1933 Act Registration No. 33-16905
                                             1940 Act Registration No. 811-05309


   As filed with the Securities and Exchange Commission on September 24, 2004


                                  UNITED STATES
                       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. 72            [ x ]


                                     and/or

               REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
                                   ACT OF 1940
                             Amendment No. 72                     [ x ]




                      FIRST AMERICAN INVESTMENT FUNDS, INC.
               (Exact Name of Registrant as Specified in Charter)


                                800 Nicollet Mall
                          Minneapolis, Minnesota 55402
               (Address of Principal Executive Offices) (Zip Code)


                                 (612) 303-4241
              (Registrant's Telephone Number, including Area Code)




                             Charles R. Manzoni, Jr.
                               U.S. Bancorp Center
                          800 Nicollet Mall, BC-MN-HOSF
                          Minneapolis, Minnesota 55402
                     (Name and Address of Agent for Service)


                                    Copy to:
                              Kathleen L. Prudhomme
                              Dorsey & Whitney LLP
                        50 South Sixth Street, Suite 1500
                              Minneapolis, MN 55402


It is proposed that this filing will 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.
     [ X ]  75 days after filing pursuant to paragraph (a)(2) of Rule 485.
     [   ]  on date pursuant to paragraph (a)(2) of Rule 485.







October 1, 2004
Prospectus
First American Investment Funds, Inc.
ASSET CLASS ~ Bond Funds

Income Funds
Class A and Class C Shares
Inflation Protected Securities Fund


As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved the shares of this fund, or determined if the information in this prospectus is accurate or complete. Any statement to the contrary is a criminal offense.



 



Table of

Contents

Fund Summary

Inflation Protected Securities Fund

Policies & Services

Buying Shares

Selling Shares

Managing Your Investment

Additional Information

Management

More About The Fund

For More Information



 



Fund Summary

Introduction

This section of the prospectus describes the objective of the First American Inflation Protected Securities Fund, summarizes the principal investment strategies used by the fund in trying to achieve its objective, and highlights the risks involved with these strategies. It also provides you with information about the performance, fees, and expenses of the fund.

An investment in the fund is not a deposit of U.S. Bank National Association and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

This prospectus and the related Statement of Additional Information do not constitute an offer to sell or a solicitation of an offer to buy shares in the fund, nor shall any such shares be offered or sold to any person in any jurisdiction in which an offer, solicitation, purchase, or sale would be unlawful under the securities laws of such jurisdiction.



Prospectus – First American Inflation Protected Securities Fund
Class A and Class C Shares

1



Fund Summary

Inflation Protected Securities FUND


Objective

Inflation Protected Securities Fund seeks to provide investors with total return that exceeds the rate of inflation over an economic cycle.


Principal Investment Strategies

Under normal market conditions, Inflation Protected Securities Fund will invest primarily (at least 80% of its net assets, plus the amount of any borrowings for investment purposes) in inflation protected debt securities. These securities will be issued by the U.S. and non-U.S. governments, their agencies and instrumentalities, and corporations. The fund’s investments in U.S. Government inflation protected securities will include U.S. Treasury inflation-protection securities as well as inflation protected securities issued by agencies and instrumentalities of the U.S. Government. Securities issued by the U.S. Treasury are backed by the full faith and credit of the U.S. Government. Some securities issued by agencies and instrumentalities of the U.S. Government are supported only by the credit of the issuing agency or instrumentality.

Inflation protected debt securities are designed to provide protection against the negative effects of inflation. Unlike traditional debt securities, which pay regular fixed interest payments on a fixed principal amount, interest payments on inflation protected debt securities will vary with the rate of inflation. Inflation protected debt securities have two common structures. The U.S. Treasury and some other issuers use a structure that accrues inflation into the principal value of the bond. If the index measuring the rate of inflation rises, the principal value of the security will increase. Because interest payments will be calculated with respect to a larger principal amount, interest payments also will increase. Conversely, if the index measuring the rate of inflation falls, the principal value of the security will fall and interest payments will decrease. Other issuers adjust the interest rates payable on the security according to the rate of inflation, but the principal amount remains the same.

The U.S. Treasury uses the Consumer Price Index for Urban Consumers (CPI-U) as the inflation measure. Inflation protected bonds issued by a foreign government are generally adjusted to reflect an inflation index calculated by that government. In the event of sustained deflation, the U.S. Treasury has guaranteed that it will repay at maturity at least the original face value of the inflation protected securities that it issues. Other inflation protected debt securities that accrue inflation into their principal value may or may not provide a similar guarantee. For securities that do not provide such a guarantee, the adjusted principal value of the security repaid at maturity may be less than the original principal value.

Up to 20% of the Fund’s assets may be invested in holdings that are not inflation protected . These holdings may include the following:

When selecting securities for the fund, the portfolio managers use a “top-down” approach, looking first at general economic factors and market conditions. The managers then select securities that they believe have strong relative value based on an analysis of a security’s characteristics (such as principal value, coupon rate, maturity, duration and yield) in light of these general economic factors and market conditions.

The fund invests primarily in securities rated investment grade at the time of purchase or in unrated securities of comparable quality. However, up to 10% of the fund’s net assets may be invested in securities that are rated lower than investment grade at the time of purchase or that are unrated and of comparable quality (securities commonly referred to as “high-yield” securities or “junk bonds”). The fund will not invest in securities rated lower than B at the time of purchase or in unrated securities of equivalent quality. Quality determinations regarding unrated securities will be made by the fund’s advisor.

The fund may invest up to 20% of its net assets in non-dollar denominated securities, and may invest without limitation in U.S. dollar denominated securities of foreign issuers.

The fund may invest in debt securities of any maturity, but expects to maintain , under normal market conditions, a weighted average effective maturity of between 8 and 15 years and an average effective duration of between 4 and 10 years . The fund’s weighted average effective maturity and average effective duration are measure s of how the fund may react to interest rate changes.

To generate additional income, the fund may lend securities representing up to one-third of the value of its total assets to broker-dealer, banks, and other institutions.

The fund may utilize the following derivatives: options; futures contracts; options on futures contracts; foreign currency contracts; interest rate caps and floors; index- and other asset-linked notes; swap agreements, including swap agreements on interest rates, currency rates, security indexes and specific securities, and credit default swap agreements; and options on the foregoing types of swap agreements. The fund may also invest in commodity-linked derivative instruments, including swap agreements on commodity indexes or specific commodities; commodity options, futures and options on futures; and commodity-linked notes. The fund may enter into standardized derivatives contracts traded on domestic or foreign securities

Prospectus – First American Inflation Protected Securities Fund
Class A and Class C Shares

2



Fund Summary

Inflation Protected Securities FUND continued

exchanges, boards of trade, or similar entities, and non-standardized derivatives contracts traded in the over-the-counter (“OTC”) market. The fund will use these derivatives in an attempt to manage market or business risk .


Principal Risks

The price and yield of this fund will change daily due to changes in interest rates, inflation and other factors, which means you could lose money. The principal risks of investing in this fund include:

Interest Rate Risk.    Debt securities typically decrease in value when interest rates rise and increase in value when interest rates fall, with longer-term debt securities generally being more sensitive to interest rate changes. However, interest rates on conventional debt securities have two components: a “real” interest rate and an increment that reflects investor expectations of future inflation. Because interest rates on inflation protected securities are adjusted for inflation, the values of these securities are not materially affected by inflation expectations. Therefore, the values of inflation protected debt securities are expected to change in response to changes in “real” interest rates. Generally, the value of an inflation protected debt security will fall when real interest rates rise and rise when real interest rates fall. Effective maturity and effective duration, explained in “More About the Fund — Investment Strategies,” are measures of the fund’s interest rate risk. A lthough inflation protected debt securities are expected to be protected from long-term inflationary trends, short-term increases in inflation may lead to a decline in the fund’s value. See “Risks of Indexing Methodology,” below.

Income Risk.    The fund’s income could decline due to falling market interest rates. In addition, the fund’s income distributions are expected to fluctuate significantly more than those of a typical bond fund, since the fund’s income will change with changes in inflation. During periods of extreme deflation, the fund could have no income at all to distribute.

Credit Risk.    An issuer of debt securities may not make timely principal or interest payments on its securities, or the other party to a contract may default on its obligations. There is also the risk that an issuer could suffer adverse changes in financial condition that could lower the credit quality of a security.

Call Risk.    During periods of falling interest rates, a bond issuer may “call” — or repay — its high-yielding bonds before their maturity date. The fund would then be forced to invest the unanticipated proceeds at lower interest rates, resulting in a decline in the fund’s income.

Tax Consequences of Inflation Adjustments.    Periodic adjustments for inflation to the principal amount of an inflation protected security will give rise to original issue discount, which will be includable in the fund’s gross income. Because the fund is required to distribute its taxable income to avoid corporate level tax, the fund may be required to make annual distributions to shareholders that exceed the cash it receives, which may require the fund to liquidate certain investments when it is not advantageous to do so.

Risks of Indexing Methodology.    There can be no assurance that the CPI-U or any foreign inflation index will accurately measure the real rate of inflation in the prices of goods and services. Moreover, there can be no assurance that the rate of inflation in a foreign country will be correlated to the rate of inflation in the United States. If the market perceives that the adjustment mechanism of an inflation protected security does not accurately adjust for inflation, the value of the security could be adversely affected. There may be a lag between the time a security is adjusted for inflation and the time interest is paid on that security. This may have an adverse effect on the trading price of the security, particularly during periods of significant, rapid changes in inflation. In addition, to the extent that inflation has increased during the period of time between the inflation adjustment and the interest payment, the interest payment will not be protected from the inflation increase.

Liquidity Risk.    The market for inflation protected debt securities is relatively new and is still developing. For this reason, the market may, at times, have relatively low trading volume, which could result in lower liquidity and increased volatility in prices.

Risks of Mortgage- and Asset-Backed Securities.    Falling interest rates could cause faster than expected prepayments of the obligations underlying mortgage- and asset-backed securities, which the fund would have to re invest at lower interest rates. This is referred to as “prepayment risk.” On the other hand, rising interest rates could cause prepayments of the obligations to decrease, extending the life of mortgage- and asset-backed securities and causing their interest rate sensitivity to increase. This is referred to as “extension risk.” For additional explanation, see “Prepayment Risk” and “Extension Risk” in “More About The Fund — Risks.”

Foreign Security Risk.    Investing in the securities of foreign issuers may involve risks not associated with the securities of domestic issuers, including the risks of adverse currency fluctuations, potential political and economic instability, limited liquidity and volatile prices of non-U.S. securities, limited availability of information regarding non-U.S. companies, investment and repatriation restrictions, and foreign taxation.

Risks of High-Yield Securities.    A portion of the fund’s portfolio may consist of lower-rated debt obligations, which are commonly called “high-yield” securities or “junk bonds.” High-yield securities generally have more volatile prices and carry more risk to principal than investment grade securities. High-yield securities may be more susceptible to real or perceived



Prospectus – First American Inflation Protected Securities Fund
Class A and Class C Shares

3



Fund Summary

Inflation Protected Securities FUND continued

adverse economic conditions than investment grade securities. In addition, the secondary trading market may be less liquid.

Risks of Securities Lending.    When the fund lends securities, it is subject to the risk that the other party to a securities lending agreement will default on its obligation.

Risks of Derivative Instruments.    The fund will suffer a loss in connection with its use of derivatives if interest rates, currencies, indices, or securities or commodities prices do not move in the direction anticipated by the fund’s advisor when entering into the derivative instruments or, in the case of credit default swaps, if the fund’s advisor does not correctly evaluate the creditworthiness of the company or companies on which the swap is based. The Fund may enter into OTC derivatives. Transactions in the OTC markets generally are conducted between institutions on a principal-to-principal basis. The terms and conditions of these instruments generally are not standardized and tend to be more specialized or complex, and the instruments may be harder to value. In addition, there may not be a liquid market for OTC derivatives. As a result, it may not be possible to initiate a transaction or liquidate a position at an advantageous time or price.

Risks of Active Management.     The fund is actively managed and its performance therefore will reflect in part the advisor’s ability to make investment decisions which are suited to achieving the fund’s investment objective. Due to its active management, the fund could underperform other mutual funds with similar investment objectives.


Fund Performance

Because Inflation Protected Securities Fund was not offered prior to the date of this prospectus, no performance information is presented.



Prospectus – First American Inflation Protected Securities Fund
Class A and Class C Shares

4



Fund Summary

Inflation Protected Securities FUND continued


Fees and Expenses

As an investor, you pay fees and expenses to buy and hold shares of the fund. You pay shareholder fees directly when you buy or sell shares. You pay annual fund operating expenses indirectly since they are deducted from fund assets.

     

SHAREHOLDER FEES (fees paid directly from your investment)   Class A   Class C  

Maximum Sales Charge (Load)       4.25 %   1.00 %
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price)
      4.25 % 1   0.00 %
Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase price or redemption proceeds, whichever is less)
      0.00 % 2   1.00 %
Annual Maintenance Fee 3
only charged to accounts with balances below $500
      $50     $50  
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets)
(as a percentage of average net assets)
           

Management Fees       0.50 %   0.50 %
Distribution and Service (12b-1) Fees       0.25 %   1.00 %
Other Expenses 4       0.30 %   0.30 %
Total Annual Fund Operating Expenses 5       1.05 %   1.80 %

1 Certain investors may qualify for reduced sales charges. See “Policies & Services — Buying Shares, Calculating Your Share Price.”

2 Class A share investments of $1 million or more on which no front-end sales charge is paid may be subject to a 1% contingent deferred sales charge. See “Policies & Services — Buying Shares, Calculating Your Share Price.”

3 The fund reserves the right to charge your account an annual maintenance fee of $50 if your balance falls below $500 as a result of selling or exchanging shares. See “Policies & Services — Selling Shares, Accounts with Low Balances.”

4 “Other Expenses” are based on estimated amounts for the current fiscal year.

5 The advisor intends to voluntarily waive fees during the current fiscal year so that total operating expenses, after waivers, do not exceed 0.85% and 1.60%, respectively, for Class A and Class C shares. Fee waivers may be discontinued at any time.


Example This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. It assumes that you invest $10,000 for the time periods indicated, that your investment has a 5% return each year, and that the fund’s operating expenses remain the same. Although your actual costs and returns may differ, based on these assumptions your costs would be:

    Class A   Class C
assuming redemption
at end of each period
  Class C
assuming no redemption
at end of each period
 

1 year     $528   $283   $183  
3 years     $745   $566   $566  


Prospectus – First American Inflation Protected Securities Fund
Class A and Class C Shares

5



Policies & Services

Buying Shares

This prospectus offers Class A and Class C shares , which have different cost structures. You should decide which class best suits your needs. Generally, it is more advantageous for an investor who is considering an investment in Class C shares of more than $1,000,000, or who is otherwise eligible to purchase Class A shares without a front-end sales charge, to invest in Class A shares instead.

Class A Shares.    Class A shares have:

Class C Shares.    Class C shares have:


12b-1 Fees

The fund has adopted a plan under Rule 12b-1 of the Investment Company Act that allows it to pay the fund’s distributor an annual fee for the distribution and sale of its shares and for services provided to shareholders.

For 12b-1 fees are equal to:

Class A shares 0.25% of average daily net assets
Class C shares 1% of average daily net assets

Because these fees are paid out of the fund’s assets on an ongoing basis, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges.

The Class A share 12b-1 fee is a shareholder servicing fee. For Class C shares, a portion of the 12b-1 fee equal to 0.25% of average daily net assets is a shareholder servicing fee and 0.75% is a distribution fee. The fund’s distributor may use these fees to compensate investment professionals, participating institutions, and “one-stop” mutual fund networks (institutions) for sales and/or administrative services performed on behalf of the institution’s customers. The advisor or the distributor may pay additional fees to institutions out of their own assets in exchange for these services.


Calculating Your Share Price

Your purchase price will be based on the fund’s net asset value (NAV) per share, which is generally calculated as of the close of regular trading on the New York Stock Exchange (usually 3:00 p.m. Central time) every day the exchange is open.

The fund’s NAV is equal to the market value of its investments and other assets, less any liabilities, divided by the number of fund shares. If market prices are not readily available for an investment or if the advisor believes they are unreliable, fair value prices may be determined in good faith using methods approved by the fund’s board of directors.

Class A Shares.    Your purchase price for Class A shares is typically the net asset value of your shares, plus a front-end sales charge. Sales charges vary depending on the amount of your purchase. The fund’s distributor receives the sales charge you pay and reallows a portion of the sales charge to your investment professional or participating institution.

  Sales Charge
  As a % of
Offering
Price
As a % of
Net Asset
Value
Maximum
Reallowance
as a % of
Purchase
Price

Less than $50,000 4.25%   4.44%   4.00%
$50,000 – $99,999 4.00%   4.17%   3.75%
$100,000 – $249,999 3.50%   3.63%   3.25%
$250,000 – $499,999 2.50%   2.56%   2.25%
$500,000 – $999,999 2.00%   2.04%   1.75%
$1 million and over 0.00%   0.00%   0.00%

Reducing Your Sales Charge.    As shown in the preceding table, larger purchases of Class A shares reduce the percentage sales charge you pay. In determining whether you are entitled to pay a reduced sales charge, you may aggregate certain other purchases with your current purchase, as described below.

T o take advantage of the aggregation feature s described below , you must notify the fund at the time of the purchase order that a quantity discount may apply to your current purchase. If you purchase shares by mail, you must notify the fund in writing. Otherwise, simply inform your investment professional or financial institution, or Investors Services if you are purchasing shares by wire, and they will notify the fund.

You should provide your investment professional or financial institution with information or records regarding any other accounts in which there are holdings eligible to be aggregated, including:



Prospectus – First American Inflation Protected Securities Fund
Class A and Class C Shares

6



Policies & Services

Buying Shares continued

You should keep the records necessary to demonstrate the purchase price of shares held in these accounts since neither the fund and its transfer agent nor your investment professional or financial institution may have this information.

Prior Purchases.    Prior purchases of Class A, Class B, and Class C shares of any First American fund (except a money market fund) will be factored into your sales charge calculation. That is, you will receive credit for either the original purchase price or the current net asset value of the other Class A, Class B, and Class C shares you hold at the time of your purchase, whichever is greater. For example, let’s say you’re making a $10,000 investment and you already own other First American fund Class A shares that you purchased for $25,000, but that are now valued at $45,000. Since the current net asset value of your shares is greater than their purchase price, you will receive credit for their current value and your sales charge will be based on a total purchase amount of $55,000.

Purchases by Related Accounts.    Concurrent and prior purchases of Class A, Class B, and Class C shares of any First American fund by certain other accounts also will be combined with your purchase to determine your sales charge. The fund will combine purchases made by you, your spouse, and your children when it calculates the sales charge , including purchases in individual retirement, custodial and personal trust accounts .

Letter of Intent.    If you plan to invest $50,000 or more over a 13-month period in Class A, Class B, or Class C shares of any First American fund except the money market funds, you may reduce your sales charge by signing a non-binding letter of intent. (If you do not fulfill the letter of intent, you must pay the applicable sales charge.) In addition, if you reduce your sales charge to zero under a letter of intent and then sell your Class A shares within 18 months of their purchase, you may be charged a contingent deferred sales charge of 1%. See “For Investments of Over $1 Million.”

More information on these ways to reduce your sales charge appears in the Statement of Additional Information (SAI).

Purchasing Class A Shares Without a Sales Charge.     The following persons may purchase the fund’s Class A shares at net asset value without a sales charge:

Additional Information.     A link to additional information regarding the fund’s shares and sales charge breakpoints will be available on the fund’s web site at http://www.firstamericanfunds.com, beginning no later than December 31, 2004.



Prospectus – First American Inflation Protected Securities Fund
Class A and Class C Shares

7



Policies & Services

Buying Shares continued

For Investments of Over $1 Million

There is no initial sales charge on Class A share purchases of $1 million or more. However, your investment professional or financial institution may receive a commission of up to 1% on your purchase. If such a commission is paid, you will be assessed a contingent deferred sales charge (CDSC) of 1% if you sell your shares within 18 months. To find out whether you will be assessed a CDSC, ask your investment professional or financial institution. The fund’s distributor receives any CDSC imposed when you sell your Class A shares. The CDSC is based on the value of your shares at the time of purchase or at the time of sale, whichever is less. The charge does not apply to shares you acquired by reinvesting your dividend or capital gain distributions.

To help lower your costs, shares that are not subject to a CDSC will be sold first. Other shares will then be sold in an order that minimizes your CDSC. The CDSC for Class A shares will be waived for:

Class C Shares.    Your purchase price for Class C shares is their net asset value — there is no front-end sales charge. However, if you redeem your shares within 12 months of purchase, you will be assessed a contingent deferred sales charge (CDSC) of 1% of the value of your shares at the time of purchase or at the time of sale, whichever is less. The CDSC does not apply to shares you acquired by reinvesting your dividend or capital gain distributions. Shares will be sold in the order that minimizes your CDSC.

Although you pay no front-end sales charge when you buy Class C shares, the fund’s distributor pays a sales commission of 1% of the amount invested to your investment professional or participating institution. The distributor receives any CDSC imposed when you sell your Class C shares.

The CDSC will be waived for:


Monitoring Short-Term Trading

Some investors attempt to profit through short-term trading, or purchasing and redeeming the fund’s shares within a short time period. Frequent short-term trading may hurt the long-term performance of the fund by disrupting portfolio management strategies and increasing fund expenses. If the advisor believes that a shareholder has engaged in frequent short-term trading, it may refuse to process the shareholder’s purchase request and/or limit or cancel the shareholder’s exchange privileges (in addition to the four-exchange limit described under “Selling Shares — How to Exchange Shares”).

Although the advisor will attempt to monitor for short-term trading that could be detrimental to the fund and its shareholders, you should understand that this monitoring will not eliminate the possibility that frequent short-term trading in the fund may occur. For example, the ability of the advisor to monitor trades that are placed by the underlying shareholders of omnibus accounts maintained by brokers, retirement plan accounts, and approved fee-based program accounts is significantly limited when the underlying shareholder accounts are not maintained by the advisor.


How to Buy Shares

To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account.

What this means is that when you open an account, we will ask for your name, address, date of birth, and other information that will allow us to identify you. We may also ask for other identifying documents or information.

You may become a shareholder in the fund with an initial investment of $1,000 or more ($500 for a retirement plan or a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act (UGMA/UTMA) account). Additional investments can be made for as little as $100 ($25 for a retirement plan or an UGMA/UTMA account). The fund has the right to waive these minimum investment requirements for employees of the



Prospectus – First American Inflation Protected Securities Fund
Class A and Class C Shares

8



Policies & Services

Buying Shares continued

fund’s advisor and its affiliates. The fund also has the right to reject any purchase order.

You may buy shares on any day the New York Stock Exchange is open. However, purchases of shares may be restricted in the event of an early or unscheduled close of the New York Stock Exchange. Your shares will be priced at the next NAV calculated after your order is received in proper form by the fund or one of its “authorized financial intermediaries,” plus any applicable sales charge. An “authorized financial intermediary” is an investment professional or financial institution that the fund has authorized to accept orders on its behalf. To make sure that your order is in proper form, you must follow the directions for purchasing shares given below and supply the fund with any identifying information required under Federal law, as discussed above.

By Phone.    You may purchase shares by calling your investment professional or financial institution, if they have a sales agreement with the fund’s distributor. Orders placed through an authorized financial intermediary will be effective that day if received by the intermediary by the close of regular trading on the New York Stock Exchange. In the case of other investment professionals or financial institutions , you will have to transmit your request by an earlier time in order for your purchase request to be effective that day. This allows your investment professional or financial institution time to process your request and transmit it to the fund by the close of regular trading on the New York Stock Exchange . Some financial institutions may charge a fee for helping you purchase shares. Contact your investment professional or financial institution for more information.

If you are paying by wire, you may purchase shares by calling Investor Services at 800 677-FUND before the close of regular trading on the New York Stock Exchange (usually 3:00 p.m. Central time). All information will be taken over the telephone, and your order will be placed when the fund receives payment by wire. Wire federal funds as follows:

U.S. Bank National Association
ABA Number: 0750-00022
Account Number: 112-952-137
Credit to:  First American Inflation Protected Securities Fund
                  (investor name and investor account #)

You cannot purchase shares by wire on days when federally chartered banks are closed.

By Mail.    To purchase shares by mail, simply complete and sign a new account form, enclose a check made payable to the fund you wish to invest in, and mail both to:

First American Funds
P.O. Box 3011
Milwaukee, WI 53201–3011

Overnight express mail may be sent to:

First American Funds
615 East Michigan Street
Milwaukee, WI 53202

After you have established an account, you may continue to purchase shares by mailing your check to First American Funds at the same address.

Please note the following:


Investing Automatically

To purchase shares as part of a savings discipline, you may add to your investment on a regular basis:

You may apply for participation in either of these programs through your investment professional or financial institution or by calling Investor Services at 800 677-FUND.



Prospectus – First American Inflation Protected Securities Fund
Class A and Class C Shares

9



Policies & Services

Selling Shares


How to Sell Shares

You may sell your shares on any day when the New York Stock Exchange is open. However, redemption of shares may be restricted in the event of an early or unscheduled close of the New York Stock Exchange. Your shares will be sold at the next net asset value calculated after your order is accepted by the fund or an authorized financial intermediary , less any applicable contingent deferred sales charge. Be sure to read the section “Buying Shares” for a description of contingent deferred sales charges. To make sure that your order is in proper form , follow the directions for selling shares given below.

The proceeds from your sale normally will be mailed or wired within three days, but in no event more than seven days, after your request is received in proper form.

To minimize the effect of large redemption requests, the fund reserves the right to fulfill these redemption requests by distributing readily marketable securities in the fund’s portfolio, rather than paying you in cash. See “Redemption In Kind.”

By Phone.    If you purchased shares through an investment professional or financial institution, simply call them to sell your shares. If your investment professional or financial institution is an authorized financial intermediary, your redemption will be effective that day if received by the intermediary by the close of regular trading on the New York Stock Exchange. In the case of other investment professionals or financial institutions , you will have to call by an earlier time in order for your redemption to be effective that day. This allows your investment professional or financial institution time to process your request and transmit it to the fund by the close of regular trading on the New York Stock Exchange . Contact your investment professional or financial institution directly for more information.

If you did not purchase shares through an investment professional or financial institution, you may sell your shares by calling Investor Services at 800 677-FUND. Proceeds can be wired to your bank account (if the proceeds are at least $1,000 and you have previously supplied your bank account information to the fund) or sent to you by check. The First American funds reserve the right to limit telephone redemptions to $50,000 per day.

If you recently purchased your shares by check or through the Automated Clearing House (ACH), proceeds from the sale of those shares may not be available until your check or ACH payment has cleared, which may take up to 15 calendar days from the date of purchase.

By Mail.    To sell shares by mail, send a written request to your investment professional or financial institution, or to the fund at the following address:

First American Funds
P.O. Box 3011
Milwaukee, WI 53201–3011

Overnight express mail may be sent to:

First American Funds
615 East Michigan Street
Milwaukee, WI 53202

Your request should include the following information:

Signatures on a written request must be guaranteed if:

A signature guarantee assures that a signature is genuine and protects shareholders from unauthorized account transfers. Banks, savings and loan associations, trust companies, credit unions, broker-dealers, and member firms of a national securities exchange may guarantee signatures. Call your financial institution to determine if it has this capability.

Proceeds from a written redemption request will be sent to you by check unless another form of payment is requested.


Systematic Withdrawals

If your account has a value of $5,000 or more, you may redeem a specific dollar amount from your account on a regular basis. To set up systematic withdrawals, contact your investment professional or financial institution.

You should not make systematic withdrawals if you plan to continue investing in the fund, due to sales charges and tax liabilities.


Reinvesting After a Sale

If you sell Class A shares of a First American fund (except money market fund shares on which you have not paid a sales charge), you may reinvest in Class A shares of that fund or another First American fund within 180 days without a sales charge. To reinvest in Class A shares at net asset value (without paying a sales charge), you must notify the fund directly in writing or notify your investment professional or financial institution.



Prospectus – First American Inflation Protected Securities Fund
Class A and Class C Shares

10



Policies & Services

Selling Shares continued

Accounts with Low Balances

If your account balance falls below $500 as a result of selling or exchanging shares, the fund reserves the right to either:

Before taking any action, however, the fund will send you written notice of the action it intends to take and give you 30 days to re-establish a minimum account balance of $500.


How to Exchange Shares

If your investment goals or your financial needs change, you may move from one First American fund to another First American fund. There is no fee to exchange shares. You may exchange your shares on any day when the New York Stock Exchange is open. However, exchanges of shares may be restricted in the event of an early or unscheduled close of the New York Stock Exchange.

Generally, you may exchange your shares only for shares of the same class. However, you may exchange your Class A shares for Class Y shares of the same or another First American fund if you subsequently become eligible to participate in that class (for example, by opening a fiduciary, custody, or agency account with a financial institution which invests in Class Y shares).

Exchanges are made based on the net asset value per share of each fund at the time of the exchange. When you exchange your Class A shares of the fund for Class A shares of another First American fund, you do not have to pay a sales charge. When you exchange your Class C shares for Class C shares of another First American fund, the time you held the shares of the “old” fund will be added to the time you hold the shares of the “new” fund for purposes of determining your CDSC.

Before exchanging into any fund, be sure to read its prospectus carefully. A fund may change or cancel its exchange policies at any time. You will be notified of any changes. The First American funds have the right to limit exchanges to four times per year.

By Phone.    If both funds have identical shareholder registrations, you may exchange shares by calling your investment professional, your financial institution, or by calling the funds directly. To request an exchange through the funds, call Investor Services at 800 677-FUND. Your instructions must be received before 3:00 p.m. Central time, or by the earlier time specified by an investment professional or financial institution that is not an authorized financial intermediary , in order for shares to be exchanged the same day.

By Mail.    To exchange shares by written request, please follow the procedures under “Selling Shares.” Be sure to include the names of both funds involved in the exchange.

Telephone Transactions

You may buy, sell, or exchange shares by telephone, unless you elected on your new account form to restrict this privilege. If you wish to reinstate this option on an existing account, please call Investor Services at 800 677-FUND to request the appropriate form.

The fund and its agents will not be responsible for any losses that may result from acting on wire or telephone instructions that they reasonably believe to be genuine. The fund and its agents will each follow reasonable procedures to confirm that instructions received by telephone are genuine, which may include taping telephone conversations.

It may be difficult to reach the fund by telephone during periods of unusual market activity. If you are unable to reach the fund or its agents by telephone, please consider sending written instructions.


Redemption In Kind

Generally, proceeds from redemption requests will be paid in cash. However, to minimize the effect of large redemption requests on the fund and its remaining shareholders, the fund reserves the right to pay part or all of the proceeds from a redemption request in a proportionate share of readily marketable securities in the fund instead of cash. In selecting securities for a redemption in kind, the advisor will consider the best interests of the fund and the remaining fund shareholders, and will value these securities in accordance with the pricing methods employed to calculate the fund’s net asset value per share. If you receive redemption proceeds in kind, you should expect to incur transaction costs upon disposition of the securities received in the redemption.



Prospectus – First American Inflation Protected Securities Fund
Class A and Class C Shares

11



Policies & Services

Managing Your Investment


Staying Informed

Shareholder Reports.    Shareholder reports are mailed twice a year, in November and May. They include financial statements and performance information, and, on an annual basis, a message from your portfolio managers and the auditors’ report.

In an attempt to reduce shareholder costs and help eliminate duplication, the fund will try to limit its mailings to one report for each address that lists one or more shareholders with the same last name. If you would like additional copies, please call Investor Services at 800 677-FUND.

Statements and Confirmations.    Statements summarizing activity in your account are mailed quarterly. Confirmations are mailed following each purchase or sale of fund shares. Generally, the fund does not send statements for funds held in a brokerage account.


Dividends and Distributions

Dividends from the fund’s net investment income are declared and paid monthly. Any capital gains are distributed at least once each year.

On the ex-dividend date for a distribution, the fund’s share price is reduced by the amount of the distribution. If you buy shares just before the ex-dividend date, in effect, you “buy the dividend.” You will pay the full price for the shares and then receive a portion of that price back as a taxable distribution.

Dividend and capital gain distributions will be reinvested in additional shares of the fund, unless you request that distributions be reinvested in another First American fund or paid in cash. This request may be made on your new account form or by contacting your financial institution. If you request that your distributions be paid in cash but those distributions cannot be delivered because of an incorrect mailing address, the undelivered distributions and all future distributions will be reinvested in fund shares at the current NAV.


Taxes

Some of the tax consequences of investing in the fund are discussed below. More information about taxes is in the Statement of Additional Information. However, because everyone’s tax situation is unique, always consult your tax professional about federal, state, and local tax consequences.

Taxes on Distributions.    The fund pays its shareholders dividends from its net investment income and any net capital gains that it has realized. For most investors, fund dividends and distributions are taxable whether they are reinvested or taken in cash (unless your investment is in an IRA or other tax-advantaged account).

Dividends from the fund’s net investment income and short-term capital gains are taxable as ordinary income. Distributions of the fund’s long-term capital gains are taxable as long-term gains, regardless of how long you have held your shares. The fund expects that, as a result of its investment objective and strategies, its distributions will consist primarily of ordinary income and that the distributions will not be treated as “qualified dividends” that are taxed at the same rates as long-term capital gains.

Periodic adjustments for inflation to the principal amount of an inflation protected security will give rise to original issue discount, which will be includable in the fund’s gross income. Because the fund is required to distribute its taxable income to avoid corporate level tax , the fund may be required to make annual distributions to shareholders that exceed the cash it receives, which may require the fund to liquidate certain investments when it is not advantageous to do so. Also, if the principal value of an inflation protected security is adjusted downward due to deflation, amounts previously distributed in the taxable year may be characterized in some circumstances as a return of capital. Estimates of inflation may be used in the determination of monthly income dividend rates.

Taxes on Transactions.    The sale of fund shares, or the exchange of the fund’s shares for shares of another First American fund, will be a taxable event and may result in a capital gain or loss. The gain or loss will be considered long-term if you have held your shares for more than one year. A gain or loss on shares held for one year or less is considered short-term and is taxed at the same rates as ordinary income.

If in redemption of his or her shares a shareholder receives a distribution of readily marketable securities instead of cash, the shareholder will be treated as receiving an amount equal to the fair market value of the securities at the time of the distribution for purposes of determining capital gain or loss on the redemption, and will also acquire a basis in the shares for federal income tax purposes equal to their fair market value.

The exchange of one class of the fund’s shares for another class of the fund’s shares will not be taxable.



Prospectus – First American Inflation Protected Securities Fund
Class A and Class C Shares

12



Additional Information

Management

U.S. Bancorp Asset Management, Inc., is the fund’s investment advisor. U.S. Bancorp Asset Management provides investment management services to individuals and institutions, including corporations, foundations, pensions, and retirement plans. As of June 30, 2004, U.S. Bancorp Asset Management and its affiliates had more than $ 122 billion in assets under management, including investment company assets of more than $ 56 billion. As investment advisor, U.S. Bancorp Asset Management manages the fund’s business and investment activities, subject to the authority of the fund’s board of directors. The fund pays the investment advisor a monthly fee for providing investment advisory services equal, on an annual basis, to 0.50% of the fund’s average daily net assets.

Direct Correspondence to:

First American Funds
P.O. Box 1330
Minneapolis, MN 55440-1330

Investment Advisor

U.S. Bancorp Asset Management, Inc.
800 Nicollet Mall
Minneapolis, MN 55402

Distributor

Quasar Distributors, LLC
615 E. Michigan Street
Milwaukee, WI 53202

Additional Compensation

U.S. Bancorp Asset Management and other affiliates of U.S. Bancorp may act as fiduciary with respect to plans subject to the Employee Retirement Income Security Act of 1974 (ERISA) and other trust and agency accounts that invest in the First American funds. As described above, U.S. Bancorp Asset Management receives compensation for acting as the fund’s investment advisor. U.S. Bancorp Asset Management and its affiliates also receive compensation in connection with the following:

Custody Services.    U.S. Bank National Association (U.S. Bank) provides or compensates others to provide custody services to the fund. U.S. Bank is paid monthly fees equal, on an annual basis, to 0.01% of the fund’s average daily net assets. In addition, U.S. Bank is reimbursed for its out-of-pocket expenses incurred while providing custody services to the fund.

Administration Services.    U.S. Bancorp Asset Management and its affiliate, U.S. Bancorp Fund Services, LLC (Co-Administrators), provide or compensate others to provide administrative services to the First American family of funds. These services include general administrative and accounting services, transfer agency and dividend disbursing services, blue sky services, and shareholder services. With respect to the First American open-end mutual funds, the Co-Administrators receive total fees, on an annual basis, of up to 0.25% of the aggregate average daily net assets of First American Investment Funds, Inc., First American Strategy Funds, Inc., and First American Insurance Portfolios, Inc., and up to 0.20% of the aggregate average daily net assets of First American Funds, Inc. The funds also pay the Co-Administrators fees based upon the number of funds and shareholder accounts maintained. In addition, the Co-Administrators are reimbursed for their out-of-pocket expenses incurred while providing administration services to the funds.

Distribution Services.    Quasar Distributors, LLC, an affiliate of U.S. Bancorp Asset Management, serves as distributor of the fund and receives sales charges, distribution and shareholder servicing fees, and is reimbursed for its out of pocket expenses incurred while providing distribution and other sub-administrative services for the fund.

Securities Lending Services.    In connection with lending its portfolio securities, the fund pays administrative and custodial fees to U.S. Bancorp Asset Management which are equal to 35 % of the fund’s income from these securities lending transactions.

Shareholder Servicing Fees.    To the extent that fund shares are held through U.S. Bancorp Asset Management, U.S. Bank or their broker-dealer affiliate, U.S. Bancorp Investments, Inc., those entities may receive shareholder servicing fees from the fund’s distributor.

Portfolio Management

The fund is managed by a team of persons associated with U.S. Bancorp Asset Management.



Prospectus – First American Inflation Protected Securities Fund
Class A and Class C Shares

13



Additional Information

More About The Fund


Objective

The fund’s objective, which is described in the “Fund Summary” section, may be changed without shareholder approval. If the fund’s objective changes, you will be notified at least 60 days in advance. Please remember: There is no guarantee that the fund will achieve its objective.


Investment Strategies

The fund’s principal investment strategies are discussed in the “Fund Summary” section. These are the strategies that the fund’s investment advisor believes are most likely to be important in trying to achieve the fund’s objective. You should be aware that the fund may also use strategies and invest in securities that are not described in this prospectus, but that are described in the Statement of Additional Information (SAI). For a copy of the SAI, call Investor Services at 800 677-FUND.

Consistent with its name, the fund has adopted an investment strategy requiring that at least 80% of its net assets (plus the amount of any borrowings for investment purposes) be invested in inflation protected debt securities. You will be notified at least 60 days in advance of any change to this investment strategy.

Investment Approach.    Fund managers generally employ a “top-down” approach in selecting securities for the fund. First, they determine their economic outlook and the direction in which inflation and interest rates are expected to move. Then they choose certain sectors or industries within the overall market. Last, they select individual securities within those sectors for the fund. Fund managers also analyze expected changes to the yield curve under multiple market conditions to help define maturity and duration selection.

Effective Maturity.    Effective maturity differs from actual stated or final maturity, which may be substantially longer. In calculating effective maturity, the advisor estimates the effect of expected principal payments and call provisions on securities held in the portfolio. Effective maturity provides the advisor with a better estimate of interest rate risk under normal market conditions, but may underestimate interest rate risk in an environment of adverse (rising) interest rates.

Effective Duration.     Effective duration, one measure of interest rate risk, measures how much the value of a security is expected to change with a given change in interest rates. For example, if interest rates were to increase by one percentage point, the market value of a bond with an effective duration of five years would decrease by 5%, with all other factors being constant. However, all other factors are rarely constant. Effective duration is based on assumptions and subject to a number of limitations. It is most useful when interest rate changes are small, rapid, and occur equally in short-term and long-term securities. In addition, it is difficult to calculate precisely for bonds with prepayment options, such as mortgage- and asset-backed securities, because the calculation requires assumptions about prepayment rates. For these reasons, the effective durations of funds which invest a significant portion of their assets in these securities can be greatly affected by changes in interest rates.

Temporary Investments.    In an attempt to respond to adverse market, economic, political, or other conditions, the fund may temporarily invest without limit in cash and in U.S. dollar-denominated high-quality money market instruments and other short-term securities, including money market funds advised by the fund’s advisor. These investments may result in a lower yield than would be available from investments with a lower quality or longer term and may prevent the fund from achieving its investment objectives.

Portfolio Turnover.    Fund managers may trade securities frequently, resulting, from time to time, in an annual portfolio turnover rate of over 100%. Trading of securities may produce capital gains, which are taxable to shareholders when distributed. Active trading may also increase the amount of commissions or mark-ups to broker-dealers that the fund pays when it buys and sells securities.


Risks

The principal risks of investing in the fund are summarized in the “Fund Summary” section. More information about principal fund risks is presented below.

Income Risk.    The fund’s income could decline due to falling market interest rates. This is because, in a falling interest rate environment, the fund generally will have to invest the proceeds from sales of fund shares, as well as the proceeds from maturing portfolio securities (or portfolio securities that have been called, see “Call Risk,” or prepaid, see “Prepayment Risk”) in lower-yielding securities.

Credit Risk.    The fund is subject to the risk that the issuers of debt securities held by the fund will not make payments on the securities, or that the other party to a contract (such as a securities lending agreement or repurchase agreement) will default on its obligations. There is also the risk that an issuer could suffer adverse changes in financial condition that could lower the credit quality of a security. This could lead to greater volatility in the price of the security and in shares of the fund. Also, a change in the credit quality rating of a bond could affect the bond’s liquidity and make it more difficult for the fund to sell. When the fund purchases unrated securities, it will depend on the advisor’s analysis of credit risk more heavily than usual.

The fund attempts to minimize credit risk by investing primarily in securities considered at least investment grade at the time of purchase or in unrated securities of comparable quality. The fund may invest up to 10% of its net assets in securities rated lower than investment grade. However, all of these securities,



Prospectus – First American Inflation Protected Securities Fund
Class A and Class C Shares

14



Additional Information

especially those in the lower investment grade rating categories, have credit risk. In adverse economic or other circumstances, issuers of these lower rated securities are more likely to have difficulty making principal and interest payments than issuers of higher rated securities.

Risks of High-Yield Securities.    A portion of the fund’s portfolio may consist of lower-rated corporate debt obligations, which are commonly referred to as “high-yield” securities or “junk bonds.” Although these securities usually offer higher yields than investment grade securities, they also involve more risk. High-yield bonds may be more susceptible to real or perceived adverse economic conditions than investment grade bonds. In addition, the secondary trading market may be less liquid. High-yield securities generally have more volatile prices and carry more risk to principal than investment grade securities.

Liquidity Risk.    The fund is exposed to liquidity risk because of its investments in high-yield bonds. Trading opportunities are more limited for debt securities that have received ratings below investment grade. These features may make it more difficult to sell or buy a security at a favorable price or time. Consequently, the fund may have to accept a lower price to sell a security, sell other securities to raise cash, or give up an investment opportunity, any of which could have a negative effect on the fund’s performance. Infrequent trading may also lead to greater price volatility.

Foreign Security Risk.    International investing involves risks not typically associated with U.S. investing. These risks include:

Currency Risk.    Because foreign securities often trade in currencies other than the U.S. dollar, changes in currency exchange rates will affect the fund’s net asset value, the value of dividends and interest earned, and gains and losses realized on the sale of securities. A strong U.S. dollar relative to these other currencies will adversely affect the value of the fund.

Political and Economic Risks.    International investing is subject to the risk of political, social, or economic instability in the country of the issuer of a security, the difficulty of predicting international trade patterns, the possibility of the imposition of exchange controls, expropriation, limits on removal of currency or other assets, and nationalization of assets.

Foreign Tax Risk.    The fund’s income from foreign issuers may be subject to non-U.S. withholding taxes. In some countries, the fund also may be subject to taxes on trading profits and, on certain securities transactions, transfer or stamp duties tax. To the extent foreign income taxes are paid by the fund, U.S. shareholders may be entitled to a credit or deduction for U.S. tax purposes. See the Statement of Additional Information for details.

Risk of Investment Restrictions.    Some countries, particularly emerging markets, restrict to varying degrees foreign investment in their securities markets. In some circumstances, these restrictions may limit or preclude investment in certain countries or may increase the cost of investing in securities of particular companies.

Foreign Securities Market Risk.    Securities of many non-U.S. companies may be less liquid and their prices more volatile than securities of comparable U.S. companies. Securities of companies traded in many countries outside the U.S., particularly emerging markets countries, may be subject to further risks due to the inexperience of local investment professionals and financial institutions, the possibility of permanent or temporary termination of trading, and greater spreads between bid and asked prices for securities. In addition, non-U.S. stock exchanges and investment professionals are subject to less governmental regulation, and commissions may be higher than in the United States. Also, there may be delays in the settlement of non-U.S. stock exchange transactions.

Information Risk.    Non-U.S. companies generally are not subject to uniform accounting, auditing, and financial reporting standards or other regulatory requirements that apply to U.S. companies. As a result, less information may be available to investors concerning non-U.S. issuers. Accounting and financial reporting standards in emerging markets may be especially lacking.

Call Risk.    Many corporate bonds may be redeemed at the option of the issuer, or “called,” before their stated maturity date. In general, an issuer will call its bonds if they can be refinanced by issuing new bonds which bear a lower interest rate. The fund is subject to the possibility that during periods of falling interest rates, a bond issuer will call its high-yielding bonds. The fund would then be forced to invest the unanticipated proceeds at lower interest rates, resulting in a decline in the fund’s income.

Prepayment Risk.    Mortgage-backed securities are secured by and payable from pools of mortgage loans. Similarly, asset-backed securities are supported by obligations such as credit card loans, automobile loans, home equity loans, corporate bonds, or commercial loans. These mortgages and other obligations generally can be prepaid at any time without penalty. As a result, mortgage- and asset-backed securities are subject to prepayment risk, which is the risk that falling interest rates could cause prepayments of the securities to occur more quickly than expected. This occurs because, as interest rates fall, more homeowners refinance the mortgages underlying mortgage-related securities or prepay the debt obligations underlying asset-backed securities. The fund would have to reinvest the prepayments at a time when interest rates are falling, reducing the income of the fund. In addition, when interest



Prospectus – First American Inflation Protected Securities Fund
Class A and Class C Shares

15



Additional Information

rates fall, prices on mortgage- and asset-backed securities may not rise as much as for other types of comparable debt securities because investors may anticipate an increase in prepayments.

Extension Risk.    Mortgage- and asset-backed securities also are subject to extension risk, which is the risk that rising interest rates could cause mortgages or other obligations underlying the securities to be prepaid more slowly than expected, resulting in slower prepayments of the securities. This would, in effect, convert a short- or medium-duration mortgage- or asset-backed security into a longer-duration security, increasing its sensitivity to interest rate changes and causing its price to decline.

Risks of Securities Lending.    When the fund loans its portfolio securities, it will receive collateral equal to at least 100% of the value of the loaned securities. Nevertheless, the fund risks a delay in the recovery of the loaned securities, or even the loss of rights in the collateral deposited by the borrower if the borrower should fail financially. To reduce these risks, the fund enters into loan arrangements only with institutions which the fund’s advisor has determined are creditworthy under guidelines established by the fund’s board of directors.

Risks of Derivative Instruments.    The use of derivative instruments exposes the fund to additional risks and transaction costs. Risks inherent in the use of derivative instruments include: the risk that securities or commodities prices, index prices, currencies or interest rates will not move in the direction that the advisor anticipates; in the case of a credit default swap, the risk that the advisor will incorrectly evaluate the creditworthiness of the company or companies on which the swap is based; an imperfect correlation between the price of derivative instruments and movements in the prices of the securities being hedged; the possible absence of a liquid secondary market for any particular instrument and possible exchange imposed price fluctuation limits, either of which may make it difficult or impossible to close out a position when desired; leverage risk, which is the risk that adverse price movements in an instrument can result in a loss substantially greater than the fund’s initial investment in that instrument; and, particularly, in the case of privately negotiated instruments, the risk that the counterparty will fail to perform its obligations, which could leave the fund worse off than if it had not entered into the position. If the fund uses derivative instruments and the advisor’s judgment proves incorrect, the fund’s performance could be worse than if it had not used these instruments.

The fund’s investments in commodity-linked derivative instruments may subject the fund to greater volatility than investments in traditional securities. The value of commodity-linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments.



Prospectus – First American Inflation Protected Securities Fund
Class A and Class C Shares

16





For More Information

More information about the fund is available in the fund’s Statement of Additional Information and annual and semiannual reports, and on the First American funds’ Internet Web site.


First American Funds Web Site

Information about the First American funds may be viewed on the funds’ Internet Web site at http://www.firstamericanfunds.com.


Statement of Additional Information (SAI)

The SAI provides more details about the fund and its policies. A current SAI is on file with the Securities and Exchange Commission (SEC) and is incorporated into this prospectus by reference (which means that it is legally considered part of this prospectus).


Annual and Semiannual Reports

Additional information about the fund’s investments will be available in the fund’s annual and semiannual reports to shareholders. In the fund’s annual report, you will find a discussion of the market conditions and investment strategies that significantly affected the fund’s performance during its last fiscal year.

You can obtain a free copy of the fund’s SAI and/or free copies of the fund’s most recent annual or semiannual reports by calling Investor Services at 800 677-FUND. The material you request will be sent by first-class mail or other means designed to ensure equally prompt delivery, within three business days of receipt of the request.

You can also obtain copies of this information, after paying a duplicating fee, by electronic request at the following email address: publicinfo@sec.gov, or by writing the SEC’s Public Reference Section, Washington, D.C. 20549-0102. For more information, call 1-202-942-8090.

Information about the fund is also available on the Internet. Text-only versions of fund documents can be viewed online or downloaded from the EDGAR Database on the SEC’s Internet site at http://www.sec.gov.



First American Funds P.O. Box 1330, Minneapolis, MN 55440-1330

U.S. Bancorp Asset Management, Inc., serves as the investment advisor to the First American Funds.

PROIPSA     10/04

SEC file number:   811-05309

   First American Funds






October 1, 2004
Prospectus
First American Investment Funds, Inc.
ASSET CLASS ~ Bond Funds

Income Funds
Class R Shares
Inflation Protected Securities Fund


As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved the shares of this fund, or determined if the information in this prospectus is accurate or complete. Any statement to the contrary is a criminal offense.



 



Table of

Contents

Fund Summary

Inflation Protected Securities Fund

Policies & Services

Buying and Selling Shares

Managing Your Investment

Additional Information

Management

More About The Fund

For More Information



 



Fund Summary

Introduction

This section of the prospectus describes the objective of the First American Inflation Protected Securities Fund, summarizes the principal investment strategies used by the fund in trying to achieve its objective, and highlights the risks involved with these strategies. It also provides you with information about the performance, fees, and expenses of the fund.

An investment in the fund is not a deposit of U.S. Bank National Association and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

This prospectus and the related Statement of Additional Information do not constitute an offer to sell or a solicitation of an offer to buy shares in the fund, nor shall any such shares be offered or sold to any person in any jurisdiction in which an offer, solicitation, purchase, or sale would be unlawful under the securities laws of such jurisdiction.



Prospectus – First American Inflation Protected Securities Fund
Class R Shares

1



Fund Summary

Inflation Protected Securities FUND


Objective

Inflation Protected Securities Fund seeks to provide investors with total return that exceeds the rate of inflation over an economic cycle.


Principal Investment Strategies

Under normal market conditions, Inflation Protected Securities Fund will invest primarily (at least 80% of its net assets, plus the amount of any borrowings for investment purposes) in inflation protected debt securities. These securities will be issued by the U.S. and non-U.S. governments, their agencies and instrumentalities, and corporations. The fund’s investments in U.S. Government inflation protected securities will include U.S. Treasury inflation-protection securities as well as inflation protected securities issued by agencies and instrumentalities of the U.S. Government. Securities issued by the U.S. Treasury are backed by the full faith and credit of the U.S. Government. Some securities issued by agencies and instrumentalities of the U.S. Government are supported only by the credit of the issuing agency or instrumentality.

Inflation protected debt securities are designed to provide protection against the negative effects of inflation. Unlike traditional debt securities, which pay regular fixed interest payments on a fixed principal amount, interest payments on inflation protected debt securities will vary with the rate of inflation. Inflation protected debt securities have two common structures. The U.S. Treasury and some other issuers use a structure that accrues inflation into the principal value of the bond. If the index measuring the rate of inflation rises, the principal value of the security will increase. Because interest payments will be calculated with respect to a larger principal amount, interest payments also will increase. Conversely, if the index measuring the rate of inflation falls, the principal value of the security will fall and interest payments will decrease. Other issuers adjust the interest rates payable on the security according to the rate of inflation, but the principal amount remains the same.

The U.S. Treasury uses the Consumer Price Index for Urban Consumers (CPI-U) as the inflation measure. Inflation protected bonds issued by a foreign government are generally adjusted to reflect an inflation index calculated by that government. In the event of sustained deflation, the U.S. Treasury has guaranteed that it will repay at maturity at least the original face value of the inflation protected securities that it issues. Other inflation protected debt securities that accrue inflation into their principal value may or may not provide a similar guarantee. For securities that do not provide such a guarantee, the adjusted principal value of the security repaid at maturity may be less than the original principal value.

Up to 20% of the Fund’s assets may be invested in holdings that are not inflation protected . These holdings may include the following:

When selecting securities for the fund, the portfolio managers use a “top-down” approach, looking first at general economic factors and market conditions. The managers then select securities that they believe have strong relative value based on an analysis of a security’s characteristics (such as principal value, coupon rate, maturity, duration and yield) in light of these general economic factors and market conditions.

The fund invests primarily in securities rated investment grade at the time of purchase or in unrated securities of comparable quality. However, up to 10% of the fund’s net assets may be invested in securities that are rated lower than investment grade at the time of purchase or that are unrated and of comparable quality (securities commonly referred to as “high-yield” securities or “junk bonds”). The fund will not invest in securities rated lower than B at the time of purchase or in unrated securities of equivalent quality. Quality determinations regarding unrated securities will be made by the fund’s advisor.

The fund may invest up to 20% of its net assets in non-dollar denominated securities, and may invest without limitation in U.S. dollar denominated securities of foreign issuers.

The fund may invest in debt securities of any maturity, but expects to maintain , under normal market conditions, a weighted average effective maturity of between 8 and 15 years and an average effective duration of between 4 and 10 years . The fund’s weighted average effective maturity and average effective duration are measure s of how the fund may react to interest rate changes.

To generate additional income, the fund may lend securities representing up to one-third of the value of its total assets to broker-dealer, banks, and other institutions.

The fund may utilize the following derivatives: options; futures contracts; options on futures contracts; foreign currency contracts; interest rate caps and floors; index- and other asset-linked notes; swap agreements, including swap agreements on interest rates, currency rates, security indexes and specific securities, and credit default swap agreements; and options on the foregoing types of swap agreements. The fund may also invest in commodity-linked derivative instruments, including swap agreements on commodity indexes or specific commodities; commodity options, futures and options on futures; and commodity-linked notes. The fund may enter into standardized derivatives contracts traded on domestic or foreign securities

Prospectus – First American Inflation Protected Securities Fund
Class R Shares

2



Fund Summary

Inflation Protected Securities FUND continued

exchanges, boards of trade, or similar entities, and non-standardized derivatives contracts traded in the over-the-counter (“OTC”) market. The fund will use these derivatives in an attempt to manage market or business risk .


Principal Risks

The price and yield of this fund will change daily due to changes in interest rates, inflation and other factors, which means you could lose money. The principal risks of investing in this fund include:

Interest Rate Risk.    Debt securities typically decrease in value when interest rates rise and increase in value when interest rates fall, with longer-term debt securities generally being more sensitive to interest rate changes. However, interest rates on conventional debt securities have two components: a “real” interest rate and an increment that reflects investor expectations of future inflation. Because interest rates on inflation protected securities are adjusted for inflation, the values of these securities are not materially affected by inflation expectations. Therefore, the values of inflation protected debt securities are expected to change in response to changes in “real” interest rates. Generally, the value of an inflation protected debt security will fall when real interest rates rise and rise when real interest rates fall. Effective maturity and effective duration, explained in “More About the Fund — Investment Strategies,” are measures of the fund’s interest rate risk. A lthough inflation protected debt securities are expected to be protected from long-term inflationary trends, short-term increases in inflation may lead to a decline in the fund’s value. See “Risks of Indexing Methodology,” below.

Income Risk.    The fund’s income could decline due to falling market interest rates. In addition, the fund’s income distributions are expected to fluctuate significantly more than those of a typical bond fund, since the fund’s income will change with changes in inflation. During periods of extreme deflation, the fund could have no income at all to distribute.

Credit Risk.    An issuer of debt securities may not make timely principal or interest payments on its securities, or the other party to a contract may default on its obligations. There is also the risk that an issuer could suffer adverse changes in financial condition that could lower the credit quality of a security.

Call Risk.    During periods of falling interest rates, a bond issuer may “call” — or repay — its high-yielding bonds before their maturity date. The fund would then be forced to invest the unanticipated proceeds at lower interest rates, resulting in a decline in the fund’s income.

Tax Consequences of Inflation Adjustments.    Periodic adjustments for inflation to the principal amount of an inflation protected security will give rise to original issue discount, which will be includable in the fund’s gross income. Because the fund is required to distribute its taxable income to avoid corporate level tax, the fund may be required to make annual distributions to shareholders that exceed the cash it receives, which may require the fund to liquidate certain investments when it is not advantageous to do so.

Risks of Indexing Methodology.    There can be no assurance that the CPI-U or any foreign inflation index will accurately measure the real rate of inflation in the prices of goods and services. Moreover, there can be no assurance that the rate of inflation in a foreign country will be correlated to the rate of inflation in the United States. If the market perceives that the adjustment mechanism of an inflation protected security does not accurately adjust for inflation, the value of the security could be adversely affected. There may be a lag between the time a security is adjusted for inflation and the time interest is paid on that security. This may have an adverse effect on the trading price of the security, particularly during periods of significant, rapid changes in inflation. In addition, to the extent that inflation has increased during the period of time between the inflation adjustment and the interest payment, the interest payment will not be protected from the inflation increase.

Liquidity Risk.    The market for inflation protected debt securities is relatively new and is still developing. For this reason, the market may, at times, have relatively low trading volume, which could result in lower liquidity and increased volatility in prices.

Risks of Mortgage- and Asset-Backed Securities.    Falling interest rates could cause faster than expected prepayments of the obligations underlying mortgage- and asset-backed securities, which the fund would have to re invest at lower interest rates. This is referred to as “prepayment risk.” On the other hand, rising interest rates could cause prepayments of the obligations to decrease, extending the life of mortgage- and asset-backed securities and causing their interest rate sensitivity to increase. This is referred to as “extension risk.” For additional explanation, see “Prepayment Risk” and “Extension Risk” in “More About The Fund — Risks.”

Foreign Security Risk.    Investing in the securities of foreign issuers may involve risks not associated with the securities of domestic issuers, including the risks of adverse currency fluctuations, potential political and economic instability, limited liquidity and volatile prices of non-U.S. securities, limited availability of information regarding non-U.S. companies, investment and repatriation restrictions, and foreign taxation.

Risks of High-Yield Securities.    A portion of the fund’s portfolio may consist of lower-rated debt obligations, which are commonly called “high-yield” securities or “junk bonds.” High-yield securities generally have more volatile prices and carry more risk to principal than investment grade securities. High-yield securities may be more susceptible to real or perceived



Prospectus – First American Inflation Protected Securities Fund
Class R Shares

3



Fund Summary

Inflation Protected Securities FUND continued

adverse economic conditions than investment grade securities. In addition, the secondary trading market may be less liquid.

Risks of Securities Lending.    When the fund lends securities, it is subject to the risk that the other party to a securities lending agreement will default on its obligation.

Risks of Derivative Instruments.    The fund will suffer a loss in connection with its use of derivatives if interest rates, currencies, indices, or securities or commodities prices do not move in the direction anticipated by the fund’s advisor when entering into the derivative instruments or, in the case of credit default swaps, if the fund’s advisor does not correctly evaluate the creditworthiness of the company or companies on which the swap is based. The Fund may enter into OTC derivatives. Transactions in the OTC markets generally are conducted between institutions on a principal-to-principal basis. The terms and conditions of these instruments generally are not standardized and tend to be more specialized or complex, and the instruments may be harder to value. In addition, there may not be a liquid market for OTC derivatives. As a result, it may not be possible to initiate a transaction or liquidate a position at an advantageous time or price.

Risks of Active Management.     The fund is actively managed and its performance therefore will reflect in part the advisor’s ability to make investment decisions which are suited to achieving the fund’s investment objective. Due to its active management, the fund could underperform other mutual funds with similar investment objectives.


Fund Performance

Because Inflation Protected Securities Fund was not offered prior to the date of this prospectus, no performance information is presented.



Prospectus – First American Inflation Protected Securities Fund
Class R Shares

4



Fund Summary

Inflation Protected Securities FUND continued


Fees and Expenses

The fund does not impose any sales charges (loads) or other fees when you buy, sell, or exchange shares. However, when you hold shares of the fund you indirectly pay a portion of the fund’s operating expenses. These expenses are deducted from fund assets.

     

SHAREHOLDER FEES (fees paid directly from your investment)   Class R  

Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price)
      None  
Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase price or redemption proceeds, whichever is less)
      None  
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets)
(as a percentage of average net assets)
   

Management Fees       0.50 %
Distribution and Service (12b-1) Fees       0.50 %
Other Expenses        
   Shareholder Servicing Fee       0.15 %
   Miscellaneous 1       0.30 %
Total Annual Fund Operating Expenses 2       1.45 %

1 “Miscellaneous Other Expenses” are based on estimated amounts for the current fiscal year.

2 The advisor intends to voluntarily waive fees during the current fiscal year so that total operating expenses, after waivers, do not exceed 1.10%. Fee waivers may be discontinued at any time.


Example This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. It assumes that you invest $10,000 for the time periods indicated, that your investment has a 5% return each year, and that the fund’s operating expenses remain the same. Although your actual costs and returns may differ, based on these assumptions your costs would be:

     

1 year     $ 148  
3 years     $ 459  


Prospectus – First American Inflation Protected Securities Fund
Class R Shares

5



Policies & Services

Buying and Selling Shares

Inflation Protected Securities Fund issues its shares in multiple classes. This prospectus offers Class R shares.

Class R shares:


Calculating Your Share Price

Your purchase price will be equal to the fund’s net asset value (NAV) per share, which is generally calculated as of the close of regular trading on the New York Stock Exchange (usually 3:00 p.m. Central time) every day the exchange is open.

The fund’s NAV is equal to the market value of its investments and other assets, less any liabilities, divided by the number of fund shares. If market prices are not readily available for an investment or if the advisor believes they are unreliable, fair value prices may be determined in good faith using methods approved by the fund’s board of directors.


Monitoring Short-Term Trading

Some investors attempt to profit through short-term trading, or purchasing and redeeming the fund’s shares within a short time period. Frequent short-term trading may hurt the long-term performance of the fund by disrupting portfolio management strategies and increasing fund expenses. If the advisor believes that a shareholder has engaged in frequent short-term trading, it may refuse to process the shareholder’s purchase request and/or limit or cancel the shareholder’s exchange privileges (in addition to the four-exchange limit described under “Buying and Selling Shares — How to Exchange Shares”).

Although the advisor will attempt to monitor for short-term trading that could be detrimental to the fund and its shareholders, you should understand that this monitoring will not eliminate the possibility that frequent short-term trading in the fund may occur. For example, the ability of the advisor to monitor trades that are placed by the underlying shareholders of omnibus accounts maintained by brokers, retirement plan accounts, and approved fee-based program accounts is significantly limited when the underlying shareholder accounts are not maintained by the advisor.


How to Buy and Sell Shares

To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account.

What this means is that when you open an account, we will ask for your name, address, date of birth, and other information that will allow us to identify you. We may also ask for other identifying documents or information.

Class R shares are available to certain tax-deferred retirement plans (including 401(k) and other profit sharing plans, money purchase pension plans, and defined benefit plans), to be held in plan level or omnibus accounts. Class R shares are not available to non-retirement accounts, 403(b) plans, 457 plans, stock bonus plans, traditional or Roth IRAs, Coverdell Education Savings Accounts, SEPs, SAR-SEPs, SIMPLE IRAs, and most individual retirement accounts or retirement plans that are not subject to the Employee Retirement Income Security Act of 1974 (ERISA). Eligible retirement plans generally may open an account and purchase Class R shares by contacting any investment firm or plan administrator authorized to sell the fund’s shares. Participants in retirement plans generally must contact the plan’s administrator to purchase, sell or exchange shares. Shares may be purchased or sold on any day when the New York Stock Exchange is open.

Share purchases by eligible retirement plans must be made by wire transfer. Wire federal funds as follows:

U.S. Bank National Association
ABA Number: 0750-00022
Account Number: 112-952-137
Credit to: First American Inflation Protected Securities Fund
                  (investor name and investor account #)

The fund has authorized the plan administrators of retirement plans offering Class R shares to accept orders on the fund’s behalf. As a result, plan participants must place their purchase orders and redemption requests with their plan administrator by 3:00 p.m. Central time in order to receive that day’s price. Purchase orders and redemption requests may be restricted in the event of an early or unscheduled close of the New York Stock Exchange.

If your plan administrator receives a redemption request by 3:00 p.m. Central time, payment of the redemption proceeds will ordinarily be made by wire on the next business day. It is possible, however, that payment could be delayed by up to seven days.

To minimize the effect of large redemption requests, the fund reserves the right to fulfill these redemption requests by distributing readily marketable securities in the fund’s portfolio, rather than paying cash. See “Redemption In Kind” on the following page.


12b-1 Fees

The fund has adopted a plan under Rule 12b-1 of the Investment Company Act that allows the fund to pay its distributor an annual fee equal to 0.50% of the fund’s average daily net assets



Prospectus – First American Inflation Protected Securities Fund
Class R Shares

6



Policies & Services

Buying and Selling Shares continued

attributable to Class R shares for the distribution and sale of its Class R shares. The fund’s distributor uses the fee to pay commissions to investment firms and plan administrators that sell fund shares.

Because these fees are paid out of the fund’s assets on an ongoing basis, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges.


Shareholder Servicing Plan

The fund has also adopted a non-12b-1 shareholder servicing plan and agreement. Under this plan and agreement, the fund pays U.S. Bancorp Asset Management a shareholder servicing fee at an annual rate of 0.15% of the fund’s average daily net assets attributable to Class R shares for providing or arranging for the provision of shareholder services to plans or plan participants holding Class R shares. No distribution-related services are provided under this plan and agreement. U.S. Bancorp Asset Management is currently waiving all fees under this plan and agreement. This waiver may be discontinued at any time.

The adviser or the distributor may pay additional fees to investment firms and plan administrators out of their own assets in exchange for sales and/or administrative services performed on behalf of the investment firm’s or plan administrator’s customers.


How to Exchange Shares

If you are a plan participant and your investment goals or your financial needs change, you may exchange your shares for Class R shares of another First American fund offered through your retirement plan. Exchanges are made at the net asset value per share of each fund at the time of the exchange. There is no fee to exchange shares.

To exchange your shares, call your plan administrator. In order for your shares to be exchanged the same day, you must call your plan administrator by 3:00 p.m. Central time.

Before exchanging into any fund, be sure to read its prospectus carefully. A fund may change or cancel its exchange policies, or the funds offered through your retirement plan may change, at any time. You will be notified of any changes. The First American funds have the right to limit exchanges to four times per year.


Redemption In Kind

Generally, proceeds from redemption requests will be paid in cash. However, to minimize the effect of large redemption requests on the fund and its remaining shareholders, the fund reserves the right to pay part or all of the proceeds from a redemption request in a proportionate share of readily marketable securities in the fund instead of cash. In selecting securities for a redemption in kind, the advisor will consider the best interests of the fund and the remaining fund shareholders, and will value these securities in accordance with the pricing methods employed to calculate the fund’s net asset value per share. If you receive redemption proceeds in kind, you should expect to incur transaction costs upon disposition of the securities received in the redemption.



Prospectus – First American Inflation Protected Securities Fund
Class R Shares

7



Policies & Services

Managing Your Investment


Staying Informed

Shareholder Reports.    Shareholder reports are mailed twice a year, in November and May. They include financial statements and performance information, and, on an annual basis, a message from your portfolio managers and the auditors’ report.

In an attempt to reduce shareholder costs and help eliminate duplication, the fund will try to limit its mailings to one report for each address that lists one or more shareholders with the same last name. If you would like additional copies, please call Investor Services at 800 677-FUND.

Statements and Confirmations.    Statements summarizing activity in shareholder accounts are mailed quarterly. Confirmations are mailed following each purchase or sale of fund shares. Generally, the fund does not send statements to individuals who have their shares held in an omnibus account, such as retirement plan participants.


Dividends and Distributions

Dividends from the fund’s net investment income are declared and paid monthly. Any capital gains are distributed at least once each year.

On the ex-dividend date for a distribution, the fund’s share price is reduced by the amount of the distribution. If you buy shares just before the ex-dividend date, in effect, you “buy the dividend.” You will pay the full price for the shares and then receive a portion of that price back as a taxable distribution.

Dividend and capital gain distributions will be reinvested in additional shares of the fund, unless you request that distributions be reinvested in another First American fund or paid in cash. This request may be made by contacting your plan administrator.


Taxes

Some of the tax consequences of investing in the fund are discussed below. More information about taxes is in the Statement of Additional Information. However, because everyone’s tax situation is unique, always consult your tax professional about federal, state, and local tax consequences.

Taxes on Distributions.    The fund pays its shareholders dividends from its net investment income and any net capital gains that it has realized. For most investors, fund dividends and distributions are taxable whether they are reinvested or taken in cash (unless your investment is in a retirement plan or other tax-advantaged account).

Dividends from the fund’s net investment income and short-term capital gains are taxable as ordinary income. Distributions of the fund’s long-term capital gains are taxable as long-term gains, regardless of how long you have held your shares. The fund expects that, as a result of its investment objective and strategies, its distributions will consist primarily of ordinary income and that the distributions will not be treated as “qualified dividends” that are taxed at the same rates as long-term capital gains.

Periodic adjustments for inflation to the principal amount of an inflation protected security will give rise to original issue discount, which will be includable in the fund’s gross income. Because the fund is required to distribute its taxable income to avoid corporate level tax , the fund may be required to make annual distributions to shareholders that exceed the cash it receives, which may require the fund to liquidate certain investments when it is not advantageous to do so. Also, if the principal value of an inflation protected security is adjusted downward due to deflation, amounts previously distributed in the taxable year may be characterized in some circumstances as a return of capital. Estimates of inflation may be used in the determination of monthly income dividend rates.

Taxes on Transactions.    The sale of fund shares, or the exchange of the fund’s shares for shares of another First American fund, will be a taxable event and may result in a capital gain or loss. The gain or loss will be considered long-term if you have held your shares for more than one year. A gain or loss on shares held for one year or less is considered short-term and is taxed at the same rates as ordinary income.

If in redemption of his or her shares a shareholder receives a distribution of readily marketable securities instead of cash, the shareholder will be treated as receiving an amount equal to the fair market value of the securities at the time of the distribution for purposes of determining capital gain or loss on the redemption, and will also acquire a basis in the shares for federal income tax purposes equal to their fair market value.

The exchange of one class of the fund’s shares for another class of the fund’s shares will not be taxable.



Prospectus – First American Inflation Protected Securities Fund
Class R Shares

8



Additional Information

Management

U.S. Bancorp Asset Management, Inc., is the fund’s investment advisor. U.S. Bancorp Asset Management provides investment management services to individuals and institutions, including corporations, foundations, pensions, and retirement plans. As of June 30, 2004, U.S. Bancorp Asset Management and its affiliates had more than $ 122 billion in assets under management, including investment company assets of more than $ 56 billion. As investment advisor, U.S. Bancorp Asset Management manages the fund’s business and investment activities, subject to the authority of the fund’s board of directors. The fund pays the investment advisor a monthly fee for providing investment advisory services equal, on an annual basis, to 0.50% of the fund’s average daily net assets.

Direct Correspondence to:

First American Funds
P.O. Box 1330
Minneapolis, MN 55440-1330

Investment Advisor

U.S. Bancorp Asset Management, Inc.
800 Nicollet Mall
Minneapolis, MN 55402

Distributor

Quasar Distributors, LLC
615 E. Michigan Street
Milwaukee, WI 53202

Additional Compensation

U.S. Bancorp Asset Management and other affiliates of U.S. Bancorp may act as fiduciary with respect to plans subject to the Employee Retirement Income Security Act of 1974 (ERISA) and other trust and agency accounts that invest in the First American funds. As described above, U.S. Bancorp Asset Management receives compensation for acting as the fund’s investment advisor. U.S. Bancorp Asset Management and its affiliates also receive compensation in connection with the following:

Custody Services.    U.S. Bank National Association (U.S. Bank) provides or compensates others to provide custody services to the fund. U.S. Bank is paid monthly fees equal, on an annual basis, to 0.01% of the fund’s average daily net assets. In addition, U.S. Bank is reimbursed for its out-of-pocket expenses incurred while providing custody services to the fund.

Administration Services.    U.S. Bancorp Asset Management and its affiliate, U.S. Bancorp Fund Services, LLC (Co-Administrators), provide or compensate others to provide administrative services to the First American family of funds. These services include general administrative and accounting services, transfer agency and dividend disbursing services, blue sky services, and shareholder services. With respect to the First American open-end mutual funds, the Co-Administrators receive total fees, on an annual basis, of up to 0.25% of the aggregate average daily net assets of First American Investment Funds, Inc., First American Strategy Funds, Inc., and First American Insurance Portfolios, Inc., and up to 0.20% of the aggregate average daily net assets of First American Funds, Inc. The funds also pay the Co-Administrators fees based upon the number of funds and shareholder accounts maintained. In addition, the Co-Administrators are reimbursed for their out-of-pocket expenses incurred while providing administration services to the funds.

Distribution Services.    Quasar Distributors, LLC, an affiliate of U.S. Bancorp Asset Management, serves as distributor of the fund and receives distribution fees, and is reimbursed for its out of pocket expenses incurred while providing distribution and other sub-administrative services for the fund.

Securities Lending Services.    In connection with lending its portfolio securities, the fund pays administrative and custodial fees to U.S. Bancorp Asset Management which are equal to 35 % of the fund’s income from these securities lending transactions.

Shareholder Servicing Fees.    The fund pays U.S. Bancorp Asset Management a shareholder servicing fee at an annual rate of 0.15% of the fund’s average daily net assets attributable to Class R shares for providing or arranging for the provision of shareholder services to the holders of its Class R shares.

Portfolio Management

The fund is managed by a team of persons associated with U.S. Bancorp Asset Management.



Prospectus – First American Inflation Protected Securities Fund
Class R Shares

9



Additional Information

More About The Fund


Objective

The fund’s objective, which is described in the “Fund Summary” section, may be changed without shareholder approval. If the fund’s objective changes, you will be notified at least 60 days in advance. Please remember: There is no guarantee that the fund will achieve its objective.


Investment Strategies

The fund’s principal investment strategies are discussed in the “Fund Summary” section. These are the strategies that the fund’s investment advisor believes are most likely to be important in trying to achieve the fund’s objective. You should be aware that the fund may also use strategies and invest in securities that are not described in this prospectus, but that are described in the Statement of Additional Information (SAI). For a copy of the SAI, call Investor Services at 800 677-FUND.

Consistent with its name, the fund has adopted an investment strategy requiring that at least 80% of its net assets (plus the amount of any borrowings for investment purposes) be invested in inflation protected debt securities. You will be notified at least 60 days in advance of any change to this investment strategy.

Investment Approach.    Fund managers generally employ a “top-down” approach in selecting securities for the fund. First, they determine their economic outlook and the direction in which inflation and interest rates are expected to move. Then they choose certain sectors or industries within the overall market. Last, they select individual securities within those sectors for the fund. Fund managers also analyze expected changes to the yield curve under multiple market conditions to help define maturity and duration selection.

Effective Maturity.    Effective maturity differs from actual stated or final maturity, which may be substantially longer. In calculating effective maturity, the advisor estimates the effect of expected principal payments and call provisions on securities held in the portfolio. Effective maturity provides the advisor with a better estimate of interest rate risk under normal market conditions, but may underestimate interest rate risk in an environment of adverse (rising) interest rates.

Effective Duration.     Effective duration, one measure of interest rate risk, measures how much the value of a security is expected to change with a given change in interest rates. For example, if interest rates were to increase by one percentage point, the market value of a bond with an effective duration of five years would decrease by 5%, with all other factors being constant. However, all other factors are rarely constant. Effective duration is based on assumptions and subject to a number of limitations. It is most useful when interest rate changes are small, rapid, and occur equally in short-term and long-term securities. In addition, it is difficult to calculate precisely for bonds with prepayment options, such as mortgage- and asset-backed securities, because the calculation requires assumptions about prepayment rates. For these reasons, the effective durations of funds which invest a significant portion of their assets in these securities can be greatly affected by changes in interest rates.

Temporary Investments.    In an attempt to respond to adverse market, economic, political, or other conditions, the fund may temporarily invest without limit in cash and in U.S. dollar-denominated high-quality money market instruments and other short-term securities, including money market funds advised by the fund’s advisor. These investments may result in a lower yield than would be available from investments with a lower quality or longer term and may prevent the fund from achieving its investment objectives.

Portfolio Turnover.    Fund managers may trade securities frequently, resulting, from time to time, in an annual portfolio turnover rate of over 100%. Trading of securities may produce capital gains, which are taxable to shareholders when distributed. Active trading may also increase the amount of commissions or mark-ups to broker-dealers that the fund pays when it buys and sells securities.


Risks

The principal risks of investing in the fund are summarized in the “Fund Summary” section. More information about principal fund risks is presented below.

Income Risk.    The fund’s income could decline due to falling market interest rates. This is because, in a falling interest rate environment, the fund generally will have to invest the proceeds from sales of fund shares, as well as the proceeds from maturing portfolio securities (or portfolio securities that have been called, see “Call Risk,” or prepaid, see “Prepayment Risk”) in lower-yielding securities.

Credit Risk.    The fund is subject to the risk that the issuers of debt securities held by the fund will not make payments on the securities, or that the other party to a contract (such as a securities lending agreement or repurchase agreement) will default on its obligations. There is also the risk that an issuer could suffer adverse changes in financial condition that could lower the credit quality of a security. This could lead to greater volatility in the price of the security and in shares of the fund. Also, a change in the credit quality rating of a bond could affect the bond’s liquidity and make it more difficult for the fund to sell. When the fund purchases unrated securities, it will depend on the advisor’s analysis of credit risk more heavily than usual.

The fund attempts to minimize credit risk by investing primarily in securities considered at least investment grade at the time of purchase or in unrated securities of comparable quality. The fund may invest up to 10% of its net assets in securities rated lower than investment grade. However, all of these securities,



Prospectus – First American Inflation Protected Securities Fund
Class R Shares

10



Additional Information

More About The Fund continued

especially those in the lower investment grade rating categories, have credit risk. In adverse economic or other circumstances, issuers of these lower rated securities are more likely to have difficulty making principal and interest payments than issuers of higher rated securities.

Risks of High-Yield Securities.    A portion of the fund’s portfolio may consist of lower-rated corporate debt obligations, which are commonly referred to as “high-yield” securities or “junk bonds.” Although these securities usually offer higher yields than investment grade securities, they also involve more risk. High-yield bonds may be more susceptible to real or perceived adverse economic conditions than investment grade bonds. In addition, the secondary trading market may be less liquid. High-yield securities generally have more volatile prices and carry more risk to principal than investment grade securities.

Liquidity Risk.    The fund is exposed to liquidity risk because of its investments in high-yield bonds. Trading opportunities are more limited for debt securities that have received ratings below investment grade. These features may make it more difficult to sell or buy a security at a favorable price or time. Consequently, the fund may have to accept a lower price to sell a security, sell other securities to raise cash, or give up an investment opportunity, any of which could have a negative effect on the fund’s performance. Infrequent trading may also lead to greater price volatility.

Foreign Security Risk.    International investing involves risks not typically associated with U.S. investing. These risks include:

Currency Risk.    Because foreign securities often trade in currencies other than the U.S. dollar, changes in currency exchange rates will affect the fund’s net asset value, the value of dividends and interest earned, and gains and losses realized on the sale of securities. A strong U.S. dollar relative to these other currencies will adversely affect the value of the fund.

Political and Economic Risks.    International investing is subject to the risk of political, social, or economic instability in the country of the issuer of a security, the difficulty of predicting international trade patterns, the possibility of the imposition of exchange controls, expropriation, limits on removal of currency or other assets, and nationalization of assets.

Foreign Tax Risk.    The fund’s income from foreign issuers may be subject to non-U.S. withholding taxes. In some countries, the fund also may be subject to taxes on trading profits and, on certain securities transactions, transfer or stamp duties tax. To the extent foreign income taxes are paid by the fund, U.S. shareholders may be entitled to a credit or deduction for U.S. tax purposes. See the Statement of Additional Information for details.

Risk of Investment Restrictions.    Some countries, particularly emerging markets, restrict to varying degrees foreign investment in their securities markets. In some circumstances, these restrictions may limit or preclude investment in certain countries or may increase the cost of investing in securities of particular companies.

Foreign Securities Market Risk.    Securities of many non-U.S. companies may be less liquid and their prices more volatile than securities of comparable U.S. companies. Securities of companies traded in many countries outside the U.S., particularly emerging markets countries, may be subject to further risks due to the inexperience of local investment professionals and financial institutions, the possibility of permanent or temporary termination of trading, and greater spreads between bid and asked prices for securities. In addition, non-U.S. stock exchanges and investment professionals are subject to less governmental regulation, and commissions may be higher than in the United States. Also, there may be delays in the settlement of non-U.S. stock exchange transactions.

Information Risk.    Non-U.S. companies generally are not subject to uniform accounting, auditing, and financial reporting standards or other regulatory requirements that apply to U.S. companies. As a result, less information may be available to investors concerning non-U.S. issuers. Accounting and financial reporting standards in emerging markets may be especially lacking.

Call Risk.    Many corporate bonds may be redeemed at the option of the issuer, or “called,” before their stated maturity date. In general, an issuer will call its bonds if they can be refinanced by issuing new bonds which bear a lower interest rate. The fund is subject to the possibility that during periods of falling interest rates, a bond issuer will call its high-yielding bonds. The fund would then be forced to invest the unanticipated proceeds at lower interest rates, resulting in a decline in the fund’s income.

Prepayment Risk.    Mortgage-backed securities are secured by and payable from pools of mortgage loans. Similarly, asset-backed securities are supported by obligations such as credit card loans, automobile loans, home equity loans, corporate bonds, or commercial loans. These mortgages and other obligations generally can be prepaid at any time without penalty. As a result, mortgage- and asset-backed securities are subject to prepayment risk, which is the risk that falling interest rates could cause prepayments of the securities to occur more quickly than expected. This occurs because, as interest rates fall, more homeowners refinance the mortgages underlying mortgage-related securities or prepay the debt obligations underlying asset-backed securities. The fund would have to reinvest the prepayments at a time when interest rates are falling, reducing the income of the fund. In addition, when interest



Prospectus – First American Inflation Protected Securities Fund
Class R Shares

11



Additional Information

More About The Fund continued

rates fall, prices on mortgage- and asset-backed securities may not rise as much as for other types of comparable debt securities because investors may anticipate an increase in prepayments.

Extension Risk.    Mortgage- and asset-backed securities also are subject to extension risk, which is the risk that rising interest rates could cause mortgages or other obligations underlying the securities to be prepaid more slowly than expected, resulting in slower prepayments of the securities. This would, in effect, convert a short- or medium-duration mortgage- or asset-backed security into a longer-duration security, increasing its sensitivity to interest rate changes and causing its price to decline.

Risks of Securities Lending.    When the fund loans its portfolio securities, it will receive collateral equal to at least 100% of the value of the loaned securities. Nevertheless, the fund risks a delay in the recovery of the loaned securities, or even the loss of rights in the collateral deposited by the borrower if the borrower should fail financially. To reduce these risks, the fund enters into loan arrangements only with institutions which the fund’s advisor has determined are creditworthy under guidelines established by the fund’s board of directors.

Risks of Derivative Instruments.    The use of derivative instruments exposes the fund to additional risks and transaction costs. Risks inherent in the use of derivative instruments include: the risk that securities or commodities prices, index prices, currencies or interest rates will not move in the direction that the advisor anticipates; in the case of a credit default swap, the risk that the advisor will incorrectly evaluate the creditworthiness of the company or companies on which the swap is based; an imperfect correlation between the price of derivative instruments and movements in the prices of the securities being hedged; the possible absence of a liquid secondary market for any particular instrument and possible exchange imposed price fluctuation limits, either of which may make it difficult or impossible to close out a position when desired; leverage risk, which is the risk that adverse price movements in an instrument can result in a loss substantially greater than the fund’s initial investment in that instrument; and, particularly, in the case of privately negotiated instruments, the risk that the counterparty will fail to perform its obligations, which could leave the fund worse off than if it had not entered into the position. If the fund uses derivative instruments and the advisor’s judgment proves incorrect, the fund’s performance could be worse than if it had not used these instruments.

The fund’s investments in commodity-linked derivative instruments may subject the fund to greater volatility than investments in traditional securities. The value of commodity-linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments.



Prospectus – First American Inflation Protected Securities Fund
Class R Shares

12





For More Information

More information about the fund is available in the fund’s Statement of Additional Information and annual and semiannual reports, and on the First American funds’ Internet Web site.


First American Funds Web Site

Information about the First American funds may be viewed on the funds’ Internet Web site at http://www.firstamericanfunds.com.


Statement of Additional Information (SAI)

The SAI provides more details about the fund and its policies. A current SAI is on file with the Securities and Exchange Commission (SEC) and is incorporated into this prospectus by reference (which means that it is legally considered part of this prospectus).


Annual and Semiannual Reports

Additional information about the fund’s investments will be available in the fund’s annual and semiannual reports to shareholders. In the fund’s annual report, you will find a discussion of the market conditions and investment strategies that significantly affected the fund’s performance during its last fiscal year.

You can obtain a free copy of the fund’s SAI and/or free copies of the fund’s most recent annual or semiannual reports by calling Investor Services at 800 677-FUND. The material you request will be sent by first-class mail or other means designed to ensure equally prompt delivery, within three business days of receipt of the request.

You can also obtain copies of this information, after paying a duplicating fee, by electronic request at the following email address: publicinfo@sec.gov, or by writing the SEC’s Public Reference Section, Washington, D.C. 20549-0102. For more information, call 1-202-942-8090.

Information about the fund is also available on the Internet. Text-only versions of fund documents can be viewed online or downloaded from the EDGAR Database on the SEC’s Internet site at http://www.sec.gov.



First American Funds P.O. Box 1330, Minneapolis, MN 55440-1330

U.S. Bancorp Asset Management, Inc., serves as the investment advisor to the First American Funds.

PROIPSR     10/04

SEC file number:   811-05309

 

   First American Funds





October 1, 2004
Prospectus
First American Investment Funds, Inc.
ASSET CLASS ~ Bond Funds

Income Funds
Class Y Shares
Inflation Protected Securities Fund


As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved the shares of this fund, or determined if the information in this prospectus is accurate or complete. Any statement to the contrary is a criminal offense.



 



Table of

Contents

Fund Summary

Inflation Protected Securities Fund

Policies & Services

Buying and Selling Shares

Managing Your Investment

Additional Information

Management

More About The Fund

For More Information



 



Fund Summary

Introduction

This section of the prospectus describes the objective of the First American Inflation Protected Securities Fund, summarizes the principal investment strategies used by the fund in trying to achieve its objective, and highlights the risks involved with these strategies. It also provides you with information about the performance, fees, and expenses of the fund.

An investment in the fund is not a deposit of U.S. Bank National Association and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

This prospectus and the related Statement of Additional Information do not constitute an offer to sell or a solicitation of an offer to buy shares in the fund, nor shall any such shares be offered or sold to any person in any jurisdiction in which an offer, solicitation, purchase, or sale would be unlawful under the securities laws of such jurisdiction.



Prospectus – First American Inflation Protected Securities Fund
Class Y Shares

1



Fund Summary

Inflation Protected Securities FUND


Objective

Inflation Protected Securities Fund seeks to provide investors with total return that exceeds the rate of inflation over an economic cycle.


Principal Investment Strategies

Under normal market conditions, Inflation Protected Securities Fund will invest primarily (at least 80% of its net assets, plus the amount of any borrowings for investment purposes) in inflation protected debt securities. These securities will be issued by the U.S. and non-U.S. governments, their agencies and instrumentalities, and corporations. The fund’s investments in U.S. Government inflation protected securities will include U.S. Treasury inflation-protection securities as well as inflation protected securities issued by agencies and instrumentalities of the U.S. Government. Securities issued by the U.S. Treasury are backed by the full faith and credit of the U.S. Government. Some securities issued by agencies and instrumentalities of the U.S. Government are supported only by the credit of the issuing agency or instrumentality.

Inflation protected debt securities are designed to provide protection against the negative effects of inflation. Unlike traditional debt securities, which pay regular fixed interest payments on a fixed principal amount, interest payments on inflation protected debt securities will vary with the rate of inflation. Inflation protected debt securities have two common structures. The U.S. Treasury and some other issuers use a structure that accrues inflation into the principal value of the bond. If the index measuring the rate of inflation rises, the principal value of the security will increase. Because interest payments will be calculated with respect to a larger principal amount, interest payments also will increase. Conversely, if the index measuring the rate of inflation falls, the principal value of the security will fall and interest payments will decrease. Other issuers adjust the interest rates payable on the security according to the rate of inflation, but th e principal amount remains the same.

The U.S. Treasury uses the Consumer Price Index for Urban Consumers (CPI-U) as the inflation measure. Inflation protected bonds issued by a foreign government are generally adjusted to reflect an inflation index calculated by that government. In the event of sustained deflation, the U.S. Treasury has guaranteed that it will repay at maturity at least the original face value of the inflation protected securities that it issues. Other inflation protected debt securities that accrue inflation into their principal value may or may not provide a similar guarantee. For securities that do not provide such a guarantee, the adjusted principal value of the security repaid at maturity may be less than the original principal value.

Up to 20% of the Fund’s assets may be invested in holdings that are not inflation protected . These holdings may include the following:

When selecting securities for the fund, the portfolio managers use a “top-down” approach, looking first at general economic factors and market conditions. The managers then select securities that they believe have strong relative value based on an analysis of a security’s characteristics (such as principal value, coupon rate, maturity, duration and yield) in light of these general economic factors and market conditions.

The fund invests primarily in securities rated investment grade at the time of purchase or in unrated securities of comparable quality. However, up to 10% of the fund’s net assets may be invested in securities that are rated lower than investment grade at the time of purchase or that are unrated and of comparable quality (securities commonly referred to as “high-yield” securities or “junk bonds”). The fund will not invest in securities rated lower than B at the time of purchase or in unrated securities of equivalent quality. Quality determinations regarding unrated securities will be made by the fund’s advisor.

The fund may invest up to 20% of its net assets in non-dollar denominated securities, and may invest without limitation in U.S. dollar denominated securities of foreign issuers.

The fund may invest in debt securities of any maturity, but expects to maintain , under normal market conditions, a weighted average effective maturity of between 8 and 15 years and an average effective duration of between 4 and 10 years . The fund’s weighted average effective maturity and average effective duration are measure s of how the fund may react to interest rate changes.

To generate additional income, the fund may lend securities representing up to one-third of the value of its total assets to broker-dealer, banks, and other institutions.

The fund may utilize the following derivatives: options; futures contracts; options on futures contracts; foreign currency contracts; interest rate caps and floors; index- and other asset-linked notes; swap agreements, including swap agreements on interest rates, currency rates, security indexes and specific securities, and credit default swap agreements; and options on the foregoing types of swap agreements. The fund may also invest in commodity-linked derivative instruments, including swap agreements on commodity indexes or specific commodities; commodity options, futures and options on futures; and commodity-linked notes. The fund may enter into standardized derivatives contracts traded on domestic or foreign securities



Prospectus – First American Inflation Protected Securities Fund
Class Y Shares

2



Fund Summary

Inflation Protected Securities FUND continued

exchanges, boards of trade, or similar entities, and non-standardized derivatives contracts traded in the over-the-counter (“OTC”) market. The fund will use these derivatives in an attempt to manage market or business risk .


Principal Risks

The price and yield of this fund will change daily due to changes in interest rates, inflation and other factors, which means you could lose money. The principal risks of investing in this fund include:

Interest Rate Risk.    Debt securities typically decrease in value when interest rates rise and increase in value when interest rates fall, with longer-term debt securities generally being more sensitive to interest rate changes. However, interest rates on conventional debt securities have two components: a “real” interest rate and an increment that reflects investor expectations of future inflation. Because interest rates on inflation protected securities are adjusted for inflation, the values of these securities are not materially affected by inflation expectations. Therefore, the values of inflation protected debt securities are expected to change in response to changes in “real” interest rates. Generally, the value of an inflation protected debt security will fall when real interest rates rise and rise when real interest rates fall. Effective maturity and effective duration, explained in “More About the Fund — Investment Strategies,” are measures of the fund’s interest rate risk. A lthough inflation protected debt securities are expected to be protected from long-term inflationary trends, short-term increases in inflation may lead to a decline in the fund’s value. See “Risks of Indexing Methodology,” below.

Income Risk.    The fund’s income could decline due to falling market interest rates. In addition, the fund’s income distributions are expected to fluctuate significantly more than those of a typical bond fund, since the fund’s income will change with changes in inflation. During periods of extreme deflation, the fund could have no income at all to distribute.

Credit Risk.    An issuer of debt securities may not make timely principal or interest payments on its securities, or the other party to a contract may default on its obligations. There is also the risk that an issuer could suffer adverse changes in financial condition that could lower the credit quality of a security.

Call Risk.    During periods of falling interest rates, a bond issuer may “call” — or repay — its high-yielding bonds before their maturity date. The fund would then be forced to invest the unanticipated proceeds at lower interest rates, resulting in a decline in the fund’s income.

Tax Consequences of Inflation Adjustments.    Periodic adjustments for inflation to the principal amount of an inflation protected security will give rise to original issue discount, which will be includable in the fund’s gross income. Because the fund is required to distribute its taxable income to avoid corporate level tax, the fund may be required to make annual distributions to shareholders that exceed the cash it receives, which may require the fund to liquidate certain investments when it is not advantageous to do so.

Risks of Indexing Methodology.    There can be no assurance that the CPI-U or any foreign inflation index will accurately measure the real rate of inflation in the prices of goods and services. Moreover, there can be no assurance that the rate of inflation in a foreign country will be correlated to the rate of inflation in the United States. If the market perceives that the adjustment mechanism of an inflation protected security does not accurately adjust for inflation, the value of the security could be adversely affected. There may be a lag between the time a security is adjusted for inflation and the time interest is paid on that security. This may have an adverse effect on the trading price of the security, particularly during periods of significant, rapid changes in inflation. In addition, to the extent that inflation has increased during the period of time between the inflation adjustment and the interest payment, the interest payment will not be protected from the inflation increase.

Liquidity Risk.    The market for inflation protected debt securities is relatively new and is still developing. For this reason, the market may, at times, have relatively low trading volume, which could result in lower liquidity and increased volatility in prices.

Risks of Mortgage- and Asset-Backed Securities.    Falling interest rates could cause faster than expected prepayments of the obligations underlying mortgage- and asset-backed securities, which the fund would have to re invest at lower interest rates. This is referred to as “prepayment risk.” On the other hand, rising interest rates could cause prepayments of the obligations to decrease, extending the life of mortgage- and asset-backed securities and causing their interest rate sensitivity to increase. This is referred to as “extension risk.” For additional explanation, see “Prepayment Risk” and “Extension Risk” in “More About The Fund — Risks.”

Foreign Security Risk.    Investing in the securities of foreign issuers may involve risks not associated with the securities of domestic issuers, including the risks of adverse currency fluctuations, potential political and economic instability, limited liquidity and volatile prices of non-U.S. securities, limited availability of information regarding non-U.S. companies, investment and repatriation restrictions, and foreign taxation.

Risks of High-Yield Securities.    A portion of the fund’s portfolio may consist of lower-rated debt obligations, which are commonly called “high-yield” securities or “junk bonds.” High-yield securities generally have more volatile prices and carry more risk to principal than investment grade securities. High-yield securities may be more susceptible to real or perceived



Prospectus – First American Inflation Protected Securities Fund
Class Y Shares

3



Fund Summary

Inflation Protected Securities FUND continued

adverse economic conditions than investment grade securities. In addition, the secondary trading market may be less liquid.

Risks of Securities Lending.    When the fund lends securities, it is subject to the risk that the other party to a securities lending agreement will default on its obligation.

Risks of Derivative Instruments.    The fund will suffer a loss in connection with its use of derivatives if interest rates, currencies, indices, or securities or commodities prices do not move in the direction anticipated by the fund’s advisor when entering into the derivative instruments or, in the case of credit default swaps, if the fund’s advisor does not correctly evaluate the creditworthiness of the company or companies on which the swap is based. The Fund may enter into OTC derivatives. Transactions in the OTC markets generally are conducted between institutions on a principal-to-principal basis. The terms and conditions of these instruments generally are not standardized and tend to be more specialized or complex, and the instruments may be harder to value. In addition, there may not be a liquid market for OTC derivatives. As a result, it may not be possible to initiate a transaction or liquidate a position at an advantageous time or price.

Risks of Active Management.     The fund is actively managed and its performance therefore will reflect in part the advisor’s ability to make investment decisions which are suited to achieving the fund’s investment objective. Due to its active management, the fund could underperform other mutual funds with similar investment objectives.


Fund Performance

Because Inflation Protected Securities Fund was not offered prior to the date of this prospectus, no performance information is presented.



Prospectus – First American Inflation Protected Securities Fund
Class Y Shares

4



Fund Summary

Inflation Protected Securities FUND continued


Fees and Expenses

The fund does not impose any sales charges (loads) or other fees when you buy, sell, or exchange shares. However, when you hold shares of the fund you indirectly pay a portion of the fund’s operating expenses. These expenses are deducted from fund assets.

     

SHAREHOLDER FEES (fees paid directly from your investment)   Class Y  

Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price)
      None  
Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase price or
redemption proceeds, whichever is less)
      None  
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets)
(as a percentage of average net assets)
   

Management Fees       0.50 %
Distribution and Service (12b-1) Fees       None  
Other Expenses 1       0.30 %
Total Annual Fund Operating Expenses 2       0.80 %

1 “Other Expenses” are based on estimated amounts for the current fiscal year.

2 The advisor intends to voluntarily waive fees during the current fiscal year so that total operating expenses, after waivers, do not exceed 0.60%. Fee waivers may be discontinued at any time.


Example This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. It assumes that you invest $10,000 for the time periods indicated, that your investment has a 5% return each year, and that the fund’s operating expenses remain the same. Although your actual costs and returns may differ, based on these assumptions your costs would be:

       

1 year     $ 82  
3 years     $ 255  


Prospectus – First American Inflation Protected Securities Fund
Class Y Shares

5



Policies & Services

Buying and Selling Shares

Inflation Protected Securities Fund issues its shares in multiple classes. This prospectus offers Class Y shares.

Class Y shares:


Calculating Your Share Price

Your purchase price will be equal to the fund’s net asset value (NAV) per share, which is generally calculated as of the close of regular trading on the New York Stock Exchange (usually 3:00 p.m. Central time) every day the exchange is open.

The fund’s NAV is equal to the market value of its investments and other assets, less any liabilities, divided by the number of fund shares. If market prices are not readily available for an investment or if the advisor believes they are unreliable, fair value prices may be determined in good faith using methods approved by the fund’s board of directors.


Monitoring Short-Term Trading

Some investors attempt to profit through short-term trading, or purchasing and redeeming the fund’s shares within a short time period. Frequent short-term trading may hurt the long-term performance of the fund by disrupting portfolio management strategies and increasing fund expenses. If the advisor believes that a shareholder has engaged in frequent short-term trading, it may refuse to process the shareholder’s purchase request and/or limit or cancel the shareholder’s exchange privileges (in addition to the four-exchange limit described under “Buying and Selling Shares — How to Exchange Shares”).

Although the advisor will attempt to monitor for short-term trading that could be detrimental to the fund and its shareholders, you should understand that this monitoring will not eliminate the possibility that frequent short-term trading in the fund may occur. For example, the ability of the advisor to monitor trades that are placed by the underlying shareholders of omnibus accounts maintained by brokers, retirement plan accounts, and approved fee-based program accounts is significantly limited when the underlying shareholder accounts are not maintained by the advisor.


How to Buy and Sell Shares

To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account.

What this means is that when you open an account, we will ask for your name, address, date of birth, and other information that will allow us to identify you. We may also ask for other identifying documents or information.

You may purchase or sell shares by calling your financial institution. When purchasing shares, payment must be made by wire transfer, which can be arranged by your financial institution. Shares may be purchased or sold on any day when the New York Stock Exchange is open. Wire federal funds as follows:

U.S. Bank National Association
ABA Number: 0750-00022
Account Number: 112-952-137
Credit to:  First American Inflation Protected Securities Fund
                  (investor name and investor account #)

Purchase orders and redemption requests must be received by your financial institution by the time specified by the institution to be assured same day processing. The fund has authorized certain financial institutions (“authorized financial intermediaries”) to accept orders on its behalf. If your financial institution is an authorized financial intermediary, you will receive that day’s price if your order is received by your financial institution by 3:00 p.m. Central time. If your financial institution is not an authorized financial intermediary, it must transmit your order to the fund and the fund must receive your order by 3:00 p.m. Central time in order to receive that day’s price. Contact your financial institution to determine the time by which it must receive your order to be assured same day processing. Purchase orders and redemption requests may be restricted in the event of an early or unscheduled close of the New York Stock Exchange.

If the fund or an authorized financial intermediary receives your redemption request by 3:00 p.m. Central time, payment of your redemption proceeds will ordinarily be made by wire on the next business day. It is possible, however, that payment could be delayed by up to seven days.

To minimize the effect of large redemption requests, the fund reserves the right to fulfill these redemption requests by distributing readily marketable securities in the fund’s portfolio, rather than paying you in cash. See “Policies & Services — Buying and Selling Shares, Redemption In Kind.”


How to Exchange Shares

If your investment goals or your financial needs change, you may exchange your shares for Class Y shares of another First American fund. Exchanges are made at the net asset value per share of each fund at the time of the exchange. There is no fee to exchange shares. If you are no longer eligible to hold Class Y shares, for example, if you decide to discontinue your



Prospectus – First American Inflation Protected Securities Fund
Class Y Shares

6



Policies & Services

Buying and Selling Shares continued

fiduciary, agency, or custodian account, you may exchange your shares for Class A shares at net asset value. Class A shares have higher expenses than Class Y shares.

To exchange your shares, call your financial institution. In order for your shares to be exchanged the same day, your exchange order must be received by the funds or an authorized financial intermediary by 3:00 p.m. Central time.

Before exchanging into any fund, be sure to read its prospectus carefully. A fund may change or cancel its exchange policies at any time. You will be notified of any changes. The First American funds have the right to limit exchanges to four times per year.


Redemption In Kind

Generally, proceeds from redemption requests will be paid in cash. However, to minimize the effect of large redemption requests on the fund and its remaining shareholders, the fund reserves the right to pay part or all of the proceeds from a redemption request in a proportionate share of readily marketable securities in the fund instead of cash. In selecting securities for a redemption in kind, the advisor will consider the best interests of the fund and the remaining fund shareholders, and will value these securities in accordance with the pricing methods employed to calculate the fund’s net asset value per share. If you receive redemption proceeds in kind, you should expect to incur transaction costs upon disposition of the securities received in the redemption.



Prospectus – First American Inflation Protected Securities Fund
Class Y Shares

7



Policies & Services

Managing Your Investment


Staying Informed

Shareholder Reports.    Shareholder reports are mailed twice a year, in November and May. They include financial statements and performance information, and, on an annual basis, a message from your portfolio managers and the auditors’ report.

In an attempt to reduce shareholder costs and help eliminate duplication, the fund will try to limit its mailings to one report for each address that lists one or more shareholders with the same last name. If you would like additional copies, please call Investor Services at 800 677-FUND.

Statements and Confirmations.    Statements summarizing activity in your account are mailed quarterly. Confirmations are mailed following each purchase or sale of fund shares. Generally, the fund does not send statements for funds held in an omnibus account.


Dividends and Distributions

Dividends from the fund’s net investment income are declared and paid monthly. Any capital gains are distributed at least once each year.

On the ex-dividend date for a distribution, the fund’s share price is reduced by the amount of the distribution. If you buy shares just before the ex-dividend date, in effect, you “buy the dividend.” You will pay the full price for the shares and then receive a portion of that price back as a taxable distribution.

Dividend and capital gain distributions will be reinvested in additional shares of the fund, unless you request that distributions be reinvested in another First American fund or paid in cash. This request may be made on your new account form or by contacting your financial institution. If you request that your distributions be paid in cash but those distributions cannot be delivered because of an incorrect mailing address, the undelivered distributions and all future distributions will be reinvested in fund shares at the current NAV.


Taxes

Some of the tax consequences of investing in the fund are discussed below. More information about taxes is in the Statement of Additional Information. However, because everyone’s tax situation is unique, always consult your tax professional about federal, state, and local tax consequences.

Taxes on Distributions.    The fund pays its shareholders dividends from its net investment income and any net capital gains that it has realized. For most investors, fund dividends and distributions are taxable whether they are reinvested or taken in cash (unless your investment is in an IRA or other tax-advantaged account).

Dividends from the fund’s net investment income and short-term capital gains are taxable as ordinary income. Distributions of the fund’s long-term capital gains are taxable as long-term gains, regardless of how long you have held your shares. The fund expects that, as a result of its investment objective and strategies, its distributions will consist primarily of ordinary income and that the distributions will not be treated as “qualified dividends” that are taxed at the same rates as long-term capital gains.

Periodic adjustments for inflation to the principal amount of an inflation protected security will give rise to original issue discount, which will be includable in the fund’s gross income. Because the fund is required to distribute its taxable income to avoid corporate level tax , the fund may be required to make annual distributions to shareholders that exceed the cash it receives, which may require the fund to liquidate certain investments when it is not advantageous to do so. Also, if the principal value of an inflation protected security is adjusted downward due to deflation, amounts previously distributed in the taxable year may be characterized in some circumstances as a return of capital. Estimates of inflation may be used in the determination of monthly income dividend rates.

Taxes on Transactions.    The sale of fund shares, or the exchange of the fund’s shares for shares of another First American fund, will be a taxable event and may result in a capital gain or loss. The gain or loss will be considered long-term if you have held your shares for more than one year. A gain or loss on shares held for one year or less is considered short-term and is taxed at the same rates as ordinary income.

If in redemption of his or her shares a shareholder receives a distribution of readily marketable securities instead of cash, the shareholder will be treated as receiving an amount equal to the fair market value of the securities at the time of the distribution for purposes of determining capital gain or loss on the redemption, and will also acquire a basis in the shares for federal income tax purposes equal to their fair market value.

The exchange of one class of the fund’s shares for another class of the fund’s shares will not be taxable.



Prospectus – First American Inflation Protected Securities Fund
Class Y Shares

8



Additional Information

Management

U.S. Bancorp Asset Management, Inc., is the fund’s investment advisor. U.S. Bancorp Asset Management provides investment management services to individuals and institutions, including corporations, foundations, pensions, and retirement plans. As of June 30, 2004, U.S. Bancorp Asset Management and its affiliates had more than $ 122 billion in assets under management, including investment company assets of more than $ 56 billion. As investment advisor, U.S. Bancorp Asset Management manages the fund’s business and investment activities, subject to the authority of the fund’s board of directors. The fund pays the investment advisor a monthly fee for providing investment advisory services equal, on an annual basis, to 0.50% of the fund’s average daily net assets.

Direct Correspondence to:

First American Funds
P.O. Box 1330
Minneapolis, MN 55440-1330

Investment Advisor

U.S. Bancorp Asset Management, Inc.
800 Nicollet Mall
Minneapolis, MN 55402

Distributor

Quasar Distributors, LLC
615 E. Michigan Street
Milwaukee, WI 53202

Additional Compensation

U.S. Bancorp Asset Management and other affiliates of U.S. Bancorp may act as fiduciary with respect to plans subject to the Employee Retirement Income Security Act of 1974 (ERISA) and other trust and agency accounts that invest in the First American funds. As described above, U.S. Bancorp Asset Management receives compensation for acting as the fund’s investment advisor. U.S. Bancorp Asset Management and its affiliates also receive compensation in connection with the following:

Custody Services.    U.S. Bank National Association (U.S. Bank) provides or compensates others to provide custody services to the fund. U.S. Bank is paid monthly fees equal, on an annual basis, to 0.01% of the fund’s average daily net assets. In addition, U.S. Bank is reimbursed for its out-of-pocket expenses incurred while providing custody services to the fund.

Administration Services.    U.S. Bancorp Asset Management and its affiliate, U.S. Bancorp Fund Services, LLC (Co-Administrators), provide or compensate others to provide administrative services to the First American family of funds. These services include general administrative and accounting services, transfer agency and dividend disbursing services, blue sky services, and shareholder services. With respect to the First American open-end mutual funds, the Co-Administrators receive total fees, on an annual basis, of up to 0.25% of the aggregate average daily net assets of First American Investment Funds, Inc., First American Strategy Funds, Inc., and First American Insurance Portfolios, Inc., and up to 0.20% of the aggregate average daily net assets of First American Funds, Inc. The funds also pay the Co-Administrators fees based upon the number of funds and shareholder accounts maintained. In addition, the Co-Administrators are reimbursed for their out-of-pocket expenses incurred while providing administration services to the funds.

Distribution Services.    Quasar Distributors, LLC, an affiliate of U.S. Bancorp Asset Management, serves as distributor of the fund and is reimbursed for its out of pocket expenses incurred while providing distribution and other sub-administrative services for the fund.

Securities Lending Services.    In connection with lending its portfolio securities, the fund pays administrative and custodial fees to U.S. Bancorp Asset Management which are equal to 35 % of the fund’s income from these securities lending transactions.

Portfolio Management

The fund is managed by a team of persons associated with U.S. Bancorp Asset Management.



Prospectus – First American Inflation Protected Securities Fund
Class Y Shares

9



Additional Information

More About The Fund


Objective

The fund’s objective, which is described in the “Fund Summary” section, may be changed without shareholder approval. If the fund’s objective changes, you will be notified at least 60 days in advance. Please remember: There is no guarantee that the fund will achieve its objective.


Investment Strategies

The fund’s principal investment strategies are discussed in the “Fund Summary” section. These are the strategies that the fund’s investment advisor believes are most likely to be important in trying to achieve the fund’s objective. You should be aware that the fund may also use strategies and invest in securities that are not described in this prospectus, but that are described in the Statement of Additional Information (SAI). For a copy of the SAI, call Investor Services at 800 677-FUND.

Consistent with its name, the fund has adopted an investment strategy requiring that at least 80% of its net assets (plus the amount of any borrowings for investment purposes) be invested in inflation protected debt securities. You will be notified at least 60 days in advance of any change to this investment strategy.

Investment Approach.    Fund managers generally employ a “top-down” approach in selecting securities for the fund. First, they determine their economic outlook and the direction in which inflation and interest rates are expected to move. Then they choose certain sectors or industries within the overall market. Last, they select individual securities within those sectors for the fund. Fund managers also analyze expected changes to the yield curve under multiple market conditions to help define maturity and duration selection.

Effective Maturity.    Effective maturity differs from actual stated or final maturity, which may be substantially longer. In calculating effective maturity, the advisor estimates the effect of expected principal payments and call provisions on securities held in the portfolio. Effective maturity provides the advisor with a better estimate of interest rate risk under normal market conditions, but may underestimate interest rate risk in an environment of adverse (rising) interest rates.

Effective Duration.     Effective duration, one measure of interest rate risk, measures how much the value of a security is expected to change with a given change in interest rates. For example, if interest rates were to increase by one percentage point, the market value of a bond with an effective duration of five years would decrease by 5%, with all other factors being constant. However, all other factors are rarely constant. Effective duration is based on assumptions and subject to a number of limitations. It is most useful when interest rate changes are small, rapid, and occur equally in short-term and long-term securities. In addition, it is difficult to calculate precisely for bonds with prepayment options, such as mortgage- and asset-backed securities, because the calculation requires assumptions about prepayment rates. For these reasons, the effective durations of funds which invest a significant portion of their assets in these securities can be greatly affected by changes in interest rates.

Temporary Investments.    In an attempt to respond to adverse market, economic, political, or other conditions, the fund may temporarily invest without limit in cash and in U.S. dollar-denominated high-quality money market instruments and other short-term securities, including money market funds advised by the fund’s advisor. These investments may result in a lower yield than would be available from investments with a lower quality or longer term and may prevent the fund from achieving its investment objectives.

Portfolio Turnover.    Fund managers may trade securities frequently, resulting, from time to time, in an annual portfolio turnover rate of over 100%. Trading of securities may produce capital gains, which are taxable to shareholders when distributed. Active trading may also increase the amount of commissions or mark-ups to broker-dealers that the fund pays when it buys and sells securities.


Risks

The principal risks of investing in the fund are summarized in the “Fund Summary” section. More information about principal fund risks is presented below.

Income Risk.    The fund’s income could decline due to falling market interest rates. This is because, in a falling interest rate environment, the fund generally will have to invest the proceeds from sales of fund shares, as well as the proceeds from maturing portfolio securities (or portfolio securities that have been called, see “Call Risk,” or prepaid, see “Prepayment Risk”) in lower-yielding securities.

Credit Risk.    The fund is subject to the risk that the issuers of debt securities held by the fund will not make payments on the securities, or that the other party to a contract (such as a securities lending agreement or repurchase agreement) will default on its obligations. There is also the risk that an issuer could suffer adverse changes in financial condition that could lower the credit quality of a security. This could lead to greater volatility in the price of the security and in shares of the fund. Also, a change in the credit quality rating of a bond could affect the bond’s liquidity and make it more difficult for the fund to sell. When the fund purchases unrated securities, it will depend on the advisor’s analysis of credit risk more heavily than usual.

The fund attempts to minimize credit risk by investing primarily in securities considered at least investment grade at the time of purchase or in unrated securities of comparable quality. The fund may invest up to 10% of its net assets in securities rated lower than investment grade. However, all of these securities,



Prospectus – First American Inflation Protected Securities Fund
Class Y Shares

10



Additional Information

More About the Fund continued

especially those in the lower investment grade rating categories, have credit risk. In adverse economic or other circumstances, issuers of these lower rated securities are more likely to have difficulty making principal and interest payments than issuers of higher rated securities.

Risks of High-Yield Securities.    A portion of the fund’s portfolio may consist of lower-rated corporate debt obligations, which are commonly referred to as “high-yield” securities or “junk bonds.” Although these securities usually offer higher yields than investment grade securities, they also involve more risk. High-yield bonds may be more susceptible to real or perceived adverse economic conditions than investment grade bonds. In addition, the secondary trading market may be less liquid. High-yield securities generally have more volatile prices and carry more risk to principal than investment grade securities.

Liquidity Risk.    The fund is exposed to liquidity risk because of its investments in high-yield bonds. Trading opportunities are more limited for debt securities that have received ratings below investment grade. These features may make it more difficult to sell or buy a security at a favorable price or time. Consequently, the fund may have to accept a lower price to sell a security, sell other securities to raise cash, or give up an investment opportunity, any of which could have a negative effect on the fund’s performance. Infrequent trading may also lead to greater price volatility.

Foreign Security Risk.    International investing involves risks not typically associated with U.S. investing. These risks include:

Currency Risk.    Because foreign securities often trade in currencies other than the U.S. dollar, changes in currency exchange rates will affect the fund’s net asset value, the value of dividends and interest earned, and gains and losses realized on the sale of securities. A strong U.S. dollar relative to these other currencies will adversely affect the value of the fund.

Political and Economic Risks.    International investing is subject to the risk of political, social, or economic instability in the country of the issuer of a security, the difficulty of predicting international trade patterns, the possibility of the imposition of exchange controls, expropriation, limits on removal of currency or other assets, and nationalization of assets.

Foreign Tax Risk.    The fund’s income from foreign issuers may be subject to non-U.S. withholding taxes. In some countries, the fund also may be subject to taxes on trading profits and, on certain securities transactions, transfer or stamp duties tax. To the extent foreign income taxes are paid by the fund, U.S. shareholders may be entitled to a credit or deduction for U.S. tax purposes. See the Statement of Additional Information for details.

Risk of Investment Restrictions.    Some countries, particularly emerging markets, restrict to varying degrees foreign investment in their securities markets. In some circumstances, these restrictions may limit or preclude investment in certain countries or may increase the cost of investing in securities of particular companies.

Foreign Securities Market Risk.    Securities of many non-U.S. companies may be less liquid and their prices more volatile than securities of comparable U.S. companies. Securities of companies traded in many countries outside the U.S., particularly emerging markets countries, may be subject to further risks due to the inexperience of local investment professionals and financial institutions, the possibility of permanent or temporary termination of trading, and greater spreads between bid and asked prices for securities. In addition, non-U.S. stock exchanges and investment professionals are subject to less governmental regulation, and commissions may be higher than in the United States. Also, there may be delays in the settlement of non-U.S. stock exchange transactions.

Information Risk.    Non-U.S. companies generally are not subject to uniform accounting, auditing, and financial reporting standards or other regulatory requirements that apply to U.S. companies. As a result, less information may be available to investors concerning non-U.S. issuers. Accounting and financial reporting standards in emerging markets may be especially lacking.

Call Risk.    Many corporate bonds may be redeemed at the option of the issuer, or “called,” before their stated maturity date. In general, an issuer will call its bonds if they can be refinanced by issuing new bonds which bear a lower interest rate. The fund is subject to the possibility that during periods of falling interest rates, a bond issuer will call its high-yielding bonds. The fund would then be forced to invest the unanticipated proceeds at lower interest rates, resulting in a decline in the fund’s income.

Prepayment Risk.    Mortgage-backed securities are secured by and payable from pools of mortgage loans. Similarly, asset-backed securities are supported by obligations such as credit card loans, automobile loans, home equity loans, corporate bonds, or commercial loans. These mortgages and other obligations generally can be prepaid at any time without penalty. As a result, mortgage- and asset-backed securities are subject to prepayment risk, which is the risk that falling interest rates could cause prepayments of the securities to occur more quickly than expected. This occurs because, as interest rates fall, more homeowners refinance the mortgages underlying mortgage-related securities or prepay the debt obligations underlying asset-backed securities. The fund would have to reinvest the prepayments at a time when interest rates are falling, reducing the income of the fund. In addition, when interest



Prospectus – First American Inflation Protected Securities Fund
Class Y Shares

11



Additional Information

More About the Fund continued

rates fall, prices on mortgage- and asset-backed securities may not rise as much as for other types of comparable debt securities because investors may anticipate an increase in prepayments.

Extension Risk.    Mortgage- and asset-backed securities also are subject to extension risk, which is the risk that rising interest rates could cause mortgages or other obligations underlying the securities to be prepaid more slowly than expected, resulting in slower prepayments of the securities. This would, in effect, convert a short- or medium-duration mortgage- or asset-backed security into a longer-duration security, increasing its sensitivity to interest rate changes and causing its price to decline.

Risks of Securities Lending.    When the fund loans its portfolio securities, it will receive collateral equal to at least 100% of the value of the loaned securities. Nevertheless, the fund risks a delay in the recovery of the loaned securities, or even the loss of rights in the collateral deposited by the borrower if the borrower should fail financially. To reduce these risks, the fund enters into loan arrangements only with institutions which the fund’s advisor has determined are creditworthy under guidelines established by the fund’s board of directors.

Risks of Derivative Instruments.    The use of derivative instruments exposes the fund to additional risks and transaction costs. Risks inherent in the use of derivative instruments include: the risk that securities or commodities prices, index prices, currencies or interest rates will not move in the direction that the advisor anticipates; in the case of a credit default swap, the risk that the advisor will incorrectly evaluate the creditworthiness of the company or companies on which the swap is based; an imperfect correlation between the price of derivative instruments and movements in the prices of the securities being hedged; the possible absence of a liquid secondary market for any particular instrument and possible exchange imposed price fluctuation limits, either of which may make it difficult or impossible to close out a position when desired; leverage risk, which is the risk that adverse price movements in an instrument can result in a loss substantially greater than the fund’s initial investment in that instrument; and, particularly, in the case of privately negotiated instruments, the risk that the counterparty will fail to perform its obligations, which could leave the fund worse off than if it had not entered into the position. If the fund uses derivative instruments and the advisor’s judgment proves incorrect, the fund’s performance could be worse than if it had not used these instruments.

The fund’s investments in commodity-linked derivative instruments may subject the fund to greater volatility than investments in traditional securities. The value of commodity-linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments.



Prospectus – First American Inflation Protected Securities Fund
Class Y Shares

12





For More Information

More information about the fund is available in the fund’s Statement of Additional Information and annual and semiannual reports, and on the First American funds’ Internet Web site.


First American Funds Web Site

Information about the First American funds may be viewed on the funds’ Internet Web site at http://www.firstamericanfunds.com.


Statement of Additional Information (SAI)

The SAI provides more details about the fund and its policies. A current SAI is on file with the Securities and Exchange Commission (SEC) and is incorporated into this prospectus by reference (which means that it is legally considered part of this prospectus).


Annual and Semiannual Reports

Additional information about the fund’s investments will be available in the fund’s annual and semiannual reports to shareholders. In the fund’s annual report, you will find a discussion of the market conditions and investment strategies that significantly affected the fund’s performance during its last fiscal year.

You can obtain a free copy of the fund’s SAI and/or free copies of the fund’s most recent annual or semiannual reports by calling Investor Services at 800 677-FUND. The material you request will be sent by first-class mail or other means designed to ensure equally prompt delivery, within three business days of receipt of the request.

You can also obtain copies of this information, after paying a duplicating fee, by electronic request at the following email address: publicinfo@sec.gov, or by writing the SEC’s Public Reference Section, Washington, D.C. 20549-0102. For more information, call 1-202-942-8090.

Information about the fund is also available on the Internet. Text-only versions of fund documents can be viewed online or downloaded from the EDGAR Database on the SEC’s Internet site at http://www.sec.gov.



First American Funds P.O. Box 1330, Minneapolis, MN 55440-1330

U.S. Bancorp Asset Management, Inc., serves as the investment advisor to the First American Funds.

PROIPSY     10/04

SEC file number:   811-05309

 

   First American Funds










i

                       INFLATION PROTECTED SECURITIES FUND

                       STATEMENT OF ADDITIONAL INFORMATION

                              DATED OCTOBER 1, 2004



         This Statement of Additional Information relates to the Class A, Class
C, Class R and Class Y Shares of Inflation Protected Securities Fund (the
"Fund"), a series of First American Investment Funds, Inc. ("FAIF"). This
Statement of Additional Information is not a prospectus, but should be read in
conjunction with the Fund's current Prospectuses dated October 1, 2004. This
Statement of Additional Information is incorporated into the Fund's Prospectuses
by reference. To obtain copies of Prospectuses or the Fund's Annual Report, when
one becomes available, at no charge, write the Fund's distributor, Quasar
Distributors, LLC, 615 East Michigan Street, Milwaukee, WI 53202, or call
Investor Services at 800 677-FUND. Please retain this Statement of Additional
Information for future reference.










                                TABLE OF CONTENTS

                                                                      PAGE
                                                                      ----


GENERAL INFORMATION......................................................1
ADDITIONAL INFORMATION CONCERNING FUND INVESTMENTS.......................2
   Principal Investment Strategies.......................................2
   Other Investment Strategies..........................................17
INVESTMENT RESTRICTIONS.................................................20
FUND NAME...............................................................22
PORTFOLIO TURNOVER......................................................22
DIRECTORS AND EXECUTIVE OFFICERS........................................23
   Independent Directors................................................23
   Officers.............................................................24
   Standing Committees of the Board of Directors........................26
   Fund Shares Owned by the Directors...................................27
   Approval of Investment Advisory Contract.............................28
   Compensation.........................................................28
   Sales Loads..........................................................29
CODE OF ETHICS..........................................................30
PROXY VOTING POLICIES...................................................30
INVESTMENT ADVISORY AND OTHER SERVICES FOR THE FUNDS....................35
   Investment Advisor...................................................35
   Administrator........................................................36
   Distributor..........................................................36
   Custodian and Auditors...............................................37
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE......................38
CAPITAL STOCK...........................................................39
NET ASSET VALUE AND PUBLIC OFFERING PRICE...............................40
TAXATION................................................................40
REDUCING SALES CHARGES..................................................41
   Class A Sales Charge.................................................41
   Sales of Class A Shares at Net Asset Value...........................42
ADDITIONAL INFORMATION ABOUT SELLING SHARES.............................43
   By Telephone.........................................................43
   By Mail..............................................................44
   Redemptions Before Purchase Instruments Clear........................44
RATINGS.................................................................44







                               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
38 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 to which this Statement of Additional Information relates is
Inflation Protected Securities Fund, which is referred to in this Statement of
Additional Information as the "Fund."


         Shareholders may purchase shares of the Fund through four separate
classes, Class A, Class C, Class R and Class Y, which provide for variations in
distribution costs, shareholder servicing fees, voting rights and dividends. To
the extent permitted by the Investment Company Act of 1940, as amended ("1940
Act"), the Fund may also provide for variations in other costs among the classes
although it has no present intention to do so. In addition, a sales load is
imposed on the sale of Class A and Class C Shares of the Fund. Except for
differences among the classes pertaining to distribution costs and shareholder
servicing fees, each share of the Fund represents an equal proportionate
interest in the Fund.

         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, among other things, 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.


         This Statement of Additional Information may also refer to affiliated
investment companies, including: First American Funds, Inc. ("FAF"); First
American Strategy Funds, Inc. ("FASF"), First American Insurance Portfolios,
Inc. ("FAIP") and eight separate closed-end funds (American Strategic Income
Portfolio Inc., American Strategic Income Portfolio Inc. -- II, American
Strategic Income Portfolio Inc. -- III, American Municipal Income Portfolio
Inc., Minnesota Municipal Income Portfolio Inc., First American Minnesota
Municipal Income Fund II Inc., American Select Portfolio Inc., and American
Income Fund, Inc.), collectively referred to as the First American Closed-End
Funds ("FACEF"). The shareholders of FAIP approved the liquidation of the seven
portfolios included in such investment company at a meeting held August 17,
2004, and such liquidations were consummated in August and September 2004.







                                       1


               ADDITIONAL INFORMATION CONCERNING FUND INVESTMENTS


         The principal investment strategies of the Fund are set forth in the
Fund's Prospectuses. Additional information concerning the principal investment
strategies of the Fund, and other investment strategies which may be used by the
Fund, is set forth below. The Fund has attempted to identify investment
strategies that will be employed in pursuing its investment objective. However,
in the absence of an affirmative limitation, the Fund may utilize any strategy
or technique that is consistent with its investment objective. The Fund does not
anticipate that any such strategy or technique would exceed 5% of its assets
absent specific identification of that practice. Additional information
concerning the Fund's investment restrictions is set forth below under
"Investment Restrictions."

         If a percentage limitation on investments by the Fund stated in this
section or in "Investment Restrictions" below is adhered to at the time of an
investment, a later increase or decrease in percentage resulting from changes in
asset value will not be deemed to violate the limitation except in the case of
the limitation on borrowing. Although the Fund is limited to investing in
securities with specified ratings or of a certain credit quality, it is not
required to sell a security if its rating is reduced or its credit quality
declines after purchase, but the Fund may consider doing so. Descriptions of the
rating categories of Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc. ("Standard & Poor's") and Moody's Investors Service,
Inc. ("Moody's) are contained in "Ratings" below.




PRINCIPAL INVESTMENT STRATEGIES

Inflation Protected Securities

         Inflation protected securities are fixed income securities designed to
provide protection against the negative effects of inflation. Two structures are
common. The U.S. Treasury and some other issuers use a structure that accrues
inflation into the principal value of the bond. Most other issuers pay out the
inflation accruals as part of a semiannual coupon.

         Inflation protected securities issued by the U.S. Treasury have
maturities of five, ten, twenty or thirty years, although it is possible that
securities with other maturities will be issued in the future. The U.S. Treasury
securities pay interest on a semi-annual basis, equal to a fixed percentage of
the inflation-adjusted principal amount. For example, if the Fund purchased an
inflation protected bond with a par value of $1,000 and a 3% real rate of return
coupon (payable 1.5% semi-annually), and inflation over the first six months
were 1%, the mid-year par value of the bond would be $1,010 and the first
semi-annual interest payment would be $15.15 ($1,010 times 1.5%). If inflation
during the second half of the year resulted in the whole years' inflation
equaling 3%, the end-of-year par value of the bond would be $1,030 and the
second semi-annual interest payment would be $15.45 ($1,030 times 1.5%).

         If the periodic adjustment rate measuring inflation falls, the
principal value of U.S. Treasury inflation protected securities will be adjusted
downward, and consequently the interest payable on these securities (calculated
with respect to a smaller principal amount) will be reduced. Repayment of the
original bond principal upon maturity (as adjusted for inflation) is guaranteed
in the case of U.S. Treasury inflation protected bonds, even during a period of
deflation. However, the current market value of the bonds is not guaranteed, and
will fluctuate. Other inflation protected securities that accrue inflation into
their principal value may or may not provide a similar guarantee. If a guarantee
of principal is not provided, the adjusted principal value of the bond repaid at
maturity may be less than the original principal.

         The value of inflation protected securities is expected to change in
response to changes in real interest rates. Real interest rates in turn are tied
to the relationship between nominal interest rates and the rate of inflation.
Therefore, if inflation were to rise at a faster rate than nominal interest
rates, real interest rates might decline, leading to an increase in value of
inflation protected securities. In contrast, if nominal interest rates increased
at a faster rate than inflation, real interest rates might rise, leading to a
decrease in value of inflation protected securities.

         The periodic adjustment of U.S. inflation protected bonds is tied to
the Consumer Price Index for Urban Consumers ("CPI-U"), which is calculated
monthly by the U.S. Bureau of Labor Statistics. The CPI-U is a measurement of
changes in the cost of living, made up of components such as housing, food,
transportation and energy. Inflation protected securities issued by a foreign
government are generally adjusted to reflect a comparable inflation


                                       2



index, calculated by that government. There can be no assurance that the CPI-U
or any foreign inflation index will accurately measure the real rate of
inflation in the prices of goods and services. Moreover, there can be no
assurance that the rate of inflation in a foreign country will be correlated to
the rate of inflation in the United States. If the market perceives that the
adjustment mechanism of an inflation protected security does not accurately
adjust for inflation, the value of the security could be adversely affected.

         While inflation protected securities are expected to be protected from
long-term inflationary trends, short-term increases in inflation may lead to a
decline in value. The calculation of the inflation index ratio for inflation
protected securities issued by the U.S. Treasury incorporates an approximate
three-month lag, which may have an effect on the trading price of the
securities, particularly during periods of significant, rapid changes in the
inflation index. To the extent that inflation has increased during the three
months prior to an interest payment, that interest payment will not be protected
from the inflation increase. Further, to the extent that inflation has increased
during the final three months of a security's maturity, the final value of the
security will not be protected against that increase, which will negatively
impact the value of the security. If interest rates rise due to reasons other
than inflation (for example, due to changes in currency exchange rates),
investors in inflation protected securities may not be protected to the extent
that the increase is not reflected in the bond's inflation measure.

         Any increase in the principal amount of an inflation protected security
will be considered taxable income to the Fund, even though the Fund does not
receive its principal until maturity.


U.S. Government Securities

         The U.S. government securities in which the Fund may invest are either
issued or guaranteed by the U.S. government, its agencies or instrumentalities.
The U.S. government securities in which the Fund may invest include:

         o        direct obligations of the U.S. Treasury, such as U.S. Treasury
                  bills, notes, and bonds;

         o        notes, bonds, and discount notes issued and guaranteed by U.S.
                  government agencies and instrumentalities supported by the
                  full faith and credit of the United States;

         o        notes, bonds, and discount notes of U.S. government agencies
                  or instrumentalities which receive or have access to federal
                  funding; and

         o        notes, bonds, and discount notes of other U.S. government
                  instrumentalities supported only by the credit of the
                  instrumentalities.

         As noted above, the government securities in which the Fund may invest
are backed in a variety of ways by the U.S. government or its agencies or
instrumentalities. Some of these securities, such as Government National
Mortgage Association ("GNMA") mortgage-backed securities, are backed by the full
faith and credit of the U.S. government. Other securities, such as obligations
of the Federal National Mortgage Association ("FNMA") or the Federal Home Loan
Mortgage Corporation ("FHLMC") are backed by the credit of the agency or
instrumentality issuing the obligations but not the full faith and credit of the
U.S. government. No assurances can be given that the U.S. government will
provide financial support to these other agencies or instrumentalities because
it is not obligated to do so. See "-- Mortgage-Backed Securities" below for a
description of these securities.


Mortgage-Backed Securities

         The Fund may invest in mortgage-backed securities that are Agency
Pass-Through Certificates, private pass-through securities, or collateralized
mortgage obligations ("CMOs"), as defined and described below. The Fund does not
invest in CMOs as a principal investment strategy.

         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. GNMA is a wholly-owned corporate instrumentality of the United States
within the Department of Housing and Urban Development. The


                                       3



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 FNMA 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 FHLMC's
operations or to assist FHLMC in any other manner.

         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.

         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. 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
precision.

         Private mortgage pass-through securities ("Private Pass-Throughs") are
structured similarly to GNMA, FNMA and FHLMC mortgage pass-through securities
and are issued by originators of and investors in mortgage loans, including
savings and loan associations, mortgage bankers, commercial banks, investment
banks and special purpose subsidiaries of the foregoing. These securities
usually are backed by a pool of commercial fixed rate, conventional fixed rate
or adjustable loans. Since Private Pass-Throughs typically are not guaranteed by
an entity having the credit status of GNMA, FNMA or FHLMC, such securities
generally are structured with one or more types of credit enhancement. Such
credit support falls into two categories: (i) liquidity protection and (ii)
protection against losses resulting from ultimate default by an obligor on the
underlying assets. Liquidity protection refers to the provisions of advances,
generally by the entity administering the pool of assets, to ensure that the
pass-through of payments due on the underlying pool occurs in a timely fashion.
Protection against losses resulting from ultimate default enhances the
likelihood of ultimate payment of the obligations on at least a portion of the
assets in the pool. Such protection may be provided through guarantees,
insurance policies or letters of credit obtained by the issuer or sponsor from
third parties, through various means of structuring the transaction or through a
combination of such approaches. The Fund will not pay any additional fees for
such credit support, although the existence of credit support may increase the
price of a security.

         The ratings of securities for which third-party credit enhancement
provides liquidity protection or protection against losses from default are
generally dependent upon the continued creditworthiness of the enhancement
provider. The ratings of such securities could be subject to reduction in the
event of deterioration in the creditworthiness of the credit enhancement
provider even in cases where the delinquency and loss experience on the
underlying pool of assets is better than expected.

         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 Fund will invest only in CMOs which are


                                       4



rated in one of the four highest rating categories by a nationally recognized
statistical rating organization or which are of comparable quality in the
judgment of the Advisor. Because CMOs are debt obligations of private entities,
payments on CMOs generally are not obligations of or guaranteed by any
governmental entity, and their ratings and creditworthiness typically depend,
among other factors, on the legal insulation of the issuer and transaction from
the consequences of a sponsoring entity's bankruptcy.

         CMOs generally are issued in multiple classes, with holders of each
class entitled to receive specified portions of the principal payments and
prepayments and/or of the interest payments on the underlying mortgage loans.
These entitlements can be specified in a wide variety of ways, so that the
payment characteristics of various classes may differ greatly from one another.
For instance, holders may hold interests in CMO tranches called Z-tranches which
defer interest and principal payments until one or more other classes of the CMO
have been paid in full. In addition, for example:

         o        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.

         o        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.

         o        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.

         o        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.

         o        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.

         o        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.

         It generally is more difficult to predict the effect of changes in
market interest rates on the return on mortgage-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 Fund will not
invest more than 10% of its total assets in interest-only, principal-only,
inverse interest only or inverse floating rate mortgage-backed securities.


                                       5



Adjustable Rate Mortgage Securities

         The Fund may invest in adjustable rate mortgage securities ("ARMS").
ARMS are pass-through mortgage securities collateralized by mortgages with
interest rates that are adjusted from time to time. ARMS also include adjustable
rate tranches of CMOs. The adjustments usually are determined in accordance with
a predetermined interest rate index and may be subject to certain limits. While
the values of ARMS, like other debt securities, generally vary inversely with
changes in market interest rates (increasing in value during periods of
declining interest rates and decreasing in value during periods of increasing
interest rates), the values of ARMS should generally be more resistant to price
swings than other debt securities because the interest rates of ARMS move with
market interest rates. The adjustable rate feature of ARMS will not, however,
eliminate fluctuations in the prices of ARMS, particularly during periods of
extreme fluctuations in interest rates.

         ARMS typically have caps which limit the maximum amount by which the
interest rate may be increased or decreased at periodic intervals or over the
life of the loan. To the extent interest rates increase in excess of the caps,
ARMS can be expected to behave more like traditional debt securities and to
decline in value to a greater extent than would be the case in the absence of
such caps. Also, since many adjustable rate mortgages only reset on an annual
basis, it can be expected that the prices of ARMS will fluctuate to the extent
changes in prevailing interest rates are not immediately reflected in the
interest rates payable on the underlying adjustable rate mortgages. The extent
to which the prices of ARMS fluctuate with changes in interest rates will also
be affected by the indices underlying the ARMS.

Asset-Backed Securities

         The 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.

Floating Rate Debt Obligations

         The Fund may invest in floating rate debt obligations issued, assumed,
or guaranteed by corporations, trusts, partnerships, governmental agencies or
creators, or other such special purpose entities, including increasing rate
securities. Floating rate securities are generally offered at an initial
interest rate which is at or above prevailing market rates. The interest rate
paid on these securities is then reset periodically (commonly every 90 days) to
an increment over some predetermined interest rate index. Commonly utilized
indices include the three-month Treasury bill rate, the 180-day Treasury bill
rate, the one-month or three-month London Interbank Offered Rate (LIBOR), the
prime rate of a bank, the commercial paper rates, or the longer-term rates on
U.S. Treasury securities.

Fixed Rate Debt Obligations

         The Fund may invest in fixed rate debt obligations issued, assumed, or
guaranteed by corporations, trusts, partnerships, governmental agencies or
creators, or other special purpose entities. Fixed rate securities tend to
exhibit more price volatility during times of rising or falling interest rates
than securities with floating rates of interest. This is because floating rate
securities, as described above, behave like short-term instruments in that the
rate of interest they pay is subject to periodic adjustments based on a
designated interest rate index. Fixed rate securities pay a fixed rate of
interest and are more sensitive to fluctuating interest rates. In periods of
rising interest rates the value of a fixed rate security is likely to fall.
Fixed rate securities with short-term characteristics are not subject to the
same price volatility as fixed rate securities without such characteristics.
Therefore, they behave more like floating rate securities with respect to price
volatility.


                                       6


Lending of Portfolio Securities

         In order to generate additional income, the Fund may lend portfolio
securities representing up to one-third of the value of its total assets to
broker-dealers, banks or other institutional borrowers of securities. As with
other extensions of credit, there may be risks of delay in recovery of the
securities or even loss of rights in the collateral should the borrower of the
securities fail financially. However, the Fund will only enter into loan
arrangements with broker-dealers, banks, or other institutions which the Advisor
has determined are creditworthy under guidelines established by the Board of
Directors. The Fund will pay a portion of the income earned on the lending
transaction to the placing broker and may pay administrative and custodial fees
in connection with these loans.


         The Advisor may act as securities lending agent for the Fund and
receive separate compensation for such services, subject to compliance with
conditions contained in an SEC exemptive order permitting the Advisor to provide
such services and receive such compensation. The Advisor currently receives fees
equal to 35% of the Fund's income from securities lending transactions.


         In these loan arrangements, the Fund will receive collateral in the
form of cash, United States government securities or other high-grade debt
obligations equal to at least 100% of the value of the securities loaned. This
collateral must be valued daily by the Advisor and, if the market value of the
loaned securities increases, the borrower must furnish additional collateral to
the Fund. During the time portfolio securities are on loan, the borrower pays
the Fund any dividends or interest paid on the securities. Loans are subject to
termination at any time by the Fund or the borrower. While the Fund does not
have the right to vote securities on loan, it would terminate the loan and
regain the right to vote if that were considered important with respect to the
investment.

         When the Fund lends portfolio securities to a borrower, payments in
lieu of dividends made by the borrower to the Fund will not constitute
"qualified dividends" taxable at the same rate as long-term capital gains, even
if the actual dividends would have constituted qualified dividends had the Fund
held the securities.
See "Taxation."

Options Transactions

         To the extent set forth below, the Fund may purchase and sell (write)
put and call options on interest rate indices, commodity indices, foreign
currencies, and securities that they own or have the right to acquire. Such
options may be standardized contracts traded on domestic or foreign securities
exchanges, boards of trade, or similar entities, or quoted on Nasdaq or on an
over-the-counter market. These transactions will be undertaken for the purpose
of reducing risk to the Funds (for "hedging" purposes) or, in the case of
options written by the Fund, to produce additional income. Options on futures
contracts are discussed below under "-- Futures Contracts and Options on Futures
Contracts."

         OPTIONS ON SECURITIES. 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.

         The Fund may purchase put options to hedge against a decline in the
value of its portfolio. By using put options in this way, the Fund would reduce
any profit it might otherwise have realized in the underlying security by the
amount of the premium paid for the put option and by transaction costs. In
similar fashion, the Fund may purchase call options to hedge against an increase
in the price of securities that the Fund anticipates purchasing in the future.
The premium paid for the call option plus any transaction costs will reduce the
benefit, if any, realized by the Fund upon exercise of the option, and, unless
the price of the underlying security rises sufficiently, the option may expire
unexercised.

         When the Fund sells a put or call option on a security, 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, in the case of a call option,
or decrease below the exercise price, in the case of a put option, 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, in the case of a
call option, the security. If the market price of the security covered by the
option does increase above the exercise price, in the case of a call option, or
decrease below the exercise price, in the case of a put option, before the
option expires, however, the option is likely to be exercised by the purchaser.
In the case of a call option, the Fund will be required to sell the

                                       7


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. In
the case of a put option, the Fund will be required to purchase the security at
a price that is higher than the market price.

         OPTIONS ON INTEREST RATE AND COMMODITY INDICES. An option on an index
gives the holder the right to receive, upon exercise of the option, an 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. 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.
Settlements for index options are always in cash. The multiplier for 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 index. Options on different indices may have different multipliers.

         OPTIONS ON CURRENCIES. Foreign currency options are discussed in detail
below under " -- Foreign Currency Transactions - Foreign Currency Options."

         WRITING OPTIONS. The Fund will write put and call options only if they
are "covered." In the case of a call option on a security, the option is
"covered" if the Fund owns the security underlying the call or has an absolute
and immediate right to acquire that security without additional cash
consideration (or, if additional cash consideration is required, cash or other
liquid assets in such amount are segregated) upon conversion or exchange of the
securities held by the Fund. For a call option on an index or currency, the
option is covered if the Fund maintains with its custodian liquid assets in an
amount equal to the contract value of the index or currency. A call option is
also covered if the Fund holds a call on the same security, index or currency as
the call written where the exercise price of the call held is (i) equal to or
less than the exercise price of the call written, or (ii) greater than the
exercise price of the call written, provided the difference is maintained by the
Fund in segregated liquid assets. A put option on a security, currency or index
is "covered" if the Fund segregates liquid assets equal to the exercise price. A
put option is also covered if the Fund holds a put on the same security,
currency or index as the put written where the exercise price of the put held is
(i) equal to or greater than the exercise price of the put written, or (ii) less
than the exercise price of the put written, provided the difference is
maintained by the Fund in segregated liquid assets.

         The Fund may write covered straddles consisting of a combination of a
call and a put written on the same underlying instrument. A straddle will be
covered when sufficient assets are deposited to meet the Fund's immediate
obligations. The Fund may use the same liquid assets to cover both the call and
put options where the exercise price of the call and put are the same, or the
exercise price of the call is higher than that of the put. In such cases, the
Fund will also segregate liquid assets equivalent to the amount, if any, by
which the put is "in the money."

         EXPIRATION OR EXERCISE OF OPTIONS. If an option written by the Fund
expires unexercised, the Fund realizes a capital gain equal to the premium
received at the time the option was written. If an option purchased by the Fund
expires unexercised, the Fund realizes a capital loss equal to the premium paid.
Prior to the earlier of exercise or expiration, an exchange traded option may be
closed out by an offsetting purchase or sale of an option of the same series
(type, exchange, underlying security, currency or index, exercise price, and
expiration). There can be no assurance, however, that a closing purchase or sale
transaction can be effected when the Fund desires.

         The Fund may sell put or call options it has previously purchased,
which could result in a net gain or loss depending on whether the amount
realized on the sale is more or less than the premium and other transaction
costs paid on the put or call option which is sold. Prior to exercise or
expiration, an option may be closed out by an offsetting purchase or sale of an
option of the same series. The Fund will realize a capital gain from a closing
purchase transaction if the cost of the closing option is less than the premium
received from writing the option, or, if it is more, the Fund will realize a
capital loss. If the premium received from a closing sale transaction is more
than the premium paid to purchase the option, the Fund will realize a capital
gain or, if it is less, the Fund will realized a capital loss. The principal
factors affecting the market value of a put or a call option include supply and
demand, interest rates, the current market price of the underlying security,
currency or index in relation to the exercise price of the option, the
volatility of the underlying security, currency or index, and the time remaining
until the expiration date.

         The premium paid for a put or call option purchased by the Fund is an
asset of the Fund. The premium received for an option written by the Fund is
recorded as a deferred credit. The value of an option purchased or written

                                       8


is marked to market daily and is valued at the closing price on the exchange on
which it is traded or, if not traded on an exchange or no closing price is
available, at the mean between the last bid and asked price.

         RISKS ASSOCIATED WITH OPTIONS TRANSACTIONS. There are several risks
associated with options transactions. For example, there are significant
differences between the securities and options markets that could result in an
imperfect correlation between these markets, causing a given transaction not to
achieve its objectives. A decision as to whether, when and how to use options
involves the exercise of skill and judgment, and even a well-conceived
transaction may be unsuccessful to some degree because of market behavior or
unexpected events.

         During the option period, the covered call writer has, in return for
the premium on the option, given up the opportunity to profit from a price
increase in the underlying security above the exercise price, but, as long as
its obligation as a writer continues, has retained the risk of loss should the
price of the underlying security decline. The writer of an option has no control
over the time when it may be required to fulfill it obligations as a writer of
the option. Once an option writer has received an exercise notice, it cannot
effect a closing purchase transaction in order to terminate its obligation under
the option and must deliver the underlying security at the exercise price. If a
put or call option purchased by the Fund is not sold when it has remaining
value, and if the market price of the underlying security remains equal to or
greater than the exercise price (in the case of a put) or remains less than or
equal to the exercise price (in the case of a call), the Fund will lose its
entire investment in the option. Also, where a put or call option on a
particular security is purchased to hedge against price movements in a related
security, the price of the put or call option may move more or less than the
price of the related security.

         There can be no assurance that a liquid market will exist when the Fund
seeks to close out an option position. If the Fund were unable to close out an
option that it had purchased on a security, it would have to exercise the option
in order to realize any profit or the option may expire worthless. If the Fund
were unable to close out a covered call option that it had written on a
security, it would not be able to sell the underlying security unless the option
expired without exercise.

         If trading were suspended in an option purchased by the Fund, the Fund
would not be able to close out the option. If restrictions on exercise were
imposed, the Fund might be unable to exercise an option it had purchased. Except
to the extent that a call option on an index written by the Fund is covered by
an option on the same index purchased by the Fund, movements in the index may
result in a loss to the Fund; however, such losses may be mitigated by changes
in the value of the Fund's securities during the period the option was
outstanding.

         LIMITATIONS. The Fund will not invest more than 5% of the value of its
total assets in purchased options, provided that options which are "in the
money" at the time of purchase may be excluded from this 5% limitation. A call
option is "in the money" if the exercise price is lower than the current market
price of the underlying security or index, and a put option is "in the money" if
the exercise price is higher than the current market price.

Futures Contracts and Options on Futures Contracts.

         A futures contract is an agreement between two parties to buy and sell
a security or commodity for a set price on a future date. These contracts are
traded on exchanges, so that, in most cases, either party can close out its
position on the exchange for cash, without delivering the security or commodity.
An option on a futures contract gives the holder of the option the right to buy
or sell a position in a futures contracts to the writer of the option, at a
specified price and on or before a specified expiration date.

         The Fund may purchase futures contracts and may purchase and write call
and put options on futures contracts ("futures options") with respect to, but
not limited to, interest rates, commodities, security or commodity indexes and
foreign currencies. The Fund's foreign currency futures transactions are
discussed in more detail below under " --Foreign Currency Transactions."

         An interest rate, commodity, foreign currency or index futures contract
provides for the future sale by one party and purchase by another party of a
specified quantity of a financial instrument, commodity, foreign currency or the
cash value of an index at a specified price and time. A futures contract on an
index is an agreement pursuant to which two parties agree to take or make
delivery of an amount of cash equal to the difference between the value of the
index at the close of the last trading day of the contract and the price at
which the index contract was originally written.

                                       9


Although the value of an index might be a function of the value of certain
specified securities, no physical delivery of these securities is made. The Fund
may also invest in commodity futures contracts and options thereon. A commodity
futures contract is an agreement between two parties, in which one party agrees
to buy a commodity, such as an energy, agricultural or metal commodity from the
other party at a later date at a price and quantity agreed upon when the
contract is made.

         Futures options possess many of the same characteristics as options on
securities, currencies and indexes (discussed above). A futures option gives the
holder the right, in return for the premium paid, to assume a long position
(call) or short position (put) in a futures contract at a specified exercise
price at any time during the period of the option. Upon exercise of a call
option, the holder acquires a long position in the futures contract and the
writer is assigned the opposite short position. In the case of a put option, the
opposite is true.

         The Fund intends generally to use futures contracts and futures options
to hedge against market risk. For example, the Fund might use futures contracts
to hedge against anticipated changes in interest rates that might adversely
affect either the value of the Fund's securities or the price of the securities
that the Fund intends to purchase. The Fund's hedging activities may include
sales of futures contracts as an offset against the effect of expected increases
in interest rates, and purchases of futures contracts as an offset against the
effect of expected declines in interest rates. Although other techniques could
be used to reduce the Fund's exposure to interest rate fluctuations, the Fund
may be able to hedge its exposure more effectively and perhaps at a lower cost
by using futures contracts and futures options.

         The Fund will only enter into futures contracts and futures options
which are standardized and traded on a U.S. or foreign exchange, board of trade
or similar entity, or quoted on an automated quotation system.

         When a purchase or sale of a futures contract is made by the Fund, the
Fund is required to deposit with its custodian (or broker, if legally permitted)
a specified amount of liquid assets ("initial margin"). The margin required for
a futures contract is set by the exchange on which the contract is traded and
may be modified during the term of the contract. Margin requirement on foreign
exchanges may be modified during the term of the contract. Margin requirements
on foreign exchanges may be different than U.S. exchanges. The initial margin is
in the nature of a performance bond or good faith deposit on the futures
contract which is returned to the Fund upon termination of the contract,
assuming all contractual obligations have been satisfied. The Fund expects to
earn interest income on its initial margin deposits. A futures contract held by
the Fund is valued daily at the official settlement price of the exchange on
which it is traded. Each day the Fund pays or receives cash, called "variation
margin," equal to the daily change in value of the futures contract. This
process is known as "marking to market." Variation margin does not represent a
borrowing or loan by the Fund but is instead a settlement between the Fund and
the broker of the amount one would owe the other if the futures contract
expired. In computing daily net asset value, the Fund will mark to market its
open futures positions.

         The Fund is also required to deposit and maintain margin with respect
to put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Fund.

         Futures transactions also involve brokerage costs and require the Fund
to segregate liquid assets, such as cash, United States Government securities or
other liquid obligations equal to at least 100% of its performance under such
contracts.

         Although some futures contracts call for making or taking delivery of
the underlying currency, securities or commodities, generally these obligations
are closed out prior to delivery by offsetting purchases or sales of matching
futures contracts (same exchange, underlying currency, security or commodity,
and delivery month). Closing out a futures contract sale is effected by
purchasing a futures contract for the same aggregate amount of the specific type
of financial instrument or commodity with the same delivery date. If an
offsetting purchase price is less than the original sale price, the Fund
realizes a capital gain, or if it is more, the Fund realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, the Fund realizes a capital loss. The transaction costs must also be
included in these calculations.

                                       10


         The Fund may write covered straddles consisting of a call and a put
written on the same underlying futures contract. A straddle will be covered when
sufficient assets are deposited to meet the Fund's immediate obligations. A Fund
may use the same liquid assets to cover both the call and put options where the
exercise price of the call and put are the same, or the exercise price of the
call is higher than that of the put. In such cases, the Fund will also segregate
liquid assets equivalent to the amount, if any, by which the put is "in the
money."

         LIMITATIONS ON USE OF FUTURES AND FUTURES OPTIONS. Aggregate initial
margin deposits for futures contracts, and premiums paid for related options,
may not exceed 5% of the 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 the Fund's total assets. Futures
transactions will be limited to the extent necessary to maintain the Fund's
qualification as regulated investment company under the Internal Revenue Code of
1986, as amended (the "Code").

         RISKS ASSOCIATED WITH FUTURES AND FUTURES OPTIONS. There are several
risks associated with the use of futures contracts and futures options as
hedging techniques. A purchase or sale of a futures contract may result in
losses in excess of the amount invested in the futures contract. There can be no
guarantee that there will be a correlation between price movements in the
hedging vehicle and in the Fund securities being hedged. In addition, there are
significant differences between the securities and futures markets that could
result in an imperfect correlation between the markets, causing a given hedge
not to achieve its objectives. The degree of imperfection of correlation depends
on circumstances such as variations in speculative market demand for futures and
futures options, including technical influences in futures trading and futures
options, and differences between the financial instruments being hedged and the
instruments underlying the standard contracts available for trading in such
respects as interest rate levels, maturities, and creditworthiness of issuers. A
decision as to whether, when and how to hedge involves the exercise of skill and
judgment, and even a well-conceived hedge may be unsuccessful to some degree
because of market behavior or unexpected interest rate trends.

         Futures exchanges may limit the amount of fluctuation permitted in
certain futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses.

         There can be no assurance that a liquid market will exist at a time
when the Fund seeks to close out a futures or a futures option position, and the
Fund would remain obligated to meet margin requirements until the position is
closed. In addition, many of the contracts discussed above are relatively new
instruments without a significant trading history. As a result, there can be no
assurance that an active secondary market will develop or continue to exist.

         RISKS ASSOCIATED WITH COMMODITY FUTURES CONTRACTS. There are several
additional risks associated with transactions in commodity futures contracts.

         Storage. Unlike the financial futures markets, in the commodity futures
markets there are costs of physical storage associated with purchasing the
underlying commodity. The price of the commodity futures contract will reflect
the storage costs of purchasing the physical commodity, including the time value
of money invested in the physical commodity. To the extent that the storage
costs for an underlying commodity change while the Fund is invested in futures
contracts on that commodity, the value of the futures contract may change
proportionately.

         Reinvestment. In the commodity futures markets, producers of the
underlying commodity may decide to hedge the price risk of selling the commodity
by selling futures contracts today to lock in the price of the commodity at
delivery tomorrow. In order to induce speculators to purchase the other side of
the same futures contract, the commodity producer generally must sell the
futures contract at a lower price than the expected future spot price.
Conversely, if most hedgers in the futures market are purchasing futures
contracts to hedge against a rise in prices, then speculators will only sell the
other side of the futures contract at a higher futures price than the expected
future spot price of the commodity. The changing nature of the hedgers and
speculators in the commodity markets will influence whether futures prices are
above or below the expected future spot price, which can have significant
implications for the

                                       11


Fund. If the nature of hedgers and speculators in futures markets has shifted
when it is time for the Fund to reinvest the proceeds of a maturing contract in
a new futures contract, the Fund might reinvest at higher or lower futures
prices, or choose to pursue other investments.

         Other Economic Factors. The commodities which underlie commodity
futures contracts may be subject to additional economic and non-economic
variables, such as drought, floods, weather, livestock disease, embargoes,
tariffs, and international economic, political and regulatory developments.
These factors may have a larger impact on commodity prices and commodity-linked
instruments, including futures contracts, than on traditional securities.
Certain commodities are also subject to limited pricing flexibility because of
supply and demand factors. Others are subject to broad price fluctuations as a
result of the volatility of the prices for certain raw materials and the
instability of supplies of other materials. These additional variables may
create additional investment risks which subject the Fund's investments to
greater volatility than investments in traditional securities.

CFTC Information

         The Commodity Futures Trading Commission (the "CFTC"), a federal
agency, regulates trading activity pursuant to the Commodity Exchange Act, as
amended (the "CEA"). The CFTC requires the registration of a Commodity Pool
Operator (a "CPO"), which is 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 a 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 files a
notice of eligibility. The Fund has filed a notice of eligibility claiming
exclusion from the status of CPO and, therefore, is not subject to registration
or regulation as a CPO under the CEA.

Foreign Securities

         GENERAL. The Fund may invest up to 20% of its net asset in non-dollar
denominated securities, and may invest without limitation in U.S. dollar
denominated securities of foreign issuers. 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.

         EMERGING MARKETS. The Fund's investments in foreign securities may
include securities issued by the governmental and corporate issuers that are
located in emerging market countries. Investments in securities of issuers in
emerging market countries may be subject to potentially higher risks than
investments in developed countries. These risks include (i) less social,
political and economic stability; (ii) the small current size of the markets for
such securities and the currently low or nonexistent volume of trading, which
may result in a lack of liquidity and in greater price volatility; (iii) certain
national policies which may restrict the Fund's investment opportunities,
including restrictions on investment in issuers or industries deemed sensitive
to national interests; (iv) foreign taxation; (v) the absence of developed
structures governing private or foreign investment or allowing for judicial
redress for injury to private property; (vi) the limited development and recent
emergence, in certain countries, of a capital market structure or

                                       12


market-oriented economy; and (vii) the possibility that recent favorable
economic developments in certain countries may be slowed or reversed by
unanticipated political or social events in such countries.

         Despite the dissolution of the Soviet Union, the Communist Party may
continue to exercise a significant role in certain (particularly Eastern
European) countries. To the extent of the Communist Party's influence,
investments in such countries will involve risks of nationalization,
expropriation and confiscatory taxation. The communist governments of a number
of such countries expropriated large amounts of private property in the past, in
many cases without adequate compensation, and there can be no assurance that
such expropriation will not occur in the future. In the event of such
expropriation, the Fund could lose a substantial portion of any investments it
has made in the affected countries. Further, no accounting standards exist in
many developing countries. Finally, even though certain currencies may be
convertible into U.S. dollars, the conversion rates may be artificial to the
actual market values and may be adverse to Fund shareholders.

         Certain countries, which do not have market economies, are
characterized by an absence of developed legal structures governing private and
foreign investments and private property. Certain countries require governmental
approval prior to investments by foreign persons, or limit the amount of
investment by foreign persons in a particular company, or limit the investment
of foreign persons to only a specific class of securities of a company that may
have less advantageous terms than securities of the company available for
purchase by nationals.

         Authoritarian governments in certain countries may require that a
governmental or quasi-governmental authority act as custodian of the Fund's
assets invested in such country. To the extent such governmental or
quasi-governmental authorities do not satisfy the requirements of the 1940 Act
to act as foreign custodians of the Fund's cash and securities, the Fund's
investment in such countries may be limited or may be required to be effected
through intermediaries. The risk of loss through governmental confiscation may
be increased in such countries.




         FOREIGN SECURITIES EXCHANGES. 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 the Fund is uninvested. In
addition, settlement problems could cause the 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 the Fund to obtain or to
enforce a judgment against the issuer.


Foreign Currency Transactions

         The Fund invests in securities which are purchased and sold in foreign
currencies. The value of the Fund's 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. The Fund also will
incur costs in converting United States dollars to local currencies, and vice
versa.

         The 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 an amount of a specific currency at a specific price on a
future date agreed upon by the parties. These forward currency contracts are
traded directly between currency traders (usually large commercial banks) and
their customers.

         The Fund may enter into forward currency contracts in order to hedge
against adverse movements in exchange rates between currencies. The Fund 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. The Fund
also may hedge foreign currency exchange rate risk by engaging in currency
futures and options transactions. See "--Options Transactions" and "Futures and
Options on Futures" above.

                                       13


         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 Advisor's decision whether to enter into currency hedging transactions will
depend in part on its view regarding the direction and amount in which exchange
rates are likely to move. The forecasting of movements in exchange rates is
extremely difficult, so that it is highly uncertain whether a hedging strategy,
if undertaken, would be successful. To the extent that the Advisor's view
regarding future exchange rates proves to have been incorrect, the Fund may
realize losses on its foreign currency transactions.

         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. The Fund will not enter into such forward
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
securities or other assets denominated in that currency. The Fund will comply
with applicable SEC pronouncements requiring it to segregate assets to cover its
commitments with respect to such contracts. At the present time, these
pronouncements generally require a fund with a long position in a forward
foreign currency contract to segregate cash or liquid securities equal to the
purchase price of the contract, and require a fund with a short position in a
forward foreign currency contract to segregate cash or liquid 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 to the extent that 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, the 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 investing in
forward foreign currency exchange contracts.

         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 the Fund against an adverse movement in the value of a
foreign currency, it would 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.

                                       14



Interest Rate Caps and Floors

         The Fund may purchase or sell interest rate caps and floors to preserve
a return or a spread on a particular investment or portion of its portfolio or
for other non-speculative purposes. The purchase of an interest rate cap
entitles the purchaser, to the extent a specified index exceeds a predetermined
interest rate, to receive payments of interest on a contractually-based
principal amount from the party selling such interest rate cap. The purchase of
an interest rate floor entitles the purchaser, to the extent a specified index
falls below a predetermined interest rate, to receive payments of interest on a
contractually-based principal amount from the party selling such interest rate
floor.

Swap Agreements

         The Fund may enter into swap agreements including, but not limited to,
agreements on interest rates, currency rates, security or commodity indexes, and
specific securities or commodities, and into credit default swap agreements. The
Fund may also enter into options on the foregoing types of swap agreements
("swap options") and in bonds issued by special purpose entities that are backed
by a pool of swaps.

         Swap agreements are two party contracts entered into primarily by
institutional investors for a specified period of time. In a standard swap
transaction, two parties agree to exchange the returns (or differentials in
rates of return) earned or realized on a particular predetermined investment,
currency or index. The gross returns to be exchanged or swapped between the
parties are generally calculated with respect to a notional amount, i.e., the
return on or increase in value of a particular dollar amount invested at a
particular interest rate, in a particular currency, or in a basket of securities
or commodities representing a particular index. These swap agreements may
include, for example, interest rate swaps, which involve the exchange of a fixed
rate of interest for a floating rate of interest, or total return swaps, which
involve the exchange of a floating rate of interest for a coupon equal to the
total return of a specified market index or commodity index.

         A swap option is a contract that gives a counterparty the right (but
not the obligation) to enter into a new swap agreement or to shorten, extend,
cancel, or otherwise modify an existing swap agreement at some designated future
time on specified terms. The Fund may write (sell) and purchase put and call
swap options.

         One example of the use of swaps may be to manage the interest rate
sensitivity of the Fund. The Fund might receive or pay a fixed interest rate of
a particular maturity and pay or receive a floating rate in order to increase or
decrease the duration of the Fund. Or, the Fund may buy or sell swap options to
effect the same result. The Fund may also replicate a security by selling it,
placing the proceeds in cash deposits, and receiving a fixed rate in the swap
market.

         Another example of the use of swaps within the Fund is the use of
credit default swaps to buy or sell credit protection. Credit default swaps
involve the exchange of a monthly interest rate spread over a period of time for
the risk of default by an individual corporate borrower or with respect to a
basket of securities. A credit default swap enables an investor to buy or sell
protection against a defined-issuer credit event. The seller of credit
protection against a security or basket of securities receives an upfront or
periodic payment to compensate against potential default events. The Fund may
enhance income by selling protection or protect credit risk by buying
protection. Market supply and demand factors may cause distortions between the
cash securities market and the credit default swap market. The credit protection
market is still relatively new and should be considered illiquid.

         Most swap agreements entered into by the Fund would calculate the
obligations of the parties to the agreement on a "net basis." Consequently, the
Fund's current obligations (or rights) under a swap agreement will generally be
equal only to the net amount to be paid or received under the agreement based on
the relative values of the positions held by each party to the agreement (the
"net amount"). The Fund's current obligations under a net swap agreement will be
accrued daily (offset against any amounts owed to the Fund) and any accrued but
unpaid net amounts owed to a swap counterparty will be covered by assets
determined to be liquid by the Advisor.

         The use of swap agreements by the Fund entails certain risks. Interest
rate swaps could result in losses if interest rate changes are not correctly
anticipated by the Fund. Total return swaps could result in losses if the
reference

                                       15


index does not perform as anticipated by the Fund. Credit default swaps could
result in losses if the Fund does not correctly evaluate the creditworthiness of
the company or companies on which the credit default swap is based.

         The Fund will generally incur a greater degree of risk when it writes a
swap option than when it purchases a swap option. When the Fund purchases a swap
option it risks losing only the amount of the premium it has paid should it
decide to let the option expire unexercised. However, when the Fund writes a
swap option it will be obligated, upon exercise of the option, according to the
terms of the underlying agreement.

         Because swaps are two party contracts and because they may have terms
of greater than seven days, swap agreements may be considered to be illiquid.
Moreover, the Fund bears the risk of loss of the amount expected to be received
under a swap agreement in the event of the default or bankruptcy of a swap
agreement counterparty. The swaps market is a relatively new market and is
largely unregulated. It is possible that developments in the swaps market,
including potential government regulation, could adversely affect the Fund's
ability to terminate existing swap agreements or to realize amounts to be
received under such agreements.

Index- and Other Asset-Linked Notes

         The Fund may invest in index- and other asset-linked notes, which are
debt securities the principal amount of or interest rate on which is tied,
positively or negatively, to the price of an underlying asset such as a stock or
interest-rate index, a commodity, or a commodity index. An example of such an
instrument could be a note issued by an oil company that pays a small base level
of interest with additional interest that accrues in correlation to the extent
to which oil prices exceed a certain predetermined level.

Debt Obligations Rated Less Than Investment Grade

         The Fund may invest in both investment grade and non-investment grade
debt obligations. 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 "high yield securities" or "junk bonds." The Fund
may invest in non-investment grade debt obligations rated at least B by Standard
& Poor's or Moody's or which have been assigned an equivalent rating by
another nationally recognized statistical rating organization, or in unrated
securities determined to be of comparable quality by the Advisor.

         Yields on non-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 non-investment grade debt obligations. If the issuer of a
security held by the Fund defaulted, the Fund might incur additional expenses to
seek recovery.

         In addition, the secondary trading market for non-investment grade debt
obligations may be less developed than the market for investment grade
obligations. This may make it more difficult for the 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
non-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 non-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 the
Fund's use of non-investment grade debt obligations may be more dependent on the
Advisor's own credit analysis than is the case with investment grade
obligations.

                                       16






OTHER INVESTMENT STRATEGIES

Short-Term Investments

         The Fund may invest in a variety of short-term instruments such as
rated commercial paper and variable amount master demand notes; United States
dollar-denominated time and savings deposits (including certificates of
deposit); bankers' acceptances; obligations of the United States Government or
its agencies or instrumentalities; repurchase agreements collateralized by
eligible investments of the Fund; securities of other mutual funds that invest
primarily in debt obligations with remaining maturities of 13 months or less
(which investments also are subject to an advisory fee); and other similar
high-quality short-term United States dollar-denominated obligations. The other
mutual funds in which the Fund may so invest include money market funds advised
by U.S. Bancorp Asset Management, Inc., the Fund's investment advisor ("U.S.
Bancorp Asset Management" or the "Advisor"), subject to certain restrictions
contained in an exemptive order issued by the Securities and Exchange Commission
("SEC") with respect thereto.

         The Fund may also invest in 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. In each instance, the
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.

         Short-term investments and repurchase agreements may be entered into on
a joint basis by the Fund and other funds advised by the Advisor to the extent
permitted by an exemptive order issued by the Securities and Exchange Commission
with respect to the Fund. 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. The Fund may
purchase commercial paper consisting of issues rated at the time of purchase
within the two highest rating categories by Standard & Poor's or Moody's, or
which have been assigned an equivalent rating by another nationally recognized
statistical rating organization. The Fund also may invest in commercial paper
that is not rated but that is determined by the Advisor 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."

         BANKERS' ACCEPTANCES. Bankers' acceptances are credit instruments
evidencing the obligation of a bank to pay a draft drawn on it by a customer.
These instruments reflect the obligation both of the bank and of the drawer to
pay the full amount of the instrument upon maturity.

         VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand
notes are unsecured demand notes that permit the indebtedness thereunder to vary
and provide for periodic adjustments in the interest rate according to the terms
of the instrument. Because master demand notes are direct lending arrangements
between the Fund and the issuer, they are not normally traded. Although there is
no secondary market in the notes, the Fund may demand payment of principal and
accrued interest at any time. While the notes are not typically rated by credit
rating agencies, issuers of variable amount master demand notes (which are
normally manufacturing, retail, financial, and other business concerns) must
satisfy the same criteria as set forth above for commercial paper. The Advisor
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.

         VARIABLE RATE DEMAND OBLIGATIONS. Variable rate demand obligations
("VRDO") are securities in which the interest rate is adjusted at pre-designated
periodic intervals. VRDOs may include a demand feature which is a put that
entitles the holder to receive the principal amount of the underlying security
or securities and which may be exercised either at any time on no more than 30
days' notice or at specified intervals not exceeding 397 calendar days on no
more than 30 days' notice.


                                       17



Repurchase Agreements

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

         The Fund's custodian will hold the securities underlying any repurchase
agreement, or the securities will be part of the Federal Reserve/Treasury Book
Entry System. The market value of the collateral underlying the repurchase
agreement will be determined on each business day. If at any time the market
value of the collateral falls below the repurchase price under the repurchase
agreement (including any accrued interest), the 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

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

         The purchase of securities on a when-issued or delayed delivery basis
exposes the Fund to risk because the securities may decrease in value prior to
delivery. In addition, the Fund's purchase of securities on a when-issued or
delayed delivery basis while remaining substantially fully invested could
increase the amount of the Fund's total assets that are subject to market risk,
resulting in increased sensitivity of net asset value to changes in market
prices. A seller's failure to deliver securities to the Fund could prevent the
Fund from realizing a price or yield considered to be advantageous.

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

         When the Fund agrees to purchase securities on a when-issued or delayed
delivery basis, the Fund's custodian will segregate cash or liquid securities in
an amount sufficient to meet the Fund's purchase commitments. It may be expected
that the Fund's net assets will fluctuate to a greater degree when it sets aside
securities to cover such purchase commitments than when it sets aside cash. In
addition, because the Fund will set aside cash or liquid securities to satisfy
its purchase commitments in the manner described above, its liquidity and the
ability of the Advisor to manage it might be affected in the event its
commitments to purchase when-issued or delayed delivery securities became
significant. Under normal market conditions, however, the Fund's commitments to
purchase when-issued or delayed delivery securities will not exceed 25% of the
value of its total assets.


                                       18


Brady Bonds

         The Fund may invest in U.S. dollar-denominated "Brady Bonds." These
foreign debt obligations, which may be fixed rate par bonds or floating rate
discount bonds, are generally collateralized in full as to repayment of
principal at maturity by U.S. Treasury zero-coupon obligations that have the
same maturity as the Brady Bonds. Interest payments on these Brady Bonds
generally are collateralized on a one-year or longer rolling-forward basis by
cash or securities in an amount that, in the case of fixed rate bonds, is equal
to at least one year of interest payments or, in the case of floating rate
bonds, initially is equal to at least one year's interest payments based on the
applicable interest rate at that time and is adjusted at regular intervals
thereafter. Brady Bonds can be viewed as having three or four valuation
components: (i) the collateralized repayment of principal at final maturity;
(ii) the collateralized interest payments; (iii) the uncollateralized interest
payments; and (iv) any uncollateralized repayment of principal at maturity.
Those uncollateralized amounts constitute what is called the "residual risk."

         If there is a default on collateralized Brady Bonds resulting in
acceleration of the payment obligations of the issuer, the zero-coupon U.S.
Treasury securities held as collateral for the payment of principal will not be
distributed to investors, nor will those obligations be sold to distribute the
proceeds. The collateral will be held by the collateral agent to the scheduled
maturity of the defaulted Brady Bonds. The defaulted bonds will continue to
remain outstanding, and the face amount of the collateral will equal the
principal payments which would have then been due on the Brady Bonds in the
normal course. Because of the residual risk of Brady Bonds and the history of
defaults with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds, Brady Bonds are considered speculative
investments.


Collateralized Debt Obligations

          The Fund may invest in Collateralized Debt Obligations ("CDOs").
Similar to CMOs, CDOs are debt obligations typically issued by a private
special-purpose entity and collateralized principally by debt securities
(including, for example, high-yield, high-risk bonds, structured finance
securities including asset-backed securities, CDOs, mortgage-backed securities
and REITs) or corporate loans. The special purpose entity typically issues one
or more classes (sometimes referred to as "tranches") of rated debt securities,
one or more unrated classes of debt securities that are generally treated as
equity interests, and a residual equity interest. The tranches of CDOs typically
have different interest rates, projected weighted average lives and ratings,
with the higher rated tranches paying lower interest rates. One or more forms of
credit enhancement are almost always necessary in a CDO structure to obtain the
desired credit ratings for the most highly rated debt securities issued by the
CDO. The types of credit enhancement used include "internal" credit enhancement
provided by the underlying assets themselves, such as subordination, excess
spread and cash collateral accounts, hedges provided by interest rate swaps, and
"external" credit enhancement provided by third parties, principally financial
guaranty insurance issued by monoline insurers. Despite this credit enhancement,
CDO tranches can experience substantial losses due to actual defaults, increased
sensitivity to defaults due to collateral default and the disappearance of lower
rated protecting tranches, market anticipation of defaults, as well as aversion
to CDO securities as a class. CDOs can be less liquid than other publicly held
debt issues, and require additional structural analysis.

Zero Coupon Securities

         The Fund may invest in zero coupon, fixed income securities. Zero
coupon securities pay no cash income to their holders until they mature and are
issued at substantial discounts from their value at maturity. When held to
maturity, their entire return comes from the difference between their purchase
price and their maturity value. Because interest on zero coupon securities is
not paid on a current basis, the values of securities of this type are subject
to greater fluctuations than are the value of securities that distribute income
regularly and may be more speculative than such securities. Accordingly, the
values of these securities may be highly volatile as interest rates rise or
fall. In addition, while zero coupon securities generate income for purposes of
generally accepted accounting standards, they do not generate cash flow and thus
could cause the Fund to be forced to liquidate securities at an inopportune time
in order to distribute cash, as required by the Code.


                                       19


Payment-In-Kind Debentures and Delayed Interest Securities

         The Fund may invest in debentures the interest on which may be paid in
other securities rather than cash ("PIKs"). Typically, during a specified term
prior to the debenture's maturity, the issuer of a PIK may provide for the
option or the obligation to make interest payments in debentures, common stock
or other instruments (i.e., "in kind" rather than in cash). The type of
instrument in which interest may or will be paid would be known by the Fund at
the time of investment. While PIKs generate income for purposes of generally
accepted accounting standards, they do not generate cash flow and thus could
cause the Fund to be forced to liquidate securities at an inopportune time in
order to distribute cash, as required by the Code.

         Unlike PIKs, delayed interest securities do not pay interest for a
specified period. Because values of securities of this type are subject to
greater fluctuations than are the values of securities that distribute income
regularly, they may be more speculative than such securities.

Preferred Stock

         The Fund may invest in preferred stock. Preferred stock, unlike common
stock, offers a stated dividend rate payable from the issuer's earnings.
Preferred stock dividends may be cumulative or non-cumulative, participating, or
auction rate. If interest rates rise, the fixed dividend on preferred stocks may
be less attractive, causing the price of preferred stocks to decline. Preferred
stock may have mandatory sinking fund provisions, as well as call/redemption
provisions prior to maturity, a negative feature when interest rates decline.

         The Fund may invest in debt securities which are convertible into or
exchangeable for, or which carry warrants or other rights to acquire, common or
preferred stocks. Equity interests acquired through conversion, exchange or
exercise of rights to acquire stock will be disposed of by the Fund as soon as
practicable in an orderly manner (except that the Fund is not required to
dispose of any preferred stock so acquired).

Trust Preferred Securities

         The Fund may invest in trust preferred securities. Trust preferred
securities are preferred securities typically issued by a special purpose trust
subsidiary and backed by subordinated debt of that subsidiary's parent
corporation. Trust preferred securities may have varying maturity dates, at
times in excess of 30 years, or may have no specified maturity date with an
onerous interest rate adjustment if not called on the first call date. Dividend
payments of the trust preferred securities generally coincide with interest
payments on the underlying subordinated debt. Trust preferred securities
generally have a yield advantage over traditional preferred stocks, but unlike
preferred stocks, distributions are treated as interest rather than dividends
for federal income tax purposes and therefore, are not eligible for the
dividends-received deduction. Trust preferred securities are subject to unique
risks, which include the fact that dividend payments will only be paid if
interest payments on the underlying obligations are made, which interest
payments are dependent on the financial condition of the parent corporation and
may be deferred for up to 20 consecutive quarters. There is also the risk that
the underlying obligations, and thus the trust preferred securities, may be
prepaid after a stated call date or as a result of certain tax or regulatory
events, resulting in a lower yield to maturity.

Participation Interests

         The Fund may acquire participation interests in senior, fully secured
floating rate loans that are made primarily to U.S. companies. The Fund's
investments in participation interests are subject to its limitation on
investments in illiquid securities. The Fund may purchase only those
participation interests that mature in one year or less, or, if maturing in more
than one year, have a floating rate that is automatically adjusted at least once
each year according to a specified rate for such investments, such as a
published interest rate or interest rate index. Participation interests are
primarily dependent upon the creditworthiness of the borrower for payment of
interest and principal. Such borrowers may have difficulty making payments and
may have senior securities rated as low as C by Moody's, or D by Standard &
Poor's.

                             INVESTMENT RESTRICTIONS


         The Fund is classified under the 1940 Act as a diversified series of an
open-end management investment company. This classification cannot be changed
without approval by the holders of a majority of the outstanding shares of the
Fund as defined in the 1940 Act, i.e., by the lesser of the vote of (a) 67% of
the shares of the Fund present at a


                                       20



meeting where more than 50% of the outstanding shares are present in person or
by proxy, or (b) more than 50% of the outstanding shares of the Fund. The 1940
Act currently requires that, as a diversified fund, the Fund may not, with
respect to 75% of its total assets, invest more than 5% of the value of its
total assets in the outstanding securities of any one issuer, or own more than
10% of the outstanding voting securities of any one issuer, in each case other
than securities issued or guaranteed by the United States Government or any
agency or instrumentality thereof, securities of other investment companies, and
cash and cash items (including receivables).


         In addition to the investment objective and policies set forth in the
Prospectuses and under the caption "Additional Information Concerning Fund
Investments" above, the Fund is subject to the investment restrictions set forth
below. The investment restrictions set forth in paragraphs 1 through 6 below are
fundamental and cannot be without approval by the holders of a majority of the
outstanding shares of the Fund as defined in the 1940 Act.

         The Fund will not:

         1.       Concentrate its investments in a particular industry. For
                  purposes of this limitation, the U.S. Government, and state or
                  municipal governments and their political subdivisions are not
                  considered members of any industry. Whether the Fund is
                  concentrating in an industry shall be determined in accordance
                  with the 1940 Act, as interpreted or modified from time to
                  time by any regulatory authority having jurisdiction.*

         2.       Borrow money or issue senior securities, except as permitted
                  under the 1940 Act, as interpreted or modified from time to
                  time by any regulatory authority having jurisdiction.

         3.       Purchase physical commodities. This restriction shall not
                  prohibit the Fund from investing in options on commodity
                  indices, commodity futures contracts and options thereon,
                  commodity-related swap agreements, and other commodity-related
                  derivative instruments.

         4.       Purchase or sell real estate unless as a result of ownership
                  of securities or other instruments, but this shall not prevent
                  the Fund from investing in securities or other instruments
                  backed by real estate or interests therein or in securities of
                  companies that deal in real estate or mortgages.

         5.       Act as an underwriter of securities of other issuers, except
                  to the extent that, in connection with the disposition of
                  portfolio securities, it may be deemed an underwriter under
                  applicable laws.

         6.       Make loans except as permitted under the 1940 Act, as
                  interpreted or modified from time to time by any regulatory
                  authority having jurisdiction.


         For purposes of applying the limitation set forth in number 1 above,
according to the current interpretation by the Securities and Exchange
Commission, the Fund would be concentrated in an industry if 25% or more of its
total assets, based on current market value at the time of purchase, were
invested in that industry.

         For purposes of applying the limitation set forth in number 2 above,
under the 1940 Act as currently in effect, the Fund is not permitted to issue
senior securities, except that the Fund may borrow from any bank if immediately
after such borrowing the value of the Fund's total assets is at least 300% of
the principal amount of all of the Fund's borrowings (i.e., the principal amount
of the borrowings may not exceed 33 1/3% of the Fund's total assets). In the
event that such asset coverage shall at any time fall below 300% the Fund shall,
within three days thereafter (not including Sundays and holidays) reduce the
amount of its borrowings to an extent that the asset coverage of such borrowing
shall be at least 300%.

         For purposes of applying the limitation set forth in number 6 above,
there are no limitations with respect to unsecured loans made by the Fund to an
unaffiliated party. However, when the Fund loans its portfolio securities, the
obligation on the part of the Fund to return collateral upon termination of the
loan could be deemed to involve the issuance of a senior security within the
meaning of Section 18(f) of the 1940 Act. In order to avoid violation of Section


                                       21



18(f), the Fund may not make a loan of portfolio securities if, as a result,
more than one-third of its total asset value (at market value computed at the
time of making a loan) would be on loan.


         The following restrictions are non-fundamental and may be changed by
FAIF's Board of Directors without a shareholder vote:

         The Fund will not:

         1.       Invest more than 15% of its net assets in all forms of
                  illiquid investments.

         2.       Borrow money in an amount exceeding 10% of the Fund's total
                  assets. The Fund will not borrow money for leverage purposes.
                  For the purpose of this investment restriction, the use of
                  options and futures transactions and the purchase of
                  securities on a when-issued or delayed delivery basis shall
                  not be deemed the borrowing of money. The Fund will not make
                  additional investments while its borrowings exceed 5% of total
                  assets.

         3.       Make short sales of securities.

         4.       Lend portfolio securities representing in excess of one-third
                  of the value of its total assets.



         With respect to the non-fundamental restriction set forth in number 1
above, the Fund will monitor portfolio liquidity on an ongoing basis and, in the
event more than 15% of the Fund's net assets are invested in illiquid
investments, the Fund will reduce its holdings of illiquid securities in an
orderly fashion in order to maintain adequate liquidity.


         The Board of Directors has adopted guidelines and procedures under
which the Fund's investment advisor is to determine whether the following types
of securities which may be held by the Fund are "liquid" and to report to the
Board concerning its determinations: (i) securities eligible for resale pursuant
to Rule 144A under the Securities Act of 1933; (ii) commercial paper issued in
reliance on the "private placement" exemption from registration under Section
4(2) of the Securities Act of 1933, whether or not it is eligible for resale
pursuant to Rule 144A; (iii) interest-only and principal-only, inverse floating
and inverse interest-only securities issued or guaranteed by the U.S. Government
or its agencies or instrumentalities; and (iv) municipal leases and securities
that represent interests in municipal leases.


                                    FUND NAME


         Consistent with its name, the Fund has adopted an investment strategy
pursuant to Rule 35d-1 of the 1940 Act, requiring that at least 80% of the
Fund's net assets (plus the amount of any borrowings for investment purposes)
must be invested in inflation protected debt securities. The Fund will provide
shareholders with at least 60 days notice in the event of a planned change to
the investment strategy. Such notice to shareholders will meet the requirements
of Rule 35d-1(c).


                               PORTFOLIO TURNOVER

         A change in the securities held by the Fund is known as "portfolio
turnover." The Advisor manages the Fund without regard generally to restrictions
on portfolio turnover. The use of certain derivative instruments with relatively
short maturities may tend to exaggerate the portfolio turnover rate for the
Fund. Trading in fixed income securities does not generally involve the payment
of brokerage commissions, but does involve indirect transaction costs. The use
of futures contracts may involve the payment of commissions to futures
commission merchants. High portfolio turnover (e.g., greater than 100%) involves
correspondingly greater expenses to the Fund, including brokerage commissions or
dealer mark-ups and other transaction costs on the sale of securities and
reinvestments in other securities. The higher the rate of the Fund's portfolio
turnover, the higher these transactions costs borne by the Fund generally will
be. Such sales may result in realization of taxable capital gains (including
short-term capital gains which are generally taxed to shareholders at ordinary
income tax rates).

                                       22


         The portfolio turnover rate of the Fund is calculated by dividing (a)
the lesser of purchases or sales of portfolio securities for the particular
fiscal year by (b) the monthly average of the value of the portfolio securities
owned by the Fund during the particular fiscal year. In calculating the rate of
portfolio turnover, there is excluded from both (a) and (b) all securities,
including options, whose maturities or expiration dates at the time of
acquisition were one year or less. Proceeds from short sales and assets used to
cover short positions undertaken are included in the amounts of securities sold
and purchased respectively, during the year. Portfolio turnover rates for the
Fund will be provided in the Prospectuses under "Financial Highlights."




                        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. The Board of Directors is generally responsible for the overall
operation and management of FAIF.



INDEPENDENT DIRECTORS


-----------------------------------------------------------------------------------------------------------------------
                                                                                      NUMBER OF
NAME, ADDRESS,                                                                        PORTFOLIOS IN       OTHER
AND YEAR OF       POSITION(S) TERM OF OFFICE                                          FUND COMPLEX        DIRECTORSHIPS
BIRTH             HELD        AND LENGTH OF            PRINCIPAL OCCUPATION(S)        OVERSEEN BY         HELD BY
                  WITH FUND   TIME SERVED              DURING PAST 5 YEARS            DIRECTOR            DIRECTOR*
-----------------------------------------------------------------------------------------------------------------------
Benjamin R.       Director    Term expiring earlier    Senior Financial Advisor,      First American      None
Field III,                    of death, resignation,   Bemis Company, Inc. since      Funds Complex:
800 Nicollet                  removal,                 2002; Senior Vice President,   eleven registered
Mall,                         disqualification, or     Chief Financial Officer and    investment
Minneapolis, MN               successor duly elected   Treasurer, Bemis, through      companies,
55402                         and qualified.           2002                           including 54
(1938)                        Director of FAIF since                                  portfolios
                              September 2003
-----------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------
Mickey P. Foret,  Director    Term expiring earlier    Consultant to Northwest        First American      ADC Telecom-
800 Nicollet                  of death, resignation,   Airlines, Inc. since 2002;     Funds Complex:      munications,
Mall,                         removal,                 Executive Vice President and   eleven registered   Inc.; URS
Minneapolis, MN               disqualification, or     Chief Financial Officer,       investment          Corporation
55402                         successor duly elected   Northwest Airlines, through    companies,          (an
(1945)                        and qualified.           2002                           including 54        engineering
                              Director of FAIF since                                  portfolios          firm);
                              September 2003                                                              Champion
                                                                                                          Airlines,
                                                                                                          Inc.
-----------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------
Roger A.          Director    Term expiring earlier    Retired; Vice President,       First American      None
Gibson,                       of death, resignation,   Cargo - United Airlines,       Funds Complex:
800 Nicollet                  removal,                 from July 2001 through July    eleven registered
Mall,                         disqualification, or     2004; Vice President, North    investment
Minneapolis, MN               successor duly elected   America-Mountain Region for    companies,
55402  (1946)                 and qualified.           United Airlines (1995-2001)    including 54
                              Director of FAIF since                                  portfolios
                              October 1997
-----------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------
Victoria J.       Director    Term expiring earlier    Investment consultant and      First American      None
Herget,                       of death, resignation,   non-profit board member        Funds Complex:
800 Nicollet                  removal,                 since 2001; Managing           eleven registered
Mall,                         disqualification, or     Director of Zurich Scudder     investment
Minneapolis, MN               successor duly elected   Investments through 2001       companies,
55402                         and qualified.                                          including 54
(1952)                        Director of FAIF since                                  portfolios
                              September 2003
-----------------------------------------------------------------------------------------------------------------------



                                       23





-----------------------------------------------------------------------------------------------------------------------
                                                                                      NUMBER OF
NAME, ADDRESS,                                                                        PORTFOLIOS IN       OTHER
AND YEAR OF       POSITION(S) TERM OF OFFICE                                          FUND COMPLEX        DIRECTORSHIPS
BIRTH             HELD        AND LENGTH OF            PRINCIPAL OCCUPATION(S)        OVERSEEN BY         HELD BY
                  WITH FUND   TIME SERVED              DURING PAST 5 YEARS            DIRECTOR            DIRECTOR*
-----------------------------------------------------------------------------------------------------------------------
Leonard W.        Director    Term expiring earlier    Owner, Executive and           First American      None
Kedrowski,                    of death, resignation,   Management Consulting, Inc.,   Funds Complex:
800 Nicollet                  removal,                 a management consulting        eleven registered
Mall,                         disqualification, or     firm; Board member, GC         investment
Minneapolis, MN               successor duly elected   McGuiggan Corporation (DBA     companies,
55402                         and qualified.           Smyth Companies), a label      including 54
(1941)                        Director of FAIF since   printer; former Chief          portfolios
                              November 1993            Executive Officer, Creative
                                                       Promotions International,
                                                       LLC, a promotional award
                                                       programs and products
                                                       company, through October
                                                       2003; Advisory Board Member,
                                                       Designer Doors, a
                                                       manufacturer of designer
                                                       doors, through 2002
-----------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------
Richard K.        Director    Term expiring earlier    Retired; Director, President   First American      None
Riederer,                     of death, resignation,   and Chief Executive Officer,   Funds Complex:
800 Nicollet                  removal,                 Weirton Steel through 2001     eleven registered
Mall,                         disqualification, or                                    investment
Minneapolis, MN               successor duly elected                                  companies,
55402                         and qualified.                                          including 54
(1944)                        Director of FAIF since                                  portfolios
                              August 2001
-----------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------
Joseph D.         Director    Term expiring earlier    Owner and President,           First American      None
Strauss,                      of death, resignation,   Excensus(TM) LLC, a            Funds Complex:
800 Nicollet                  removal,                 consulting firm, since 2001;   eleven registered
Mall,                         disqualification, or     Owner and President, Strauss   investment
Minneapolis, MN               successor duly elected   Management Company,  a         companies,
55402                         and qualified.           Minnesota holding company      including 54
(1940)                        Director of FAIF since   for various organizational     portfolios
                              September 1991           management business
                                                       ventures; Owner, Chairman
                                                       and Chief Executive Officer,
                                                       Community Resource
                                                       Partnerships, Inc., a
                                                       strategic planning,
                                                       operations management,
                                                       government relations,
                                                       transportation planning and
                                                       public relations
                                                       organization; attorney at law
-----------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------
Virginia L.       Chair;      Chair term three         Owner and President,           First American      None
Stringer,         Director    years.  Director term    Strategic Management           Funds Complex:
800 Nicollet                  expiring earlier of      Resources, Inc.,  a            eleven registered
Mall,                         death, resignation,      management consulting firm;    investment
Minneapolis, MN               removal,                 Executive Consultant for       companies,
55402                         disqualification, or     State Farm Insurance Company   including 54
(1944)                        successor duly elected                                  portfolios
                              and qualified. Chair
                              of FAIF's Board since
                              September 1997;
                              Director of FAIF since
                              September 1987
-----------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------
James M. Wade,    Director    Term expiring earlier    Owner and President, Jim       First American      None
800 Nicollet                  of death, resignation,   Wade Homes, a homebuilding     Funds Complex:
Mall,                         removal,                 company, since 1999            eleven registered
Minneapolis, MN               disqualification, or                                    investment
55402                         successor duly elected                                  companies,
(1943)                        and qualified.                                          including 54
                              Director of FAIF since                                  portfolios
                              August 2001
-----------------------------------------------------------------------------------------------------------------------



*       Includes only directorships in a company with a class of securities
registered pursuant to Section 12 of the Securities Exchange Act or subject to
the requirements of Section 15(d) of the Securities Exchange Act, or any company
registered as an investment company under the Investment Company Act.



                                       24




OFFICERS

-----------------------------------------------------------------------------------------------------------------------
NAME, ADDRESS, AND      POSITION(S) HELD  TERM OF OFFICE       PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
YEAR OF BIRTH           WITH FUND         AND LENGTH OF
                                          TIME SERVED
-----------------------------------------------------------------------------------------------------------------------
Thomas S. Schreier,     President         Re-elected by the    Chief Executive Officer of U.S. Bancorp Asset
Jr., U.S. Bancorp                         Board annually;      Management, Inc. since May 2001; Chief Executive
Asset Management,                         President of FAIF    Officer of First American Asset Management from
Inc.,                                     since February       December 2000 through May 2001 and of Firstar
800 Nicollet Mall,                        2001                 Investment & Research Management Company from February
Minneapolis,                                                   2001 through May 2001; Senior Managing Director and
Minnesota 55402                                                Head of Equity Research of U.S. Bancorp Piper Jaffray
(1962) *                                                       from October 1998 through December 2000; prior to
                                                               October 1988, Senior Airline Analyst and a Director in
                                                               the Research Department, Credit Suisse First Boston
-----------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------
Mark S. Jordahl,        Vice President    Re-elected by the    Chief Investment Officer of U.S. Bancorp Asset
U.S. Bancorp Asset      - Investments     Board annually;      Management, Inc. since September 2001; President and
Management, Inc.                          Vice President  -    Chief Investment Officer, ING Investment Management -
800 Nicollet Mall,                        Investments of       Americas (September 2000 to June 2001); Senior Vice
Minneapolis,                              FAIF since           President and Chief Investment Officer, ReliaStar
Minnesota 55402                           September 2001       Financial Corp. (January 1998 to September 2000)
(1960) *
-----------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------
Jeffery M. Wilson,      Vice President    Re-elected by the    Senior Vice President of U.S. Bancorp Asset Management
U.S. Bancorp Asset      - Administration  Board annually;      since May 2001; prior thereto, Senior Vice President
Management, Inc.                          Vice President -     of First American Asset Management
800 Nicollet Mall,                        Administration of
Minneapolis,                              FAIF since March
Minnesota 55402                           2000
(1956) *
-----------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------
Joseph M. Ulrey III,    Treasurer         Re-elected by the    Senior Managing Director, Fund Treasury, since
U.S. Bancorp Asset                        Board annually;      December 2003 and Senior Managing Director, Risk
Management, Inc.                          Treasurer of FAIF    Management and Quantitative Analysis, since May 2001,
800 Nicollet Mall,                        since December 2003  U.S. Bancorp Asset Management, Inc.; from May 2001
Minneapolis,                                                   through December 2001, Senior Managing Director,
Minnesota 55402                                                Securities Lending and Money Market Funds, U.S.
(1958) *                                                       Bancorp Asset Management, Inc.; prior thereto, Senior
                                                               Managing Director, Securities Lending and Money Market
                                                               Funds, First American Asset Management
-----------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------
James D. Alt,           Secretary         Re-elected by the    Partner, Dorsey & Whitney LLP, a Minneapolis- based
50 South Sixth                            Board annually;      law firm
Street, Suite 1500,                       Assistant
Minneapolis,                              Secretary of FAIF
Minnesota 55402 (1951)                    from September
                                          1998 through June
                                          2002. Secretary of FAIF since June
                                          2002.
-----------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------
Michael J. Radmer,      Assistant         Re-elected by the    Partner, Dorsey & Whitney LLP, a Minneapolis- based
50 South Sixth          Secretary         Board annually;      law firm
Street, Suite 1500,                       Assistant
Minneapolis,                              Secretary of FAIF
Minnesota 55402 (1945)                    since March 2000;
                                          Secretary of FAIF
                                          from September
                                          1999 through March
                                          2000
-----------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------
Kathleen L.             Assistant         Re-elected by the    Partner, Dorsey & Whitney LLP, a Minneapolis- based
Prudhomme,              Secretary         Board annually;      law firm
50 South Sixth                            Assistant
Street, Suite 1500,                       Secretary of FAIF
Minneapolis,                              since September
Minnesota 55402 (1953)                    1998
-----------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------
James R. Arnold,        Assistant         Re-elected by the    Vice President, U.S. Bancorp Fund Services, LLC since
615 E. Michigan         Secretary         Board annually;      March 2002; Senior Administration Services Manager,
Street,                                   Assistant            UMB Fund Services, Inc. through March 2002
Milwaukee, WI 53202                       Secretary of FAIF
(1957)                                    since September
                                          June 2003
-----------------------------------------------------------------------------------------------------------------------


                                       25




-----------------------------------------------------------------------------------------------------------------------
NAME, ADDRESS, AND      POSITION(S) HELD  TERM OF OFFICE       PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
YEAR OF BIRTH           WITH FUND         AND LENGTH OF
                                          TIME SERVED
-----------------------------------------------------------------------------------------------------------------------
Douglas G. Hess,        Assistant         Re-elected by the    Vice President, U.S. Bancorp Fund Services, LLC since
615 E. Michigan         Secretary         Board annually;      November 2002; prior thereto, Assistant Vice
Street, Milwaukee, WI                     Assistant            President, Fund Compliance Administrator, U.S. Bancorp
53202 (1967) *                            Secretary of FAIF    Fund Services LLC
                                          since September
                                          2001
-----------------------------------------------------------------------------------------------------------------------



*        Messrs. Schreier, Jordahl, Wilson, and Ulrey are each officers of U.S.
Bancorp Asset Management, Inc., which serves as investment advisor for FAIF.
Messrs. Arnold and Hess are officers of U.S. Bancorp Fund Services, LLC, which
is a subsidiary of U.S. Bancorp and which serves as Co-Administrator for FAIF.





STANDING COMMITTEES OF THE BOARD OF DIRECTORS

         There are currently three standing committees of the FAIF Board of
Directors: Audit Committee, Pricing Committee and Governance Committee.
Referenced to the "Funds" in the committee descriptions below are to the Fund
and each of the other series of FAIF.




-----------------------------------------------------------------------------------------------------------------------
                                                                                               NUMBER OF FUND COMPLEX
                                                                                                 COMMITTEE MEETINGS
                               COMMITTEE FUNCTION                      COMMITTEE MEMBERS         HELD DURING FAIF'S
                                                                                                  FISCAL YEAR ENDED
                                                                                                       9/30/04
-----------------------------------------------------------------------------------------------------------------------
Audit Committee  The purposes of the Committee are (1) to          Leonard Kedrowski (Chair)              6
                 oversee the Funds' accounting and financial            Benjamin Field
                 reporting policies and practices, their                 Mickey Foret
                 internal controls and, as appropriate, the            Virginia Stringer
                 internal controls of certain service                    (ex-officio)
                 providers; (2) to oversee the quality of the
                 Funds' financial statements and the
                 independent audit thereof; (3) to assist Board
                 oversight of the Funds' compliance with legal
                 and regulatory requirements; and (4) to act as
                 a liaison between the Funds' independent
                 auditors and the full Board of Directors.  The
                 Audit Committee, together with the Board of
                 Directors, has the ultimate authority and
                 responsibility to select, evaluate and, where
                 appropriate, replace the outside auditor (or
                 to nominate the outside auditor to be proposed
                 for shareholder approval in any proxy
                 statement).
-----------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------
Pricing          The Committee is responsible for valuing           Joseph Strauss (Chair)                5
Committee        portfolio securities for which market                  Victoria Herget
                 quotations are not readily available, pursuant           James Wade
                 to procedures established by the Board of             Virginia Stringer
                 Directors.                                              (ex-officio)
-----------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------
Governance       The Committee has responsibilities relating to    Richard Riederer (Chair)               5
Committee        (1) Board and Committee composition                     Roger Gibson
                 (including, interviewing and recommending to           Victoria Herget
                 the Board nominees for election as directors;         Virginia Stringer
                 reviewing Board composition to determine the            (ex-officio)

                 appropriateness of adding individuals with different
                 backgrounds or skills; reviewing the independence of all
                 independent directors; reporting to the Board on which current
                 and potential members of the Audit Committee qualify as Audit
                 Committee Financial Experts; recommending a successor to the
                 Board Chair when a vacancy occurs; and consulting with the
                 Board Chair on Committee assignments); (2) Committee structure
                 and governance (including, at least annually, reviewing each
                 Committee's structure and reviewing each Committee's charter
                 and suggesting changes thereto); (3) director education
                 (including developing an annual education calendar; monitoring
                 independent director attendance at educational seminars and
                 conferences; and developing and conducting orientation sessions
                 for new independent directors); and 4) governance practices
                 (including reviewing and making recommendations regarding
                 director compensation and director expenses; monitoring
                 director investments in the Funds; monitoring compliance with
                 director retirement policies; assisting in the Board
                 self-evaluation process; assisting in the evaluation of Board
                 support by management, Fund counsel and counsel to the
                 independent directors; evaluating legal support provided to the
                 Funds and the directors; reviewing the Board's adherence to
                 industry "best practices;" and reviewing and recommending
                 changes in Board governance policies, procedures and
                 practices).
-----------------------------------------------------------------------------------------------------------------------


                                       26



         The Governance Committee will consider shareholder recommendations for
director nominees in the event there is a vacancy on the Board of Directors or
in connection with any special shareholders meeting which is called for the
purpose of electing directors. FAIF does not hold regularly scheduled annual
shareholders meetings. There are no differences in the manner in which the
Governance Committee evaluates nominees for director based on whether the
nominee is recommended by a shareholder.

         A shareholder who wishes to recommend a director nominee should submit
his or her recommendation in writing to the Chair of the Board (Ms. Stringer) or
the Chair of the Governance Committee (Mr. Riederer), in either case at First
American Funds, P.O. Box 1329, Minneapolis, Minnesota 55440-1329. At a minimum,
the recommendation should include:

         o        the name, address, and business, educational, and/or other
                  pertinent background of the person being recommended;

         o        a statement concerning whether the person is "independent"
                  within the meaning of New York Stock Exchange and American
                  Stock Exchange listing standards and is not an "interested
                  person" as defined in the Investment Company Act of 1940;

         o        any other information that the Funds would be required to
                  include in a proxy statement concerning the person if he or
                  she was nominated; and

         o        the name and address of the person submitting the
                  recommendation, together with the number of Fund shares held
                  by such person and the period for which the shares have been
                  held.

The recommendation also can include any additional information which the person
submitting it believes would assist the Governance Committee in evaluating the
recommendation. Shareholder recommendations for nominations to the Board will be
accepted on an ongoing basis and will be kept on file for consideration when
there is a vacancy on the Board or prior to a shareholders meeting called for
the purpose of electing directors.



FUND SHARES OWNED BY THE DIRECTORS

         The information in the table below discloses the dollar ranges of (i)
each Director's beneficial ownership in FAIF, and (ii) each Director's aggregate
beneficial ownership in all funds within the First American Funds complex.


-----------------------------------------------------------------------------------------------------------------------
    NAME OF DIRECTOR       DOLLAR RANGE OF EQUITY SECURITIES IN FAIF   AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES IN
                                                                              THE FIRST AMERICAN FUNDS COMPLEX*
-----------------------------------------------------------------------------------------------------------------------
Benjamin Field                                  $0                                           $0
-----------------------------------------------------------------------------------------------------------------------
Mickey Foret                                    $0                                           $0
-----------------------------------------------------------------------------------------------------------------------
Leonard Kedrowski                       $50,001 - $100,000                               Over $100,000
-----------------------------------------------------------------------------------------------------------------------
Roger Gibson                               $1 - $10,000                                 $10,001-$50,000
-----------------------------------------------------------------------------------------------------------------------
Victoria Herget                                 $0                                           $0
-----------------------------------------------------------------------------------------------------------------------
Joseph Strauss                             $1 - $10,000                                 Over $100,000
-----------------------------------------------------------------------------------------------------------------------
Richard Riederer                           $1 - $10,000                               $50,001-$100,000
-----------------------------------------------------------------------------------------------------------------------
Virginia Stringer                          Over $100,000                                Over $100,000
-----------------------------------------------------------------------------------------------------------------------
James Wade                               $10,001 - $50,000                              Over $100,000
-----------------------------------------------------------------------------------------------------------------------


*        The dollar range disclosed is based on the value of the securities as
of December 31, 2003.

                                       27


         As of December 31, 2003, none of the independent Directors or their
immediate family members owned, beneficially, or of record, any securities in
(i) an investment advisor or principal underwriter of the Fund or (ii) a person
(other than a registered investment company) directly of indirectly controlling,
controlled by, or under common control with an investment advisor or principal
underwriter of the Fund.

APPROVAL OF INVESTMENT ADVISORY CONTRACT


         The Board of Directors reviewed and approved the Advisory Agreement
with respect to the Fund on September 16, 2004. In connection with its approval,
the Board of Directors reviewed and considered the following factors :

         o        the terms of the Advisory Agreement, including the nature and
                  scope of services to be provided by the Advisor to the Fund
                  (which the Board believed are comprehensive in light of the
                  nature of the Fund);

         o        the structure and rate of the fees charged to the Fund by the
                  Advisor under the Advisory Agreement, as compared to the
                  advisory fees paid by similar funds managed by other
                  investment advisors (with the Board believing that the Fund's
                  fees are reasonable);


         o        the total fees and expenses to be paid by the Fund, taking
                  into account expense limitations, as compared to the total
                  fees and expenses paid by similar funds managed by other
                  investment advisors (with the Board believing that the Fund's
                  estimated total fees and expenses are reasonable);

         o        the adviser's undertaking to consult the Board prior to
                  implementing any changes to voluntary expense limitations;

         o        the nature and scope of the investment advisory services
                  anticipated to be provided by the Advisor to the Fund, in
                  light of the experience and qualifications of the Advisor and
                  its personnel, the Advisor's financial condition, and the
                  terms of the Advisory Agreement.


         The Board was advised and assisted by counsel to the independent
directors and fund counsel. On the basis of the Board's review and analysis of
the foregoing information, the Board found in the exercise of its business
judgment that the terms of the Advisory Agreement are fair and reasonable and in
the best interest of shareholders of the Fund. No single factor or group of
factors was deemed to be determinative by the Board in making these judgments.
Instead, the Board based its decisions on the totality of the information which
it requested and reviewed.

COMPENSATION

                  The First American Family of Funds, which includes FAIF, FAF,
FASF and FACEF (the portfolios of FAIP were liquidated in August and September
of 2004), currently pays directors who are not paid employees or affiliates of
the Funds an annual retainer of $40,000 ($60,000 in the case of the Chair). The
Fund Review Liaison receives an additional annual retainer of $10,000. In
addition, directors are paid the following fees for attending Board and
committee meetings:

         o        $5,000 per day for in-person attendance at Board of Directors
                  meetings ($7,500 per day in the case of the Chair);

         o        $2,500 per day for telephonic attendance at Board of Directors
                  meetings ($3,750 in the case of the Chair);

         o        $2,500 for in-person attendance at any committee meeting
                  ($3,750 in the case of the committee chair); and


                                       28



         o        $1,250 for telephonic attendance at any committee meeting
                  ($1,875 in the case of the committee chair).

Directors also receive $2,500 per day when traveling, on behalf of a Fund, out
of town on Fund business which does not involve a Board or committee meeting. In
addition, directors are reimbursed for their out-of-pocket expenses in traveling
from their primary or secondary residence to Board and committee meetings, on
Fund business and to attend mutual fund industry conferences or seminars. The
amounts specified in this paragraph are allocated among the funds in the First
American Family of Funds on the basis of net assets.

         The directors may elect to defer payment of up to 100% of the fees they
receive in accordance with a Deferred Compensation Plan (the "Plan"). Under the
Plan, a director may elect to have his or her deferred fees treated as if they
had been invested in shares of one or more funds and the amount paid to the
director under the Plan will be determined based on the performance of such
investments. Distributions may be taken in a lump sum or over a period of years.
The Plan will remain unfunded for federal income tax purposes under the Internal
Revenue Code of 1986, as amended. Deferral of director fees in accordance with
the Plan will have a negligible impact on Fund assets and liabilities and will
not obligate the Funds to retain any director or pay any particular level of
compensation. The Funds do not provide any other pension or retirement benefits
to directors.


         Legal fees and expenses are also paid to Dorsey & Whitney LLP, the
law firm of which James D. Alt, Secretary, and Michael J. Radmer and Kathleen L.
Prudhomme, Assistant Secretaries, of FAIF, FAF, FASF, FAIP and FACEF, are
partners.


         The following table sets forth information concerning aggregate
compensation paid to each director of FAIF (i) by FAIF (column 2), and (ii) by
FAIF, FAF, FASF, FAIP and FACEF collectively (column 5) during the fiscal year
ended September 30, 2004. No executive officer or affiliated person of FAIF
received any compensation from FAIF in excess of $60,000 during such fiscal
year:



------------------------------------------------------------------------------------------------------------------------
                                    AGGREGATE          PENSION OR                                 TOTAL COMPENSATION
                                    COMPENSATION       RETIREMENT BENEFITS   ESTIMATED ANNUAL     FROM REGISTRANT AND
NAME OF PERSON, POSITION            FROM               ACCRUED AS PART OF    BENEFITS UPON        FUND COMPLEX PAID TO
                                    REGISTRANT (1)     FUND EXPENSES         RETIREMENT           DIRECTORS (2)
------------------------------------------------------------------------------------------------------------------------
Benjamin R. Field III, Director         $44,398               -0-                   -0-               $121,250
------------------------------------------------------------------------------------------------------------------------
Mickey P. Foret, Director                43,482               -0-                   -0-                118,750
------------------------------------------------------------------------------------------------------------------------
Roger A. Gibson, Director                38,867               -0-                   -0-                113,750
------------------------------------------------------------------------------------------------------------------------
Victoria J. Herget, Director             40,278               -0-                   -0-                110,000
------------------------------------------------------------------------------------------------------------------------
Leonard W. Kedrowski, Director           46,192               -0-                   -0-                145,625
------------------------------------------------------------------------------------------------------------------------
Richard K. Riederer, Director            47,144               -0-                   -0-                128,750
------------------------------------------------------------------------------------------------------------------------
Joseph D. Strauss, Director              45,542               -0-                   -0-                124,375
------------------------------------------------------------------------------------------------------------------------
Virginia L. Stringer, Director &     71,860               -0-                   -0-                196,250
Chair
------------------------------------------------------------------------------------------------------------------------
James M. Wade, Director                  43,482               -0-                   -0-                118,750
------------------------------------------------------------------------------------------------------------------------


(1)      Included in the Aggregate Compensation From Registrant are amounts
         deferred by Directors pursuant to the Deferred Compensation Plan
         discussed below. Pursuant to this Plan, compensation was deferred for
         the following directors: Roger A. Gibson, $18,041; and Leonard W.
         Kedrowski, $46,192.

(2)      Included in the Total Compensation are amounts deferred for the
         following directors pursuant to the Deferred Compensation Plan: Roger
         A. Gibson, $56,875; and Leonard W. Kedrowski, $145,625.
------------------------------------


SALES LOADS

         Purchases of the Fund's Class A Shares by the Advisor, any sub-advisor
to any series of FAIF, 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 counsel, and members of their immediate
families (i.e., parent, child, spouse, sibling, step or adopted relationships,
grandparent, grandchild and UTMA accounts naming qualifying persons), may be
made at net asset value without a sales charge.

                                       29





                                 CODE OF ETHICS

         First American Investment Funds, Inc., U.S. Bancorp Asset Management,
Inc, and Quasar Distributors, LLC have each adopted a Code of Ethics pursuant to
Rule 17j-1 of the 1940 Act. Each of these Codes of Ethics permits personnel to
invest in securities for their own accounts, including securities that may be
purchased or held by the Fund. These Codes of Ethics are on public file with,
and are available from, the Securities and Exchange Commission.

                              PROXY VOTING POLICIES

GENERAL PRINCIPLES

         The Advisor is the investment manager for the First American family of
mutual funds and for other separately managed accounts. As such, the Advisor has
been delegated the authority to vote proxies with respect to the investments
held in client accounts, unless the client has specifically retained such
authority in writing. It is the advisor's duty to vote proxies in the best
interests of clients in a timely and responsive manner. In voting proxies, the
Advisor also seeks to maximize total investment return for clients.

         The Advisor's Investment Policy Committee, comprised of the firm's most
senior investment professionals, is charged with oversight of the proxy voting
policies and procedures. The Investment Policy Committee is responsible for (1)
approving the proxy voting policies and procedures, (2) for overseeing the proxy
voting process, and (3) for reviewing the proxy voting record on a regular
basis.

POLICIES AND PROCEDURES

         Policies. The Investment Policy Committee, after reviewing and
concluding that such policies are reasonably designed to vote proxies in the
best interests of clients, has approved and adopted the proxy voting policies of
ISS, a leading national provider of proxy voting administrative and research
services. As a result, such policies set forth the advisor's positions on
recurring proxy issues and criteria for addressing non-recurring issues. A
summary of these policies is attached. These policies are reviewed periodically
and therefore are subject to change. Even though it has adopted ISS's policies,
the Advisor maintains the fiduciary responsibility for all proxy voting
decisions. In extraordinary situations, the Investment Policy Committee may
decide to override a standard policy position for a particular vote, depending
on the specific factual circumstances.

         Procedures. Responsibility for certain administrative aspects of proxy
voting rests with the Advisor's Proxy Voting Administration Committee, which
reports to the Investment Policy Committee. The Proxy Voting Administration
Committee also supervises the relationship with two outside firms that assist
with the process, ISS and ADP Financial Services. These firms apprise of
shareholder meeting dates, forward proxy voting materials, provide the Advisor
with research on proxy proposals and voting recommendations and cast the actual
proxy votes. ISS also serves as the Advisor's proxy voting record keeper and
generates reports on how proxies were voted.

         Conflicts of Interest. As an affiliate of U.S. Bancorp, currently the
eighth largest financial services holding company in the United States, the
Advisor recognizes that there are numerous situations wherein it may have a
theoretical or real conflict of interest in voting the proxies of issuers or
proxy proponents (e.g., a special interest group) who are clients or potential
clients of some part of the U.S. Bancorp enterprise. Directors and officers of
such companies also may have personal or familial relationships with the U.S.
Bancorp enterprise and its employees that could give rise to conflicts of
interest.

         Although the Advisor strongly believes that, regardless of such real or
theoretical conflicts of interest, it would always vote proxies in its clients'
best interests, by adopting ISS's policies and generally deferring to ISS's
recommendations, the Advisor believes the risk related to conflicts will be
minimized.

         To further minimize this risk, the Investment Policy Committee has also
reviewed ISS's conflict avoidance policy and has concluded that it adequately
addresses both the theoretical and actual conflicts of interest the proxy voting
service may face.

                                       30


         In the event an extraordinary situation arises in which (1) the
Investment Policy Committee determines it is necessary in clients' best
interests to override a standard policy or (2) it is determined that ISS faces a
material conflict of interest with respect to a specific vote, the Investment
Policy Committee will direct ISS how to vote. Before doing so, however, the
Proxy Voting Administration Committee will confirm that the Advisor and the
Investment Policy Committee face no material conflicts of the nature discussed
above.

         If the Proxy Voting Administration Committee concludes a material
conflict does exist, it will recommend a course of action designed to address
the conflict to the Investment Policy Committee. Such actions could include, but
are not limited to:

         o        Obtaining instructions from the affected clients on how to
                  vote the proxy;
         o        Disclosing the conflict to the affected clients and seeking
                  their consent to permit the Advisor to vote the proxy;
         o        Voting in proportion to the other shareholders;
         o        Recusing an Investment Policy Committee member from all
                  discussion or consideration of the matter, if the material
                  conflict is due to such person's actual or potential conflict
                  of interest; or
         o        Following the recommendation of a different independent third
                  party.

         In addition to all of the above, members of the Investment Policy
Committee and the Proxy Voting Administration Committee must notify the
Advisor's Chief Compliance Officer of any direct, indirect or perceived improper
influence made by any employee, officer or director within the U.S. Bancorp
enterprise or First American Fund complex with regard to how the Advisor should
vote proxies. The Chief Compliance Officer will investigate the allegations and
will report the findings to the Advisor's Chief Executive Officer and the
General Counsel. If it is determined that improper influence was attempted,
appropriate action shall be taken. Such appropriate action may include
disciplinary action, notification of the appropriate senior managers within the
U.S. Bancorp enterprise, or notification of the appropriate regulatory
authorities. In all cases, the Investment Policy Committee shall not consider
any improper influence in determining how to vote proxies and will vote in the
best interests of clients.

REVIEW AND REPORTS

     On a calendar quarterly basis, the Proxy Voting Administration Committee
will review the proxy voting record to assess a number of matters, including the
following:

         o        Whether proxy statements were timely forwarded to ISS;
         o        Whether proxy votes were cast on a timely basis;
         o        Whether proxy votes were cast consistent with the policies;
                  and
         o        Where the guidelines were overridden, whether such vote was
                  communicated to ISS in a timely manner and voted consistent
                  with the communication.

     The Proxy Voting Administration Committee will prepare a report on this
review for submission to the Investment Policy Committee. Such report will also
review all identified conflicts and how they were addressed during the quarter.

     The Investment Policy Committee, on a calendar quarterly basis, will review
the report of the Proxy Voting Administration Committee, as well as ISS's proxy
voting policies and conflict of interest policies. The purpose of this review is
to ensure the Advisor is voting proxies in a timely and responsive manner in the
best interests of clients. With respect to the review of votes cast on behalf of
investments by the First American family of mutual funds, such review will also
be reported to the independent Board of Directors of the First American Funds.

     The actual proxy voting records of the First American Funds will be filed
with the U.S. Securities Exchange Commission and will be available to
shareholders after June 30, 2004. Such records will be available on the First
American Funds' website at www.firstamericanfunds.com and on the SEC's website
at www.sec.gov.

         The Advisor's separately managed account clients should contact their
relationship manager for more information on the Advisor's policies and the
proxy voting record for their account.

                                       31


ISS PROXY VOTING GUIDELINES SUMMARY

The following is a concise summary of ISS's proxy voting policy guidelines.

1.       AUDITORS

Vote for proposals to ratify auditors, unless any of the following apply:

o        An auditor has a financial interest in or association with the company,
         and is therefore not independent
o        Fees for non-audit services are excessive, or
o        There is reason to believe that the independent auditor has rendered an
         opinion which is neither accurate nor indicative of the company's
         financial position.




2.       BOARD OF DIRECTORS

VOTING ON DIRECTOR NOMINEES IN UNCONTESTED ELECTIONS

         Votes on director nominees should be made on a CASE-BY-CASE basis,
examining the following factors: independence of the board and key board
committees, attendance at board meetings, corporate governance provisions and
takeover activity, long-term company performance, responsiveness to shareholder
proposals, any egregious board actions, and any excessive non-audit fees or
other potential auditor conflicts.

CLASSIFICATION/DECLASSIFICATION OF THE BOARD

Vote AGAINST proposals to classify the board.

Vote FOR proposals to repeal classified boards and to elect all directors
annually.

INDEPENDENT CHAIRMAN (SEPARATE CHAIRMAN/CEO)

Vote on a CASE-BY-CASE basis shareholder proposals requiring that the positions
of chairman and CEO be held separately. Because some companies have governance
structures in place that counterbalance a combined position, certain factors
should be taken into account in determining whether the proposal warrants
support. These factors include the presence of a lead director, board and
committee independence, governance guidelines, company performance, and annual
review by outside directors of CEO pay.

MAJORITY OF INDEPENDENT DIRECTORS/ESTABLISHMENT OF COMMITTEES

Vote FOR shareholder proposals asking that a majority or more of directors be
independent unless the board composition already meets the proposed threshold by
ISS's definition of independence.

Vote FOR shareholder proposals asking that board audit, compensation, and/or
nominating committees be composed exclusively of independent directors if they
currently do not meet that standard.

3.       SHAREHOLDER RIGHTS

SHAREHOLDER ABILITY TO ACT BY WRITTEN CONSENT

Vote AGAINST proposals to restrict or prohibit shareholder ability to take
action by written consent.

Vote FOR proposals to allow or make easier shareholder action by written
consent.

SHAREHOLDER ABILITY TO CALL SPECIAL MEETINGS

Vote AGAINST proposals to restrict or prohibit shareholder ability to call
special meetings.

                                       32


Vote FOR proposals that remove restrictions on the right of shareholders to act
independently of management.

SUPERMAJORITY VOTE REQUIREMENTS

Vote AGAINST proposals to require a supermajority shareholder vote.

Vote FOR proposals to lower supermajority vote requirements.

CUMULATIVE VOTING

Vote AGAINST proposals to eliminate cumulative voting.

Vote proposals to restore or permit cumulative voting on a CASE-BY-CASE basis
relative to the company's other governance provisions.

CONFIDENTIAL VOTING

Vote FOR shareholder proposals requesting that corporations adopt confidential
voting, use independent vote tabulators and use independent inspectors of
election, as long as the proposal includes a provision for proxy contests as
follows: In the case of a contested election, management should be permitted to
request that the dissident group honor its confidential voting policy. If the
dissidents agree, the policy remains in place. If the dissidents will not agree,
the confidential voting policy is waived.

Vote FOR management proposals to adopt confidential voting.

4.       PROXY CONTESTS

VOTING FOR DIRECTOR NOMINEES IN CONTESTED ELECTIONS

Votes in a contested election of directors must be evaluated on a CASE-BY-CASE
basis, considering the factors that include the long-term financial performance,
management's track record, qualifications of director nominees (both slates),
and an evaluation of what each side is offering shareholders.

REIMBURSING PROXY SOLICITATION EXPENSES

Vote CASE-BY-CASE. Where ISS recommends a vote in favor of the dissidents, we
also recommend voting for reimbursing proxy solicitation expenses.

5.       POISON PILLS

Vote FOR shareholder proposals that ask a company to submit its poison
pill for shareholder ratification. Review on a CASE-BY-CASE basis shareholder
proposals to redeem a company's poison pill and management proposals to ratify a
poison pill.

6.       MERGERS AND CORPORATE RESTRUCTURINGS

Vote CASE-BY-CASE on mergers and corporate restructurings based on such features
as the fairness opinion, pricing, strategic rationale, and the negotiating
process.

7.       REINCORPORATION PROPOSALS

Proposals to change a company's state of incorporation should be evaluated on a
CASE-BY-CASE basis, giving consideration to both financial and corporate
governance concerns, including the reasons for reincorporating, a comparison of
the governance provisions, and a comparison of the jurisdictional laws. Vote FOR
reincorporation when the economic factors outweigh any neutral or negative
governance changes.

                                       33


8.       CAPITAL STRUCTURE

COMMON STOCK AUTHORIZATION

Votes on proposals to increase the number of shares of common stock authorized
for issuance are determined on a CASE-BY-CASE basis using a model developed by
ISS.

Vote AGAINST proposals at companies with dual-class capital structures to
increase the number of authorized shares of the class of stock that has superior
voting rights.

Vote FOR proposals to approve increases beyond the allowable increase when a
company's shares are in danger of being delisted or if a company's ability to
continue to operate as a going concern is uncertain.

DUAL-CLASS STOCK

Vote AGAINST proposals to create a new class of common stock with superior
voting rights.

Vote FOR proposals to create a new class of nonvoting or subvoting common stock
if:

o        It is intended for financing purposes with minimal or no dilution to
         current shareholders
o        It is not designed to preserve the voting power of an insider or
         significant shareholder

9.       EXECUTIVE AND DIRECTOR COMPENSATION

         Votes with respect to compensation plans should be determined on a
CASE-BY-CASE basis. Our methodology for reviewing compensation plans primarily
focuses on the transfer of shareholder wealth (the dollar cost of pay plans to
shareholders instead of simply focusing on voting power dilution). Using the
expanded compensation data disclosed under the SEC's rules, ISS will value every
award type. ISS will include in its analyses an estimated dollar cost for the
proposed plan and all continuing plans. This cost, dilution to shareholders'
equity, will also be expressed as a percentage figure for the transfer of
shareholder wealth, and will be considered long with dilution to voting power.
Once ISS determines the estimated cost of the plan, we compare it to a
company-specific dilution cap.

Vote AGAINST equity plans that explicitly permit repricing or where the company
has a history of repricing without shareholder approval.




MANAGEMENT PROPOSALS SEEKING APPROVAL TO REPRICE OPTIONS

Votes on management proposals seeking approval to reprice options are evaluated
on a CASE-BY-CASE basis giving consideration to the following:

o        Historic trading patterns
o        Rationale for the repricing
o        Value-for-value exchange
o        Option vesting
o        Term of the option
o        Exercise price
o        Participation

EMPLOYEE STOCK PURCHASE PLANS

Votes on employee stock purchase plans should be determined on a CASE-BY-CASE
basis.

Vote FOR employee stock purchase plans where all of the following apply:

o        Purchase price is at least 85 percent of fair market value

                                       34


o        Offering period is 27 months or less, and
o        Potential voting power dilution (VPD) is ten percent or less.

Vote AGAINST employee stock purchase plans where any of the opposite conditions
obtain.

SHAREHOLDER PROPOSALS ON COMPENSATION

Vote on a CASE-BY-CASE basis for all other shareholder proposals regarding
executive and director pay, taking into account company performance, pay level
versus peers, pay level versus industry, and long term corporate outlook.

10.      SOCIAL AND ENVIRONMENTAL ISSUES

These issues cover a wide range of topics, including consumer and public safety,
environment and energy, general corporate issues, labor standards and human
rights, military business, and workplace diversity.

In general, vote CASE-BY-CASE. While a wide variety of factors goes into each
analysis, the overall principal guiding all vote recommendations focuses on how
the proposal will enhance the economic value of the company.




              INVESTMENT ADVISORY AND OTHER SERVICES FOR THE FUNDS




INVESTMENT ADVISOR


         U.S. Bancorp Asset Management, Inc. (the "Advisor"), 800 Nicollet Mall,
Minneapolis, Minnesota 55402, serves as the investment advisor and manager of
the Fund. The Advisor is a wholly owned subsidiary of U.S. Bank National
Association ("U.S. Bank"), 800 Nicollet Mall, Minneapolis, Minnesota 55402, a
national banking association that has professionally managed accounts for
individuals, insurance companies, foundations, commingled accounts, trust funds,
and others for over 75 years. U.S. Bank is a subsidiary of U.S. Bancorp, 800
Nicollet Mall, Minneapolis, Minnesota 55402, which is a regional multi-state
bank holding company headquartered in Minneapolis, Minnesota that primarily
serves the Midwestern, Rocky Mountain and Northwestern states. U.S. Bancorp also
has various other subsidiaries engaged in financial services. At June 30, 2004,
U.S. Bancorp and its consolidated subsidiaries had consolidated assets of
approximately $190 billion, consolidated deposits of $120 billion and
shareholders' equity of $18 billion.

         Pursuant to an Investment Advisory Agreement dated April 2, 1991 (the
"Advisory Agreement") as amended, FAIF engaged U.S. Bank, through its First
American Asset Management division ("FAAM"), to act as investment Advisor for,
and to manage the investment of, the assets of the series of FAIF then in
existence. The Advisory Agreement was assigned to the Advisor on May 2, 2001,
and amended to provide for the provision of services to the Fund on September
16, 2004. The monthly fees paid to the Advisor are equal, on an annual basis, to
0.50% of the Fund's average daily net assets (before any waivers).


         The Advisory Agreement requires the Advisor to arrange, if requested by
FAIF, for officers or employees of the Advisor to serve without compensation
from the Fund as directors, officers, or employees of FAIF if duly elected to
such positions by the shareholders or directors of FAIF. The Advisor has the
authority and responsibility to make and execute investment decisions for the
Fund within the framework of the Fund's investment policies, subject to review
by the Board of Directors of FAIF. The Advisor is also responsible for
monitoring the performance of the various organizations providing services to
the Fund, including the Fund's distributor, shareholder services agent,
custodian, and accounting agent, and for periodically reporting to FAIF's Board
of Directors on the performance of such organizations. The Advisor will, at its
own expense, furnish the Fund with the necessary personnel, office facilities,
and equipment to service the Fund's investments and to discharge its duties as
investment advisor of the Fund.

         In addition to the investment advisory fee, the Fund pays all of its
expenses that are not expressly assumed by the Advisor or any other organization
with which the Fund may enter into an agreement for the performance of services.
The Fund is liable for such nonrecurring expenses as may arise, including
litigation to which the Fund may be a party. FAIF may have an obligation to
indemnify its directors and officers with respect to such litigation. The
Advisor will be liable to the Fund under the Advisory Agreement for any
negligence or willful misconduct by the Advisor other than liability for
investments made by the Advisor in accordance with the explicit direction of the
Board of Directors or the

                                       35


investment objectives and policies of the Fund. The Advisor has agreed to
indemnify the Fund with respect to any loss, liability, judgment, cost or
penalty that the Fund may suffer due to a breach of the Advisory Agreement by
the Advisor.

         The Advisor may agree to a voluntary fee waiver for the Fund, which
will be set forth in the Fund's Prospectuses. Any such fee waiver (or
reimbursement) may be discontinued at any time. The Advisor also may absorb or
reimburse expenses of the Fund from time to time, in its discretion, while
retaining the ability to be reimbursed by the Fund for such amounts prior to the
end of the fiscal year. This practice would have the effect of lowering the
Fund's overall expense ratio and of increasing yield to investors, or the
converse, at the time such amounts are absorbed or reimbursed, as the case may
be.

ADMINISTRATOR

         U.S. Bancorp Asset Management and U.S. Bancorp Fund Services, LLC
("USBFS"), 615 East Michigan Street, Milwaukee, WI 53202 (collectively the
"Administrators"), serve as co-Administrators pursuant to a Co-Administration
Agreement between the Administrators and the FAIF, dated as of October 1, 2001
("Co-Administration Agreement"). USBFS is a subsidiary of U.S. Bancorp. Under
the Co-Administration Agreement, the Administrators provide, or compensate
others to provide, services to the Fund. These services include various
oversight and legal services, accounting services, dividend disbursing services
and shareholder services. Pursuant to the Co-Administration Agreement, USBFS
also serves as the Fund's transfer agent. The Fund pays the Administrators fees
which are calculated daily and paid monthly, equal to the Fund's pro rata share
of an amount equal, on an annual basis, to 0.25% of the aggregate average daily
net assets of all open-end mutual funds in the First American fund family up to
$8 billion, 0.235% on the next $17 billion of aggregate average daily net
assets, 0.22% on the next $25 billion of aggregate average daily net assets, and
0.20% of the aggregate average daily net assets of all open-end mutual funds in
the First American fund family in excess of $50 billion. (For the purposes of
this Agreement, the First American fund family includes all series of FAF, FASF,
FAIF and FAIP.) In addition, the Fund pays annual fees of $18,500 per CUSIP,
shareholder account maintenance fees of $9 to $15 per account, closed account
fees of $3.50 per account, and Individual Retirement Account fees of $15 per
account.

DISTRIBUTOR

         Quasar Distributors, LLC ("Quasar" or the "Distributor") serves as the
distributor for the Fund's shares. The Distributor is a wholly-owned subsidiary
of U.S. Bancorp. The Distributor serves as distributor for the Class A and Class
Y Shares pursuant to a Distribution Agreement dated October 1, 2001 between
itself and FAIF, as distributor for the Class C Shares pursuant to a
Distribution and Service Agreement dated October 1, 2001 between itself and
FAIF, and as distributor for the Class R Shares pursuant to a Distribution
Agreement dated ____, 2004 between itself and FAIF. These agreements are
referred to collectively as the "Distribution Agreements."

         Fund shares and other securities distributed by the Distributor are not
deposits or obligations of, or endorsed or guaranteed by, U.S. Bank or its
affiliates, and are not insured by the Bank Insurance Fund, which is
administered by the Federal Deposit Insurance Corporation.

         Under the Distribution Agreements, FAIF has granted to the Distributor
the exclusive right to sell shares of the Fund as agent and on behalf of the
Fund. The Distributor pays compensation pursuant to the Distribution Agreements
to securities firms, financial institutions (including, without limitation,
banks) and other industry professionals (the "Participating Institutions") which
enter into sales agreements with the Distributor. U.S. Bancorp Investment
Services, Inc. ("USBI"), a broker-dealer affiliated with the Advisor, and U.S.
Bank, are Participating Institutions. Participating Institutions that enter into
sales agreements with the Fund's Distributor to perform share distribution
services may receive a commission on such sales of the Fund and other series of
FAIF equal to 1.00% of the first $3 million, 0.75% of shares purchased in excess
of $3 million up to $5 million, and 0.50% of shares purchased in excess of $5
million.

         The Class A Shares pay to the Distributor a shareholder servicing fee
at an annual rate of 0.25% of the average daily net assets of the Class A
Shares. The fee may be used by the Distributor to provide compensation for
shareholder servicing activities with respect to the Class A Shares. The
shareholder servicing fee is intended to compensate the Distributor for ongoing
servicing and/or maintenance of shareholder accounts and may be used by the
Distributor to provide compensation to institutions through which shareholders
hold their shares for ongoing servicing and/or

                                       36


maintenance of shareholder accounts. This fee is calculated and paid each month
based on average daily net assets of Class A Shares of the Fund for that month.

         The Class C Shares pay to the Distributor a shareholder servicing fee
at the annual rate of 0.25% of the average daily net assets of the Class C
Shares. The fee may be used by the Distributor to provide compensation for
shareholder servicing activities with respect to the Class C Shares. This fee is
calculated and paid each month based on average daily net assets of the Class C
Shares. The Class C Shares also pay to the Distributor a distribution fee at the
annual rate of 0.75% of the average daily net assets of the Class C Shares. The
Distributor may use the distribution fee to provide compensation to institutions
through which shareholders hold their shares beginning one year after purchase.

         The Class R Shares pay to the Distributor a distribution fee at the
annual rate of 0.50% of the average daily net assets of Class R Shares. The fee
may be used by the Distributor to provide initial and ongoing sales compensation
to its investment executives and to Participating Institutions in connection
with sales of Class R Shares and to pay for advertising and other promotional
expenses in connection with the distribution of Class R shares. This fee is
calculated and paid each month based on average daily net assets of the Class R
Shares.

         The Distributor receives no compensation for distribution of the Class
Y Shares.

         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 entered into a Shareholder Service Plan and Agreement with
U.S. Bancorp Asset Management, under which U.S. Bancorp Asset Management has
agreed to provide FAIF, or will enter into written agreements with other service
providers pursuant to which the service providers will provide FAIF, one or more
specified shareholder services to beneficial owners of Class R Shares. U.S.
Bancorp Asset Management has agreed that the services provided pursuant to the
Shareholder Service Plan and Agreement will in no event be primarily intended to
result in the sale of Class R Shares. Pursuant to the Shareholder Service Plan
and Agreement, the Fund has agreed to pay U.S. Bancorp Asset Management a fee at
an annual rate of 0.15% of the average net asset value of the Class R Shares,
computed daily and paid monthly. U.S. Bancorp Asset Management is to pay any
shareholder service providers with which it enters into written agreements out
of this amount. U.S. Bancorp Asset Management is currently waiving the payment
of all fees under the Shareholder Service Plan and Agreement. This waiver may be
discontinued at any time.

         FAIF has also adopted Plans of Distribution with respect to the Class
A, Class C and Class R Shares of the Funds 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 C Shares and authorize the Fund
to pay the Distributor distribution and/or shareholder servicing fees. Each of
the Plans is a "compensation-type" plan under which the Distributor is entitled
to receive the distribution and shareholder servicing fees regardless of whether
its actual distribution and shareholder servicing expenses are more or less than
the amount of the fees. The distribution fees under each of the plans are used
for primary purpose of compensating broker-dealers for their sales of Fund
shares. The shareholder servicing fees are used primarily for the purpose of
providing compensation for the ongoing servicing and/or maintenance of
shareholder accounts. The Class C Plan authorizes the Distributor to retain the
contingent deferred sales charge applied on redemptions of Class C Shares,
except that portion which is reallowed to Participating Institutions. The Plans
recognize that the Distributor and the Advisor, in their discretion, may from
time to time use their own assets to pay for certain additional costs of
distributing Class A, Class C and Class R Shares. Any such arrangements to pay
such additional costs may be commenced or discontinued by the Distributor or the
Advisor at any time.

CUSTODIAN AND AUDITORS

         CUSTODIAN. The custodian of the Fund's assets is U.S. Bank (the
"Custodian"), 415 Walnut Street, Cincinnati, OH 45202. The Custodian is a
subsidiary of U.S. Bancorp. The Custodian takes no part in determining the
investment policies of the Fund or in deciding which securities are purchased or
sold by the Fund. All of the instruments

                                       37


representing the investments of the Fund and all cash are held by the Custodian.
The Custodian delivers securities against payment upon sale and pays for
securities against delivery upon purchase. The Custodian also remits Fund assets
in payment of Fund expenses, pursuant to instructions of FAIF's officers or
resolutions of the Board of Directors.

         As compensation for its services to the Fund, the Custodian is paid a
monthly fee calculated on an annual basis equal to 0.01% of the Fund's average
daily net assets. In addition, the Custodian is reimbursed for its out-of-pocket
expenses incurred while providing its services to the Fund. The Custodian
continues to serve so long as its appointment is approved at least annually by
the Board of Directors including a majority of the directors who are not
interested persons (as defined under the 1940 Act) of FAIF.

         AUDITORS. Ernst & Young LLP, 1400 Pillsbury Center, Minneapolis,
Minnesota 55402, serves as the Fund's independent auditors, providing audit
services, including audits of the annual financial statements and assistance and
consultation in connection with SEC filings.




               PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE

         Decisions with respect to which securities are to be bought or sold,
the total amount of securities to be bought or sold, the broker-dealer with or
through which the securities transactions are to be effected and the commission
rates applicable to the trades are made by the Advisor.

         In selecting a broker-dealer to execute securities transactions, the
Advisor considers a variety of factors, including the execution capability,
financial responsibility and responsiveness of the broker-dealer in seeking best
price and execution. However, a predominant factor in selecting a broker-dealer
to execute securities transactions is often the nature and quality of any
brokerage and research services provided by the broker-dealer. The Fund may pay
a broker-dealer a commission in excess of that which another broker-dealer might
have charged for effecting the same transaction (a practice commonly referred to
as "paying up"). The Fund may pay up in recognition of the value of brokerage
and research services provided to the Advisor by the broker-dealer. In such
cases, the Fund is in effect paying for the brokerage and research services in
so-called "soft-dollars". However, the Advisor would authorize the Fund to pay
an amount of commission for effecting a securities transaction in excess of the
amount of commission another broker or dealer would have charged only if the
Advisor 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 Advisor with respect to the
Fund.


         The types of brokerage services the Advisor receives from
broker-dealers include automated equity trade order entry and execution systems
and systems which provide an automated DTC interface to facilitate securities
trading, clearance and settlement. Such brokerage services may be provided as a
part of a product that bundles many separate and distinct brokerage, execution,
investment management, custodial and record-keeping services into one package.
The types of research services the Advisor receives include economic analysis
and forecasts, financial market analysis and forecasts, industry and company
specific analysis, performance monitoring, interest rate forecasts, arbitrage
relative valuation analysis of various debt securities, analysis of U.S.
Treasury securities, research-dedicated computer hardware and software and
related consulting services and other services that assist in the investment
decision making process. Research services are received primarily in the form of
written reports, computer-generated services, telephone contacts and personal
meetings with security analysts. Research services may also be provided in the
form of meetings arranged with corporate and industry spokespersons or may be
generated by third parties but are provided to the Advisor by, or through,
broker-dealers.


         The research products and services the Advisor receives from
broker-dealers are supplemental to, and do not necessarily reduce, the Advisor's
own normal research activities. As a practical matter, however, it would be
impossible for the Advisor to generate all of the information presently provided
by broker-dealers. The expenses of the Advisor would be materially increased if
it attempted to generate such additional information through its own staff. To
the extent that the Advisor could use cash to purchase many of the brokerage and
research products and services received for allocating securities transactions
to broker-dealers, the Advisor is relieved of expenses that it might otherwise
bear when such services are provided by broker-dealers.

                                       38


         As a general matter, the brokerage and research products and services
the Advisor receives from broker-dealers are used to service all of its
respective accounts. However, any particular brokerage and research product or
service may not be used to service each and every client account, and may not
benefit the particular accounts that generated the brokerage commissions.

         In some cases, the Advisor may receive brokerage or research products
or services that are used for both brokerage or research purposes and other
purposes, such as accounting, record-keeping, administration or marketing. In
such cases, the Advisor will make a good faith effort to decide the relative
proportion of the cost of such products or services used for non-brokerage or
research purposes and will pay for such portion from its own funds. In such
circumstance, the Advisor has a conflict of interest in making such decisions.
Subject to its best price and execution responsibilities, the Advisor may
consider the placement of orders by securities firms for the purchase of Fund
shares as a factor in allocating portfolio transactions.

         Although some of the Fund's portfolio transactions may involve payment
of a brokerage commission, most transactions are with dealers or issuers who act
as principal for their own accounts and not as brokers. Transactions effected on
a principal basis, other than certain transactions effected on a so-called
riskless principal basis, are made without the payment of brokerage commissions
but at net prices which usually include a spread or markup. In effecting
transactions in over-the-counter securities, the Fund typically deals with
market makers unless it appears that better price and execution are available
elsewhere.

         It is expected that the 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
commission paid in connection with most such foreign stock transactions
generally is 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
Depositary 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 Fund may invest are generally traded in the
over-the-counter markets.

         The Fund does not effect any brokerage transactions in its portfolio
securities with any broker or dealer affiliated directly or indirectly with the
Advisor or Distributor unless such transactions, including the frequency
thereof, the receipt of commission payable in connection therewith, and the
selection of the affiliated broker or dealer effecting such transactions are not
unfair or unreasonable to the shareholders of the Fund, as determined by the
Board of Directors. Any transactions with an affiliated broker or dealer must be
on terms that are both at least as favorable to the Fund as the Fund can obtain
elsewhere and at least as favorable as such affiliated broker or dealer normally
gives to others.

                                  CAPITAL STOCK

         Each share of the Fund's $.01 par value common stock is fully paid,
nonassessable, and transferable. Shares may be issued as either full or
fractional shares. Fractional shares have pro rata the same rights and
privileges as full shares. Shares of the Fund have no preemptive or conversion
rights.

         Each share of the Fund has one vote. On some issues, such as the
election of directors, all shares of all FAIF Funds vote together as one series.
The shares do not have cumulative voting rights. Consequently, the holders of
more than 50% of the shares voting for the election of directors are able to
elect all of the directors if they choose to do so. On issues affecting only the
Fund, the shares of the Fund will vote as a separate series. Examples of such
issues would be proposals to alter a fundamental investment restriction
pertaining to the Fund or to approve, disapprove or alter a distribution plan.
The Bylaws of FAIF provide that annual shareholders meetings are not required
and that meetings of shareholders need only be held with such frequency as
required under Maryland law and the 1940 Act.

                                       39



         As of September 30, 2004, there were 40 shares of the Fund outstanding,
all of which were held by U.S. Bancorp Asset Management, Inc.


                    NET ASSET VALUE AND PUBLIC OFFERING PRICE

         The public offering price of the shares of the Fund generally equals
the Fund's net asset value plus any applicable sales charge. A summary of any
applicable sales charge assessed on Fund share purchases is set forth in the
Fund's Prospectuses.

         The net asset value of the Fund's shares is determined on each day
during which the New York Stock Exchange (the "NYSE") is open for business. The
NYSE is not open for business on the following holidays (or on the nearest
Monday or Friday if the holiday falls on a weekend): New Year's Day, Martin
Luther King, Jr. 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 held by the Fund are traded on days that the Fund is
not open for business, the Fund's net asset value per share may be affected on
days when investors may not purchase or redeem shares. This may occur, for
example, where a Fund holds securities which are traded in foreign markets.

                                    TAXATION

         The Fund intends to fulfill the requirements of Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), as a regulated
investment company. If so qualified, the Fund will not be liable for federal
income taxes to the extent it distributes its taxable income to its
shareholders.


         With respect to the Fund's investments in U.S. Treasury inflation
protected securities and other inflation protected securities that accrue
inflation into their principal value, the Fund will be required to treat as
original issue discount any increase in the principal amount of the securities
that occurs during the course of its taxable year. If the Fund purchases such
inflation protected securities that are issued in stripped form either as
stripped bonds or coupons, it will be treated as if it had purchased a newly
issued debt instrument having original issue discount. Generally, the original
issue discount equals the difference between the "stated redemption price at
maturity" of the obligation and its "issue price" as those terms are defined in
the Code. The Fund will be required to accrue as ordinary income a portion of
such original issue discount even though it receives no cash currently as
interest payment corresponding to the amount of the original issue discount.
Because the Fund is required to distribute substantially all of its net
investment income (including accrued original issue discount) in order to be
taxed as a regulated investment company, it may be required to distribute an
amount greater than the total cash income it actually receives. Accordingly, in
order to make the required distributions, the Fund may be required to borrow or
liquidate securities.


         Some of the investment practices that may be employed by the Fund will
be subject to special provisions that, among other things, may defer the use of
certain losses of the Fund, affect the holding period of the securities held by
the Fund and, particularly in the case of transactions in or with respect to
foreign currencies, affect the character of the gains or losses realized. These
provisions may also require the Fund to mark-to-market some of the positions in
its portfolio (i.e., treat them as closed out) or to accrue original discount,
both of which may cause the Fund to recognize income without receiving cash with
which to make distributions in amounts necessary to satisfy the distribution
requirements for qualification as a regulated investment company and for
avoiding income and excise taxes. Accordingly, in order to make the required
distributions, the Fund may be required to borrow or liquidate securities. The
Fund will monitor its transactions and may make certain elections in order to
mitigate the effect of these rules and prevent disqualification of the Fund as a
regulated investments company.

         It is expected that any net gain realized from the closing out of
futures contracts, options, or forward currency contracts will be considered
gain from the sale of securities or currencies and therefore qualifying income
for purposes of the requirement that a regulated investment company derive at
least 90% of gross income from investment securities.

         Any loss on the sale or exchange of shares of the Fund generally will
be disallowed to the extent that a shareholder acquires or contracts to acquire
shares of the Fund 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

                                       40


than six months, any loss on the sale of exchange of such shares will be treated
as a long-term capital loss to the extent of such long-term capital gain
distribution.

         For federal tax purposes, if a shareholder exchanges shares of the Fund
for shares of any other FAIF Fund pursuant to the exchange privilege (see
"Managing Your Investment -- Exchanging Shares" in the Prospectuses), such
exchange will be considered a taxable sale of the shares being exchanged.
Furthermore, if a shareholder carries out the exchange within 90 days of
purchasing shares 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
FAIF 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.

         Pursuant to the Code, distributions of net investment income by the
Fund to a shareholder who is a foreign shareholder (as defined below) will be
subject to U.S. withholding tax (at a rate of 30% or lower treaty rate).
Withholding will not apply if a dividend paid by the Fund to a foreign
shareholder is "effectively connected" with a U.S. trade or business of such
shareholder, in which case the reporting and withholding requirements applicable
to U.S. citizens or domestic corporations will apply. Distributions of net
long-term capital gains are not subject to tax withholding but, in the case of a
foreign shareholder who is a nonresident alien individual, such distributions
ordinarily will be subject to U.S. income tax at a rate of 30% if the individual
is physically present in the U.S. for more than 182 days during the taxable
year. The Fund will report annually to its shareholders the amount of any
withholding.

         A foreign shareholder is any person who is not (i) a citizen or
resident of the United States, (ii) a corporation, partnership or other entity
organized in the United States or under the laws of the Untied States or a
political subdivision thereof, (iii) an estate whose income is includible in
gross income for U.S. federal income tax purposes of (iv) a trust whose
administration is subject to the primary supervision of the U.S. court and which
has one or more U.S. fiduciaries who have authority to control all substantial
decisions of the trust.

         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.


                             REDUCING SALES CHARGES

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: The Fund will combine
purchases made by an investor, the investor's spouse, and the investor's
children 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 will be determined by adding (i) the purchase
price (including sales charge) of the Fund shares that are being purchased, plus
(ii) the purchase price of the Class A, Class B and Class C shares of any other
First American fund (other than a money market fund) or any fund managed by
Country Capital Management Company that you are concurrently purchasing, plus
(iii) the higher of the current net asset value or the original purchase price
of Class A, Class B and Class C shares of the Fund or any other First American
fund (other than a money market fund) or fund managed by Country Capital
Management Company that you already own. In order for an investor to receive the
sales charge reduction on Class A Shares, the Fund 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, in the aggregate,
at least $50,000 of Class A, Class B or Class C shares in the Fund, other First
American funds (other than money market funds), or funds managed by Country

                                       41


Capital Management Company, 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 Fund's
custodian to hold a percentage equal to the maximum sales charge rate of the
total amount intended to be purchased in escrow (in shares) 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. Absent complete and current notification from the investor or from his or
financial institution to the Fund, the investor may not realize the benefit of a
reduced sales charge.




SALES OF CLASS A SHARES AT NET ASSET VALUE

         Purchases of the Fund's Class A Shares by the Advisor, the Sub-Advisor
to any other FAIF fund, 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 counsel, and members of their immediate
families (i.e., parent, child, spouse, sibling, step or adopted relationships,
grandparent, grandchild and UTMA accounts naming qualifying persons), may be
made at net asset value without a sales charge.

         The Fund's Class A Shares also may be purchased at net asset value
without a sales charge by:

         o        fee-based registered investment advisors, financial planners
                  and registered broker-dealers who are purchasing shares on
                  behalf of their customers;

         o        purchasers through "one-stop" mutual fund networks through
                  which the Fund is made available;

         o        purchasers participating in asset allocation "wrap" accounts
                  offered by the Advisor or any of its affiliates,

         o        retirement and deferred compensation plans and the trusts used
                  to fund such plans (including, but not limited to, those
                  defined in Sections 401(k), 403(b) and 457 of the Internal
                  Revenue Code and "rabbi trusts"), which plans and trusts
                  purchase through "one-stop" mutual fund networks, or for which
                  an affiliate of the Advisor acts as trustee or administrator;

         o        bank trust departments; and

         o        individuals rolling over assets into an IRA from a retirement
                  plan that offered First American funds.


         Class A shares may be purchased without a sales charge by
non-retirement accounts if the purchase, when aggregated with certain other
purchases as described in the Fund's Class A and C share prospectus, totals $1
million or more. Your investment professional or financial institution may
receive a commission equal to 1.00% on purchases of $1 million to $3 million,
0.50% on purchases in excess of $3 million up to $10 million, and 0.25% on
purchases in excess of $10 million. The Equity Index Fund, Mid Cap Index Fund,
and Small Cap Index Fund series of FAIF (the "Index Funds") may be used in the
calculation to reach purchases of $1 million or more, but a commission is paid
only on Class A shares of First American Funds other than the Index Funds. Note
that your investment professional or financial institution will only receive a
commission equal to the rate required by the actual investment (without taking
into account aggregation). For example, if your aggregated investments,
including your current investment, total $6 million, but your current investment
equals $2 million, your investment professional or financial institution may
receive

                                       42


a commission equal to 1.00% of $2 million. If such a commission is paid, you
will be assessed a contingent deferred sales charge (CDSC) of 1% if you sell
your shares within 18 months.

         Class A Shares may also be purchased without a sales charge by 401(k),
403(b) and 457 plans, and Profit sharing and Pension plans, which invest $1
million or more. Your representative must notify the Fund if your
retirement/deferred compensation plan is eligible for the sales load waiver.
Securities firms, financial institutions and other industry professionals that
enter into sales agreements with the Fund's distributor to perform share
distribution services may receive a commission on such sales of the Fund equal
to 0.25% on purchases in excess of $10 million. If such a commission is paid,
the plan will be assessed a contingent deferred sales charge (CDSC) of 0.25% if
it sells the shares within 18 months. A commission is paid only on Class A
shares of First American Funds other than the Index Funds.

         If Class A Shares of the Fund have been redeemed, the shareholder has a
one-time right, within 180 days, to reinvest the redemption proceeds in Class A
Shares of any First American fund at the next-determined net asset value without
any sales charge. The Fund must be notified by the shareholder in writing or by
his or her financial institution of the reinvestment in order to eliminate a
sales charge. If the shareholder redeems his or her shares of the Fund, there
may be tax consequences.





                   ADDITIONAL INFORMATION ABOUT SELLING SHARES

BY TELEPHONE

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

         Shareholders who did not purchase their shares of the Fund through a
financial institution may redeem their shares by telephoning Investor Services
at 800 677-FUND. At the shareholder's request, redemption proceeds will be paid
by check mailed to the shareholder's address of record or wire transferred to
the shareholder's account at a domestic commercial bank that is a member of the
Federal Reserve System, normally within one business day, but in no event more
than seven days after the request. Wire instructions must be previously
established on the account or provided in writing. The minimum amount for a wire
transfer is $1,000. If at any time the Fund determines it necessary to terminate
or modify this method of redemption, shareholders will be promptly notified. The
Fund may limit telephone redemption requests to an aggregate of $50,000 per day
across the First American fund family.

         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 Administrators
nor the Fund will be responsible for any loss, liability, cost or expense for
acting upon wire transfer instructions or telephone instructions that they
reasonably believe to be genuine. The Administrators and the Fund will each
employ reasonable procedures to confirm that instructions communicated are
genuine. These procedures may include taping of telephone conversations. To
ensure authenticity of redemption or exchange instructions received by
telephone, the Administrators examine each shareholder request by verifying the
account number and/or tax identification number at the time such request is
made. The Administrators subsequently send confirmation of both exchange sales
and exchange purchases to the shareholder for verification. If reasonable
procedures are not employed, the Administrators and the Fund may be liable for
any losses due to unauthorized or fraudulent telephone transactions.

                                       43


BY MAIL

         Any shareholder may redeem Fund shares by sending a written request to
the Administrators, 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. Unless another form of payment is requested, a check for
redemption proceeds normally is mailed within three days, but in no event more
than seven days, after receipt of a proper written redemption request.

         Shareholders requesting a redemption of $50,000 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:

         o        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");

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

         o        a savings bank or savings and loan association the deposits of
                  which are insured by the Savings Association;

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

         The Fund does not accept signatures guaranteed by a notary public.

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




REDEMPTIONS 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 Administrators are reasonably certain that the purchase
payment has cleared, which could take up to fifteen calendar days from the
purchase date.

                                     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. Market values of debt securities may
change as a result of a variety of factors unrelated to credit quality,
including changes in market interest rates.

         When a security has been rated by more than one service, the ratings
may not coincide, and each rating should be evaluated independently. Ratings are
based on current information furnished by the issuer or obtained by the rating
services from other sources which they consider reliable. Ratings may be
changed, suspended or withdrawn as a result of changes in or unavailability of
such information, or for other reasons. In general, the Fund is not required to
dispose of a security if its rating declines after it is purchased, although it
may consider doing so.

                                       44


RATINGS OF LONG-TERM CORPORATE DEBT OBLIGATIONS AND MUNICIPAL BONDS

         STANDARD & POOR'S

         AAA: An obligation rated AAA has the highest rating assigned by
         Standard & Poor's. The obligor's capacity to meet its financial
         commitment on the obligation is extremely strong.

         AA: An obligation rated AA differs from the highest rated obligations
         only in small degree. The obligor's capacity to meet its financial
         commitment on the obligation is very strong.

         A: An obligation rated A is somewhat more susceptible to the adverse
         effects of changes in circumstances and economic conditions than bonds
         in higher rated categories. However, the obligor's capacity to meet its
         financial commitment on the obligation is still strong.

         BBB: An obligation rated BBB exhibits adequate protection parameters.
         However, adverse economic conditions or changing circumstances are more
         likely to lead to a weakened capacity of the obligor to meet its
         financial commitment on the obligation.

Obligations rated BB, B, CCC, CC, and C are regarded as having significant
speculative characteristics. BB indicates the least degree of speculation and C
the highest. While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.

         BB: An obligation rated BB is less vulnerable to nonpayment than other
         speculative issues. However, it faces major ongoing uncertainties or
         exposure to adverse business, financial or economic conditions which
         could lead to the obligor's inadequate capacity to meet its financial
         commitment on the obligation.

         B: An obligation rated B is more vulnerable to nonpayment than
         obligations rated BB, but the obligor currently has the capacity to
         meet its financial commitment on the obligation. Adverse business,
         financial, or economic conditions will likely impair the obligor's
         capacity or willingness to meet its financial commitment on the
         obligation.

         CCC: An obligation rated CCC is currently vulnerable to nonpayment, and
         is dependent upon favorable business, financial, and economic
         conditions for the obligor to meet its financial commitment on the
         obligation. In the event of adverse business, financial, or economic
         conditions, the obligor is not likely to have the capacity to meet its
         financial commitment on the obligation.

         CC: An obligation rated CC is currently highly vulnerable to nonpayment.

         C: A subordinated debt or preferred stock obligation rated C is
         currently highly vulnerable to nonpayment. The C rating may be used to
         cover a situation where a bankruptcy petition has been filed or similar
         action taken, but payments on this obligation are being continued. A C
         also will be assigned to a preferred stock issue in arrears on
         dividends or sinking fund payments, but that is currently paying.

         D: An obligation rated D is in payment default. The D rating category
         is used when payments on an obligation are not made on the date due
         even if the applicable grace period has not expired, unless Standard
         & Poor's believes that such payments will be made during such grace
         period. The D rating also will be used upon the filing of a bankruptcy
         petition or the taking of a similar action if payments on an obligation
         are jeopardized.

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

         Aaa: Bonds and preferred stock that 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


                                       45


         change, such changes as can be visualized are most unlikely to impair
         the fundamentally strong position of such issues.

         Aa: Bonds and preferred stock that 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 bonds. They are rated
         lower than the best bonds because margins of protection may not be as
         large as in Aaa securities, or fluctuation of protective elements may
         be of greater amplitude, or there may be other elements present which
         make the long-term risks appear somewhat greater than in Aaa
         securities.

         A: Bonds and preferred stock that are rated A possess many favorable
         investment attributes and are to be considered as upper-medium-grade
         obligations. Factors giving security to principal and interest are
         considered adequate, but elements may be present which suggest a
         susceptibility to impairment some time in the future.

         Baa: Bonds and preferred stock that are rated Baa are considered as
         medium-grade obligations (i.e., they are 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 speculative characteristics as well.

         Ba: Bonds and preferred stock that are rated Ba are judged to have
         speculative elements; their 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: Bonds and preferred stock that are rated B generally lack
         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: Bonds and preferred stock that are rated Caa are of poor standing.
         Such issues may be in default or there may be present elements of
         danger with respect to principal or interest.

         Ca: Bonds and preferred stock that are rated Ca represent obligations
         that are speculative in a high degree. Such issues are often in default
         or have other marked shortcomings.

         C: Bonds and preferred stock that are rated C are the lowest rated
         class of bonds, and issues so rated can be regarded as having extremely
         poor prospects of ever attaining any real investment standing.

Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of
that generic rating category.

RATINGS OF MUNICIPAL NOTES

         STANDARD & POOR'S

         SP-1: Strong capacity to pay principal and interest. An issue
         determined to possess a very strong capacity to pay debt service is
         given a plus (+) designation.

         SP-2: Satisfactory capacity to pay principal and interest, with some
         vulnerability to adverse financial and economic changes over the term
         of the notes.

         SP-3: Speculative capacity to pay principal and interest.

None of the Funds will purchase SP-3 municipal notes.

                                       46


         MOODY'S. 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 superior credit quality.
         Excellent protection is afforded by established cash flows, highly
         reliable liquidity support, or demonstrated broad-based access to the
         market for refinancing.

         MIG 2/VMIG 2: This designation denotes strong credit quality. Margins
         of protection are ample although not as large as in the preceding
         group.

         MIG 3/VMIG 3: This designation denotes acceptable credit quality.
         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 2/VMIG 3 municipal notes.

RATINGS OF COMMERCIAL PAPER

         STANDARD & POOR'S

         Commercial paper ratings are graded into four categories, ranging from
"A" for the highest quality obligations to "D" for the lowest. None of the Funds
will purchase commercial paper rated A-3 or lower.

         A-1: A short-term obligation rated "A-1" is rated in the highest
category by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is strong. Within this category, certain
obligations are designated with a plus sign (+). This indicates that the
obligor's capacity to meet its financial commitment on these obligations is
extremely strong.

         A-2: A short-term obligation rated "A-2" is somewhat more susceptible
to the adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.

         A-3: A short term obligation rated A-3 exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.

         MOODY'S

         Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment capacity of rated issuers.
None of the Funds will purchase Prime-3 commercial paper.

         PRIME-1: Issuers rated Prime-1 (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics:

         o        Leading market positions in well-established industries.

         o        High rates of return on funds employed.

         o        Conservative capitalization structure with moderate reliance
                  on debt and ample asset protection.

         o        Broad margins in earnings coverage of fixed financial charges
                  and high internal cash generation.

         o        Well-established access to a range of financial markets and
                  assured sources of alternate liquidity.

                                       47


         PRIME-2: Issuers rated Prime-2 (or supporting institutions) have a
strong ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

         PRIME-3: Issuers (or supporting institutions) rated Prime-3 have an
acceptable ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt-protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
















                                       48


                      FIRST AMERICAN INVESTMENT FUNDS, INC.



                           PART C - OTHER INFORMATION




ITEM 23.  EXHIBITS


(a)(1)   Amended and Restated Articles of Incorporation, as amended through
         April 2, 1998 (incorporated by reference to Exhibit (1) to
         Post-Effective Amendment No. 36, filed on April 15, 1998 (File Nos.
         33-16905, 811-05309)).

(a)(2)   Articles Supplementary, designating new series and new share classes
         (incorporated by reference to Exhibit (a)(2) to Post-Effective
         Amendment No. 54, filed on June 27, 2001 (File Nos. 33-16905,
         811-05309)).

(a)(3)   Articles Supplementary, designating new series (incorporated by
         reference to Exhibit (a)(3) to Post-Effective Amendment No. 61, filed
         on April 30, 2002 (File Nos. 33-16905, 811-05309)).

(a)(4)   Articles Supplementary designating new series (incorporated by
         reference to Exhibit (a)(4) to Post-Effective Amendment No. 65, filed
         on October 24, 2002 (File Nos. 33-16905, 811-05309)).

(a)(5)   Articles Supplementary designating new series (incorporated by
         reference to Exhibit (a)(5) to Post-Effective Amendment No. 66, filed
         on January 28, 2003 (File Nos. 33-16905, 811-05309)).

(a)(6)   Articles Supplementary decreasing authorizations of specified classes
         and series and decreasing total authorized shares (incorporated by
         reference to Exhibit (a)(6) to Post-Effective Amendment No. 70, filed
         on June 30, 2004 (File Nos. 33-16905, 811-05309)).

(a)(7)   Articles Supplementary designating new series.*


(b)      Bylaws, as amended.*


(c)      Not applicable.

(d)(1)   Investment Advisory Agreement dated April 2, 1991, between the
         Registrant and First Bank National Association, as amended and
         supplemented through August 1994, and assigned to U.S. Bancorp Asset
         Management, Inc. on May 2, 2001 (incorporated by reference to Exhibit
         (5)(a) to Post-Effective Amendment No. 21, filed on May 15, 1995 (File
         Nos. 33-16905, 811-05309)).


(d)(2)   Exhibit A to Investment Advisory Agreement (series and advisory fees).*


(d)(3)   Supplement to Advisory Agreement relating to International Fund dated
         December 31, 1993 (incorporated by reference to Exhibit (d)(3) to
         Post-Effective Amendment No. 46, filed on December 28, 2000 (File Nos.
         33-16905, 811-05309)).

                                       1


(d)(4)   Sub-Advisory Agreement dated July 1, 2001, between U.S. Bancorp Asset
         Management, Inc. and Clay Finlay Inc. with respect to International
         Fund (incorporated by reference to Exhibit (d)(6) to Post-Effective
         Amendment No. 54, filed on June 27, 2001 (File Nos. 33-16905,
         811-05309)).

(e)(1)   Distribution Agreement [Class A and Class Y Shares,] between the
         Registrant and Quasar Distributors, LLC (incorporated by reference to
         Exhibit e(1) to Post-Effective Amendment No. 58, filed on September 21,
         2001 (File Nos. 33-16905, 811-05309)).

(e)(2)   Amendment No. 1 to Distribution Agreement, pursuant to USA PATRIOT Act
         of 2001, dated July 24, 2002 (incorporated by reference to Exhibit
         (e)(2) to Post-Effective Amendment No. 66, filed on January 28, 2003
         (File Nos. 33-16905, 811-05309)).

(e)(3)   Distribution and Service Agreement [Class B] between the Registrant and
         Quasar Distributors, LLC (incorporated by reference to Exhibit e(2) to
         Post-Effective Amendment No. 58, filed on September 21, 2001 (File Nos.
         33-16905, 811-05309)).

(e)(4)   Amendment No. 1 to Distribution and Service Agreement, pursuant to USA
         PATRIOT Act of 2001, dated July 24, 2002 (incorporated by reference to
         Exhibit (e)(4) to Post-Effective Amendment No. 66, filed on January 28,
         2003 (File Nos. 33-16905, 811-05309)).

(e)(5)   Distribution and Service Agreement [Class C] between the Registrant and
         Quasar Distributors, LLC (incorporated by reference to Exhibit e(3) to
         Post-Effective Amendment No. 58, filed on September 21, 2001 (File Nos.
         33-16905, 811-05309)).

(e)(6)   Amendment No. 1 to Distribution and Service Agreement, pursuant to USA
         PATRIOT Act of 2001, dated July 24, 2002 (incorporated by reference to
         Exhibit (e)(6) to Post-Effective Amendment No. 66, filed on January 28,
         2003 (File Nos. 33-16905, 811-05309)).

(e)(7)   Distribution Agreement [Class R] between Registrant and Quasar
         Distributors, LLC (incorporated by reference to Exhibit (e)(7) to
         Post-Effective Amendment No. 70, filed June 30, 2004 (File Nos.
         33-16905, 811-05309)).

(e)(8)   Shareholder Servicing Plan and Agreement (Class R) between the
         Registrant and U.S. Bancorp Asset Management, Inc. (incorporated by
         reference to Exhibit (e)(8) to Post-Effective Amendment No. 70, filed
         June 30, 2004 (File Nos. 33-16905, 811-05309)).

(e)(9)   Dealer Agreement (incorporated by reference to Exhibit e(5) to
         Post-Effective Amendment No. 58, filed on September 21, 2001 (File Nos.
         33-16905, 811- 05309)).

(f)(1)   Deferred Compensation Plan for Directors Trust Agreement dated January
         1, 2000 (incorporated by reference to Exhibit (f) to Post-Effective
         Amendment No. 46, filed on December 28, 2000 (File Nos. 33-16905,
         811-05309)).

(f)(2)   Deferred Compensation Plan for Directors Trust Agreement, Amended
         Summary of Terms dated September 2002 (incorporated by reference to
         Exhibit (f)(2) to Post-Effective Amendment No. 66, filed on January 28,
         2003 (File Nos. 33-16905, 811-05309)).

(g)(1)   Custodian Agreement dated September 20, 1993, between the Registrant
         and First Trust National Association, as supplemented through August
         1994 (incorporated by reference to Exhibit (8) to Post-Effective
         Amendment No. 18 (File Nos. 33-16905, 811-05309)).

                                       2


(g)(2)   Supplement dated March 15, 1994, to Custodian Agreement dated September
         20, 1993 (File Nos. 33-16905, 811-05309).

(g)(3)   Further Supplement dated November 21, 1997, with respect to
         International Index Fund, and July 23, 1998, with respect to Strategic
         Income Fund and Emerging Markets Fund, to Custodian Agreement dated
         September 20, 1993 (incorporated by reference to Exhibit 8(c) to
         Post-Effective Amendment No. 39, filed on July 31, 1998 (File Nos.
         33-16905, 811-05309)).


(g)(4)   Compensation Agreement dated as of October 1, 2004, pursuant to
         Custodian Agreement dated September 20, 1993, as amended.*


(g)(5)   Assignment of Custodian Agreements and Security Lending Agency
         Agreement to U.S. Bank National Association, dated May 1, 1998
         (incorporated by reference to Exhibit (g)(5) to Post-Effective
         Amendment No. 41, filed on December 2, 1998 (File Nos. 33-16905,
         811-05309)).

(g)(6)   Further Supplement to Custodian Agreement dated December 8, 1999
         (incorporated by reference to Exhibit (g)(6) to Post-Effective
         Amendment No. 44, filed on January 28, 2000 (File Nos. 33-16905,
         811-05309)).

(g)(7)   Amendment to Custodian Agreement dated December 4, 2002 (incorporated
         by reference to Exhibit (g)(7) to Post-Effective Amendment No. 66,
         filed on January 28, 2003 (File Nos. 33-16905, 811-05309)).

(h)(1)   Co-Administration Agreement by and between U.S. Bancorp Asset
         Management, Inc., U.S. Bancorp Fund Services, LLC, and First American
         Funds, as amended July 24, 2002 (incorporated by reference to Exhibit
         (h)(1) to Post-Effective Amendment No. 66, filed on January 28, 2003
         (File Nos. 33-16905, 811-05309)).


(i)      Opinion and Consent of Dorsey & Whitney LLP with respect to
         Inflation Protected Securities Fund.*


(j)      Not applicable.

(k)      Not applicable.

(l)      Not applicable.

(m)(1)   Distribution Plan [Class A], Retail Class (incorporated by reference to
         Exhibit (m)(1) to Post-Effective Amendment No. 46, filed on December
         28, 2000 (File Nos. 33-16905, 811-05309)).

(m)(2)   Distribution Plan [Class B] Contingent Deferred Sales Change Class.
         (incorporated by reference to Exhibit 15(b) to Post-Effective Amendment
         No. 21, filed on May 15, 1995 (File Nos. 33-16905, 811-05309)).

(m)(3)   Service Plan [Class B] (incorporated by reference to Exhibit (15)(c) to
         Post-Effective Amendment No. 21, filed on May 15, 1995 (File Nos.
         33-16905, 811-05309)).

(m)(4)   Distribution Plan [Class C] Level-Load Class (incorporated by reference
         to Exhibit (m)(4) to Post-Effective Amendment No. 42, filed on February
         1, 1999 (File Nos. 33-16905, 811-05309)).

                                       3


(m)(5)   Service Plan [Class C] (incorporated by reference to Exhibit (m)(5) to
         Post-Effective Amendment No. 42, filed on February 1, 1999 (File Nos.
         33-16905, 811-05309)).

(m)(6)   Distribution Plan [Class R] (incorporated by reference to Exhibit
         (m)(6) to Post-Effective Amendment No. 70, filed June 30, 2004 (File
         Nos. 33-16905, 811-05309)).


(n)(1)   Multiple Class Plan Pursuant to Rule 18f-3, as amended September 16,
         2004.*


(o)      Reserved.

(p)(1)   First American Funds Code of Ethics (incorporated by reference to
         Exhibit p(1) to Post-Effective Amendment No. 58, filed on September 21,
         2001 (File Nos. 33-16905, 811-05309)).

(p)(2)   U.S. Bancorp Asset Management, Inc. Code of Ethics (incorporated by
         reference to Exhibit p(2) to Post-Effective Amendment No. 58, filed on
         September 21, 2001 (File Nos. 33-16905, 811-05309)).

(p)(3)   Clay Finlay Inc. Code of Ethics (incorporated by reference to Exhibit
         (p)(4) to Post-Effective Amendment No. 58, filed on September 21, 2001
         (File Nos. 33-16905, 811-05309)).

(p)(4)   Quasar Distributors, LLC Code of Ethics (incorporated by reference to
         Exhibit (p)(6) to Post-Effective Amendment No. 58, filed on September
         21, 2001 (File Nos. 33-16905, 811-05309)).


(q)      Power of Attorney.*

*        Filed herewith.





ITEM 24.   PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

Not applicable.




ITEM 25.  INDEMNIFICATION

               The indemnification provisions of the Maryland General
Corporation Law 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 relevant provisions of the Registrant's Articles of
Incorporation are as follows:

                                   ARTICLE VII
                           INDEMNIFICATION; LIABILITY


                             Section 1. Each present or former director,
               officer, agent and employee of the Corporation or any predecessor
               or constituent corporation, and each person who, at the request
               of the Corporation, serves or served another business enterprise
               in any such capacity, and the heirs and personal representatives
               of each of the foregoing shall be

                                       4


               indemnified by the Corporation to the fullest extent permitted by
               law against all expenses, including without limitation amounts of
               judgments, fines, amounts paid in settlement, attorneys' and
               accountants' fees, and costs of litigation, which shall
               necessarily or reasonably be incurred by him or her in connection
               with any action, suit or proceeding to which he or she was, is or
               shall be a party, or with which he or she may be threatened, by
               reason of his or her being or having been a director, officer,
               agent or employee of the Corporation or such predecessor or
               constituent corporation or such business enterprise, whether or
               not he or she continues to be such at the time of incurring such
               expenses. Such indemnification may include without limitation the
               purchase of insurance and advancement of any expenses, and the
               Corporation shall be empowered to enter into agreements to limit
               the liability of directors and officers of the Corporation. No
               indemnification shall b made in violation of the General
               Corporation Law of the State of Maryland or the 1940 Act.




                             Section 2. No director or officer of the
               Corporation shall be liable to the Corporation or its
               stockholders for money damages, except (i) to the extent that it
               is provided that such director or officer actually received an
               improper benefit or profit in money, property or services, for
               the amount of the benefit or profit in money, property or
               services actually received, or (ii) to the extent that a judgment
               or other final adjudication adverse to such director or officer
               is entered in a proceeding based on a finding in the proceeding
               that such director's or officer's action, or failure to act, was
               the result of active and deliberate dishonesty and was material
               to the cause of action adjudicated in the proceeding. The
               foregoing shall not be construed to protect or purport to protect
               any director or officer of the Corporation against any liability
               to the Corporation or its stockholders to which such director or
               officer would otherwise be subject by reason of willful
               misfeasance, bad faith, gross negligence or reckless disregard of
               the duties involved in the conduct of such office.

               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, (the "1933 Act") 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 the 1933 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

                                       5


policy as expressed in the 1933 Act, as amended, and will be governed by the
final adjudication of such issue.

               The Registrant maintains officers' and directors' liability
insurance providing coverage, with certain exceptions, for acts and omissions in
the course of the covered persons' duties as officers and directors.




ITEM 26.   BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

               Information on the business of the Registrant's investment
adviser, U.S. Bancorp Asset Management (the "Manager"), is described in the
section of the Statement of Additional Information, filed as part of this
Registration Statement, entitled "Investment Advisory and Other Services." The
directors and officers of the Manager are listed below, together with their
principal occupation or other positions of a substantial nature during the past
two fiscal years.

               Thomas S. Schreier, Jr., Chief Executive Officer and chair of
Board of Directors, USBAM, Minneapolis, MN (May 2001 to present); President,
First American Investment Funds, Inc. ("FAIF"), First American Funds, Inc.
("FAF"), First American Strategy Funds, Inc. ("FASF"), First American Insurance
Portfolios, Inc. ("FAIP"), and eight closed-end funds advised by USBAM, American
Strategic Income Portfolio Inc., American Strategic Income Portfolio Inc. - II,
American Strategic Income Portfolio Inc. - III, American Select Portfolio Inc.,
American Municipal Income Portfolio Inc., Minnesota Municipal Income Portfolio
Inc., First American Minnesota Municipal Income Fund II Inc., and American
Income Fund, collectively referred to as the First American Closed-End Funds
("FACEF"), Minneapolis, MN (February 2001 to present); CEO, First American Asset
Management, Minneapolis, MN (January 2001 to May 2001); CEO and President,
Firstar Investment & Research Management Company ("FIRMCO"), Minneapolis, MN
(March 2001 to May 2001); Senior Managing Director, Equity Research, U.S.
Bancorp Piper Jaffray Inc., Minneapolis, MN (October 1998 to December 2000).

               Mark S. Jordahl, Chief Investment Officer and director on Board
of Directors, USBAM, Minneapolis, MN (July 2001 to present); Vice President,
FAIF, FAF, FASF, FAIP and FACEF, Minneapolis, MN (September 2001 to present);
President and Chief Investment Officer, ING Investment Management - Americas
(September 2000 to June 2001).

               Kenneth L. Delecki, Chief Financial Officer and director on Board
of Directors, USBAM, Minneapolis, MN (May 2001 to present); CFO and Treasurer,
First American Asset Management, Minneapolis, MN (March 2001 to May 2001);
Director, Business Performance, U.S. Bancorp Piper Jaffray Inc., Minneapolis, MN
(September 2000 to March 2001).

               John J. Gibas, Senior Managing Director, Institutional Advisory
Group, and director on Board of Directors, USBAM, Minneapolis, MN (May 2001 to
present); Managing Director, Institutional Advisory Group, FAAM, Minneapolis, MN
(September 1998 to May 2001).

               Kimberly F. Kaul, Communications Director, USBAM, Minneapolis, MN
(May 2001 to present); Communications Director, FAAM, Minneapolis, MN (September
1998 to May 2001).

               Tony Rodriguez, Senior Managing Director, Head of Fixed Income,
USBAM, Minneapolis, MN (August 2002 to present); Director and Head of Corporate
Bonds, Credit Suisse Asset Management, New York, NY (1999 to August 2002).


                                       6



               Jon M. Stevens, Senior Managing Director, Private Asset
Management, USBAM, Minneapolis, MN (January 2002 to present); Senior Managing
Director, Private Asset Management, U.S. Bank, Minneapolis, MN (July 2001 to
January 2002); Managing Director, private asset management, Minneapolis, MN
(September 1998 to July 2001).





ITEM 27.  PRINCIPAL UNDERWRITERS:

a)      State the name of the investment company (other than the Fund) for which
        each principal underwriter currently distributing the Fund's securities
        also acts as a principal underwriter, depositor, or investment adviser.

        Registrant's distributor, Quasar Distributors, LLC (the "Distributor")
        acts as principal underwriter and distributor for Cullen Funds Trust;
        Country Mutual Funds Trust; The Hennessy Mutual Funds, Inc.; The
        Hennessy Funds, Inc.; Kit Cole Investment Trust; Everest Funds;
        Brandywine Blue Fund, Inc., Brandywine Advisors Fund; Light Revolution
        Fund, Inc.; The Jensen Portfolio; First American Insurance Portfolios,
        Inc.; AHA Investment Funds; Wexford Trust, The Muhlenkamp Fund;
        Mutuals.com, The Generation Wave Funds, VICE Fund; First American Funds,
        Inc.; First American Investment Funds, Inc.; First American Strategy
        Funds, Inc.; Zodiac Trust, Conning Money Market Portfolio; CCMA Select
        Investment Trust; CCM ADVISORS FUNDS; Glenmede Fund, Inc. & Glenmede
        Portfolios; Fort Pitt Capital Funds; Jacob Internet Fund; The Teberg
        Fund; Alpine Series Trust; Alpine Equity Trust; LKCM Funds; Monetta
        Fund, Inc.; Monetta Trust; Thompson Plumb Funds, Inc.; Alternative
        Investment Advisors, Alpha Strategies 1 Fund; Al Frank Fund; Dow Jones
        Islamic Index; Optimum Q Funds; (MDT Advisers, Inc.); Matrix Asset
        Advisor Value Fund, Inc.; Brazos Mutual Funds; Prudent Bear Mutual
        Funds; Permanent Portfolio; Guinness Atkinson Funds; Buffalo Funds; MP63
        Fund; NorCap Funds; Alpine Income Trust (Municipal Moneymarket Fund, Tax
        Optimized Income Fund); Kirr Marbach Partners Funds, Inc.; Greenville
        Small Cap Growth Fund; Advisor Series Trust: Al Frank Fund, American
        Trust Allegiance Fund, Avatar Advantage Equity Allocation Fund, Capital
        Advisors Growth Fund, Chase Growth Fund, Edgar Lomax Value Fund, The
        Jacobs Fund, National Asset Management Core EquityFund, Segall Bryant &
        Hamill Mid Cap Fund, Hollencrest Equity Fund, The McCarthy Fund,
        McIntyre Global Equity Fund, PIC Investment Trust Funds; Professionally
        Managed Portfolios: Hester Total Return Fund, Lighthouse Opportunity
        Fund, Portfolio 21, The Osterweis Fund, Women's Equity Mutual Fund,
        Villere Balanced Fund, Fund X Funds (DAL Investment Company),
        Duncan-Hurst International Growth Fund, Duncan-Hurst Aggressive Growth
        Fund, Leonetti Balanced Fund, The Perkins Opportunity Fund, The Perkins
        Discovery Fund; Brandes Investment Trust, Brandes Institutional
        International Equity Fund; Rainier Funds; SEIX Funds, Inc.; TIFF
        Investment Program, Inc.; FFTW Funds, Inc.; Harding Loevner Funds, Inc.;
        Fremont Funds; Masters' Select Funds; and The Osterweis Strategic Income
        Fund.

b)      Provide the information required by the following table for each
        director, officer, or partner of each principal underwriter named in the
        response to Item 20. Unless otherwise noted, the business address for
        each Board Member or Officer is Quasar Distributors, LLC 615 East
        Michigan Street, Milwaukee, WI 53202.



                                POSITION AND OFFICES        POSITION AND OFFICES
              NAME                WITH UNDERWRITER             WITH REGISTRANT
        ---------------------  ---------------------------  --------------------
          James Schoenike        President, Board Member           None
          Donna Berth                Treasurer                     None
          Joe Redwine                Board Member                  None

                                       7


          Robert Kern                Board Member                  None
          Eric Falkeis               Board Member                  None





ITEM 28.  LOCATION OF ACCOUNTS AND RECORDS

All accounts, books, and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the rules promulgated thereunder
are maintained by U.S. Bancorp Asset Management, Inc. 800 Nicollet Mall,
Minneapolis, Minnesota, 55402, and U.S. Bancorp Fund Services, LLC, 615 E.
Michigan Street, Milwaukee, Wisconsin 53202.




ITEM 29.  MANAGEMENT SERVICES

Not applicable.





ITEM 30.  UNDERTAKINGS

Not applicable.














                                       8








                                   SIGNATURES


As required by the Securities Act of 1933, as amended, and the Investment
Company Act of 1940, as amended, the Registrant has duly caused this
Post-Effective Amendment to its Registration Statement Nos. 33-16905 and
811-05309 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Minneapolis, State of Minnesota, on the 24th day of
September, 2004.


                                  FIRST AMERICAN INVESTMENT FUNDS, INC.

                                  By: /s/ Thomas S. Schreier, Jr.
                                      -------------------------------
                                      Thomas S. Schreier, Jr.
                                      President

Pursuant to the requirements of the Securities Act of 1933, as amended, 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/ Thomas S. Schreier, Jr.
---------------------------                 President                       **
  Thomas S. Schreier, Jr.

  /s/ Joseph M. Ulrey III              Treasurer (principal                 **
---------------------------        financial/accounting officer)
    Joseph M. Ulrey III

             *
---------------------------                 Director                        **
   Benjamin R. Field, III

             *
---------------------------                 Director                        **
      Mickey P. Foret

             *
---------------------------                 Director                        **
     Victoria J. Herget

             *
---------------------------                 Director                        **
      Roger A. Gibson

             *
---------------------------                 Director                        **
    Leonard W. Kedrowski

             *
---------------------------                 Director                        **
    Richard K. Riederer

             *
---------------------------                 Director                        **
     Joseph D. Strauss

             *
---------------------------                 Director                        **
   Virginia L. Stringer

             *
---------------------------                 Director                        **
      James M. Wade


* By: /s/ Kathleen L. Prudhomme
      -------------------------------
      Attorney-in-Fact

** September 24, 2004





EXHIBIT (a)(7)

FIRST AMERICAN INVESTMENT FUNDS, INC.
ARTICLES SUPPLEMENTARY

[September 2004]

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 increase in total authorized shares hereinafter set forth and the classifications hereinafter set forth, the Corporation had authority to issue three hundred sixteen billion (316,000,000,000) 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 thirty-one million six hundred thousand dollars ($31,600,000), classified as follows:

(1) Class B Common Shares (formerly referred to as "fixed income fund shares"): Two billion (2,000,000,000) Shares.

(2) Class B, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(3) Class B, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(4) Class B, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(5) Class B, Series 5 Common Shares: Two billion (2,000,000,000) Shares.

(6) Class C Common Shares (formerly referred to as "municipal bond fund shares"): Two billion (2,000,000,000) Shares.

(7) Class C, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(8) Class C, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(9) Class C, Series 4 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 D, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(14) Class D, Series 5 Common Shares: Two billion (2,000,000,000) Shares.

(15) Class E Common Shares (formerly referred to as "special equity fund shares"): Two billion (2,000,000,000) Shares.

(16) Class E, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

-1-

(17) Class E, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(18) Class E, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(19) Class E, Series 5 Common Shares: Two billion (2,000,000,000) Shares.

(20) Class G Common Shares (formerly referred to as "balanced fund shares"): Two billion (2,000,000,000) Shares.

(21) Class G, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(22) Class G, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(23) Class G, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(24) Class G, Series 5 Common Shares: Two billion (2,000,000,000) Shares.

(25) Class H Common Shares (formerly referred to as "equity index fund shares"): Two billion (2,000,000,000) Shares.

(26) Class H, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(27) Class H, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(28) Class H, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(29) Class H, Series 5 Common Shares: Two billion (2,000,000,000) Shares.

(30) Class I Common Shares (formerly referred to as "intermediate term income fund shares"): Two billion (2,000,000,000) Shares.

(31) Class I, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(32) Class I, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(33) Class I, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(34) Class I, Series 5 Common Shares: Two billion (2,000,000,000) Shares.

(35) Class J Common Shares (formerly referred to as "limited term income fund shares"): Two billion (2,000,000,000) Shares.

(36) Class J, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(37) Class J, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(38) Class J, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(39) Class J, Series 5 Common Shares: Two billion (2,000,000,000) Shares.

(40) Class M Common Shares: Two billion (2,000,000,000) Shares.

(41) Class M, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(42) Class M, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(43) Class M, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

-2-

(44) Class N Common Shares: Two billion (2,000,000,000) Shares.

(45) Class N, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(46) Class N, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(47) Class N, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(48) Class P Common Shares: Two billion (2,000,000,000) Shares.

(49) Class P, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(50) Class P, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(51) Class P, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(52) Class P, Series 5 Common Shares: Two billion (2,000,000,000) Shares.

(53) Class Q Common Shares: Two billion (2,000,000,000) Shares.

(54) Class Q, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(55) Class Q, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(56) Class Q, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(57) Class Q, Series 5 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 T, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(62) Class T, Series 5 Common Shares: Two billion (2,000,000,000) Shares.

(63) Class V Common Shares: Two billion (2,000,000,000) Shares.

(64) Class V, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(65) Class V, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(66) Class V, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(67) Class V, Series 5 Common Shares: Two billion (2,000,000,000) Shares.

(68) Class X Common Shares: Two billion (2,000,000,000) Shares.

(69) Class X, Series 1 Common Shares: Two billion (2,000,000,000) Shares.

(70) Class X, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(71) Class Y Common Shares: Two billion (2,000,000,000) Shares.

(72) Class Y, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

-3-

(73) Class Y, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(74) Class AA Common Shares: Two billion (2,000,000,000) Shares.

(75) Class AA, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(76) Class AA, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(77) Class AA, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(78) Class AA, Series 5 Common Shares: Two billion (2,000,000,000) Shares.

(79) Class DD Common Shares: Two billion (2,000,000,000) Shares.

(80) Class DD, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(81) Class DD, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(82) Class DD, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(83) Class EE Common Shares: Two billion (2,000,000,000) Shares.

(84) Class EE, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(85) Class EE, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(86) Class EE, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(87) Class HH Common Shares: Two billion (2,000,000,000) Shares.

(88) Class HH, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(89) Class HH, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(90) Class HH, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(91) Class HH, Series 5 Common Shares: Two billion (2,000,000,000) Shares.

(92) Class I I Common Shares: Two billion (2,000,000,000) Shares.

(93) Class I I, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(94) Class I I, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(95) Class JJ Common Shares: Two billion (2,000,000,000) Shares.

(96) Class JJ, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(97) Class JJ, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(98) Class KK Common Shares: Two billion (2,000,000,000) Shares.

(99) Class KK, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(100) Class KK, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(101) Class LL Common Shares: Two billion (2,000,000,000) Shares.

-4-

(102) Class LL, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(103) Class LL, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(104) Class LL, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(105) Class LL, Series 5 Common Shares: Two billion (2,000,000,000) Shares.

(106) Class MM Common Shares: Two billion (2,000,000,000) Shares.

(107) Class MM, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(108) Class MM, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(109) Class QQ Common Shares: Two billion (2,000,000,000) Shares.

(110) Class QQ, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(111) Class QQ, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(112) Class QQ, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(113) Class QQ, Series 5 Common Shares: Two billion (2,000,000,000) Shares.

(114) Class SS Common Shares: Two billion (2,000,000,000) Shares.

(115) Class SS, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(116) Class SS, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(117) Class SS, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(118) Class SS, Series 5 Common Shares: Two billion (2,000,000,000) Shares.

(119) Class TT Common Shares: Two billion (2,000,000,000) Shares.

(120) Class TT, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(121) Class TT, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(122) Class TT, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(123) Class TT, Series 5 Common Shares: Two billion (2,000,000,000) Shares.

(124) Class UU Common Shares: Two billion (2,000,000,000) Shares.

(125) Class UU, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(126) Class UU, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(127) Class UU, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(128) Class UU, Series 5 Common Shares: Two billion (2,000,000,000) Shares.

(129) Class WW Common Shares: Two billion (2,000,000,000) Shares.

(130) Class WW, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

-5-

(131) Class WW, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(132) Class WW, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(133) Class WW, Series 5 Common Shares: Two billion (2,000,000,000) Shares.

(134) Class XX Common Shares: Two billion (2,000,000,000) Shares.

(135) Class XX, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(136) Class XX, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(137) Class XX, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(138) Class XX, Series 5 Common Shares: Two billion (2,000,000,000) Shares.

(139) Class ZZ Common Shares: Two billion (2,000,000,000) Shares.

(140) Class ZZ, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(141) Class ZZ, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(142) Class ZZ, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(143) Class ZZ, Series 5 Common Shares: Two billion (2,000,000,000) Shares.

(144) Class AAA Common Shares: Two billion (2,000,000,000) Shares.

(145) Class AAA, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(146) Class AAA, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(147) Class BBB Common Shares: Two billion (2,000,000,000) Shares.

(148) Class BBB, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(149) Class BBB, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(150) Class CCC Common Shares: Two billion (2,000,000,000) Shares.

(151) Class CCC, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(152) Class DDD Common Shares: Two billion (2,000,000,000) Shares.

(153) Class DDD, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(154) Class EEE Common Shares: Two billion (2,000,000,000) Shares.

(155) Class EEE, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(156) Class EEE, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(156) Class EEE, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(158) Class EEE, Series 5 Common Shares: Two billion (2,000,000,000) Shares.

-6-

(159) Unclassified Shares: Zero (-0-) Shares.

THIRD: Pursuant to the authority contained in Sections 2-105(c) and 2-208.1 of the Maryland General Corporation Law, the Board of Directors of the Corporation, by resolution adopted at a meeting held on September 16, 2004, authorized an increase in the total authorized shares of the Corporation from three hundred sixteen billion (316,000,000,000) shares of common stock, of the par value of $.0001 per share, and of the aggregate par value of thirty-one million six hundred thousand dollars ($31,600,000), to three hundred twenty-four billion (324,000,000,000) shares of common stock, of the par value of $.0001 per share, and of the aggregate par value of thirty-two million four hundred thousand dollars ($32,400,000).

FOURTH: 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 September 16, 2004, classified the following additional Shares out of the authorized, unissued and unclassified Shares of the Corporation:

(1) Class FFF Common Shares: Two billion (2,000,000,000) Shares.

(2) Class FFF, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(3) Class FFF, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(4) Class FFF, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

FIFTH: The Shares classified pursuant to FOURTH 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 FOURTH 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.

SIXTH: Immediately after the increase in total authorized shares hereinbefore set forth and the classifications hereinbefore set forth and upon filing for record of these Articles Supplementary, the Corporation has authority to issue three hundred twenty-four billion (324,000,000,000) 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 thirty-two million four hundred thousand dollars ($32,400,000), classified as follows:

(1) Class B Common Shares (formerly referred to as "fixed income fund shares"): Two billion (2,000,000,000) Shares.

(2) Class B, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(3) Class B, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(4) Class B, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(5) Class B, Series 5 Common Shares: Two billion (2,000,000,000) Shares.

(6) Class C Common Shares (formerly referred to as "municipal bond fund shares"): Two billion (2,000,000,000) Shares.

-7-

(7) Class C, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(8) Class C, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(9) Class C, Series 4 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 D, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(14) Class D, Series 5 Common Shares: Two billion (2,000,000,000) Shares.

(15) Class E Common Shares (formerly referred to as "special equity fund shares"): Two billion (2,000,000,000) Shares.

(16) Class E, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(17) Class E, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(18) Class E, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(19) Class E, Series 5 Common Shares: Two billion (2,000,000,000) Shares.

(20) Class G Common Shares (formerly referred to as "balanced fund shares"): Two billion (2,000,000,000) Shares.

(21) Class G, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(22) Class G, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(23) Class G, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(24) Class G, Series 5 Common Shares: Two billion (2,000,000,000) Shares.

(25) Class H Common Shares (formerly referred to as "equity index fund shares"): Two billion (2,000,000,000) Shares.

(26) Class H, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(27) Class H, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(28) Class H, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(29) Class H, Series 5 Common Shares: Two billion (2,000,000,000) Shares.

(30) Class I Common Shares (formerly referred to as "intermediate term income fund shares"): Two billion (2,000,000,000) Shares.

(31) Class I, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

-8-

(32) Class I, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(33) Class I, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(34) Class I, Series 5 Common Shares: Two billion (2,000,000,000) Shares.

(35) Class J Common Shares (formerly referred to as "limited term income fund shares"): Two billion (2,000,000,000) Shares.

(36) Class J, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(37) Class J, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(38) Class J, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(39) Class J, Series 5 Common Shares: Two billion (2,000,000,000) Shares.

(40) Class M Common Shares: Two billion (2,000,000,000) Shares.

(41) Class M, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(42) Class M, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(43) Class M, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(44) Class N Common Shares: Two billion (2,000,000,000) Shares.

(45) Class N, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(46) Class N, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(47) Class N, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(48) Class P Common Shares: Two billion (2,000,000,000) Shares.

(49) Class P, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(50) Class P, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(51) Class P, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(52) Class P, Series 5 Common Shares: Two billion (2,000,000,000) Shares.

(53) Class Q Common Shares: Two billion (2,000,000,000) Shares.

(54) Class Q, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(55) Class Q, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(56) Class Q, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(57) Class Q, Series 5 Common Shares: Two billion (2,000,000,000) Shares.

(58) Class T Common Shares: Two billion (2,000,000,000) Shares.

-9-

(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 T, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(62) Class T, Series 5 Common Shares: Two billion (2,000,000,000) Shares.

(63) Class V Common Shares: Two billion (2,000,000,000) Shares.

(64) Class V, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(65) Class V, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(66) Class V, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(67) Class V, Series 5 Common Shares: Two billion (2,000,000,000) Shares.

(68) Class X Common Shares: Two billion (2,000,000,000) Shares.

(69) Class X, Series 1 Common Shares: Two billion (2,000,000,000) Shares.

(70) Class X, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(71) Class Y Common Shares: Two billion (2,000,000,000) Shares.

(72) Class Y, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(73) Class Y, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(74) Class AA Common Shares: Two billion (2,000,000,000) Shares.

(75) Class AA, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(76) Class AA, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(77) Class AA, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(78) Class AA, Series 5 Common Shares: Two billion (2,000,000,000) Shares.

(79) Class DD Common Shares: Two billion (2,000,000,000) Shares.

(80) Class DD, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(81) Class DD, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(82) Class DD, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(83) Class EE Common Shares: Two billion (2,000,000,000) Shares.

(84) Class EE, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(85) Class EE, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

-10-

(86) Class EE, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(87) Class HH Common Shares: Two billion (2,000,000,000) Shares.

(88) Class HH, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(89) Class HH, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(90) Class HH, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(91) Class HH, Series 5 Common Shares: Two billion (2,000,000,000) Shares.

(92) Class I I Common Shares: Two billion (2,000,000,000) Shares.

(93) Class I I, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(94) Class I I, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(95) Class JJ Common Shares: Two billion (2,000,000,000) Shares.

(96) Class JJ, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(97) Class JJ, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(98) Class KK Common Shares: Two billion (2,000,000,000) Shares.

(99) Class KK, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(100) Class KK, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(101) Class LL Common Shares: Two billion (2,000,000,000) Shares.

(102) Class LL, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(103) Class LL, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(104) Class LL, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(105) Class LL, Series 5 Common Shares: Two billion (2,000,000,000) Shares.

(106) Class MM Common Shares: Two billion (2,000,000,000) Shares.

(107) Class MM, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(108) Class MM, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(109) Class QQ Common Shares: Two billion (2,000,000,000) Shares.

(110) Class QQ, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(111) Class QQ, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(112) Class QQ, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

-11-

(113) Class QQ, Series 5 Common Shares: Two billion (2,000,000,000) Shares.

(114) Class SS Common Shares: Two billion (2,000,000,000) Shares.

(115) Class SS, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(116) Class SS, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(117) Class SS, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(118) Class SS, Series 5 Common Shares: Two billion (2,000,000,000) Shares.

(119) Class TT Common Shares: Two billion (2,000,000,000) Shares.

(120) Class TT, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(121) Class TT, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(122) Class TT, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(123) Class TT, Series 5 Common Shares: Two billion (2,000,000,000) Shares.

(124) Class UU Common Shares: Two billion (2,000,000,000) Shares.

(125) Class UU, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(126) Class UU, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(127) Class UU, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(128) Class UU, Series 5 Common Shares: Two billion (2,000,000,000) Shares.

(129) Class WW Common Shares: Two billion (2,000,000,000) Shares.

(130) Class WW, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(131) Class WW, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(132) Class WW, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(133) Class WW, Series 5 Common Shares: Two billion (2,000,000,000) Shares.

(134) Class XX Common Shares: Two billion (2,000,000,000) Shares.

(135) Class XX, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(136) Class XX, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(137) Class XX, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(138) Class XX, Series 5 Common Shares: Two billion (2,000,000,000) Shares.

(139) Class ZZ Common Shares: Two billion (2,000,000,000) Shares.

-12-

(140) Class ZZ, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(141) Class ZZ, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(142) Class ZZ, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(143) Class ZZ, Series 5 Common Shares: Two billion (2,000,000,000) Shares.

(144) Class AAA Common Shares: Two billion (2,000,000,000) Shares.

(145) Class AAA, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(146) Class AAA, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(147) Class BBB Common Shares: Two billion (2,000,000,000) Shares.

(148) Class BBB, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(149) Class BBB, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(150) Class CCC Common Shares: Two billion (2,000,000,000) Shares.

(151) Class CCC, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(152) Class DDD Common Shares: Two billion (2,000,000,000) Shares.

(153) Class DDD, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(154) Class EEE Common Shares: Two billion (2,000,000,000) Shares.

(155) Class EEE, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(156) Class EEE, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(156) Class EEE, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(158) Class EEE, Series 5 Common Shares: Two billion (2,000,000,000) Shares.

(159) Class FFF Common Shares: Two billion (2,000,000,000) Shares.

(160) Class FFF, Series 2 Common Shares: Two billion (2,000,000,000) Shares.

(161) Class FFF, Series 3 Common Shares: Two billion (2,000,000,000) Shares.

(162) Class FFF, Series 4 Common Shares: Two billion (2,000,000,000) Shares.

(163) Unclassified Shares: Zero (-0-) Shares.

SEVENTH: 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.

The undersigned officer of the Corporation hereby acknowledges, in the name and on behalf of the Corporation, the foregoing Articles Supplementary to be the corporate act of the Corporation and further certifies

-13-

that, to the best of his or her knowledge, information and belief, the matters and facts set forth therein with respect to the approval thereof are true in all material respects, under the penalties of perjury.

IN WITNESS WHEREOF, the Corporation has caused these Articles Supplementary to be signed in its name and on its behalf by its Vice President and witnessed by its Secretary on September ____, 2004.

FIRST AMERICAN INVESTMENT FUNDS, INC.

By /s/ Jeffery M. Wilson
   ----------------------------------
   Jeffery M. Wilson, Vice President

WITNESS:

/s/ James D. Alt
---------------------------------
James D. Alt, Secretary

-14-

EXHIBIT (B)

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' MEETING ON 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 ARTICLE 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; AMENDMENT TO ARTICLE V, SECTION 3 PROVIDING FOR NAMES OF NEW CLASSES AND SERIES APPROVED AT BOARD OF DIRECTORS MEETING ON DECEMBER 6, 1995; AMENDMENT TO ARTICLE V, SECTION 3 PROVIDING FOR NAMES OF NEW CLASSES AND SERIES APPROVED AT BOARD OF DIRECTORS MEETING ON JUNE 4, 1997; AMENDMENT TO ARTICLE V, SECTION 3 PROVIDING FOR NAMES OF CLASSES AND SERIES APPROVED AT BOARD OF DIRECTORS MEETING ON FEBRUARY 23, 1998; AMENDMENT TO ARTICLE V, SECTION 3 PROVIDING FOR NAMES OF NEW CLASSES AND SERIES APPROVED AT BOARD OF DIRECTORS MEETING ON DECEMBER 9, 1998; AMENDMENT TO ARTICLE II, SECTION 8 SPECIFYING COMMITTEE QUORUM APPROVED AT BOARD OF DIRECTORS MEETING ON FEBRUARY 23, 1999; AMENDMENT TO ARTICLE V, SECTION 3 PROVIDING FOR NAMES OF NEW CLASSES AND SERIES APPROVED AT BOARD OF DIRECTORS MEETING ON SEPTEMBER 8, 1999; AMENDMENT TO ARTICLE I, SECTION 4 PROVIDING FOR ELECTRONIC VOTING APPROVED AT BOARD OF DIRECTORS MEETING ON DECEMBER 8, 1999; AMENDMENT TO ARTICLE V, SECTION 3 PROVIDING FOR NAMES OF CLASSES AND SERIES APPROVED AT BOARD OF DIRECTORS MEETING ON FEBRUARY 28, 2001; AMENDMENT TO ARTICLE V, SECTION 3 PROVIDING FOR NAMES OF CLASSES AND SERIES APPROVED AT BOARD OF DIRECTORS MEETING ON JUNE 1, 2001; AMENDMENT TO ARTICLE V, SECTION 3 PROVIDING FOR NAMES OF CLASSES AND SERIES APPROVED AT BOARD OF DIRECTORS MEETING ON FEBRUARY 21, 2002; AMENDMENT TO ARTICLE V, SECTION 3 PROVIDING FOR NAMES OF CLASSES AND SERIES APPROVED AT BOARD OF DIRECTORS MEETING ON SEPTEMBER 18, 2002; AMENDMENTS TO ARTICLE V, SECTION 3 PROVIDING FOR NAME CHANGES AND NAMES OF NEW CLASS AND SERIES APPROVED AT BOARD OF DIRECTORS MEETING ON DECEMBER 4, 2002; AMENDMENTS TO ARTICLE V, SECTION 3 PROVIDING FOR NAME CHANGES APPROVED AT BOARD OF DIRECTORS MEETING ON FEBRUARY 18, 2004; AMENDMENTS TO ARTICLE V, SECTION 3 PROVIDING FOR NAMES OF NEW CLASS AND SERIES APPROVED AT BOARD OF DIRECTORS MEETING ON SEPTEMBER 16, 2004.

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 submitted by any means permitted by Maryland Statutes Section 2-507(c)(3) or any successor provision of Maryland Statutes. No proxy shall be voted after eleven months from its date unless it provides for a longer period.

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)

2

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.

3

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.

A quorum of any committee shall consist of one-third of its members unless the committee is comprised of two or three members, in which event a quorum shall consist of two members. If a Pricing Committee is appointed and a member of such committee is absent from a committee meeting, the remainder of the committee (although not constituting a quorum) may appoint another director to act in place of the absent member.

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

4

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

5

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

6

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 B Common Shares...............................  Core Bond Fund, Class A
Class B, Series 2 Common Shares.....................  Core Bond Fund, Class Y
Class B, Series 3 Common Shares.....................  Core Bond Fund, Class B
Class B, Series 4 Common Shares.....................  Core Bond Fund, Class C
Class B, Series 5 Common Shares.....................  Core Bond Fund, Class R
Class C Common Shares...............................  Intermediate Tax Free Fund, Class A
Class C, Series 2 Common Shares.....................  Intermediate Tax Free Fund, Class Y
Class C, Series 3 Common Shares.....................  Intermediate Tax Free Fund, Class B
Class C, Series 4 Common Shares.....................  Intermediate Tax Free Fund, Class C
Class D Common Shares...............................  Large Cap Value Fund, Class A
Class D, Series 2 Common Shares.....................  Large Cap Value Fund, Class Y
Class D, Series 3 Common Shares.....................  Large Cap Value Fund, Class B
Class D, Series 4 Common Shares.....................  Large Cap Value Fund, Class C
Class D, Series 5 Common Shares.....................  Large Cap Value Fund, Class R
Class E Common Shares...............................  Mid Cap Value Fund, Class A
Class E, Series 2 Common Shares.....................  Mid Cap Value Fund, Class Y


                                       7

Class E, Series 3 Common Shares.....................  Mid Cap Value Fund, Class B
Class E, Series 4 Common Shares.....................  Mid Cap Value Fund, Class C
Class E, Series 5 Common Shares.....................  Mid Cap Value Fund, Class R
Class G Common Shares...............................  Balanced Fund, Class A
Class G, Series 2 Common Shares.....................  Balanced Fund, Class Y
Class G, Series 3 Common Shares.....................  Balanced Fund, Class B
Class G, Series 4 Common Shares.....................  Balanced Fund, Class C
Class G, Series 5 Common Shares.....................  Balanced Fund, Class R
Class H Common Shares...............................  Equity Index Fund, Class A
Class H, Series 2 Common Shares.....................  Equity Index Fund, Class Y
Class H, Series 3 Common Shares.....................  Equity Index Fund, Class B
Class H, Series 4 Common Shares.....................  Equity Index Fund, Class C
Class H, Series 5 Common Shares.....................  Equity Index Fund, Class R
Class I Common Shares...............................  Intermediate Term Bond Fund, Class A
Class I, Series 2 Common Shares.....................  Intermediate Term Bond Fund, Class Y
Class I, Series 3 Common Shares.....................  Intermediate Term Bond Fund, Class B
Class I, Series 4 Common Shares.....................  Intermediate Term Bond Fund, Class C
Class I, Series 5 Common Shares.....................  Intermediate Term Bond Fund, Class R
Class J Common Shares...............................  Short Term Bond Fund, Class A
Class J, Series 2 Common Shares.....................  Short Term Bond Fund, Class Y
Class J, Series 3 Common Shares.....................  Short Term Bond Fund, Class B
Class J, Series 4 Common Shares.....................  Short Term Bond Fund, Class C
Class J, Series 5 Common Shares.....................  Short Term Bond Fund, Class R
Class M Common Shares...............................  Minnesota Intermediate Tax Free Fund, Class A
Class M, Series 2 Common Shares.....................  Minnesota Intermediate Tax Free Fund, Class Y
Class M, Series 3 Common Shares.....................  Minnesota Intermediate Tax Free Fund, Class B
Class M, Series 4 Common Shares.....................  Minnesota Intermediate Tax Free Fund, Class C
Class N Common Shares...............................  Colorado Intermediate Tax Free Fund, Class A
Class N, Series 2 Common Shares.....................  Colorado Intermediate Tax Free Fund, Class Y
Class N, Series 3 Common Shares.....................  Colorado Intermediate Tax Free Fund, Class B
Class N, Series 4 Common Shares.....................  Colorado Intermediate Tax Free Fund, Class C
Class P Common Shares...............................  Technology Fund, Class A
Class P, Series 2 Common Shares.....................  Technology Fund, Class Y
Class P, Series 3 Common Shares.....................  Technology Fund, Class B
Class P, Series 4 Common Shares.....................  Technology Fund, Class C
Class P, Series 5 Common Shares.....................  Technology Fund, Class R
Class Q Common Shares...............................  International Fund, Class A
Class Q, Series 2 Common Shares.....................  International Fund, Class Y
Class Q, Series 3 Common Shares.....................  International Fund, Class B
Class Q, Series 4 Common Shares.....................  International Fund, Class C
Class Q, Series 5 Common Shares.....................  International Fund, Class R
Class T Common Shares...............................  Equity Income Fund, Class A
Class T, Series 2 Common Shares.....................  Equity Income Fund, Class B
Class T, Series 3 Common Shares.....................  Equity Income Fund, Class Y
Class T, Series 4 Common Shares.....................  Equity Income Fund, Class C
Class T, Series 5 Common Shares.....................  Equity Income Fund, Class R


                                       8

Class V Common Shares...............................  Real Estate Securities Fund, Class A
Class V, Series 2 Common Shares.....................  Real Estate Securities Fund, Class B
Class V, Series 3 Common Shares.....................  Real Estate Securities Fund, Class Y
Class V, Series 4 Common Shares.....................  Real Estate Securities Fund, Class C
Class V, Series 5 Common Shares.....................  Real Estate Securities Fund, Class R
Class X Common Shares...............................  Oregon Intermediate Tax Free Fund, Class Y
Class X, Series 2 Common Shares.....................  Oregon Intermediate Tax Free Fund, Class A
Class X, Series 3 Common Shares.....................  Oregon Intermediate Tax Free Fund, Class C
Class Y Common Shares...............................  California Intermediate Tax Free Fund, Class A
Class Y, Series 2 Common Shares.....................  California Intermediate Tax Free Fund, Class Y
Class Y, Series 3 Common Shares.....................  California Intermediate Tax Free Fund, Class C
Class AA Common Shares..............................  Small Cap Value Fund, Class A
Class AA, Series 2 Common Shares....................  Small Cap Value Fund, Class B
Class AA, Series 3 Common Shares....................  Small Cap Value Fund, Class Y
Class AA, Series 4 Common Shares....................  Small Cap Value Fund, Class C
Class AA, Series 5 Common Shares....................  Small Cap Value Fund, Class R
Class DD Common Shares..............................  Tax Free Fund, Class A
Class DD, Series 2 Common Shares....................  Tax Free Fund, Class B
Class DD, Series 3 Common Shares....................  Tax Free Fund, Class Y
Class DD, Series 4 Common Shares....................  Tax Free Fund, Class C
Class EE Common Shares..............................  Minnesota Tax Free Fund, Class A
Class EE, Series 2 Common Shares....................  Minnesota Tax Free Fund, Class B
Class EE, Series 3 Common Shares....................  Minnesota Tax Free Fund, Class Y
Class EE, Series 4 Common Shares....................  Minnesota Tax Free Fund, Class C
Class HH Common Shares..............................  High Income Bond Fund, Class A
Class HH, Series 2 Common Shares....................  High Income Bond Fund, Class B
Class HH, Series 3 Common Shares....................  High Income Bond Fund, Class Y
Class HH, Series 4 Common Shares....................  High Income Bond Fund, Class C
Class HH, Series 5 Common Shares....................  High Income Bond Fund, Class R
Class I I Common Shares.............................  California Tax Free Fund, Class A
Class I I, Series 2 Common Shares...................  California Tax Free Fund, Class C
Class I I, Series 3 Common Shares...................  California Tax Free Fund, Class Y
Class JJ Common Shares..............................  Arizona Tax Free Fund, Class A
Class JJ, Series 2 Common Shares....................  Arizona Tax Free Fund, Class C
Class JJ, Series 3 Common Shares....................  Arizona Tax Free Fund, Class Y
Class KK Common Shares..............................  Colorado Tax Free Fund, Class A
Class KK, Series 2 Common Shares....................  Colorado Tax Free Fund, Class C
Class KK, Series 3 Common Shares....................  Colorado Tax Free Fund, Class Y
Class LL Common Shares..............................  Corporate Bond Fund, Class A
Class LL, Series 2 Common Shares....................  Corporate Bond Fund, Class B
Class LL, Series 3 Common Shares....................  Corporate Bond Fund, Class C
Class LL, Series 4 Common Shares....................  Corporate Bond Fund, Class Y
Class LL, Series 5 Common Shares....................  Corporate Bond Fund, Class R
Class MM Common Shares..............................  Nebraska Tax Free Fund, Class A
Class MM, Series 2 Common Shares....................  Nebraska Tax Free Fund, Class C
Class MM, Series 3 Common Shares....................  Nebraska Tax Free Fund, Class Y


                                       9

Class QQ Common Shares..............................  Large Cap Growth Opportunities Fund, Class A
Class QQ, Series 2 Common Shares....................  Large Cap Growth Opportunities Fund, Class B
Class QQ, Series 3 Common Shares....................  Large Cap Growth Opportunities Fund, Class C
Class QQ, Series 4 Common Shares....................  Large Cap Growth Opportunities Fund, Class Y
Class QQ, Series 5 Common Shares....................  Large Cap Growth Opportunities Fund, Class R
Class SS Common Shares..............................  Mid Cap Growth Opportunities Fund, Class A
Class SS, Series 2 Common Shares....................  Mid Cap Growth Opportunities Fund, Class B
Class SS, Series 3 Common Shares....................  Mid Cap Growth Opportunities Fund, Class C
Class SS, Series 4 Common Shares....................  Mid Cap Growth Opportunities Fund, Class Y
Class SS, Series 5 Common Shares....................  Mid Cap Growth Opportunities Fund, Class R
Class TT Common Shares..............................  Small Cap Growth Opportunities Fund, Class A
Class TT, Series 2 Common Shares....................  Small Cap Growth Opportunities Fund, Class B
Class TT, Series 3 Common Shares....................  Small Cap Growth Opportunities Fund, Class C
Class TT, Series 4 Common Shares....................  Small Cap Growth Opportunities Fund, Class Y
Class TT, Series 5 Common Shares....................  Small Cap Growth Opportunities Fund, Class R
Class UU Common Shares..............................  Small Cap Select Fund, Class A
Class UU, Series 2 Common Shares....................  Small Cap Select Fund, Class B
Class UU, Series 3 Common Shares....................  Small Cap Select Fund, Class C
Class UU, Series 4 Common Shares....................  Small Cap Select Fund, Class Y
Class UU, Series 5 Common Shares....................  Small Cap Select Fund, Class R
Class WW Common Shares..............................  Mid Cap Index Fund, Class A
Class WW, Series 2 Common Shares....................  Mid Cap Index Fund, Class B
Class WW, Series 3 Common Shares....................  Mid Cap Index Fund, Class C
Class WW, Series 4 Common Shares....................  Mid Cap Index Fund, Class Y
Class WW, Series 5 Common Shares....................  Mid Cap Index Fund, Class R
Class XX Common Shares..............................  Small Cap Index Fund, Class A
Class XX, Series 2 Common Shares....................  Small Cap Index Fund, Class B
Class XX, Series 3 Common Shares....................  Small Cap Index Fund, Class C
Class XX, Series 4 Common Shares....................  Small Cap Index Fund, Class Y
Class XX, Series 5 Common Shares....................  Small Cap Index Fund, Class R
Class ZZ Common Shares..............................  U.S. Government Mortgage Fund, Class A
Class ZZ, Series 2 Common Shares....................  U.S. Government Mortgage Fund, Class B
Class ZZ, Series 3 Common Shares....................  U.S. Government Mortgage Fund, Class C
Class ZZ, Series 4 Common Shares....................  U.S. Government Mortgage Fund, Class Y
Class ZZ, Series 5 Common Shares....................  U.S. Government Mortgage Fund, Class R
Class AAA Common Shares.............................  Missouri Tax Free Fund, Class A
Class AAA, Series 2 Common Shares...................  Missouri Tax Free Fund, Class B
Class AAA, Series 3 Common Shares...................  Missouri Tax Free Fund, Class C
Class BBB Common Shares.............................  Ohio Tax Free Fund, Class A
Class BBB, Series 2 Common Shares...................  Ohio Tax Free Fund, Class C
Class BBB, Series 3 Common Shares...................  Ohio Tax Free Fund, Class Y
Class CCC Common Shares.............................  Short Tax Free Fund, Class A
Class CCC, Series 2 Common Shares...................  Short Tax Free Fund, Class Y
Class DDD Common Shares.............................  Intermediate Government Bond Fund, Class A
Class DDD, Series 2 Common Shares...................  Intermediate Government Bond Fund, Class Y
Class EEE Common Shares.............................  Large Cap Select Fund, Class A


                                       10

Class EEE, Series 2 Common Shares...................  Large Cap Select Fund, Class B
Class EEE, Series 3 Common Shares...................  Large Cap Select Fund, Class C
Class EEE, Series 4 Common Shares...................  Large Cap Select Fund, Class R
Class EEE, Series 5 Common Shares...................  Large Cap Select Fund, Class Y
Class FFF Common Shares.............................  Inflation Protected Securities Fund, Class A
Class FFF, Series 2 Common Shares...................  Inflation Protected Securities Fund, Class C
Class FFF, Series 3 Common Shares...................  Inflation Protected Securities Fund, Class R
Class FFF, Series 4 Common Shares...................  Inflation Protected Securities Fund, Class Y

11

EXHIBIT (D)(2)

FIRST AMERICAN INVESTMENT FUNDS, INC.
EXHIBIT A TO INVESTMENT ADVISORY AGREEMENT
EFFECTIVE OCTOBER 1, 2004

                                                                                        ANNUAL ADVISORY FEE AS A
                                                                                    PERCENTAGE OF AVERAGE DAILY NET
                   PORTFOLIO                              EFFECTIVE DATE                         ASSETS
                   ---------                              --------------                         ------
Large Cap Value Fund (1)                               April 2, 1991                              0.65%
Mid Cap Value Fund                                     April 2, 1991                              0.70%
Core Bond Fund                                         April 2, 1991                              0.50%
Intermediate Tax Free Fund                             April 2, 1991                              0.50%
Intermediate Term Bond Fund                            September 15, 1992                         0.50%
Equity Index Fund                                      September 15, 1992                         0.25%
Short Term Bond Fund                                   September 15, 1992                         0.50%
Balanced Fund (1)                                      September 15, 1992                         0.65%
Minnesota Intermediate Tax Free Fund                   December 31, 1993                          0.50%
Colorado Intermediate Tax Free Fund                    December 31, 1993                          0.50%
Technology Fund                                        December 31, 1993                          0.70%
International Fund (2)                                 December 31, 1993                          1.10%
Equity Income Fund (1)                                 January 31, 1994                           0.65%
Real Estate Securities Fund                            June 12, 1995                              0.70%
Oregon Intermediate Tax Free Fund                      August 5, 1997                             0.50%
California Intermediate Tax Free Fund                  August 5, 1997                             0.50%
Small Cap Value Fund                                   November 21, 1997                          0.70%
Tax Free Fund                                          July 24, 1998                              0.50%
Minnesota Tax Free Fund                                July 24, 1998                              0.50%
California Tax Free Fund                               February 1, 2000                           0.50%
Arizona Tax Free Fund                                  February 1, 2000                           0.50%
Colorado Tax Free Fund                                 February 1, 2000                           0.50%
Corporate Bond Fund                                    February 1, 2000                           0.70%
Nebraska Tax Free Fund                                 February 28, 2001                          0.50%
High Income Bond Fund                                  February 28, 2001                          0.70%

Large Cap Growth Opportunities Fund (1)                May 2, 2001                                0.65%
Mid Cap Growth Opportunities Fund                      May 2, 2001                                0.70%
Small Cap Growth Opportunities Fund                    May 2, 2001                                1.40%
Small Cap Select Fund                                  May 2, 2001                                0.70%
Mid Cap Index Fund                                     May 2, 2001                                0.25%
Small Cap Index Fund                                   May 2, 2001                                0.40%
U.S. Government Mortgage Fund                          May 2, 2001                                0.50%
Missouri Tax Free Fund                                 May 2, 2001                                0.50%
Ohio Tax Free Fund                                     April 30, 2002                             0.50%
Short Tax Free Fund                                    October 25, 2002                           0.50%
Intermediate Government Bond Fund                      October 25, 2002                           0.50%
Large Cap Select Fund (1)                              December 4, 2002                           0.65%
Inflation Protected Securities Fund                    October 1, 2004                            0.50%

(1) The Adviser has agreed to a breakpoint schedule with each of Large Cap Growth Opportunities Fund, Large Cap Select Fund, Large Cap Value Fund, Balanced Fund and Equity Income Fund. The advisory fee paid separately by each of these funds will be based on an annual rate of 0.65% for the first $3 billion of each fund's average daily net assets; 0.625% for average daily net assets in excess of $3 billion up to $5 billion; and 0.60% for average daily net assets in excess of $5 billion.

(2) The Adviser has agreed to a breakpoint schedule with International Fund. The advisory fee paid by this fund will be based on an annual rate of 1.10% for the first $1.5 billion of the fund's average daily net assets; 1.05% for average daily net assets in excess of $1.5 billion up to $2.5 billion; and 1.00% for average daily net assets in excess of $2.5 billion.

2

EXHIBIT (G)(4)

FIRST AMERICAN INVESTMENT FUNDS, INC.
COMPENSATION AGREEMENT DATED AS OF OCTOBER 1, 2004
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, previously entered into that Custodian Agreement dated September 20, 1993 (the "Custodian Agreement"); and

WHEREAS, First Trust National Association, with the consent of the Fund, assigned its rights and obligations under the Custodian Agreement to U.S. Bank National Association, a national banking association organized and existing under the laws of the United States of America (the "Custodian") by an Assignment and Assumption Agreement dated as of May 1, 1998; 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.

NOW, THEREFORE, the Fund and the Custodian agree as follows:

1. Each series of the Fund, as now in existence or hereafter created from time to time, shall pay to the Custodian pursuant to the Custodian Agreement a monthly fee at an annual rate of 0.01% of the average daily net assets of such series. The Custodian shall pay sub-custodian fees with respect to those series that are authorized to utilize foreign sub-custodians out of the compensation payable to the Custodian by such series as set forth in the preceding sentence. 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.

2. 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/ Jeffery M. Wilson
      ---------------------
  Its:  Vice President

U.S. BANK NATIONAL ASSOCIATION

By:  /s/ Mark Dowling
     ----------------
  Its:  Vice President

2

[LOGO] DORSEY
DORSEY & WHITNEY LLP

EXHIBIT (I)

September 21, 2004

First American Investment Funds, Inc.
800 Nicollet Mall
Minneapolis, Minnesota 55402

Ladies and Gentlemen:

We have acted as counsel to First American Investment Funds, Inc., a Maryland corporation (the "Company"), in rendering the opinion hereinafter set forth with respect to the authorization of the following class and series of the Company's common shares, par value $0.001 per share, which are also known by the names set forth opposite their respective class and series designations:

Class and Series                     Name
----------------                     ----
Class FFF Common Shares             Inflation Protected Securities Fund, Class A
Class FFF, Series 2 Common Shares   Inflation Protected Securities Fund, Class C
Class FFF, Series 3 Common Shares   Inflation Protected Securities Fund, Class R
Class FFF, Series 4 Common Shares   Inflation Protected Securities Fund, Class Y

The shares of the Company referred to above are referred to herein collectively as the "Shares."

We understand that the Shares are being registered under the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, pursuant to the Company's Registration Statement on Form N-1A relating to such shares (the "Registration Statement"). In rendering the opinion hereinafter expressed, we have reviewed the corporate proceedings taken by the Company in connection with the authorization and issuance of the Shares, and we have reviewed such questions of law and examined copies of such corporate records of the Company, certificates of public officials and of responsible officers of the Company, and other documents as we have deemed necessary as a basis for such opinion. As to the various matters of fact material to such opinion, we have, when such facts were not independently established, relied to the extent we deemed proper on certificates of public officials and of responsible officers of the Company. In connection with such review and examination, we have assumed that all copies of documents provided to us conform to the originals and that all signatures are genuine.

In addition, in rendering the opinion hereinafter expressed, we have assumed, with the concurrence of the Company, that all of the Shares will be issued and sold upon the terms and in the manner set forth in the Registration Statement; that the Company will not issue Shares in


[LOGO] DORSEY

September 21, 2004

Page 2

excess of the numbers authorized in the Company's amended and restated articles of incorporation as in effect at the respective dates of issuance; and that the Company will maintain its corporate existence and good standing under the laws of the State of Maryland in effect at all times after the date of this opinion.

Based on the foregoing, it is our opinion that the Shares issued from and after the date hereof, when issued and delivered by the Company as described in the Registration Statement, will be legally issued and fully paid and non-assessable.

In rendering the foregoing opinion, we express no opinion as to the laws of any jurisdiction other than the State of Maryland. We hereby consent to the filing of this opinion letter as an exhibit to the Registration Statement.

Very truly yours,

                                                     /s/ Dorsey & Whitney LLP


KLP


EXHIBIT (N)(1)

FIRST AMERICAN INVESTMENT FUNDS, INC.

Multiple Class Plan Pursuant to Rule 18f-3

Adopted June 14, 1995
(as amended September 16, 2004, effective October 1, 2004)

I. PREAMBLE.

Each of the funds listed below (each a "Fund," and collectively the "Funds"), each a portfolio of First American Investment Funds, Inc. (the "Company"), has elected to rely on Rule 18f-3 under the Investment Company Act of 1940, as amended (the "1940 Act"), in offering multiple classes of shares in each Fund:

Real Estate Securities Fund                Intermediate Term Bond Fund
Technology Fund                            Short Term Bond Fund
International Fund                         High Income Bond Fund
Small Cap Growth Opportunities Fund        U.S. Government Mortgage Fund
Small Cap Select Fund                      Arizona Tax Free Fund
Small Cap Value Fund                       California Intermediate Tax Free Fund
Mid Cap Growth Opportunities Fund          California Tax Free Fund
Mid Cap Value Fund                         Colorado Intermediate Tax Free Fund
Large Cap Growth Opportunities Fund        Colorado Tax Free Fund
Large Cap Select Fund                      Intermediate Tax Free Fund
Large Cap Value Fund                       Minnesota Intermediate Tax Free Fund
Equity Index Fund                          Minnesota Tax Free Fund
Mid Cap Index Fund                         Missouri Tax Free Fund
Small Cap Index Fund                       Nebraska Tax Free Fund
Balanced Fund                              Ohio Tax Free Fund
Equity Income Fund                         Oregon Intermediate Tax Free Fund
Corporate Bond Fund                        Short Tax Free Fund
Core Bond Fund                             Tax Free Fund
Intermediate Government Bond Fund          Inflation Protected Securities Fund

This Plan sets forth the differences among classes of shares of the Funds, including distribution arrangements, shareholder services, expense allocations, conversion and exchange options, and voting rights.

II. ATTRIBUTES OF SHARE CLASSES.

The attributes of each existing class of the existing Funds (i.e. the Class A, Class B, Class C, Class R(1) and Class Y), with respect to distribution arrangements, shareholder services,


(1) Formerly "Class S" shares. Effective June 29, 2004, Class S shares were renamed "Class R" shares.

transfer agency services, and conversion and exchange options shall be as set forth in the following materials:

A. Class A, Class B and Class C Prospectuses of the respective Funds in the forms most recently filed with the Securities and Exchange Commission (the "SEC") prior to the date of this Plan as amended (with respect to the Class A, Class B and Class C shares of each Fund which offers such classes of shares).

B. Class R Prospectuses of the respective Funds in the forms most recently filed with the SEC prior to the date of this Plan as amended (with respect to the Class R shares of each Fund which offers such class of shares).

C. Class Y Prospectuses of the respective Funds in the forms most recently filed with the SEC prior to the date of this Plan as amended (with respect to the Class Y shares of each Fund).

D. Statement of Additional Information of the respective Funds in the form most recently filed with the SEC prior to the date of this Plan as amended (with respect to each Fund).

E. Class A Plan of Distribution in the form approved by the Board of Directors on June 4, 2003 (with respect to the Class A shares of each Fund).

F. Class B Plan of Distribution in the form approved by the Board of Directors on June 4, 2003 (with respect to the Class B shares of each Fund which offers such class of shares).

G. Class B Service Plan in the form approved by the Board of Directors on June 4, 2003 (with respect to the Class B shares of each Fund which offers such class of shares).

H. Class C Plan of Distribution in the form approved by the Board of Directors on June 4, 2003 (with respect to the Class C shares of each Fund which offers such class of shares).

I. Class C Service Plan in the form approved by the Board of Directors on June 4, 2003 (with respect to the Class C shares of each Fund which offers such class of shares).

J. Class R Plan of Distribution in the form approved by the Board of Directors on February 18, 2004 (with respect to the Class R shares of each Fund which offers such class of shares).

K. Class R Service Plan in the form approved by the Board of Directors on February 18, 2004 (with respect to the Class R shares of each Fund which offers such class of shares).

L. Co-Administration Agreement in the form approved by the Board of Directors on June 4, 2003 (with respect to each class of shares of each Fund).

Expenses of such existing classes of the Funds shall continue to be allocated in the manner set forth in III below. Each such existing class shall have exclusive voting rights on any matter submitted to shareholders that relates solely to its arrangement and shall have separate voting

2

rights on any matter submitted to shareholders in which the interests of one class differ from the interests of any other class.

III. EXPENSE ALLOCATIONS.

Expenses of the existing classes of the existing Funds shall be allocated as follows:

A. Distribution fees and service fees relating to the respective classes of shares, as set forth in the materials referred to in II above, shall be borne exclusively by the classes of shares to which they relate.

B. Except as set forth in A. above, expenses of the Funds shall be borne at the Fund level and shall not be allocated on a class basis.

Unless and until this Plan is amended to provide otherwise, the methodology and procedures for allocating income, realized gains and losses, unrealized appreciation and depreciation, and Fund-wide expenses shall be based on the net assets of each class in relation to the net assets of the company ("relative net assets") as set forth in Rule 18f-3(c)(1)(i).

The foregoing allocations shall in all cases be made in a manner consistent with Revenue Procedure 96-47 (Internal Revenue Code, Section 562) of the Internal Revenue Service.

IV. AMENDMENT OF PLAN; PERIODIC REVIEW.

A. New Funds and New Classes. With respect to any new portfolio of the Company created after the date of this Plan and any new class of shares of the existing Funds created after the date of this Plan, the Board of Directors of the Company shall approve amendments to this Plan setting forth the attributes of the classes of shares of such new portfolio or of such new class of shares.

B. Material Amendments and Periodic Reviews. The Board of Directors of the Company, including a majority of the independent directors, shall periodically review this Plan for its continued appropriateness and shall approve any material amendment of this Plan as it relates to any class of any Fund covered by this Plan.

3

EXHIBIT (Q)

FIRST AMERICAN FUNDS, INC.
FIRST AMERICAN INVESTMENT FUNDS, INC.
FIRST AMERICAN STRATEGY FUNDS, INC.

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned persons hereby constitute and appoint Thomas S. Schreier, Mark S. Jordahl, James D. Alt, Kathleen L. Prudhomme, Charles R. Manzoni, Brett L. Agnew and Jeffery M. Wilson, and each of them, his or her true and lawful attorneys-in-fact and agents, each acting along, with full power of substitution and re-substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign a Registration Statement on Form N-1A of the above-referenced investment companies, and any and all amendments thereto, including post-effective amendments, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, each acting along, full power and authority to do and perform to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, each acting alone, or the substitutes for such attorneys-in-fact and agents, may lawfully do or cause to be done by virtue hereof.

             Signature                              Title                                Date

     /s/ Benjamin R. Field, III                    Director                       September 15, 2004
-------------------------------------
       Benjamin R. Field, III

        /s/ Roger A. Gibson                        Director                       September 15, 2004
-------------------------------------
          Roger A. Gibson

        /s/ Mickey P. Foret                        Director                       September 15, 2004
-------------------------------------
          Mickey P. Foret

      /s/ Leonard W. Kedrowski                     Director                       September 15, 2004
-------------------------------------
        Leonard W. Kedrowski

      /s/ Richard K. Riederer                      Director                       September 15, 2004
-------------------------------------
        Richard K. Riederer

       /s/ Victoria J. Herget                      Director                       September 15, 2004
-------------------------------------
         Victoria J. Herget

       /s/ Joseph D. Strauss                       Director                       September 15, 2004
-------------------------------------
         Joseph D. Strauss

      /s/ Virginia L. Stringer                      Chair                         September 15, 2004
-------------------------------------
        Virginia L. Stringer

         /s/ James M. Wade                         Director                       September 15, 2004
-------------------------------------
            James M. Wade