0 0 153 0 263 21884 10.57 .01 2.99 .02 .15 0 13.4 1.04 0 0
EX-27 30
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 162 EMERGING GROWTH FUND INSTITUTIONAL CLASS C 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 36277 42215 186 19 0 42420 0 0 50 50 0 34819 3112 649 19 0 1029 0 5938 42370 50 178 0 186 42 1122 5699 6863 0 24 158 0 30230 2013 54 28271 1 66 0 0 153 0 263 21884 10.56 .03 2.99 .02 .15 0 13.41 .84 0 0
EX-27 31
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 163 EMERGING GROWTH FUND RETAIL CLASS B 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 36277 42215 186 19 0 42420 0 0 50 50 0 234 20 2 19 0 1029 0 5938 42370 50 178 0 186 42 1122 5699 6863 0 0 0 0 249 33 0 216 1 66 0 0 153 0 263 21884 10.55 .03 2.92 0 .15 0 13.29 1.84 0 0
EX-27 32
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 071 REGIONAL EQUITY FUND RETAIL CLASS A 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 164422 211425 2461 8 0 213894 2310 0 454 2764 0 10222 871 666 317 0 15539 0 47003 211130 1181 1125 0 1238 1068 16157 37100 54325 0 45 216 0 4213 1456 261 3018 0 2179 0 0 995 0 1398 142106 12.52 .08 4.9 .06 .32 0 17.12 1.05 0 0
EX-27 33
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 072 REGIONAL EQUITY FUND INSTITUTIONAL CLASS C 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 164422 211425 2461 8 0 213894 2310 0 454 2764 0 131400 11007 7668 317 0 15539 0 47003 211130 1181 1125 0 1238 1068 16157 37100 54325 0 705 2571 0 60768 17586 3115 46297 0 2179 0 0 995 0 1398 142106 12.52 .11 4.9 .08 .32 0 17.13 .84 0 0
EX-27 34
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 073 REGIONAL EQUITY FUND RETAIL CLASS B 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 164422 211425 2461 8 0 213894 2310 0 454 2764 0 6649 4491 15 317 0 15539 0 47003 211130 1181 1125 0 1238 1068 16157 37100 54325 0 1 10 0 6573 119 9 6463 0 2179 0 0 995 0 1398 142106 12.5 .04 4.8 .03 .32 0 16.99 1.84 0 0
EX-27 35
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 051 SPECIAL EQUITY FUND RETAIL CLASS A 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 201234 216250 2327 8 0 218585 143 0 200 343 0 10058 649 424 75 0 14938 0 15016 218242 3070 2559 0 1600 4029 15970 4572 24571 0 182 473 0 5207 2109 649 3747 0 8102 0 0 1241 0 1728 177233 17.3 .35 1.6 .34 1.02 0 17.89 1.09 0 0
EX-27 36
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 052 SPECIAL EQUITY FUND INSTITUTIONAL CLASS C 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 201234 216250 2327 8 0 218585 143 0 200 343 0 173630 11279 7445 75 0 14938 0 15016 218242 3070 2559 0 1600 4029 15970 4572 24571 0 3740 8609 0 72724 20701 10320 62343 0 8102 0 0 1241 0 1728 177233 17.30 .38 1.61 .38 1.02 0 17.89 .88 0 0
EX-27 37
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 053 SPECIAL EQUITY FUND RETAIL CLASS B 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 201234 216250 2327 8 0 218585 143 0 200 343 0 4525 272 21 0 0 14938 0 15016 218242 3070 2559 0 1600 4029 15970 4572 24571 0 32 52 0 4195 114 79 4160 0 8102 0 0 1241 0 1728 177233 17.29 .29 1.51 .24 1.02 0 17.83 1.88 0 0
EX-27 38
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 151 TECHNOLOGY FUND RETAIL CLASS A 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 25785 32523 299 18 0 32840 36 0 37 73 0 1250 80 6 0 0 3294 0 6738 32767 22 70 0 159 (67) 3397 6007 9337 0 0 2 0 1267 72 2 1197 (3) 143 0 0 121 0 230 17346 11.19 (.03) 7.31 0 .23 0 18.24 1.13 0 0
EX-27 39
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 152 TECHNOLOGY FUND INSTITUTIONAL CLASS C 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 25785 32523 299 18 0 32840 36 0 37 73 0 19697 1605 580 0 0 3294 0 6738 32767 22 70 0 159 (67) 3397 6007 9337 0 0 174 0 15964 1921 26 14069 (3) 143 0 0 121 0 230 17346 11.19 (.03) 7.31 0 .23 0 18.24 .88 0 0
EX-27 40
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 153 TECHNOLOGY FUND RETAIL CLASS B 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 25785 32523 299 18 0 32840 36 0 37 73 0 1788 113 0 0 0 3294 0 6738 32767 22 70 0 159 (67) 3397 6007 9337 0 0 0 0 1825 39 0 1786 (3) 143 0 0 121 0 230 17346 11.17 (.04) 7.12 0 .23 0 18.02 1.88 0 0
EX-27 41
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 221 REAL ESTATE SECURITIES FUND RETAIL CLASS A 1,000 YEAR SEP-30-1995 JUN-30-1995 SEP-30-1995 5784 5954 51 13 0 6018 254 0 6 260 0 1 0 0 0 11 0 0 170 5758 70 8 0 9 69 0 170 239 0 0 0 0 1 0 0 1 0 0 0 0 8 0 27 4578 10.37 0 .01 0 0 0 10.38 0 0 0
EX-27 42
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 222 REAL ESTATE SECURITIES FUND INSTITUTIONAL CLASS C 1,000 YEAR SEP-30-1995 JUN-30-1995 SEP-30-1995 5784 5954 51 13 0 6018 254 0 6 260 0 5597 555 0 0 11 0 0 170 5758 70 8 0 9 69 0 170 239 0 58 0 20 5595 0 0 5595 0 0 0 0 8 0 27 4578 10.00 .13 .39 .11 0 .04 10.37 .80 0 0
EX-27 43
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 223 REAL ESTATE SECURITIES FUND RETAIL CLASS B 1,000 YEAR SEP-30-1995 JUN-30-1995 SEP-30-1995 5784 5954 51 13 0 6018 254 0 6 260 0 1 0 0 0 11 0 0 170 5758 70 8 0 9 69 0 170 239 0 0 0 0 1 0 0 1 0 0 0 0 8 0 27 4578 10.37 0 0 0 0 0 10.37 0 0 0
EX-27 44
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 172 INTERNATIONAL EQUITY FUND RETAIL CLASS A 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 86028 95697 1327 18 1334 98376 (1059) 0 (1735) (2794) 0 832 85 45 1609 0 (6170) 0 9427 95582 984 312 0 (1214) 82 (4066) 8158 4174 0 0 0 0 49 (9) 0 40 (415) (234) 0 0 869 0 1263 581 10.21 0 .07 0 0 0 10.28 1.93 0 0
EX-27 45
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 171 INTERNATIONAL EQUITY FUND INSTITUTIONAL CLASS C 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 86028 95697 1327 18 1334 98376 (1059) 0 (1735) (2794) 0 89600 9166 4695 1609 0 (6170) 0 9427 95582 984 312 0 (1214) 82 (4066) 8158 4174 0 0 0 0 5347 (876) 0 4471 (415) (234) 0 0 869 0 1263 68797 10.22 .01 .07 0 0 0 10.30 .88 0 0
EX-27 46
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 173 INTERNATIONAL EQUITY FUND RETAIL CLASS B 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 86028 95697 1327 18 1334 98376 (1059) 0 (1735) (2794) 0 284 30 2 1609 0 (6170) 0 9427 95582 984 312 0 (1214) 82 (4066) 8158 4174 0 0 0 0 31 (3) 0 28 (415) (234) 0 0 869 0 1263 123 10.21 (.03) .02 0 0 0 10.20 2.76 0 0
EX-27 47
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 081 LIMITED TERM FUND RETAIL CLASS A 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 124493 124518 919 123 0 125560 4000 0 144 4144 0 10618 1005 965 38 0 (3916) 0 25 121416 0 6700 0 642 6058 (1327) 2575 7306 0 544 3 0 7494 7576 482 400 1 23 0 0 749 0 1064 106920 9.85 .56 .07 .56 0 0 9.92 .60 0 0
EX-27 48
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 082 LIMITED TERM FUND INSTITUTIONAL CLASS C 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 124493 124518 919 123 0 125560 4000 0 144 4144 0 114651 11231 7134 38 0 (3916) 0 25 121416 0 6700 0 642 6058 (1327) 2575 7306 0 5548 20 0 73439 38162 4773 40050 1 23 0 0 749 0 1064 106920 9.85 .56 .07 .56 0 0 9.92 .60 0 0
EX-27 49
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 091 INTERMEDIATE TERM INCOME FUND RETAIL A 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 88954 89811 1054 21 0 90886 0 0 74 74 0 2494 245 336 1 0 (456) 0 857 90812 0 5440 0 573 4867 542 3016 8425 0 158 1 0 200 1216 143 (873) 0 (973) 0 0 573 0 779 81860 9.55 .59 .38 .58 0 0 9.94 .70 0 0
EX-27 50
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 092 INTERMEDIATE TERM INCOME FUND INSTITUTIONAL CLASS C 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 88954 89811 1054 21 0 90886 0 0 74 74 0 87916 8888 7164 1 0 (456) 0 857 90812 0 5440 0 573 4867 542 3016 8425 0 4708 23 0 32461 19532 3568 16497 0 (973) 0 0 573 0 779 81860 9.55 .58 .39 .58 0 0 9.94 .70 0 0
EX-27 51
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 031 FIXED INCOME FUND RETAIL CLASS A 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 303659 310163 3454 105 0 312722 0 0 8773 8773 0 7906 715 774 134 0 2364 0 6504 304949 0 13903 0 1430 12473 3351 9685 25509 0 424 22 0 2212 3165 387 (566) 6 (524) 0 0 1395 0 1927 199211 10.37 .66 .61 .63 .03 0 10.98 .86 0 0
EX-27 52
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 032 FIXED INCOME FUND INSTITUTIONAL CLASS C 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 303659 310163 3454 105 0 312722 0 0 8773 8773 0 280882 26410 8700 134 0 2364 0 6504 304949 0 13903 0 1430 12473 3351 9685 25509 0 11794 440 0 225170 42680 4951 187441 6 (524) 0 0 1395 0 1927 199211 10.37 .66 .62 .65 .03 0 10.97 .70 0 0
EX-27 53
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 033 FIXED INCOME FUND RETAIL CLASS B 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 303659 310163 3454 105 0 312722 0 0 8773 8773 0 7159 666 11 134 0 2364 0 6504 304949 0 13903 0 1430 12473 3351 9685 25509 0 127 1 0 7180 255 118 7043 6 (524) 0 0 1395 0 1927 199211 10.35 .58 .60 .56 .03 0 10.94 1.7 0 0
EX-27 54
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 011 INTERMEDIATE GOVERNMENT BOND FUND RETAIL CLASS A 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 97459 100800 1921 1 458 103180 0 0 152 152 0 2891 308 220 9 0 (155) 0 3341 103028 0 5520 0 565 4955 (76) 3665 8544 0 127 0 0 1260 545 99 814 0 (79) 0 0 566 0 779 80790 8.98 .54 .31 .54 0 0 9.29 .70 0 0
EX-27 55
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 012 INTERMEDIATE GOVERNMENT BOND FUND INSTITUTIONAL CLASS C 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 97459 100800 1921 1 458 103180 0 0 152 152 0 96942 10785 3094 9 0 (155) 0 3341 103028 0 5520 0 565 4955 (76) 3665 8544 0 4819 0 0 83288 14740 315 68863 0 (79) 0 0 566 0 779 80790 8.98 .54 .31 .54 0 0 9.29 .70 0 0
EX-27 56
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 021 INTERMEDIATE TAX FREE FUND RETAIL CLASS A 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 45151 46285 2045 0 0 48330 1270 0 52 1322 0 977 92 110 1 0 335 0 1134 47008 0 1587 0 198 1389 376 1232 1608 0 44 0 0 397 622 36 (189) (41) (98) 0 0 206 0 312 29405 10.28 .49 .43 .48 0 0 10.72 .67 0 0
EX-27 57
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 022 INTERMEDIATE TAX FREE FUND INSTITUTIONAL CLASS C 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 45151 46285 2045 0 0 48330 1270 0 52 1322 0 44561 4295 600 1 0 335 0 1134 47008 0 1587 0 198 1389 376 1232 1608 0 1344 0 0 49729 11501 64 38292 (41) (98) 0 0 206 0 312 29405 10.28 .49 .43 .48 0 0 10.72 .67 0 0
EX-27 58
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 142 MINNESOTA INSURED INTERMEDIATE TAX FREE FUND RETAIL CLASS A 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 58482 62097 1860 19 0 63976 0 0 64 64 0 2162 224 157 9 0 202 0 2226 63912 0 2942 0 377 2565 214 2478 5257 0 86 0 0 878 307 71 642 0 0 0 0 377 0 537 53918 9.58 .46 .33 .45 0 0 9.92 .70 0 0
EX-27 59
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 141 MINNESOTA INSURED INTERMEDIATE TAX FREE FUND INSTITUTIONAL CLASS C 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 58482 62097 1860 19 0 63976 0 0 64 64 0 59313 6219 2114 9 0 202 0 2226 63912 0 2942 0 377 2565 214 2478 5257 0 2470 0 0 69842 31135 82 38789 0 0 0 0 377 0 537 53918 9.59 .45 .33 .45 0 0 9.92 .70 0 0
EX-27 60
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 131 COLORADO INTERMEDIATE TAX FREE FUND RETAIL CLASS A 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 49303 51314 985 19 0 52318 0 0 57 57 0 2148 208 68 2 0 233 0 2011 52260 0 2251 0 284 1967 234 2043 4244 0 63 0 0 1496 74 29 1451 2 1 0 0 284 0 413 40595 10.15 .49 .36 .49 0 0 10.51 .70 0 0
EX-27 61
6 0000820892 FIRST AMERICAN INVESTMENT FUNDS 132 COLORADO INTERMEDIATE TAX FREE FUND INSTITUTIONAL CLASS C 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 49303 51314 985 19 0 52318 0 0 57 57 0 47866 4764 717 2 0 233 0 2011 52260 0 2251 0 284 1967 234 2043 4244 0 1904 2 0 47042 6496 14 40560 2 1 0 0 284 0 413 40595 10.16 .48 .36 .49 0 0 10.51 .70 0 0
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